Transcript Contractual Obligations and their Enforcement

Contractual Obligations
and their Enforcement
Chapter 11
Transfer and Discharge of
Obligations
Chapter 11-1
Transfer of Contract Rights and Duties
 Assignment - transfer of a right a party may have
under a contract to another.
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May transfer right to collect payment
Assignor – person who transfers the contractual right.
Assignee – the party who receives this contractual
right.
 Does not always have to have consideration
 Assignee has exactly the same contractual rights.
 If the obligor (one who owes a duty under a contract)
breaches the contract it is the assignee must sue for
breach.
Question
Whipple bought a high-powered sports coupe from
Oriental Motors for $32,000. After a down payment
of $2,000, the balance, plus a finance charge, was to
be paid by mail in installments over the following 48
months. Oriental Motors needed cash to restore its
inventory of new cars. It immediately sold Whipple’s
contract to a finance company, Palmout Inc., and told
Whipple to mail all installment payments to Palmout.
Is such a transfer of contract rights legal?
Yes, the can. The parties involved are:
Assignor: Oriental Motors
Assignee: Palmout
Obligor: Whipple
Assignable Rights
 A party may assign contractual rights to
another, provided performance will not be
materially changed.
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Performance – fulfillment of contractual
promises as agreed.
Non-Assignable Rights
 These contract situations cannot be transferred:
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a right created under a contract that prohibits
transfer of the contractual rights

claims for damages for personal injuries

claims against the United States
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rights to personal services, especially those of a
skilled nature, or when personal trust and
confidence are involved.

assignments of future wages, as limited by state
statutes.
Assignments
 Assignments can be written or oral but
written is preferred.
 Not until the obligor has been notified
are there any changes. After that time
the obligor is liable to the assignee for
performance.
Delegation of Contractual Duties
 Delegation of Duties – transferring to
another the performance of the routine
obligations.
 A person
cannot delegate to another
any duty where performance requires
unique personal skill or special
qualifications.
CHECKPOINT
Under what conditions may you assign contractual
rights to another person?
Generally, contract rights may be assigned as long
as the performance requirements will not be changed
in a material way.
Question
When Sheila told him that she could no pay the full
$1,000 she owed him by August 1 as required by
their contract, Bob suggested a new agreement.
After some negotiations, he agreed to take $500 as
payment in full if Sheila could provide it by July 15.
When Sheila failed to make the payment by July 15,
Bob demanded the $1,000 be paid according to the
terms of the original contract. Dows Sheila owe $500
or $1,000
Because she failed to pay under the accord the $500
by July 15 she still owes the $1,000. The old
contract was still in effect.
Discharge of Contractual Obligations
 By Performance
Go To
 By the initial terms
Go To
 By Subsequent Agreement
Go To
 By Impossibility of Performance
 By Operation of Law
Go To
 By Tender of Performance
Go To
Go To
By Performance
 Discharge – termination of duties that
ordinarily occurs when the parties
perform promised.
By Performance
Breach of Contract – failure to provide
complete performance.

When one party fails to perform a crucial
duty under a contract, the other party
may treat such a failure as a major
breach and regard their own obligation
as discharged.
 Cancellation – in sales contracts under UCC
By Performance
 Substantial Performance – when just about all the
duties are performed but a minor duty under the
contract remains. This is a minor breach.
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A minor breach does not discharge the duties of the nonbreaching party.

If it is not intentional the party that substantially
performed can sue and recover what is due, less the cost
of completing the remaining work.
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Defaults – a party that fails to perform the contract. If
notified of default in advance called anticipatory breach.
Party can sue then or at time actual breach takes place.
Timing of Performance
 If contract doesn’t identify time then
duty must be performed within
reasonable time.
 If date on contract then only a minor
breach if performance is shortly after
the date.
 If “time is of the essence” in contract
then if contract not preformed by date
then a major breach of contract.
Back
By the Initial Terms
 When parties prepare their contracts they
may agree to terminate:
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on a specific date or specific period of time.
upon occurrence of specified event
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upon failure of a certain event to happen
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at the free will of either party upon giving notice
Back
By Subsequent Agreement
 When parties mutually agree to change either the terms or the nature of
their relationship. They can do without liability for breach in any of the
following ways:
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Rescission – parties agree to undo. Things go back to their original
position as much as possible.
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Accord and Satisfaction – This discharges their original contract by
substitution. An agreement to make such a change is an accord.
Back
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Performance of the new obligation is called a satisfaction.
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If performance in the accord is not rendered, the old contract
remains in effect.
Novation – party entitled to receive performance under a contract
may release the other party from the duty of performance and
accept a substitute party. In effect a new contract by agreement of
the three parties who are involved.
By Impossibility of Performance
 Extreme external conditions rather than an obligor’s
personal inability to perform.
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Unique subject matter identified in the contract is destroyed.
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Performance becomes illegal before it can be rendered.
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Death or disability of someone who was to provide a
personal service that only that person could render.
 If “escape hatch” language that would permit modifications
or even termination.
Back
By Operation of Law
 Contract may be discharged if it is barred by law.
(Bankruptcy). Also if time allowed for enforcement has
reached statute of limitations.
 Alteration – a material change in the terms of a written
contract without the consent of the other party. To
discharge the contract the alteration must be:
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material
made intentionally
made by a party or authorized agent
made without consent of the other party
Back
By Tender of Performance
 Tender – a ready, willing and able offer too perform an
obligation.
 If the duty requires the doing of an act, the tender that is
made in good faith but is rejected will discharge the
obligation of the one to perform.
 If the obligation requires the payment of money, rejection
of an offer to pay the money does not discharge the debt
nor does it prevent the creditor from collecting later. It
does however, relieves the debtor of court costs or future
interest charges.
 A tender of only part of the debt is not a valid tender.
CHECKPOINT
Identify the six ways in which contractual obligations
can be discharged?
By Performance
By the initial terms
By Subsequent Agreement
By Impossibility of Performance
By Operation of Law
By Tender of Performance
Question
Tori operated a business that provided graphic design
and printing services. Gerov contracted to have Tori
design and print 25,000 brochures in full color
promoting a variety of international tours. Under their
contract, Tori also agreed to address and mail
envelopes containing the brochures to a select list of
prospects. Tori delegated the addressing, stuffing,
and mailing of the envelopes. Is this a valid
delegation? Does Tori remain liable to Gerov for
proper completion of the entire job?
Yes, the performance can be delegated as it does not
require special skills. Yes, any delegation of duties leaves
the delegator still liable to the other contracting party.
Question
Your school orders 50 new uniforms for its marching
band. The contract is with Quality Uniforms Inc., a
firm with whom the school has done business for 12
years. A week before the first public performance by
the band, Quality states that it has overbooked its
business and has delegated the sewing to New Era
Uniforms. Is the delegation legally proper?
No, the contract is based on trust from 12 years of
experience and the qualifications of skill and quality.
Question
Your school orders 50 new uniforms for its marching
band. The contract states that “time is of the
essence,” and if the goods are not received in time
for the first performance by the band of September 1,
the old uniforms will be used for another year. The
performance is the major part a contest to see which
area band will go to New York City to take part in its
Thanksgiving Parade. The manufacturer does not
deliver the uniforms until September 3. Can the
school cancel the contract.
Yes, Time truly is of the essence in this situation. Just
putting the statement in the contract, however, would
not make it so.
Remedies for Breach of
Contract
Chapter 11-2
Question
Liz contracted to buy 160 acres of land from McCall.
She planned to build an amusement park on the land
that was near the junction of two interstates and had
adequate utilities and population density. When
McCall learned of her plan, he refused to transfer the
title. What is the optimal remedy for Liz?
Liz could likely win a suit for specific performance. The
court would order McCall to transfer title to the property
with a properly signed deed delivered to Liz.
Remedies Possible for Breach
 Remedy – an action or procedure followed to
enforce a right or to get damages for an injury
to a right.
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Depends on major or minor breach
Depends on how significant the breach in
relation to the entire contract.
Remedies Minor Breach
 Only remedy available is money damages.
 Injured party must continue to perform
 Amount of damages would be whatever it
took to complete the minor duty.
Remedies Major Breach
 If breach is major then injured party does not
need to continue performing the duties in the
contract. In addition they can do one of the
following:
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Recession and restitution
Money Damages
Specific Performance
Recession and Restitution
 Canceling the contract and returning
whatever has been received under it.
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Intended to place parties where they were
before contracting.
Money Damages
 Payment of money to compensate for injury. May be:
Compensatory
 Consequential
 Liquidated
 Punitive
 Nominal
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Compensatory
Consequential
Liquidated
Punitive
Nominal
Next
Compensatory
 Seeks to place the injured party in the same financial
position they would have been in if there had been no
breach. It grants the “benefits of the bargain.”
 Example: If a homeowner contracted to sell at $65,000,
when the fair market value of the property was $75,000,
the buyer would be receiving a $10,000 bargain.
Therefore if the seller then committed a material breach,
the buyer could recover the amount of their “bargain,”
$10,000, as compensatory money damages.
Money Damages
Consequential
 The court tries to place inured parties in the same
financial position they would have been in if the contract
had been performed.
 Damages generally are foreseeable when a reasonable
person would know that a breach would cause injury.
 Can be granted in both major and minor breaches.
Money Damages
Punitive
 The purpose is to punish and to make an example of the
defendant.
 When fraud or an intentional tort is involved in breach of
contract.
 Added to other money damages.
Money Damages
Liquidated
 Parties sometimes agree that certain amount of money
will be paid if a certain breach occurs.
 Not all liquidated damages clauses are enforceable. If
excessive in relation to the injury. When not enforceable
only other money damages can be collected.
 If reasonable forecast then they would be enforced.
 Nominal – failure to perform the contract is a legal wrong.
Therefore, courts even when no harm has been done will
award a taken amount called nominal damages.
Money Damages
Nominal
Nominal – failure to perform the contract is a legal wrong.
Therefore, courts even when no harm has been done will
award a taken amount called nominal damages.
Money Damages
Specific Performance
 Making the party in breach of contract to order that the
breaching party do exactly what was required under the
contract.
 Used when the subject of the contract is unique
 Will not award remedy unless the party seeking it is
blameless and acted reasonably and fairly. “Clean hands”
 Does not usually specifically enforce employment or
personal service contracts. Special cases only
CHECKPOINT
Explain the remedies available for a major breach of
contract.
Rescission/Restitution
Damages
Specific Performance
Question
Jim “high and tight” Brushback, an unknown baseball
pitcher, signed a two-year contract to play for a major
league team for $120,000 a year. After two months,
Brushback had won all four games he’d started with
37 strikeouts and an earned-run average (ERA) of
1.75. He then contracted with a competing team for
$12 million a year, thereby breaching his contract.
What remedies are available to the original team?
Brushbacks original team could recover the two months
wages ($20,000) restitution. However, if the team
elects this remedy, they would lose the ability to sue for
damages and the ability to obtain and injunction to stop
Brushback from playing for the competition.
Factors Affecting Choice of Remedy
 A party injured must elect a remedy when suing.
 Usually if you elect one it rules out another
 Specific performance ≠ damages
 Rescission and restitution ≠ damages
 Under UCC sales contracts can have all.
Duty to Mitigate
 Mitigate the damages – minimize the harm done
 Injured party is required by law to take reasonable steps
to mitigate the damages.
 If not done the amount of potential recovery is lessened
by the amount that could have been mitigated.
Waivers
 Wavier – when the party intentionally and explicitly gives
up a contractual right.
Statute of Limitations
 Statues in all states deny any remedy if suit is not brought
within a certain time after a legal claim. Called statue of
limitations.
 Four years is common for contracts
 3 years is common for torts
 ½ states allow more time for written contracts than oral
 Time begins running from moment there is a right to sue
for a breach or default.
Bankruptcy
 a legal proceeding whereby a debtor’s assets are
distributed among his or her creditors to discharge the
debts.
CHECKPOINT
What does it mean to “mitigate the damages”?
A party injured by a breach of contract must minimize
the overall harm done by any legal means possible
or whatever damages you could have avoided
thereby will be subtracted from your recovery.
Question
A college football coach has directed his team to division
championships five times. With two years remaining in his
current three-year employment contract, he notifies the college
president that he is resigning in order to coach a professional
team at a higher salary. Is the coach legally free to change
employers? Is the professional team legally free to hire him?
What can the college legally do?
No, the coach is not legally free to change employers. This would
be a breach of contract.
The professional team is legally free to hire him unless an
injunction is issued that prevent the coach from working for
someone else during the remainder of his contract.
The college can sue for restitution or for specific performance.
Question
The Bethlehem Steel Company contracted with the city
of Chicago to supply and erect the steelwork for a
certain section of an interstate highway. The price
agreed upon was $1,734,200. The contract also
provided that the steel company would pay as
liquidated damages $1,000 for each day the work
was extended and uncompleted beyond a specified
date. The work was completed 52 days after the
date agreed upon. Is the company liable for
$52,000?
Yes, they are liable for the $52,000
Question
Rivera had the concession rights to sell food, drinks and souvenirs
at a post-season football bowl game. Some 60,000 reserved
seat tickets had been sold for the event. As part of her
preparations, Rivera contracted with the High Novelty Company
for 10,000 pennants, noisemakers, and other items imprinted
with the emblems and in the colors of the two competing teams.
Although Rivera had emphasized the absolute necessity of
delivery at least eight hours before game time, the goods arrived
tow days after the game had been played. Can Rivera recover
lost profits from Ace? Why?
Yes, Consequential damages that are generally
foreseeable can be recovered, as is certainly the case
here.
Question
Taipei Yang ordered 900 solid brass bowls for indoor plants from
the East-Meets-West Company, which imports such goods from
Singapore. Yang had included the bowls as a special in his
holiday gift catalog and expected to generate a net profit of a
least $9000 from their sale. When the shipment arrived and
was opened, Yang scratched the bottom of one bowl and
determined that it was steel with a surface plating of brass.
Yang complained to the supplier, who pleaded ignorance and
apologized. Nothing further was said and Yang paid the full
price. Three months later he thought he should get a reduction
in price because of the defect. Will he succeed?
No, Yang will not succeed. Yang waived his right to a
price reduction by implication. When he appeared to
accept the supplier’s apology and paid the full price, he
implied that he was accepting the bowls as they were.
Question
While under contract with the county, Pyramid Paving
improperly applied asphalt to the public gravel road in
front of your family’s home. Soon after application,
large cracks appeared and your family complained. It
took the city six years to file suit. What defense can
Pyramid assert?
Pyramid can assert that the statue of limitations for
breach of contract has passed. Most states allow four
years after the contract ahs been breached for the
victim to sue. In taking six years, the city waited too
long.
The Marriage Contract
and Divorce
Chapter 11-3
Marriage and Contracts
 Marriage – a legal union of a man and woman as husband
and wife.
 Typical minimum age (varies by state) to marry 18 years.
 Close relatives may not marry.
 If child results prior to marriage identified male is
responsible for his share of the female’s medical bills and
to contribute to the child’s support until the child reaches
adulthood.
Contractual Elements of Premarital
Relationships
 If one party proposes marriage and the other accepts, a
binding contract results.
 If only one party want to end this then breach of promise
suit may be brought. Not many states allow anymore.
 If 3rd party (not parents) interfere with engagement suit
could be brought.
 If ring given by other in expectation or marriage the courts
generally order it returned. Some state woman keeps ring
if the man breaks off the engagement.
Statutory Requirements of Marriage
 Most states:
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Marriage license (with fee)
Blood tests
Ceremony (Religious, Judge, Mayors, ship captains)
Statutory Requirements of Marriage
 Most states:
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Marriage license (with fee)
Blood tests
Ceremony (Religious, Judge, Mayors, ship captains)
Contractual Elements of Marital
Relationships.
 Marital Consortium – mutual duties of wife and husband.
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If either spouse suffers an injury that prevents the
fulfillment of their duties, the other can sue the party
who caused the harm for damages for “loss of
consortium”
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Support, nurture, welfare and education of children
contracts, notes
income tax returns
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 Rights and duties of parenthood - support their children
until they reach adulthood.
 Both parents have custody rights to their children
 Joint obligation
Contractual Elements of Marital
Relationships.
 Property rights and Duties – property acquired during the
marriage may be kept in either spouses name.
 One spouse may incur debt for other spouse.
 Prenuptial agreement – spouses bringing property into a
marriage that wants sole claim over it must get this.

Give up claim to any future part of all of the other’s
property.
Common-Law Marriage
 Man/Woman living together (usually 10 years) sharing
common property. ¼ of states recognize this.
Ending the Marriage Contract
 Death of either spouse
 Annulment
 Divorce
Annulment
Divorce
 Variety of illegalities
Annulment
 Annulment – a court order that cancels a marriage
because of a problem that existed from the beginning of
the marriage.
 Marriage considered voidable or void
 Voidable reasons – (marriage valid until annulment)
 Refusal to have children grounds for annulment
 Marriage on fraudulent grounds such as lying about
pregnancy health, disease, past marriage or age.
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Void Reasons – (Marriage considered invalid
from beginning.) Creates no duties for either
party
 Violation of law – already married (bigamy)
 Marriage of close relatives
Back
Divorce
 Divorce – court dissolution of marriage. Court divides property
and responsibilities and property.
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Separation – first step toward divorce.
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maintain separate living quarters but marital rights and
obligations remain intact.
 Can negotiate legal separation agreement that covers custody's
support, alimony and property division.
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No fault divorce – no assignment of fault for the dissolution.
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dissolution may be initiated by either spouse.
granted after testimony that there is no chance of repairing the
marriage.
Most states irreconcilable differences are stated as legal
reasons
Usually 6 months till final.
Typical issues in Divorce
 Division of property
Division
 Child custody and Support
 Alimony
Alimony
Custody
Division of Property
 Most states based on English common law
 Property brought into a marriage remains that spouse’s property
should marriage end.
 During marriage whatever earned, inherited, received as gift also
remains the property of spouse who earned or received it
 Community Property states
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½ property acquired by marital partners during the marriage
is presumed to belong to each.
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During marriage whatever earned, inherited, received as gift also
remains the property of spouse who earned or received it
 Most states provide some type of equitable distribution or marital
property upon dissolution of marriage. Many factors such as length,
age etc. considered.
Back
Child Custody and Support
 Physical care and responsibilities for a child
 Welfare of the child is most important
 Factors considered are:
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Parents’ wishes
Child’s wishes
Child’s relationship with parents, siblings and others that affect the child
child’s adjustment to home, school and community
physical and mental health of all person concerned.
 Joint custody - responsibility is shared.
 Non-custodial parent usually has to pay child support (a monetary
payment to provide for a dependant child for housing clothes etc.)
Back
Alimony
 support paid by the wage earned of the family
to the other spouse.
 Usually paid at regular intervals
 Not intended to penalize the person paying
 Look at earnings outlook, current debts,
number of former and subsequent spouses.
CHECKPOINT
Name three ways in which a marriage contact is ended.
Annulments, divorces, death of one of the spouses,
illegalities
Question
Maria is an only child. Her mother died when she was eight years
old. Now, seven years later, her father is engaged to remarry,
and Maria objects. She is afraid that her father’s new wife will
come between her and her father and that the new wife will end
up with the family home after her father dies. Ethically, should
Maria try to persuade her father not to marry? What legal
device would help resolve part of her worries if she could get
both her father and his intended to enter into it?
She is ethically bound to present her objections as to
allow him to make an informed decision. The legal
device that would help would be a prenuptial
agreement. It must be in writing and signed by the
party against whom enforcement will be sought.
Question
Marcel is 22 years old and Heather is 16. They are very
much in love and planned to get married right away.
After Heather’s parents refused to consent to her
marriage, Heather and Marcel eloped. Can
Heather’s parents have the marriage annulled even
though Marcel is an adult?
Yes, Ether of their parents could bring suit to annul the
marriage.
Question
Michael was driving home late one night when a tractor trailer truck
ran a red light and struck his vehicle. Even thought Michael was
wearing a seat belt and his air bag properly deployed, he was
critically injured. Several months later it become obvious that he
was permanently paralyzed from the waist down. Michael has
grounds for a lawsuit against the trucking company and the
driver of the tractor semi-trailer. What cause of action does his
wife have? How do you think a judge will decide?
Loss of consortium. The judge will decide in Michael’s
favor.
Question
Orlando and Mary lived together for 14 years in Oklahoma City.
During the latter part of their cohabitation, they both claimed to
be married to one another . In addition, they added Mr. and Mrs.
to their address and held a joint band account in those names.
Now they are living apart from one another. Orlando currently
lives in California. He has fallen in love with another woman
and plans to marry her. As a consequence, he hires an attorney
to determine whether he and Mary were legally married. What
will the attorney check first? What other elements of commonlaw marriage might be significant in the determination? Is
Orlando free to marry another?
The attorney will first check to see if Oklahoma has common-law
marriage and if it does how long the period for it is. Other
significant factual points will be the time of cohabitation and how
long they held themselves out as married.
Question
The night after Zeke and Shanda were married, Shanda admitted
that she was pregnant by another man. Can Zeke end their
marriage? How?
Yes, by having it annulled.
Question
Bernice and Bernie are married. he is a Certified Public
Accountant making $75,000 per year. She is an architect
making almost exactly the same amount. In the event of
divorce, who will pay whom alimony?
If income is the only factor considered by the court,
neither will have to pay alimony to the other.