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Lecture 6

ADMS 2610 Lecture Notes - Lecture 6: Paraplegia, Travel Insurance, Rescission


Department
Administrative Studies
Course Code
ADMS 2610
Professor
Robert Levine
Lecture
6

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44
THE CONCEPT OF DISCHARGE OF CONTRACT
The concept of discharge of contract deals with how the obligations of the parties to a contract
can be brought to an end or discharged, leaving nothing more to be done. Another way of putting
this is to ask the question, “What must the parties to a contract do in order that their obligations
to each other are over?” In this regard, both common law and statute established a number of
different ways in which the parties could be discharged from their respective obligations under a
contract.
1. Discharge by Performance:
Consider a contract between A and B, whereby A will sell his car to B for $ 500.00 and
then ask yourself, “what is the easiest way in which both A and B can be discharged from their
obligations?” Hopefully, at this point in the course, your answer would be “by performance”.
Under the contract, A’s obligation is to transfer the car to B and B’s obligation is to pay the
money to A. If A transfers the car to B there is nothing more for him to do, and if B pays A the
money there is nothing more for him to do. Thus, we say that each has discharged or fulfilled
his/her respective obligation and, in consequence, there is nothing more for either of them to do.
1(a) What constitutes performance?
Where there is a contract under which one party agrees to pay a sum of money to the
other party, but the contract does not specify how that money is to be paid, the payment must be
by what we call legal Tender. In Canada, legal tender is Canadian dollars.
Where the contract specifies the form of payment of money (for example, by cheque or
bank draft) then this method must be followed unless payment is made by cheque or bank
draft, the person making the payment is not discharged from his obligation to pay in accordance
with the contract.
Where the contract specifies payment by means of a reciprocal obligation -A agrees to
transfer his car if B paints A’s house - payment by B only occurs when he paints A’s house.
Until that time, he is not discharged from this contractual obligation.
2. Discharge by Agreement:
Another simple way in which to bring a contract to an end and with it the obligations of
the parties is by agreement of the parties after the contract is made and before either of them has
begun to perform his/her obligation. While your text refers to this as Waiver, I prefer to say that
this is simply discharge resulting from the agreement of the parties.
3. Novation; Material Change in the Terms of a Contract and Creating a
Substitute Agreement.
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We encountered novation as an exception to or way around the strict rule of privity of
contract and saw it as a way of putting a missing party into an agreement, but only with the
consent of the original parties to the agreement. You can also have a novation (again only with
the consent of the original parties), by substantially changing the terms of the agreement.
Finally, the parties can make a new agreement that is substituted for the original agreement. In
each case the original agreement is terminated (the parties to the original contract are discharged
from their respective obligations under it.) and the operative agreement becomes the new one. I
do not intend to examine you on any of these ways.
4. Discharge by Breach
To understand this you must first understand that a breach of contract occurs when one
party to the contract fails or refuses to perform his/her obligation under it. Thus where A and
B agree that A will sell his car to B, if A delivers the car to B, but B does not pay A, we say that
B is in breach of his obligation to pay A the money B is in breach of the contract. Similarly, if
B pays the money, but A does not transfer the car to him, A would be in breach of the contract.
Please note that in the example given the failure of either A or B to perform their part of the
contract occurs when the time for performance is required (i.e. on the due date or completion
date of the contract)
4(a) Express Breach/Express Repudiation and Anticipatory Breach:
Consider the following example:
On January 1st, A and B agree that A will deliver goods to B by June 1st for $ 20,000.00.
Drawing a time-line, this contract would look like:
Diagram 1:
Jan 1st (Contract made) _________________________________ June 1st (due date or date of completion)
Now assume that on March 1st A says to B (whether orally or in writing) that A will not
deliver the goods to B at all (or he will not perform his part of the contract). The diagram would
become:
Diagram 2:
Jan 1st (Contract made) _____________ x___________________ June 1st (due date or date of completion)
March 1st
A says to B, “I will not deliver.”
In Diagram 2, A’s statement to B that he will not deliver the goods is considered a breach by A
of the contract, however, because A is telling B before the due date or the completion date, we
say that A’s statement is an express breach of the contract - A has expressly told B that he will
not perform his obligation under the contract. Not only does common law say that the
statement is an express breach by A, it goes further and says that A’s statement that he will not
perform deliver the goods is also an express repudiation of the contract or a repudiation by A of
his obligation to deliver the goods under the contract. However it should be noted that since, A’s
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46
statement comes after the contract date and before the due date or completion date, it is also
called an anticipatory breach of contract. An anticipatory breach will always happen if the
breach by one party comes after the date of the contract, but before the due date or completion
date of the contract. That is, in diagram 3, an anticipatory breach can occur anywhere between
the dates defined by the bracketed line:
Diagram 3:
Date of contract [____________________________] due date/ completion date
Thus, using our example above,
Diagram 4:
Jan 1st (Contract made) _____________ x___________________ June 1st (due date or date of completion)
March 1st
A says to B, “I will not deliver.”
= an express breach by A
= an express repudiation by A
= and anticipatory breach by A
Now, Where one party to a contract commits an anticipatory breach, the other party, (in
my example, B), is given a choice or election at law. He can either affirm the contract and keep
it alive, or accept the breach, terminate the contract and sue for damages subject to mitigation
, which I will explain in the shortly.
Although the concept of mitigation is dealt with at the end of contracts, I prefer to deal
with it now. Simply put, the concept of mitigation requires that where one party to a contract
(whom we will call the innocent party) suffers or will suffer damages as a result of the action
of another party, the law requires that the innocent party take whatever steps he or she can to
reduce his/her damages. This concept applies not only to contract law, but to every other area
of law where one party suffers or will suffer damages at the hands of another party. This means
it applies to Tort law, Agency law, Bailment law, Employment law, Intellectual Property law,
Consumer Protection and Competition law and Real Property law, just to name a few areas of
law. Mitigation is an important concept in law, because it imposes a mandatory requirement on
the innocent party to take all necessary steps to reduce his/her damages. If the innocent party
does not take such steps, if that party sues the other party, either the court will not allow the law
suit at all or alternatively and more commonly, a court will reduce that parties damages to what
they would have been if the party could have reduced his/her damages. I will explain this to you
again using the example we began with. However, before I do, let us deal with the first choice or
election of the innocent party, in our example B.
4(a)(i) B Chooses to Affirm the Contract and Keep It Alive:
If B chooses to affirm the contract and keep it alive, this means that on being told by A
that A will not perform his part of the contract, B is telling A “I don’t care. As far as I am
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