LAW 122 Chapter Notes - Chapter 11: Condition Subsequent

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15 Apr 2012
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Chapter 11: Discharge & Breach
As we learned in chapter 9 & 10, some contracts come to an end when they are
voided or rescinded. Most contracts, however, are brought to an end via
discharge.
oDischarged: a contract is discharge when the parties are relieved of the need to do
anything more under the contract.
DISCHARGE BY PERFORMANCE
The most common form of discharge is performance.
oPerformance: occurs when the parties fulfill all of the obligations contained in the
contract.
However, in some situations it is difficult to determine whether proper performance
has occurred.
As a general rule the parties must performance exactly as the contract requires.
A deviation from the terms is considered a breach.
Time of Performance
Although the parties generally have to perform exactly as the contract says, the
courts usually hold that time is not of the essence. In other words, even if a
contract states that performance must occur by a particular date, a party may be
entitled to perform late.
However, if it does so, it can be held liable for losses that the other party suffers
as a result for the delay.
In some situations, time is of the essence. If so late performance can be refused,
and if that happens, the contract will not be discharged by performance.
Finally, even if the parties do not agree on a specific time or date, the court s will
find that performance must occur within a reasonable time, having regard to all of
the circumstances, including the subject matter of contract. (E.g. A contract
dealing with perishable items or a instable market may 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 very specific rules that govern payments.
i. The debtor has the primary obligation of locating the creditor and tendering
(offering) payment, even if the creditor has not asked for it. Must be
reasonable, cannot occur at an inconvenient time or under inconvenient
circumstance.
oA reasonable tender (offer) has to be made only once.
ii. Unless the contract says otherwise, a creditor can insist on receiving legal
tender.
oConsequently, a creditor generally does not have to accept payment by
ways of cheque or electronic debit.
oAs a precaution, business people who intend to pay by anything other
than a precise amount of legal tender may want to provide for that
possibility in the contract.
oLegal Tender: is a payment of notes (bills) and coins to a certain value.
Tender of Performance
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Chapter 11: Discharge & Breach
Many of the same principle apply when a contract requires the provision of goods &
services rather than money.
While the party who owes the obligation is required to properly offer
performance, it only has to do so once.
Furthermore, that party is discharged of its duty to perform if the other party
renders (makes) performance impossible. (ex. on pg 256)
oDamages: is the amount of money that the court may order the defendant to pay to the
plaintiff.
Substantial Performance
oA tender is usually effective only if the goods or services match precisely with the
terms of the contract. Occasionally, however, a party may be discharged from
further obligations if it provides substantial performance.
o Substantial Performance: generally satisfies the contract but is defective or
incomplete in some minor way.
In deciding whether substantial performance has occurred, the court will consider a
number of factors, including the nature of the defect, and the differences b/t the
contract price & the cost of curing the defect.
E.g. many building contracts state that payment is due only once construction is
completed. But, if the builder leaves a work site w/o having installed say, several
door knobs, it will likely be discharged from its obligations and entitled to payment.
Of course, if a contract is discharged by performance, the innocent party is not
required to pay for work that was not done. (ex. on pg 257)
Difficulty may arise if a builder leaves a work site w/o providing at least substantial
performance. There are two possibilities.
i. The parties may have used a single contract to deal with a series of tasks. In
that situation, part of the overall price is earned each time that a task is
performed.
oE.g. Cut the plaintiffs lawn 10 times = $100, but if only cut twice, the
court may say you’re only entitled to $20.
ii. Even if the agreement requires a number of tasks to be performed, the parties
may create an entire contract.
oEntire Contracts: says that no part of the price is payable unless all of the work is done.
E.g. A builder agreed to construct a house in exchange for $100,000. After doing
half the job, he ran out of money and stopped work. The landowner used the
materials (lumber & nails) that the builder left behind and finished the house. If the
builder demands payment, the owner will probably only have to pay for the
materials, but will not be liable to pay for the work the builder performed. The
landowner had agreed to pay for a whole house – not half.
DISCHARGE BY AGREEMENT
In some situations, one or both parties can discharge a contract even though it was
not fully performed.
Option to Terminate
When creating a contract, the parties can insert an option to terminate.
oOption to Terminate: is a contractual provision that allows one or both parties to
discharge a contract w/o the agreement of the other.
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