Chapter 11 - Discharge and Breach Flashcards Preview

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Flashcards in Chapter 11 - Discharge and Breach Deck (55)
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Contracts that are treated "as if they never existed"



Contract still exists, but the parties are relieved of the obligation to do anything further


4 Methods of Discharging a Contract

1. Discharge by performance
2. Discharge by agreement
3. Discharge by operation of law
4. Discharge by breach



Parties fulfill the obligations specified in the contract


General Rule:

The parties must perform exactly as the contract specifies.


Time of Performance
General Rule:

Time is not of the essence!

A party is entitled to perform late even if the contract sets a specific date. However, you could make a claim for any damages that you suffer, as a result of the other party’s delay in performing their contractual obligations


There are 3 circumstances in which time is of the essence

1. If parties have expressly or implicitly specified in their contract, “Time is of the essence”.
2. Even if not stipulated in contract, a party insisted upon timely performance by giving reasonable notice that performance must occur by a specific date/time.
3. Even if neither 1 or 2 occurred, the Court may yet determine that, in all the circumstances, time should be of the essence (i.e.. Contract dealing with perishable goods)


Tender of Payment

Usually payment of money in the form of:
 Debit cards: payment is final
 Credit cards: payment made using credit card company
 Cheques: conditional payment as bank may not honour, or customer may countermand cheque before cashed
 PayPal: 3PPS (third party payment system)

A reasonable tender has to made only once; if rejected, debtor still has to pay for debt but can wait for creditor to "come to him" for payment


Legal Tender

A payment of notes (bills) and coins to a certain value

Use of legal tender risky because lost or stolen cash extremely difficult to recover


Tender of Performance

When performance involves provision of goods or services:

The party who owes the obligation to provide goods or services need only offer these once
If impossible performance, the party with the obligation is discharged


Tender of Performance
General Rule:

Tender of goods or services must conform precisely with terms of contract


Tender of Performance
General Rule Exception:

A party may be discharged from further obligations if it provides substantial performance.

(Substantial performance generally satisfies the contract but is defective or incomplete in some minor way)


Substantial Performance

Substantial performance generally satisfies the contract but is defective or complete in some minor way.

o In deciding whether substantial performance has occurred, a Court will consider: nature of defect, difference between contract price and cost of curing defect.


Entire Contract

An entire contract says that no part of the price is payable unless all of the work is done

Courts have a bias towards finding a contract to be an entire contract because they would rather see workers get paid for their work rather than not getting paid at all


Single Contract to Deal with Series of Tasks

The parties may have used a single contract to deal with a series of tasks; In this case, as part of the overall price is earned each time a task is performed, the builder would only get compensation for the work/task(s) that he actually completed.

i.e. Builder is supposed to be paid $50,000 for task #1, $100,000 for task #2; If he leaves after just completing task #1, he’ll only get paid $50,000.


Discharge by Agreement

Options to terminate, conditions subsequent, conditions precedent and true condition precedent are ways in which the parties can agree, when initially creating a contract, that their obligations can be discharged in certain circumstances

Agreements can also be reached to discharge an obligation after a contract has been created: rescission, accord and satisfaction, release, variation, novation and waiver.


-Option to Terminate-

A contractual provision that allows either party to act unilaterally, to discharge a contract without the agreement of the other.

Negotiated and agreed upon in the contract (employee contracts)


-Conditions- (Conditional Contract)

o Parties agree that a contract is affected by an event
o Inserted into contract at the outset, like an option to terminate.


3 Types of Conditional Contracts

1. Condition subsequent
2. True condition precedent
3. Condition precedent


Condition Subsequent

A condition subsequent is a contractual term that states that the contract will come to an end if a specified event occurs.

Eg.) outdoor concert ticket cancelled because of weather and the refunded

Effect of Condition: Both parties must perform unless and until the specified event occurs, in which case the contract is terminated


True Condition Precedent

A True Condition Precedent is a contractual term that states an agreement will only come into existence if a specified event occurs.

Eg.) Selling a gun, contract will be valid only if our weapon receives government approval

Effect of Condition: a contract is created automatically if the event occurs


Condition Precedent

A Condition Precedent is a contractual term in which the contract is formed immediately but certain obligations do not have to be performed unless and until a specified event occurs.

Eg.) You agree to buy someone's house, but not unless you sell your own house within 30 days.

Effect of Condition: contract created immediately, but performance of primary obligations suspended. The subsidiary obligations however must be performed right away


Executed Contract:

A party has fully performed its obligations (i.e. You’ve done what you’re supposed to do)


Executory Contract:

A party has not fully performed its obligations (i.e. You haven’t yet done what you’re supposed to do).


Contracts which are not executed on both sides could be:

1. Executory on both sides (neither party has fully performed).
2. A mixture of executory and executed (one party has fully performed, the other hasn’t).



Agreement to terminate existing contract.


General Rule:

The Rule: A contract that is executory on both sides may be discharged through agreement, by the process of “Rescission”. Both sides agree, expressly or implicitly, not to demand the performance required by their contract- since neither party has yet performed its obligation, both parties provide consideration by giving up their right to the other’s performance (suffering a detriment). Therefore, the agreement that is reached is binding.


Void vs. Discharged

• A discharge means that the parties are relieved of their need to perform any further contractual obligations. However, the contract still exists, and the parties may rely or “use” their contract some purpose (i.e. exclusion clause or liquidated damages clause).
• In contrast, if a contract is rescinded or voided, that means that the contract is treated as “never having existed” and no party can rely upon any term in the contract, for any purpose.


Accord and Satisfaction
General Rule:

The general rule is that an agreement to discharge a contract which is executory on one side and executed on the other side is unenforceable due to lack of consideration.

Eg.) Fred built garage for Bob, and Bob owes money to Fred, but Fred says don't worry about paying. That is just a gratuitous promise because there is no consideration, so he can change his mind at any point


Accord and Satisfaction

Under an agreement as per Accord and Satisfaction, the executed party gives up their right to demand performance of the obligation owed by the executory party to them, in return for the executory party giving new or “fresh” consideration.

Eg.) If Fred tells Bob, “You don’t have to pay me, but how about you give me $5000 worth of steaks from your grocery store” and Bob agrees to this, now the agreement has been varied, and the varied agreement is enforceable.