Chapter 9: The End of the Contractual Relationship Flashcards
Contracts can come to an end or be discharged by
- performance,
- breach,
- agreement between the parties to end or modify
- frustration
Discharge by Performance
LO 9.1 Illustrate how a contract is discharged by performance
Discharge by Performance
LO 9.1 Illustrate how a contract is discharged by performance
When does a contract end?
Contractual obligations are discharged and a contract is ended when both parties have satisfactorily completed their obligations under the contract
Performance definition
completion by both parties of the terms of a contract
From lecture
-Completion can happen simultaneously or one after the other (paying money and receiving the car or receiving the car and paying $1000 a month)
- Two situations where something short of exact performance will be found to be proper performance
1) When failure to perform is relatively insignificant or involves only a warranty or minor term
2) When there is substantial performance (where most of the performance has been done, such as a house is built but you’re waiting for door handles to come)
-Some obligations may last beyond the complete performance of a contract (warranties)
Conditions
Contracts usually consist of major terms, known as these
Warranties
Minor terms
What happens to a contract when the breach is significant
The contract is normally considered discharged and the other party is relieved of performing her
obligations under it
Substantial performance
performance of a contract in all but a minor aspect of it
Tender of performance
an unsuccessful (because it is rejected or prevented by the other party) attempt by one of the parties to a contract to perform its obligations under the contract
Discharge by Breach
LO 9.2 Describe when a breach of contract will relieve the opposite party from its obligations
Discharge by Breach
LO 9.2 Describe when a breach of contract will relieve the opposite party from its obligations
Breach of contract definition
failure to live up to the terms of a contract
Breach of contract can take place
in two ways:
(1) by improper or incomplete performance of the
obligations set out in the agreement (door handles do not show up and the house is never 100% finished)
(2) by refusal to perform (the price of a particular material goes way up and they can no longer supply you a contract - therefore you sue for damages)
Breach by Improper or Incomplete
Performance
The victim of the breach can sue for damages to compensate for losses that flowed from the breach
Conditions definition
major terms of a contract
Warranties definition
minor terms of a contract
Exemption Clauses
an attempt to limit liability under an agreement (also called an exclusion or exculpatory clause)
Fundamental Breach definition
a breach of a fundamental aspect of the contract that is not covered by an exclusion clause; a breach that goes to the very root of the contract
Instead of the doctrine of fundamental breach to rest, the focus is now on:
- whether the clause applies to the breach,
- whether the clause was unconscionable, and finally
- whether public policy dictates that the clause be set aside
Repudiation definition
an indication by one party to the other that there will be a failure to honour the contract (the expression of which can be expressed or implied)
an intimation or an intention to abandon and altogether to refuse performance of the contract
Anticipatory breach definition
repudiation of a contract before performance is due
In the face of an anticipatory breach, victims have a choice:
They can:
1) choose to immediately treat the contract as breached,
2) refuse to go through with any further performance on their part,
3) sue
Two types of Repudiation
1) Expressed
2) Implied
An express repudiation
For example, when a vendor calls or writes
to the purchaser indicating that he refuses to complete the sale
An implied repudiation
example: where the goods to be sold are simply sold to someone else, such repudiation will be implied.
As seen, failure to deliver an important instalment can lead to repudiation being implied.
Discharge by Agreement
LO 9.3 Explain how a contract may be discharged by agreement
LO 9.3 Explain how a contract may be discharged by agreement
Discharge by agreement (agreement to end or modify)
agreement by the parties that a contract is ended
Whether the intention of the parties is to merely modify the old agreement or to end it and substitute a new one, all the ingredients necessary to form a contract, including consensus and consideration, must be present.
Bilateral discharge (aka mutual release)
agreement by both sides to terminate the contract or to disregard a term of the contract
Accord and satisfaction
agreement to end a contract with extra consideration to be supplied by the party benefiting from the discharge
Accord
agreement by both parties on some change in the contract
Satisfaction
a substitute in consideration accepted by both parties
Novation
When the new agreement involves a new party being substituted for one
of the original parties to the agreement
Condition precedent (aka subject-to clause)
a term making a contract conditional on future events
The contract specified that a particular event must occur prior to the parties being bound by a contract
-best seen in real estate deals
Condition subsequent
a condition under which the obligations of a contract will end
The contract specifies that it will terminate upon the occurrence of a particular event
Example: buying steel unless it the price gets too high and the contract terminates once the price goes above that amount
Force majeure clause
a contract term anticipating some catastrophic event usually exempting liability when such an event interferes with performance of the contract
Examples: Strikes / work stoppages, acts of god like earthquakes, floods, tornados
Discharge by Frustration
LO 9.4 Outline the consequences flowing from frustration of contract
Discharge by Frustration
LO 9.4 Outline the consequences flowing from frustration of contract
Frustration definition
interference with a contract by some outside, unforeseen event that makes performance impossible or essentially different in nature
-It is out of control of the party
Example: Repairing a bridge but it washes away
Example: You have a lease on a coffee shop but the coffee house gets destroyed after an earthquake
Frustration vs shared mistake
With shared mistake, there is no contract because the subject matter had been destroyed before the contract was entered into
Frustration, on the other hand, deals with situations where the problems arise after the formation of the contract
Frustration commonly arises in the following circumstances:
1) Performance of a contract becomes impossible because the subject matter of the agreement is destroyed or is otherwise unusable.
2) An event that forms the basis of a contract fails to take place
3) Acts of the government interfere with performance
1) Performance of a contract becomes impossible because the subject matter of the agreement is destroyed or is otherwise unusable.
Contracts may be frustrated when a person who has
agreed to supply personal services becomes very ill or dies, or when the specific article that formed the object of the contract is destroyed before the agreement can be performed
3) Acts of the government interfere with performance
Government policy can interfere with the performance of a contract in several different ways. A contract with someone in another country may become unlawful or impossible to perform because of a declaration of war; contracts involving the manufacture and
production of particular drugs or foodstuffs may become illegal by statute; a contract may anticipate the acquisition of a licence or permit that the government does not grant; or a government may expropriate the property that may form the basis of a contract
Self-induced frustration
frustration arising when one of the parties to a contract causes or fails to prevent a frustrating event; treated as a breach of contract
Similarly, lack of profits or funding will not frustrate a contract
Effect of Frustration
Under common law, the general principle used to be “Let the loss lie where it falls.” In other
words, the frustrating event cancelled the outstanding obligations under the contract.
Frustrated Contracts Act
Permits the court to order that party to pay the other
for it. Where a deposit has been paid, the legislation usually allows the court to take into consideration the costs that have been incurred in
preparation to perform the contract, whether or not the other party has received a benefit
Frustration on leases
In common law, frustration does not apply to leases, but most jurisdictions have clearly stated that frustration applies to residential leases.
British Columbia extends the application of frustration to commercial leases as well
Remedies for Breach of Contract
LO 9.5 Describe how damages for breach of contract are assessed
Remedies for Breach of Contract
LO 9.5 Describe how damages for breach of contract are assessed
The most common remedy for a breach of contract is an order that the breaching party pay __________
damages
Damages (rough definition)
amounts of money assessed
by the court and designed to compensate victims for their losses
Damages in contract law vs tort law
Damages in tort
In contract law, damages look forward, put the victim in the place they would have been if th contract was properly performed
Wherein Tort actions damages look backward and try to put the victim in the position he would have been in had the tort never taken place
Special damages
When the damages awarded are to cover specific costs and expenses
General damages
When the funds awarded are an estimate of
what has been lost or what will be lost
Limitations on Recoverable Damages
Remoteness and mitigation are
two limitations on the recoverability of damages
Remoteness
Loss of profits when finding another contract
But you can collect direct damages
Mitigation definition
to lessen a loss, for example, by victims of a breach, who have a duty to take all reasonable steps to minimize losses suffered
The obligation to mitigate means that
the victim of the breach must take all reasonable steps to minimize the losses suffered, but that person is not required to take personal risks or to incur unreasonable expense in the process
Acceleration clause
a contractual term that comes into effect when there is a failure to make an instalment payment and which requires that the entire debt plus expenses be paid
Liquidated damages
a remedy requiring the party responsible for a breach to pay an amount specified in the contract
Deposit
money prepaid with the provision that the funds are to be forfeited in the event of a breach of contract
Deposits versus down payments
Deposits are to be forfeited in the event of a breach,
whereas a down payment is just the first payment and may have to be returned
Down payment
a portion of the purchase price paid to the seller at the time of sale
Equitable Remedies
LO 9.6 Differentiate the equitable remedies available for a breach of contract
LO 9.6 Differentiate the equitable remedies available for a breach of contract
Examples of remedies that have been developed by the Court of Chancery to deal with special situations in which the ordinary
remedy of damages would not be adequate
1) Rescission
2) Rectification
1) Rescission
Rescission deals with problems with the formation of a contract and focuses on restoring the parties to their original position.
The remedy terminates the contract “ab initio”, that is, as if it was never entered into
Rescission is generally available where a party has been induced by misrepresentation, fraud, or mistake to enter into a contract with the other party
2) Rectification
Rectification allows the court to correct a written contract where it fails to record what the parties had agreed to
Its purpose is to prevent a written document from being used to defraud a party.
To secure this remedy, there typically needs to be a prior oral contract and the plaintiff must prove that the terms agreed to orally were not written down properly
Specific Performance
Orders the defaulting party to live up to the terms of
the contract
From lecture: Occurs when the court orders the breaching party to complete the contract *generally limited to cases where damages are inappropriate)
To secure specific performance, the plaintiff may need to show that damages are an inadequate remedy
Injunction definition
a court order to stop some offensive conduct or to do something to remediate wrongful conduct or to not do something in the future
From lecture: The Court orders a party to do something (positive or mandatory injunction) or refrain from doing something (negative injunction); in some cases the court may order an injunction prior to trial (interlocutory injunction)
Mandatory injunction
when a person does something to violate a contractual term and thereby creates an ongoing problem
Example: Striking workers involved in an illegal work
stoppage are often ordered to stop breaching their contract and return to work.
Instances in which the courts will refuse to issue an injunction
-make it impossible for the person defaulting on
the contractual agreement to earn a living.
- when damages provide a sufficient remedy
- where it will cause harm to a third party
An injunction is designed not to punish someone for breaching a contract
but to prevent further injury
Accounting (accounting for profits)
a court-ordered determination of the injuries suffered; the agent must pay over money or property collected on behalf of the principal; a court order that any profits made from wrongdoing be paid over to the victim
From lecture: Occurs when the court orders damages on the basis of what has been gained by the offending party (rather than what has been lost by the victim)
Quantum Meruit
the principle that allows the supplier of a service to collect a reasonable fee, even when no price
had been agreed upon
From lecture: Award of compensation for the value of the work completed; Courts are reluctant to award this unless there has been substantial performance of a contract
Laches
undue delay; neglect or omission to assert a right or claim
Termination clauses
Agreed by the parties; may be statutory consideration (i.e. employment or residential tenancy legislation)
Two types of remedies available when a party has failed to adequately perform its obligations under a contract
1) Damages (may include general, special, and punitive damages)
- There are limitations such as mitigation and remoteness (i.e., loss of profit)
2) Equitable remedies
