discharge of a contract

• Discharge of a Contract


  A situation where the contract is brought to an end. This is done in three main ways:

  • Discharge by performance - This is where both parties have done what they agreed in the contract.
  • Discharge by Breach - This is where the contract has not been performed as agreed.
  • Discharge by frustration - This is where unforeseen events outside the control of the parties make performance impossible.
• Discharge by Performance


  The General Rule has often been viewed as being quite harsh. Therefore, the courts have found ways around this harsh rule:

  1. Divisible Contracts

  2. Substantial Performance

  3. Prevention of Full Performance

  4. Acceptance of Part Performance
• The General Rule of Discharge by Performance

  Discharge by performance can only be done if the performance was complete and exact (Cutler v Powell)
• Discharge by performance - 1. Divisible Contracts


  Where a contract can be split up into separate parts, if there is non-completion of one part of the contract then this will not be seen as a breach of the whole contract. (Ritchie v Atkinson)
• Discharge by performance - 2. Substantial Performance


  The doctrine of substantial performance states that payment of the amount appropriate to what has been done can be paid for the performance that was given.

  Substantial performance often occurs in large contracts where only smaller things have not been performed (Dakin and Co. v Lee)

  The difficulty with the doctrine of substantial performance is that there are no specific percentages as to what amounts to substantial performance. Therefore, it must be decided on the facts of the case (Hoenig v Isaacs)
• Discharge by performance - 2. Substantial Performance- quantum meruit


  • The courts, through their discretion, seem to lean towards the use of quantum meruit ('as much as it is worth') to reach a fair and just decision. (Young v Thames Properties)
• Discharge by performance - 3. Prevention of Full Performance


  If one party prevents the other from carrying out the contract, then the innocent party can claim to be paid on a quantum meruit ('as much as it is worth') basis. (Planche v Colburn)
• Discharge by performance - 4. Acceptance of Part-Performance


  If one party has agreed that the other party need not complete the entire contract, then the contract must be paid on a quantum meruit ('as much as it is worth') basis.

  However, this must be done with consent, meaning there is a specific acknowledgement that the defaulting party is entitled to be paid for what they completed, and that the agreement was made without undue pressure (Sumpter v Hedges)
• Discharge by Performance - The Effect of a Term as to Time for Performance of a Contract

  Many contracts will often include a term that states the time of when performance of a contract is needed by.

  If none of the above apply, then the 'time' term will be treated as a warranty rather than a condition. (Charles Rickards v Oppenheim)
• Discharge by Breach


  Where a contract has not been performed as agreed, then it may be discharged by breach. The Courts will need to decide the effect of an individual breach of contract.

  • Actual Breach - this is where the breach occurs at the time or during the course of performance.
  • Anticipatory Breach - this is when a party to a contract gives notice in advance to the other party that they will not be performing or completing the contract.
• Discharge by breach - Actual Breach


  When a party fails to perform their obligations under a contract, they may be sued for breach of contract. The innocent party will always be able to claim for damages, but terminating the contract depends on the type of term that has been breached.

  The three sets of circumstances that give rise to a breach of contract are:

  • Renunciation by a party of their liabilities under the contract.
  • Impossibility created by their own act.
  • Total or partial failure of performance.
• Discharge by breach - Actual breach - Repudiatory Breach


  We already know that only a breach of a condition can bring about a right to repudiate the contract.

  This is classed as repudiatory breach of contract - where a party commits a breach of contract that is sufficiently serious that it entitled the innocent party to treat the contract as terminated.

  Repudiatory breaches of contract can occur in three ways:

  • A breach of a condition.
  • A refusal to perform the contract.
  • A sufficiently serious breach of an innominate term.
• Discharge by breach - Actual Breach

  • Where a repudiatory breach has been established, the other party who is not in a breach may terminate/continue with the contract and claim damages.
  • Sometimes contracts will contain expressed termination provisions that allow the contract to be terminated in the event of any circumstances set out in the contract. (Stocznia Gdynia v Gearbulk Holidays)
• Discharge by Breach - Anticipatory Breach

  An anticipatory breach of contract occurs when a party to a contract gives notice in advance to the other party that they will not be performing or completing the contract.

  The innocent party can choose to either sue immediately for breach of contract or wait until the time in which performance was meant to take place, and then sue if performance does not happen. (Hochester v de la Tour)
• Discharge by Breach - Anticipatory Breach

  • An anticipatory breach will usually come from one party expressly or by conduct highlighting that they will not be carrying out the contract. This will amount to repudiation and the innocent party can treat the contract as at an end. However, uncertainty about future performance does not suffice for an anticipatory breach (Geden Operations v Drybulk Handy Holdings)
• The General rule of Discharge by Frustration

  The law of frustration is governed within the Law Reform (Frustrated Contracts) Act 1943.

  If a party to a contract was prevented from keeping their promise because of an unforeseeable, intervening event, then they are not liable for breach of contract. (Taylor v Caldwell)

  Due to these unforeseeable events, contracts will often now contain a force majerure clause. Without this clause, the contract will have to rely on the law of frustration to avoid being in breach of contract.
• The General Rule of Discharge by Frustration - Force Majeure


  This is a clause that excludes liability for the parties for delay in performance or the non-performance if there are extraordinary events.

  The law on frustration will apply when:

  • It is now impossible for performance to be completed.
  • The contract has now become illegal to perform.
  • The contract has become fundamentally different.
• Discharge by frustration - Impossibility of Performance


  A contract may be impossible to perform where there is a physical destruction of the main aspect of the contract or where there is destruction of the subject matter of the contract (Jackson v Union Marine Insurance).

  In a contract for services, frustration may occur where a party is unavailable to perform a service due to illness or medical advice (Robinson v Davidson).
• Discharge by frustration - The Contract becoming Illegal to Perform


  • If there is a change in the law, that now makes performance illegal, this could mean that the contract has been frustrated (Dickson v James B Fraser)
• Discharge by Frustration- The Contract has become Fundamentally Different.


  If the main purpose of the contract is based on a particular event, and that event will now not take place, the contract may be frustrated (Krell v Henry)
• When Frustration is Not Allowed

  • There is self-induced frustration
  • The contract becomes less profitable
  • The event being a foreseeable risk was mentioned in the contract
• Discharge by performance - The effect of a term as to time for performance of a contract


  The Courts will regard a 'time' term as a condition where:

  • The parties have expressly stated in the contract that time is of the essence of the contract.
  • In the circumstances, the time for completion of the contract is critical.
  • One party has failed to perform on time and the other has insisted on a new date for completion of the contract.
• Discharge by performance - The effect of a term as to time for performance of a contract


  Section 52 of the Consumer Rights Act 2015 also discusses the time for performance of a contract.

  If a contract does not expressly fix a time for the service to be performed and does not say how it is to be fixed, then the contract is to be treated as including a term that the trader must perform the service within a reasonable time.

  A breach of this implied term allows the consumer a right to a price reduction up to the full amount, under section 56.
• Discharge by Breach - Remedies

  • Breach of condition - damages and/or repudiation.
  • Breach of a warranty - damages.
• Discharge by Frustration - When will Frustration Not Apply - Self-induced Frustration


  • Frustration will not apply when the frustrating event is within the control of one party (Maritime National Fish v Ocean Trawlers).
  • Where a simple change of wording could have avoided the contract from being frustrated, then frustration will be seen as being self-induced (Lauritzen v Wismuller)
• Discharge by Frustration - When Will Frustration Not Apply - The Contract has become Less Profitable


  • A contract becoming less profitable or more difficult to complete is not a reason for frustration of contract (David v Fareham)
• Discharge of a contract - When Will frustration not apply - The event being a foreseeable risk or the event was mentioned in the contract


  • If the risk is foreseeable, there is no frustration. (Amalgamated v John Walker and Sons)
• Discharge by Frustration - Remedies

  The allocation of loss is decided by the Law Reform (Frustrated Contracts) Act 1943.

  Section 1(2) - Adjustment of Rights and Liabilities of Parties to Frustrated Contracts:

  • money paid before the frustrating event occurs is recoverable.
  • money payable before the frustrating event ceases to be payable.
  • If a party incurred expenses before the discharge of the contract, the Court may award them a sum of these expenses.
• Discharge by Frustration - Remedies

  Section 1(3) - Adjustment of rights and liabilities of parties to frustrated contracts:

  • If one party obtained a valuable benefit from the contract before the frustrating event, the Court may order them to pay a sum in respect of it.
  • The sum that is awarded is what the Court considers are being just, having regard to all the circumstances of the case.
• Discharge by Frustration - Remedies

  Section 1(4) - Adjustment of rights and liabilities of parties to frustrated contracts:

  • When estimating the amount of any expenses incurred by any party to the contract, the court may include such sum as appears to be reasonable in respect of: overhead expenses and any work or services performed personally by a party to the contract.