Chapter 5: Performance and Breach of Contract

Question 1

Nature & Extent of Performance

Answer 1

• If the performance of the promise is not exact and precise, the contract may not be discharged.
• Tender of performance: offering to perform a promise and may arise by either:
  a. Tender of payment.
  b. Tender of performance of an act described in the contract.

Question 2

Tender of Payment

Answer 2

• 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 (cheque, credit card, or bill exchange), there must be prior arrangement in the contract permitting payment. Interest cease after the tender of payment whether or not is accepted.

Question 3

Tender of Performance

Answer 3

• Performance of a promised act creates the expectation of tender of payment. The performance must be according to the contract (in time, place for delivery of goods, transfer of land, or service accomplishment).
• A failure to perform is a breach entitling the other party to damages or specific performance (in case of lands/unique goods).

Question 4

Discharge by other means

Answer 4

• The ideal way to discharge a contract is with a full and satisfactory performance by both parties, but discharge can also occur by other means.
• The option to terminate gives each the 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, discharge all contractual rights.

Question 5

Act of God & Frustration

Answer 5

• Act of God: Manifestation of the force of nature which could not have been precluded by human intervention and which prevents the performance of a contract.
• Frustration: inability to discharge a contract by performance due to unforeseen circumstances beyond the control of both parties, is often destruction of something critical to performance of a contract.

Question 6

Condition Precedent

Answer 6

• Delays/prevents a prepared and signed contract from coming into force and effect/until the happening of a specified event (if it never occurs the contract is discharged). Without condition precedent, no enforceable contract exists.

Question 7

Operation of Law

Answer 7

• Change in law is another method by which a contract may be discharged. Further, if a limitation period for filling a lawsuit under provincial/territorial limitation expires, a remedy for breach of contract may be statute barred.

Question 8

Merger

Answer 8

• Informal contracts replaced by a formal agreement made under seal. As long as the content/substance of the written agreement remains the same, the original (informal) contract can be discharged when it is merged/incorporated into a formal contract having an identical effect.

Question 9

Agreement

Answer 9

• Parties who mutually agree to abandon rights/obligations under a contract can offer each other, 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/different parties if they choose.

Question 10

Material Alteration of Terms

Figure 5-2

Answer 10

• Changing a contract to its roots, it can alter the character of the agreement. Such change has the effect of discharging the original contract and rising a new agreement containing the material term.

Question 11

Breach of Contract

Answer 11

• Failure by one of the parties to honour a complete and express or implied term. This results in the entitlement of the innocent person to commence an action for damages/threat to the contract, and as discharged (in some circumstances).

Question 12

Types of Breach of Contract

Answer 12

• Express Repudiation: refusal verbally/written/conduct to perform contractual duties; and anticipatory breach occurs before performance is actually due when it becomes apparent that one party is not likely to perform.
• Substantial performance protects a part who breaches some aspect of a contract after completing essential terms associated with its purpose from attempt by other party to avoid performance.

Question 13

Breach of Warranty

Answer 13

• Where repudiation is of a subsidiary promise rather than of an essential term, there is a breach of warranty.
• Breach or a minor term (not a condition) entitles the victim to damages but not to rescission of the contract.
• Victim of breach of warranty, in other words, must fulfill his/her part of the contract.

Question 14

Implied Repudiation

Answer 14

• Must be discerned from the conduct of one of the parties or various statements he/she makes prior to the time when performance is due, and is the most difficult 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.

Question 15

Fundamental Breach

Figure 5-3

Answer 15

• Is so serious that goes to the root of the contract, allowing the innocent party to escape obligations to perform.
• An exemption clause attempts to limit liability of someone who breached a contract; but if the breach is of fundamental nature, courts will construe the exemption clause strictly against the person who drafted it (to the extent that the clause may not provide no protection at all).

Question 16

Remedies for Breach of Contract

Answer 16

• Compensation for loss: available to the injured party, but the loss must be proven by court. The goal of damages is to place the victim of the breach in the same position if the contract had been performed.
• Remedies besides damages include specific performance and quantum meruit.

Question 17

The Extent of Liability for Loss

Answer 17

• When someone commits a single breach of contract that causes a chain of reaction (adversely affect a whole series of contract).

Question 18

Duty to Mitigate & Liquidated Damages

Answer 18

• The victim of breach of contract must take reasonable steps to lessen the loss.
• A defendant who proves that a plaintiff did nothing to mitigate loss may have the amount of liability reduced according to degree of neglected 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.

Question 19

Rescission & Special Remedies

Answer 19

• Rescission sets aside an agreement, restoring the parties to their pre-contractual positions.
• Specific performance: equitable remedy requiring the defendant to carry out promises under the contract when damages are inappropriate.
• Injunction: preventative remedy which requires the defendant to refrain from committing certain future acts adverse to the purpose of the contract.

Question 20

Quantum Meruit

Figure 5-4

Answer 20

• When the contract is for services and such services are partially complete, and then is learned that the contract will be repudiated by the other party, the person who has benefitted form 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.