Termination

and
Enforcement
of Contracts
Chapter 9

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Termination and
Enforcement of Contracts

LEARNING OBJECTIVES
• Understand the termination of a
contract by performance
• Understand the termination of a
contract by agreement
• Understand the termination of a

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contract by frustration
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 LEARNING OBJECTIVES
Continued

Termination Understand the methods of

and enforcing contracts
Enforcement of
Contracts
Understand the concept of privity
LO

Understand the remedies for

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breach of contract

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Several Ways in Which a Contract Can Be
Brought to an End

Through performance – Both Through agreement – The parties

parties complete their contractual are always free to voluntarily
obligations. bring the contract to an end.

Through breach – A serious

Through frustration—When an
breach can release the innocent
important, unforeseen even
party from continuing with the
occurs
contract.

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Termination through Performance
PERFORMANCE
• Performanceis complete when all implied and
express promises have been fulfilled.
• Does not necessarily mean the relationship ends.
• Parties
may continue to do business by means of
new, continuing, and overlapping contracts.

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 PERFORMANCE BY OTHERS

Termination Law distinguishes between those who have

through the contractual obligation and those who
Performance 2 may actually do the necessary work.

Vicarious performance – Performance of

contractual obligations through others

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Termination by Agreement

PARTIES MAY AGREE TO:

enter into a whole new contract, known as novation

vary certain terms of the contract

end the contract

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substitute a party – transferring one party’s rights and obligations to
someone else; a limited form of novation

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 Termination by
Agreement
Novation

NOVATION – The substitution of parties in a

contract or the replacement of one contract with
another
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ASSIGNMENT OF A CONTRACT – The
transfer of a right by an assignor to an
assignee.

A creditor (the assignor) may assign the Transfer of

right to collect to another person (the
assignee) without the agreement of the Contractual
debtor.
Rights

To be effective, the debtor must have notice

of the assignment so that she knows to pay

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the assignee rather than the creditor.

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Assignment of Contract

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 FRUSTRATION Termination of a contract by an
unexpected event or change that
makes performance functionally
impossible or illegal

Termination by
Frustration

Neither side is liable to the other for

breach.

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 MUST ESTABLISH THAT:
Termination by
Frustration 2
 event was dramatic and unforeseen
 neither party had assumed risk of the matter
occurring
 event arose without being either party’s fault
 performance functionally impossible or illegal

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Frustration of Contract

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Force Majeure

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International Perspective
Force Majeure Clause

Why do force majeure What are the risks of to

clauses run the risk of broad or to specific
failing for uncertainty? clauses?

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Enforcement of Contracts

NON-PERFORMANCE OF CONTRACTUAL BALANCE OF PROBABILITIES – PROOF THAT

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OBLIGATIONS MAY RESULT IN BREACH OF CONTRACT THERE IS A BETTER THAN 50% CHANCE THAT THE
AND A LAWSUIT. CIRCUMSTANCES OF A CONTRACT ARE AS THE
PLAINTIFF CONTENDS

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Proving Breach of Contract
PLAINTIFF MUST DEMONSTRATE BEYOND
THE BALANCE OF PROBABILITIES THAT:
• there is a contract between the parties
• Onlythe parties to a contract can enforce the rights
and obligations it contains (privity).

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 The other party
there is a breach failed to keep a
promise or term
of contract
Proving
in the contract.

Breach of
there is an Plaintiff must Contract 2
demonstrate that
entitlement to a he or she is
entitled to the
remedy remedy claimed.

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 Classification of the Breach
CONDITION – An important term, which, if breached, gives the
innocent party the right to terminate the contract and claim damages

WARRANTY – A minor term, which, if breached, gives the innocent

party the right to claim damages only

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INNOMINATE TERM – A term that cannot easily be classified as
either a condition or a warranty

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Classification of the Breach 2
FUNDAMENTAL BREACH – A breach of contract
that affects the foundation of the contract. Such a
breach may render the entire contract, including
the exclusion clause, inoperative.
ANTICIPATORY BREACH – A breach that occurs
before the date for performance

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EXEMPTION OR LIMITATION OF
LIABILITY CLAUSE – Clause limiting or
excluding liability for breach Defences

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Entitlement to a Remedy

DAMAGES – Monetary compensation for breach of contract or other

actionable wrong

REMOTENESS PRINCIPLE – Defendant is responsible for reasonably

foreseeable damages suffered by the plaintiff. Pain, suffering, and
emotional distress are not generally accepted as being a consequence of

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breach of contract.

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Restrictions on Damages

1. Damages could have been

anticipated.
TEST FOR REMOTENESS 2. Damages are reasonably
foreseeable.

DUTY TO MITIGATE – The obligation to take reasonable

steps to minimize the losses resulting from a breach of
contract or other wrong

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 Ethical
Is it unethical to breach a contract? Considerations

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Equitable Remedies

Special remedies that may be available where damages are

an inadequate remedy for breach of contract, for example,
Specific Performance

SPECIFIC PERFORMANCE – Court order for the

party who breached the contract to do exactly what the

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contract obligated him to do

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 INJUNCTION – Promise not to engage in
specified activities

Equitable INTERLOCUTORY INJUNCTION –

Order to refrain from doing something for a
Remedies 2 limited period of time

RESCISSION – To restore the parties to

the situation they were in before the
contract was formed

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UNJUST ENRICHMENT – Occurs when one
party has undeservedly or unjustly secured a
benefit at the other party’s expense Restitutionary
RESTITUTIONARY QUANTUM MERUIT – Remedies
An amount that is reasonable given the
benefit the plaintiff has conferred

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Managing Risk

There are several risks that a business faces when the

time comes to perform a contract.

It may be that the business cannot perform at all or that

when it does perform, it does so deficiently.

A business can attend to these possibilities proactively or

reactively.

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