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

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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

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2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Figure 5-1

Tender

Essentials of Canadian Business Law, 1st Canadian Edition

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5.1

The Nature and Extent of Performance

(Contd)

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

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Figure 5-2

Discharge by
Means Other
Than
Performance

Essentials of Canadian Business Law, 1st Canadian Edition

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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

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2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

5.2

Discharge by Means
Other Than Performance (Contd)

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

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2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

5.2

Discharge by Means
Other Than Performance (Contd)

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

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5.2

Discharge by Means
Other Than Performance (Contd)

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

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2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

5.2

Discharge by Means
Other Than Performance (Contd)

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

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2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

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

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Figure 5-3 Breach of Contract

Essentials of Canadian Business Law, 1st Canadian Edition

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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

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2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

5.4

Breach of Contract (Contd)

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

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2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

5.4

Breach of Contract (Contd)

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

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2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

5.4

Breach of Contract (Contd)

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

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Figure 5-4

Remedies for
Breach

Essentials of Canadian Business Law, 1st Canadian Edition

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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

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2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

5.5

Remedies for Breach of Contract

(Contd)
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)
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5.5

Remedies for Breach of Contract

(Contd)
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

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2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

5.5

Remedies for Breach of Contract

(Contd)
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

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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

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2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.