Book Title
Business Law with UCC Applications 14th Edition

978-0077733735 Chapter 12 Lecture Notes

April 10, 2019
Chapter 12 - Third Parties, Discharge, and Remedies
Chapter 12
Third Parties, Discharge, and Remedies
I. Key Terms
Abandonment of Incidental beneficiary (p. 278)
contractual obligations (p. 292) Incidental damages (p. 293)
Actual damages (p. 293) Injunction (p. 295)
Anticipatory breach (p. 292) Intended beneficiary (p. 277)
Assignee (p. 279) Liquidated damages (p. 294)
Assignment (p. 279) Mutual rescission (p. 290)
Assignor (p. 279) Nominal damages (p. 293)
Beneficiary (p. 277) Novation (p. 285)
Commercial impracticability (p. 291) Obligor (p. 279)
Compensatory damages (p. 293) Outside party (p. 277)
Complete performance (p. 287) Performance (p. 285)
Condition concurrent (p. 288) Punitive damages (p. 293)
Condition precedent (p. 288) Reasonable time (p. 285)
Condition subsequent (p. 288) Satisfactory performance (p. 287)
Consequential damages (p. 293) Specific performance (p. 295)
Creditor beneficiary (p. 278) Speculative damages (p. 295)
Delegation (p. 279) Substantial performance (p. 287)
Donee beneficiary (p. 278) Tender of payment (p. 289)
Fraud (or fraudulent Tender of performance (p. 289)
misrepresentation (p. 293) Termination by waiver (p. 290)
Fraudulent conveyance (p. 279) Third party (p. 277)
Frustration-of-purpose doctrine (p. 291) Third party beneficiary (p. 277)
General release (p. 290) Warranty (p. 282)
II. Learning Objectives
1. Explain the legal rights given to all beneficiaries.
2. Identify the legal rights given to incidental beneficiaries.
3. Explain the assignment of rights and the delegation of duties.
4. Explain the nature of a novation.
5. Relate what constitutes satisfactory performance of a contract.
6. Outline the difference between complete and substantial performance.
7. List the ways that a contract can be discharged by nonperformance.
8. Clarify the concept of anticipatory repudiation.
9. Enumerate the types of damages available in the event of a breach of contract.
10. Contrast specific performance with injunctive relief.
III. Major Concepts
12-1 Contracts and Third Parties
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Chapter 12 - Third Parties, Discharge, and Remedies
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
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Chapter 12 - Third Parties, Discharge, and Remedies
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.
IV. Outline
I. Contracts and Third Parties (12-1)
A. Introduction
1. A third party is a person who may in some way be affected by a contract but who is
not one of the contracting parties.
2. A third party receiving benefits from a contract made by others is known as a third
party beneficiary or sometimes simply as a beneficiary to the contract.
B. Intended Beneficiaries
1. A beneficiary in whose favor a contract is made is an intended beneficiary.
2. With exceptions in some states, an intended beneficiary can enforce a contract made
by those in privity of contract.
3. Those most frequently recognized as intended beneficiaries are creditor beneficiaries,
done beneficiaries, and insurance beneficiaries.
4. A creditor beneficiary is an outside third party to whom one or both contracting
parties owe a continuing debt of obligation arising from a contract.
5. A third party who provides no consideration for the benefits received and who owes
the contracting parties no legal duty is known as a donee beneficiary.
6. An insurance beneficiary is usually considered a donee beneficiary.
C. Incidental Beneficiaries
1. An incidental beneficiary is an outside party for whose benefit a contract was not
made but who would substantially benefit if the agreement were performed according
to its terms and conditions.
2. An incidental beneficiary has no legal grounds for enforcing a contract made by those
in privity of contract.
II. The Law of Assignment (12-2)
A. Assignment and Delegation
1. Rights are assigned.
2. Duties are delegated.
3. The party who assigns rights or delegates duties is the assignor.
4. The outside third party to whom the assignment is made is the assignee.
5. The remaining party to the original agreement is the obligor.
6. Consideration is not required in the assignment of a contract.
7. When there is no supporting consideration, the assignor may repudiate the assignment
at any time prior to its execution.
8. When no consideration is given for an assignment, creditors of the assignor may have
the assignment rescinded on the ground that it is a fraudulent conveyance.
9. If a fraudulent conveyance occurs, the assignors creditors could have the assignment
B. Assignment Methods
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Chapter 12 - Third Parties, Discharge, and Remedies
1. Assignment may be accomplished through written, oral, or implied agreements
between the assignor and the assignee
2. Under the equal dignities rule, if the agreement by the original parties must be in
writing, the assignment must be in writing.
3. An assignment is valid when made.
4. The assignee should give notice of the assignment to the obligor.
5. Once notice is received, the obligor should deal with the assignee.
6. If notice is given and the obligor makes payment to the assignor, the obligor is not
excused from making payment to the assignee.
7. If an assignor makes a subsequent assignment of the same rights, the courts must
decide which of the two assignees has a superior right.
a. A majority of states hold that the first assignee has a superior right even if the
later assignee was the first to give notice of the assignment to the obligor.
b. A minority of courts hold that whichever assignee was the first to give notice of
assignment has a superior right.
III. Assignment Rights, Duties, and Restrictions (12-3)
A. Rights and Duties of the Assignee
1. Rights and duties of the assignee are the same as those previously held by the
assignor under the original contract.
2. The assignee’s duty in an assignment is to give notice of the assignment to the
B. Liabilities and Warranties of the Assignor
1. The assignor is bound by an implied warranty that the obligor will respect the
assignment and will make performance as required by the original agreement between
the assignor and the obligor.
2. If the assignor delegates to the assignee duties owed the obligor, there is an implied
warranty that the duties delegated will be carried out in a complete and satisfactory
C. Restrictions on Assignments
1. Most contracts may be assigned.
2. A party may not delegate duties that are of a personal or professional nature.
3. Parties to a contract may include a condition that will not allow its assignment
although some, but not all, courts have held that a restriction against the assignment
of a debt is contrary to public policy.
4. In some special situations assignment may be restricted by law or declared void on
the basis of public policy.
D. Novation and Assignment
1. Sometimes both rights and duties are delegated to a third party with the assignor
remaining in privity of contract with the obligor and liable to the obligor if the
assignee does not properly perform.
2. If all parties agree, the assignor can be released from liability at the time of the
assignment, and privity of contract can exist between the assignee and the obligor.
3. Substitution by mutual agreement of a new party for one of the original parties to a
contract is called a novation.
IV. Discharge by Performance (12-4)
A. Introduction
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Chapter 12 - Third Parties, Discharge, and Remedies
1. Most contracts are discharged by performance meaning that the parties do what they
agreed upon.
2. Sometimes parties do not perform in a timely or satisfactory manner, or do not
perform at all.
B. Discharge by Performance
1. When the time for performance is not stated in the contract, the contract must be
performed within a reasonable time.
2. When the time for performance is stated in the contract but there is nothing to
indicate that time is of particular importance, the court will usually allow additional
time to perform.
3. When the time for performance is stated in the contract and something special about
the contract indicates that time is essential, the time for performance will be enforced.
4. When the phrase “time is of the essence” is included among the terms of a contract,
the time period will be enforced.
C. Satisfactory, Complete, and Substantial Performance
1. Satisfactory performance exists when either personal taste or objective standards have
determined that the contracting parties have performed their contractual duties
according to the agreement.
2. When there is no express agreement, the law implies that work will be done in a
skillful manner and that the materials or goods will be free of defects.
3. When one party agrees to do something to another person’s satisfaction, a dissatisfied
customer may refuse to make payment on the basis of personal judgment.
4. Complete performance occurs when all parties fully accomplish every term,
condition, and promise to which they agreed.
5. Substantial performance occurs when a party in good faith executes all promised
terms and conditions with the exception of minor details that do not affect the real
intent of the agreement.
6. A party who complains that performance has been substantial, but not complete, has
the right to demand reimbursement from the offending party to correct those details
that were not performed.
D. Conditions and Tender of Performance
1. A condition precedent is a condition that requires performance of certain acts or
promises before the other party is obligated to pay money or to give other agreed
upon consideration.
2. A condition that requires both parties to perform at the same time is a condition
3. A condition subsequent is one in which the parties agree that the contract will be
terminated when a prescribed event occurs or does not occur.
E. Tender of Performance
1. Tender of performance means to offer to do what one has agreed to do under the
terms of the contract.
2. Tender of payment is presenting agreed upon funds at the agreed upon time.
3. People who must perform acts are excused from performing if they make proper
tender and it is rejected.
4. People who must pay money are not excused from paying if their tender of payment
is rejected although they are excused from paying further interest on the obligation.
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Chapter 12 - Third Parties, Discharge, and Remedies
V. Discharge by Nonperformance (12-5)
A. Discharge by Agreement
1. Termination by Terms of the Contract
a. Parties may agree to certain terms that provide for automatic termination of the
b. Parties may agree that a contract will be terminated if a party becomes either
physically or mentally incapable of rendering performance.
2. Mutual Rescission
a. Parties may rescind a contract as a result of further negotiation and by mutual
b. Mutual rescission usually requires that both parties return to the other any
consideration already received.
3. Termination by Waiver
a. When a party with the right to complain fails to complain termination by waiver
b. Waiver is a voluntary relinquishing of one’s rights to demand performance.
c. Waiver does not require an obligation to return consideration.
4. Novation
a. By novation parties to a contract mutually agree to replace of the parties with a
new party.
b. The former, original party is released from liability.
5. Accord and Satisfaction
a. An accord and satisfaction is a new agreement resulting from a bona fide dispute
between the parties as to the terms of their original agreement.
b. The original agreement is not discharged until the performance or satisfaction has
been provided as promised.
6. General Release
a. A general release is a document expressing the intent of a creditor to release a
debtor from obligations on an existing and valid debt.
b. A general release terminates a debt and excuses the debtor of any future payment,
without the usual requirement that consideration be given in return.
B. Discharge by Impossibility
1. Types and Conditions of Impossibility
a. When the exact subject matter of an executory contract has been selected by the
parties and is later destroyed, the performance obligation is discharged.
b. When the contract is not specific in the description or the location of the subject
matter, a promisor is not discharged if the subject matter intended for delivery is
c. When the performance of a contract is made illegal through the passing of laws
subsequent to the formation of the contract, the contract is likewise declared void,
and the parties are discharged.
d. Death, insanity, or disability of a party obligated to perform an act that requires a
special talent or skill terminates and discharges an agreement.
e. When the contract relates to services that may be performed by others and do not
demand the personal services of the contracting party, performance is not excused
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Chapter 12 - Third Parties, Discharge, and Remedies
through death, insanity, or disability; and the guardian of the party involved or the
estate of the deceased may be held liable for performance.
2. Frustration-of-Purpose Doctrine
a. The frustration-of-purpose doctrine releases a party from a contractual obligation
when performing the obligation would be thoroughly impractical and senseless.
b. The doctrine is applied only in those cases in which a party recognizes and
understands possible risks and accepts them in contemplation of performance.
3. Commercial Impracticability
a. Under commercial impracticability, courts may excuse the nonperformance of one
party to a contract because an unforeseen and very severe hardship has arisen that
would place an enormous amount of hardship on that party.
b. The purpose of the contract is not undermined by the unforeseen event, so the
frustration-of-purpose doctrine does not apply.
C. Discharge by Operation of Law
1. The performance of a promised act may be discharged by operation of law.
2. A discharge in bankruptcy from a court will be allowed as a defense against the
collection of most debts of the bankrupt.
3. Statutes of limitations provide time limits within which suits may be brought and may
result in contracts being unenforceable.
D. Discharge by Breach of Contract
1. Deliberate Breach of Contract
a. A breach of contract results when one of the parties fails to do what was agreed to
under the terms of the contract.
b. Wrongful performance or nonperformance discharges the other party from further
obligation and permits that party to bring suit to rescind the contract or recover
money, called damages, to compensate for any loss sustained.
2. Repudiation and Anticipatory Breach
a. An anticipatory breach occurs when a party to a contract either expresses or
clearly implies an intention not to perform the contract even before being required
to act.
b. Anticipatory breaches of contract are called constructive breaches.
c. The injured party may commence suit at the time of the anticipatory breach or
await the date agreed to for performance, except that anticipatory breach cannot
be used if the only action repudiated was the promise to pay money to another
3. Abandonment of Contractual Obligations
a. Stopping performance once it has begun is called abandonment of contractual
obligations and discharges the other party from promises.
b. The promisor must have inexcusably interrupted performance with the obvious
intention of not returning to complete the obligations promised.
VI. Damages and Equitable Remedies (12-6)
A. Damages in Contract Law
1. Actual or Compensatory Damages
a. Actual damages are the sum of money equal to the real financial loss suffered by
the injured party.
b. Actual damages are also called compensatory damages.
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Chapter 12 - Third Parties, Discharge, and Remedies
2. Incidental and Consequential Damages
a. Incidental damages cover any expenses paid out by the innocent party to prevent
further loss.
b. Consequential damages result indirectly from the breach because of special
circumstances that exist with a particular contract.
c. To recover consequential damages, the injured party must show that such losses
were foreseeable when the contract was made.
3. Punitive or Exemplary Damages
a. Damages in excess of actual losses suffered by the plaintiff awarded as a measure
of punishment for the defendant’s wrongful acts are punitive damages, also called
exemplary damages.
b. Punitive damages are awarded when a defendant is responsible for abusive and
dishonest practices in consumer transactions that are unconscionable and contrary
to the public good.
c. Fraud, or fraudulent misrepresentation, occurs when one party makes false
statements or commits some sort of false action that causes another party to rely
on those falsehoods and experience an injury or loss as a result.
d. The idea of punitive damages is to punish the defrauding party and dissuade the
party from future fraudulent conduct.
e. Punitive damages are also supposed to sere as a deterrent to individuals other than
the wrongdoer.
f. If monetary loss can be established, damages may be recovered for
4. Nominal Damages
a. Nominal damages are token damages awarded to parties who have experienced an
injury to their legal rights but no actual loss.
b. Today, the award is usually one dollar.
5. Present and Future Damages
a. Damages may be awarded for present injuries.
b. Damages may be awarded for damages reasonably anticipated in the future.
6. Liquidated Damages
a. Damages agreed to in the initial contract are called liquidated damages.
b. Liquidated damages must be realistic and in proportion to the losses that might be
reasonably anticipated should there be a breach.
7. Damages Under Quantum Meruit
a. The doctrine of quantum meruit (i.e., as much as one earned) is important in
assessing damages in cases founded on contracts implied in law, or
b. Damages awarded are in an amount considered reasonable in return for the
benefits the one party derived through the quasi-contract relationship.
8. Speculative Damages
a. Courts do not allow speculative damages.
b. Speculative damages differ from future damages in that speculative damages are
not founded on fact but only on hope or expectation.
9. Mitigation of Damages
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Chapter 12 - Third Parties, Discharge, and Remedies
a. The injured party has an obligation to do what is reasonably possible to mitigate
the damages.
b. A party who has been wronged by anothers breach must exercise reasonable
precautions to prevent the damages from becoming unfairly and unreasonably
burdensome to the other party.
B. Equitable Remedies
1. When money is not adequate to provide a fair and just award to the injured party, the
court may grant an equitable remedy.
2. Specific performance is a court order calling for the breaching party to do what he or
she promised to do under the original contract, and it is awarded only when the
subject matter of a contract is unique or rare.
3. Demanding that a party perform promised personal services would be contrary to
Amendment 13 of the U.S. Constitution, but a remedy in such cases may be found
through injunctive relief.
4. An injunction is an order issued by a court directing that a party do or refrain from
doing something.
5. An injunction may be temporary or permanent.
VI. Background Information
A. Cross-Cultural Notes
1. There are no codified commercial code in China, so most international trade is
governed by a standard contract that is the only guide to liability in the event of
nonperformance. The contract states that “sellers shall not be held responsible for the
delay in shipment or nondelivery of goods due to force majeure, which might occur
during the process of manufacturing or in the course of loading or transit.” While the
Chinese are vague about their own liability, they are well known for scrupulously
following their contractual obligations.
2. While litigation in Japan was noted as being at a low level, it has increased
significantly since the 1990s. This may be explained, at least in part, by growth in the
number of lawyers and legal reform. There has been a call for additional judges
based on the increase of lawyers and litigation.
3. Russian law was substantially amended in 2015 with one goal being to make Russian
law more attractive to business entities resulting in the choice of Russian law over
foreign, such as English law.
B. Historical Notes
1. Under common law, abstract rights such as collections or lawsuits were not routinely
transferred to other parties, and a transferee could not sue for the right to do so. With
the development of contract law during the 1800s, the value of transferring abstract
rights became evident in the marketplace, and the practice more common.
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Chapter 12 - Third Parties, Discharge, and Remedies
2. In 1902 King Edward VII fell ill and was unable to attend his own coronation. Those
who had paid high prices for positions along the processional route refused to pay the
owners of the property. The frustration-of-purpose doctrine was created from this
incident to release all parties from their contracts.
3. Laws guiding damages were developed in the mid-nineteenth century. In a
well-known British case, Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Rep. 145
(1854).a shipper failed to deliver a crankshaft to a mill owner in due time. The mill
owner claimed damages not just for the crankshaft but for lost profits that were a
“natural consequence” of the delay. The court ordered only payment for the
crankshaft, a decision in keeping with the pro-market bias of contracts at the time. It
was not until the early twentieth century that decisions shifted from that strict
C. State Variations
1. In most states a contract made expressly for the benefit of a third person may be
enforced by the third person at any time before the parties to the contract rescind it.
2. While the UCC has been generally adopted in the U.S., there are variations from state
to state.
3. Louisiana’s civil law system recognizes “redhibition,” a method by which consumers
may seek remedy for defective products. For more on this remedy, see the following
state publication: http://www.ag.state.la.us/Shared/ViewDoc.aspx?Type=3&Doc=54.
4. It is the law in nearly every state that a purchaser of real estate is entitled to specific
performance of a contract to purchase property, because every piece of property is
considered unique.
D. Quotations
It is a vain thing to imagine a right without a remedy; for want of right and want of
remedy are reciprocal.
— Sir John Holt (1552–1634), Chief Justice, King’s Bench, England
The very definition of a good award is that it gives dissatisfaction to both parties.
— Sir Thomas Plumer (1753–1824), British judge
VI. Terms
1. Assignment has its origins in the Latin word signare, meaning “to mark or sign.” Delegate
is also from a Latin word, legare, which means “to send as emissary.” To differentiate
between the two words, think of a delegation as the sending of an emissary and an
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Chapter 12 - Third Parties, Discharge, and Remedies
assignment as a signing over of rights to a third party.
2. One form of the legal term tender describes an action. It refers to presenting something,
usually money or service, for acceptance. As a noun, tender is the offer itself and not the
payment or service that will satisfy the obligation in question. Have students look on a
dollar bill for the statement “This note is legal tender for all debts, public and private.”
3. Rescission means cancellation or cutting off. The Latin origin of rescind contributed to the
development of the word shed, which means, among other things, “to cast off.”
4. To speculate is to wonder about something. Speculate originates from Latin words
meaning “to spy” and “to look at.”
VII. Related Cases
1. Vaughn owed child support to the state and was brought into court to face contempt
of court charges. In court, he promised to pay his back payments from an inheritance he was
going to receive. Shortly thereafter, he assigned his inheritance to a loan company. A suit
was brought to determine who was to get the inheritance. The court noted that assignments
may be oral or written and assignments are given priority according to when they are
granted. But the court ruled in favor of the loan company because the statements made in
court were not definite enough to be called an assignment. Matter of Estate of Vaughn, 588
P.2d 1295 (Or. App. 1979).
2. A general contractor hired a subcontractor to assist in the construction of a sheriffs
office. After running into financial trouble, the subcontractor took out a loan and assigned
the future payments from the general contractor to the bank. The general contractor was
notified of this assignment but continued paying the subcontractor instead of the bank. The
bank sued, and the court recognized that when an account debtor is validly notified of an
assignment, the account debtor becomes liable to pay the assignee. The court, however,
refused to grant summary judgment to the bank because of subcontractor defenses possessed
and raised by the general contractor, the assignee. Independent Nat. Bank v. Westmoor
Elec., 795 P.2d 210 (Ariz. App. 1990).
3. AAC sold a helicopter to Hydroplanes, who sold it to Boston Helicopter Charters
(BHC). After the helicopter crashed, BHC filed suit, one of the issues being the extent, if
any, of an implied warranty running from AAC to BHC. The court ruled that through clear
language, AAC disclaimed any implied warranties, thus no assignments of warranty reached
BHC. Boston Helicopter Charters v. Agusta Aviation, 767 F. Supp. 363 (D. Mass. 1991).
4. A contract dispute arose between a seed corn grower and a seed corn buyer. Due to an
infestation of shattercane, the grower was unable to fulfill the terms of the contract, so the
buyer sued. The court ruled that a clause in the contract that allowed for the grower to
release certain acres of fields if certain events occurred, such as infestation, was a condition
subsequent. Once infestation occurred, the grower was no longer obligated to supply the full
amount of seed corn. Schmidt v. J. C. Robinson Seed Co., 370 N.W.2d 103 (Neb. 1985).
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Chapter 12 - Third Parties, Discharge, and Remedies
5. A divorce settlement required the former husband to pay for his ex-wife’s health
insurance and for the ex-wife to seek employment. However, the former husband breached
by stopping the insurance. His argument to the court was that his wife’s failure to seek
employment allowed him to breach. The court disagreed, ruling that he was not allowed to
repudiate his obligations. Barrett v. Barrett, 867 P.2d 540 (Or. Ct. App. 1994).
VIII. Teaching Tips and Additional Resources
1. Celebrities are not infrequently involved in breach of contract actions. US Weekly
reports on allegations involving breach of contract made against Paris Hilton at
xtension-company-2010128. Try to locate other instances of alleged celebrity breach of
contract and the damages claimed in relation to such claims.
2. An article on enforcing third-party beneficiary rights is available from the Sargent
Shriver National Center on Poverty Law at http://federalpracticemanual.org/node/31.
3. An article titled “Gift Promises and the Edge of Contract Law,” by George Geis
available from the University of Illinois Law Review, at 2014 U. Ill. L. Rev. 663, argues
that third-party beneficiary contract law should be a means by which a promisor to recruit
a counterparty to make a binding gift promise.
4. An article titled “Slowing Runaway Juries” discussing punitive damages in the wake
of State Farm Mutual v. Campbell, the discussed in the text, is available from Graziadio
Business Review, a publication of the Graziadio School of Business and Management of
Pepperdine University, at http://gbr.pepperdine.edu/2010/08/slowing-runaway-juries/.
5. A Web site advertising assignments of structured settlements and other pay outs over
time can be found at http://novationcap.com/lp/default/default.html.
6. An article from the New York Times involving an arbitration decision awarding
punitive damages to celebrity Larry Hagman is available at
7. As reported in Reuters, at
5C20150305, AutoZone asked for a new trial lin the case of a San Diego store manager
who was awarded $186 million after a jury verdict finding that she was demoted and later
fired based on her pregnancy.
8. Information from the U.S. Courts Internet sight involving discharge in bankruptcy can
be found at
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Chapter 12 - Third Parties, Discharge, and Remedies
9. Ask students to list types of contracts, such as personal service contracts, that they do
not believe should be subject to assignment.
10. Ask students to think of contracts that involve third parties. Have them confirm that
each contract they suggest involves an actual third party rather than all contracting
11. Ask students if any of them have ever been either an intended or an incidental
beneficiary to a contract. Also ask if any of them have ever entered into a contract that
was designed to benefit a third party or that unintentionally benefited a third party.
Remind them that insurance contracts and collective bargaining agreements involve
third-party beneficiaries.
12. Have students share their opinions about whether contracts that prohibit assignments
deny rights to any of the parties involved. Have students consider the definition of a
contract as a mutual agreement and the effects such a rule would have on business
owners, independent contractors, and private parties.
13. Write several short descriptions of contracts and have students determine if they are
assignable or not.
14. After reviewing the difference between assignment and delegation, describe various
contracts and have students differentiate between rights assigned and duties delegated.
Include examples of novation and contracts that would not be assignable because of types
of restrictions that students have learned about in previous sections.
15. After reviewing the section on time for performance, solicit class opinions on
reasonable periods of time for various contractual situations. Once a period of time has
been determined, alter the contract in question so that time requirements are more or less
16. Determining satisfactory performance can involve some interpretation, especially in
disputes regarding personal taste. Students can learn about the difficulty of establishing
objective standards in a contract by simulating a legal dispute over performance. Select
students to act as judge and jury. Then have the remainder of the class develop a common
contractual situation in which there might be a dispute over satisfactory performance,
such as an interior decorating job. One half of this group should act as defendants and the
other half as plaintiffs. The students should organize their cases and present them to the
mock judge and jury for a ruling.
17. Help students differentiate between the three contractual conditions—precedent,
concurrent, subsequent—by reviewing the meaning of the prefixes. Pre- indicates
preceding, or coming before; con-, or com-, means with or together, and sub- refers to
under or secondary.
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without the prior written consent of McGraw-Hill Education.
Chapter 12 - Third Parties, Discharge, and Remedies
18. Have students brainstorm everyday situations in which they make contracts
involving conditions concurrent. For example, there is the promise to pay the pizza
delivery person when the pizza arrives. Have students differentiate this situation from a
condition subsequent (not paying if the pizza is delivered after a particular time).
19. Discuss the different ways in which contractual agreements are discharged and
examples of performance and non-performance. Encourage students to think and talk
about their own experiences with contracts.
20. Ask students to suggest several different types of contracts, perhaps ones they’ve
been party to themselves. Then have them make up for each contract two
nonperformance examples—an example of discharge by impossibility and an example of
discharge by frustration of purpose.
21. When a breach of contract occurs, the purpose of awarding damages is not to punish
the guilty party but simply to restore the injured party to the conditions that existed
before the contract was breached. Encourage students to think of damages this way so
that they will better understand what a court will award.
22. Have students determine common contracts into which particular businesses enter.
They should investigate standards of performance and identify possible breaches of
contract in the businesses. Have students define what would constitute negligent
performance, repudiation of obligations, and abandonment of performance.
23. Before discussing the damages awarded in breach of contract disputes, remind
students that legal fees sometimes exceed awards, and litigation can be a very lengthy
24. When a plaintiff wins in a dispute, the plaintiff is left with the job of collecting any
damages awarded. A plaintiff may use a deposition or interrogatory to search for assets or
to force the defendant to sell real estate or other property to satisfy the remedy demanded.
Each of these measures involves more legal action.
25. Contracts may include a disclaimer limiting liability for consequential damages.
Such disclaimers typically include phrases such as “Sellers liability shall be limited to
the repair or replacement of defective parts.” However, contracts eliminating all rights to
consequential damages will usually not hold up in court.
26. For class discussion or a short writing assignment, ask students to imagine the
consequences of requiring those who breach contracts to pay punitive damages in
addition to compensatory damages. Students should consider how this requirement would
affect the number of contracts that would be written and what the economic repercussions
would be. Remind them that any added costs in taking a risk not only can deter the
production of new products or activities but also can force businesses into bankruptcy.
27. Before discussing equitable remedies, pose contractual disputes for the students and
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without the prior written consent of McGraw-Hill Education.
Chapter 12 - Third Parties, Discharge, and Remedies
ask them to decide on appropriate remedies. In cases in which some equitable remedy is
appropriate and students only suggest awards of damages, ask them to consider whether
any further action might be necessary to resolve the dispute in question.
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution
without the prior written consent of McGraw-Hill Education.