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BU231 - Complete Notes .docx

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Shelley Mc Gill

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1 BU231 Final Exam Review (Slides, Notes + Readings) February 14, 2011- Chapter 13 & 14: Discharge of Contracts/The Effect of Breach - Discharge cancellation of obligation of a contract o makes K null and inoperative o By Performance: most common Both parties perform obligations under contract satisfactorily Tender of Performance attempt by one party to perform according to the terms of the K stops interest from accruing from that point forward o By Agreement: both parties agree to discharge the contract b/c they dont want to proceed Waiver: agreement not to proceed w/ the performance of a contract already in existence Can occur only when neither party has fully performed - consideration an issue MUST be agreement by both parties Substituted Agreement: can be an out of court settlement 1 party offers to pay $$ in lieu of performance Could be Novation old K is discharged and a new K is entered into its place o Material discharge goes to root of contract o A change in parties must be evidence of intention and agreement to abandon the original contract on the part of both parties - Contract Provides for Its Own Dissolution o Condition Precedent: neither party can perform unless a certain future event occurs o Condition Subsequent: uncertain event that brings a promisors liability to an end if it happens- ex: and event is rained out o Option to Terminate: allows for termination of K on providing notice to the other party Common in mortgages has a penalty - Discharge by Frustration: the law excuses from performance when external causes have made performance radically different from that contemplated by the parties o Ex: the death of MJ who was supposed to go on tour o Must have been unforeseen and outside of the control of the parties o Must occur AFTER the agreement was made o Must make performance impossible or purposeless o CANNOT be self induced - Effect of Frustration: o Issue of fairness 2 o Where one party has partially performed and the other has not, then a frustrating event can leave the performing party out of pocket Courts try to fix this but usually make it worse No benefit = recovery of deposit If even the smallest benefit incurred vendor gets to retain entire deposit Ex: A-becomes out of pocket due to frustrating event B gets deposit $$ from A to start to perform out of pocket if has to give $ back to A after frustrating even occurs - Frustrated Contracts Act provides allocation of losses o Amount due or paid may be retained or recovered but no more that the amount paid or due o But if one party has performed and no money was paid or due, then the PERFORMING PARTY bears the loss - Sale of Goods Act o Section 8: where there is an agreement to sell specific goods and subsequently the goods, w/out any fault on the part of the seller, perish b/f the risk has passed to the buyer, the agreement is thereby avoided o Requirements: Must be Specific The risk must still be with the seller if traded hands but $$ hasnt been traded, it doesnt qualify for the Sale of Goods Act Cause of Frustration must be the perishing of the goods if the purchaser/vendor who dies = not captured by act b/c it wasnt the GOODS that died, it was the person - Discharge by Operation of Law o Bankruptcy & Insolvency Act: those bankrupt no longer bound by their contracts o Limitations Act: sets out the time periods how long can you sue over an insurance policy? Usually 2 years in which you can bring a court action Discoverability the time in which you find out o Statute barred an action that may no longer be brought b/f a court b/c the party wishing to sue has delayed beyond the limitation period in the statute - Breach of Contracts: a term of contract has not been met o Effect: MAY discharge the contract, but not always o Minor Breach: a breach of a non-essential term of a contract or of an essential term in a minor respect Injured party still obligated to perform if dont then become the breaching party of essential term o Major Breach: breach of the whole K or of an essential term, so that the purpose of K is defeated Or if it is grossly inadequate performance 3 Breaching party remains bound by the contract Non-breaching party: option to discharge OR continue the contract & sue for damages b/c of breach - Condition essential term of K - Warranty non essential term of K - Breach of Condition allows the non-breaching party to opt for discharge of the K the breaching party remains bound - Breach of a warranty, both parties remain bound to the K, but the non-breaching party can sue for damages where it has incurred a loss - **a contract exists & has a legal effect from the time of its formation** - How Does a Breach Occur? o Express Repudiation declaration of intention not to perform Options to non-breaching party terminate K but reserve the right to sue for damages Insist on performance & wait for non-performance o Anticipatory Breach Breach before performance is due Other party can sue immediately Importance of Timing K formation K is binding from that point Ex: not paying a bill o One Party Renders Performance Impossible Self Induced Frustration Contracts of personal performance (double booking) Can be before or at time performance is due o By Failure to Perform or Tendering Inadequate Performance Can only occur when performance is due Can be total or partial failure Can be grossly inadequate performance o **Is deficiency important to overall actual performance** - Doctrine of Substantial Performance: performance that doesnt comply in some minor way w/ the requirements of the contract o Prevents the non-breaching party from avoiding his/her performance by trying to seize upon trivial failure of performance - Exemption Clauses in contract that exempts a party from liability for failing to perform some or all of its contractual obligations o Used by businesses when they risk harm to other party in contract o Risk Allocation Insurance, keeps costs low 4 o Problem: if used in SFC- inequality of bargaining power, puts risk on party not willing or able to accept it Customers have no extensive legal knowledge and because it keeps prices low they will gladly accept it o Should be strictly construed against the party that draws them b/c they permit parties to evade legal responsibility ordinarily places on suppliers of goods and services - Defences: o Inadequate Notice o Misrepresentation o Non Est Factum back to recission - Fudamental Breach goes to the heart of the K, deprives the innocent party of most (if not all) of the benefit of the contract o court will strike down the clause o cannot use exemption clause: court will strike it down if it defeats purpose of the K - Possible Criminal Consequences of Breach: when a party breaks the contract w/ the knowledge that the action will: o endanger human life o expose valuable property to damage o deprive inhabitants of a place of their supply of light, power, gas or water o delay or prevent the operation of a train by a common carrier - Business Significance of Breach: parties see economic advantages in forming contracts or else they wouldnt do so
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