2/20/21 1 BUSINESS LAW 1 FIN 280, SOUTHERN ILLINOIS UNIVERSITY PROFESSOR TRACY PROSSER MODULE 6 CHS. 17, 18 & 19 OF BUSINESS LAW: TEXT AND CASES, CLARKSON, MILLER & CROSS 1 MODULE 6 OBJECTIVES •...

• A clip from a movie/TV show where one party assigns its rights or delegates its duties to another party. Provide link to clip.


• Draw a diagram to illustrate the assignment/delegation in the clip and label each person involved using the correct legal terms.


• A copy of a limitation-of-liability clause in a contract or offer to contract.

2/20/21 1 BUSINESS LAW 1 FIN 280, SOUTHERN ILLINOIS UNIVERSITY PROFESSOR TRACY PROSSER MODULE 6 CHS. 17, 18 & 19 OF BUSINESS LAW: TEXT AND CASES, CLARKSON, MILLER & CROSS 1 MODULE 6 OBJECTIVES • Explain assignment of contract rights, delegation of contract duties, and the consequences and limits of each. . •Describe the rights of third party beneficiaries. • Identify and give examples of the most common ways to discharge a contract. • Explain a condition precedent and its consequences. • Explain different levels of performance and the consequences of each. 2 MODULE 6 OBJECTIVES • Apply the foregoing principles to argue why a contract has or has not been discharged • List the most common remedies for breach of contract. • Explain the main categories of damages and what they are for. • Explain how compensatory damages are usually measured. •Differentiate between liquidated damages and penalties. 3 2/20/21 2 MODULE 6 OBJECTIVES • Explain the main categories of equitable remedies and what they are for. •Describe the theory of quasi-contract and when it is used. •Describe waiver of a breach and its consequences. •Describe when limitations on remedies are enforceable. • Apply principles of remedies to specific factual scenarios. 4 LECTURE 6.1: ASSIGNMENT 5 THIRD PARTY RIGHTS Privity of contract: principle that contract is a private agreement creating rights and liabilities only for the contracting parties. •One party has the right to require the other party to perform • The other party has the duty to perform 6 2/20/21 3 THIRD PARTY RIGHTS A party’s contractual rights or obligations can be transferred to another after the contract is made: •Assignment transfers rights to another •Delegation transfer duties to another 7 THIRD PARTY RIGHTS: ASSIGNMENT •Assignor: the party assigning the rights •Assignee: the party to whom the rights are assigned 8 THIRD PARTY RIGHTS: ASSIGNMENT Assignments often used in business financing •Lender sells and assigns right to receive loan payments to another • For example, mortgages and accounts receivable 9 2/20/21 4 THIRD PARTY RIGHTS: ASSIGNMENT FHA mortgage and note: 10 THIRD PARTY RIGHTS: ASSIGNMENT Commercial mortgage: 11 THIRD PARTY RIGHTS: ASSIGNMENT 12 2/20/21 5 THIRD PARTY RIGHTS: ASSIGNMENT Effect of unconditional assignment: • Assignor’s rights are extinguished • Assignee acquires assignee’s right to demand contract performance from the obligor • Assignee’s rights are no greater than assignor’s • Assignee subject to same defenses as assignor 13 THIRD PARTY RIGHTS: ASSIGNMENT © 2018 Cengage. 14 THIRD PARTY RIGHTS: ASSIGNMENT An assignment can be oral or written except •Must be in writing if covered by statute of frauds •Usually must be in writing if assigns wages 15 2/20/21 6 THIRD PARTY RIGHTS: ASSIGNMENT Rights cannot be assigned if: •Prohibited by statute •Contract is personal •Assignment significantly changes risks or duties of obligor •Contract prohibits assignment 16 THIRD PARTY RIGHTS: ASSIGNMENT Contract cannot prohibit assignment: • If assignment is by operation of law •Of the right to receive money, land, or a negotiable instrument 17 THIRD PARTY RIGHTS: ASSIGNMENT Standard lease language: 18 2/20/21 7 THIRD PARTY RIGHTS: ASSIGNMENT Private note limits on borrower’s assignment: 19 THIRD PARTY RIGHTS: ASSIGNMENT Private mortgage limits on borrower’s assignment: 20 THIRD PARTY RIGHTS: ASSIGNMENT Assignee should notify obligor of assignment: •To avoid questions of priority if multiple assignments •To trigger obligor’s duty to perform for assignee 21 2/20/21 8 LECTURE 6.2: DELEGATION 22 THIRD PARTY RIGHTS: DELEGATION Delegator: an obligor who delegates his duty to perform to another Delegatee: the person to whom the duty to perform is delegated 23 THIRD PARTY RIGHTS: DELEGATION Delegation: •Delegator can transfer duty to perform to delegatee by expressing intent •Delegator still obliged to perform if delegatee does not •Obligee must accept performance of delegatee 24 2/20/21 9 THIRD PARTY RIGHTS: DELEGATION © 2018 Cengage. 25 THIRD PARTY RIGHTS: DELEGATION Duty cannot be delegated if: • Special trust placed in obligor or performance depends on special skill or talent •Performance by third party will vary materially from that expected from obligor •Contract prohibits 26 THIRD PARTY RIGHTS: ASSIGNMENT AND DELEGATION “Assignment of all rights” or “assignment of contract” may be assignment of contract rights and delegation of contract duties. •But delegator still liable for performance of its contractual duties. 27 2/20/21 10 LECTURE 6.3: THIRD PARTY BENEFICIARIES 28 THIRD PARTY RIGHTS: THIRD PARTY BENEFICIARIES Third party beneficiary: benefits from a contract without being a party to it. 29 THIRD PARTY RIGHTS: THIRD PARTY BENEFICIARIES • Intended beneficiary: parties intended contract to benefit the 3d party • Incidental beneficiary: 3d party unintentionally benefits from contract but was not reason for contract •Determined by intent of parties to contract 30 2/20/21 11 THIRD PARTY RIGHTS: THIRD PARTY BENEFICIARIES Third party rights vest when either: •Third party expressly consent to contract •Third party materially alters position in reliance on contract •Conditions for vesting in contract are satisfied 31 THIRD PARTY RIGHTS: THIRD PARTY BENEFICIARIES Enforcement by intended third party beneficiary after third party rights vest • Contracting parties may not change third party rights after vesting unless they expressly reserve right to do so 32 LECTURE 6.4: CONDITIONS 33 2/20/21 12 PERFORMANCE AND DISCHARGE Promise of performance can be: •Absolute promise •Conditional promise • Precedent, subsequent or concurrent • Express or implied 34 PERFORMANCE AND DISCHARGE: CONDITIONS Condition precedent •Event triggering a party’s duty to perform • If condition never happens, the duty to perform is discharged 35 PERFORMANCE AND DISCHARGE: CONDITIONS Condition subsequent •Event terminating party’s duty to perform •When consition happens, the duty to perform is discharged 36 2/20/21 13 PERFORMANCE AND DISCHARGE: CONDITIONS Conditions concurrent • Each party’s performance conditioned on the other’s performance • Performance is simultaneous. 37 PERFORMANCE AND DISCHARGE: CONDITIONS •Express conditions: set forth in contract •Often use if, provided, when etc. • Implied conditions: understood to be part of contract in light of its purpose or the parties’ intent 38 LECTURE 6.5: DISCHARGE BY PERFORMANCE/BREACH 39 2/20/21 14 PERFORMANCE AND DISCHARGE: DISCHARGE A contract can be discharged by: • Performance/tender •Agreement •Operation of law 40 PERFORMANCE AND DISCHARGE: DISCHARGE BY PERFORMANCE •Tender of performance •Actual performance •Complete performance: exactly as in contract • Substantial performance: substantially performs all contract terms •Breach: failure to perform 41 PERFORMANCE AND DISCHARGE: DISCHARGE BY PERFORMANCE Substantial performance: • Requirements: •Good faith • Performance varies little from promise • Easily remedied by money damages •Creates substantially same benefits as promised •Timing of performance •Other party must still perform its promise 42 2/20/21 15 PERFORMANCE AND DISCHARGE: DISCHARGE BY PERFORMANCE Performance to satisfaction of the other: • If contract is personal, satisfaction is condition precedent. • If contract is not personal, contract must be performed to the satisfaction of a “reasonable person.” •May expressly provide otherwise 43 PERFORMANCE AND DISCHARGE: DISCHARGE BY PERFORMANCE: BREACH Breach: failure to perform contractual duty owed •Minor breach: nonbreaching party may be able to suspend its performance until breached is cured •Material breach: fails to substantially perform •Nonbreaching party excused from performing •Nonbreaching party can sue for resulting damages 44 PERFORMANCE AND DISCHARGE: DISCHARGE BY PERFORMANCE: BREACH Anticipatory repudiation: •Considered a material breach •Nonbreaching party doesn’t have to perform •Can sue without waiting for time for performance 45 2/20/21 16 LECTURE 6.6: DISCHARGE BY AGREEMENT 46 PERFORMANCE AND DISCHARGE: DISCHARGE BY AGREEMENT •Mutual rescission •Novation •Settlement agreement •Accord and satisfaction 47 PERFORMANCE AND DISCHARGE: DISCHARGE BY AGREEMENT Mutual rescission: new agreement to rescind original contract •Consideration is mutual promises not to perform contract •Enforceable even if oral contract except: •UCC: must be written when contract requires it •Must be in writing if involves transfer of land 48 2/20/21 17 PERFORMANCE AND DISCHARGE: DISCHARGE BY AGREEMENT Novation: new agreement to substitute a third party for an original party • All parties must agree • Extinguishes old obligations of original party and discharges original contract • Requires original valid contract and new valid contract 49 PERFORMANCE AND DISCHARGE: DISCHARGE BY AGREEMENT Settlement agreement: a compromise arising out of a genuine dispute over contractual obligations • Substituted as new contract 50 PERFORMANCE AND DISCHARGE: DISCHARGE BY AGREEMENT Accord and satisfaction: agreement to accept different performance to fulfill contract •Accord: agreement to perform an act to satisfy an existing contractual duty •Satisfaction: performance of the accord agreement • Suspends original contract until satisfaction completed 51 2/20/21 18 LECTURE 6.7: DISCHARGE BY OPERATION OF LAW 52 PERFORMANCE AND DISCHARGE: DISCHARGE BY OPERATION OF LAW •Material alteration of contract terms •Statute of limitations •Bankruptcy • Impossibility of performance •Commercial impracticability •Frustration of purpose 53 PERFORMANCE AND DISCHARGE: DISCHARGE BY OPERATION OF LAW •Material Alteration: party changes contract terms without the other’s knowledge •Statutes of Limitations: statutory time for suing to enforce contract expires •Bankruptcy: Bankruptcy court discharges a debt arising from a contract 54 2/20/21 19 PERFORMANCE AND DISCHARGE: DISCHARGE BY OPERATION OF LAW • Impossibility of performance: other event makes it objectively impossible to perform • Event must not have been reasonably foreseeable •May include: •Death/incapacity of party to personal contract • Subject matter destroyed • Performance becomes illegal 55 PERFORMANCE AND DISCHARGE: DISCHARGE BY OPERATION OF LAW • Impossibility of performance: •Temporary impossibility suspends duty to perform until possible again • If delay substantially changes circumstances or burden, contract may be discharged 56 PERFORMANCE AND DISCHARGE: DISCHARGE BY OPERATION OF LAW •Commercial impracticability: performance becomes significantly and unforeseeably more difficult or expensive •Frustration of purpose: becomes unforeseeably impossible to attain purpose both parties wanted •Usually because of decreased value of performance 57 2/20/21 20 PERFORMANCE AND DISCHARGE © 2018 Cengage. 58 LECTURE 6.8: COMPENSATORY DAMAGES 59 BREACH OF CONTRACT AND REMEDIES Most common remedies for breach of contract: •Damages •Rescission and restitution •Specific performance •Reformation •And maybe Quasi-contract/quantum meruit 60 2/20/21 21 BREACH OF CONTRACT AND REMEDIES: DAMAGES Damages: money to compensate a party for loss of the bargain •Compensatory: for direct losses and costs •Consequential: for indirect foreseeable losses •Nominal: to recognize wrongdoing when there is no monetary loss shown •Punitive: to punish and deter wrongdoing 61 BREACH OF CONTRACT AND REMEDIES: DAMAGES: COMPENSATORY Compensatory damages replace what was lost because of the breach •Requires 1. A contract 2. A breach, and 3. Damages caused by the breach 62 BREACH OF CONTRACT AND REMEDIES: DAMAGES: COMPENSATORY Standard measure of compensatory damages is: Value of promised performance minus Value of actual performance minus Value of loss avoided by innocent party 63 2/20/21 22 EXAMPLE • K to paint house for $4,000. • Painter breaches by doing a shoddy job. • Homeowner has to pay someone else $1,000 to complete job. Damages for painter’s breach: $4,000 Value of promised performance -$3,000