Business 4000

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Business 4000

• Contracts Discharge of Contract

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Fundamentals

• If a contract is correctly formed, how can it be
  terminated?
• A breach (failure by one of the parties to
  perform) is not an automatic termination of the
  contract
• Discharge terminates a contract, and can be by
• Performance
• Agreement
• Frustration
• Operation of Law

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Discharge by Performance

• Simply where each side performs their side of the
  contract, and the contract is completed

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• To tender performance is to attempt to perform
  your obligations under the contract
• Performance may be tendered even when it is
  expected the other side will not accept
• to clarify the parties positions (or put
  pressure on the other side), because the failure
  to accept performance breach of contract or
• To ensure you are not in breach yourself

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Discharge by Agreement

• Waiver
• Agreement simply not to proceed
• Consideration in the release from previous
  contractual obligations
• If one party has fully performed, a promise to
  release the other partys obligations will
  require additional consideration not to be
  gratuitous
• Accord and Satisfaction
• Agreement to substitute other performance in lieu
  of obligation, which may be impossible or
  infeasible
• Compromise on rights and releases old obligation

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• Subsequent agreement can be written or oral,
  regardless of form of original contract
• All the requirements of a contract must exist in
  the subsequent deal usually consideration is the
  main issue

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Discharge by Agreement - Substituted Agreements

• Parties agree to amend terms of the existing
  contract to change obligations of one or both
• Minor changes are simply amendments
• Material alterations are more substantial that
  changes may essentially constitute terminating
  the old contract and substituting a new contract
• Novation is a more significant change to only
  one or a couple of material points, usually
  substituting parties

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Discharge by Agreement

• Contract terms - the contract may provide itself
  for its own termination
• Condition precedent
• If it is not satisfied, the contract never comes
  into being
• However, if it is satisfied, or until the
  condition is decided, it is a binding contract
  that cannot otherwise be avoided
• Condition Subsequent
• Parties agree on an event that will terminate
  obligations under contract
• Option to terminate
• One or both can simply terminate on notice

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Discharge by Frustration

• Frustration occurs where an unforeseen event
  after contract formation either
• makes performance impossible, or
• would result in performance being materially
  different than that originally contemplated
• Court will release parties of obligations to
  perform
• Problem is controlling when a party can blame
  failure to perform on frustration and escape
  liability for not performing (which would
  otherwise be a breach or contract)

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• Generally, cannot frustrate oneself - for
  example, financial hardship is not frustration
• If frustration is established, the problem then
  is establishing what happens
• If neither party has performed at all, no problem
  - they are simply released
• But if one or both have partially performed,
  issues arise as to how to settle up between the
  parties
• Complex issues, which have been made worse by the
  development of the law in the area

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Frustration With Frustration

• The common law rule if a contract was frustrated
  was that
• all future performance obligations were released
  but
• all existing obligations had to be completed
• Results in bizarre and unreasonable results
  depending upon how the timing of each sides
  performance on a contract had been arranged
• Deposits caused a lot of problems / unfairness

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• Courts tried to improve the deposit situation in
  the Fibrosa case
• If no benefit received for deposit, deposit
  returnable in full
• If any benefit received, entire deposit could be
  retained and none returned
• However, situations still existed that parties
  could incur significant expenses in preparing to
  perform, but not be able to pursue these costs or
  even retain deposits held
• Really only made matters worse, so the Frustrated
  Contracts Act passed

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Frustrated Contracts Act

• Where a party has incurred expenses in
  anticipation of performance, it can recover those
  expenses
• Up to the amount of any deposit or
• Up to the amount of any payments which were
  payable at the time of frustration (usually
  implying that a benefit had been conferred on the
  other side)
• However, if not deposit held, and no benefit
  conferred, you still cannot recover expenses

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Sale of Goods Act

• Applies where contract is for the sale of goods
  AND
• the goods are specific, meaning they are separate
  and identified in the contract
• the goods are still at the risk of the seller
  and
• the goods are destroyed
• If it applies, the contract is void - usually
  deposits are returned
• If it does not, Frustrated Contract Act applies,
  with its rules on deposits
• Destruction of source of goods can also frustrate
  contract

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Discharge by Operation of Law

• Some statutes will declare a contract terminated
• by their operation or
• upon a triggering event
• Contractual rights can also be terminated by
  statutory limitation periods (usually but not
  always either 2 or 6 years) - must take action to
  enforce your contractual rights within that time
  period or they will be barred from court