Deck 13: Performance of Contractual Obligations

Question 1

Shamira offered to purchase Brendan's automobile for $3,050 cash, with Brendan to deliver the vehicle the next Wednesday, at which time Shamira would pay the $3,050. On the Wednesday, when Brendan did not deliver, Shamira went to Brendan's home, and found him in his garden. Shamira offered Brendan the money, but Brendan refused, saying that he had changed his mind, and did not wish to sell his automobile. If Brendan refused the tender of the exact amount of money, Shamira would be entitled to take legal action against Brendan for breach of contract.

Answer 1

True

Question 2

In the contract between Canada Oil Company and the Government of Iran for the supply of Iranian crude oil, there is a clause that allows either party a period of one year to bring forward to court any claim arising from events subject to the contract. Any claim raised after one year from the events which give rise to it is agreed to be unenforceable. Had the parties not provided for this themselves, the common law would have provided a somewhat similar measure, represented by the doctrine of

A) force majeure.
B) option to terminate.
C) condition subsequent.
D) condition precedent.
E) frustration.

Answer 2

E

Question 3

Bacall, a building contractor, bid for and won the tender to construct Klegman's Shopping Centre. Due to rampant, unexpected inflation, she found she would not quite break even on the project and she asked Klegman to renegotiate the price. Klegman pointed out that there was no provision in the contract for that and said, "A deal's a deal."

A) Bacall can assert that this is a frustrated contract, and, since no work has been started, claim back the bid deposit of $50 000 and walk away from the whole thing.
B) Bacall is stuck with the contract and there is nothing she can do but take the loss.
C) Bacall can say that there has been a material alteration of the terms of the contract, and that this has discharged the contract's terms regarding payment, so she can renegotiate them without losing the contract.
D) Because Klegman will be unjustly enriched if the contract is not renegotiated, Bacall can insist on a substitute agreement, which will discharge the old one.
E) Any of the responses can be true.

Answer 3

B

Question 4

The University of Excellence has decided that it wants to only accept cash payments for tuition. Its current contract states that payment may be made by cash, cheque or credit card. How can it amend the contract?

A) Amend the payment clause to state that payment may be made by cash.
B) Amend the payment clause to state that payment by cheque or credit card will not be accepted.
C) The payment clause can be deleted.
D) The clause must be amended to reflect the payment of cash and not by cheque or credit card.
E) The clause must be amended to reflect the payment of cash and not by cheque or credit card or the clause may be deleted.

Question 5

Shamira offered to purchase Brendan's automobile for $3,050 cash, with Brendan to deliver the vehicle the next Wednesday, at which time Shamira would pay the $3,050. On the Wednesday, when Brendan did not deliver, Shamira went to Brendan's home, and found him in his garden. Shamira offered Brendan the money, but Brendan refused, saying that he had changed his mind, and did not wish to sell his automobile. Brendan would be entitled to reject the tender of payment if it consisted of $3,100 in cash, instead of the required $3,050 in cash.

Question 6

John Stevenson, a plumber, had a contract to repair a slow leak in a toilet in Dr. Ibsen's medical clinic. Because it had to be done when no patients were there, John Stevenson agreed to come on a Saturday. However, when he got there, he found a notice on the door saying "Got a chance for a free trip to Hawaii. Come next Saturday at the same time. Thanks. Dr. Ibsen." John Stevenson did not turn up the next Saturday and, when Dr. Ibsen called to find out why, John Stevenson said he had promised to take his wife shopping that day, and he doubted if he would be able to find the time in the future.

A) Dr. Ibsen breached the contract on the first Saturday.
B) John Stevenson breached the contract on the second Saturday.
C) Neither man has breached the contract; it is simply suspended.
D) The contract was not breached since it was frustrated on the first Saturday because Dr. Ibsen could not be there.
E) Dr. Ibsen breached the contract on the first Saturday and John Stevenson breached the contract on the second Saturday.

Question 7

How can contracts be discharged?

A) Tender of performance
B) Operation of law
C) Agreement of the parties
D) Condition subsequent
E) All of the responses are correct.

Question 8

In the contract of sale of Jones' house to Greenwood, no particular method of payment was specified. Greenwood's lawyer has heard rumours that Jones got a much better offer after he signed the deal with Greenwood, and, from the attitude displayed by Jones recently, Greenwood's lawyer thinks Jones may be hoping the deal will fall through. Greenwood

A) should make sure he has a certified cheque for the full amount on the date of closing.
B) should make sure he has cash for the full amount on the date of closing.
C) should make sure that, if he has a personal cheque for the full amount, it is accompanied by a banker's letter guaranteeing the funds are there.
D) need not worry about how payment is made since, as long as it is the exact amount, Jones cannot legally refuse any mode of tender, provided that the contract did not stipulate a particular mode.

Question 9

Kirk entered into a contract with Yemmi to haul gravel in his large tandem truck from Yemmi's gravel pit to a building site some five kilometres distant, at $60 per load. Before Kirk was to begin performance, his truck was destroyed in a serious traffic accident. Because Kirk is bound in contract, Yemmi can require Kirk to purchase a new truck to perform the agreement.

Question 10

In the contract between Bayson's Department Store and Clem's Manufacturing, there is a clause that allows either party to end the contract on 60-days' notice and the payment of liquidated damages, which are set at a reasonable amount. This clause is

A) a force majeure clause.
B) an option to terminate.
C) a condition subsequent clause.
D) a frustration of contract clause.
E) an example of laches.

Question 11

Under the Frustrated Contracts Act; can Delores keep a $20,000 deposit?

A) Yes.
B) Yes, if the contract included a termination clause.
C) No.
D) No, unless the contract included a termination clause.
E) None of the responses are correct.

Question 12

For contracts concerning the purchase of land, once payment in full in accordance with the terms of the contract has been offered by the purchaser, if not provided in turn by the vendor with a deed to the property, the purchaser may

A) bring an action for tender.
B) bring an action for termination.
C) bring an action for specific performance.
D) bring an action on the condition subsequent.
E) bring an action for delivery of legal tender.

Question 13

When does a waiver have to be in writing and under seal?

A) If the original contract was required to be in writing pursuant to the Statute of Frauds.
B) If the original contract was in writing due to the parol evidence rule.
C) If both parties have partially performed the contract.
D) If one party has partially formed the contract.
E) If one party has fully performed the contract.

Question 14

In the contract between Gamil's Building Materials store and Hightrees Logging and Lumber Company for the supply of lumber, there is a clause that allows either party to end the contract on 10-days' notice should actions of logging protesters on Hightrees' property bring logging operations to a temporary halt. This clause is

A) a force majeure clause.
B) an option to terminate.
C) a condition subsequent clause.
D) a frustration of contract clause.
E) an example of laches.

Question 15

Delores is an opera singer who is scheduled to perform in Toronto on October 17^th. She gets laryngitis and is unable to sing. The contract does not include any provisions regarding Delores' health. Is she obliged to perform?

A) Delores is not required to perform. The contract is frustrated as there is an implied term of continued good health.
B) Delores is required to perform as there is no provision terminating the agreement in the event of illness.
C) Delores is required to perform, but because of her laryngitis she is allowed to lip synch.
D) Delores is required to perform as there is an implied term of continued good health.
E) Delores is not required to perform because of human rights legislation.

Question 16

Carson, a fruit wholesaler, delivered bananas to Phil's Fruit Market. A sizeable portion of the truckload was of questionable quality, but no one at Phil's Fruit Market had objected to delivery. After a falling out over another contract a year later, Phil's Fruit Market sued Carson over the banana shipment. Of the following, Carson's best defence would be:

A) merger.
B) waiver.
C) laches.
D) novation.
E) extinguishment.

Question 17

Shamira offered to purchase Brendan's automobile for $3,050 cash, with Brendan to deliver the vehicle the next Wednesday, at which time Shamira would pay the $3,050. On the Wednesday, when Brendan did not deliver, Shamira went to Brendan's home, and found him in his garden. Shamira offered Brendan the money, but Brendan refused, saying that he had changed his mind, and did not wish to sell his automobile. If Shamira had offered Brendan exactly $3,050 in cash, she had made a valid tender of payment.

Question 18

In the contract between Canada Oil Company and the Government of Iran for the supply of Iranian crude oil, there is a clause that allows either party to end the contract on declaration of war between Canada and Iran, or the imposition of United Nations trade sanctions on either country. This clause is

A) a force majeure clause.
B) an option to terminate.
C) a condition subsequent clause.
D) a frustration of contract clause.
E) an example of laches.

Question 19

King, a library sciences student, was hired at $400 a week to catalogue the library of the very wealthy Earle family. He estimated that the work would be completed in early August, giving him a month of vacation, which he felt he badly needed. For the first three days on the job, King was kept busy running errands for Mr. Earle, who had a sprained ankle, and keeping him from getting bored. On the fourth day, Mrs. Earle was using the library for her bridge club and a meeting of her church Flower Committee, and on Friday she kept King busy running errands for the dinner party she was giving that night. After two weeks of this, King quit and took a labouring job for $275 a week.

A) If a court agrees that the Earles' behaviour rendered the performance of the contract impossible, King may be able to recover the difference between the salaries for the two jobs.
B) Since King was getting paid, it was irrelevant that he was not able to do the cataloguing and, when he quit, he breached the contract.
C) If the Earles can convince a court that King abandoned the contract, he will get nothing.
D) Since King was getting paid, it was irrelevant that he was not able to do the cataloguing and, when he quit, he breached the contract. If the Earles can convince a court that King abandoned the contract, he will get nothing.
E) None of the responses are true.

Question 20

Shamira offered to purchase Brendan's automobile for $3,050 cash, with Brendan to deliver the vehicle the next Wednesday, at which time Shamira would pay the $3,050. On the Wednesday, when Brendan did not deliver, Shamira went to Brendan's home, and found him in his garden. Shamira offered Brendan the money, but Brendan refused, saying that he had changed his mind, and did not wish to sell his automobile. If Shamira had in her possession three $1,000 bills, and one $100 bill, her tender would be invalid, even though she had cash in excess of the amount requested.

Question 21

Ms. Sherbourne bought a candy bar costing 80 cents. She paid for it by presenting the storekeeper with a $5 bill. While this is not a legal tender, it is so customary to give change that the storekeeper would have to warn customers if he was only prepared to accept exact tender of the price of the goods.

Question 22

Cecilia agreed to buy an antique Japanese sword from Andrew. After the contract is formed but before Andrew delivers the sword or Cecilia pays any money to him, the government passes a law that makes it a crime to buy a sword other than a fencing foil. Since the contract was made before the law was passed, it is not frustrated.

Question 23

Julian decides that he would like the house being built for him, under contract with Porter Developers, to have a blue tile roof instead of a red tile roof. The two kinds of tile are equally available and are the same price, and no roofing of the house has yet been done. Porter alleges that this is a material alteration of the terms of the contract, since the roof is one-tenth of the value of the house, and that, therefore, it cannot be done without their agreement to the change, which they will only give for a further payment of $5,000. They are right.

Question 24

Lucas offered to purchase Baker's snowmobile if he could arrange a loan with the bank for the funds. Lucas and Baker signed a written purchase agreement which did not mention the fact that Lucas did not have the necessary funds in his possession. The proviso "if he could arrange a loan with the bank for the funds" would be a condition precedent.

Question 25

Damian and Raja agree in writing that Raja will buy Damian's cottage. If Raja changes her mind and refuses to buy the cottage, Damian can get specific performance provided he can prove that he tried to transfer the title deed to the property on the closing date and Raja would not accept it.

Question 26

Lucas offered to purchase Baker's snowmobile if he could arrange a loan with the bank for the funds. Lucas and Baker signed a written purchase agreement which did not mention the fact that Lucas did not have the necessary funds in his possession. If the bank refused to lend Lucas the money, the contract would be enforceable against Lucas.

Question 27

Gavin is in the business of local transport of goods, as well as running a rural bus service. He contracts for a delivery van from his local truck dealer, but before the dealer places the order with the manufacturer, Gavin amends the order to request the minibus model of the delivery van. Gavin and the dealer have created a new contract that replaces the prior one.

Question 28

Imperfect tender, also referred to as imperfect performance, does not represent a breach of contract.

Question 29

Kirk entered into a contract with Yemmi to haul gravel in his large tandem truck from Yemmi's gravel pit to a building site some five kilometres distant, at $60 per load. Before Kirk was to begin performance, his truck was destroyed in a serious traffic accident. Kirk need not perform the contract, as the contract was frustrated by the destruction of the truck.

Question 30

Kirk entered into a contract with Yemmi to haul gravel in his large tandem truck from Yemmi's gravel pit to a building site some five kilometres distant, at $60 per load. Before Kirk was to begin performance, his truck was destroyed in a serious traffic accident. If Kirk deliberately destroyed his truck, Yemmi can insist that he perform the agreement or compensate Yemmi for any loss that might result from Kirk's non-performance.

Question 31

Sangster and Williams enter into a verbal contract with each other. They later decide to put it in writing. This is a substituted agreement.

Question 32

A judgment by Mr. Justice Exx for the plaintiff Wy, in his suit against Zedd for breach of a condition of a contract, has the effect of discharging the contract, so that Wy has no further obligations under it, and substitutes the terms of the judgment for the terms of the contract, which Zedd must then perform.

Question 33

The case of Turney et al. v. Zhilka accurately describes the state of the law in Canada with respect to the effect of conditions precedent.

Question 34

Joe sold a barn full of hay to Sheila but, before Sheila could transfer it to her own barn, a hurricane blew the roof off Joe's barn, and that part of the hay that did not blow away was ruined by the torrential rains. The contract is frustrated.

Question 35

Kirk entered into a contract with Yemmi to haul gravel in his large tandem truck from Yemmi's gravel pit to a building site some five kilometres distant, at $60 per load. Before Kirk was to begin performance, his truck was destroyed in a serious traffic accident. If Kirk owned a fleet of trucks, and Kirk had a number of spare trucks, the doctrine of frustration would not apply to the case, and Kirk would be obliged to perform the contract.

Question 36

Damian and Raja agree in writing that Raja will buy Damian's cottage. On the date set for closing the sale, it is up to Raja to come to Damian to make payment of the purchase price, unless the contract says otherwise.

Question 37

The vast majority of contracts are discharged by operation of law.

Question 38

The effect of a condition precedent is that the contract does not come into effect unless the condition is satisfied.

Question 39

Bronson signs up to join the army because the advertisements make it look like summer camp. Later, he changes his mind and shoots himself in the foot, so he won't have to go. This does not frustrate the contract, though the contract may be avoidable on other grounds.

Question 40

Lucas offered to purchase Baker's snowmobile if he could arrange a loan with the bank for the funds. Lucas and Baker signed a written purchase agreement which did not mention the fact that Lucas did not have the necessary funds in his possession. If Baker claimed against Lucas for breach of the contract, Lucas could raise the agreement concerning the need for a bank loan as a collateral agreement, allowing him to avoid the contract.

Question 41

Jamil, a prospective purchaser of real estate, visited his lawyer with three completely executed agreements of purchase and sale, each for a different piece of real estate. Each offer was conditional upon "the purchaser being able to obtain $50,000 financing to his satisfaction within ten days at a rate of interest not exceeding 10%, failing which this offer is void." Financing of this type was easily available, over the counter, from any local bank for a person of Jamil's financial circumstances. Discuss the position that Jamil has found himself in, particularly if he should obtain such financing, informing one purchaser of his intention to proceed, and the other two that he could not obtain funds.

Question 42

Joe's Jazz Quintet contracted with Larry's Lounge to provide music in the lounge each evening for a two-week period. The terms of the contract provided for payment of a weekly fee of $5,000.00 for Joe's services. During the course of the first week Larry sold the lounge to a group of investors who decided to convert it to a country and western line dancing bar. The new owners immediately terminated Joe's contract but paid the quintet the full weekly fee for one week even though only three performances had taken place.
Joe's group had the opportunity to move on to its next booking early and did so, commencing performances the next evening. At the end of their touring season, some ten months later, Joe and his musicians reflected on business matters that had transpired over the season. They realized that they had had to forgo one week's pay of $5,000 at Larry's Lounge and, even though they started their next job early, it had only paid $3,000 for the week. Moreover, Joe felt that it did not help the reputation of the band to essentially be "fired" from a job. Joe and his friends decided to get some advice about taking legal action against Larry or the new owners of the lounge for the damages they had suffered as a result of the termination of their contract. Identify the issues that their legal counsel would discuss with them about their claim. What argument(s), if any, would Larry or the investors raise in response to Joe's action?

Question 43

In 1969, XYZ Co. Ltd., a manufacturer of small appliances, entered into a 20-year contract with ABC Smelters Inc. who agreed to process molten aluminum for XYZ's manufacturing needs. The parties undertook lengthy negotiations to determine the terms of the complex agreement which governed their relationship. In particular, the pricing clause was quite complicated based upon various factors. The price to be paid by XYZ was to vary in accordance with two of those factors. After a base price was agreed upon, 20 percent of that price would vary with changes in the Wholesale Price Index for Industrial Commodities (WPI). This portion was referred to as the "production charge." An additional 20 percent of the price would vary with changes in the hourly wage rates of ABC Smelter employees. A major component of the production charge for the smelting of aluminum was the cost of electricity.
The parties performed under the contract for several years applying the pricing formula appropriately to the basic price. However, in 1973, the Arab oil producing nations imposed an oil embargo that severely affected most of the world's economies causing rapid inflation, particularly in sectors which were substitutes for oil based energy. The cost of electricity rose at a rate greatly in excess of the rate of increase in WPI, of which electricity was only one of many factors. At this point, ABC Smelters realized that continuing with the contract as it stood to the end of its term would result in a loss of over $60 million to the company and would likely result in its bankruptcy. ABC then ceased performing under the contract and instituted legal action to attempt to relieve its onerous obligations under the agreement.
a. Discuss the nature of the action and the arguments which may be used by ABC.
b. Whether ABC is successful or not, what further steps may the parties take to revive their contractual relationship?
F. Supp. 53, this situation examines the doctrines of frustration and the principles of substituted agreement.
a. The legal action brought by ABC is based in frustration in order to bring the contract to an end and relieve the parties from further performance. The external event of an oil embargo causing huge increases in the cost of electricity was neither foreseeable nor caused by any fault of the parties. Its effect was to change the circumstances and conditions under which the agreement was to be performed such that performance becomes virtually impossible for ABC without risking the company's demise. Furthermore, given the long-term nature of the contract, it was an event for which the parties would likely have provided for discharge of the agreement had it been foreseeable and the changes in conditions apparent. The defendants may raise an argument that ABC is attempting to have the contract declared frustrated simply because performance became more expensive than contemplated at the outset. However, the courts, recognizing the difficulty in predicting future conditions in long-term contracts, especially those of an unexpected nature, would likely treat the contract as frustrated. This is particularly true in light of the great care and thorough negotiations which the parties undertook at the outset. Thus, the frustrated contract is brought to an end and the parties would be relieved of further performance.
b. The parties may agree to substitute their original contract with a new agreement with material alterations to the terms. The new substitute agreement will discharge the existing agreement if it has not already been discharged as frustrated by the courts. The alteration in the pricing terms of the agreement would be sufficiently material to effectively discharge the original agreement.

Question 44

Morton, a famous entertainer, agreed to host a telethon for the Society of Feathered Friends at half his usual $50,000 fee. A week before the telethon, the $25,000 was paid into his account. Morton had spent many hours working up jokes about the Society of Feathered Friends, since his normal materials were not really suitable for the expected audience. On the morning of the telethon he awoke with laryngitis and no voice, and the doctor says he cannot perform.
a. Describe how this will affect the contract between Morton and the Society of Feathered Friends.
b. If Morton had done some promotional ads for the telethon, would that change your answer to a?

Question 45

Shortly after entering into a contract with Prentice Co. to provide consultation on integrating their office systems, Antonio discovers he is the victim of a neurological disease that will kill him very rapidly. Because of his situation and the excellent service he has provided them in the past, Prentice's president decides to write off the whole of the $30,000 they had advanced him, which was to cover the investigatory and recommendation stages of his work for them, even though failure to perform was cause for rescission of the contract.
a. Prentice's action is either a waiver or a release. Which is it and what is the difference between them?
b. What danger does Antonio face if the president now leaves Prentice Co. and the new president reviews the matter?
c. What should be done to protect Antonio from that problem, at the time the promise is made?

Question 46

On April 13, the Barclays signed an agreement to purchase certain property owned by the Taylors for the sum of $15,500. The purchase and sale agreement did not specify a form of payment except that the purchasers were to pay a deposit of $500 in cash and the balance on closing. The date of closing was set out in the agreement as July 1^st. The agreement also contained the following provision:
"This sale is conditional for a period of 15 days from the date of acceptance upon the Purchaser being able to obtain a first mortgage in the amount of ten thousand dollars ($10,000), otherwise, this agreement shall be null and void and all deposit monies shall be returned to the Purchaser without interest or penalty. This sale is also conditional for a period of 15 days from the date of acceptance upon the Purchaser being able to secure a second mortgage in the amount of $2,500 for a period of five (5) years, otherwise, this agreement shall be null and void and all deposit monies shall be returned to the Purchaser without interest or penalty."
The Barclays were able to arrange for a first mortgage of $12,000 and, on April 28^th, a notice in the following form was delivered to the Taylors:
"This is to notify you that the condition specified in the agreement of purchase and sale between the Vendors and Purchasers has been met. The transaction will therefore close as per the agreement."
On July 1^st the Barclays presented a certified cheque to the Taylors in the amount of $15,000. The Taylors, however, refused to deliver the deed to the Barclays on the grounds that the condition in the purchase and sale agreement had not been complied with. The Barclays then instituted legal action against the Taylors.
Discuss the nature of this action and the defences, if any, which may be raised. Render a decision.
D.L.R. (3d) 693, this case explores the issues of tender, condition precedent, specific performance and, tangentially, waiver.
The purchasers will attempt to succeed in an action for specific performance. Having offered payment in the full amount of the contract and exhibiting their readiness and willingness to complete the transaction they will argue that the vendors must deliver the land. Also, the conditions in the agreement for the benefit of the purchasers were met to their satisfaction. Having notified the vendors to this effect, the purchasers argue that performance is now essential to discharge their agreement.
The vendors are entitled to raise defences with respect to the tender of payment and the condition precedent. The form of payment was not specified in the agreement with the exception of the deposit in cash. The implied form is, then, cash in the exact amount. The purchasers, by tendering a certified cheque, albeit in the exact amount, have failed to properly tender payment and the vendors may properly refuse to accept the payment and deliver up the land.
Moreover, the agreement set out a sequence of events in the form of conditions precedent that must be met prior to the agreement becoming enforceable. The conditions stipulated the occurrence of two specific events but failed to state that either party has the right to waive the condition in order to establish the contractual rights and to enforce the agreement on the other party. Essentially, waiver or the right to waiver, must be mutually agreed upon by the parties in order to establish consideration for the promise. Therefore, one party alone may not waive the condition upon which the right to enforcement of the contract rests. On the grounds that the conditions were not waived, the vendors argue that they cannot be forced to deliver up land under a contract which has not come into effect. The condition as specified in the agreement was never met and, thus, both parties are discharged from performance.
The Ontario Court of Appeal found for the purchasers on the basis of facts concerning the nature of the condition precedent which are beyond the scope of the text discussion.