A contract is 'discharged' when the parties' obligations come to an end. There are four main ways a contract can be discharged: by performance, by agreement, by breach, and by frustration. Understanding how each method operates, and the consequences for the parties, is essential for SQE1.
The general rule is that a party must completely and precisely perform all of their obligations before they are entitled to claim payment or counter-performance. This is the 'entire obligations rule'. If performance is incomplete, the party in default cannot recover anything — even if they have performed 99% of the work.
A sailor agreed to serve on a voyage from Jamaica to Liverpool for 30 guineas. He died partway through the voyage. His widow could not recover any payment because his obligation was 'entire' — he had to complete the whole voyage to earn anything. The harshness of this rule has led to several important exceptions.
Where a party has substantially performed their obligations, they can recover the contract price minus a deduction for the defects. The doctrine prevents the injustice of allowing a party to receive virtually complete performance while paying nothing.
| Case | Facts | Outcome |
|---|---|---|
| Hoenig v Isaacs [1952] | Decorator completed work but with minor defects costing £56 to fix on a £750 contract | Substantial performance — entitled to contract price less cost of remedying defects |
| Bolton v Mahadeva [1972] | Central heating installed but gave off fumes and only heated to 10% below required temperature; defects cost £174 to fix on a £560 contract | No substantial performance — defects were too significant (over 30% of contract price); no recovery at all |
The distinction between Hoenig v Isaacs and Bolton v Mahadeva is a favourite exam topic. Focus on the proportionality of the defects to the contract price: minor defects = substantial performance; major defects = no recovery under the contract.
Where a contract is divisible into separate stages or instalments, a party can claim payment for each completed stage without completing the entire contract. For example, a building contract providing for staged payments is divisible — completing stage 1 entitles the builder to the stage 1 payment even if the overall contract is not yet finished.
Where one party prevents the other from completing performance, the party prevented can claim on a quantum meruit basis (reasonable value of work done). The entire obligations rule cannot be used as a shield by a party who has themselves prevented completion.
An author was commissioned to write a book for a series. The publisher cancelled the series before the author had finished. The author recovered on a quantum meruit for the work already done, even though the entire obligation had not been completed, because the publisher had prevented performance.
Where one party voluntarily accepts partial performance from the other, they must pay a reasonable sum for the benefit received. The acceptance must be genuinely voluntary — if a party has no real choice but to accept (e.g., a half-completed building on their land), this exception does not apply.
If one party makes a valid tender of performance (i.e., offers to perform) and the other party refuses to accept it, the tendering party is discharged from further obligation. For goods, tender must be of the right quality and quantity. For payment, the debt remains but the tendering party has a defence to any claim for non-performance.
At common law, stipulations as to time are generally not conditions unless time is expressly or impliedly 'of the essence'. If time is of the essence, failure to perform by the stipulated date is a repudiatory breach entitling the innocent party to terminate. Time may be of the essence where: (1) the parties expressly state so; (2) the nature of the contract or subject matter requires it (e.g., perishable goods, commercial sales); or (3) one party has given reasonable notice making time of the essence after an initial deadline has passed.
In equity (which prevails), time is presumed NOT to be of the essence for contracts for the sale of land, unless the parties expressly provide otherwise or one party serves a notice to complete making time of the essence.
Since a contract is created by agreement, it can also be terminated by agreement. The key question is whether there is consideration to support the discharge agreement.
Where both parties still have outstanding obligations, they can mutually agree to release each other. Each party provides consideration by giving up their right to the other's performance. No additional consideration is needed — the mutual release itself is sufficient.
Where only one party has outstanding obligations, the other cannot simply release them without receiving consideration. The 'accord' is the agreement to discharge, and the 'satisfaction' is the consideration provided for it. For example, A owes B £1,000. B agrees to accept £800 plus a painting in full settlement. The accord is the agreement to accept less; the satisfaction is the painting.
A party may waive (give up) a right under the contract without formal consideration. Waiver by election arises where a party, with knowledge of a right to terminate, elects to affirm the contract. Waiver by estoppel (equitable forbearance) arises where one party represents that they will not enforce their strict legal rights, and the other relies on that representation. The waiver may be retractable on reasonable notice unless the other party has irrevocably changed their position.
Many contracts include express provisions for termination, such as break clauses (allowing either party to end the contract on notice), termination for convenience clauses, or clauses allowing termination on specified events (e.g., insolvency of the other party). These are valid and enforceable, and the precise wording must be followed strictly.
Not every breach of contract discharges the contract. Only a repudiatory breach (breach of a condition, or a sufficiently serious breach of an innominate term) gives the innocent party the right to elect to terminate. A breach of warranty gives rise to damages only, not a right to terminate.
An anticipatory breach occurs when one party, before the time for performance, demonstrates an intention not to perform. This can be by express renunciation (stating they will not perform) or by conduct making performance impossible (e.g., selling the subject matter to a third party).
D agreed to employ C as a courier from 1 June. On 11 May, D wrote to C saying his services were no longer required. The court held C could sue immediately for anticipatory breach — he did not have to wait until 1 June. This case established the doctrine of anticipatory breach in English law.
When faced with a repudiatory breach (whether actual or anticipatory), the innocent party has an election: (1) accept the repudiation and terminate the contract — both parties are released from future obligations, but the right to damages is preserved; or (2) affirm the contract — the contract continues in force for both parties, and the innocent party can claim damages when the breach actually occurs.
| Election | Effect on contract | Effect on remedies |
|---|---|---|
| Terminate (accept repudiation) | Both parties released from future primary obligations | Right to claim damages for loss of bargain is preserved; secondary obligation to pay damages arises |
| Affirm | Contract remains alive for both parties | Innocent party keeps open the possibility of full performance; but risks the contract being frustrated or the other party acquiring a defence |
McGregor contracted with White & Carter for advertising on litter bins. McGregor repudiated the same day. White & Carter affirmed, performed the contract in full (displaying the ads for 3 years), and sued for the full contract price. The House of Lords held they were entitled to do so — a party who affirms can continue to perform and claim the agreed price, not just damages. However, Lord Reid suggested two limits: (1) the affirming party must have a 'legitimate interest' in performing rather than claiming damages; and (2) they must be able to perform without the cooperation of the other party.
The 'legitimate interest' qualification from White & Carter is frequently tested. If the innocent party has no legitimate interest in continuing performance (beyond simply inflating their claim), they should be confined to a damages claim. Also, if the innocent party affirms but a frustrating event subsequently occurs, the contract may be discharged by frustration and the right to damages for the original breach may be lost — Avery v Bowden (1855).
Renunciation is a form of repudiatory breach where one party clearly and unequivocally communicates, by words or conduct, that they will not perform their contractual obligations. The test is objective: would a reasonable person in the position of the innocent party conclude that the other party no longer intends to be bound? The renunciation must relate to the whole contract or to a condition of it.
Termination for breach is prospective, not retrospective. It releases the parties from future primary obligations but does not unwind the contract entirely. Rights and obligations that accrued before termination survive — for example, accrued debts remain payable, and clauses intended to survive termination (e.g., arbitration clauses, limitation clauses, confidentiality obligations) continue to apply (Photo Production Ltd v Securicor Transport Ltd [1980]).
Frustration occurs when, after formation of the contract, a supervening event occurs without the fault of either party which renders performance impossible, illegal, or radically different from what was contemplated. The contract is automatically discharged — neither party has a choice. The doctrine is narrow and courts apply it reluctantly.
The foundational case. A music hall was hired for concerts but was destroyed by fire before the date. The court held the contract was frustrated — there was an implied condition that the hall would continue to exist. This case established the modern doctrine of frustration.
Henry hired a flat in Pall Mall to watch the coronation procession of Edward VII. The coronation was postponed due to the King's illness. Even though the flat could still be used, the entire purpose of the contract was defeated. The contract was frustrated. Compare with Herne Bay Steamboat Co v Hutton [1903], where a boat was hired to watch a naval review and cruise around the fleet. The review was cancelled, but the contract was not frustrated — watching the review was not the sole foundation of the contract; the cruise had independent value.
| Scenario | Case | Reason |
|---|---|---|
| Contract merely more expensive or difficult to perform | Davis Contractors Ltd v Fareham UDC [1956] | A building contract took 22 months instead of 8 due to labour shortages. Not frustrated — it was merely more onerous, not radically different |
| Purpose only partially defeated | Herne Bay Steamboat Co v Hutton [1903] | Naval review cancelled but cruise around fleet still had value |
| Event was foreseeable | Amalgamated Investment & Property Co v John Walker [1977] | Listing of a building was a known risk; not a frustrating event |
| Self-induced frustration | Maritime National Fish v Ocean Trawlers [1935] | Party chose not to allocate a fishing licence to the chartered vessel — frustration was self-induced |
Frustration cannot be relied upon if the supervening event was caused or chosen by the party seeking to rely on it. In Maritime National Fish v Ocean Trawlers [1935], a company chartered a vessel that required a fishing licence. They had five vessels but were only granted three licences. They chose to allocate the licences to their own vessels, not the chartered one. The Privy Council held the frustration was self-induced — it resulted from the company's own election.
If the parties foresaw or should have foreseen the frustrating event at the time of contracting, the doctrine may not apply — they should have made provision for it. However, mere foreseeability does not automatically prevent frustration. The question is whether the risk was allocated by the contract (expressly or impliedly). If it was, there is no room for the doctrine.
Force majeure is a contractual concept, not a common law doctrine. A force majeure clause expressly allocates the risk of specified supervening events (war, pandemic, natural disaster, etc.) and defines the consequences. Where a force majeure clause covers the event in question, frustration will not apply because the risk has been contractually allocated. Always check for a force majeure clause before considering frustration.
Frustration operates automatically — it discharges the contract immediately at the point of the frustrating event, regardless of the wishes of the parties. Both parties are released from all future obligations. The contract is not void ab initio (from the beginning); it is discharged prospectively from the frustrating event. Rights and obligations that accrued before the frustrating event are not affected at common law (Chandler v Webster [1904]), but this harsh rule is now modified by statute.
The 1943 Act was passed to remedy the injustice caused by the common law rule that losses lay where they fell at the point of frustration. It applies automatically to contracts governed by English law that are discharged by frustration, unless the parties have contracted out of it.
Money paid before the frustrating event is recoverable. Money payable before the event ceases to be payable. However, the court has a discretion to allow the payee to retain or recover a sum not exceeding their actual expenses incurred before the frustrating event. This allows the court to achieve a just result by sharing expenses between the parties.
Where one party has, by reason of anything done by the other party in performance of the contract, obtained a valuable benefit (other than money) before the frustrating event, the court may order them to pay a just sum for that benefit. The court considers: (1) the amount of any expenses incurred by the benefited party; (2) the effect of the frustrating event on the benefit obtained. The aim is to prevent unjust enrichment.
The leading case on s.1(3). BP made large investments in developing an oil concession in Libya, which was then expropriated by the Libyan government (frustrating event). Goff J held that the 'valuable benefit' should be identified as the end product of the services, not the services themselves. The benefit must be valued at the time of the frustrating event, taking account of the effect of that event. The Act aims to prevent unjust enrichment, not to apportion losses equally.
The law of restitution prevents unjust enrichment — where one party has been enriched at the expense of another in circumstances where it would be unjust to allow them to retain that benefit. Restitution is not based on the contract itself but on a separate obligation to reverse unjust enrichment. It becomes relevant when a contract is discharged (by frustration, breach, or failure of basis) and one party has conferred a benefit on the other without receiving the expected counter-performance.
At common law, money paid under a contract could be recovered if there was a 'total failure of consideration' — meaning the payer received nothing of what they bargained for. The modern terminology is 'failure of basis'. Historically, the failure had to be total — partial failure was not sufficient for a common law claim (though the 1943 Act and equitable principles have softened this). The Fibrosa case established recovery for total failure of consideration in a frustration context.
A quantum meruit claim ('as much as he has earned') allows a party who has performed work or provided services under a contract that has been discharged to recover a reasonable sum for the value of the work done. It is available where: (1) the other party prevented performance (Planche v Colburn); (2) the contract was void or unenforceable; (3) the contract has been terminated for breach and the innocent party elects a restitutionary remedy; or (4) services were provided under an anticipated contract that never materialised.
Money paid under a mistake of fact or law is prima facie recoverable in restitution, provided there is no defence available (such as change of position, compromise, or the payment discharging a valid debt). This claim is independent of contract and is relevant where payments are made under a contract that turns out to be void or discharged.
A party generally cannot claim both contractual damages (for loss of bargain) and restitution (for unjust enrichment) for the same loss — they must elect. However, they can combine claims where they address different losses. For example, a party might recover money paid (restitution) and also claim expectation damages for lost profit (contract), provided there is no double recovery.
| Method | How it arises | Effect | Key principle |
|---|---|---|---|
| Performance | Both parties fully perform obligations | Contract ends naturally | Entire obligations rule; exceptions for substantial performance, divisible contracts, prevention |
| Agreement | Mutual consent to end the contract | Contract terminated by new agreement | Bilateral = mutual release; unilateral needs accord and satisfaction |
| Breach | Repudiatory breach by one party | Innocent party elects to terminate or affirm | Only breach of condition or serious breach of innominate term gives right to terminate |
| Frustration | Supervening event without fault of either party | Automatic discharge; 1943 Act adjusts financial consequences | Must be impossible, illegal, or radically different; not merely more onerous |