Summary
Summary Discharge of a Contract for Breach
- Module
- Law Of Contract (LAWW1013)
- Institution
- The University Of Nottingham (UON)
Topic 6 of the contract law module. Used by a 1:1(1st) student.
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Discharge of a contract for breachDamages always arise for the IP after breach (unless a valid exclusion clause), but they can also
withhold performance/bring contract to the end. Breach doesn’t cause termination, but it provides
the IP with an option, a ‘fundamental principle of the law of contract (Soares v Beazer Investments
Ltd [2004]). IP must elect to terminate (The Kanchenjunga [1990], Lord Goff).
Termination for breach is not the same as rescission. Rescission sets the contract aside ab initio due
to a vitiating factor. Termination for breach is prospective only, with the Court of Appeal reaffirming
the difference in Howard-Jones v Tate [2011]. Looking for breach requires express term analysis as
well as considering implied terms.
A remedy is available for sufficiently serious breach of contract, a ‘repudiatory breach of contract’. IP
receives the right to elect to treat the primary obligations as discharged. Contract can be discharged
or affirmed; via the right of election a repudiatory breach of contract gives.
If discharged, primary obligations no longer have to be performed by either party. Provisions that
contain what happens if a party does not perform (e.g., an exemption clause) are secondary
obligations. IP can treat primary obligations as no longer enforceable during breach, but the entire
contract does not cease to apply, as secondary obligation terms remain applicable (e.g., exemption
clauses and liquidated damages clauses).
Withholding performance:
(i) Conditions precedent:
A party subject to a condition precedent means one party’s obligation is conditional on something.
Failure to perform a condition is a breach, but sometimes the condition precedent is something
separate.
(ii) Entire obligations:
Rare for an obligation to be entire, due to risk on one party who must perform before other party
can perform. Re Hall & Barker [1878] shows an entire obligation is dependent on what the parties
intended, judged objectively. Cutter v Powell [1975] saw C die and his payment of ’30 guineas’ was
condition precedent on completing performance, meaning his estate was entitled to nothing, this
was an entire obligation. C’s death wasn’t a breach, but it prevented failure, with a remedy available
today under the Law Reform (Frustrated Contracts) Act 1943.
Sumpter v Hedges [1898] showed failure to perform an entire obligation will be a breach of contract.
Court of Appeal held C was entitled to nothing apart from a sum for building materials, as the
obligation was entire, and he hadn’t completed it. Construing an obligation as entire is avoided
generally, and the courts use the doctrine of substantial performance to mitigate the hardship of
construing an obligation as entire.
(iii) An exception for substantial performance?
This exception means an entire obligation has been substantially performed, meaning the other
party has to pay, but at a reduced amount due to damages for defects (Dakin & Co Ltd v Lee [1916]).
Pickford LJ stated that the reduction will be ‘such an amount as is sufficient to put that insufficiently
done work into the condition which it ought to have been under the contract’. This reasoning was
applied in Hoenig v Isaacs [1952], where payment was refused over alleged defective work meaning
, the entire obligation was not performed. The Court held the defects were minor, and that the
obligation had been substantially performed warranting payment.
Treitel (2020) regards substantial performance of an entire obligation as contradictory, as ‘entire’
requires full performance. In practice, distinguishing not finishing from finishing badly is difficult. This
is shown in Bolton v Mahadeva (1972), where the Court of Appeal held the work was so defective as
to not amount to substantial performance. Generally, substantial performance of entire obligations
is not used when the courts want to prevent a party from wriggling out of payment for work by
alleging trivial defects.
(iv) Acceptance of partial performance:
If IP accepts partial performance, the entire obligations rule cannot be relied upon to resist payment,
but only where IP had a choice. Monroe v Butt [1858] shows there is a difference regarding building
work on land, ‘What is the owner… supposed to do? The contractor leaves an unfinished or ill-
constructed building on his land… yet it may be essential to the owner to occupy the residence’. This
shows why the defendant in Hedges was obliged to pay for the materials on the site but not the
building work itself. This is also reflected in s. 25 of the Consumer Rights Act 2015, where, in a
consumer sale of goods contract, a seller delivers a quantity of goods less than contracted to sell, the
buyer may reject them but if the buyer accepts them he must pa for them at contract rate. Non-
consumers may equivalent protection under s. 30 of the Sale of Goods Act 1979, except a non-
consumer buyer has no right to reject of shortfall is so slight it is unreasonable to do so.
(v) Should the law be reformed?
The consequence of construing the builder’s obligation as entire in Hedges was that he earned
nothing for doing at least part of the work, and the owner got a partially completed building without
paying anything. To prevent unjust enrichment, the Law Commission’s Report ‘Pecuniary Restitution
on Breach of Contract (No 121 (1983)) recommended the party who hasn’t fully performed an entire
obligation should be entitled to a reasonable sum, regarded as a restitutionary remedy to reverse
the owner’s unjust enrichment. The Report was never implemented.
Hardship is caused to contractors if an obligation is held to be entire, but more is need for a
restitutionary remedy than only identifying the other party has been enriched and through unjust
means. The solution of failure of consideration doesn’t work if the outcome is what the contract
provides. Restitutionary remedies are argued to be subsidiary to the contract.
If a contract expressly provides payment is not due unless fully done (entire obligation) then a
restitutionary remedy for partial performance is not possible. Modern building contracts allow
payment in stages, so entire obligations only feature in informal domestic buildings jobs, with the
concern of ‘cowboy’ builders. The Reports proposals would remove the householder’s bargaining
tool against the contractors of withholding payment until performance is completed.
The entire obligations reasoning was considered again in Multiplex Constructions (UK) Ltd v
Cleveland Bridge UK Ltd [2010], where it was argued Hedges was subject to academic criticisms and
the law of restitution had moved on. The Court disagreed, however, and Sir Anthony May P held that
legislation has not changed on this matter, and nor has the ‘subsequent restitutionary case law’.
Termination of the contract for breach
Two situations IP can terminate contract for breach:
- Defective performance/non-performance: depends on classification of breach term.
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