BUSINESS LAW CH 11
Contractual Obligations and their Enforcement
Transfer of Contractual Rights

Assignment – Transfer of a right a party may
have under a contract to another
 Assignor – The party who transfer the
contractual rights
 Assignee – Party who receives this
contractual right
 Assignment
does not need to be supported
by consideration to be legally effective
Transfer of Contractual Rights
Assignee “stands in the shoes of the assignor”
 Means that the assignee receives exactly the
same contractual rights and duties as the
assignor
 Assignor typically does not promise that the
obligor (one who owes a duty under a
contract) will perform as promised in the
original contract
 If the obligor breaches, the assignee, not the
assignor, must sue for breach.

Assignable Rights

A party may assign contractual rights to another,
providing performance (fulfillment of contractual
promises as agreed) will not be materially
changed.
Non-Assignable Rights

Contractual rights may not be assigned if
performance requirements would be materially
changed
Non-Assignable Rights

Other situations:
1. Rights created under a contract that prohibits
transfer of a contractual right
2. Claims for damage for personal injuries
3. Claims against the United States
4. Rights to personal service, especially those of a
skilled nature, or when personal trust and
confidence are involved
5. Assignments of future wages, as limited by state
statutes.
Form of Assignments



Assignment of contractual rights usually is made
voluntarily
Assignments may be written or oral
No consideration is necessary to make a valid
assignment
Notice of Assignment



Until notified that an assignment has occurred, the
obligor may continue to pay assignor.
After notification, obligor is liable to assignee for
performance.
Assignee should properly notify the obligor of the
assignment
Delegation of Contractual Duties
Delegation of Contractual Duties – Transfer
of a routine obligation of a party that must be
performed to fulfill a contract to another party
 Person who delegates duties is still remains
legally obligated and responsible for proper
performance
 A person cannot delegate to another any duty
where performance requires unique personal
skill or special qualifications

Discharge of Contractual Obligations:
By Performance
Discharge of a contract – Termination of
duties that ordinarily occur when the parties
perform as promised
 Most contracts are discharged by complete
performance
 Breach of Contract – Failure to provide
complete performance

By Performance
Cancellation – Breach of a sales contract
under the UCC
 Substantial Performance – Just about all the
duties are performed but a minor duty under
the contract remains
 Defaults – Fails to perform
 Anticipatory Breach – Notifies the other party
to a contract before the time of performance
has arrived that he or she will not perform.

Timing of Performance
Contract does not say when performance must
be done - The duty must be performed within
a reasonable time
 Contract identifies a date for performance –
Courts will rule it as a minor breach
 Contract identifies the date and that “time is of
the essence” – Courts will rule it as a major
breach

By the Initial Terms

Parties may agree that the contract will
terminate:
1. On a specific date or upon the expiration
of a specified period of time
2. Upon the occurrence of a specified event
3. Upon the failure of a certain event to
happen
4. At the free will of either party upon giving
notice
By Subsequent Agreement

Parties may mutually agree to change either the
terms of the contract or the nature of their
relationship
1.
2.
Rescission – The parties may agree to unmake or to
undo their entire contract from its very beginning
Substitution – Replace the present contract with a new
contract
By Subsequent Agreement
Accord and Satisfaction – Accord is an agreement to
substitute a new contractual obligation for an existing
one if the new obligation is satisfactorily performed.
Satisfaction is the actual performance of the new
obligation.
3.


4.
Discharges the previous obligation
If performance in the accord is not rendered, the old
contract remains in effect.
Novation – A party entitled to receive performance
under a contract may release the other party from
the duty of performance and accept a substitute
party. New contract is formed
By Impossibility of Performance



Impossibility of Performance refers to extreme
external conditions rather than an obligor’s personal
inability to perform
Discharges contractual obligations
Escape Hatch – language in contract that permits
modification or even termination of performance
without liability for damages in the event of an
inability to perform on schedule because of
specified conditions
By Operation of Law
A contract may be discharged or the right to
enforce it may be barred by operation of law
 Persons debts are discharged in bankruptcy
 Also happens when the time allowed for
enforcement of the contract has elapsed
because of statute of limitations
 Alteration (material change in the terms of a
written contract without the consent of the other
party) discharges the agreement by operation
of law

By Tender of Performance

Tender – A ready, willing, and able offer to
perform an obligation
 If the duty requires the doing of an act, a
tender that is made in good faith but is
rejected will discharge the obligation of the
one offering to perform.
 If obligation requires the payment of money,
rejection of a tender to pay the money does
not discharge the debt nor does it prevent
the creditor from colleting later
By Tender of Performance
 To
be valid, the tender of money must consist
of the exact amount due in currency or coins,
or legal tender
 A tender of only part of the debt is not a
valid tender
Creditor may refuse it without losing the
right to later collect the entire amount due.
11-1 Assessment

Turn to page 196 and complete the 11-1
assessment
11-1 Assessment Answers
1.
2.
3.
4.
5.
6.
B (Assignor)
False
A (Complete Performance)
False
A (Novation)
False
11-1 Assessment Answers
7.
8.
9.
Yes, the performance can be delegated as it does
not require special skills or qualifications. Yes,
any delegation of duties leaves the delegator still
liable to the other contracting party.
No, the contract is based on trust from 12 years of
experience and the qualifications and skill of
Quality.
Yes, time truly is of the essence in this situation.
Just putting the statement in the contract, however,
would not make it so.
Remedies Possible for Breach
Remedy – Legal means by which a right is
enforced or a right’s violation is prevented or
redressed.
 Different remedies are available depending
on whether the breach is major or minor.

Remedy for a Minor Breach
Only remedy generally available for a minor
breach is MONEY DAMAGES.
 Party injured by a minor breach generally must
continue to perform the duties defined by the
contract
 Amount of damages would be whatever it took
to complete the minor duty left undone
 Recovered by suit if victim already paid
 Deduct from the money due

Remedies for Major Breach


Major breach – Injured party need not continue
performing the duties defined by the contract.
In addition:
1. Rescission and Restitution – Canceling the
contract and returning whatever has been
received under it.
2. Money Damages – The payment of money to
compensate for injury.
3. Specific Performance – A court order
commanding the breaching party to perform
what was promised in the contract
Rescission and Restitution
Intended to place the parties in the same legal
position they were in before contracting.
 Rescission – Allows the parties to treat the
contract as canceled.
 All contractual obligations of the parties are
canceled.
 Restitution – Permits each party to recover
money or property given to the other party

Money Damages

Money damages may be:
1. Compensatory
2. Consequential
3. Punitive
4. Liquidated
Compensatory Damages

Seeks to restore injured parties to
the same financial position they
were in prior to the breach
Compensatory Example

Charlotte, a home broker contracted to buy a
house from Ben for $65,000, knowing that the
fair market value of the property was
considerably higher. To facilitate the purchase
Charlotte then spent $3000 on a title search, a
survey, an appraisal, loan origination fee, and
other expenses. If Ben then committed a
material breach, for refusing to sell, a court
would award Charlotte$3000 as
compensatory damages.
Consequential Damages



Tries to place injured parties in the same financial
position they would have been in if the contract had
been performed.
Grants money for the foreseeable injuries caused
by the breach
Consequential damages generally are foreseeable
when a reasonable person would know that a
breach would cause the injury or has been explicitly
notified of same.
Consequential Example

Charlotte brags to Ben that because they
contracted, she has arranged the resale of his
property for $85000. Upon hearing this Ben
refuses to go through with their contract. As a
result, Charlotte loses her buyer at $85000.
Ben will be liable for consequential damages
in the amount of Charlottes lost profit of
$20000.
Punitive Damages
When Fraud or Intentional Tort is involved in a
breach of contract
 Damages added to other money damages
 Purpose is to punish and to make an example
of the defendant

Liquidated Damages
Parties to a contract sometimes agree on a
certain amount of monetary damages that will
be paid if a particular contract breach occurs
 Typically placed in a contract when an actual
damage amount would be too speculative or
too difficult to arrive at in court.
 If liquidated damage amount is excessive in
relation to the injury, the clause will not be
enforceable

Nominal Damages

Token amount to acknowledge
that a wrong has been done.
Specific Performance




Decree (order) that the breaching party do exactly
what was required under the contract
A court will not award the remedy unless the party
seeking it is blameless and has acted reasonably
and fairly throughout the transaction
Available when the subject of the contract is unique
Courts are reluctant to grant specific performance
in situations where they would have great difficulty
in supervising the results.
 Examples
– Personal Service or Employment
Factors Affecting Choice of Remedy

Conflict of Remedies
 Often electing to pursue one remedy will rule
out pursuing another
 Specific Performance and Damages cannot
be recovered for the same breach
 Rescission and Restitution pre-contract
position and Damages is a post-contract
financial position
Factors Affecting Choice of Remedy
Duty to Mitigate
 Mitigate the Damages - A party injured by a
breach of contract is required by law to take
reasonable steps to minimize the harm done
 If injured party fails to take reasonable steps to
mitigate the damages, the amount of potential
recovery is lessened by the amount that could have
been mitigated
Factors Affecting Choice of Remedy

Waivers
 Sometimes
a party intentianally and explicitly gives up
contractual rights
 Example: “I will accept your overdue payment without
a late charge”
Statute of Limitations





Period of time in which to bring suit
Time period varies among states
4 years is common for contracts
3 years is common for torts
UCC provides that an action for breach of contract
for the sale of goods must be begun within 4 years
after the cause of action arises
 Parties
may shorten the period
Bankruptcy

Discharging (or excusing) of debt.
 Debtors

get a fresh start
Estate is distributed among various claimants in
order to discharge many of the bankrupt's debt
11-2 Assessment

Turn to page 201 and complete the 11-2
Assessment
11-2 Assessment Answers
1.
2.
3.
4.
5.
C (Specific Performance)
True
B (the subject matter of the contract is unique)
D (None of the above can be pursed at the same
time)
True
11-2 Assessment Answers
6.
7.
8.
9.
No. The coach is not legally free to change
employers. This would be a breach of his contract.
Yes. Bethlehem Steel is liable for $52000. The
liquidated damage clause is clear and the amount
is not punitively excessive
Yes. Consequential damages that are generally
foreseeable can be recovered.
Pyramid can assert that the statute of limitations
has passed.