Deck 12: The Discharge of Contracts

Question 1

S contracted to build a machine for F for a price of $8800.00.F paid $1000.00 on account.When the machine was nearly completed,S refused to do more unless F paid another $3000.00.F sued to recover the $1000.00 and for other compensation,and S counterclaimed for the contract price.Expert evidence indicated that the machine was not substantially completed at the time of F's refusal to do more.In this situation at common law,

A)F will recover the full $8800.00 even though he defaulted in completing the machine.
B)although the work is not yet completed,a quantum meruit claim can be asserted by S.
C)the contract continues to exist.
D)F's actions together with a failure to complete the machine cancelled the contract,so S will not succeed and must pay back the deposit of $1000.00.
E)none of the above

Answer 1

D

Question 2

Park-Lot Maintenance Corp.entered into a three-year contract with Beliis Fair Mall for snow removal.The contract was in writing,but it was agreed orally that the snow would need to be at least 10 centimetres deep before the contract was operative.Which is the applicable legal concept?

A)The parol evidence rule will not allow the oral stipulation to be enforced by the courts.
B)The oral part is a condition precedent and therefore renders the contract void.
C)The oral part is a condition subsequent and is effective for three years.
D)The oral part is a condition precedent and therefore enforceable.
E)The contract is in effect regardless of the oral stipulation.

Answer 2

D

Question 3

A unilateral contract is discharged by performance when

A)performance is genuinely attempted by both parties even if one party's performance is incomplete.
B)a term of the contract specifies an event that must occur before the contract will proceed and that event does not occur.
C)both parties attempt tender of performance.
D)both parties perform all their obligations under the contract.
E)an act of God occurs after the contract is entered into.

Answer 3

D

Question 4

Four partners own the used car dealership Square Deal Ltd.The company needed more working capital,so the partners went to the bank officer for a loan.The bank officer stipulated that she would approve the loan application if each of the owners signed a personal guarantee on the loan.This was agreed to by the four,but when it came time for signing,one of the partners was on an extended trip to Asia and couldn't be reached.The other three signed the document.Based on the three guarantees,the bank decided to go ahead with the loan to Square Deal Ltd.Are the guarantees enforceable against the three partners?

A)Yes,they are,since the bank extended the loan without objection from the partners.
B)No,they are not,because the partner in Asia had the "deep pockets."
C)Yes,they are,since there was good consideration given.
D)No,they are not,since the condition precedent was never met.
E)No,they are not,because there was a definite lack of consideration.

Question 5

A enters into a contract with B under which A will sell to B 1000 barrels of fish for $8000.00.The contract provides that the risk passes to the buyer on delivery of the shipping documents.B pays a deposit of $1200.00 and A delivers five barrels of fish to B.Five days later A's warehouse is destroyed by an explosion caused by faulty repairs to a gas pipe.Under the modern Frustrated Contracts Acts,

A)A must still complete the contract because it has not been frustrated.
B)B would get back his deposit less the value of the five barrels of fish delivered to him.
C)B would get back his full deposit.
D)all of the above
E)none of the above

Question 6

L contracted with M for the supply and installation of building materials and the renovation of M's property.L made certain payments,but refused to pay the balance because of defects in the workmanship.Evidence indicated that M had substantially completed the contract.In this case,

A)the contract is at an end.
B)L substantially performed the contract.
C)M is entitled to damages for breach of contract valued at the cost of remedying the defects in workmanship.
D)the contract is an entire contract.
E)all of the above

Question 7

While travelling in the U.S.A.,Joey bought some items at Payless Drug Store.The store refused to take in payment either Joey's Canadian currency or his personal cheque-saying they wanted U.S.cash or a major bankcard.Here we have a contractual issue of

A)payment using credit.
B)tender of performance.
C)discrimination against Canadians.
D)exchange rates and value of currency.
E)discharge by performance.

Question 8

In material alteration,

A)the parties are directly concerned with the discharge of an existing contract.
B)the parties are basically preoccupied with the new arrangement,and the discharge of the old contract is incidental.
C)a replacement of one of the parties discharges the original contract and substitutes a new one.
D)there is an agreement not to proceed with performance of a contract already in existence.
E)none of the above

Question 9

Bulldog Logging Co.agreed to clear 40 hectares of land for Palmer Construction Corp.,who had paid in advance for this service.Later,Palmer realized that they only needed 35 hectares cleared and released Bulldog Logging from the contract after they had cleared just 35 hectares.What should take place in order for the original contract to be legally discharged?

A)Pay back an appropriate amount of the advanced payment thereby establishing the gratuitous promise.
B)Do nothing,but be prepared to clear the five remaining hectares if requested.
C)The parties should place this waiver in writing and under seal.
D)The remaining five hectares will have to be cleared,otherwise a new contract will need to be negotiated.
E)Offer a tender of performance to Palmer Construction.

Question 10

At common law,in order for a contract to be discharged by frustration,

A)the circumstances must be such that the contractual obligations of the parties have become incapable of being performed.
B)there must be such a long interruption or delay that it renders performance really that of a different contract.
C)no party to the contract must be in default.
D)each party to the contract must be innocent.
E)all of the above

Question 11

A agrees in writing to buy B's property for $20 000.00.The agreement states that A shall have five days from the date of the agreement to find mortgage financing.A is unable to find mortgage financing in five days and notifies B.In this case,

A)the contract has been discharged by operation of a condition subsequent.
B)the contract has been discharged by waiver.
C)the contract has not been discharged.
D)the contract has been discharged by operation of a condition precedent.
E)the contract has been discharged by novation.

Question 12

A agrees in writing to sell to B two printing presses by September 1 for $5000.00.B gives a deposit of $1000.00.Due to a tornado,A's production facility is destroyed on August 25,so A cannot deliver the printing presses to B.In a lawsuit by B for the return of the deposit,the court will say at common law,

A)B is not entitled to the return of the deposit because A did not confer a benefit on him.
B)the contract was discharged by the frustrating event of the tornado on August 25.
C)there was contract between A and B.
D)Had A conferred even the smallest benefit on B,such as delivering some printing press parts,A would have to return the deposit.
E)all of the above

Question 13

A novation agreement respecting a party or parties is only effective if

A)the new party introduced by novation consents in writing.
B)the creditor serves notice in writing on the debtor.
C)the parties to the original contract and the new party introduced by novation all give their consent.
D)all parties to the agreement have already performed their obligations under the agreement.
E)the replacement contract contains a clear condition precedent.

Question 14

A and B agree in writing that A will sell to B $5000 in widgets by September 1.On August 28th,B tenders payment of the $5000.00 on A,who refuses to accept it and later refuses to deliver the widgets to B because their value went up after the contract was entered into.In this case,if A sues B for breach of contract and B successfully counterclaims for specific performance,

A)A is in breach of contract and B will only have to pay the $5000.00,but no interest or costs.
B)by not continuously trying to ensure that A accepts the $5000.00,B is in breach of contract.
C)A is in breach of contract and B is not bound to do anything more.
D)the contract is at an end.
E)none of the above

Question 15

A company that installs heavy equipment is to be paid upon the completion of each stage in the tooling of a new factory.Yet it is the factory owner's own chief engineer who does the inspection and makes the approval of each stage.Will the courts enforce this arrangement as a condition precedent?

A)Yes,they will,because both parties agreed to this arrangement in the contract.
B)No,they won't,but any dispute can be settled based on fairness and equity.
C)Yes,they will,since this is the way things are done in the trade.
D)No,they won't,since there is an obvious conflict of interest.
E)No,they won't,since quantum merit should apply in this situation.

Question 16

A contract provides for its own dissolution when there is

A)a condition subsequent.
B)accord and satisfaction.
C)material alteration of the terms.
D)novation.
E)a waiver.

Question 17

A has just hired B as his employee.The contract,which is in writing and for a two-year term,contains a provision that states that the first three months of B's employment is a probationary period during which A will determine whether B's employment will continue.At the end of the three-month period,A advises B that B's services are no longer required.In this case,

A)A is within his rights because the probationary period is a condition subsequent.
B)A is within his rights because the probationary period is a condition precedent.
C)A is in breach of contract with B because B has performed his end of the bargain.
D)A is in breach of contract when he tells B his services are no longer required.
E)none of the above

Question 18

Which of the following provides the best example of discharge by accord and satisfaction?

A)A customer prepays for 5 kilograms of prime rib,but cancels the order because he instead wants to buy 25 kilograms of filet mignon for a business party.
B)A butcher's shop changes ownership and the new owner fills the outstanding orders.
C)A butcher fills his order two days late because he was seriously ill.
D)A butcher runs out of Grade AAA beef and offers Grade A as a substitute (with a good discount)to all customers with existing orders.
E)A butcher's shop burns down and the owner is not able to fill his orders.

Question 19

A and B agree in writing that A will renovate B's house for $20 000.00.A renovates the house and B pays the money.In this situation,

A)the contract has been discharged by performance.
B)the parties are free to go on to do whatever they like.
C)all the obligations under the contract have been met by A and B.
D)the contract is at an end.
E)all of the above

Question 20

A agrees to build a machine for B by September 1 for $3000.00.On August 15,both A and B agree not to proceed with the contract.In this situation,

A)the contract has not been discharged and the parties must complete their respective obligations.
B)the contract has been discharged by waiver.
C)the contract has been discharged by anticipatory breach.
D)the contract has been discharged by a condition precedent.
E)the contract has been discharged by a condition subsequent.

Question 21

Julie was told by ComputerLand that if she were to purchase 10 or more USB keys,she would receive a free USB hub in the mail.However,shortly thereafter,the supplier of such hubs went out of business and could no longer fill orders.Then Julie sued ComputerLand,who used "frustration" in its defence.Which of the following is true?

A)Frustration is impossible because it is too late for rescission.
B)The manufacturer of the USB keys and hubs would be liable.
C)Since the source is destroyed,the agreement is frustrated.
D)Since Julie did not specify the source,the agreement is not frustrated.
E)Since the carrying case is free,this agreement lacks consideration.

Question 22

For a contract to be fully discharged,one party must complete performance.

Question 23

Accord and satisfaction is an agreement not to proceed with the performance of a contract already in existence.

Question 24

Performance for the purpose of discharge by performance can take any number of different forms,depending on the contract.

Question 25

The doctrine of frustration,

A)if not applied,discharges the plaintiff from her or his contractual obligations.
B)can be applied in cases where the subject matter did not exist at the time of the agreement.
C)only applies where there is a Frustrated Contracts Act.
D)is a practical and reasonable solution to be imposed by a court under extreme circumstances that were not contemplated by the contracting parties.
E)could be applied successfully as a defence in a case where honouring contractual obligations would bring hardship upon the promisor.

Question 26

A contract that is discharged by performance is one in which the respective legal obligations of the parties have been fulfilled.

Question 27

A and B enter into a contract whereby A agrees to supply B with 10 000 tins of tuna at the rate of 1000 tins per month from his tuna factory in Bayport,Nova Scotia,and B agrees to pay A $2 per tin.A supplies 1000 tins of tuna,but before he can collect,his factory is destroyed by fire.If the contract is discharged by frustration,which of the following statements is correct?

A)A must obtain the tuna from another source to satisfy the contract.
B)B will have to pay A the sum of $2000 because there was no deposit.
C)Only future obligations are discharged,and B must pay A the sum of $2000.
D)All obligations under the contract are discharged,A and B's obligations are both discharged,and B does not have to pay A the sum of $2000.
E)B will not have to pay A the sum of $2000 because there is no longer a contract.

Question 28

Where an event makes performance of a contract more difficult or may mean that it may take a little longer,the event is still a frustrating event.

Question 29

Bankruptcy does not discharge a bankrupt from all contractual obligations.

Question 30

A party to a contract might forego the defence of frustration by

A)making it a condition precedent.
B)being in a province that has its own Frustrated Contracts Act.
C)placing an exemption clause on everything.
D)making it a condition subsequent.
E)an express promise worded in such an absolute and unconditional way as to rule out any reservation for the party's benefit.

Question 31

Munson Fixtures Inc.has contracted with Weibe Installations to provide faucets for a major building project.The contract specifies that 400 Munson 6LS faucets shall be delivered on June 8.Similar faucets are made by other manufacturers.Which of the following is the only situation where the contract might be discharged by frustration?

A)Munson Fixtures delivers the correct faucets but Weibe refuses them because they seem to be too shiny.
B)A fire,lit by a disgruntled employee,burns down the building project.
C)The factory that makes and stores Munson 6LS faucets burns down-May 23.
D)Munson Fixtures experiences severe financial difficulties and can no longer fund the faucet-making operation.
E)The faucets are set aside (for this order),then stolen on April 1; Munson only manufactures about 30 of the 6LS faucets per day.

Question 32

Each province in Canada has a Limitations Act.Which of the following statements correctly describes what happens to a contract after the time set forth in the Act has expired?

A)The contract is discharged by the courts.
B)The defendant cannot raise equitable defences to a breach of contract action.
C)The contract can no longer be enforced unless the plaintiff agrees to forfeit his or her rights.
D)Contractual obligations become "statute barred."
E)The party to the contract who is entitled to collect money will be required to ask for a ruling by the court.

Question 33

The general rule for the discharge of a contract through frustration is as follows:

A)A party will be able to use self-induced frustration successfully.
B)The frustrating event must defeat the common intention of both parties.
C)Failure to perform is often excused by a wide variety of circumstances where the offending party is not at fault.
D)The Frustration Contracts Act is applicable in cases where the Sale of Goods Act applies.
E)It is only effective if performance becomes impossible or purposeless before the agreement was made.

Question 34

Interlake Shipping Co.transports grain in large barges across Lake Michigan.In March,one of its barges was caught in an ice flow,where it "jammed," with the resultant destruction of its cargo.The carrier's property insurance refused to pay because the hazard was not covered under the policy.And the owner of the cargo had no insurance.Does this occurrence fall under the doctrine of frustration for the carrier?

A)Yes,it does,since it was an act of God.
B)Yes,it does,because it involved the perishing of the goods.
C)No,it doesn't,because the event was preventable.
D)Yes,it does,because Interlake had no insurance to cover its property.
E)No,it doesn't,since the event was due to carelessness.

Question 35

A frustrating event is one that was not foreseeable by the parties.

Question 36

Tender of performance means to perform an obligation under a contract.

Question 37

David,a manufacturer's agent,is under contract to represent Joseph Tool Co.in western Canada.This contract contains "an option to terminate" clause.What is the likely meaning of this clause?

A)With notice,only David can opt out of this contract.
B)This clause stipulates when performance has been completed.
C)This clause amounts to discharge by accord and satisfaction.
D)With notice,only Joseph Tool Co.can opt out of this contract.
E)With notice,either or both companies can opt out of this contract.

Question 38

Jerry,a college business major,contracts with the Southwestern Co.to sell books door-to-door in Portsville,Ontario.Upon learning that a local by-law requires a $25 per day licence,Jerry declares the contract frustrated and goes home.Would the courts agree with Jerry's contention?

A)Yes,they would agree,since it is no longer a profitable business.
B)Yes,they would agree,since the license fee is a cost of doing business that was not contemplated by Jerry.
C)Yes,they would agree,because the town intended the by-law to restrict door-to-door selling.
D)No,they would not agree,because this is "self-induced" frustration.
E)No,they would not agree,because the by-law was beyond Jerry's control.

Question 39

A contract might be discharged by the doctrine of frustration if

A)the frustrating event is contemplated by the contract.
B)the contract becomes purposeless after it was entered into.
C)the contract is expressly absolute.
D)the frustrating event is self-induced.
E)the contract was impossible to perform at the time it was entered into.

Question 40

Jekyll agrees to sell Hyde a certain super-strength hair remover capsule.While it is still in Jekyll's laboratory,the only capsule is swallowed by a night-time guard dog.What will happen in this case?

A)The contract is discharged because of a waiver by both parties.
B)The contract is discharged because a provision of the Sale of Goods Act applies.
C)The contract is discharged by the Frustrated Contracts Act.
D)The contract is void because of mistake in assumption.
E)Jekyll is relieved of his liability on grounds of hardship in performance.

Question 41

What is the effect of frustration on a contract? What,at common law,happens to a deposit paid prior to a contract being frustrated?

Question 42

Jack sells Payless Habitat 750 hats.These are yet to be produced from a new factory in Centreville,Ontario.Delivery day on the contract is in six months' time.After the contract is entered into,the town of Centreville refused a conditional land permit necessary for the building of the factory.As it turns out,Jack will have to find another piece of land for his factory.Is Jack bound by his contract to supply hats? Give reasons for your answer.

Question 43

John and Sally enter into a contract for the lease of a used automobile.The term of the contract states that John can terminate the lease agreement if Sally fails to make a required lease payment within 10 days of the due date.Sally fails to make the required payment and on the eleventh day declares the contract cancelled.Will Sally be successful? Explain your answer.

Question 44

A sells goods to B for $5000.00 and no deposit is paid.Before the balance of the goods is delivered,the goods are destroyed.In this case,at common law,explain whether the seller will get anything for the value of the goods delivered.

Question 45

A sells goods to B for $5000.00 and B gives A a deposit of $1000.00.Both A and B agree that the risk remains with the seller,A,until the shipping documents are delivered to the purchaser,B.A ships two of the goods to B and then the rest of the goods are destroyed while in A's possession at no fault of A.In this case,at common law,what would happen to B's deposit?

Question 46

A debtor who makes an unsuccessful but reasonable attempt to pay will be free from further liability on interest owing on the amount.

Question 47

Clyde entered into a contract with Lucy Produce to supply eight tons of tomatoes.A flood destroyed the field where Clyde was growing his tomatoes,so he refused to supply the tomatoes.What legal grounds could Clyde advance for not supplying the tomatoes? What is Lucy Produce's best defence? What is the likely outcome of an action commenced by Lucy Produce for breach of contract?

Question 48

Give an example of self-induced frustration.What is the legal result?

Question 49

Jack agrees to paint John's home for $500.00.Wishing to re-negotiate the deal,Jack,the night before the job,throws away his paint brushes and other equipment.The next day he tells John that thieves have stolen his equipment and so the contract will have to be cancelled.Jack's conduct is not a breach of the contract because the contract is frustrated.

Question 50

On October 1,Mary Miller,a world-renowned entertainer,entered into a contract with Quality Production Ltd.to perform a concert in Sudbury,Ontario,on December 15.On October 15,Quality signed a contract to rent the Centennial Hall from its owners,Business Buildings Ltd.,for the evening of December 15.Business Bldg.was advised of the purpose for which Quality was renting the hall,and Quality paid Business Bldg.a deposit of $5000.Quality had tickets printed,advertised the concert,hired a band,and paid Mary Miller a $7500 advance.Expenses by December 10 totalled $12 500 excluding the advance to Mary Miller.
a.If on December 10,the Centennial Hall burned to the ground through no fault of Business Bldg.,would Quality be able to sue Business Bldg.for its losses,and if so,what would Quality likely recover? Explain any legal principles and defences the parties may rely upon.
b.If on December 10,the above (a)did not happen but Mary Miller died,could Quality successfully sue Mary Miller's estate for damages,and if so,what would Quality likely recover? What legal principles and defences would be available to the parties?

Question 51

Contracts can be discharged by agreement.Name and describe four examples of discharge by agreement.

Question 52

Explain the effect of a condition subsequent.

Question 53

Charles and his family live in Halifax.He was offered a good accounting position at Johnstone & Custer Ltd.in Vancouver.He agreed to take the job if the company could find his family suitable housing in the vicinity of the company.After two months,and having been presented with 17 different "suitable" houses,Charles declared that the condition to the employment contract had not been met.Does the firm Johnstone & Custer have any legal claim on the employment contract?

Question 54

Explain why a waiver might not be enforceable.

Question 55

When there is a contract for sale of goods,destruction of the source of the goods will frustrate the contract.

Question 56

What is tender of performance,and why would a party to a contract make a tender of performance?

Question 57

A truck slides off a mountain road in a snow storm.The contents,Nike shoes,are spread all over a ravine far below.Explain how the seller of the goods,who retained title,might use frustration in his defence.

Question 58

An agreement by parties to a contract not to proceed with performance is not supported by consideration.

Question 59

Where the required elements for frustration in the Sale of Goods Act are present,the Frustrated Contracts Act will not apply.

Question 60

Since any possible frustrating event can be made a term of the contract,why do we need the doctrine of frustration?

Question 61

In December,a California importer contracted with a Guatemala exporter for a plane load of roses to be shipped to Los Angles from Guatemala City the first week in February.Because of a regional hail storm in January,the exporter's usual sources of supply dried up to the extent that he could not obtain sufficient quantities of quality roses in Guatemala,so arranged for a shipment from the Cameron Highlands in Malaysia.When the shipment arrived in Los Angles,the importer refused it-based on the fact the roses didn't come from Guatemala.Give the legal arguments of each party.

Question 62

Because frustration is only available for unanticipated or unforeseen events,and because the rules are arbitrary,what can contracting parties do to better manage the legal risks?

Question 63

Leaving aside frustration or the operation of law as a means of discharging a contract,what is it that the other forms of discharge have in common with each other and what does this really mean?