Bus-115 (Business Law): Chapter 12 Guide
Assignments, discharge, remedies and sales contract formation
Learning Objectives
After reading this chapter, students should be able to accomplish the following objectives:
- Explain the legal rights given to all beneficiaries.
- Identify the legal rights given to incidental beneficiaries.
- Explain the assignment of rights and the delegation of duties.
- Explain the nature of a novation.
- Relate what constitutes satisfactory performance of a contract.
- Outline the difference between complete and substantial performance.
- List the ways that a contract can be discharged by nonperformance.
- Clarify the concept of anticipatory repudiation.
- Enumerate the types of damages available in the event of a breach of contract.
- Contrast specific performance with injunctive relief.
Major Concepts
12-1. Contracts and Third Parties
Third parties are at times given benefits through a contract made between two other parties. Some contracts are made specifically to benefit a third party. Such a third party is known as a third-party beneficiary. Three types of intended beneficiaries include creditor beneficiaries, donee beneficiaries, and insurance beneficiaries. Some third parties benefit from a contract even though the contract was not made for their benefit. These parties are known as incidental beneficiaries.
12-2. The Law of Assignment
The transfer of contract rights to a third party outside of the original agreement is an assignment. In general, rights are assigned, and duties are delegated. However, the rules apply to both transfers in the same way. The party who assigns rights or delegates duties is the assignor. The outside third party to whom the assignment is made is the assignee. The remaining party to the original agreement is the obligor. The assignee must give notice of assignment to the obligor.
12-3. Assignment Rights, Duties, and Restrictions
The rights and duties of the assignee are the same as those held by the assignor under the original agreement. Contracts for personal or professional services cannot be assigned. Assignments also can be limited by agreement. A novation occurs when two contracting parties agree to replace one of the parties with a new party.
12-4. Discharge by Performance
Most contracts are discharged by performance, which means that the parties do what they agreed to do. Unless the parties agree otherwise, satisfactory performance will be determined by objective standards. Substantial performance will discharge the agreement with the right to reimbursement for correcting details that were not completed. Conditions may determine the rights and duties of the parties prior to performance, during performance, and following performance. If neither party makes tender, a breach of contract is not established.
12-5. Discharge by Nonperformance
Nonperformance can discharge contractual obligations. Not every instance of nonperformance results in a breach of contract. Parties can agree to discharge a contractual obligation by terms in the contract, mutual rescission, waiver, novation, accord and satisfaction, or general release. Contractual obligations can also be discharged when it becomes impossible to perform a contract or under the frustration-of-purpose doctrine. These obligations can also be discharged by operation of law under principles of bankruptcy and the statute of limitations.
12-6. Damages and Equitable Remedies
An injured party is released from any obligations under the contract following the other party’s breach. In addition, the injured party has the right to ask a court of law for a remedy. The usual remedy is the payment of damages in the form of money. When the payment of monetary damages is not enough, the injured party will ask the court for rescission, specific performance, or an injunction.
