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Summary contract law
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discharge of contract
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DISCHARGE OF CONTRACTThere are four ways in which contracts may be discharged:
1. by performance
2. by agreement
3. by breach
4. by frustration
Meaning of ‘discharged’
The above list describes the circumstances in which a party to a contract may be discharged
from their obligations under it.
1 Discharge by performance
General rule: performance must be strict and complete:
Cutter v Powell (1795) 6 Term Rep 320: D agreed to pay C as second mate on a ship bound
from Jamaica to Liverpool. 19 days short of Liverpool C died. Held: C’s widow could not
claim a proportion of the agreed sum. The contract was for sailing to Liverpool and C had
not done so.
Bolton v Mahadevera [1972] 1 WLR 1009: Cl contracted to install central heating into D’s
house. The system was installed but worked very ineffectively and D refused to pay. Held:
the contract had not been performed and Cl could recover nothing.
In each of these (and many other) cases one party is left with a partial performance and
benefit but with no liability to pay at all. Unsurprisingly therefore the courts have been
imaginative in finding exceptions to the general rule:
i) Severable (divisible) contracts
The obligation in Cutter v Powell was for the entire voyage but contracts can provide for
severable obligations:
The Juliana (1822) 2 Dods.504: the contract here provided for payment at a fixed rate per
month. Held: the obligation was monthly so that for each completed month payment was
due.
ii) Prevention of performance
Planché v Colburn (1831) 8 Bing 14: Cl agreed to write a book to be published by D as part of
a series. Cl was to be paid £100 on completion of the book. He collected material and wrote
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, part of the book and D then cancelled the series. Held: Cl was entitled to be paid for the
work so far done. D had prevented Cl’s further performance and it did not matter whether
the contract was entire or severable.
iii) Acceptance of partial performance
If the contracting party freely accepts partial performance there will be an obligation to pay
for it:
Sumpter v Hedges [1898] 1 QB 673: Cl agreed to build two houses on D’s land for a price of
£565. He did work to the value of £333 and then abandoned the contract, leaving some
materials on site. Held: Cl could recover nothing for the work done as it was an entire
contract but D had voluntarily decided to complete the work using Cl’s materials left on site
and therefore Cl could recover for those materials.
iv) Substantial performance
If the court accepts that there has been substantial performance then there will be a liability
to pay for that performance subject to a claim in damages for the shortfall.
Hoenig v Isaacs [1952] 2 All ER 176: Cl agreed to redecorate and furnish D’s flat for £750. D
complained of faulty design and workmanship and paid only £400. Held: the defects would
cost £55 to correct. There had been substantial performance and Cl was entitled to the
contract price subject to a claim for £55.
2. Discharge by agreement
The parties to a contract can by agreement bring about its discharge. This might occur
because the parties wish to replace the contract with a different one or it may simply be
they wish to walk away from the agreement. The basis is that in each agreeing to give up
whatever rights they had under the contract they are providing each other with
consideration for the discharge which is, therefore, binding.
Forde v Birmingham City Council [2008] EWHC 90105 (Costs) A solicitor was acting on a
conditional fee agreement which it later was thought might be invalid. The solicitor and
client then entered into a second conditional fee agreement that was retrospective to cover
all the work done already as well as future work. Held: the second CFA was valid.
3. Discharge by breach
The breach of contract does not itself discharge or terminate the contract. It is the
acceptance of the breach by the innocent party that enables the contract to be discharged.
The innocent party can only treat the contract as discharged if there has been a breach of
condition or a serious breach of an innominate term. Such a breach is called a repudiatory
breach – it entitles the innocent party to repudiate the contract. The innocent party does
not have to accept the breach and repudiate but they may do so. They can sue in damages
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