Contracts: The Effect of Breach of Contracts and Remedies

Question 1

Discharge of Contracts

Answer 1

Cancellation of the obligation of a contract (i.e make the contract null and inoperable, cancel the contract)

Question 2

Types of Discharge of Contracts

Answer 2

Discharge by Performance
Discharge by Agreement
Discharge by Frustrtion
Discharge by Operation of Law

Question 3

Discharge by Performance

Answer 3

Where both parties to the contract perform their obligation under the contract satisfactorily
Once it is preformed it is discharged

Question 4

Discharge by Agreement

Answer 4

Where both parties agree not to proceed with the contract

Question 5

Discharge by frustration

Answer 5

• When external causes have made performance radically different from that contemplated by the parties
• Beyond control of the parties

Ex – house burns down before you purchase it
The contract is discharged automatically and neither parties have obligations or have breached the contract

Question 6

Requirements of Frustration

Answer 6

(1) Frustrating event must have been unforeseen
(2) Frustrating event must have been outside the control of the parties
(3) Frustrating event must occur AFTER the agreement was made
(4) Frustrating event must make performance impossible, purposless, or “radically different” that what was intended by the parties
Note: it is not enough if the circumstances have changed and performance is now more onerous than originally contemplated

Question 7

Self-induced Frustration

Answer 7

Where a party willfully disables itself from preforming a contract in order to claim that the contract has been frustrated (breach of contract)

Question 8

Effect of Frustration

Answer 8

• Frustration discharges the contract at the moment of the frustrating event
• The court will enforce the contract up until the moment of discharge and will let the loss fall where it lied
• If neither party has performed: frustration is a complete discharge of both parties from all obligations
• If one or both parties have partially performed: one party could receive a windfall from the completed performance of the other party

Question 9

Frustrated Contracts Act

Answer 9

• Fixes some unfairness for allocating losses
• Amount due or paid may be retained or recovered but no more than the amount paid or due
• If one party has performed and no money was paid or due, then the party performing bears the loss

Question 10

Sales of Goods Act

Answer 10

• Section 8: Where there is an agreement to sell specific goods and subsequently the goods, without any fault on the part of the seller or the buyer, perish before the risk has passed to the buyer, the agreement is “avoided” (ex – the same as frustrated)
  (1) If the contract government by Sale of Goods Act, then the rule applies
  (2) If the contract not governed by Sale of Goods Act, then Frustrated Contracts Act applies (in those provinces that have an act)
  (3) Otherwise, the Fibrosa decision applies

Question 11

discharge by operation of law

Answer 11

• Contracts can be discharged by law
• bankruptcy and Insolvency
• Limitations

Question 12

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3

Answer 12

• All the parties assets and liabilities get transferred to the trustee, liabilities can include obligations under a contract
• Trustee pays off all creditors and then all contracts are discharged

Question 13

Limitations Act, S.O. 2002, Sch. B

Answer 13

• Have 2 years to sue someone if they have breached a contract or committed a tort towards you
• This is just for civil claims (if someone breached a contract, no limit if in a coma, mental health issues, or SA)

Question 14

Condition

Answer 14

• an essential term of the contract
• Major breach
• Intended to be something that must happen under the contract
• Has a section in the contract on the conditions

Question 15

Warranty

Answer 15

• a non-essential term of the contract
• Can be major or minor based on the circumstances

Question 16

Breach of Condition

Answer 16

Allows the non-breaching party to opt for a discharge of the contract and sue for damages. Otherwise, they can remain “ready willing and able to perform” and force the other side to perform

Question 17

Breach of Warrenty

Answer 17

Both parties remain bound to the contract, but the non-breaching party can sue for damages where it has incurred a loss

Question 18

“Time is of the Essence” Clause

Answer 18

Strict deadlines and if you miss them there has been a major breach of the contract

Question 19

Minor Breach

Answer 19

a breach of the non-essential terms of contract or of an essential term in a minor respect

Question 20

Major breach

Answer 20

• a breach of the while contract or of an essential term, so that the purpose of the contract is defeated
• Repudiation of the agreement
• Party has treated the contract as if it does not exist

Question 21

Effect of Breach

Answer 21

major breach may discharge the non-breaching party from performing the contract (not always the case)

Question 22

How can a breach occur

Answer 22

• express reputation
• rendering performance impossible
• failure to perform/ inadequate performance

Question 23

Express Repudiation

Answer 23

declaration of intention by one party to not perform

Question 24

Rendering Performance Impossible

Answer 24

• One party purposefully makes the contract impossible to perform
• Self-induced frustration (ex - double booking, not getting permits, not buying materials)

Question 25

Failure to Perform/ Inadequate Performance

Answer 25

- breaching through conduct - Can only occur when performance is due (otherwise the party can perform later and still meet their obligations under the contract

Question 26

Doctrine of Substantial Performance

Answer 26

- performance that does not comply in some minor way with the requirments of the contract - The non-breaching party cannot avoid their performance under the contract -Instead they must perform and can sue for damages resulting from the inadequate performance - Have substantially performed, should be able to get paid for the performance Between 80% - 100% completed

Question 27

Exemption Clauses

Answer 27

A clasue in a contract that exempts a party from liability for failing to perform some or all of its contractual obligations Insurance: contracts can require a party to obtain insurance which can keep costs low (ex – shipping contracts)

Question 28

Some Defences

Answer 28

Inadequate notice Misrepresentation Non-est Factum

Question 29

Terecon Contractors 3 part test where expemption clasies will not be applied to protect a breaching party from liability

Answer 29

(1) Interpretation of Exemption Clauses: Does the clause apply to the facts? (2) Unconscionable Clauses: terms agreed to between parties of unequal bargaining power that gave an unfair advantage to a powerful party over the weaker party (3) Public Policy/ Public Interest: court can still refuse to enforce it if they injured party can “point to some paramount consideration of public policy sufficent to override the public interest in freedom of contract