CHAPTER
5
Performance and
Breach of Contract
Microsoft® PowerPoint® Presentation Prepared By
Gail McKay, LLB, Thompson Rivers University
© 2008 McGraw-Hill Ryerson Ltd.
Ltd., All Rights Reserved.
OBJECTIVES
1. To discern the nature and extent of
performance required to discharge a
contract
2. To determine the types of events that
prevent performance of a contract
3. To establish what conduct comprises a
breach of contract
4. To survey remedies for breach of contract
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
4-1
NATURE AND EXTENT OF PERFORMANCE
Less than complete performance of a
contract is a failure to respect its terms
If performance of the promise is not exact and
precise, the contract may not be discharged
Offering to perform a promise is formally called
tender of performance and may arise by either
1. Tender of payment, or
2. Tender of performance of an act described
in the contract
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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TENDER OF PAYMENT
Tender of payment occurs when the debtor
formally offers payment to the creditor in the
exact amount due, at the required time, and in
the proper place
If anything other than legal tender is to be
used to pay, there must be prior arrangements
in the contract permitting payment by cheque,
credit card or bill of exchange
Interest ceases to run after the tender of
payment, whether it is accepted or not
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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TENDER OF PERFORMANCE
Performance of a promised act creates the
expectation of tender of payment
The performance must be in accordance with
the contract terms, including the appointed
time and place for delivery of goods, transfer
of land, or accomplishment of a service
A failure to perform is a breach, entitling the
other party to damages or specific performance
in the case of land or unique goods
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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DISCHARGE BY OTHER MEANS
Full and satisfactory performance by both
parties is the ideal way to discharge a contract,
but discharge may also occur by other means
The option to terminate gives each of the
parties the opportunity to end the contract by
providing the other party with a specific period
of notice
Similarly, a condition subsequent specified in
the contract may, when it occurs, discharge all
contractual rights and duties
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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ACT OF GOD AND FRUSTRATION
An act of God is a manifestation of the force
of nature which could not have been precluded
by human intervention and which prevents the
performance of a contract
The doctrine of frustration is the inability to
discharge a contract by performance due to
unforeseen circumstances beyond the control
of both of the parties, and is often the
destruction of something critical to
performance of the contract
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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CONDITION PRECEDENT
The opposite of a condition subsequent, a
condition precedent delays or prevents a
prepared and signed contract from coming into
force and effect until the happening of a
specified event
If the specified event never occurs, both
parties to the contract are discharged from any
duty to perform
Without the fulfillment of the condition
precedent, no enforceable contract ever exists
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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OPERATION OF LAW
A change in the law is another method by
which a contract may be discharged
The subject matter of a contract may, for
example, become illegal, or the Bankruptcy
and Insolvency Act may absolve one of the
parties to a contract from indebtedness
Further, if a limitation period for filing a lawsuit
under a provincial or territorial limitation act
expires, a remedy for a breach of contract may
be statute barred
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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MERGER
Informal contracts are sometimes replaced
by a formal agreement made under seal
As long as the content or substance of the
written agreement remains the same, the
original informal contract can be said to be
discharged when it is merged or incorporated
into a formal contract having an identical effect
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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AGREEMENT
Parties who mutually agree to abandon
their rights and obligations under a contract
can offer each other, as consideration for their
promises, a waiver of their right to enforce a
contract
Similarly, both parties can agree to discharge
an existing agreement and, by process of
novation, enter a new one with fresh terms or
different parties if they so choose
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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MATERIAL ALTERATION OF TERMS
When a change goes to the root of the
contract, it is known as a material alteration
which can be said to alter the character of the
agreement
Such a change has the legal effect of
discharging the original contract and giving rise
to a new agreement containing the material
term
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© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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BREACH OF CONTRACT
A breach of contract is a failure by one of the
parties to honour and complete an express or
implied term
This conduct results in the entitlement of the
innocent person to commence an action for
damages and to treat the contract, in some
circumstances, as discharged
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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TYPES OF BREACH OF CONTRACT
Express repudiation is the refusal verbally,
in writing, or by conduct to perform contractual
duties; and anticipatory breach occurs before
the performance is actually due when it
becomes apparent that one party is not likely
to perform
The doctrine of substantial performance
protects a party who breaches some aspect of
a contract after completing all essential terms
associated with its purpose from an attempt by
the other party to avoid performance
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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BREACH OF WARRANTY
Where a repudiation is of a subsidiary
promise rather than of an essential term, there
is a breach of warranty
The breach of a minor term which is not a
condition entitles the victim to damages but
not to rescission of the contract
A victim of a breach of warranty, in other
words, must nevertheless fulfill his or her part
of the contract
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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IMPLIED REPUDIATION
Unlike an express repudiation, an implied
repudiation must be discerned from the
conduct of one of the parties or from various
statements he or she makes prior to the time
when performance is due
Implied repudiation is the most difficult type of
anticipatory breach to identify
If a condition in a contract has been breached,
the non performance may entitle the innocent
party to treat the contract as ended
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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FUNDAMENTAL BREACH
A fundamental breach is one that is so
serious that it goes to the very root of the
contract, allowing the innocent party to escape
his or her obligations to perform
An exemption clause generally attempts to
limit the liability of someone who has breached
a contract; however if the breach is of a
fundamental nature, courts will construe the
exemption clause strictly against the person
who drafted it – to the extent that the clause
may provide no protection at all
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© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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REMEDIES FOR BREACH OF CONTRACT
Compensation for loss for breach of contract
is available to the injured party, but the loss
must be proven to the court
The goal of damages is to place the victim of
the breach in the same position he or she
would have been in if the contract had been
performed as initially contemplated
Remedies besides damages include specific
performance and quantum meruit
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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THE EXTENT OF LIABILITY FOR LOSS
A whole series of contracts may be
adversely affected when someone commits a
single breach of contract that causes a chain
reaction
The defence of remoteness may be raised by a
defendant, but “any damages actually caused
by a breach of any kind of contract are
recoverable, providing that when the contract
was made such damage was reasonably
foreseeable as liable to result from the breach”
Czarnikow v. Koufos, [1966] 2 WLR 1397
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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DUTY TO MITIGATE & LIQUIDATED
DAMAGES
Reasonable steps to lessen the loss must
be taken by the victim of a breach of contract
A defendant who can show that a plaintiff did
nothing to mitigate loss may have the amount
of his or her liability reduced according to the
degree of neglect by the plaintiff
Liquidated damages represent an authentic
estimate, at the time a contract is entered
into, of what the amount of damages will be
upon a breach and may be inserted as a clause
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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RESCISSION & SPECIAL REMEDIES
Rescission sets aside an agreement, restoring
the parties to their pre-contractual positions
Specific performance is an equitable remedy
requiring the defendant to carry out his or her
promises under the contract when damages
are inappropriate
An injunction is a preventative remedy which
requires the defendant to refrain from
committing certain future acts adverse to the
purpose of the contract
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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QUANTUM MERUIT
When a contract is for services, the
services are partially complete, and then it is
learned that the contract will be repudiated by
the other party, the person who has benefitted
from the partial services must pay for them
The amount required to be paid is based on the
equitable principle of quantum meruit: what
the performing party deserves for the amount
of work completed
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
4-24
SUMMARY
If tender of performance is not exact and
precise, the contract may not be discharged
An act of God, the doctrine of frustration,
conditions precedent or subsequent, and
operation of law may all prevent a contract
from being performed
Express and implied repudiation may constitute
a breach of contract, giving rise to an award of
damages or an array of equitable remedies
Fundamentals of Canadian Business Law, Second Edition
© 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.
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