Deck 13: The Discharge of Contracts

Question 1

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) No, since there is an obvious conflict of interest.
B) No, since quantum merit should apply in this situation.
C) Yes, since this is the way things are done in the trade.
D) Yes, because both parties agreed to this arrangement in the contract.
E) No, but any dispute can be settled based on fairness and equity.

Answer 1

D

Question 2

The Browns contracted for the outside of their house to be painted while they were away on holidays. However, they neglected to leave the gate unlocked nor did they chain up their guard dogs. When the painters arrived, they found no reasonable way to get to the house to do their painting. Legally, what could take place?

A) The courts would force the parties to arrange the painting for another time.
B) The painters could sue for tender of performance.
C) The Browns could sue for non- performance of contract.
D) Neither party could obtain a judgment.
E) The painters could sue for the full payment on the contract.

Answer 2

D

Question 3

Builder contracts to construct your house for $75,000. Halfway through the project he stops and demands $10,000 extra. You agree because you won't have a place to live if you don't. You don't legally have to pay because there is

A) an existing obligation.
B) an impossible consideration.
C) equitable estoppel.
D) an unlawful consideration.
E) coercion.

Answer 3

A

Question 4

Briggs sells his personal business to Bye Sports Equipment who agrees to assume all the outstanding debt. One of the creditors refused to agree to this arrangement. How will this affect the contract of sale?

A) Once the sale has transpired, the liability of Briggs will be fully discharged.
B) This occurrence will have no affect on the sale of the business.
C) The contract of sale cannot take place.
D) Briggs will retain liability on the debt in question.
E) This holdout creditor will have to be persuaded to join the others.

Question 5

A unilateral contract is discharged by performance when

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

Question 6

Your text gives five major ways to discharge a contract. Which of the following is NOT one of those ways?

A) by performance
B) by operation of law
C) by breach
D) by court order
E) by frustration

Question 7

In material alteration

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

Question 8

A contract provides for its own dissolution when there is

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

Question 9

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) With notice, only Joseph Tool Co. can opt out of this contract.
D) With notice, either or both companies can opt out of this contract.
E) This clause amounts to discharge by accord and satisfaction.

Question 10

Bulldog Logging Co. agreed to clear 40 hectares of land for Palmer Construction Corp. who had paid in advance for this service. Later, Palmer realised that they only needed 35 hectares cleared and released Stapleton 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) The parties should place this waiver in writing and under seal.
B) Offer a tender of performance to Palmer Construction.
C) Do nothing, but be prepared to clear the 5 remaining hectares if requested.
D) The remaining 5 hectares will have to be cleared, otherwise a new contract will need to be negotiated.
E) Pay back an appropriate amount of the advanced payment thereby establishing the gratuitous promise.

Question 11

A novation agreement is only effective if

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

Question 12

While traveling in the U.S., 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) exchange rates and value of currency.
B) discrimination against Canadians.
C) tender of performance.
D) payment using credit.
E) discharge by performance.

Question 13

Four partners own the used car dealership, Square Deal Ltd. The company needs 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 sign 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) No, since the condition precedent was never met.
B) No, because there was a definite lack of consideration.
C) Yes, since the bank extended the loan without objection from the partners.
D) Yes, since there was good consideration given.
E) No, because the partner in Asia had the "deep pockets".

Question 14

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

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

Question 15

If the parties are primarily seeking a way to discharge their existing contract, then they are looking to

A) accord and satisfaction.
B) novation.
C) waiver.
D) material alteration.
E) discharge by frustration.

Question 16

Regarding the discharge of a contract, which of the following is FALSE?

A) Novation is the discharge of one contract by substitution of another.
B) One party to a contract may accept a money payment instead of performance and thus discharge the existing contract.
C) Waiver is the discharge of one agreement by substitution of another.
D) If the contract contains the option to terminate, then with proper notification either or both parties can discharge the contract.
E) If parties to a contract agree to a material alteration of its terms, they have in effect agreed to discharge the contract and replace it with a new one.

Question 17

The Doctrine of Frustration

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

Question 18

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

A) A butcher runs out of Grade AAA beef and offers Grade A as a substitute (with a good discount) to all customer with existing orders.
B) A customer prepays for 10 lbs. of prime rib, but cancels the order because he instead wants to buy 50 lb. of filet mignon for a business party.
C) A butcher shop changes ownership and the new owner fills the outstanding orders.
D) A butcher's shop burns down and the owner is not able to fill his orders.
E) A butcher fills his order two days late because he was seriously ill.

Question 19

To discharge a contract means to

A) place it into remission.
B) remove it from consideration.
C) make it null and inoperative.
D) execute it immediately.
E) reject its legal obligation.

Question 20

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 3 inches deep before the contract was operative. Which is the applicable legal concept?

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

Question 21

Where a creditor refuses to accept legal tender as payment any subsequent action to recover the money will be at the expense of the debtor.

Question 22

A contract might be discharged by the Doctrine of Frustration if

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

Question 23

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 and 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) 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 $2,000.
B) B will not have to pay A the sum of $2,000 because there is no longer a contract.
C) Only future obligations are discharged and B must pay A the sum of $2,000.
D) A must obtain the tuna from another source to satisfy the contract.
E) B will have to pay A the sum of $2,000 because there was no deposit.

Question 24

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

Question 25

Which of the following is TRUE regarding the Doctrine of Frustration?

A) Frustration can occur with the sale of goods.
B) A person may be frustrated in the legal sense, yet still carry out the terms of the contract.
C) Legal frustration can result from a common mistake.
D) An "act of God" results in legal frustration rather than legal mistake.
E) Hardship is a sufficient excuse for failing to perform terms of a contract.

Question 26

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

Question 27

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

Question 28

Jekyl agrees to sell Hyde a certain super strength hair remover capsule. While still in Jekyl's laboratory the only capsule is swallowed by a night- time guard dog.

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

Question 29

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) No, since the event was due to carelessness.
B) Yes, because it involved the perishing of the goods.
C) Yes, because he had no insurance to cover his property.
D) No, because the event was preventable.
E) Yes, since it was an act of God.

Question 30

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 license, Jerry declared the contract frustrated and went home. Would the courts agree with Jerry's contention?

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

Question 31

Jack gives a mortgage over his home to the Bank of Montreal. The mortgage contract is signed on June 3, 2003. After it is signed, Jack, upon reviewing the terms notices that there is a provision that states that he is to procure fire insurance coverage for the home. This kind of provision is known as a condition precedent.

Question 32

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

Question 33

Julie was told by ComputerLand that if she would purchase ten or more Zip cartridges, she would receive a free cartridge carrying case in the mail. However, shortly thereafter, the supplier of such carrying cases went out of business and could no longer fill orders. Then Julie sued ComputerLand, who used "frustration" in its defense. Which of the following is true?

A) Since Julie did not specify the source, the agreement is not frustrated.
B) Iomega, the manufacture of Zip drives and cartridges, would be liable.
C) Frustration is impossible because it is too late for rescission.
D) Since the source is destroyed, the agreement is frustrated.
E) Since the carrying case is free, this agreement lacks consideration.

Question 34

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

Question 35

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

Question 36

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

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) Frustration Contracts Act is applicable in cases where the Sale of Goods Act applies.
D) Failure to perform is often excused by a wide variety of circumstances where the offending party is not at fault.
E) That it is only effective if performance becomes impossible or purposeless before the agreement was made.

Question 37

The Frustrated Contracts Act determines:

A) how expenses incurred prior to frustration should be allocated
B) who is liable if there is frustration of contract
C) when risk passes under a contract
D) how to calculate damages in the event of frustration
E) all of the above

Question 38

For frustration of contract to occur, there must be:

A) a natural disaster
B) an event after the contract was entered into
C) an event that makes performance more onerous
D) an Act of God
E) an event before the contract was entered into

Question 39

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

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

Question 40

A frustrating event is one that cannot bring contractual obligations to an end.

Question 41

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

Question 42

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 ten days of the due date. Sally fails to make the required payment and on the eleventh day declared the contract cancelled. Will Sally be successful? Explain your answer.

Question 43

On October 1st, Mary Miller, a world renowned entertainer, entered into a contract with Quality Production Ltd. to perform a concert in Sudbury on December 15th. On October 15th, Quality signed a contract to rent the Centennial Hall from its owners, Business Buildings Ltd. for the evening of December 15th. Business Bldg. was advised of the purpose for which Quality was renting the Hall and Quality paid Business Bldg. a deposit of
$5,000. Quality had tickets printed, advertised the concert, hired a band, and paid Mary Miller a $7,500 advance. Expenses by December 10th, totaled $12,500 excluding the advance to Mary Miller.
a. If on December 10th, 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 defenses the parties may rely upon.
b. If on December 10th, 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 defenses would be available to the parties?

Question 44

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

Question 45

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 and what is Lucy Produce's best defense? What is the likely outcome of an action commenced by Lucy Produce for breach of contract?

Question 46

What is Tender of Performance?

Question 47

What is the difference between a condition precedent and a condition subsequent?

Question 48

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

Question 49

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

Question 50

Jack sells Payless Habitat 750 hats. These are yet to be produced from a new factory in Centerville, Ontario. Delivery day on the contract is in six months. After the contract is entered into, the town of Centerville 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 51

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 52

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 defense.

Question 53

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

Question 54

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 where 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 55

Albert receives a bill from Revenue Canada for $68 in late payment charges on his tax installments. He decides to pay Revenue Canada in dimes so he delivered them a bag full of dimes. Has he discharged his obligation to Revenue Canada? Explain.

Question 56

Charles and 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 the presenting of seventeen different "suitable" houses, Charles declared the condition to the employment contract had not been met. Does the firm Johnstone & Custer have any legal claim on the employment contract?

Question 57

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

Question 58

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

Question 59

Explain why a waiver might not be enforceable.

Question 60

A buyer makes a contract to buy property from a seller. Before completion (the date title transfers), the buildings on the property are destroyed by a fire set by a neighbour. The contract is discharged due to frustration.

Question 61

What is a material alteration in terms, and how can it affect contractual obligations?