CLASS 8 - Contractual Rights and Obligations Nov

Contractual Obligations
Class 8
Discharge of Contracts
Contracts may be discharged in 4 ways:
By performance.
By agreement.
Through doctrine of frustration.
By operation of law.
DISCHARGE BY PERFORMANCE
When a party completely performs his obligations
under a contract (to the satisfaction of the other
party), he is discharged from further obligation or
liability the contract.
When both parties completely perform, the
contract is over.
Tendering performance to ensure no breach.
(1)By performance (2)By agreement (3)Through doctrine of frustration (4)By operation of
DISCHARGE BY AGREEMENT
Discharge from the contract because of a

second agreement.
Discharge because of a term in the
contract itself.
(1)By performance (2)By agreement (3)Through doctrine of frustration (4)By operation of law
1. Discharged because of a second agreement:
- waiver, substitute agreement, settlement
agreement
- ensure there is consideration or a seal
2. Discharged because of a term in the
agreement itself:
a) right to terminate on notice
b) condition precedent
c) condition subsequent (e.g. force
majeure clause)
A common condition subsequent found in
many contracts is a Force Majeure Clause:
Either or both parties shall be excused from their
continued obligations under this contract in the
event their continued performance is rendered
impossible as a result of any Act of God, including
but not limited to floods, earthquakes and other
natural disasters, or because of war or labour
strife.
FRUSTRATION
Essential points of the doctrine are that an
event or circumstance:
occurs after a contract is formed;
is beyond the contracting parties control; and
renders the continued performance of
contractual obligations impossible.
FRUSTRATION
Self-induced frustration (negligent or
intentional act causes the frustration) is
not frustration at all, but amounts to breach
of contract.
FRUSTRATION
Where the doctrine of frustration applies,
the parties are discharged from their
continued performance of their contractual
obligations from the moment of the
frustrating event.
But what happens if one party will suffer a
loss because of this timing?
Frustration Allocation of Loss - Common
Law
Originally, the common law stated that the
loss must lie where it fell at the time of
frustration.
Any property transferred is kept, continued
obligations cease.
Frustration Allocation of Loss - Common Law
After the Fibrosa case in the 1940s, the common

law changed.
If a deposit had been paid prior to the frustrating
event, then the deposit is to be returned to the
paying party upon frustration of the contract
The deposit is not repaid, however, if the
performing party conferred some benefit on the
paying party in which case the performing party
may keep the deposit.
Frustration Allocation of Loss
Fibrosa made the law of frustration somewhat
fairer, but also made it more arbitrary.
The Fibrosa position was altered by
legislation in many provinces known as the:
Frustrated Contracts Act.
Frustration Allocation of Loss - FCA
According to the FCA, where a deposit is paid, it
is to be returned unless the performing party
confers a benefit on the paying party, or incurs
some costs in reliance on the contract.
Additionally, where no deposit has been paid, the
performing party may still be reimbursed for
benefits conferred on the other party (but not for
its reliance costs).
Frustration - FCA Example
Contract: Pauline to purchase 2 widgets from Peter
for a total price of $12,000; $2,000 deposit, and
$5,000 payable when each of the widgets is
delivered.
Deposit paid, Peter delivers one widget (but Pauline
has not yet paid him) and Peter has spent $2,500
preparing second widget when arsonist burns down
his factory.
Frustration? Who gets what?
FCA Example
Contract: Pauline to
purchase 2 widgets from
Peter for a total price of
$12,000; $2,000 deposit, and
$5,000 payable when each of
the widgets is delivered.
Deposit paid, Peter delivers
one widget (but Pauline has
not yet paid him) and Peter
has spent $2,500 preparing
second widget when arsonist
burns down his factory.
Frustration? Yes, parties

are discharged.
Who gets what? Assuming
FCA applies, then Peter
entitled to payment of
$5,000 for first widget
(benefit conferred), AND
entitled to the $2,000
deposit to cover part of his
expenses (in performing
the contract by making he
second widget).
Frustration Allocation of Loss - SGA
The Sale of Goods Act (SGA), enacted in all of the

common law provinces, provides a specific rule for
frustration:
Where there is a contract for specific goods, and the seller
has title to the goods when they perish, the buyer is
discharged from his obligation to pay for the goods and the
seller must absorb the entire loss.
If the SGA applies, the doctrine of frustration common
law or FCA does not.
See SGA examples Illustration 13.9
By performance.
By agreement.
Through doctrine of frustration.
By operation of law.

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Contractual Obligations

(1)By performance (2)By agreement (3)Through doctrine of frustration (4)By operation of

Discharge from the contract because of a

After the Fibrosa case in the 1940s, the common

Frustration? Yes, parties

Frustration Allocation of Loss - SGA

The Sale of Goods Act (SGA), enacted in all of the

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