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Chapter 14

BU231 Chapter 14

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Wilfrid Laurier University
Keith Masterman

1 READING NOTES CHAPTER 14: The Effect of Breach Not all breaches of contract occur in the same way, nor do they share the same consequences. Aggrieved parties have choices to make, depending on how breach occurs and the seriousness of it. Implications of Breach • Not every breach may discharge a contract • Breach does not discharge a contract automatically o If breach is of a minor term the contract is still binding o If breach is of a fundamental term, party committing breach is still bound, but injured party may either discharge the contract or affirm it • Minor Breach o Eg. Quantity to be delivered is a major term, but delivering 9995 of 10,000 bags would only be a minor breach, not entitle receiver to reject shipment • Major Breach o Eg. If you only delivered 5000 of 10000 bags there would be a major breach and the receiver could reject shipment • Essential terms are known as conditions • Non-essential terms are known as warranties How Breach May Occur • A party to a contract may break it by: 1) Expressly rejecting its liabilities 2) Acting in a way that makes its promise impossible to perform 3) Failing to perform at all, or tendering inadequate performance of its promise Express Repudiation • A declaration by one contracting to another that it does not intend to perform as promised • Promisee is entitled to treat contract as being immediately at an end, find another party to fulfill promise, sue for whatever damages it incurs o It is prudent for the promisee to inform the rejecting party that it is treating the contract as terminated, reserving the rights to sue for breach o On the other hand, a promisee can still insist on performance and wait out until time in contract to sue for breach… but it does so at its own peril as the promisor may find intervening / frustrating events to provide an excuse not to perform • Whenever breach occurs before time agreed for performance, its is known as anticipatory breach o Remember that a contract exists and has legal effect from time of its formation, not just from time of its performance • In some situations, one party rejects only a minor term of the contract o Such a breach does not entitle the other party to treat the contract as discharged 2 o Note: A wise manager will immediately notify the other party of its inability to perform exactly as promised so that the other party may take steps to reduce the losses that the breach may cause Party Renders Performance Impossible • A deliberate or negligent act that makes performance impossible amounts to repudiation; o Rather than words in express repudiation this is often implied by conduct, such as a form of self-induced frustration • Only a willful or negligent act of the promisor constitutes a breach of contract, doesn’t include acts that are beyond their control Failure of Performance • Failure of performance usually becomes apparent only when the time for performance arrives or during performance itself • Types of Failure: o Degree may vary from grossly inadequate performance to a minor problem o Often a difficult question involving partial performance in determining whether what is performed constitutes sufficient breach to free the injured party o Often the injured party is left in a dilemma when there is a suspected failure of performance.  Injured party should seek legal advice before claiming to be discharged of their own obligations, or risk being held liable themselves for wrongful repudiation o In contracts involving installments, the injured party is free from
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