1. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 9-1 CANADIAN BUSINESS AND THE LAW Second Edition by Dorothy Duplessis Steven Enman Shannon O’Byrne Sally Gunz Presentation prepared by Allan Elliott, Southern Alberta Institute of Technology

2. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 9-2 CHAPTER NINE TERMINATION AND ENFORCEMENT OF CONTRACTS OBJECTIVES:  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

3. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 9-3 TERMINATION AND ENFORCEMENT OF CONTRACTS TERMINATION: AN OVERVIEW  through performance – both parties complete their contractual obligations  through agreement – the parties can agree to end the contract at any time  through frustration – unforeseen event makes performance impossible or illegal  through breach – a serious breach can release the innocent party from continuing

4. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 9-4 TERMINATION THROUGH PERFORMANCE PERFORMANCE  performance is complete when all implied and express promises have been fulfilled  vicarious performance– performance of contractual obligations by others  as long as personal performance by the contracting party is not required

5. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 9-5 TERMINATION BY AGREEMENT PARTIES MAY AGREE TO:  enter into a whole new contract, know as novation  novation – the substitution of parties in a contract or the replacement of one contract with another  vary certain terms of the contract  end the contract  substitute a party – transferring one party’s rights and obligations

6. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 9-6 TRANSFERRING CONTRACTUAL RIGHTS ASSIGNMENT OF CONTRACT  the transfer of a contractual right by an assignor to an assignee Step 1 Creditor – Debtor Relationship C(creditor) D(debtor) Step 2 Assignor-Assignee Relationship C(assignor) A(assignee) Step 3 Assignee – Debtor Relationship A(assignee) D(debtor) Figure 9.1

7. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 9-7 TERMINATION BY FRUSTRATION FRUSTRATION  termination of a contract by an unexpected event or change that makes performance functionally impossible or illegal  must establish:  was dramatic and unforeseen  neither party had assumed risk of occurring  arose without either’s fault  makes performance impossible/illegal

8. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 9-8 FORCE MAJEURE CLAUSES INTERNATIONAL PERSPECTIVE Risk of unforeseeen events A party may terminate the contract for fire, war etc.

9. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 9-9 TERMINATION BY BREACH PLAINTIFF MUST DEMONSTRATE 3 ELEMENTS ON THE BALANCE OF PROBABILITIES: 1. privity – there is a contract between the parties 2. breach – the other party failed to keep a promise or term in the contract 3. entitlement – must show you suffered loss as a result of the breach  balance of probabilities – proof that there is a better than 50 per cent chance that the circumstances of the contract are as the plaintiff contends

10. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 9-10 TERMINATION BY BREACH 1. PRIVITY OF CONTRACT  only the parties to a contract can enforce the rights and obligations it contains  modified by statute in 2 areas – consumer purchases and insurance 2. BREACH OF CONTRACT  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 Continued...

11. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 9-11 TERMINATION BY BREACH 2. BREACH OF CONTRACT (concluded)  innominate term – a term that cannot easily be classified as either a condition or a warranty  exemption or limitation of liability clause – clause limiting or excluding liability for breach  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

12. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 9-12 TERMINATION BY BREACH 3. ENTITLEMENT TO A REMEDY  damages – monetary compensation for breach of contract  defendant is responsible for reasonably foreseeable damages suffered by the plaintiff – pain, suffering, and emotional distress not generally accepted as being a consequence of breach of contract

13. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 9-13 TERMINATION BY BREACH RESTRICTIONS ON DAMAGES  remoteness – tests 1. damages could have beenanticipated 2. damages reasonably foreseeable  duty to mitigate – the obligation to take reasonable steps to minimize the losses resulting from a breach of contract or other wrong

14. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 9-14 EQUITABLE REMEDIES  where damages are an inadequate remedy  specific performance  injunction  interlocutory injunction – order to refrain from doing something for a limited period of time  rescission  restitutionary remedies  unjust enrichment - occurs when one party has undeservedly or unjustly secured a benefit at the other party’s expense