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Chapter 13

BU231 Chapter 13

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Keith Masterman

1 READING NOTES CHAPTER 13: The Discharge of Contracts Apart from breach, we examine the various ways in which a contract may be discharged. The Ways in Which a Contract May be Discharged • To discharge a contract means to cancel the obligation of a contract, or to make an agreement or contract null or inoperative… all outstanding obligations are finished • Now provide four ways in which discharge may occur 1) Discharge by Performance • The Nature of Discharge by Performance o Parties who enter into a contract expect it to be discharged by performance o Contract ends when they have performed their respective obligations satisfactorily o Note: For a contract to be fully discharged, both parties (not just one) must complete performance  Bilateral requires performance on both sides  Unilateral is discharged when promisee performs • Tender of Performance o One party may attempt to perform, but the other party refuses to accept the performance (for whatever reason) o The attempt to perform is the tender of performance  Eg. If a seller tenders delivery of goods and buyer refuses, the seller is under no obligation to attempt delivery again, may sue for breach  Eg. If a debtor makes an unsuccessful but reasonable attempt to pay is free from liability for interest (still responsible for principle) • To be sure of this the money should be legal tender (cash) and not in negotiable instruments (cheque) o Also, regardless of circumstances, the onus is on the debtor to find and pay her creditor 2) Discharge by Agreement • Waiver o Parties may agree between themselves not to perform their contract o A waiver is an agreement not to proceed with the performance of a contract already in existence o Note on consideration:  If neither party has performed fully at the time the contract is called off, there is automatically consideration for the waiver 2  If one party has performed fully then the incomplete party requires a release under seal from the other party • Novation o If parties agree to a material alteration of the terms (root of contract) they have discharged the original contract and replaced it • Accord and Satisfaction o Sometimes a promisor finds it cannot perform its obligation according to the terms of the contract, or performance has become very difficult o Accord and satisfaction is a compromise (often out of court) between contracting parties to substitute new contractual obligation and release a party from the existing one  Eg. Seller finds it cannot obtain a certain imported goods to fill order, but may offer other goods of equal quality below cost if the buyer releases them from original promise o In material alteration of terms the discharge of the old contract is incidental in seeking a new arrangement, while it is the objective of accord and satisfaction • Contract provides for its own Dissolution o One party may express concern about a possible event affecting its ability or willingness to perform o If the other party agrees, they may include an express term to allow for this event o Condition Precedent  A future or uncertain event that must have occurred before the promisor’s liability is established • Eg. Sale of real estate conditional on getting mortgage within ‘x’ days, or contract is null and void  Note that a contract subject to a condition precedent does have a binding force from the outset and that parties are not free to withdraw from their promises until condition precedent becomes impossible to fulfill  Parties that agree to do work on conditions that their work will be continually inspected expose themselves to judgment and the reasonableness of person designated to asses the work o Condition Subsequent  An uncertain event that brings a promisor’s liability to an end if it happens • Eg. A buyer of a ticket for baseball has the benefit of a term in contract that if game is rained out before ‘x’ inning then he gets a free ticket for another game 3 o Option to Terminate  Contract may include a term that gives one party, or both the option of bringing the contract to an end before completing performance… often by giving notice • Eg. Contracts of employment for indefinite times usually have an option clause entitling the employer to dismiss
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