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A contract is discharged when the parties' obligations come to an end. Discharge releases the parties from further performance. There are four methods of discharge: performance, breach, frustration, and agreement. This lesson examines each method, the key rules and exceptions, and the leading cases.
The general rule is that a contract is discharged when both parties have completely and exactly performed their obligations. If one party fails to perform fully, they cannot claim payment or enforce the other party's obligations.
Under the entire obligations rule (also called the "entire contracts" rule), if a party's obligations are "entire" (i.e., they must complete the whole performance before they are entitled to payment), then partial performance is not sufficient.
Cutter v Powell (1795):
Cutter was hired as second mate on a ship from Jamaica to Liverpool for a lump sum of 30 guineas. He died during the voyage, having completed most of it. His widow claimed a proportionate share of the wages. The court held she was entitled to nothing — the contract was an entire obligation, and Cutter had not completed the voyage. No payment was due for partial performance.
This rule can produce harsh results, so the courts have developed several exceptions:
Where a party has substantially performed their obligations, they can claim the contract price less a deduction for the defects.
In Hoenig v Isaacs [1952], a decorator agreed to decorate and furnish a flat for £750. The work was completed but there were minor defects costing £55 to put right. The Court of Appeal held that there was substantial performance — the claimant was entitled to £750 minus £55 (the cost of remedying the defects).
However, in Bolton v Mahadeva [1972], a contractor installed a central heating system that did not heat the house properly and produced fumes. The defects would cost £174 to remedy (against a contract price of £560). The court held there was no substantial performance — the system did not work. The contractor could not recover anything.
| Case | Performance | Substantial? | Recovery |
|---|---|---|---|
| Hoenig v Isaacs [1952] | Flat decorated with minor defects (£55 of £750) | Yes | Full price minus deduction |
| Bolton v Mahadeva [1972] | Heating system did not work (£174 of £560) | No | Nothing |
Where the contract is divisible into separate stages, each stage can be treated as a separate obligation. Payment is due for each completed stage.
For example, employment contracts are typically divisible — wages are paid weekly or monthly for work done, even if the employment contract is ongoing.
Where one party prevents the other from completing performance, the party who was prevented can claim on a quantum meruit basis (a reasonable sum for work done).
In Planche v Colburn (1831), the claimant was commissioned to write a book for a series. The publishers cancelled the series before the claimant had finished the book. The court held the claimant was entitled to payment on a quantum meruit for the work he had done.
Where one party voluntarily accepts partial performance (when they had a genuine choice to refuse it), they must pay a reasonable sum for the benefit received.
However, there must be a genuine choice. In Sumpter v Hedges [1898], a builder abandoned a half-built house. The landowner had no choice but to complete it himself. The court held that the landowner's "acceptance" was not voluntary — he could not return a half-built house.
graph TD
A["Has the contract been<br/>FULLY PERFORMED?"] -->|"Yes"| B["Contract DISCHARGED<br/>by performance"]
A -->|"No — only partial<br/>performance"| C{"Does an EXCEPTION<br/>to the entire<br/>obligations rule apply?"}
C -->|"Substantial performance<br/>(Hoenig v Isaacs [1952])"| D["Can claim contract price<br/>MINUS deduction for defects"]
C -->|"Divisible obligations"| E["Can claim for each<br/>completed stage"]
C -->|"Prevention by other party<br/>(Planche v Colburn [1831])"| F["Can claim on<br/>quantum meruit"]
C -->|"Voluntary acceptance<br/>of partial performance"| G["Must pay reasonable<br/>sum for benefit received"]
C -->|"No exception applies<br/>(Cutter v Powell [1795])"| H["NO recovery for<br/>partial performance"]
style B fill:#27ae60,color:#fff
style D fill:#2ecc71,color:#fff
style H fill:#e74c3c,color:#fff
A contract may be discharged by breach — where one party fails to perform their obligations or indicates that they will not do so.
An actual breach occurs when a party fails to perform their contractual obligations at the time performance is due. Whether the innocent party can terminate depends on whether the term breached is a condition, a warranty, or an innominate term (see the lesson on Contract Terms).
An anticipatory breach occurs where a party indicates, before the time for performance, that they will not perform their obligations. This can be by:
Hochster v De La Tour (1853):
The defendant agreed to employ the claimant as a courier from 1 June. On 11 May, the defendant wrote to say he no longer needed the claimant's services. The claimant sued immediately (before 1 June). The court held that the claimant was entitled to sue immediately for anticipatory breach — he did not have to wait until 1 June.
The Innocent Party's Options:
The innocent party has a choice:
| Option | Explanation | Consequence |
|---|---|---|
| Accept the breach | Treat the contract as discharged and claim damages immediately | The contract ends; both parties are released from future obligations |
| Affirm the contract | Continue with the contract and wait for the performance date | Both parties remain bound; the innocent party can claim damages later if performance does not occur |
If the innocent party affirms, they take the risk that the contract might be discharged by a supervening event (such as frustration), which would release the defaulting party.
In Avery v Bowden (1855), a ship was chartered to load cargo at Odessa within 45 days. The charterer told the captain there would be no cargo. The captain chose to wait, hoping cargo would appear. Before the 45 days expired, the Crimean War broke out and the contract was frustrated. Because the captain had affirmed (rather than accepting the anticipatory breach), the frustrating event discharged both parties and the shipowner lost his right to damages.
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