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Chapter 12

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Valerie Irie

BU231 Chapter 12 – The Discharge of Contracts The Ways in which a Contract may be Discharged -Discharge a contract – cancel or end the obligations of a contract; make an agreement or contract inoperative Discharge by Performance The Nature of Discharge by Performance -Parties who enter into a contract expect it to be discharged – ended – by performance -Their contract ends when they have both performed all their respective obligations satisfactorily -For a contract to be full discharged by performance, both parties – not merely one of them – must fulfill their promises Tender of Performance -Tender of performance – an attempt by one party to perform according to the terms of the contract -A debtor who makes an unsuccessful but reasonable attempt to pay will be free from further liability for interest on the amount owing, and generally will not have to pay court costs I he is later sued for the debt -Refusing payment does not extinguish an existing debt Discharge by Agreement Waiver -Waiver – an agreement not to proceed with the performance of an existing contract -If neither party has fully performed when they agree to call off the bargain, there is automatically consideration for the waiver of each party: each still has rights and obligations outstanding and a promise by one party to waive its rights is sufficient consideration for it being released from iits obligations to the other Substituted Agreement Accord and Satisfaction -A compromise between contracting parties to substitute a new contractual obligation and release a part from the existing one -Accord and satisfaction often takes the form of a settlement out of court Novation -The parties to a contract agree to terminate it and substitute a new contract -Two types of novation: -A material change in terms -A change in parties A Contract Provides for its Own Dissolution -Before agreeing to a contract, one party may be worried about a possible future event affecting its ability or willingness to perform – if the other party agrees, the parties may include a term in the contract stating what should happen if this event occurs Condition Precedent BU231 Chapter 12 – The Discharge of Contracts -A future act of event that must happen before the parties are obligated to perform -If the condition is not met and is not waived, the promised performance need not be given Condition Subsequent -A future event that brings a promisor’s liability to an end if it happens -Act of God – the raging of the natural elements -In contracts for the shipment of goods, an act of God may be a condition subsequent if it results in the destruction of the shipment Option to Terminate -A contract may include a term that gives one party, or perhaps both, the choice to bring the contract to an end before its performance has been completed, usually by giving notice -Exercising the choice results in discharge by agreement because the way to discharge the contract was agreed upon when drawing up the contract -In a contract for the purchase of a business, a buyer may insist on a proviso allowing it to rescind the agreement if a current audit of the financial statements of the business should result in the auditor being unable to give an unqualified opinion on their fairness – in these circumstances, an auditor’s qualified opinion would give the purchaser an option to terminate the contract Discharge by Frustration -Courts will discharge a contract when frustration has occurred – that is, when circumstances beyond the control of the parties makes performance impossible, pointless, or radically different from that intended by the parties -Courts remain reluctant to excuse performance in some types of contracts; historically, they have regarded these kinds of promises as absolute, regardless of the reason for which they could not be performed Doctrine of Frustration -Doctrine of frustration – the law excuses a party from performance when circumstances beyond the
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