Contract Discharge

Question 1

What is discharge?

Answer 1

The cancellation of the obligation of a contract for both parties

Question 2

What are the 4 ways a contract can be discharged?

Answer 2

Discharge by performance, discharge by agreement, discharge by frustration, and discharge by operation of law

Question 3

What is discharge by performance?

Answer 3

When both parties to the contract perform their obligations. If one party rejects an attempt by the other to perform, the first party has no obligation to try again and may sue for breach of contract

Question 4

What is discharge by agreement?

Answer 4

When both parties agree not to proceed with the contract by signing a waiver. Neither party can impose the waiver on the other.

Question 5

What is a substituted agreement?

Answer 5

When one party is unable to perform their end of the contract, they may offer the other party money or some other substitute to be released from the original contract. This is called accord and satisfaction. The purpose is to end the existing arrangement and not put a new one in its place

Question 6

What is novation?

Answer 6

When two parties to a contract agree to terminate the contract and put a new one in its place. There must be evidence of intention and agreement to abandon the contract. Burden of proof is on the party claiming there was novation. Any material alteration of terms or changing of parties amounts to novation

Question 7

What is a condition precedent?

Answer 7

A clause in the contract that identifies an event that must happen before the obligation to perform arises. The event must not be under the control of either of the parties and the precedent must be impossible to fulfill before the contract is set aside.

Question 8

What is condition subsequent?

Answer 8

A future event that brings a promisor’s liability to an end. The contract holds up until this event occurs

Question 9

What is an example of a condition subsequent?

Answer 9

Acts of god that destroy cargo in transit may bring a promisor’s liability to an end

Question 10

What is an example of a condition precedent?

Answer 10

Someone who will accept an employment contract given that they are able to find housing in the area of employment

Question 11

What is an option to terminate?

Answer 11

A term in the contract that allows either party to end the contract before performance by giving notice. Amounts to a discharge by agreement since both parties agreed to the terms.

Question 12

What is discharge by frustration?

Answer 12

When circumstances beyond the control of the two parties have made performance impossible, pointless, or radically different from the intended performance

Question 13

What are the requirements for discharge by frustration?

Answer 13

The frustrating event must be unforeseen
The frustrating event must be outside the control of the parties
The frustrating event must occur after the agreement was made
The frustrating event must make performance impossible, pointless, or radically different

Question 14

What is an example where a contract has been discharged by frustration?

Answer 14

A tenant is no longer bound by their contract to pay rent if the apartment is knocked down since performance is impossible

Question 15

What is self-induced frustration?

Answer 15

When one party deliberately makes performance impossible amounting to a breach of contract. Courts must determine whether or not reasonable care was taken to avoid the event

Question 16

What are some exceptions to discharge by frustration?

Answer 16

If a term is included in a contract about how to deal with a risk it cannot be used to discharge the contract.

Just because fulfilling the promise becomes more costly or onerous does not by itself frustrate the contract

Question 17

What happens when partial performance has occurred at the time of the frustrating event?

Answer 17

One party may receive a windfall from the completed performance without needing to hold up their end

Question 18

What are the 4 steps to determine whether or not a contract is discharged by frustration?

Answer 18

1. Determine if part performance has been made. If not, the contract is discharged
2. Identify the subject matter of the contract. If it is specific goods that have perished, the Sale of Goods Act decides
3. Determine applicable province’s Frustrated Contracts Act if they have one
4. Rely on common law rules from Fibrosa which states that a party can recover payment made before the frustrating event as long as no benefit has been received from the other party

Question 19

What is discharge by operation of law?

Answer 19

When there is legislation in place that allows a party to a contract to discharge it. For example, if a debtor declares bankruptcy, they may be released from obligations to pay debts up to that point as provided by law