1. Copyright © 2008 Pearson Education Canada9-1 Chapter 9: The End of the Contractual Relationship

2. Copyright © 2008 Pearson Education Canada9-2 The End of the Contractual Relationship  Principal methods of discharging a contract  Performance  Agreement  Breach  Frustration

3. Copyright © 2008 Pearson Education Canada9-3 Performance  Contractual obligations are discharged when each party satisfactorily performs its part of the bargain.  Substantial Performance  Tender of Performance  Independent Obligations

4. Copyright © 2008 Pearson Education Canada9-4 Performance/2  Substantial performance all or most of contractual obligations are fulfilled all or most of contractual obligations are fulfilled contract discharged contract discharged some contracts must be performed exactly some contracts must be performed exactly

5. Copyright © 2008 Pearson Education Canada9-5 Tender of Performance  When one party is ready, willing, and able and attempts to perform but performance is refused by other party. may be vicarious may be vicarious person who attempted performance may sue other for damages person who attempted performance may sue other for damages  Payment must be in legal tender  Delivery at reasonable time and place

6. Copyright © 2008 Pearson Education Canada9-6 Question for Discussion  In some contracts, one party’s failure to perform may not relieve other of obligations under the contract.  An example of this is when the contract is based on a series of installments. At what stage should a contract be ended when there is a failure to make an installment?

7. Copyright © 2008 Pearson Education Canada9-7 Breach  A contract is breached when there is: improper or incomplete performance or improper or incomplete performance or refusal to perform refusal to perform  Conditions - terms essential to substantial performance where breached, victim relieved of obligations where breached, victim relieved of obligations  Warranties - minor terms of contract where breached, performance still required where breached, performance still required

8. Copyright © 2008 Pearson Education Canada9-8 Fundamental Breach  The failures to perform are so basic they leave one party without any benefit in the contract. Courts will not give effect to some exemption clauses unless specific Courts will not give effect to some exemption clauses unless specific  Repudiation (anticipatory breach) One party indicates that they do not intend to follow through with their end of the deal One party indicates that they do not intend to follow through with their end of the deal Can be expressed or implied from conduct Can be expressed or implied from conduct Victim may choose to end or insist on performance - bound by choice Victim may choose to end or insist on performance - bound by choice

9. Copyright © 2008 Pearson Education Canada9-9 Question for Discussion  Using exemption clauses it is possible to draw up a contract that will eliminate all obligations of a breaching party.  Does the principle of fundamental breach have any role to play in contemporary business practice?

10. Copyright © 2008 Pearson Education Canada9-10 Discharge by Agreement  Contracts can be modified or ended by agreement  Bilateral or unilateral discharge all rules of contract formation apply all rules of contract formation apply  Accord and satisfaction - parties agree to end contract based on some other consideration

11. Copyright © 2008 Pearson Education Canada9-11 Contractual Terms  Contract can specify conditions under which obligations begin or end  Conditions precedent—contract is binding only if some pre-existing condition is met  Conditions subsequent—the contract ends when some event or condition takes place

12. Copyright © 2008 Pearson Education Canada9-12 Frustration  Outside, unforeseen event which Makes performance impossible Makes performance impossible Changes the nature of the contract Changes the nature of the contract  Statutory modifications “Let the loss fall where it lies.” “Let the loss fall where it lies.” Allows courts to split deposit to pay costs incurred Allows courts to split deposit to pay costs incurred

13. Copyright © 2008 Pearson Education Canada9-13 Self-Induced Frustration  When one party is responsible for an act that frustrates a contract, it is treated as a breach.  If the obligations of the contract can be fulfilled in some other way, performance is required.

14. Copyright © 2008 Pearson Education Canada9-14 Question for Discussion  Frustrated Contracts Acts have been created to determine who should receive compensation when various kinds of frustration occur.  Have these modifications defeated the very purpose of discharge by frustration, or is the present approach a fairer and more responsible one?

15. Copyright © 2008 Pearson Education Canada9-15 Remedies for Breach of Contract  Rescission - returning parties to original position  Rectification - court corrects wording of a document  Provided in Contract liquidated damages, deposits, down payments liquidated damages, deposits, down payments victim must mitigate losses victim must mitigate losses

16. Copyright © 2008 Pearson Education Canada9-16 Damages  Court tries to put victim of breach in the position they would have been in if the contract had been properly performed  Limitations Remoteness - breaching party must compensate for damages likely to be the result of the breach Remoteness - breaching party must compensate for damages likely to be the result of the breach Mitigation - victims must make an effort to keep their losses as low as possible Mitigation - victims must make an effort to keep their losses as low as possible

17. Copyright © 2008 Pearson Education Canada9-17 Equitable Remedies  Specific performance An order to go through with the deal An order to go through with the deal  Injunction An order to stop breaching the agreement An order to stop breaching the agreement  Accounting Court may order breaching party to disclose and pay profits Court may order breaching party to disclose and pay profits  Quantum meruit court orders payment for part performance court orders payment for part performance

18. Copyright © 2008 Pearson Education Canada9-18 Question for Discussion  Liquidated damages include any situation where the contract required the payment of money in the event of a breach.  Should liquidated damages be permitted since they limit the freedom of the court to determine what is appropriate compensation?