CHAPTER
5
Performance and
Breach of Contract
PowerPoint® Presentation Prepared By
Susan McManus, Mount Royal College
© 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.
CH 5
LEARNING OBJECTIVES
 Examine the requirements of performance of a
contract
 Identify events preventing performance of a
contract
 Understand what constitutes breach of contract
and its consequences
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 5-1
© 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.
5.1
The Nature and Extent of Performance
Performance
 Parties meet the contractual obligations and
promises made
 Must be complete and exact to discharge the
contract
 Failure to perform is a breach of contract
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 5-2
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Figure 5-1
Tender
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 1-3
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5.1
The Nature and Extent of Performance (Cont’d)
Tender – offer to perform the contract
Tender of Payment
 Legal tender – money payment, must be accepted
(proper amount, time and place)
 Contract may specify alternate forms, such as
cheque, credit card, or bill of exchange
Tender of Performance
 Fulfillment by delivery of goods, possession of land
or provision of services
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 5-4
© 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.
Figure 5-2
Discharge by
Means Other
Than
Performance
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 1-5
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5.2
Discharge by Means Other Than Performance
 Parties may specifically provide in the contract for
termination of the contract on notice or upon the
happening of an event
 Option to Terminate
 Prearranged right to give notice to end the contract
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 5-6
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5.2
Discharge by Means
Other Than Performance (Cont’d)
Condition Subsequent
 Discharge upon the occurrence of a particular
event specified in the contract
 Force Majeure Clause: discharge of contractual
obligations upon the occurrence of a major,
unforeseen or unanticipated event which prevents
performance
 Implied terms in the contract from trade customs,
such as an Act of God
What types of events could be considered Acts of
God?
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 5-7
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5.2
Discharge by Means
Other Than Performance (Cont’d)
Doctrine of Frustration
 Performance is impossible due to unforeseen
circumstances not caused by the parties (no fault
situations) = discharge
 Destruction of something essential to the contract
 Personal service is impossible
 Continuation of a state of affairs essential
 Difficulty and expense in performing are not
frustrating events
 Frustrated Contracts Act – divides the loss more
equitably after the frustrating event, such as
deposit retention or recovery
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 5-8
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5.2
Discharge by Means
Other Than Performance (Cont’d)
Condition Precedent
 An agreed condition that must be satisfied before
the contract becomes effective
 If the condition is met then performance is
necessary as the contract is effective
 What conditions precedent do we find most often
in business contracts?
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 5-9
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5.2
Discharge by Means
Other Than Performance (Cont’d)
Operation of Law
 Legislation may provide for discharge of certain
contracts
 Limitation Acts – actions may be statute barred if
not brought within the specified time periods
 Doctrine of Laches – common law rule preventing
action due unreasonable delay
Merger
 Formal written contract under seal exactly
incorporates a previous informal written
agreement, thereby discharging the first contract
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 5-10
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5.3
Agreement to Discharge a Contract
Waiver
 Parties voluntarily agree to end the contract and abandon
the right to performance
 Usually placed under seal
Substituted Agreement
 Essentially novation, as parties agree to discharge the
original contract and replace it with a new contract
Material Alteration
 Agreement to change a significant term (going to the root of
the contract); discharges the contract and establishes a new
contract
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 5-11
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Figure 5-3 Breach of Contract
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 1-12
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5.4
Breach of Contract
Breach of contract
 Refusal to carry out the contract promise
 May allow
 Discharge of the contract
 Damages
 Court order requiring performance
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 5-13
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5.4
Breach of Contract (Cont’d)
Express Repudiation
 Stated refusal to perform
 Conduct
 Written or verbal communication
 Anticipatory breach
 Repudiation before time fixed for performance
 Allows the injured party to:
 Discharge and sue for damages
 Continue with contract and sue for damages at the time
fixed for performance
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 5-14
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5.4
Breach of Contract (Cont’d)
Express Repudiation
 Doctrine of Substantial Performance
 Repudiation after the performance is largely fulfilled
will not allow discharge, only damages
 Warranties
 Minor or subsidiary promises allow damages only and
not discharge of the contract
 Conditions
 Major or essential terms that go to the root of the
contract allow discharge, if done promptly and no
further benefit taken, and damages
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 5-15
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5.4
Breach of Contract (Cont’d)
Implied Repudiation
 Anticipatory breach: repudiation is suggested by the
conduct of the party or from statements made before time of
performance
Fundamental Breach
 Breach goes to the root of the contract and allows discharge
 Exemption clauses: terms of the contract allowing
avoidance or limitation of liability
 Strictly construed against the maker, and previously not
allowed for fundamental breach
 S.C.C. – effect of exemption clauses and fundamental
breach depends upon the construction or wording of the
contract
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 5-16
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Figure 5-4
Remedies for
Breach
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 1-17
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5.5
Remedies for Breach of Contract
Compensation for Loss
 Placement of the injured party in the same position
as he or she would have been in had the contract
been properly performed
Damages: money to compensate
 Extent of Liability for Loss
 Remoteness of damage
 Damage was reasonably foreseeable
 Damage was related to knowledge available indicating
consequences of breach (special circumstances)
 Can include damages for mental stress
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 5-18
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5.5
Remedies for Breach of Contract (Cont’d)
Damages
 Duty to Mitigate Loss
 Injured party has a duty to reduce the loss, if not
damages may be reduced accordingly
 Liquidated Damages
 Term in the contract that estimates the damages that
might reasonably flow from the breach
 These damages WILL be enforced if the attempt was
a genuine (bona fide) estimate
 These damages WILL NOT be enforced if the amount
is unreasonable or unrelated and intended to punish
(penalty)
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 5-19
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5.5
Remedies for Breach of Contract (Cont’d)
Rescission
 Revocation of the contract (innocent
misrepresentation)
Specific Performance
 Court may require the contract to be performed as
monetary damages would be inadequate
 Land
 “Commercial uniqueness” – such as rare goods
 Will not be granted for performance of personal
service contracts
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 5-20
© 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.
5.5
Remedies for Breach of Contract (Cont’d)
Injunction
 Court order to perform the contract by refraining
from doing certain acts as promised in the contract
(“promises to forbear”)
 Reluctance to enforce in employment situations or if it
is contrary to public policy
Quantum Meruit
 Court will require a party to pay a reasonable price
for services or materials requested and benefit
obtained, when the other party repudiates the
contract with partial performance
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 5-21
© 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.
CH 5
SUMMARY
Performance
 Tender of performance by payment or performance
Discharge
 As a right; Implied terms; Doctrine of Frustration; Operation
of law; Merger; by Agreement
Breach of Contract
 Express and implied repudiation
 Fundamental breach
Remedies for Breach of Contract
 Damages
 Rescission
 Special remedies: specific performance, injunction and
quantum meruit
Essentials of Canadian Business Law, 1st Canadian Edition
Slide 5-22
© 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.