Chapter 9: The End of the Contractual Relationship

Question 1

Contracts can come to an end or be discharged by

Answer 1

• performance,
• breach,
• agreement between the parties to end or modify
• frustration

Question 2

Discharge by Performance

LO 9.1 Illustrate how a contract is discharged by performance

Answer 2

Discharge by Performance

LO 9.1 Illustrate how a contract is discharged by performance

Question 3

When does a contract end?

Answer 3

Contractual obligations are discharged and a contract is ended when both parties have satisfactorily completed their obligations under the contract

Question 4

Performance definition

Answer 4

completion by both parties of the terms of a contract

From lecture
-Completion can happen simultaneously or one after the other (paying money and receiving the car or receiving the car and paying $1000 a month)

• Two situations where something short of exact performance will be found to be proper performance
  1) When failure to perform is relatively insignificant or involves only a warranty or minor term
  2) When there is substantial performance (where most of the performance has been done, such as a house is built but you’re waiting for door handles to come)

-Some obligations may last beyond the complete performance of a contract (warranties)

Question 5

Conditions

Answer 5

Contracts usually consist of major terms, known as these

Question 6

Warranties

Answer 6

Minor terms

Question 7

What happens to a contract when the breach is significant

Answer 7

The contract is normally considered discharged and the other party is relieved of performing her
obligations under it

Question 8

Substantial performance

Answer 8

performance of a contract in all but a minor aspect of it

Question 9

Tender of performance

Answer 9

an unsuccessful (because it is rejected or prevented by the other party) attempt by one of the parties to a contract to perform its obligations under the contract

Question 10

Discharge by Breach

LO 9.2 Describe when a breach of contract will relieve the opposite party from its obligations

Answer 10

Discharge by Breach

LO 9.2 Describe when a breach of contract will relieve the opposite party from its obligations

Question 11

Breach of contract definition

Answer 11

failure to live up to the terms of a contract

Question 12

Breach of contract can take place

in two ways:

Answer 12

(1) by improper or incomplete performance of the
obligations set out in the agreement (door handles do not show up and the house is never 100% finished)

(2) by refusal to perform (the price of a particular material goes way up and they can no longer supply you a contract - therefore you sue for damages)

Question 13

Breach by Improper or Incomplete

Performance

Answer 13

The victim of the breach can sue for damages to compensate for losses that flowed from the breach

Question 14

Conditions definition

Answer 14

major terms of a contract

Question 15

Warranties definition

Answer 15

minor terms of a contract

Question 16

Exemption Clauses

Answer 16

an attempt to limit liability under an agreement (also called an exclusion or exculpatory clause)

Question 17

Fundamental Breach definition

Answer 17

a breach of a fundamental aspect of the contract that is not covered by an exclusion clause; a breach that goes to the very root of the contract

Question 18

Instead of the doctrine of fundamental breach to rest, the focus is now on:

Answer 18

1. whether the clause applies to the breach,
2. whether the clause was unconscionable, and finally
3. whether public policy dictates that the clause be set aside

Question 19

Repudiation definition

Answer 19

an indication by one party to the other that there will be a failure to honour the contract (the expression of which can be expressed or implied)

an intimation or an intention to abandon and altogether to refuse performance of the contract

Question 20

Anticipatory breach definition

Answer 20

repudiation of a contract before performance is due

Question 21

In the face of an anticipatory breach, victims have a choice:

Answer 21

They can:

1) choose to immediately treat the contract as breached,
2) refuse to go through with any further performance on their part,
3) sue

Question 22

Two types of Repudiation

Answer 22

1) Expressed

2) Implied

Question 23

An express repudiation

Answer 23

For example, when a vendor calls or writes

to the purchaser indicating that he refuses to complete the sale

Question 24

An implied repudiation

Answer 24

example: where the goods to be sold are simply sold to someone else, such repudiation will be implied.

As seen, failure to deliver an important instalment can lead to repudiation being implied.

Question 25

Discharge by Agreement LO 9.3 Explain how a contract may be discharged by agreement

Answer 25

LO 9.3 Explain how a contract may be discharged by agreement

Question 26

Discharge by agreement (agreement to end or modify)

Answer 26

agreement by the parties that a contract is ended Whether the intention of the parties is to merely modify the old agreement or to end it and substitute a new one, all the ingredients necessary to form a contract, including consensus and consideration, must be present.

Question 27

Bilateral discharge (aka mutual release)

Answer 27

agreement by both sides to terminate the contract or to disregard a term of the contract

Question 28

Accord and satisfaction

Answer 28

agreement to end a contract with extra consideration to be supplied by the party benefiting from the discharge

Question 29

Accord

Answer 29

agreement by both parties on some change in the contract

Question 30

Satisfaction

Answer 30

a substitute in consideration accepted by both parties

Question 31

Novation

Answer 31

When the new agreement involves a new party being substituted for one of the original parties to the agreement

Question 32

Condition precedent (aka subject-to clause)

Answer 32

a term making a contract conditional on future events The contract specified that a particular event must occur prior to the parties being bound by a contract -best seen in real estate deals

Question 33

Condition subsequent

Answer 33

a condition under which the obligations of a contract will end The contract specifies that it will terminate upon the occurrence of a particular event Example: buying steel unless it the price gets too high and the contract terminates once the price goes above that amount

Question 34

Force majeure clause

Answer 34

a contract term anticipating some catastrophic event usually exempting liability when such an event interferes with performance of the contract Examples: Strikes / work stoppages, acts of god like earthquakes, floods, tornados

Question 35

Discharge by Frustration LO 9.4 Outline the consequences flowing from frustration of contract

Answer 35

Discharge by Frustration LO 9.4 Outline the consequences flowing from frustration of contract

Question 36

Frustration definition

Answer 36

interference with a contract by some outside, unforeseen event that makes performance impossible or essentially different in nature -It is out of control of the party Example: Repairing a bridge but it washes away Example: You have a lease on a coffee shop but the coffee house gets destroyed after an earthquake

Question 37

Frustration vs shared mistake

Answer 37

With shared mistake, there is no contract because the subject matter had been destroyed before the contract was entered into Frustration, on the other hand, deals with situations where the problems arise after the formation of the contract

Question 38

Frustration commonly arises in the following circumstances:

Answer 38

1) Performance of a contract becomes impossible because the subject matter of the agreement is destroyed or is otherwise unusable. 2) An event that forms the basis of a contract fails to take place 3) Acts of the government interfere with performance

Question 39

1) Performance of a contract becomes impossible because the subject matter of the agreement is destroyed or is otherwise unusable.

Answer 39

Contracts may be frustrated when a person who has agreed to supply personal services becomes very ill or dies, or when the specific article that formed the object of the contract is destroyed before the agreement can be performed

Question 40

3) Acts of the government interfere with performance

Answer 40

Government policy can interfere with the performance of a contract in several different ways. A contract with someone in another country may become unlawful or impossible to perform because of a declaration of war; contracts involving the manufacture and production of particular drugs or foodstuffs may become illegal by statute; a contract may anticipate the acquisition of a licence or permit that the government does not grant; or a government may expropriate the property that may form the basis of a contract

Question 41

Self-induced frustration

Answer 41

frustration arising when one of the parties to a contract causes or fails to prevent a frustrating event; treated as a breach of contract Similarly, lack of profits or funding will not frustrate a contract

Question 42

Effect of Frustration

Answer 42

Under common law, the general principle used to be “Let the loss lie where it falls.” In other words, the frustrating event cancelled the outstanding obligations under the contract.

Question 43

Frustrated Contracts Act

Answer 43

Permits the court to order that party to pay the other for it. Where a deposit has been paid, the legislation usually allows the court to take into consideration the costs that have been incurred in preparation to perform the contract, whether or not the other party has received a benefit

Question 44

Frustration on leases

Answer 44

In common law, frustration does not apply to leases, but most jurisdictions have clearly stated that frustration applies to residential leases. British Columbia extends the application of frustration to commercial leases as well

Question 45

Remedies for Breach of Contract LO 9.5 Describe how damages for breach of contract are assessed

Answer 45

Remedies for Breach of Contract LO 9.5 Describe how damages for breach of contract are assessed

Question 46

The most common remedy for a breach of contract is an order that the breaching party pay __________

Answer 46

damages

Question 47

Damages (rough definition)

Answer 47

amounts of money assessed | by the court and designed to compensate victims for their losses

Question 48

Damages in contract law vs tort law Damages in tort

Answer 48

In contract law, damages look forward, put the victim in the place they would have been if th contract was properly performed Wherein Tort actions damages look backward and try to put the victim in the position he would have been in had the tort never taken place

Question 49

Special damages

Answer 49

When the damages awarded are to cover specific costs and expenses

Question 50

General damages

Answer 50

When the funds awarded are an estimate of | what has been lost or what will be lost

Question 51

Limitations on Recoverable Damages

Answer 51

Remoteness and mitigation are | two limitations on the recoverability of damages

Question 52

Remoteness

Answer 52

Loss of profits when finding another contract But you can collect direct damages

Question 53

Mitigation definition

Answer 53

to lessen a loss, for example, by victims of a breach, who have a duty to take all reasonable steps to minimize losses suffered

Question 54

The obligation to mitigate means that

Answer 54

the victim of the breach must take all reasonable steps to minimize the losses suffered, but that person is not required to take personal risks or to incur unreasonable expense in the process

Question 55

Acceleration clause

Answer 55

a contractual term that comes into effect when there is a failure to make an instalment payment and which requires that the entire debt plus expenses be paid

Question 56

Liquidated damages

Answer 56

a remedy requiring the party responsible for a breach to pay an amount specified in the contract

Question 57

Deposit

Answer 57

money prepaid with the provision that the funds are to be forfeited in the event of a breach of contract

Question 58

Deposits versus down payments

Answer 58

Deposits are to be forfeited in the event of a breach, whereas a down payment is just the first payment and may have to be returned

Question 59

Down payment

Answer 59

a portion of the purchase price paid to the seller at the time of sale

Question 60

Equitable Remedies | LO 9.6 Differentiate the equitable remedies available for a breach of contract

Answer 60

LO 9.6 Differentiate the equitable remedies available for a breach of contract

Question 61

Examples of remedies that have been developed by the Court of Chancery to deal with special situations in which the ordinary remedy of damages would not be adequate

Answer 61

1) Rescission | 2) Rectification

Question 62

1) Rescission

Answer 62

Rescission deals with problems with the formation of a contract and focuses on restoring the parties to their original position. The remedy terminates the contract “ab initio”, that is, as if it was never entered into Rescission is generally available where a party has been induced by misrepresentation, fraud, or mistake to enter into a contract with the other party

Question 63

2) Rectification

Answer 63

Rectification allows the court to correct a written contract where it fails to record what the parties had agreed to Its purpose is to prevent a written document from being used to defraud a party. To secure this remedy, there typically needs to be a prior oral contract and the plaintiff must prove that the terms agreed to orally were not written down properly

Question 64

Specific Performance

Answer 64

Orders the defaulting party to live up to the terms of the contract From lecture: Occurs when the court orders the breaching party to complete the contract *generally limited to cases where damages are inappropriate) To secure specific performance, the plaintiff may need to show that damages are an inadequate remedy

Question 65

Injunction definition

Answer 65

a court order to stop some offensive conduct or to do something to remediate wrongful conduct or to not do something in the future From lecture: The Court orders a party to do something (positive or mandatory injunction) or refrain from doing something (negative injunction); in some cases the court may order an injunction prior to trial (interlocutory injunction)

Question 66

Mandatory injunction

Answer 66

when a person does something to violate a contractual term and thereby creates an ongoing problem Example: Striking workers involved in an illegal work stoppage are often ordered to stop breaching their contract and return to work.

Question 67

Instances in which the courts will refuse to issue an injunction

Answer 67

-make it impossible for the person defaulting on the contractual agreement to earn a living. - when damages provide a sufficient remedy - where it will cause harm to a third party An injunction is designed not to punish someone for breaching a contract but to prevent further injury

Question 68

Accounting (accounting for profits)

Answer 68

a court-ordered determination of the injuries suffered; the agent must pay over money or property collected on behalf of the principal; a court order that any profits made from wrongdoing be paid over to the victim From lecture: Occurs when the court orders damages on the basis of what has been gained by the offending party (rather than what has been lost by the victim)

Question 69

Quantum Meruit

Answer 69

the principle that allows the supplier of a service to collect a reasonable fee, even when no price had been agreed upon From lecture: Award of compensation for the value of the work completed; Courts are reluctant to award this unless there has been substantial performance of a contract

Question 70

Laches

Answer 70

undue delay; neglect or omission to assert a right or claim

Question 71

Termination clauses

Answer 71

Agreed by the parties; may be statutory consideration (i.e. employment or residential tenancy legislation)

Question 72

Two types of remedies available when a party has failed to adequately perform its obligations under a contract

Answer 72

1) Damages (may include general, special, and punitive damages) - There are limitations such as mitigation and remoteness (i.e., loss of profit) 2) Equitable remedies