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
2
Q
definition: discharge of contract
A
cancel or end the obligations of a contract, make an agreement or contract inoperative
3
Q
when does discharge by performance apply?
A
Both parties must fulfill all their respective obligations satisfactorily
4
Q
definition: tender of performance
A
an attempt by one party to perform according to the terms of the contract
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
6
Q
definition: waiver
A
an agreement not to proceed with the performance of an existing contract
7
Q
discharge by agreement if neither party has fully performed
A
there is automatically consideration for the waiver of each party
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
9
Q
can a party impose a waiver on another?
A
no
10
Q
2 substituted agreement examples
A
1) accord and satisfaction
2) novation
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
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
13
Q
definition: novation
A
the parties to a contract agree to terminate it and substitute a new contract
14
Q
2 types of novation
A
material change in terms and change in parties
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.
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
17
Q
3 ways contract provides for its own dissolution
A
1) condition precedent
2) condition subsequent
3) option to terminate
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.
19
Q
how may condition precedent be?
A
oral understanding or term in written contract
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.
21
Q
define condition subsequent
A
a future event that brings a promisor’s liability to an end if it happens
22
Q
define act of god
A
the raging of the natural elements
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.
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
25
definition: discharge by frustration
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
26
what happens with frustration if parties include in their contract a term to deal with the particular risk that has occurred?
the courts will not accept the event as frustrating the parties contract and will honour the limited protection provided in the contract
27
when is frustrated not available?
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
28
what happens in frustration with sale of goods that doesn't apply under sale of goods act?
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
29
explain difference between frustration and void for mistake
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.
30
define self-induced frustration
a party willfully disables itself from performing a contract in order to claim that the contract has been frustrated
31
what is self-induced frustration classified as?
breach of contract, not frustration
32
let the loss fall where it lies definition
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
33
remedies under fibrosa
if B made a deposit, it could recover it in full. If B received the slightest benefit, it could recover none of the deposit.
34
remedies under frustrated contracts act
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.
35
what does sales of goods act for frustration say?
If without any fault on buyer or seller, the goods perish before risk has passed to the buyer, the agreement is avoided.
36
3 conditions for sales of goods act for frustration to apply?
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
37
what happens if sales of goods act for frustration does not apply?
frustrated contracts act may apply still
38
4 steps for effects of frustration
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
39
definition: statute barred
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
40
3 examples of discharge by operation of law
1) statute barred
2) bankruptcy act
3) bills of exchange act
41
how does bankruptcy act apply for discharge by operation of law
debtor is entitled to a discharge from all debts owed to his creditors when the bankruptcy process is completed
42
how does bills of exchange act apply for discharge by operation of law
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
43
4 strategies to manage legal risks for discharge of contracts
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
44
when may serious breaches discharge a contract?
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.
45
does a breach discharge a contract automatically?
Breach does not discharge a contract automatically, the non-breaching party must communicate its choice to the breaching party
46
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
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
47
define minor breach
a breach of a non-essential term of a contract or of an essential term in a minor respect
48
example of minor breach
Delivering 995 instead of 1000 goods
49
define major breach
a breach of the whole contract or of an essential term so the purpose of the contract is defeated
50
example of major breach
Delivering on wednesday not monday
51
major/minor breach inducing discharge of contract
a major term may be broken in a minor way or a minor term may be broken in a major way
52
definition: conditions
essential terms of a contract
53
what are non-essential terms in a contract called?
warranties
54
3 ways breach may occur
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
definition: express repudiation
one of the contracting parties advises the other that it does not intend to perform as promised
56
what happens if repudiation is of the whole contract or substantial part?
promisee it entitled to treat the contract as being immediately at an end and may sue for damages
57
definition: anticipatory breach
an express repudiation that occurs before the time agreed for performance
58
what happens in anticipatory breach
the non-breaching party has a choice to accept it or insist on performance.
59
what does it mean when 1 party renders performance impossible and what does it not mean?
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
what are both parties entitled to in a contract before performance?
Both parties are entitled to a continuous expectation of performance until performance happens.
61
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:
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
definition: doctrine of substantial performance
Performance that does not comply in some minor way with the requirements of the contract
63
what does doctrine of substantial performance mean?
Promisee cannot use trivial failure of performance to avoid its own obligations
64
what happens for a recipient of mistaken or overperformance?
he cannot take a benefit that belongs to someone else, the courts will order him to restore it
65
definition: quasi-contract
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
definition: unjust enrichment
an unfair benefit
67
what happens if a recipient of mistaken or overperformance believes he is entitled to it?
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
what happens in performance to wrong party?
Performance to the wrong party is no performance at all, mistaken party remains obligated to perform
69
purpose of exemption clause
prevents other party from suing
70
when does exemption clauses work well?
when bargaining power and knowledge of the law are relatively equal between parties
71
how do courts decide if a party should escape effect of exemption clause?
3 step analytical approach
72
name the 3 steps in the 3 step analytical approach
1) interpretation of exemption clause
2) unconscionable clause
3) public policy and public interest
73
explain step 1 in analytical approach: interpretation of exemption clause
1) clause must apply in given circumstance
| 2) If there is ambiguity in wording, it must be interpreted against drawing party
74
definition: drawing party
the contracting party that prepared the agreement and/or particular clause
75
explain step 2 in analytical approach: unconscionable clause
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
definition: unconscionable clause
terms agreed to by parties of unequal bargaining power that give an unfair advantage to the powerful party over the weaker party
77
explain step 3 in analytical approach: public policy and public interest
Courts will refuse to enforce exemption clause if it goes against public policy or public interest
78
3 types of remedies in addition to treating contract as discharged as a result of a breach
1) damages
2) equitable remedies
3) quantum meruit
79
purpose of award of damages
Place injured party in position he would have been in if the contract had been properly completed
80
2 prerequisites for an award of damages
1) loss must flow from breach
| 2) damages must be mitigated
81
explain loss must flow from breach prerequisite
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
definition: mitigation
action by the injured party to reduce the extent of loss caused by the other party’s breach
83
definition: liquidated damages
an amount agreed on to be paid in damages by a party to a contract if it should commit a breach
84
definition: penalty clause
a term specifying an exorbitant amount for breach of contract, intended to frighten a party into performance
85
explain what happens in liquidated damages
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
explain what happens in penalty clause
Courts will ignore penalty clauses and award damages based on assessment
87
what is also considered an exemption clause and will be considered using 3 step analytical approach?
A term limiting damages to a very small sum may be equivalent to an exemption clause
88
explain nominal damages
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
definition: expectation damages
an amount awarded for breach of contract based on expected profits or benefits = (expected position - actual position)
90
definition: opportunity cost
the lost chance of making a similar contact with a different promisor
91
what is the usual remedy for breach of contract?
expectation damages
92
how may expectation damages also be awarded?
based on opportunity cost
93
definition: consequential damages
secondary losses incurred by the non-breaching party that were foreseeable at the time of contracting
94
definition: general damages
Estimated amount for intangible injury that a court may award, over and above specifically proven losses for harm
95
definition: reliance damages
costs of expenditures and wasted effort reasonably made in preparation for performance
96
definition: punitive damages
Rare circumstances, courts may award punitive damages for malicious or bad faith behaviour of the breaching party
97
in what cases may general damages be awarded?
Pain, suffering, nervous shock, humiliation, mental distress
98
when may mental distress damages be awarded?
in any breach of contract if this type of damage was reasonable foreseeable by the parties at the time the contract was created
99
what 2 cases often consider mental distress damages?
wrongful dismissal and lost holiday cases
100
what does a plaintiff must prove for mental distress damages in wrongful dismissal?
Plaintiff must prove psychological harm for which mental anguish damages are claimed, it will not be assumed in court
101
will a court award damages based on cost of performance or economic loss?
courts only look at making non-breaching party no worse off
102
what are equitable remedies considered?
discretionary
103
what will courts look at to see if requitable remedies should be applied?
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
definition: specific performance
an order requiring a defendant to do a contracted-for act, usually to complete a transaction
105
what 2 cases will specific performance not apply?
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
explain injunction
Court order restraining party from acting in a particular manner
107
definition: negative covenant
a promise not to do something
108
when will courts award injunction?
contract must contain or imply a negative covenant
109
definition: interlocutory injunction
a temporary injunction preventing immediate harm from being done before the full trial of the matter
110
definition: rescission:
setting aside or rescinding a contract in order to restore the parties as nearly as possible to their pre-contract position
111
definition: quantum meruit
the fair amount a person deserves to be paid for benefit conferred
112
example of when quantum meruit is applied
when serious breach occurs and non-breaching party has partially performed obligations
113
types of common law damages
expectation, consequential, general, reliance, punitive
114
types of equitable remedies
specific performance, injunction, rescission
115
definition: judgement creditor
a party who has obtained a court judgement for a sum of money
116
definition: judgement debtor
a party who has been ordered by the court to pay a sum of money
117
definition: levy execution
to seize and sell a debtor’s chattels or arrange for a sale of his lands
118
definition: garnishee order
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
definition: contempt of court
a finding by court that a person has willfully refused to obey a court order and therefore will be punished
120
what happens if a judgement debtor has an honest inability to pay?
they will not be punished
121
strategies to manage legal risks: breach of contract
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
