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Chapter 11 Textbook Notes.docx

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Chapter 11 Textbook Notes Discharge and Breach  We will now finish our general discussion of contracts by examining the end of the contractual process  A business person is often keenly interested in knowing whether a contract has been brought to an end  Most contracts are brought to an end through discharge  A contract is discharged when the parties are relieved of the need to do anything more under the contract Discharge by performance  Most common method of discharge is performance. Performance occurs when the parties fufill all the obligations contained in the contract  The parties must perform exactly as the contract requires Time of performance  Time is not of the essence- in most situations  A contract dealing with perishable goods or a volatile market may therefore require the parties to act promptly Tender of Payment  Most contracts require a payment of money by at least one of the parties.  Business people should be aware of some specific rules that govern payments 1. The debtor has the primary obligation of locating the creditor and tendering (offering) payment, even if the creditor has not asked for it.  A reasonable tender only has to be made once  Interest does not accrue on a payment once a reasonable tender has been made, even if that tender is improperly rejected 2. Unless a contract says otherwise, a creditor can insist on receiving legal tender  Legal Tender is a payment of notes (bills) and coins to a certain value  The debtor must provide exactly the correct amount of money 3. Despite the usual rule, a debtor does not have to actually tender payment if it would obviously be refused Discharge of a contractual debt by payment of money has both advantages and disadvantages  Money is advantageous because it is absolute  Money is not a means to an end, but rather an end in itself  Once money passes into the hands of a bona fide purchaser for value, it is wiped clean  Because of the risks associated with money, it has become common to discharge a contractual debt by other means  Therefore we will look briefly at the three most common options: debit cards, credit cards, cheques Payment by Debit Card  A debit card is a plastic card that allows a person to debit, or withdraw, funds from a bank account  While a debit card can be used at the bnk where the account is held, it usually is used at some distant location, such as a store  The actual transfer of funds occurs a short time later through the clearing and settlement system  Payment by debit card is final  a debit card is different from a cheque, where the customer can countermand  The most common issue regarding debit cards concerns unauthorized use  As a general rule, the cardholder is liable I the ardholder is to blame  Card holders are also responsible if they fail to promptly report the loss of theft of the card to the bank Payment by Credit Card  A credit card operates by allowing the cardholder to obtain credit, or a loan, for the purpose of paying for goods or services  Credit is the ability to enjoy value now, with a promise to pay for it later  The use of credit cards involves three relationships, each one governed by contract. o Card Issuer and Cardholder  The card issuer arranges credit by paying for goods or services on the cardholder’s behalf o Card Issuer and Merchant  Once a transaction has been authorized by the card issuer, that credit card company is obligated to transfer funds to the merchant  The merchant is paid in any event o Cardholder and Merchant  The relationship between the cardholder and the merchant is not affected by the use of a credit card (aside fro providing a means of payment)  The cardholder’s only option is to sue the merchant on the underlying sales contract  One of the most important legal issues for credit cards involves unauthorized use.  Other provinces, including Ontario, rely instead on judge-made rules.  Card issuers now often contact cardholders to inquire about sudden or unusual changes in patterns of use Payment by Cheque  Payment by cheque conditionally discharges a contractual debt  A cheque may be forged Tender of Performance  Many of the same principles apply when a contract requires the provision of goods or services rather than money  Damages- is the amount of money that the court may order the defendant to pay to the plaintiff Substantial Performance  Occasionally, 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  An entire contract says that no part of the price is payable unless all of the work is done Discharge by Agreement  In some situations, one or both parties can discharge a contract even though it was not fully performed. That type of discharge can occur in several ways. Option to Terminate  When creating a contract, the parties can insert an option to terminate, which allows one or both of them to discharge the contract without the agreement of the other. That sort of provision is often found in employment contracts  In principle, however, an option to terminate can be inserted into any type of contract  Options to terminate are frequently subject to restrictions—ex) need to give reasonable notice Condition Subsequent and Condition Precedent  Condition subsequent is a contractual term that states that the agreement will be terminated if a certain event occurs—parties can also insert this when creating a contract  A condition subsequent is different from an option to terminate because it does not have to be exercised by either party to be effective  A contract that is subject to a condition subsequent exists until the relevant event occurs  A True Condition Precedent is a contractual term that states an agreement will come into existence only if and when a certain event occurs.  A condition subsequent causes an existing contract to come to an end if a certain event occurs, whereas a true condition precedent allows a contract to come into existence only if a certain event occurs  Unfortunately, Canadians also use the phrase condition precedent to refer to a contractual term that states that while a contract is formed immediately, it does not have to be performed unless and until a certain event occurs.  While A condition precedent may suspend the primary obligations under an existing contract, one or both parties may have subsidiary obligations that they are required to perform right away . Type of Condition Time of Creation of Contract Effect of Condition Condition Subsequent Immediate Discharge of existing contract True Condition Precedent if and when condition is satisfied Creation of contract Condition Precedent Immediate Suspension of primary obligations Rescission  A contract is executory if a party has not fully performed its obligations.  A contract is executed if a party has fully performed its obligations  If a contract is executor on both sides, It can be discharged through recission  Recission occurs when the parties agree to bring their contract to an end Accord and Satisfaction  The situation is more difficult if one party has fully performed, or executed, the contract.  Accord and satisfaction occurs when a party gives up its right to demand contractual performance in return for some new benefit  “Accord” refers to the parties new agreement  “Satisfaction” refers to the new consideration  Accord and Satisfaction requires fresh consideration Release  Th
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