Welcome to the Chapter on Discharge!
In the world of contract law, a contract is like a living thing: it is born (formation), it grows (performance), and eventually, it reaches its end. This "ending" is what lawyers call Discharge. It is the point where the parties are no longer bound by their legal promises.
In these notes, we will look at the three main ways a contract can end according to the OCR syllabus: Performance, Frustration, and Breach. Don't worry if some of the terminology sounds a bit formal—we will break it down together using simple examples!
1. Discharge by Performance
This is the "happily ever after" of contract law. It happens when both parties do exactly what they promised to do. However, the law started with a very strict rule.
The Strict Rule
Traditionally, performance must be exact and complete. If you miss even a tiny detail, the contract isn't discharged, and you might not get paid at all!
Example: In the case of Cutter v Powell, a sailor died just a few days before the ship reached its destination. Because he didn't finish the whole voyage (exact performance), his widow was entitled to nothing. Harsh, right?
The Exceptions (Making it Fairer)
Because the strict rule can be unfair, the law created several exceptions. Think of these as "common sense" rules:
1. Divisible (Severable) Contracts: If a contract is made of separate parts (like a building project paid for floor by floor), you get paid for each part you finish.
2. Substantial Performance: If a party finishes the vast majority of the work with only minor defects, they can be paid the contract price minus the cost of fixing the small error.
Example: If a builder paints your whole house but forgets one small window frame, they have substantially performed. You pay them, but keep back a small amount to pay someone else to finish that window. (See Hoenig v Isaacs).
3. Acceptance of Partial Performance: If one person only does half the work, but the other person freely chooses to accept that half, they must pay a "quantum meruit" (a fair price for what was done).
4. Prevention of Performance: If you try to do your job but the other person stops you, you can sue for the work you've already done.
Quick Review Box:
To be discharged by performance, you usually need to do 100% of the work. If you do 95%, you might claim Substantial Performance. If the contract is split into stages, it is Severable.
2. Discharge by Frustration
Sometimes, something happens after the contract is signed that makes it impossible to finish, through no fault of either side. This is Frustration.
Grounds for Frustration
A contract is frustrated if:
• The subject matter is destroyed: (e.g., you rent a hall for a concert, but the hall burns down the night before - Taylor v Caldwell).
• Personal Incapacity: (e.g., a lead singer gets too sick to perform).
• The contract becomes illegal: (e.g., the government passes a law banning the activity you agreed to do).
• The main purpose is gone: (e.g., you rent a room specifically to watch a parade, but the parade is cancelled - Krell v Henry).
The Limits of Frustration
You can't just claim frustration because you've changed your mind! It won't apply if:
• It is just more expensive or difficult to perform.
• You caused the event yourself (Self-induced frustration).
• The event was foreseeable (you should have known it might happen).
• There is a specific "Force Majeure" clause in the contract that covers the event.
The Financial Consequences
What happens to the money? The Law Reform (Frustrated Contracts) Act 1943 tells us:
1. Money paid before the frustrating event can be recovered.
2. Money owed before the event no longer has to be paid.
3. The court can allow a party to keep some of the money to cover expenses they already incurred.
4. If one party got a valuable benefit (other than money), the court can order them to pay for it.
Memory Aid:
Frustration is for the "3 I's": Impossible, Illegal, or Innocent (neither side is at fault).
3. Discharge by Breach
This is when someone fails to do what they promised. There are two main types you need to know.
Actual Breach vs. Anticipatory Breach
Actual Breach: This happens when the deadline for the task arrives, and the person simply doesn't do it, or does it badly.
Anticipatory Breach: This happens when a person tells you in advance that they aren't going to perform their duties.
Analogy: If you order a wedding cake for Saturday, and the baker calls you on Wednesday to say "I'm not making it," that's an Anticipatory Breach. You don't have to wait until Saturday to sue them!
Repudiatory Breach
Not every mistake ends a contract. Only a Repudiatory Breach allows the innocent party to end (terminate) the contract. This happens if:
• They breach a Condition (a vital part of the contract).
• They breach an Innominate Term that is so serious it ruins the whole point of the deal.
• They clearly show they have no intention of following the contract anymore.
Choices for the Innocent Party
If the other side commits a serious (repudiatory) breach, you have two choices:
1. Accept the breach: End the contract and sue for damages immediately.
2. Affirm the contract: Insist that they still perform the work and wait until the deadline passes before suing.
Common Mistake to Avoid:
Don't assume every "breach" ends a contract. If someone breaches a Warranty (a minor term), the contract continues—you can only sue for damages (money), you can't walk away from the deal!
Summary Table: How did the contract end?
Performance: Everyone did what they said they would. (Exact or Substantial).
Frustration: An outside event made the contract impossible or illegal. (No one's fault).
Breach: Someone broke their promise. (One person's fault).
Key Takeaway:
The law tries to balance being strict (holding people to their word) with being fair (allowing for accidents and minor mistakes). When looking at a problem question, always ask yourself: Is it impossible to finish (Frustration), or did someone just decide not to do it (Breach)?