4): Discharge of Contracts and Remedies Flashcards
What are the 3 main ways a contract can be terminated?
Performance – Where the contract is fulfilled as planned.
Breach – Where one party fails to fulfil their obligations.
Frustration – Where an unforeseen event prevents future performance.
What is the Entire Performance Rule in contract law?
If a contract requires complete and exact performance,
and a party fails to fully perform their obligations,
they are entitled to nothing under the contract from the other party.
What are the exceptions to the requirement of entire performance?
Substantial Performance – Payment is due, but the cost of minor defects can be deducted (if not excessive)
Severable Contracts – Payment can be made in stages if contractually agreed + contractor entitled to payment for stages completed
Voluntary Acceptance of Partial Performance – If voluntarily accepted by the party, the contractor is entitled to a reasonable sum for work done
Prevention of Performance by Other Party – If one party is wrongfully prevented from performing, they may claim damages or payment for work done.
What is a breach of contract?
A breach occurs when a party fails/refuses/defectively performs their contractual obligations without lawful excuse.
What are the potential consequences of a breach of contract?
The innocent party may:
Claim damages for losses suffered.
Terminate the contract (if it is a repudiatory breach).
What determines whether a breach allows termination?
It depends on whether the term breached is a:
Condition (serious – allows termination and damages).
Warranty (minor – only allows damages).
Innominate Term (effect of the breach determines the remedy).
What is a repudiatory breach of contract?
A serious breach of a condition or an important innominate term that allows the innocent party to:
Terminate the contract, or
Affirm the contract and continue with it.
What is an anticipatory breach?
When one party informs the other (before the performance is due) that they will not fulfil their contractual obligations.
What options does the innocent party have in an anticipatory breach?
Terminate the contract immediately, or
Affirm the contract and demand performance when it becomes due.
What is frustration in contract law?
Frustration occurs when, after the contract is made,
an unforeseen event happens that makes performance impossible/illegal/radically different from what was agreed
(without fault from either party).
What happens when a contract is frustrated?
It is automatically terminated by law at the time of the frustrating event,
and both parties are excused from further obligations.
When does an event not amount to frustration?
The contract has a force majeure clause covering the event.
The event makes the contract more difficult or expensive but not impossible.
The event was foreseen or foreseeable.
The event happened due to the fault of one party.
What are some examples of frustrating events?
Non-occurrence of a fundamental event
Death or unavailability of a party
Destruction or unavailability of the contract’s subject matter
Government intervention
Method of performance becomes impossible
What is the purpose of awarding damages in contract law?
To compensate the innocent party for financial losses suffered due to breach of contract.
What is Expectation Loss in contract damages?
compensates the claimant for the benefits they expected to obtain if the contract had been properly performed.
It is a “forward-looking” test.
What is Reliance Loss in contract damages?
covers expenses incurred due to reliance on the contract being performed, aiming to restore the claimant to their pre-contractual position.
It is a “backward-looking” test.
What are the two types of loss recoverable in contract damages?
Pecuniary Loss – Financial losses suffered
Non-Pecuniary Loss – Losses such as pain, suffering, and mental distress (not recoverable unless contract’s purpose was to provide pleasure/freedom from distress).
When can damages for non-pecuniary loss be awarded?
Only if the contract’s main purpose is to provide pleasure or freedom from distress (e.g., contracts for holidays or recreation).
What is the remoteness of damage rule in contract law?
Damages cannot be recovered if the loss suffered is too remote from the breach.
When are damages recoverable under the remoteness rule?
If:
The loss is a natural consequence of the breach (normal losses).
The loss was reasonably foreseeable by both parties at the time of the contract (abnormal losses).
What is the measure of damages in contract law?
The difference in value and cost of cure (i.e., getting the work done properly).
When will cost of cure damages not be awarded?
When the cost of fixing the breach is disproportionate to the loss suffered.
What is a liquidated damages clause?
A pre-estimated loss clause in a contract that states the amount payable in case of breach, regardless of the actual loss suffered.
What is a Penalty Clause in contract law?
imposes an excessive, punitive sum for breach of contract rather than a genuine pre-estimate of loss.
It is unenforceable if deemed extravagant, exorbitant, or unconscionable by the court.
What is the difference between a Penalty Clause and a Liquidated Damages Clause?
Penalty Clause – Designed to punish the breaching party, unenforceable if excessive.
Liquidated Damages Clause – A pre-estimated amount of loss, enforceable if reasonable.
What is Specific Performance?
equitable remedy where the court orders actual performance of contractual obligations when damages are not adequate
When is Specific Performance NOT available?
It is not available for contracts involving personal services (e.g., employment contracts).
What is an Injunction in contract law?
An Injunction is an equitable remedy used to prevent a breach of contract.
It is generally granted when damages are not adequate compensation.
When will a court refuse to grant an injunction?
if it would indirectly force the defendant to perform an act they could not have been ordered to do under specific performance.
What is the Duty to Mitigate in contract law?
The innocent party must take reasonable steps to minimize their losses after a breach.
However, if reasonable steps fail or increase the loss, the claimant is not penalized.
What is an Indemnity in contract law?
primary obligation where one party agrees to reimburse another for losses or liabilities under the contract.
It does not need to be in writing to be enforceable.
What is a Guarantee in contract law?
secondary obligation (a conditional promise) to pay if the debtor defaults.
When does a Guarantee become unenforceable?
Variation: If the underlying contract is varied, the guarantee is discharged, and a new guarantee is required.
