Chapter 11: Discharge and Breach Flashcards
Discharge
A contract is discharged when the parties are relieved of the need to do anything more under the contract.
What are the 4 general ways that contracts can be discharged?
- Performance.
- Agreement or intention.
- Operation of law.
- Breach.
Performance
Occurs when the parties fulfill all the obligations contained in the contract.
What is the most common way to discharge a contract?
Performance.
Time is Not of the Essence
Means that a part is entitled to perform late even if the contract sets a specific date.
Tendering
Offering
Who has the obligation to tender payment?
The debtor has the obligation to find the creditor to tender payment.
Legal Tender
A payment of notes (bills) and coins to a certain value.
The debtor must pay in exact amounts, and the creditor is not required to provide change. True or false?
True.
Why is money not a favourable means to discharge a contract?
It can be stolen and used, and is very difficult (if not impossible) to recover.
Debit Card
A plastic card that allows a person to debit, or withdraw, funds from a bank account.
Are debit transactions instantaneous?
No. It goes through a clearing and settlement system.
Is payment by debit card final?
Yes.
Countermand
Stop a cheque.
Credit Card
Operates by allowing the cardholder to obtain credit, or a loan, for the purpose of paying for goods or services.
Credit
The ability to enjoy value now, with a promise to pay for it later.
Is the cardholder or the card issuer responsible for a lost or stolen credit card?
Depends. If the card is kept with the PIN or if the cardholder fails to report a loss, then the cardholder is responsible. Otherwise, the card issuer is responsible.
How is cheque a form of conditional payment?
- Can be forged.
- Writer can issue stop payment order.
- Can be overdrawn.
Damages
The amount of money that the court may order the defendant to pay to the plaintiff.
Substantial Performance
Generally satisfies the contract but is effective or incomplete in some minor way.
If a contract is discharged by substantial performance, does the innocent party have to pay for work that was not done?
No.
Entire Contract
Says that no part of the price is payable unless all of the work is done.
Can someone that did part of an entire contract claim the amount of work that they did?
No.
Option to Terminate
A contractual provision that allows one or both parties to discharge a contract without the agreement of the other.
What types of restrictions can be placed on options to terminate?
Having to give reasonable notice, having to compensate the other party for the losses that it suffered as a result of the early termination.
Condition Subsequent
A contractual term that states that the agreement will be terminated if a certain event occurs.
True Condition Precedent
A contractual term that states that an agreement will come into existence only if and when a certain event occurs.
Condition Precedent
A contractual term that states that while a contract is formed immediately, it does not have to be performed unless and until a certain event occurs.
When is the time of creation of contract for condition subsequent?
Immediate.
When is the time of creation of contract for true condition precedent?
If and when condition is satisfied.
When is the time of creation of contract for condition precedent?
Immediate.
What is the effect of the condition in condition subsequent?
Discharge of existing contract.
What is the effect of the condition in true condition precedent?
Creation of contract.
What is the effect of the condition in condition precedent?
Suspension of primary obligations.
Executory
A contract is executory if a party has not fully performed its obligations.
Executed
A contract is executed if a party has fully performed its obligations.
Rescission
Occurs when the parties agree to bring their contract to an end.
What is the consideration when an executory condition is rescinded?
Both parties give up the right to insist performance of original contract.
Accord and Satisfaction
Occurs when a party gives up its right to demand contractual performance in return for some new benefit.
Does accord and satisfaction require fresh consideration?
Yes.
Release
An agreement under seal to discharge a contract.
Variation
Involves an agreement to vary the terms of an existing contract.
True or false? Variation requires fresh consideration on both sides of the agreement.
True.
Novation
A process in which one contract is discharged and replaced with another.
Novation can include a substitution of obligations or parties. True or false?
True.
Can a novation occur without consent of al parties?
No, novation requires consent of all parties.
When novation occurs, does the agreement to discharge the old contract need to be supported by consideration?
Yes.
True or false? Novation can only be achieved expressly.
False, can be achieved expressly or impliedly. However, as a matter of risk management, the agreement should always be clearly written.
Waiver
Occurs when a party abandons a right to insist on contractual performance.
Does a waiver require consideration or a seal?
No.
Does a waiver have to be written down?
No.
What does the court require the party to prove when they obtain a waiver?
That the person agreeing to the waiver clearly intended to waive their rights.
How can contracts be varied?
- Accord and satisfaction.
- Variation.
- Novation.
- Waiver.
How can contracts be replaced?
- Novation.
How can contracts be terminated?
- Option to terminate.
- Condition subsequent and condition precedent.
- Rescission.
- Release.
Statute of Limitations
Require a party who has suffered a breach of contract to sue within a certain period.
A bankrupt debtor is discharged from outstanding contractual obligations…
If the bankruptcy was caused by misfortune rather than by misconduct.
Breach
Occurs whenever a party does not perform precisely as promised.
Condition
A term is a condition if the innocent party would be substantially deprived of the expected benefit of the contract if a breach occurred.
Does the breach of a condition automatically discharge a contract?
No, the right to discharge lies with the innocent party.
Warranty
A term is a warranty if the innocent party would not be substantially deprived of the expected benefit of the contract if a breach occurred.
Terms in a contract are either ___, ___, or ___.
Conditions, warranties, intermediate.
Intermediate
A term is intermediate if, depending upon the circumstances, the innocent party may or may not be substantially deprived of the expected benefit of the contract in the event of a breach.
What options are open when a condition is breached?
- Discharge contract and claim damages.
- Continue with contract and claim damages.
What options are open when a warranty is breached?
- Continue with contract and claim damages.
What options are open when an intermediate term is breached?
Depends upon seriousness of breach:
- Discharge contract and claim damages, or;
- Continue with contract and claim damages.
What are the four ways in which breach can occur?
- Defective performance.
- Deviation.
- Anticipatory breach.
- Self-induced impossibility.
Defective Performance
Occurs when a party fails to properly perform an obligation due under a contract.
De minimis non curat lex
The law does not concern itself with trifles.
Deviation
Occurs when a ship, train, or truck departs from the route agreed upon by the parties.
Anticipatory Breach
Occurs when a party indicates in advance, by words or conduct, that it does not intend to fulfill an obligation when it fails due under a contract.
When is the innocent party allowed to seek relief when there is an anticipatory breach?
Immediately.
What is the choice that the innocent party has to make in an anticipatory breach situation?
- Reject the breach, claim damages. and carry on with the contract.
- Accept the breach, claim damages, and discharge the other party from future performance.
Self-Induced Impossibility
Differs from frustration in that one party caused the contract to be impossible. The innocent party can discharge the contract and claim damages.
What is the effect of discharging a contract for breach?
The parties are relieved of the need to perform their primary obligations in the future.
What is the effect of rescinding or voiding a contract?
It was as if the contract had never existed.
Does discharging a contract get rid of it?
No.
In what cases might an innocent party lose the right to discharge?
- If the innocent party chooses to continue on with the agreement.
- If the part in breach provided a benefit the innocent party cannot return. However, you can claim damages.
