DISCHARGE OF CONTRACTS, BREACH AND REMEDIES Flashcards
Discharge of Contracts
cancellation of the obligation of a contract (make the contract null and inoperative, cancellation)
Discharge of Contracts 2 ways
- Frustration
- Operation of Law
Discharge by Frustration
- situations in which a contract becomes impossible to perform or is fundamentally different than what the parties have agreed to
Requirements of Frustration (4):
(1) Frustrating event must have been unforeseen;
(2) Frustrating event must be outside the control of the parties;
(3) Frustrating event must occur AFTER the agreement was made;
(4) Frustrating event must make performance impossible, purposeless, or “radically different” than what was intended by the parties.
Self-Induced Frustration
Where a party willfully disables itself from performing a contract to claim that the contract has been frustrated.
- Breach Of Contract
Frustrated Contracts Act
The Act provides rules for restitution:
Money paid before the frustrating event may be recoverable.
Expenses incurred before the frustrating event may be deducted from recoverable sums.
The value of benefits already received (e.g., partial performance) may be adjusted to ensure fairness.
Sale 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 buyer, perish before the risk has passed to the buyer, the agreement is “avoided” (i.e. same effect as frustrated).
Discharge by Operation of Law (2)
- Bankruptcy and Insolvency Act (Bankruptcy cancels all debts by discharging contracts, leaving you debt-free except for student loans.)
- Limitations Act (In Ontario, you have two years to sue for a breach of contract or tort, starting from when the breach occurs or is discovered, after which your claim is barred by the Limitations Act.)
Condition vs. Warranty
Condition: An essential term of the contract. If a condition is not met, the contract may be void.
Warranty: A non-essential term of the contract, often a representation where a party assures certain details.
Contracts often list “conditions” and “warranties” separately to indicate which terms are essential and which are secondary. If not specified, courts examine the contract’s obligations to determine whether a term is fundamental (condition) or incidental (warranty).
Breach of contract
= a situation in which a party doesn’t perform their obligation under a contract
either at all or under a deficient matter
2 types of breaches:
1) Minor breach = A breach of breach of warranty or an essential term in a minor respect; (you may sue for damages)
- preform inadequately
2) Major breach = A breach of the whole Contract or of a condition so that the purpose of the Contract is defeated.
- fail to preform
(Either accept the repudiation, discharge the contract or reject it and demand performance. If the other party fails to perform, you can sue for damages.)
When can a breach occur?
Breach can only occur after contract has been formed.
3 ways a breach can occur
- Express Repudiation
- Rendering Performance Impossible
- Failure to Perform / Inadequate Performance
Express Repudiation (Anticipatory Breach)
= Declaration of intention by one party to not perform
Options to non-breaching party:
- terminate contract and reserve the right to sue for damages
- Insist on performance and wait for non-performance (must remain ready and willing to perform on their side of the contract).
Rendering Performance Impossible
= One party purposefully makes the contract impossible to perform. (likely a breach of the implied duty of good faith)
* A.k.a. self-induced frustration
* Example: double booking, not getting building permits on purpose…
* Can occur before or at the time performance is due.
Failure to perform
= breaching through conduct
* Can only occur when performance is due (otherwise the party can always perform later and still meet their obligations under the contract).
- can be total or partial failure.
Exemption Clause
= a clause in a contract that exempts a party from liability for failing to perform some or all of its contractual obligations.
Courts will not enforce exclusion clauses that shield parties from fundamental breaches or contravene public policy.
Defences to Exemption Clauses
- Inadequate notice
- Contra proferentum
- Misrepresentation
- Non-Est Factum
3 Types of Remedies
- Damages
- Equitable Remedies
- Quantum Meruit
Concept of Mitigation
= action by an aggrieved party to reduce the extent of its loss caused by the breach of the other party.
Requirement is “reasonable” mitigation.
Betterment: the plaintiff should not be put in a better position then he or she was prior to the breach of contract
Damages (main measures)
- Expectation Damages: Expected profits under the contract at the time of contract formation.
Opportunity cost: Lost your chance of making a similar contract with a different promisor, so should be entitled to your profits.
- Consequential loss: other reasonably foreseeable damages that flow from the breach (e.x. shutting down business operations).
- General Damages: Damages that are not quantifiable (e.x. lost reputation).
- in business relate to goodwill. For example, if Loblaws couldn’t sell lettuce, their brand reputation might suffer, costing an estimated $100 in goodwill loss. Total damages would thus be $300, plus any additional mitigation costs.
Measurement of Damages (other measures - 3)
Reliance Damages: Damages for wasted effort
Liquidated Damages: An amount agreed to be paid in damages by a party to a contract if it should commit a breach.
Nominal Damages: Where loss sustained is negligible.
Hard to estimate damages for
Mental Anguish, Wrongful dismissal and Lost enjoyment
Equitable Remedies in Law
Court-ordered solutions other than monetary damages used when financial compensation is insufficient to resolve the dispute.
