SGMA 395 - Module 3 Part 3

Overview of Ending Contractual Relationships

• The lecture focuses on the circumstances leading to the end of a contractual relationship and the implications of breach.

• Four main reasons a contractual relationship can end:

  • Performance

  • Mutual Agreement

  • Contractual Breach

  • Frustration

1. Performance

• Definition: A contract ends when both parties fulfill their obligations.

• Example:

  • Supply of goods delivered on time and of satisfactory quality with payment made.

  • Services provided as agreed, with payment made by the receiver.

• Importance of exact performance: Any deviation constitutes a breach of contract and can entitle the non-breaching party to damages depending on the severity of the breach.

• Minor Breaches: Not always lead to damages; it depends on the degree of variation and its impact on the innocent party.

• Industry Standards: In the absence of specific contractual terms, performance must align with industry standards of practice.

2. Mutual Agreement

• Definition: Both parties decide to terminate the contract voluntarily.

• Situations include:

  • Contract termination specified by conditions (e.g., service until a specific date).

  • Rescission can be expressed or implied.

• Effects of Assignment and Novation:

  • Assignment: Transfer of rights without terminating the contract.

    • Assignor: Transfers rights.

    • Assignee: Receives rights (e.g., debt collection).

    • Notice must be given to the debtor when rights are assigned.

  • Novation: Replaces the original contract with a new one that includes new parties and extinguishes all prior obligations. Requires consent from all parties.

3. Contractual Breach

• Definition: Failure to fulfill obligations as per the contract.

• Seriousness: Courts examine whether the breach pertains to a fundamental term (condition) or a minor term (warranty).

  • Condition: Essential to the contract; breach permits rescission.

  • Warranty: Lesser importance; breach only permits claim for damages, not rescission.

• Examples:

  • Fundamental Breach: Delivery of a different car model (e.g., Corvette vs. Prius).

  • Minor Breach: Color of the car delivered (e.g., green Corvette instead of red).

4. Frustration

• Definition: Unforeseen events render a contract impossible to perform or fundamentally change obligations.

• Key features:

  • Neither party causes the frustrating event.

  • Event occurs after the contract formation.

  • Must render performance impossible or drastically change obligations (not merely more difficult or expensive).

• Example: Destruction of leased premises by fire.

5. Remedies for Breach of Contract

• Monetary Damages: Standard remedy for non-fundamental breaches.

  • Compensation Principle: Damages equal to what the innocent party would have received if the contract had been performed.

  • Example: Costs to repaint a car or differences in value due to breach.

• Equitable Remedies: Include specific performance and injunctions.

  • Specific Performance: Court order for a party to fulfill their contractual obligations; typically for unique properties.

  • Injunction: Court order to prevent a party from taking action, only granted when damages are insufficient.

Conclusion

• Both parties are discharged from further obligations in cases of frustration, while breaches may allow for damages or rescissions based on the nature of the terms violated.