1. CHAPTER PowerPoint ® Presentation Prepared By Susan McManus, Mount Royal College CHAPTER PowerPoint ® Presentation Prepared By Susan McManus, Mount Royal College © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. 5 Performance and Breach of Contract

2. Essentials of Canadian Business Law, 1st Canadian EditionSlide 5-1 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. 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 CH 5

3. Essentials of Canadian Business Law, 1st Canadian EditionSlide 5-2 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. 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 5.1

4. Essentials of Canadian Business Law, 1st Canadian EditionSlide 1-3 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Tender Figure 5-1

5. Essentials of Canadian Business Law, 1st Canadian EditionSlide 5-4 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. 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 5.1

6. Essentials of Canadian Business Law, 1st Canadian EditionSlide 1-5 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Discharge by Means Other Than Performance Figure 5-2

7. Essentials of Canadian Business Law, 1st Canadian EditionSlide 5-6 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. 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 5.2

8. Essentials of Canadian Business Law, 1st Canadian EditionSlide 5-7 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. 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? 5.2

9. Essentials of Canadian Business Law, 1st Canadian EditionSlide 5-8 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. 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 5.2

10. Essentials of Canadian Business Law, 1st Canadian EditionSlide 5-9 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. 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? 5.2

11. Essentials of Canadian Business Law, 1st Canadian EditionSlide 5-10 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. 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 5.2

12. Essentials of Canadian Business Law, 1st Canadian EditionSlide 5-11 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. 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 5.3

13. Essentials of Canadian Business Law, 1st Canadian EditionSlide 1-12 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Breach of Contract Figure 5-3

14. Essentials of Canadian Business Law, 1st Canadian EditionSlide 5-13 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Breach of Contract Breach of contract Refusal to carry out the contract promise May allow  Discharge of the contract  Damages  Court order requiring performance 5.4

15. Essentials of Canadian Business Law, 1st Canadian EditionSlide 5-14 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. 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 5.4

16. Essentials of Canadian Business Law, 1st Canadian EditionSlide 5-15 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. 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 5.4

17. Essentials of Canadian Business Law, 1st Canadian EditionSlide 5-16 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. 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 5.4

18. Essentials of Canadian Business Law, 1st Canadian EditionSlide 1-17 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. Remedies for Breach Figure 5-4

19. Essentials of Canadian Business Law, 1st Canadian EditionSlide 5-18 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. 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 5.5

20. Essentials of Canadian Business Law, 1st Canadian EditionSlide 5-19 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. 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) 5.5

21. Essentials of Canadian Business Law, 1st Canadian EditionSlide 5-20 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. 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 5.5

22. Essentials of Canadian Business Law, 1st Canadian EditionSlide 5-21 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. 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 5.5

23. Essentials of Canadian Business Law, 1st Canadian EditionSlide 5-22 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved. 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 CH 5