Contracts: The Effect of Breach of Contracts and Remedies Flashcards
Discharge of Contracts
Cancellation of the obligation of a contract (i.e make the contract null and inoperable, cancel the contract)
Types of Discharge of Contracts
Discharge by Performance
Discharge by Agreement
Discharge by Frustrtion
Discharge by Operation of Law
Discharge by Performance
Where both parties to the contract perform their obligation under the contract satisfactorily
Once it is preformed it is discharged
Discharge by Agreement
Where both parties agree not to proceed with the contract
Discharge by frustration
- 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
Requirements of Frustration
(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
Self-induced Frustration
Where a party willfully disables itself from preforming a contract in order to claim that the contract has been frustrated (breach of contract)
Effect of Frustration
- 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
Frustrated Contracts Act
- 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
Sales of Goods Act
- 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
discharge by operation of law
- Contracts can be discharged by law
- bankruptcy and Insolvency
- Limitations
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3
- 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
Limitations Act, S.O. 2002, Sch. B
- 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)
Condition
- 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
Warranty
- a non-essential term of the contract
- Can be major or minor based on the circumstances
Breach of Condition
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
Breach of Warrenty
Both parties remain bound to the contract, but the non-breaching party can sue for damages where it has incurred a loss
“Time is of the Essence” Clause
Strict deadlines and if you miss them there has been a major breach of the contract
Minor Breach
a breach of the non-essential terms of contract or of an essential term in a minor respect
Major breach
- 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
Effect of Breach
major breach may discharge the non-breaching party from performing the contract (not always the case)
How can a breach occur
- express reputation
- rendering performance impossible
- failure to perform/ inadequate performance
Express Repudiation
declaration of intention by one party to not perform
Rendering Performance Impossible
- One party purposefully makes the contract impossible to perform
- Self-induced frustration (ex - double booking, not getting permits, not buying materials)
Failure to Perform/ Inadequate Performance
- breaching through conduct
- Can only occur when performance is due (otherwise the party can perform later and still meet their obligations under the contract
Doctrine of Substantial Performance
- 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
Exemption Clauses
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)
Some Defences
Inadequate notice
Misrepresentation
Non-est Factum
Terecon Contractors
3 part test where expemption clasies will not be applied to protect a breaching party from liability
(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
