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CHAPTER 14 Discharge, Breach and Remedies

CHAPTER 14 Discharge, Breach and Remedies. Privity of Contract. The state of two specified parties being in a contract. Contracting parties have a legal obligation to perform the duties specified in their contract.

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CHAPTER 14 Discharge, Breach and Remedies

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  1. CHAPTER 14Discharge, Breach and Remedies

  2. Privity of Contract • The state of two specified parties being in a contract. • Contracting parties have a legal obligation to perform the duties specified in their contract. • If one party fails to perform as promised, the other party may enforce the contract and sue for breach. Chapter 15

  3. Third Party Rights • Third parties generally do not acquire any rights under other people’s contracts. • The exceptions are: • Assignees to whom rights subsequently are transferred, and • Intended third-party beneficiaries to whom the contracting parties intended to give rights under the contract at the time of contracting. Chapter 15

  4. Assignment of Rights • Assignment – The transfer of contractual rights by the obligee to another party. • Assignor – The obligee who transfers the right. • Assignee – The party to whom the right has been transferred. Chapter 15

  5. Rights That Can and Cannot Be Assigned • Personal Service Contracts • Contracts for the provision of personal services are generally not assignable. • Assignment of Future Rights • Usually, a person cannot assign a currently nonexistent right that he or she expects to have in the future. Chapter 15

  6. TERMINATION OF THE CONTRACT • Contracts can be terminated (discharged) in four ways: • By Performance. • By Agreement of the Parties. • By Operation of Law. • By Nonperformance.

  7. BY MEANS OF DISCHARGE

  8. DISCHARGE BY PERFORMANCE • Complete Performance. • Exact fulfillment of the terms of the contract. • Substantial Performance. • Minor deviations from contract specifications. • Two criteria must be met: • 1) Breach must not have been material. • 2) Breach must be non-willful and devoid of bad faith conduct.

  9. DISCHARGE BY AGREEMENT OF THE PARTIES • Release. • Rescission. • Accord and Satisfaction. • Novation.

  10. DISCHARGE BY AGREEMENT OF THE PARTIES • Release. • Discharging the legal rights one party has against another. • To be valid, should be in writing, supported by consideration, and should effect immediate relinquishment of rights or claims. • Rescission. • Voluntary, mutual surrender and discharge of contractual rights and duties whereby parties are returned to the original status quo.

  11. DISCHARGE BY AGREEMENT OF THE PARTIES • Accord and Satisfaction. • Agreement to accept performance different from that required in original bargain. • When parties comply with the accord, satisfaction has occurred. • Novation. • Creates a new contractual duty and involves substitution of a party who was neither owed a duty nor obligated to perform in the original bargain.

  12. DISCHARGE BY OPERATION OF LAW • Bankruptcy automatically discharges the party’s contractual obligations. • Statutes of Limitations sets limits on the length of time a contracting party may wait to bring suit. • Any contract materially altered by one party without the consent of the other will be discharged.

  13. DISCHARGE BY NONPERFORMANCE • Impossibility. • Commercial Frustration. • Actual Breach. • Anticipatory Breach. • Conditions.

  14. DISCHARGE BY NONPERFORMANCE • Impossibility. • An unforeseen event or condition which precludes performance. • Conduct by one party which makes performance by the other party impossible is objective impossibility. • Subjective impossibility consists of nonperformance owing to personal impossibility.

  15. DISCHARGE BY NONPERFORMANCE • Commercial Frustration. • This doctrine excuses performance in cases where the essential purpose and value of the contract have been frustrated. • If the event causing the frustration could have been foreseen, no discharge allowed. • Actual Breach. • Occurs when one or more of the contracting parties fails to perform the obligations set up by the contract.

  16. Chapter 15

  17. DISCHARGE BY NONPERFORMANCE • Anticipatory Breach. • Involves giving advanced notice, through words or conduct, that one does not intend to fulfill a contract as written. • Anticipatory repudiation, UCC sanctions a demand that adequate assurances of due performance. Allows one to suspend performance for 30 days or until assurances are put forth.

  18. DISCHARGE BY NONPERFORMANCE • Conditions. • Conditions may result in nonperformance which justifies discharge. • Condition is act/event that limits or qualifies a promise. • Condition must occur before promissor has a duty to perform or refrain from performing.

  19. TYPES AND REMEDIES SOUGHT

  20. TYPES OF REMEDIES • Legal Remedies (money damages): damages resulting from a court’s exercise of its power “at law.” • Compensatory Damages. • Consequential Damages. • Punitive Damages. • Nominal Damages. • Liquidated Damages. • Mitigation of Damages.

  21. TYPES OF REMEDIES • Equitable Remedies: remedies arising from a court’s use of its powers of equity. • Rescission and Restitution • Specific Performance • Reformation. • Injunction.

  22. DAMAGES • Most common legal remedy sought by injured party. • Courts ask, when computing damages whether breaching party, as a reasonable person, should have foreseen the injuries that would result from breach.

  23. DAMAGES MOST COMMON: • Compensatory Damages. • Sums of money which will place the injured party in the same economic position that would have been attained had the contract been performed. • Consequential Damages. • Indirect or special damages arising from the effects of the breach itself.

  24. DAMAGES • Duty to Mitigate. • To measure damages the courts place on the injured party the duty to mitigate (or minimize) these damages. • Punitive Damages. • Imposed not to compensate the injured party but to punish the wrongdoer so as to deter future conduct.

  25. DAMAGES • Liquidated Damages. • When parties agree in advance to a certain sum of money that will be paid to the injured party should breach of contract occur. • Nominal Damages. • Small amount of compensation for the breach.

  26. EQUITABLE REMEDIES • Plaintiff’s eligibility to receive fairness depends on the absence of bad faith on the plaintiff’s part and similar factors. • Court’s power to award equitable remedies is discretionary.

  27. WAIVER OF BREACH • Contracting party may agree to accept less than complete performance by waiving a breach of contract that is committed by another party. • Waiver eliminates the breach.

  28. Websites to View http://www.hg.org/remedy.html http://www.ncjrs.org/victcivl.htm

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