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Chapter 11

ch. 11-Discharge and Breach .docx

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Law and Business
LAW 122
Theresa Miedema

Chapter 11 – Discharge and Breach • Most contracts brought to end through • Acontract is discharged when the parties are relieved of the need to do anything more under the contract (doesn’t mean the contract doesn’t still exist) • Numerous ways in which a contract can be discharged o Some involve performance, others reflect the parties’agreements or intentions, others arise by operation of law. - Discharge can also occur when one party fails to perform as expected. The contract generally does not cease to exist merely because the parties largely ignore it. Discharged by Performance - Most common method of discharge is performance - Performance occurs when the parties fulfill all the obligations contained in the contract - General rule is the parties must perform exactly as the contract requires.Any deviation from the terms of the contract, can be considered a breach, doesn’t matter how small it is. - Time of performance - Time is usually not of the essence in contracts o This means party is entitled to perform late even if the contract sets a specific date - If a party does perform late, it can be held liable for losses that the other party suffers as a result of the delay. o In some situations time is of the essence - parties must agree to that fact. o Even if time is not of essence initially, a party can insist upon timely performance by giving a reasonable notice  if parties can’t agree on a date, court will find that performance must occur within a reasonable time - Tender of payment o Most contracts require payment of money by at least one of the parties o Rules that govern payments:  Debtor has primary obligation of locating creditor and tendering (offering) payment, even if creditor has not asked for it; reasonable tender need only be made once  Unless contract says otherwise, creditor can insist on receiving legal tender: a payment of notes (bills) and coins to certain value, not cheque or electronic debit  Debtor does not have to actually tender payment if obvious it would be refused  Money can be easily lost or stolen so there are other ways of paying the debt: Debit cards, Credit cards, Cheques, PayPal - electronic commerce third party payment system, facilitates transfer of funds from buyer to seller, using credit card or bank (pg. 265-268) - Tender of performance o Many of principles apply when contract requires provision of goods or services rather than money o While party who owes obligation is required to properly tender performance, it has to do so only once; party is discharged of its duty to perform if other party renders performance impossible o Innocent party may be entitled to damages: amount of money that court may order defendant to pay to plaintiff Substantial Performance - Tender usually effective only if goods or services conform precisely with terms of contract - However, party may be discharged from further obligations if it provides substantial performance - generally satisfies contract but is defective or incomplete in minor way o Enough to discharge, but you could still be held liable - In deciding whether substantial performance has occurred, court considers factors such as nature of defect, difference between contract price and cost of curing defect - If contract discharged by substantial performance, innocent party not required to pay for work not done - Even if agreement requires number of tasks to be performed, parties may create entire contract - no part of price is payable unless all of work is done o The landowners are liable only for those benefits they chose to accept after the builder breached the contract. Since the landowners chose to use the discarded materials, they will have to pay for them. They probably will not be liable for the work that the builder performed Discharge byAgreement - In some situations, one or both parties can discharge contract even though it was not fully performed: (Parties agree when initially creating a contract) - Option to terminate is a contractual provision that allows one or both parties to discharge a contract without the agreement of the other – sort of provision if often found in employment contracts – each party may be permitted to end the relationship on a two-week notice (Reasonable notice) - Condition subsequent is a contractual term that states that the agreement will be terminated if a certain event occurs - does not have to be exercised by either party to be effective, contract exists until relevant event occurs (ie. Rain) - Atrue condition precedent is a contractual term that states that an agreement will come into existence only if and when a certain event occurs (usually when a new law is about to come in effect) - Acondition precedent is 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 (usually when the other party does something – buy land, get funds 1 ) st - Read concept summary 11.1 on pg. 271 • Rescission o Agreement can also be reached after contract created for discharging obligations o Occurs when the parties agree to bring their contract to an end o Contract is executory if party has not fully performed its obligation  Not fully performed, something is left to do – M can release S from contractual obligations, M can say “I give up my right to insist on S’s performance – detriment” o Contract is executed if a party has fully performed its obligations o If contract executory on both sides, it can be discharged through rescission: parties agree to bring their contract to an end o Agreement usually enforceable only if supported by consideration – in executory contract each side suffers detriment by giving up right to insist on performance of original contract  M performed, but S can’t. M can release S by giving consideration – S could pay M to build a new well somewhere else, she can do anything that he accepts equal To terminate contractual relationship: • Accord and satisfaction o Occurs when a party gives up its right to demand contractual performance in return for some new benefit. o “Accord” – parties’new agreement o “satisfaction” – new consideration (substitute) provided by party th
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