Difference Between Excuse and Discharge of Contract Duties by wza14491

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									                          PRIVITY OF CONTRACT


       As a general rule, only the parties to a contract – the promisor
        and the promisee – owe any duties and enjoy any rights
        arising from the contract. Common law recognizes three
        exceptions:

                Assignment (of Rights): A transaction whereby an
                 obligee (the assignor) transfers her rights to some third
                 party (the assignee). As a consequence, the assignor’s
                 contract rights are extinguished, and the assignee may
                 demand any performance due to the assignor.

                Delegation (of Duties): A transaction whereby an
                 obligor (the delegator) frees himself from his duties by
                 having some third party (the delegatee) perform those
                 duties. Despite his delegation, the delegator remains
                 liable for his contract duties if the delegatee fails to
                 perform.

                Third-Party Beneficiary Contract: A third party, X, is
                 intended, by the terms of the contract between Y and Z,
                 to benefit from Y’s and Z’s performance of the contract.




Ch. 9: Contracts: Third Party Rights, Discharge, Breach, and Remedies - No. 1
Business Law Today: The Essentials (7th ed.)
                          SCOPE OF ASSIGNMENT


       As a general rule, all contract rights may be assigned,
        except where:

        (1) the assignment is prohibited by statute;

        (2) the contract to be assigned is for personal services,
            unless all that remains under the contract is a money
            payment for services previously rendered;

        (3) the assignment would materially increase the risk or
            alter the duties of the obligor; or

        (4) the contract specifically forbids assignment.

                There are exceptions to this exception, namely the
                 contract may not prevent the assignment of

                 (a) the right to receive money,

                 (b) rights in, or the alienation of, real property,

                 (c) negotiable instruments, or

                 (d) the right to recover damages for breach of contract
                     or for payment of an account under the UCC.

Ch. 9: Contracts: Third Party Rights, Discharge, Breach, and Remedies - No. 2
Business Law Today: The Essentials (7th ed.)
                          SCOPE OF DELEGATION


       As a general rule, all contract duties may be delegated,
        except where:

        (1) the delegator owes the obligee fiduciary duties or other
            duties arising from a special trust in the delegator;

        (2) performance depends on the personal skills or talents
            of the delegator (e.g., Roger Clemens cannot delegate
            his pitching duties to Annika Sorenstam);

        (3) performance by the delegatee would vary materially the
            performance expected by the obligee (e.g., Sue Smith
            contracts with Annika Sorenstam to give her golf
            lessons; Annika cannot delegate those duties to her
            caddie, because Sue wanted Annika’s personal
            performance); or

        (4) the contract specifically forbids delegation.

       If the delegation is enforceable, the obligee must accept
        performance by the delegatee.

       But, if the delegatee fails to perform adequately, the
        delegator remains liable for the delegatee’s breach.


Ch. 9: Contracts: Third Party Rights, Discharge, Breach, and Remedies - No. 3
Business Law Today: The Essentials (7th ed.)
                      INTENDED BENEFICIARIES


       Intended Beneficiary: A third party for whose benefit a
        contract is formed.

                Creditor Beneficiary: A third party who benefits from
                 a contract in which the promisor promises to pay a debt
                 owed by the promisee to the third-party beneficiary.

                Donee Beneficiary: A third party for whose benefit a
                 contract was made whereby the promisor promised the
                 promisee to make a gift to the third-party beneficiary.

       An intended third-party beneficiary’s rights vest (i.e., become
        enforceable), subject to any reservation of rights to the
        contracting parties, when one of the following occurs:

        (1) the third party demonstrates manifest assent to the
            contract (e.g., sends a letter acknowledging awareness of
            and consent to the contract for her benefit);

        (2) the third party materially alters her position in
            detrimental reliance on the contract (e.g., sells her
            automobile in anticipation of receiving a new
            automobile pursuant to the contract); or

        (3) some condition for vesting occurs (e.g., an insured dies
            vesting the policy beneficiary’s rights).
Ch. 9: Contracts: Third Party Rights, Discharge, Breach, and Remedies - No. 4
Business Law Today: The Essentials (7th ed.)
                   INCIDENTAL BENEFICIARIES


       Incidental Beneficiary: A third party who benefits from the
        performance of a contract, but whose benefit was not the
        reason the contract was formed.

       Courts generally ask whether a reasonable person would
        believe that the promisee intended to confer on the third party

        (1) the right to bring suit to enforce the contract, and,
            thereby,

        (2) the right to benefit from the contract.

       In so doing, courts consider whether:

        (1) performance was rendered directly to the third party;

        (2) the third party has the right to control details of the
            performance; and

        (3) the third party is expressly designated in the contract.




Ch. 9: Contracts: Third Party Rights, Discharge, Breach, and Remedies - No. 5
Business Law Today: The Essentials (7th ed.)
                   DISCHARGE AND CONDITION


       Discharge: The termination of a party’s obligations arising
        under a contract. Discharge occurs either when:

        (1) both parties have fully performed their contractual
            obligations; or

        (2) events, conduct of the parties, or operation of law
            release the parties from their obligations to perform.

       A party’s obligations to perform under a contract may be
        either absolute or conditioned on the occurrence or
        nonoccurrence of some event.

                Condition: A contractual qualification, provision, or
                 clause which creates, suspends, or terminates the
                 obligations of one or both parties to the contract,
                 depending on the occurrence or nonoccurrence of some
                 event.




Ch. 9: Contracts: Third Party Rights, Discharge, Breach, and Remedies - No. 6
Business Law Today: The Essentials (7th ed.)
                CONTRACTUAL PERFORMANCE


       Discharge by Performance: A contract terminates when
        both parties perform or tender performance of the acts they
        have promised.

                Tender: An unconditional offer to perform an obligation
                 by a person who is ready, willing, and able to do so.

       Complete vs. Substantial Performance: When a party fails
        to completely perform her contractual duties, the question
        arises whether the performance affords the other party
        substantially the same benefits as those promised. If so, then
        the first party is said to have substantially performed.

                If a party substantially performs, the contract remains
                 in force and the other party must still perform its duties
                 – although it may be entitled to recover damages for the
                 substantially performing party’s failure to perform fully.

                If a party fails to substantially perform, the other party’s
                 remaining contractual obligations, if any, are
                 discharged.

       Time for Performance: If no time is stated in the contract,
        performance is due within a reasonable time.


Ch. 9: Contracts: Third Party Rights, Discharge, Breach, and Remedies - No. 7
Business Law Today: The Essentials (7th ed.)
                     SATISFACTION CONTRACTS


       Some contracts require one party to perform to the
        satisfaction of the other. When a contract so provides, courts
        will apply one of two tests depending on the circumstances:

                Subjective Satisfaction: When the purpose of the
                 performance is to satisfy personal taste, aesthetics, and
                 the like (e.g., painting a portrait of a customer’s
                 beloved), the court will ask whether the party to be
                 satisfied was, in good faith, satisfied or dissatisfied with
                 the performance.

                Objective Satisfaction: When the purpose of the
                 performance is to serve some function (e.g., roofing a
                 warehouse to keep out the elements), the court will ask
                 whether a reasonable person would be satisfied or
                 dissatisfied with the performance.

       Satisfaction of a Third Party: Some contracts require that
        the performance satisfy some non-party (e.g., an art critic, an
        architect, an independent lab). Courts tend toward the
        objective satisfaction standard in these cases, but some have
        applied the subjective satisfaction test when the third party’s
        expertise goes to the same factors that would lead a court to
        apply the subjective test if a party’s satisfaction was at stake.


Ch. 9: Contracts: Third Party Rights, Discharge, Breach, and Remedies - No. 8
Business Law Today: The Essentials (7th ed.)
                     BREACH AND REPUDIATION


       Material Breach: A party’s failure, without legal excuse, to
        substantially perform her contractual obligations.

                If a party’s breach is non-material, the non-breaching
                 party’s duty to perform may be suspended until the
                 breach is remedied, or “cured.” However, a non-
                 material breach will not excuse performance by the non-
                 breaching party. Only a material breach will excuse the
                 non-breaching party from its contractual obligations.

                If time is not “of the essence,” failure to perform by the
                 time specified in the contract is not a material breach.

       Anticipatory Repudiation: An action by a party to a contract
        that indicates that she will not perform a contractual
        obligation due to be performed in the future.

                Such a repudiation will excuse the non-repudiating party
                 from performing under the contract.

                However, until the non-repudiating party treats the
                 repudiation as a material breach, the repudiating party
                 can retract her repudiation and restore the parties’
                 contractual rights and obligations.


Ch. 9: Contracts: Third Party Rights, Discharge, Breach, and Remedies - No. 9
Business Law Today: The Essentials (7th ed.)
                   DISCHARGE BY AGREEMENT


       Rescission: The process by which the parties cancel a
        contract and return one another to their pre-contract status.

       Novation: A new contract, which replaces one or more of the
        parties to the original contract, thereby terminating the
        original parties’ rights and duties under the original contract.
        Novation requires

        (1) a valid, prior agreement, for which

        (2) all parties agree to substitute a new contract;

        (3) discharge of the prior obligation; and

        (4) a valid, new agreement.

       Accord and Satisfaction: An agreement between the parties
        to accept different performance than originally promised.




Ch. 9: Contracts: Third Party Rights, Discharge, Breach, and Remedies - No. 10
Business Law Today: The Essentials (7th ed.)
          DISCHARGE BY OPERATION OF LAW


       Material Alteration: If the material terms of a contract are
        altered, an innocent party (i.e., one who neither altered nor
        consented to the alteration of the contract) may be discharged
        from their contractual obligations.

       Statutes of Limitations: A plaintiff suing for breach of
        contract must file suit within the time permitted by applicable
        law. Failure to do so does not technically discharge the
        parties, but it prevents the wronged party from seeking
        judicial remedies.

                Example: A plaintiff alleging breach of a contract
                 governed by Article 2 of the Uniform Commercial Code
                 must file suit within four years of the date of the breach,
                 regardless of the injured party’s knowledge of the
                 breach.

       Bankruptcy: A discharge in bankruptcy, afforded to a debtor
        after its liquidation or reorganization plan is approved, bars
        subsequent enforcement against the debtor of any contracts
        that pre-date the discharge.

                Unlike promises to pay or partial payment of a debt
                 barred by limitations, promises to pay or partial payment
                 of a debt following discharge does not revive the debt.

Ch. 9: Contracts: Third Party Rights, Discharge, Breach, and Remedies - No. 11
Business Law Today: The Essentials (7th ed.)
   IMPOSSIBILITY, IMPRACTICABILITY, AND
         FRUSTRATION OF PURPOSE


       A party may be excused when performance becomes either
        impossible or impracticable through no fault of either party.
        The following will generally excuse performance as
        objectively impossible or impracticable:

        (1) death or incapacitation prior to performance of a
            personal services contract;

        (2) destruction of the subject matter of the contract prior
            to performance;

        (3) a change in the applicable law that makes performance
            illegal;

        (4) changing market conditions make                                      performance
            commercially impracticable; and

        (5) frustration of purpose – supervening circumstances
            making it impossible for both parties to achieve the
            purpose of the contract.

       Temporary vs. Permanent: A change in circumstances that
        makes performance temporarily impossible or impracticable
        will act to suspend, but not excuse, performance.

Ch. 9: Contracts: Third Party Rights, Discharge, Breach, and Remedies - No. 12
Business Law Today: The Essentials (7th ed.)
              TYPES OF MONETARY DAMAGES


       A breach of contract entitles the non-breaching party to sue
        for money damages, including:

                Compensatory Damages: Damages that compensate
                 the non-breaching party for the injuries or losses
                 actually sustained as a result of the breach.

                Incidental Damages: Expenses or costs that are caused
                 by the breach of contract, such as the costs incurred in
                 obtaining performance from another source.

                Consequential Damages: Damages resulting indirectly
                 from the breach, which were reasonably foreseeable to
                 the breaching party at the time the breach occurred.

       Punitive Damages: Damages designed to punish a
        wrongdoer and to deter similar conduct in the future. Such
        damages are generally not recoverable in breach of contract
        actions, unless the breaching party’s actions give rise to a
        separate tort claim.

       Nominal Damages: Damages awarded to the non-breaching
        party when only a “technical” injury occurred resulting in no
        actual damages.


Ch. 9: Contracts: Third Party Rights, Discharge, Breach, and Remedies - No. 13
Business Law Today: The Essentials (7th ed.)
                     COMPENSATORY DAMAGES


       Although there are special formulae for certain types of
        contracts, compensatory damages are generally calculated as
        follows:

                 The value of the performance as promised

        –        The value of the performance actually rendered

        –        The value of any loss avoided, or mitigated, by the
                 non-breaching party

        + Incidental damages to the non-breaching party
        _______________________________________________

        =        Compensatory damages.

       “Market Value” Damages: In cases involving contracts for
        the sale of goods or, in most states, land, compensatory
        damages generally equal the difference between the contract
        price of the goods or land and the fair market price at the
        time the goods or title to the land was to be delivered.

       Construction Contracts: The table at the top of p. 291
        illustrates the damages available to a building owner or
        contractor when the other party breaches at various stages
        before, during, and after the job.
Ch. 9: Contracts: Third Party Rights, Discharge, Breach, and Remedies - No. 14
Business Law Today: The Essentials (7th ed.)
        MITIGATION, LIQUIDATED DAMAGES,
                 AND PENALTIES


       Mitigation of Damages: In most situations, when a breach of
        contract occurs, the non-breaching party has a duty to take
        whatever action is reasonable to minimize the damages
        caused by the breach.

                For example, in most instances, people who are fired by
                 their employer, regardless of the reason, must try to find
                 a new job. Likewise, a thwarted house buyer must take
                 reasonable steps to locate another house.

       Liquidated Damages: Contracts often contain provisions
        requiring the breaching party to pay a sum certain of money
        if he fails to perform as required. These provisions are
        enforceable as long as (1) damages from a party’s breach
        were difficult to estimate at the time the parties formed the
        contract, and (2) the amount of liquidated damages is a
        reasonable estimate of the value of the promised
        performance.

                Penalty: Courts generally will not enforce a liquidated
                 damages clause that requires the breaching party to pay a
                 sum that bears no reasonable relationship to the value
                 of the promised performance.


Ch. 9: Contracts: Third Party Rights, Discharge, Breach, and Remedies - No. 15
Business Law Today: The Essentials (7th ed.)
                           EQUITABLE REMEDIES


       In addition to the various types of money damages, there are
        several equitable (i.e., non-damage) remedies available.

                Rescission: Canceling a contract and returning the
                 parties to their pre-contract position.

                Restitution: Returning goods, property, or money (or, in
                 the case of goods or property, their value in money)
                 previously transferred in order to restore the non-
                 breaching party to his pre-contract position.

                Specific Performance: Requiring the breaching party to
                 perform exactly as called for in the contract.

                         This remedy is usually granted only when money
                          damages would be an inadequate remedy and the
                          subject matter of the contract is unique (e.g.,
                          contract to purchase an original Picasso or a
                          particular tract of land).

                Reformation: A remedy allowing the contract to be re-
                 written to reflect the true intent of the parties.

                         This remedy is typically limited to cases of fraud or
                          mutual mistake.

Ch. 9: Contracts: Third Party Rights, Discharge, Breach, and Remedies - No. 16
Business Law Today: The Essentials (7th ed.)
          PREVENTING UNJUST ENRICHMENT


       As a general principle, equity requires that when one party
        confers something of value or other benefit, the other party
        must pay a reasonable value (in money or other valuable
        goods or services) for it.

       Quasi-contractual recovery is particularly useful when one
        party has partially performed under a contract that
        subsequently becomes unenforceable.

       The party seeking to recover must show that:

        (1) he conferred a benefit on the other party

        (2) reasonably expecting to be paid or otherwise
            compensated for the benefit conferred;

        (3) he did not voluntarily confer benefits for which he did
            not intend to be paid; and

        (4) allowing the party receiving the benefit to retain the
            benefit without paying for it would unjustly enrich the
            party receiving the benefit.




Ch. 9: Contracts: Third Party Rights, Discharge, Breach, and Remedies - No. 17
Business Law Today: The Essentials (7th ed.)
                        ELECTION OF REMEDIES


       In many cases, a non-breaching party has many remedies
        available. However the one satisfaction rule prohibits an
        injured plaintiff from recovering more than the full measure
        of her damages or the full vindication of her rights at common
        law. As a consequence, a plaintiff who has succeeded at trial
        on more than one theory of remedy must elect which remedy
        or remedies she will receive.

                Article 2 of the Uniform Commercial Code expressly
                 rejects the doctrine in cases regarding a contract for the
                 sale of goods. Article 2 remedies are, thus, cumulative.




Ch. 9: Contracts: Third Party Rights, Discharge, Breach, and Remedies - No. 18
Business Law Today: The Essentials (7th ed.)

								
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