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CHAPTER 11
Contractual Obligations and Their Enforcement
The Transfer of Contract Rights and Duties
Assignment—the transfer of a right a party may have under a contract to another party Assignor—party who transfers the right Assignee—party who receives the right
From the perspective of the courts, the assignee “stands in the shoes of the assignor” Assignee receives exactly the same contractual rights
and duties as the assignor had—no more, no lessIf a contractual right is transferred, it does
not affect the legal rights of the other party to the contract
The Transfer of Contract Rights and Duties
In all assignments, the assignor guarantees to the assignee that the assignor has the right to assign and that the assigned right is legally enforceable
The assignor does not promise that the obligor (the one who owes a duty under the contract) will perform as promised in the original contract If the obligor breaches, the assignee, not the assignor,
must sue for breach
The Transfer of Contract Rights and Duties
Assignable Rights Generally, a party may assign contractual rights to another,
provided performance will not be materially changed Performance is the fulfillment of contractual promises as agreed
Non-Assignable Rights Contractual rights may not be assigned if performance
requirements would be materially changed as a consequence A right created under a contract that prohibits transfer of the
contractual rights Claims for damages for personal injuries Claims against the United States 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
The Transfer of Contract Rights and Duties
Form of Assignments Assignment of contractual rights usually is made
voluntarily by the assignor. While an assignment is usually valid whether oral or
written, a written assignment is always wiser Some state statutes require that certain assignments be
written No consideration is necessary to make a valid assignment
Notice of Assignments Until notified that an assignment has occurred, the
obligor may continue to pay the assignor After notification, the obligor is liable to the assignee for
performance
The Transfer of Contract Rights and Duties
Delegation of Contractual Duties The routine obligations of a party that must be
performed to fulfill a contract often can be transferred to another to perform Delegation of duties
A person who delegates contractual duties remains legally obligated and responsible for proper performance even though someone else may do the required work
A person cannot delegate duties to another where performance requires unique personal skill or special qualifications
A contract creating a duty can prohibit delegation
Discharge of Contractual Obligations
By Performance Discharge—termination of duties that ordinarily
occurs when the parties perform as promised Most contracts are discharged by complete performance
of the terms of the contract BREACH OF CONTRACT—failure to provide complete
performance Significance of breach determines what the non-
breaching party can do in response 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 his/her own obligation as discharged
Discharge of Contractual Obligations
By Performance continued Substantial performance—when just about all of the
contractual duties are performed but a minor duty under the contract remains There has only been a minor breach therefore, it does not
discharge the duties of the non-breaching party the way a major breach does
The party who has substantially performed can sue and recover what was due; less the cost of completing the remaining work
If the failure was deliberate, however, the non-breaching party may treat it as a major breach
Discharge of Contractual Obligations
By Performance continued Default—failure to perform Anticipatory breach—a party defaults and notifies the
other party to a contract before the time of performance has arrived that he/she will not perform The non-breaching party may wait until the time of
performance or may treat the notice as evidence of a breach of contract and immediately sue for damages
Discharge of Contractual Obligations
By Performance continued Timing of Performance
Contracts often identify a duty but don’t say when it must be performed In this case, the duty must be performed within a
reasonable time If it is not, this is a breach
• A judge or jury determines a reasonable time after examining the circumstances in each case
In other instances, the contract identifies a date for performance• Most courts will rule that performance shortly after the date is
only a minor breach If a contract states that performance is to occur by a
specific date and that “time is of the essence” failure to perform is considered a major breach
Discharge of Contractual Duties
By the Initial Terms When parties prepare their contracts, they may agree
that it will terminate: On a specified date or upon the expiration of a specified
time period Upon the occurrence of a specified event Upon the failure of a certain event to happen At the free will of either party upon giving notice
Discharge of Contractual Duties
By Subsequent Agreement The parties who have made a contract may later
mutually agree to change either the terms of the contract or the nature of their relationship They may do so without any liability for breach in any of
the following ways Rescission—parties may agree to unmake or undo their
entire contract form its very beginning Accord and Satisfaction—parties may decided that the
present contract is not what they want, and so replace it with a new contract
Novation—a party entitled to receive performance under a contract may release the other party from the duty of performance and accept the substitute party
Discharge of Contractual Duties
By Impossibility of Performance Generally, impossibility of performance refers to extreme
external conditions rather than an obligor’s personal inability to perform Examples:
Surprise war Unexpected embargo Earthquake
Impossibility of performance also may be used to discharge contractual obligations when events on a smaller scale interfere Unique subject matter identified in the contract is destroyed
before it can be delivered A performance becomes illegal before it can be rendered The death or disability of someone who was to provide a
personal service that only that person could render
Discharge of Contractual Duties
By Operation of Law A contract may be discharged or the right to enforce it
may be barred by operation of law Debts discharged in bankruptcy Time allowed for enforcement of the contract has elapsed
because of the statute of limitations Alteration—a material change in the terms of a written
contract without the consent of the other party—the alteration must be: Material—thus changing the obligation in an important way Made intentionally—not by accident or mistake Made by a party to the agreement or by an authorized agent Made without the consent of the other party
Discharge of Contractual Duties
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 the obligation requires the payment of monies, rejection of an offer to pay the money does not discharge the debt nor does it prevent the creditor from collecting later Relieves the debtor of court costs or future interest
charges that might become due• Tender must consist of the exact amount due in currency
or coins—legal tender
Remedies for Breach
Remedy—the action or procedure followed to enforce a right or get damages for an injury to a right
Remedy for a Minor Breach Money damages
The party injured by a minor breach generally must continue to perform the duties defined by the contract
The amount of damages would be whatever it took to complete the minor duty
They could be deducted from the money due the breaching party
They could be recovered by suit if the victim had already paid
Remedies for Breach
Remedies for a Major Breach If the breach is classified as major, then the injured
party need not continue performing the duties defined by the contract
In addition, the victim may choose among the following remedies: Rescission and restitution Money damages Specific performance
Remedies for Breach
Remedies for a Major Breach Rescission and Restitution
Rescission—allows the parties to treat the contract as cancelled
Restitution—permits the injured party to recover money or property (or the value thereof) given to the defaulting party
Remedies for Breach
Remedies for a Major Breach Money Damages
Compensatory—seeks to place the injured parties in the same financial position they would have been if there had no breach
Consequential—court tries to place the 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
Punitive—added to other money damages—used to punish or make an example of the defendant
Liquidated—parties to a contract sometimes agree that a certain amount of money will be paid if a certain breach occurs
Nominal—token amount even when no substantial harm has been done
Remedies for Breach
Remedies for a Major Breach Specific Performance
Sometimes the only remedy for breach of contract is to order that the breaching party do exactly what was required under the contract
Generally available when the subject of the contract is unique such as in the purchase of a 1932 Rolls Royce or a specific parcel of land
Courts are reluctant to grant specific performance in situations where they would have difficulty supervising the result Courts can issue an injunction prohibiting the defaulting party
from working for anyone else during the period of time agreed to under the contract
Specific performance is an equitable remedy—the court will not award the remedy unless the party seeking it is blameless and has acted reasonably and fairly throughout the transaction
Factors Affecting Choice of Remedy
Conflict of Remedies Electing to pursue one remedy will rule out pursuing
another Specific performance and damages cannot be recovered
for the same breach Rescission and restitution cannot be combined with
damages
Duty to Mitigate A party injured by a breach of contract is required by
law to take reasonable steps to minimize the harm done
If the 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 intentionally and explicitly gives
up a contractual rightStatute of Limitations
Statutes in all states deny any remedy if suit is not brought within a certain time after a legal claim arises
Bankruptcy Under the U.S. Constitution, Congress has established
uniform laws on bankruptcies that permit the discharge of debts Debtors can get a fresh start, and creditors share fairly
in whatever assets are available
Marriage and Contracts
Marriage is a legal union of two people No law specifies a minimum age for dating, although
there are still state laws setting a minimum age for marriage without parental permission (typically 18)
No law restricts marriage partners with one exception, close relatives may not marry
Marriage and Contracts
Contractual Elements of Premarital Relationships If one party proposes marriage and the other accepts,
a binding contract results If both later mutually agree to end their engagement, the
law considers their agreement void and never to have existed
If only one party wants out of the contract and refuses to perform, a breach-of-promise suit may be brought by the other party
When a relationship breaks down, gifts given by one party to the other may create legal problems Engagement rings may be ordered to be returned Some states allow the woman to keep the ring if the
man breaks off the engagement
Marriage and Contracts
Contractual Elements of Premarital Relationships Statutory Requirements
Each state has its own requirements for marriage Most couples begin the process by obtaining a marriage
license (revenue license) Some states require a blood test to show that applicants
are free of communicable diseases A mandatory waiting period of three days form
application issuance is common Once the license has been issued, any authorized
religious or civil officials can perform the ceremony
Marriage and Contracts
Contractual Elements of Marital Relationships Marital Consortium
Mutual duties of married couple If either spouse suffers and injury that prevents the
fulfillment of these marital duties, the other can sue the party who caused the harm for damages of the “loss of consortium”
The most important duty of both spouses is to provide for the support, nurture, welfare, and education of their children
Rights and Duties of Parenthood Parents are obligated by law to support their children until
they reach adulthood An exception is an emancipated minor Financial support is a joint obligation Both parents in a married couple have custody rights to their
children
Marriage and Contracts
Contractual Elements of Marital Relationships Property Rights and Duties
Property acquired during the marriage may be kept in the name of one or both of the married couple
Either marital partner can buy or sell property of all types in his or her own name and have sole control of the respective earnings and credit
Keeping a spouse from getting property rights can be accomplished through a prenuptial agreement Give up any future claim they might have to part or all of the
other’s property The actions of one spouse may incur a liability for the other
Stay-at-home spouse—person working is responsible for the debts incurred by the other spouse in purchasing food, clothing, medical care, furniture, and any other household necessities
Marriage and Contracts
Common Law Marriage Have their roots in the American frontier Many pioneers could not follow the legal methods for
becoming husband and wife Law recognized common-law marriages that occurred
when a single man and a single woman lived together, shared property, and held themselves as husband and wife for a prolonged time period (usually 10 years)
Today about ¼ of states fully allow common-law marriages
Ending the Marriage Contract
By annulment Annulment—a court order that cancels a marriage
because of a problem that existed from the beginning of the marriage
Annulments serve to end marriages considered to be either voidable or void
Voidable: Refusal to have children Fraudulent grounds
Void Created when laws are violated by the matrimonial union
Ending the Marriage Contract
By Divorce Dissolution of the marriage Court action that terminates the marriage and divides
the property and responsibilities between parties Separation
First step toward divorce Spouses maintain separate living quarters, but marital
rights and obligations remain intact No Fault Divorce
In a no-fault divorce proceeding, there is no assignment of fault for the dissolution
Irreconcilable differences
Ending the Marriage Contract
Typical Issues in a Divorce Division of Property
In most states, marital property laws are based on English Common Law
Property brought into a marriage by a spouse will remain that spouse’s property should the marriage end
During the marriage, whatever is earned, inherited, or received as a gift remains the property of the spouse who earned or received it
States that do not follow this are called community property states Half of all property acquired by the marital partners during
marriage is presumed to belong to each Property owned by either spouse at the time of the marriage or
received by gift or inheritance during the marriage remains each spouse’s own
Most state laws provide some type of equitable distribution of marital property upon the dissolution of the marriage
Ending the Marriage Contract
Typical Issues in a Divorce Child Custody and Support
Concerned with the division of the physical and other cares and control responsibilities for a child
The welfare of the child is the most important consideration in determining who will have custody of the child
Considerations: Parents’ wishes as to custody Child’s wishes as to custody Child’s relationship with parents, siblings, and others who may
affect the child’s best interest Child’s adjustment to home, school, and community Physical and mental health of all persons concerned
Joint Custody—both parents remain involved Child support—parents are obligated to provide a dependant
child with appropriate maintenance
Ending the Marital Contract
Typical Issues in Divorce Alimony
Support paid by the wage earner of the family to the other spouse
Usually paid at regular intervals In some cases may be a lump-sum Not intended to penalize the person ordered to pay Factors considered by the court:
Paying spouse’s income Financial responsibilities Earnings outlook Current debts Number of dependants