Chapter 11: Contractual Obligations and their Enforcement

Chapter 11: Contractual Obligations and their Enforcement

Lexy Cascone, Taylor Gaffney, Mike Geinopolos, & Russel Gartman

Legal Application #1 Keisha Arthur hired a general contractor to build her new home who in turn delegated most of the work to four independent subcontractors. QUESTION: Is this a legal delegation of duties? Is the general contractor responsible for the subcontractors work?

Legal Application #1 Response

YES: It is legal for general contractors to delegate work to skilled subcontractors. The general contractor is still legally responsible for the performance of any delegated work.

Transfer of Contract Rights Assignment: the transfer of contractual rights VS Delegation of Duties: transfer of contractual duties – Assignor: the party who transfers the right – Assignee: party who receives the right • What happens when contractual rights are transferred? – Does not change the legal rights of the other party to the contract Obligor: one who owes a duty under the contract • GENERALLY: A party assigns contractual rights to another, provided performance will not be materially changed Performance: fulfillment of contractual promises as agreed

Legal Application #1 Reference IMPORTANT: A person can not delegate to another any duty where performance requires unique personal skill or special qualifications. It was legal for the general contractor to delegate the house work to skilled subcontractors as long as they were all qualified and certified to do the job.

Discharge of Obligations Discharge: termination of duties - Contracts discharged by complete performance of terms FAILURE TO DO SO= BREACH OF CONTRACT -Substantial performance: minor duty of contract remains, but all duties performed -A minor breach does NOT discharge the duties of the non-breaching party -A party injured by a breach of contract must elect or choose a remedy when suing - Default: when a party fails to perform - Defaulting party must notify the other party to a contract BEFORE the time of performance= anticipatory breach

Significance and Classification of Breach - A party injured by a breach of contract is required by law to take reasonable steps to minimize the harm done: Mitigate the damages

***A judge or jury decides the significance and classification of a breach***

Subsequent Agreement 2 ways Parties who agree to change terms of contract can avoid breach 1) Rescission: parties agree to unmake or undo their entire contract from the beginning 2) Substitution: Parties decide the present contract is not what they want= REPLACE with new contract. Discharges original contract by substitution

Remedies for a Breach • Basic Remedies for MINOR breach: – Imprisonment – Money Damages – Rescission: treat contract as cancelled – Restitution: permits parties to recover money or property. Available when parties have attempted to contract but failed • Basic Remedies for a MAJOR breach – Money Damages – Rescission – Restitution – Specific Performance: breaching party to do exactly what was required under contract

Money Damages • Compensatory: restores injured parties to the same financial position prior to the breach EXAMPLE: Charlotte, home broker, contracted to buy a house from Ben for $65,000 knowing the fair market value of the property was higher. Charlotte spent $3000 on title search, a survey, an appraisal, loan origination fees, etc. If Ben committed a material breach for refusing to sell, a court would award Charlotte $2000 as compensatory damages. This would restore the broker to her financial situation prior the breach.

Money Damages cont… •

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Consequential: place injured parties in the same financial situation prior the contract being performed – Grants money for the injuries caused by the breach Punitive: to punish and to make an example of the defendant Liquidated: Parties agree on a certain amount of monetary damages that will be paid is a breach occurs – Not all liquidated clauses are enforceable • Example: excessive amount of monetary damage Nominal: no substantial harm done, acknowledgement that wrong was committed in not performing a duty under contract

* Additional Note: a ready willing and able offer to perform an obligation: tender

Remedies for BREACH OF CONTRACT Breach of Contract Rescission and Restitution

Specific Performance

Damages

Injunction

Waiver

Types of Damages Compensatory Damages

Consequential Damages

Liquidated Damages

Nominal Damages

Punitive Damages

CLICKER ACTIVITY

Chapter 11 Test ANSWERS 1) T 2) T 3) T 4) F 5) F 6) F 7) T 8) F 9) T 10) T

11) C 12) A 13) B 14) C 15) D 16) A 17) C 18) C 19) B 20) C