Performance, Default, and Remedies for Non-Performance

Overview

The performance of obligations (l'exécution de l'obligation) is a central topic in Quebec's general theory of obligations. The Civil Code of Quebec (CCQ) provides a detailed set of rules governing how a debtor satisfies the creditor, what happens when the debtor fails to perform, and how the creditor can protect and enforce the right to receive performance. These rules apply regardless of the source of the obligation, whether it arises from contract, the law, or another recognized source. This article covers the general rules of payment, imputation, real offers and consignation, default, the full range of creditor remedies, and the mechanisms for protecting the creditor's interest in the debtor's patrimony.

Learning Objectives

• Identify the legal meaning of "payment" (paiement) in Quebec civil law and the conditions for a valid payment

• Explain the rules governing imputation when multiple debts exist between the same parties

• Describe the mechanism of real offers (offres réelles) and consignation for a debtor facing a reluctant creditor

Payment: General Principles

In its legal sense, "payment" refers to the performance of any obligation, not merely the transfer of money. The prestation may consist of doing or not doing something (art. 1373 CCQ). Payment presupposes the existence of a civil obligation arising from one of the sources recognized by the CCQ (art. 1554, para. 1 CCQ). Where no civil obligation exists, the person who has mistakenly performed may invoke the reception of a thing not due (réception de l'indu) under art. 1491 and 1492 CCQ, unless the recipient can show the prestation was a liberality. A debtor who knows nothing is owed but pays to avoid immediate complications may pay under protest (sous protêt) to avoid prejudice; the payment may then be recovered under the rules governing payment not due (art. 1491, para. 1 CCQ). The voluntary performance of a natural obligation (obligation naturelle), by contrast, is valid and cannot be reclaimed (art. 1554, para. 2 CCQ).

Good faith (bonne foi) governs the conduct of both parties at the time of performance, just as it governs the formation of the obligation (art. 1375 CCQ).

The Parties to Payment

The solvens must possess the requisite legal capacity and a right in the thing given in payment (art. 1556, para. 1 CCQ). Payment by the debtor personally or through a representative with conventional, legal, or judicial authority is straightforward; the creditor must accept it (art. 1555, para. 1 CCQ). An exception exists for contracts concluded intuitu personae, where the creditor has a legitimate interest in personal performance by the debtor (art. 1555, para. 2 CCQ). A third party acting in its own name may also pay, but cannot put the creditor in default of receiving payment if the payment is made solely to change creditors rather than to benefit the debtor (art. 1555, para. 1 in fine CCQ).

If the solvens lacks a right authorizing the payment, the creditor or, where appropriate, the owner of the property may seek annulment and restitution. Annulment leaves the original debtor liable to perform the debt. An exception applies for money or consumable property consumed in good faith by the creditor (art. 1556, para. 2 CCQ).

The accipiens must likewise have the quality and capacity to receive. Payment must be made to the creditor or a person authorized to receive it for the creditor (art. 1557, para. 1 CCQ). Payment to an unauthorized third party is valid if the creditor ratifies it; without ratification, it is valid only to the extent of the benefit the creditor derives from it (art. 1557, para. 2 CCQ). Payment to a creditor incapable of receiving it is valid only to the extent the creditor benefited (art. 1558 CCQ). Payment made in good faith to an apparent creditor (créancier apparent) is also valid and discharges the debtor (art. 1559 CCQ). A debtor who pays the wrong person and cannot invoke any exception must pay a second time, with recourse against the person who received the payment without right (art. 1491 and 1492 CCQ).

The Object of Payment

Three aspects govern the object of payment: availability, indivisibility, and identity.

• Availability (disponibilité): The payer must have a right authorizing payment with the property (art. 1556 CCQ). After seizure of a claim, payment made in prejudice of the seizing creditor is unenforceable against that creditor (art. 1560 CCQ).

• Indivisibility: Payment must be complete. The creditor cannot be compelled to accept partial payment (art. 1561, para. 2 CCQ), though the debtor may impose partial payment when the unpaid portion is genuinely disputed. The creditor retains the right to have the court decide the disputed portion, and the debtor who pays the disputed part may do so under protest and later seek restitution (art. 1491, para. 1 CCQ).

• Identity (identité): The prestation must conform to what is owed. The debtor cannot force a different prestation on the creditor, even if the substitute is of greater value (art. 1561, para. 1 CCQ). For individualized property, delivery in its existing condition discharges the debtor only if deterioration is not attributable to its act or fault and occurred before default (art. 1562 CCQ). A generic good must meet the agreed quality or, absent agreement, the standard under art. 1563 CCQ. For monetary obligations, the principle of nominalism applies: the debtor is discharged by delivering the number of currency units stipulated, regardless of fluctuations in purchasing power, subject to an agreed adjustment mechanism or applicable special rule (art. 1564 CCQ). Legal tender, a qualifying certified cheque, a postal money order or an instrument offering equivalent guarantees discharges the monetary debt. Credit cards and transfers to the creditor’s financial-institution account also do so if the creditor can accept them (art. 1564 CCQ).

Place, Time, Costs, and Proof

In the absence of a stipulation, payment is made at the debtor's domicile (art. 1566, para. 2 CCQ). For an individualized property (bien individualisé), payment is made where the property was located at the time the obligation arose (art. 1566, para. 2 in fine CCQ). The costs of payment fall on the debtor unless otherwise agreed (art. 1567 CCQ). A creditor in default of receiving property bears its reasonable conservation costs and, where applicable, sale and consignation costs (art. 1582 CCQ). The creditor bears the burden of proving the claim exists; the debtor bears the burden of proving it has been performed (art. 2803 CCQ). The debtor has the right to a receipt (quittance) and to the return of the original title of the obligation (art. 1568 CCQ).

Imputation of Payments

An insufficient payment requires a decision about what it discharges. Imputation of payments answers that question within a debt comprising several components or between several debts owed to one creditor. Begin with the parties' agreement; where they have not agreed on allocation, the Code supplies the applicable rules.

Imputation on a single debt: When a partial payment is accepted, it applies first to interest or arrears, and only then to capital (art. 1570 CCQ). This rule protects the creditor but is not of public order; the creditor may waive it.

Imputation among several debts: The parties may agree in advance. Failing agreement, the debtor may designate the debt at the time of payment (art. 1569, para. 1 CCQ), provided the creditor is obliged to accept that payment. The debtor may not impute on an unmatured debt without a right to anticipate payment (art. 1569, para. 2 CCQ). If the debtor does not choose, the creditor may specify the debt in a receipt accepted by the debtor; the debtor cannot subsequently demand a different imputation without a ground for annulment (art. 1571 CCQ). If neither party exercises the right, the law provides a hierarchy: imputation on matured debts first, then on the debt the debtor has the greatest interest in paying, then on the earliest-maturing debt, and finally proportionally (art. 1572 CCQ).

Real Offers and Consignation

Real Offers

Example: A buyer seeking annulment or resolution can tender the property back through real offers when the other party refuses restitution.

When a debtor is willing to pay but the creditor refuses or neglects to accept, the debtor may resort to real offers (offres réelles) to avoid being considered in default. Real offers consist in the formal presentation of the thing owed, together with any interest, arrears, and an amount for unliquidated costs (art. 1573, para. 2 in fine CCQ). The offer must respect the rules on indivisibility, the term, and the place of payment.

For monetary obligations, the sum may be offered in cash, by certified cheque, or by an irrevocable, unconditional, and indefinite undertaking of a financial institution carrying on business in Quebec (art. 1574 CCQ). Offers may take many forms: notarial act, private writing, verbal offer (with proof), or judicial declaration (art. 1575, para. 1 CCQ). The creditor is in default by operation of law when valid offers are refused without justification, when the creditor clearly expresses an intention to refuse them, or when diligent efforts fail to locate the creditor (art. 1580 CCQ). Valid offers, once accepted or declared valid by the court, have retroactive effect: they are equivalent, as regards the debtor, to payment on the day of the offers or equivalent notice, provided the debtor remained willing to pay (art. 1588 CCQ). For money or securities, consignation is also needed to complete their liberating effect (JurisClasseur, fasc. 10, para. 64). The costs of valid offers fall on the creditor (art. 1589 CCQ).

Consignation

When the obligation consists of a sum of money or investment security, consignation supplements or accompanies real offers. In an extrajudicial context, deposit may be made with the Bureau général de dépôts or an authorized trust company (art. 1583, para. 1 CCQ). In judicial proceedings, deposit must be with a trust company (art. 215, para. 2 Code of Civil Procedure). Upon valid consignation, the debtor is released from interest or revenue as of the date of deposit (art. 1586 CCQ). Before acceptance, the debtor may withdraw the deposit, subject to court authorization during proceedings (art. 1584 CCQ). Once consignation has been declared valid, withdrawal requires the creditor’s consent and cannot prejudice third-party rights or the discharge of co-debtors or sureties (art. 1585 CCQ). Interest and revenue belong in principle to the creditor. If consignation seeks performance of the creditor’s correlative obligation, they belong to the debtor until acceptance (art. 1587 CCQ).

Default and Demand

The creditor's right to enforce sanctions requires that the debtor be in default (en demeure) (art. 1590, para. 2 CCQ). Default is the formal recognition of the debtor's failure to perform.

Forms of Demand

Extrajudicial demand (mise en demeure extrajudiciaire) is the most common form. It must be in writing (art. 1595, para. 1 CCQ). The creditor identifies the obligation, notes the failure, and demands performance within a reasonable period. An extrajudicial demand concerning a solidary obligation has the effects toward other co-debtors or co-creditors prescribed by art. 1599 CCQ. The debtor must have a sufficient opportunity to perform; if the notice grants no period or an insufficient one, a reasonable period remains available from the demand (art. 1595, para. 2 CCQ).

Judicial demand (mise en demeure judiciaire) occurs when the creditor proceeds directly to court without a prior written demand. The court proceeding itself constitutes the demand (art. 1594, para. 2 and 1596 CCQ). If the debtor performs within a reasonable time, the creditor bears the costs of the proceeding (art. 1596 in fine CCQ).

Default Without Creditor Intervention

In certain circumstances, the debtor is in default by operation of law (demeure de plein droit) without any demand being required (art. 1597 CCQ):

• The obligation could only be performed within a specific time that has elapsed

• There was an urgent need for immediate performance

• The debtor breached an obligation not to do something

• Performance in kind has been rendered impossible through the debtor's fault

• The debtor has clearly expressed an intention not to perform (repudiation)

• A successive obligation has been repeatedly breached

The parties may also stipulate in the contract that the debtor will be in default upon the arrival of the term (art. 1594, para. 1 CCQ). The creditor must prove the facts giving rise to automatic default (art. 1598 CCQ).

Effects of Default

Default triggers the creditor's right to enforce the available sanctions. It is also the starting point for moratory damages: interest on a monetary obligation runs from the date of default (art. 1600, para. 1 and 1617, para. 2 CCQ). Other damages bear interest from default or a later date the court considers appropriate (art. 1618 CCQ). The additional indemnity may run from the same date (art. 1619 CCQ). A debtor in default of delivering property bears the risk of its loss by superior force. Article 1693 preserves an exception if the property would have perished equally in the creditor’s hands, unless the debtor assumed that risk (arts. 1600 and 1693 CCQ).

Worked Example: Formal Demand and Defective Construction Works

Factual Scenario

Hypothetical illustration. Constructions Nord-Sud Inc. was engaged under a stipulated-price contract to construct a 20,000 square foot commercial logistics distribution centre for Entreprises Commerciales Val-Mont for $2,400,000. Upon substantial completion, Val-Mont discovered that the reinforced concrete slab in the main heavy-vehicle loading bays was displaying extensive spiderweb cracking and spalling as a result of improper sub-zero temperature curing. Val-Mont held back a contractual holdback of 10%, or $240,000. Article 2111 CCQ provides a separate right to retain enough to cover apparent defects reserved at acceptance, subject to sufficient security offered by the contractor; it does not prescribe a universal 10% reserve.

On November 10, Val-Mont sent a formal demand (mise en demeure) under art. 1595 CCQ setting out the technical defect report, granting Constructions Nord-Sud 15 days to mobilize crews to demolish and repour the defective slabs, and explicitly notifying Nord-Sud that failure to cure would result in hiring an outside contractor at Nord-Sud's expense under art. 1602 CCQ. Constructions Nord-Sud denied liability, arguing the cracking was minor superficial shrinkage. Val-Mont subsequently retained Beton Specialise Inc. to repour the slabs for $185,000, and sued Nord-Sud for the $185,000 replacement cost plus $40,000 in delayed-occupancy warehouse rental costs.

Remedies for Non-Performance

Art. 1590 CCQ sets out the principal remedies available to the creditor. The creditor may seek specific performance, performance by equivalence, or, in a contractual setting, resolution or resiliation of the contract.

Contractual Measures of Constraint

Example: A repairer may retain a debtor's boat until the repair debt tied to that boat is paid.

Exception of non-performance (exception d'inexécution): When obligations are to be performed simultaneously and one party fails, the other may suspend its own performance (art. 1591 CCQ). The obligations must be correlative and exigible, the failure must be substantial, and the withholding must be proportionate. The withholding party must not be bound to perform first by law, agreement or usage. Prior formal demand is unnecessary (JurisClasseur, fasc. 11, paras. 36–43). This is a temporary defensive measure; it does not extinguish the obligation.

Right of retention (droit de rétention): A contracting party holding the other party’s property with consent may retain it until full payment of an exigible debt intimately connected to that property (art. 1592 CCQ). The right is opposable to all (art. 1593, para. 1 CCQ). Voluntary surrender extinguishes the right; involuntary dispossession does not, subject to prescription. Retention of a movable gives the priority under art. 2651(3) CCQ; retention of an immovable does not (JurisClasseur, fasc. 11, paras. 44–53).

Resolution and Resiliation

Resolution is the retroactive dissolution of a contract (art. 1606, para. 1 CCQ). Resiliation applies to contracts of successive performance and terminates the contract for the future only (art. 1606, para. 2 CCQ). Both require unjustified non-performance of sufficient importance; repeated minor failures of a successive obligation can also justify termination. Otherwise, a minor failure supports a proportional reduction or, if reduction is unavailable, damages (art. 1604 CCQ).

Resolution or resiliation may occur extrajudicially when the debtor is in default by operation of law or has failed to perform within the period set in a demand letter (art. 1605 CCQ). Lease law qualifies this rule: termination for unpaid rent generally requires judicial proceedings, but a clear clause in a non-residential lease can permit extrajudicial resiliation if its conditions are met, subject to judicial review afterward (JurisClasseur, fasc. 11, para. 93; arts. 1863 and 1883 CCQ). It may also be obtained by judicial decree (art. 1604 CCQ). Restitution follows arts. 1699 and following CCQ. Damages may accompany resolution where restitution does not fully repair the creditor’s loss (art. 1607 CCQ).

Specific Performance

The creditor may demand the debtor provide the very prestation owed (art. 1601 CCQ). A mandatory injunction is a common procedural vehicle. Limits apply: the court will not order specific performance where it would infringe individual liberties through compelled personal service by a natural person, where a third party's legitimate rights would be affected, or where performance is physically impossible. For substitute performance (exécution par remplacement), if the debtor's identity is immaterial, the creditor may perform the obligation or have a third party perform it at the debtor's expense (art. 1602 CCQ). The creditor must announce replacement in its extrajudicial or judicial demand, unless default already follows from the law or the contract (art. 1602, para. 2 CCQ).

For obligations not to do, the creditor may seek an order authorizing the destruction or removal of what the debtor has done in contravention (art. 1603 CCQ). Court authorization is required; the creditor may not take justice into its own hands.

Performance by Equivalence

Where specific performance is unavailable or the creditor opts for monetary compensation, the remedy is performance by equivalence through damages (art. 1458 and 1607 CCQ). In a contractual setting, the prohibition of the option of regime applies: the creditor must rely on the contractual liability rules and may not invoke the extra-contractual regime (art. 1458, para. 2 CCQ).

Conditions of contractual liability parallel those of extra-contractual liability: fault (inexécution contractuelle), injury (préjudice), and causation (lien de causalité). The burden depends on whether the debtor owes an obligation of means (obligation de moyens), of result (obligation de résultat) or of guarantee (obligation de garantie). For a result obligation, superior force can excuse non-performance (art. 1470 CCQ); a guarantee places the agreed risk on the debtor, within the scope of that undertaking. The injury must be direct and, in the contractual context, limited to what was foreseen or foreseeable at the time of contracting, unless the debtor committed intentional or gross fault (art. 1613 CCQ).

Conventional modifications may alter liability. Subject to other mandatory rules, including consumer protection and abusive-clause rules, liability may be limited for material injury caused by ordinary fault. Article 1474 prohibits exclusion or limitation for bodily or moral injury and for material injury caused by intentional or gross fault. A penal clause (clause pénale) fixes damages in advance (art. 1622 CCQ); the court may reduce the penalty if it is abusive or partial performance benefited the creditor (art. 1623, para. 2 CCQ).

Reduction of the Correlative Obligation

Where a debtor's non-performance is real but not sufficiently serious to justify resolution or resiliation, the creditor may obtain a proportional reduction of its own correlative obligation under art. 1604, al. 2 CCQ. This remedy may also be useful when the injured party prefers to maintain the contract despite substantial or repeated non-performance.

Theory of Risks

When non-performance results from superior force, the question shifts from fault to the allocation of risk. A debtor whose performance becomes impossible by superior force is generally released, subject to default and any assumption of the risk (art. 1693 CCQ). In synallagmatic non-translative contracts, the debtor released by superior force loses the benefit of the correlative obligation (arts. 1693-1694 CCQ). In synallagmatic translative contracts, risk generally remains with the debtor of the obligation to deliver until delivery (art. 1456, al. 2 CCQ). Application: Work through three questions: did superior force make performance impossible, who bore that risk given default and the contract, and which correlative performance depended on the extinguished obligation? Then check what has already been performed: art. 1694 CCQ may require restitution, and partial performance leaves the creditor bound to perform the correlative obligation to the extent of its enrichment. The physical event alone therefore does not establish that all reciprocal obligations have ended.

Protection of the Right to Performance

The debtor's patrimony constitutes the common pledge of its creditors (art. 2644 CCQ). Two mechanisms in the CCQ allow the creditor to safeguard this pledge.

Oblique action (action oblique): The creditor may exercise, in the debtor's name, the rights and actions the debtor refuses or neglects to exercise, provided the creditor holds a certain claim and the debtor's inaction causes prejudice (art. 1627 CCQ). The claim must also be liquid and exigible by judgment (art. 1628 CCQ). Rights exclusively attached to the debtor's person are excluded. The proceeds fall into the debtor's patrimony and benefit all creditors (art. 1630 CCQ).

Action in inopposability (action en inopposabilité): The creditor may challenge a prejudicial juridical act made in fraud of its rights (art. 1631 CCQ). The claim must be certain when proceedings begin and liquid and exigible at judgment; it must ordinarily predate the act, subject to fraud aimed at a future creditor (art. 1634 CCQ). For gratuitous acts, fraud follows from the debtor's existing insolvency or insolvency caused by the act (art. 1633 CCQ). For onerous acts, knowledge of the debtor's insolvency or attempt to become insolvent triggers the art. 1632 presumption; the case law permits rebuttal through credible proof of good faith (JurisClasseur, fasc. 12, paras. 26–31). The one-year forfeiture period generally runs from knowledge of the resulting prejudice; for a bankruptcy trustee acting for creditors, it runs from appointment (art. 1635 CCQ). The act remains valid between its parties but is unenforceable against the successful creditor and intervening creditors (art. 1636 CCQ).

Worked Example: Commercial Supply Default and Competing Remedies

Factual Scenario

Hypothetical illustration. Metaux Precision Ltee contracted to supply 50 custom titanium heat exchangers to Energie Pro-Quebec for $500,000, deliverable in five monthly instalments of 10 units. The contract contained a penal clause of $2,000 per day of unexcused delivery delay.

After delivering the first two batches (20 units), Metaux Precision encountered a tripling of international titanium commodity prices and unilaterally demanded a 60% price increase. When Energie Pro-Quebec refused, Metaux Precision refused to fabricate the remaining 30 units. Energie Pro-Quebec sent a 10-day notice of default under art. 1595 CCQ and suspended payment of the $100,000 invoice due on the second batch. When Metaux Precision persisted in its repudiation, Energie Pro-Quebec sued to obtain judicial resiliation concerning the remaining 30 units under art. 1604 CCQ, recovery of the $2,000 per day penal clause for 45 days of delay ($90,000), and $130,000 in substitute procurement premiums from an international supplier.

Case and Article Pointers

• Art. 1604 to 1606 CCQ: resolution, resiliation, and reduction of the correlative obligation

• Art. 1693 to 1694 CCQ: force majeure and theory of risks

• JurisClasseur, fasc. 11, para. 93: lease-law limits and clear commercial resiliation clauses

Practice Checklist

• Confirm the obligation is civil, not merely natural, before analysing payment rules

• Verify the solvens has the capacity and the right in the thing given in payment

• Confirm payment is complete; identify whether any portion is genuinely disputed before accepting partial payment

• In the presence of multiple debts, track imputation carefully; advise the debtor to designate the debt at the time of payment

• Before invoking sanctions, determine whether the debtor is in default by operation of law or must be put in default by written demand

• Allow a reasonable delay in any extrajudicial demand; preserve proof of delivery

• When advising on resolution or resiliation, assess whether the breach is substantial; consider repeated minor failures in successive obligations and reduction or damages where termination is unavailable

• For replacement, establish default and give the notice required by art. 1602, unless its statutory exception applies

• When considering the oblique action or action in inopposability, verify the claim is certain and assess evidentiary requirements for fraud