Study Guide to accompany Canadian Business and the Law, 5th edition

Chapter 9

CHAPTER 9
TERMINATION AND ENFORCEMENT
OF CONTRACTS
Objectives
After studying this chapter, you should have an understanding of
• the termination of a contract by performance
• the termination of a contract by agreement
• the termination of a contract by frustration
• the methods of enforcing contracts
• the concept of privity
• remedies for breach of contract

Learning Outcomes
•
•
•
•
•
•

Understand that the best way to terminate a contract is through performance or agreement
(pages 195–197)
Understand the limited application of the doctrine of frustration to terminate an agreement (page 198)
Understand the concept of privity of contract as it relates to exclusion clauses
(page 201)
Understand the significance of the difference between a breach of a condition and a breach of a warranty (pages 202–203)
Understand the general principles of the recovery of damages (pages 206–209)
Understand when a court will grant an equitable remedy (page 210)

Chapter Summary
In the vast majority of situations, a contract terminates or ends when the parties fully perform their obligations. Less common are situations where the contract ends because the parties find it impossible or tremendously difficult to perform their obligations. In such cases, prudent business parties will have addressed such a possibility through a force majeure clause or equivalent. A more usual and complicated situation, from a business perspective, occurs when one party breaches the contract by failing to perform or by performing inadequately. A contract can be terminated in several ways: by performance, by agreement, through frustration, and through breach. When a contract is terminated by performance, the parties have fulfilled all their implied and express promises. The work necessary to achieve performance may be done by the parties personally or through their agents/employees, unless a term to the contrary is included. Sometimes, parties terminate a contract by agreement. For example, the parties may agree to end the contract entirely or to replace it with a new one.
Alternatively, the parties may vary certain terms of the contract or substitute a new party
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Study Guide to accompany Canadian Business and the Law, 5th edition

Chapter 9

who, in turn, assumes rights and duties under the contract. Contract law allows one party to assign his or her right under a contract but not the liabilities. The law of assignment permits the creditor to assign the right to collect under a contract to another (the assignee) without the agreement of the debtor. Once the creditor (assignor) has given notice to the debtor, the latter can perform the obligation only by paying the assignee. The doctrine of frustration terminates a contract, but only in very limited circumstances. It must be shown that an unanticipated event or change in circumstances is so substantial that performance has become functionally impossible or illegal. Provided the risk of such an event has not been allocated to one party or the other, and provided the event did not arise through either party’s fault, the contract has been frustrated. When one party fails to perform its contractual obligations, it is in breach of contract and subject to a lawsuit. To succeed in its action for breach of contract, the innocent party must establish the existence of a contract, breach of contract, and entitlement to a remedy. Privity means that, with limited exceptions, only those who are parties to a contract can enforce the rights and obligations it contains. When a party to a contract fails to keep his or her promise, that party has committed a breach of contract and is liable for such damages as would restore the innocent party to the position he or she would have been in had the contract been performed. These are known as expectation damages. If there is an exclusion or a limitation of liability