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Canada (158,173)
BUS 393 (52)
Chapter 9

Chapter 9 – The End of the Contractual Relationship

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Simon Fraser University
Business Administration
BUS 393
Richard Yates

Chapter 9 – The End of the Contractual Relationship • Contracts may be discharged through performance, breach, agreement, or frustration Performance • Contracts usually have major terms (conditions) and minor terms (warranties) • When warranty breached, contract still considered performed and other party is obligated to perform, subject to claim for compensation for breach of warranty • If condition breached, contract normally considered discharged and other party is relieved of obligations • However, if condition is breached in minor way (substantial performance), court usually treats as breach of warranty Tender • Tendered performance – if person is ready/willing/able to perform obligation and attempts to do so, but other party refuses to accept or prevents it, first party is taken to have completed obligation and other party required to perform • Exception: where debt owed and money refused – money still owed, but creditor bears expense and responsibility of collecting the debt • Payment must be in legal tender, and payment method(s) specified in agreement • Delivery/tender of performance must be as specified, or at reasonable time and place • Some obligations can continue after contract has been properly performed (eg. quality of goods) Breach • Breach – failure to properly perform contractual obligations by 1) improper/incomplete performance and 2) refusal to perform Conditions and Warranties • Breach of warranty does not relieve party of obligation to perform, but has right to sue other party for cost to overcome deficiency • After breach of condition, victim may still choose to treat contract as binding • If non-breaching party has received significant benefit, loses right to discharge contract and must perform her obligations Exemption Clauses • Exemption clause – attempt by party to significantly limit/eliminate its liability • If there is ambiguity, narrow/restrictive meaning used • Terms cannot be unilaterally imposed, must be brought to attention at time contract is made Fundamental Breach • Fundamental breach may be permitted by exemption clause, but only if absolutely clear both parties understood its coverage => not likely (construction approach) Repudiation • Repudiation – refusal to perform, after performance is due • Anticipatory breach – refusal to perform before performance is due • Victim of anticipatory breach can 1) immediately discharge contract, sue, and refuse to perform, sue, or 2) continue to perform, demand performance, and then sue for breach of contract later on o Caution: if you demand performance, you must also perform => otherwise you will breach contract; bound by choice of how to react See Table 9.1 (p. 279) Discharge by Agreement • Contract may be modified or ended by agreement => must include necessary factors of a contract, including consensus and consideration • Bilateral discharge (mutual release) – both parties have something left to do and agreement relieves them of respective obligations • When modification is one-sided, may not have consideration • Accord and satisfaction – when party benefiting from modification agrees to do something extra to support the change => solves problem of consideration • Novation – substitutes new party into agreement – both parties must agree. Qualifications: 1. New debtor assumes complete liability 2. Creditor accepts new debtor as principal debtor (not a guarantor) 3. Creditor accepts new contract in full satisfaction and substitution of old contract • If creditor agrees to accept less than owed in satisfaction of debt, if payment is made before due there is consideration, if after due, no consideration and full debt still owed => to overcome this problem, provinces have passed statues so partial payments are binding if accepted by creditor Contractual Terms • Condition precedent (or “subject to” clause) – determines when obligations to perform contract begin • Condition subsequent – term that determines when contractual obligations end • Force majeure clause – anticipation of catastrophic event that will interfere with performance, might provide for discharge or set out consequences, such as which party will bear the loss Frustration • Frustration – when an unforeseen, outside event outside of parties’ control interferes with performance, making the basic object of agreement unobtainable • Different from ‘shared mistake’ – frustration involves sub
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