TERMINATION OF A CONTRACT

Many ways to terminate or discharge a contract

• performance;

• agreement to waive performance or substitute another agreement;

• nonfulfillment of a condition precedent;

• frustration; or

• breach of a condition of the contract which is accepted by the injured party.

-For contracts of purchase and sale of “development units”, REDMA gives buyers two types of rescission rights: a seven day rescission right, and a rescission right for a failure by the developer to deliver a disclosure statement or an amendment to a disclosure statement.

-Under the Property Law Act, buyers of “residential real property” can rescind their contract of purchase and sale within the Home Buyer Rescission Period, which is three business days after entering into the contract; buyers must promptly pay the seller a fee of 0.25% of the purchase price.

Performance

-This is the manner intended by the parties at the outset to be the proper way to terminate their contract.

-When the final act of performance occurs, the contract is at an end.

-If substantial performance is made, but one of the parties will not accept it, the party performing it will have met their obligations under the contract, and the party refusing such performance will be in breach of the contract.

Agreement

-If both parties still have obligations left to perform, the mutual waiver of their obligations will be sufficient consideration to bind them

-Otherwise, either new consideration will have to be given to support the variation, or the agreement to waive the balance of the contract will have to be made under seal

-The same rules apply if the parties decide to substitute a new agreement for the first one.

Nonfulfillment of a Condition Precedent

-condition precedent: legal term for a “subject to” clause. In contract law, a condition precedent calls for the happening of some event or the performance of some act before the contract shall be binding upon the parties

-Waiver of conditions precedent is covered by section 54 of the Law and Equity Act. That section permits a party to a contract to waive a condition precedent if:

• the condition precedent benefits only that party to the contract;

AND

• the contract can be performed without the condition precedent being fulfilled;

AND

• the waiver is made before any time stipulated for fulfillment of the condition precedent, or within a reasonable time if no time is stipulated.

Frustration

-a legal doctrine that provides that where the existence of a specific thing is necessary for performance of the contract, the duty to perform is discharged if the thing, for reasons beyond anyone’s control, is no longer in existence at the time for performance

-not possible for a party to frustrate a contract through their own acts.

-unlike a common mistake, the subject matter of a contract is destroyed AFRER the contract has been made

Termination by Breach

-breach of contract: Failure, without legal excuse, to perform any promise which forms the whole or part of a contract

-The promissee has the right to recover any damage suffered because of that breach, but a breach does not necessarily mean that the contract is ended

-The party not in breach usually must perform their contractual obligations despite the other party’s breach

-It is only where the breach is of a fundamental term that the injured party can claim both damages and the right to terminate

-The injured party can also refuse to perform their own obligations or to accept any further performance by the other party.

-A breach can arise in three ways:

• by one party announcing that they will not perform although the time for performance has not yet arrived (anticipatory breach);

• by one of the parties making the performance of the contract impossible; or

• by failure of a party to perform at the time stipulated for performance.

-only a breach of a fundamental term of the contract will allow the innocent party to sue for damages and to terminate the contract.

-condition: a promise in a contract which is fundamental

-e.g. the standard printed form of the Contract of Purchase and Sale contains the clause “time is of the essence”. This phrase creates a condition. The contract must be completed by this date.

-warranty: a promise which is not fundamental to the contract.

-The main reason for distinguishing between conditions and warranties is that different remedies are available for each type of breach

-where a breach of condition occurs, the injured party has three choices:

• they can choose to terminate the contract and sue for damages, and their obligations under the contract also end;

• they can choose to continue the contract and sue for damages, just as in the case of a breach of a warranty; or

• they can choose to continue the contract and sue for specific performance.

Assignment

-assign: to transfer over to another (e.g., “I assign all right, title and interest in Blackacre to my wife, Elaine”)

-A person can assign away benefits under a contract to a third party, and the third party can sue to enforce those benefits.

-Generally, a person cannot assign liabilities under a contract.

-The doctrine of privity of contract simply says that only the parties to a contract have a right to sue or besued under it. There are some exceptions to the doctrine:

→ the exception for contracts which create an interest in land. contracts “run with the land” so that a new owner of property can sue or be sued on a contract even though they were not a party to it.

—> assignment.

Two types of assignment

1. Statutory assignment: complies with the legal requirements set out in sections 36(1) and (2) of the Law and Equity Act. A statutory assignment has three essentials:
   • the assignment is in writing;

   • the assignment is absolute (for the whole amount) and is unconditional; and
   • notice of the assignment has been given in writing to the original promissor.
   -If any of the above essentials are missing, the assignment might still be an equitable assignment.
   -only the original promissor and the assignee are named as parties to the action. The assignor is not a party to the action.

2. Equitable assignment: all three parties must be named as parties in a court action to recover the amount outstanding

-Essentially, all offers prepared by real estate licensees must contain the following terms relating to assignments (the “Standard Assignment Terms”), unless instructed otherwise by the buyer:

1. this contract must not be assigned without the written consent of the seller; and

2. the seller is entitled to any profit resulting from an assignment of the contract by the buyer or any subsequent assignee.

-If the offer does not contain the Standard Assignment Terms, the buyer’s licensee must deliver a standard form notice to the seller’s licensee notifying them of the exclusion of the Standard Assignment Terms and advising the seller to obtain independent professional advice.

Vicarious performance.

-no one can assign away liabilities under a contract. However, it is legal to have obligations performed by someone else.

-not assignment. It does not result in the substitution of one of the original contracting parties for another

-not permitted in the case of personal contracts.

-A has contracted with B in reliance on B’s personal skill, competency, judgment, taste, or other personal qualification, the law presumes that the contract is one of a personal nature

-Vicarious performance is considered “no performance” in the eyes of the law for a personal contract