PART 3 – THE LAW OF CONTRACTS
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Chapter 12 –
Performance of
Contractual Obligations
Prepared by Douglas H. Peterson, University of
Alberta
Copyright © 2004 McGraw-Hill Ryerson Limited
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THE NATURE AND EXTENT OF
PERFORMANCE
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Performance – fulfillment of obligations
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Must be exact and precise
Performance brings the contract to an end
Non-performance creates a breach of contract
by the non-performing party
Complete performance = discharge of the
contract
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LAW OF CONTRACT
TENDER
FORM OF TENDER
Performance
OBLIGATION
Payment
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TENDER
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Tender – the act of performing a contract or
the offer of payment of money due under a
contract
2 Types
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Tender of payment
Tender of performance of an act
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TENDER OF PAYMENT
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Sum of money offered in payment must be
in accordance with the terms of the contract
If form of payment not specified must be in
legal tender
Debtor has primary obligation to tender
payment
Creditor can insist on legal tender
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TENDER OF PAYMENT
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Legal Tender – official currency of Canada in the
form of notes (bills) and coins to a certain value
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Legal tender may not be refused when offered in
payment, if it is the exact amount required
Other forms of payment may be rejected
Tender must be at proper place and time
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If rejected debtor need not attempt payment again
Interest ceases to run from point proper payment is
tendered
Debtor not free of debt, but need only hold it until
creditor demands it
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TENDER OF PERFORMANCE OF AN ACT
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Obligations must be exactly performed
If tender rejected tender need not be made
again
Test: show willing and able to perform
Refusal of tender allows suit for breach of
contract to be brought
Specific Performance – equitable remedy
available for land when tender is refused
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DISCHARGE BY MEANS OTHER THAN
PERFORMANCE
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By terms of the agreement
By operation of law
By agreement of the parties
Upon the happening of the event
Condition Precedent
Substituted Agreement
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TERMINATION AS A RIGHT
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Option to terminate by either party giving
notice to the other
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Usually a time period is attached, upon the
expiry of which the agreement is terminated
May include compensation for termination
If done according to specific terms, may
terminate without liability
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EXTERNAL EVENTS – EXPRESS TERMS
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Condition subsequent – a condition that
alters the rights or duties of the parties to a
contract, or that may have the effect of
terminating the contract if it should occur
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Usually something beyond the parties control
Takes place subsequent to the formation of the
contract
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Example would be a rain check on a baseball game
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EXTERNAL EVENTS – EXPRESS TERMS
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Force Majeure – a major, unforeseen or
unanticipated event that occurs and prevents
the performance of a contract
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May be specific or general
Something beyond the control of either party
Normally referred to as acts of nature or acts of
God
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War, insurrections, natural disasters, strikes
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EXTERNAL EVENTS – IMPLIED TERMS
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Court may imply conditions subsequent from
customs of the trade
Common carriers not responsible for losses
due to acts of God
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DOCTRINE OF FRUSTRATION
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Frustrated Contract – a contract under which
performance by a party is rendered
impossible due to an unexpected or
unforeseen change in circumstances
affecting the agreement
Key Elements
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Beyond the control of the parties
Impossible not hardship
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Higher costs or loss is not grounds for frustration
Not self-induced
Event takes place after formation of the contract
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DOCTRINE OF FRUSTRATION
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Circumstances Constituting Frustration
Performance of a contract impossible because
subject matter destroyed/unusable
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Event forms basis of a contract fails to take place
Personal services contract
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Sale of Goods Act
Death or illness of person to perform
Act of govt. interference with performance
Frustrating event must defeat common intention of
both parties
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COMMON LAW
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Relevance is the time frustration occurs
Issue was return of deposit when given
before occurrence of frustrating event
Common law rule created hardships
All or nothing rule
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COMMON LAW
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If seller receives deposit and seller provides
no benefit to buyer then deposit must be
returned
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Benefit – a prototype, report – some benefit
Problem was seller incurred expenses but had to
give back whole deposit
If seller receives deposit and seller provides
a benefit to buyer, then seller keeps whole
deposit
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Problem was buyer got nothing for deposit and
could not recover deposit
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FRUSTRATED CONTRACTS ACT
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Reply to the unfairness and harshness of the
common law rule
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Enacted in England in 1943 and similar acts in
Alberta, Manitoba, New Brunswick,
Newfoundland, Ontario, British Columbia, and
P.E.I.
Other provinces subject to the common law
Not apply to specific sale of goods under Sale of
Goods Act or to other types of contracts such as
insurance
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FRUSTRATED CONTRACTS ACT
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Removes all or nothing rule of common law
Court apportions loss equitably
Allows for:
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Recovery of deposits
Retention of whole or part of deposit to cover incurred
expenses
A party who has received no benefit and paid no
deposit will not be obliged to compensate the other
party for work done prior to frustrating event
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A party works without an advance or deposit at their
own risk
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CONDITION PRECEDENT
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A condition that must be satisfied before a
contract or agreement becomes effective
Two views
First View – an agreement exists but
enforcement of it is suspended until
condition precedent is fulfilled, not fulfilled,
or waived
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If met – performance required
If not met – contract discharged
Second View – agreement does not come
into existence until condition is met
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OPERATION OF LAW
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Contract may be discharged by an operation
of law
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Bankruptcy – bankrupt debtor discharged from
all debts owed
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Merger – informal agreement discharged when formal
agreement signed
Must be identical to informal agreement
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OPERATION OF LAW
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Statutory Time Limits
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Common law – must bring actions within a
reasonable period of time
Statute Barred– must bring actions within the
stipulated time set forth in limitations legislation
Contracts not void, just deny a remedy
Contract may be revived with part payment or
acknowledgment of the debt
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AGREEMENT
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Waiver – an express or implied renunciation
of a right or claim
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One or both of the parties has not performed
but parties mutually agree to terminate the
agreement
May mutually agreed to discharge each other by
way of a waiver
Each party agreed to abandon their rights to
insist on performance
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If neither has fully performed – requires consideration
If one has fully performed – must be in writing under
seal
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NOVATION
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Mutual agreement by the parties to:
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Change the terms of an agreement
Change the parties to the agreement
Requires consent of all parties involved
Effect is to replace original contract with new
one
Difference from merger
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Merger – terms and parties remain the same –
replacement of a simple contract with a written
one
Novation – change of parties or change of terms
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MATERIAL ALTERATION OF TERMS
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Material alteration of terms of an existing
contract
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Discharges contract and replaces it with a new
one containing the alterations
Alternations must be significant, must go to the
root of the contract
Several minor alterations taken together may
constitute a discharge of old contract
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SUBSTITUTE AGREEMENT
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Substitution may effect the discharge of an
agreement
Can discharge a written agreement with a
verbal agreement under the Statute of
Frauds
Must be careful not to replace a written
agreement with a verbal agreement which
may become unenforceable under the
Statute of Frauds
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BREACH OF CONTRACT
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The failure to perform a contract according
to its terms
A breach of contract may give rise to a
discharge of the contract
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Examined in subsequent chapter
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SUMMARY
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Various methods to discharge a contract
Discharge by performance
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Must be precise and exact
Main method of discharge
Discharge by option of parties
Discharge on occurrence of particular event
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Force majeure
Frustration
Frustrated Contracts Act
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SUMMARY
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Discharge by Operation of Law
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Discharge by Agreement
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Upon occurrence of particular events set out in
legislation or common law
Wavier, substitution, novation
Discharge by Breach
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Not automatic discharge, depends on severity of
breach
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LAW OF CONTRACT
DISCHARGE BY MEANS OTHER THAN PERFORMANCE
METHOD OF
DISCHARGE
BY AGREEMENT
AS A RIGHT
DOCTRINE OF
FRUSTRATION
OBLIGATION
OPERATION OF
LAW
CONDITION
PRECEDENT
CONDITION
SUBSEQUENT
NATURE
Before Both Parties Have
Fully Performed
Option to Terminate as a Term in
Agreement
Performance Rendered Impossible by
External Event
Eg: War Declared, etc.
Bankruptcy
Limitations Act
Express or Implied Term Which Must
Be Fulfilled before Contract May Be
Performed
— Act of God
— Implied Term
— Express Term
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