copyright © 2008 pearson education canada9-1 chapter 9: the end of the contractual relationship

Copyright © 2008 Pearson Education Canada 9-1

Chapter 9:Chapter 9:

The End of the The End of the Contractual Contractual RelationshipRelationship


The End of the Contractual The End of the Contractual Relationship Relationship

Principal methods of discharging a Principal methods of discharging a contractcontract

PerformancePerformance AgreementAgreement BreachBreach FrustrationFrustration


Performance Performance

Contractual obligations are discharged Contractual obligations are discharged when each party satisfactorily performs when each party satisfactorily performs its part of the bargain.its part of the bargain.

Substantial PerformanceSubstantial Performance Tender of PerformanceTender of Performance Independent ObligationsIndependent Obligations


Performance/2 Performance/2

Substantial performanceSubstantial performance all or most of contractual obligations are all or most of contractual obligations are

fulfilledfulfilled contract dischargedcontract discharged some contracts must be performed exactlysome contracts must be performed exactly


Tender of Performance Tender of Performance

When one party is ready, willing, and When one party is ready, willing, and able and attempts to perform but able and attempts to perform but performance is refused by other party.performance is refused by other party.

may be vicariousmay be vicarious person who attempted performance may person who attempted performance may

sue other for damagessue other for damages Payment must be in legal tenderPayment must be in legal tender Delivery at reasonable time and placeDelivery at reasonable time and place


Question for Discussion Question for Discussion

In some contracts, one party’s failure to In some contracts, one party’s failure to perform may not relieve other of perform may not relieve other of obligations under the contract.obligations under the contract.

An example of this is when the contract An example of this is when the contract is based on a series of installments. At is based on a series of installments. At what stage should a contract be ended what stage should a contract be ended when there is a failure to make an when there is a failure to make an installment?installment?


Breach Breach

A contract is breached when there is:A contract is breached when there is: improper or incomplete performance orimproper or incomplete performance or refusal to performrefusal to perform

Conditions - terms essential to Conditions - terms essential to substantial performancesubstantial performance

where breached, victim relieved of where breached, victim relieved of obligationsobligations

Warranties - minor terms of contractWarranties - minor terms of contract where breached, performance still requiredwhere breached, performance still required


Fundamental Breach Fundamental Breach

The failures to perform are so basic they leave The failures to perform are so basic they leave one party without any benefit in the contract.one party without any benefit in the contract.

Courts will not give effect to some exemption Courts will not give effect to some exemption clauses unless specificclauses unless specific

Repudiation (anticipatory breach) Repudiation (anticipatory breach) One party indicates that they do not intend to follow One party indicates that they do not intend to follow

through with their end of the dealthrough with their end of the deal Can be expressed or implied from conductCan be expressed or implied from conduct Victim may choose to end or insist on performance - Victim may choose to end or insist on performance -

bound by choicebound by choice



Using exemption clauses it is possible to Using exemption clauses it is possible to draw up a contract that will eliminate all draw up a contract that will eliminate all obligations of a breaching party.obligations of a breaching party.

Does the principle of fundamental breach Does the principle of fundamental breach have any role to play in contemporary have any role to play in contemporary business practice?business practice?


Discharge by AgreementDischarge by Agreement

Contracts can be modified or ended by Contracts can be modified or ended by agreementagreement

Bilateral or unilateral dischargeBilateral or unilateral discharge all rules of contract formation applyall rules of contract formation apply

Accord and satisfaction - parties agree to Accord and satisfaction - parties agree to end contract based on some other end contract based on some other consideration consideration


Contractual Terms Contractual Terms

Contract can specify conditions under Contract can specify conditions under which obligations begin or endwhich obligations begin or end

Conditions precedent—contract is Conditions precedent—contract is binding only if some pre-existing binding only if some pre-existing condition is metcondition is met

Conditions subsequent—the contract Conditions subsequent—the contract ends when some event or condition ends when some event or condition takes placetakes place


Frustration Frustration

Outside, unforeseen event whichOutside, unforeseen event which Makes performance impossibleMakes performance impossible Changes the nature of the contractChanges the nature of the contract

Statutory modificationsStatutory modifications ““Let the loss fall where it lies.”Let the loss fall where it lies.” Allows courts to split deposit to pay costs Allows courts to split deposit to pay costs

incurred incurred


Self-Induced Frustration Self-Induced Frustration

When one party is responsible for an act When one party is responsible for an act that frustrates a contract, it is treated as that frustrates a contract, it is treated as a breach.a breach.

If the obligations of the contract can be If the obligations of the contract can be fulfilled in some other way, performance fulfilled in some other way, performance is required.is required.



Frustrated Contracts Acts have been Frustrated Contracts Acts have been created to determine who should receive created to determine who should receive compensation when various kinds of compensation when various kinds of frustration occur.frustration occur.

Have these modifications defeated the Have these modifications defeated the very purpose of discharge by frustration, very purpose of discharge by frustration, or is the present approach a fairer and or is the present approach a fairer and more responsible one?more responsible one?


Remedies for Breach of Contract Remedies for Breach of Contract

Rescission - returning parties to original Rescission - returning parties to original positionposition

Rectification - court corrects wording of a Rectification - court corrects wording of a documentdocument

Provided in ContractProvided in Contract liquidated damages, deposits, down liquidated damages, deposits, down

paymentspayments victim must mitigate lossesvictim must mitigate losses


Damages Damages

Court tries to put victim of breach in the Court tries to put victim of breach in the position they would have been in if the position they would have been in if the contract had been properly performedcontract had been properly performed

LimitationsLimitations Remoteness - breaching party must Remoteness - breaching party must

compensate for damages likely to be the compensate for damages likely to be the result of the breachresult of the breach

Mitigation - victims must make an effort to Mitigation - victims must make an effort to keep their losses as low as possiblekeep their losses as low as possible


Equitable Remedies Equitable Remedies

Specific performanceSpecific performance An order to go through with the dealAn order to go through with the deal

InjunctionInjunction An order to stop breaching the agreementAn order to stop breaching the agreement

AccountingAccounting Court may order breaching party to disclose Court may order breaching party to disclose

and pay profitsand pay profits Quantum meruitQuantum meruit

court orders payment for part performancecourt orders payment for part performance



Liquidated damages include any Liquidated damages include any situation where the contract required the situation where the contract required the payment of money in the event of a payment of money in the event of a breach.breach.

Should liquidated damages be permitted Should liquidated damages be permitted since they limit the freedom of the court since they limit the freedom of the court to determine what is appropriate to determine what is appropriate compensation?compensation?

copyright © 2008 pearson education canada9-1 chapter 9: the end of the contractual relationship

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