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BU 231 > Lesson 8 - Discharge of a Contract and Remedies (Chp 12-13) > Flashcards

Lesson 8 - Discharge of a Contract and Remedies (Chp 12-13) Flashcards

1
Q

4 ways a contract may be terminated/discharged

A

1) By performance
2) by Agreement
3) through doctrine of frustration
4) Through operation of law

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2
Q

definition: discharge of contract

A

cancel or end the obligations of a contract, make an agreement or contract inoperative

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3
Q

when does discharge by performance apply?

A

Both parties must fulfill all their respective obligations satisfactorily

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4
Q

definition: tender of performance

A

an attempt by one party to perform according to the terms of the contract

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5
Q

what happens if one party attempts to fulfill obligations but other party refuses,

A

the first party is under no obligation to attempt again and may sue for breach of contract

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6
Q

definition: waiver

A

an agreement not to proceed with the performance of an existing contract

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7
Q

discharge by agreement if neither party has fully performed

A

there is automatically consideration for the waiver of each party

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8
Q

discharge by agreement if one party has already performed

A

they receive no consideration for giving a waiver. To be binding, a promise to release the other party should be under seal

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9
Q

can a party impose a waiver on another?

A

no

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10
Q

2 substituted agreement examples

A

1) accord and satisfaction

2) novation

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11
Q

define accord and satisfaction

A

a compromise between contracting parties to substitute a new contractual obligation and release a party from the existing one

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12
Q

difference between material alteration and accord and satisfaction

A

1) In material alteration, the parties are concerned with creating a new arrangement, discharge of old contract is incidental
2) In accord and satisfaction, the parties are seeking a way to end their existing arrangement, the new arrangement is only for that purpose

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13
Q

definition: novation

A

the parties to a contract agree to terminate it and substitute a new contract

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14
Q

2 types of novation

A

material change in terms and change in parties

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15
Q

what must there be evidence of for novation in change in parties?

A

there must be evidence, either by words or conduct, of intention and agreement to abandon the original contract on the part of both the creditors and the new owner.

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16
Q

burden of proof in novation for change in parties

A

Burden of proof is on the party claiming there was novation to show that the other party assumed all liabilities under a pre-existing contract and has acted on that contract

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17
Q

3 ways contract provides for its own dissolution

A

1) condition precedent
2) condition subsequent
3) option to terminate

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18
Q

define condition precedent

A

Condition precedent is a future act or event, other than a lapse in time, that must happen before the obligation to perform a promise arises. If the condition is not met and is not waived, the promisor need not perform.

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19
Q

how may condition precedent be?

A

oral understanding or term in written contract

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20
Q

when are parties discharged from promises in condition precedent

A

Parties are not discharged from promises unless and until the condition precedent becomes impossible to fulfill.

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21
Q

define condition subsequent

A

a future event that brings a promisor’s liability to an end if it happens

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22
Q

define act of god

A

the raging of the natural elements

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23
Q

explain act of good in shipment of goods

A

Act of god may be a condition subsequent if it results in destruction of shipment of goods. This term is implied by trade custom.

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24
Q

explain option to terminate

A

A contract may include a term that gives 1 party or both the choice to bring the contract to an end before its performance has been completed, usually by giving notice

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25
Q

definition: discharge by frustration

A

the law excuses a party from performance when circumstances beyond the control of the parties have made performance impossible, pointless, or radically different from that contemplated by the parties

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26
Q

what happens with frustration if parties include in their contract a term to deal with the particular risk that has occurred?

A

the courts will not accept the event as frustrating the parties contract and will honour the limited protection provided in the contract

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27
Q

when is frustrated not available?

A

1) Frustration is not available when obligations prove to be more onerous that anticipated, only available in extreme circumstances that could not have been anticipated by parties
2) Note that price increases and labour shortages are to be expected and frustration won’t apply

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28
Q

what happens in frustration with sale of goods that doesn’t apply under sale of goods act?

A

When contract involves sale of goods which are destroyed, it will only be frustrating if the specific goods/source of goods is a term of the contract, otherwise the supplier must find and the buyer must accept replacement goods from a different source

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29
Q

explain difference between frustration and void for mistake

A

If subject matter ceases to exist at time of agreement, agreement is void for mistake. For frustration, performance must become impossible after agreement was made.

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30
Q

define self-induced frustration

A

a party willfully disables itself from performing a contract in order to claim that the contract has been frustrated

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31
Q

what is self-induced frustration classified as?

A

breach of contract, not frustration

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32
Q

let the loss fall where it lies definition

A

the court will enforce the contract up to the moment of discharge - obligations due before the frustrating event remain; obligations arising after the frustrating event are discharged

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33
Q

remedies under fibrosa

A

if B made a deposit, it could recover it in full. If B received the slightest benefit, it could recover none of the deposit.

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34
Q

remedies under frustrated contracts act

A

1) Payment made or due can be recovered.
2) Performer can recover a just proportion of any valuable benefit received by other party.
3) If a party has expended time and money in performance of contract and other party has made no deposit and not yet received any benefit, the first party is without remedy and must bear loss.

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35
Q

what does sales of goods act for frustration say?

A

If without any fault on buyer or seller, the goods perish before risk has passed to the buyer, the agreement is avoided.

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36
Q

3 conditions for sales of goods act for frustration to apply?

A

1) Goods must be specific. They must be identified and agreed upon at the time the sale is made
2) risk must still be with the seller. Seller must still be responsible for safety of the goods
3) cause of frustration must be the perishing or destruction of goods

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37
Q

what happens if sales of goods act for frustration does not apply?

A

frustrated contracts act may apply still

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38
Q

4 steps for effects of frustration

A

Step 1) if any part of performance, benefit, or expense was provided before a frustrating event, if not, all obligations are discharged. If yes, proceed to step 2
Step 2) identify subject matter of contract. If contract deals with specific goods and they have perished, then rules of sales of goods act decides effect of frustration
Step 3) if sale of goods act does not apply, determine if applicable performance has frustrated contracts act. If so, rules under that act determine effect of frustration
Step 4) common law rules as set out in fibrosa case decide all remaining cases

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39
Q

definition: statute barred

A

an action that may no longer be brought before a court because the party wishing to sue has delayed beyond the limitation period in the statute

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40
Q

3 examples of discharge by operation of law

A

1) statute barred
2) bankruptcy act
3) bills of exchange act

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41
Q

how does bankruptcy act apply for discharge by operation of law

A

debtor is entitled to a discharge from all debts owed to his creditors when the bankruptcy process is completed

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42
Q

how does bills of exchange act apply for discharge by operation of law

A

if a bill has been altered in a material way without knowledge of all parties, contract is discharged against all parties except party who altered the agreement

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43
Q

4 strategies to manage legal risks for discharge of contracts

A

1) Businesses should identify circumstances they would not want to perform and include them as conditions subsequent to agreement
2) If things need to happen before, they should be included as conditions precedent
3) Contract may call for deposits to be made if one party has to expend considerable time, effort, funds
4) Contract should include frustration clauses in contract to deal with all possible obstacles since frustration is only available for unanticipated events

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44
Q

when may serious breaches discharge a contract?

A

the breach must undermine the whole contract or a substantial part of it. The purpose of the contract must be defeated so performance by non-breaching party is rendered pointless.

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45
Q

does a breach discharge a contract automatically?

A

Breach does not discharge a contract automatically, the non-breaching party must communicate its choice to the breaching party

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46
Q

2 cases where non-breaching party does not have the option to be released from contractual obligations but may do a breach of contract action

A

1) When innocent party proceeds with contract and accepts benefits despite breach
2) Innocent party receives benefit of contract and has not learned of the breach until the party’s performance was already complete

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47
Q

define minor breach

A

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

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48
Q

example of minor breach

A

Delivering 995 instead of 1000 goods

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49
Q

define major breach

A

a breach of the whole contract or of an essential term so the purpose of the contract is defeated

50
Q

example of major breach

A

Delivering on wednesday not monday

51
Q

major/minor breach inducing discharge of contract

A

a major term may be broken in a minor way or a minor term may be broken in a major way

52
Q

definition: conditions

A

essential terms of a contract

53
Q

what are non-essential terms in a contract called?

A

warranties

54
Q

3 ways breach may occur

A

1) By expressly repudiating (rejecting) its obligations
2) By acting in a way that makes it impossible to perform its promises
3) By either failing to perform at all or tendering an actual performance that falls short of its promise

55
Q

definition: express repudiation

A

one of the contracting parties advises the other that it does not intend to perform as promised

56
Q

what happens if repudiation is of the whole contract or substantial part?

A

promisee it entitled to treat the contract as being immediately at an end and may sue for damages

57
Q

definition: anticipatory breach

A

an express repudiation that occurs before the time agreed for performance

58
Q

what happens in anticipatory breach

A

the non-breaching party has a choice to accept it or insist on performance.

59
Q

what does it mean when 1 party renders performance impossible and what does it not mean?

A

A deliberate or negligent act that makes performance impossible amounts to repudiation. This does not include an act that is an involuntary response to forces beyond its control.

60
Q

what are both parties entitled to in a contract before performance?

A

Both parties are entitled to a continuous expectation of performance until performance happens.

61
Q

In a contract where 1 party is to perform by installments, the other may consider himself freed only if it can offer convincing answers to both questions:

A

1) is there a good reason to think future performance will be equally defective?
2) is either the expected deficiency or the actual deficiency to date important relative to the whole performance promised?

62
Q

definition: doctrine of substantial performance

A

Performance that does not comply in some minor way with the requirements of the contract

63
Q

what does doctrine of substantial performance mean?

A

Promisee cannot use trivial failure of performance to avoid its own obligations

64
Q

what happens for a recipient of mistaken or overperformance?

A

he cannot take a benefit that belongs to someone else, the courts will order him to restore it

65
Q

definition: quasi-contract

A

an obligation that may arise, not as a result of contractual obligations, but because one party has received an unfair benefit at the expense of the other

66
Q

definition: unjust enrichment

A

an unfair benefit

67
Q

what happens if a recipient of mistaken or overperformance believes he is entitled to it?

A

if the courts find it would be an unjust enrichment to allow the recipient to keep the benefit, it will order restitution of the benefit

68
Q

what happens in performance to wrong party?

A

Performance to the wrong party is no performance at all, mistaken party remains obligated to perform

69
Q

purpose of exemption clause

A

prevents other party from suing

70
Q

when does exemption clauses work well?

A

when bargaining power and knowledge of the law are relatively equal between parties

71
Q

how do courts decide if a party should escape effect of exemption clause?

A

3 step analytical approach

72
Q

name the 3 steps in the 3 step analytical approach

A

1) interpretation of exemption clause
2) unconscionable clause
3) public policy and public interest

73
Q

explain step 1 in analytical approach: interpretation of exemption clause

A

1) clause must apply in given circumstance

2) If there is ambiguity in wording, it must be interpreted against drawing party

74
Q

definition: drawing party

A

the contracting party that prepared the agreement and/or particular clause

75
Q

explain step 2 in analytical approach: unconscionable clause

A

1) An unconscionable term has both inequality in the process of creating the clause and an unfair outcome
2) If there is an unconscionable clause, it is unenforceable

76
Q

definition: unconscionable clause

A

terms agreed to by parties of unequal bargaining power that give an unfair advantage to the powerful party over the weaker party

77
Q

explain step 3 in analytical approach: public policy and public interest

A

Courts will refuse to enforce exemption clause if it goes against public policy or public interest

78
Q

3 types of remedies in addition to treating contract as discharged as a result of a breach

A

1) damages
2) equitable remedies
3) quantum meruit

79
Q

purpose of award of damages

A

Place injured party in position he would have been in if the contract had been properly completed

80
Q

2 prerequisites for an award of damages

A

1) loss must flow from breach

2) damages must be mitigated

81
Q

explain loss must flow from breach prerequisite

A

Loss resulting from breach must be within the foreseeable limits of what the parties would have expected as a likely consequence for failure to perform. They must have thought about it when they drew up the contract, not when the breach happened.

82
Q

definition: mitigation

A

action by the injured party to reduce the extent of loss caused by the other party’s breach

83
Q

definition: liquidated damages

A

an amount agreed on to be paid in damages by a party to a contract if it should commit a breach

84
Q

definition: penalty clause

A

a term specifying an exorbitant amount for breach of contract, intended to frighten a party into performance

85
Q

explain what happens in liquidated damages

A

Injured parties recovery will be limited to the pre-set amount provided it was a genuine attempt by the parties to estimate a loss

86
Q

explain what happens in penalty clause

A

Courts will ignore penalty clauses and award damages based on assessment

87
Q

what is also considered an exemption clause and will be considered using 3 step analytical approach?

A

A term limiting damages to a very small sum may be equivalent to an exemption clause

88
Q

explain nominal damages

A

A court may award nominal damages, of $1 for example, to acknowledge a breach of contract where there is no real loss experienced by non-breaching party

89
Q

definition: expectation damages

A

an amount awarded for breach of contract based on expected profits or benefits = (expected position - actual position)

90
Q

definition: opportunity cost

A

the lost chance of making a similar contact with a different promisor

91
Q

what is the usual remedy for breach of contract?

A

expectation damages

92
Q

how may expectation damages also be awarded?

A

based on opportunity cost

93
Q

definition: consequential damages

A

secondary losses incurred by the non-breaching party that were foreseeable at the time of contracting

94
Q

definition: general damages

A

Estimated amount for intangible injury that a court may award, over and above specifically proven losses for harm

95
Q

definition: reliance damages

A

costs of expenditures and wasted effort reasonably made in preparation for performance

96
Q

definition: punitive damages

A

Rare circumstances, courts may award punitive damages for malicious or bad faith behaviour of the breaching party

97
Q

in what cases may general damages be awarded?

A

Pain, suffering, nervous shock, humiliation, mental distress

98
Q

when may mental distress damages be awarded?

A

in any breach of contract if this type of damage was reasonable foreseeable by the parties at the time the contract was created

99
Q

what 2 cases often consider mental distress damages?

A

wrongful dismissal and lost holiday cases

100
Q

what does a plaintiff must prove for mental distress damages in wrongful dismissal?

A

Plaintiff must prove psychological harm for which mental anguish damages are claimed, it will not be assumed in court

101
Q

will a court award damages based on cost of performance or economic loss?

A

courts only look at making non-breaching party no worse off

102
Q

what are equitable remedies considered?

A

discretionary

103
Q

what will courts look at to see if requitable remedies should be applied?

A

1) plaintiff must not have acted unethically
2) plaintiff must not delay in bringing action
3) court will not intervene on equitable principles when to do so would negatively affect an innocent purchaser
4) The plaintiff must have paid meaningful consideration for the defendant’s promise. Promises under seal do not apply.
5) plaintiff must ordinarily be a party against whom the remedy would be awarded were he the defendant instead (i.e not a child when contract is voidable at his option)
6) first look at if damages will not adequately compensate loss

104
Q

definition: specific performance

A

an order requiring a defendant to do a contracted-for act, usually to complete a transaction

105
Q

what 2 cases will specific performance not apply?

A

1) In situations where court might be obligated to supervise defendant (performance that depends on personal skill or judgement of defendant) does not apply
2) Contract for sales of goods unless goods are one of a kind do not apply

106
Q

explain injunction

A

Court order restraining party from acting in a particular manner

107
Q

definition: negative covenant

A

a promise not to do something

108
Q

when will courts award injunction?

A

contract must contain or imply a negative covenant

109
Q

definition: interlocutory injunction

A

a temporary injunction preventing immediate harm from being done before the full trial of the matter

110
Q

definition: rescission:

A

setting aside or rescinding a contract in order to restore the parties as nearly as possible to their pre-contract position

111
Q

definition: quantum meruit

A

the fair amount a person deserves to be paid for benefit conferred

112
Q

example of when quantum meruit is applied

A

when serious breach occurs and non-breaching party has partially performed obligations

113
Q

types of common law damages

A

expectation, consequential, general, reliance, punitive

114
Q

types of equitable remedies

A

specific performance, injunction, rescission

115
Q

definition: judgement creditor

A

a party who has obtained a court judgement for a sum of money

116
Q

definition: judgement debtor

A

a party who has been ordered by the court to pay a sum of money

117
Q

definition: levy execution

A

to seize and sell a debtor’s chattels or arrange for a sale of his lands

118
Q

definition: garnishee order

A

an order requiring debtor’s employer to retain a portion of the debtor’s wages each payday and surrender the sum to the creditor

119
Q

definition: contempt of court

A

a finding by court that a person has willfully refused to obey a court order and therefore will be punished

120
Q

what happens if a judgement debtor has an honest inability to pay?

A

they will not be punished

121
Q

strategies to manage legal risks: breach of contract

A

1) Obtain insurance against risk and rise price accordingly
2) Include exemption clause
3) Liquidated damages to quantify risk ahead of time
4) Identify essential terms of contract where a breach would trigger discharge

BU 231 (8 decks)

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