Discharge of a contract

Issue. The issue is whether Anna has discharged her obligations by performance so as to be entitled to the price, or whether her incomplete work means she recovers nothing. This is discharge by performance.

Rule. The general rule is that performance must be complete and exact — the entire performance rule. A party who does not perform the whole of an entire obligation cannot recover the price: in Cutter v Powell a sailor who died part-way through a voyage earned nothing because he had not completed the entire performance, and in Re Moore & Landauer goods that did not exactly match the contract description allowed rejection. Strictly applied, this rule would let Ben refuse to pay.

However, an important exception is substantial performance. Where a party has substantially performed, with only minor defects, they may recover the contract price less the cost of putting the defects right: in Hoenig v Isaacs a decorator who completed the work but left minor defects still recovered the price minus the cost of remedy, and Dakin v Lee is to similar effect. The exception does not apply where the defects are so serious that performance is not substantial — in Bolton v Mahadeva a heating system that gave off fumes and did not heat the house properly was not substantial performance, so nothing was recoverable.

Application. Anna has built the whole wall; only a small section of pointing is incomplete and one course is slightly uneven. These look like minor defects rather than a fundamental failure to perform, so this is closer to Hoenig v Isaacs than to Bolton v Mahadeva. Anna has therefore substantially performed.

Conclusion. Anna is entitled to the £600 price less the cost of completing the pointing and correcting the uneven course. Ben cannot rely on the entire performance rule to refuse all payment; he may only deduct the cost of remedying the minor defects.

Frustration discharges a contract where, after it has been made, an outside event — for which neither party is at fault — makes performance impossible, illegal, or radically different from what the parties agreed. The test of 'radically different' comes from Davis Contractors v Fareham UDC: the obligation must become something fundamentally other than that undertaken, not merely more onerous.

Several recognised categories of event may frustrate a contract.

Impossibility / destruction of the subject matter. Where the very thing needed for performance is destroyed, the contract is frustrated. In Taylor v Caldwell a music hall hired for a series of concerts burned down before the concerts; both parties were released because performance had become impossible.

Failure of the central purpose. Where the sole foundation of the contract disappears, it is frustrated. In Krell v Henry a room was hired to view the coronation procession; when the procession was cancelled the whole purpose was gone and the contract was frustrated. This must be contrasted with Herne Bay Steamboat v Hutton, where a boat was hired both to view the naval review AND to cruise the fleet; as one purpose remained, the contract was NOT frustrated when the review was cancelled.

Supervening illegality. A change in the law that makes performance illegal frustrates the contract — for example wartime measures, as illustrated by the kind of supervening illegality that arose in Avery v Bowden, where the outbreak of the Crimean War made performance illegal.

Personal incapacity or death. Where a contract depends on the personal performance of an individual, that person's death or serious illness will frustrate it.

In each case the event must be genuinely outside the parties' control and must go to the root of the contract; mere extra difficulty or expense is not enough (Davis Contractors v Fareham UDC).

Issue. Carla has told David, before the performance date, that she will not perform. The issue is whether this is an anticipatory breach and, if so, what options David has.

Rule. A breach may be actual (failing to perform when performance falls due) or anticipatory (indicating in advance that one will not perform). Carla's 1 May email is a clear renunciation before the 1 September date, so this is anticipatory breach.

On anticipatory breach, the innocent party has a choice of two options:

• Accept the breach and sue immediately. The innocent party need not wait for the performance date; they may treat the contract as discharged and sue at once for damages — Hochster v De La Tour, where a courier whose employer repudiated before the start date could sue immediately rather than waiting.
• Affirm the contract and wait. The innocent party may instead keep the contract alive and wait until the performance date, hoping the other party performs. But this carries a risk: if a frustrating event intervenes before performance is due, the contract is discharged by frustration and the right to sue for breach is lost — Avery v Bowden, where the innocent party waited and the outbreak of war then frustrated the contract, destroying the breach claim.

The performance term broken here is a condition (playing at the wedding goes to the root of the contract), so David is entitled to terminate as well as claim damages — breach of a condition allows termination, whereas breach of a mere warranty would allow damages only.

Application. Carla's email is an unequivocal anticipatory repudiation of a condition. David may therefore accept the repudiation now and sue immediately for damages under Hochster v De La Tour — for example, the extra cost of hiring a replacement band. Alternatively, he could affirm and wait, but Avery v Bowden shows that waiting is risky: if something then made performance impossible, David would lose his claim.

Conclusion. David is advised to accept the anticipatory breach and sue immediately, which crystallises his claim and lets him mitigate by booking another band. Because Carla has breached a condition, David may both terminate the contract and recover damages for any additional cost. Affirming and waiting is legally open to him but unwise given the Avery v Bowden risk.

Issue. The marquee has been destroyed before the hire date through no fault of either party. The issues are (1) whether the contract is frustrated, and (2) what happens to the deposit and expenses under the Law Reform (Frustrated Contracts) Act 1943.

Rule — frustration. A contract is frustrated where an outside event makes performance impossible, illegal or radically different (Davis Contractors v Fareham UDC). Destruction of the subject matter is a classic frustrating event: in Taylor v Caldwell the hall hired for concerts burned down before the dates, and both parties were discharged. Frustration is defeated where the event was foreseeable, where a force majeure clause allocated the risk, where performance is merely dearer (Davis Contractors), or where it is self-induced (Maritime National Fish v Ocean Trawlers). None of those applies here — a lightning strike is an external, non-negligent event.

Rule — effect. Frustration automatically terminates the contract at the moment of the frustrating event. The financial consequences are governed by the LR(FC)A 1943:

• s1(2) — money paid before frustration is recoverable, and money payable ceases to be payable; BUT the court has a discretion to allow the payee to retain or recover expenses incurred in performing before frustration.
• s1(3) — where one party has obtained a valuable benefit (other than money) before frustration, the court may order them to pay a just sum for it.

Application. The marquee — the very thing required for performance — has been destroyed, exactly like the hall in Taylor v Caldwell, so performance is impossible and the contract is frustrated. It is automatically discharged from 5 June.

Applying s1(2): Evergreen's £500 deposit is prima facie recoverable. However, Festoon spent £200 transporting poles before frustration, and under the s1(2) expenses allowance the court may permit Festoon to retain a sum up to £200 from the deposit to cover those expenses. s1(3) is unlikely to assist Festoon, as Evergreen received no valuable benefit before the marquee was destroyed.

Conclusion. The contract is frustrated and automatically terminated. Under s1(2), Evergreen can recover the deposit, but the court may allow Festoon to keep up to £200 for its transport expenses, so Evergreen is likely to recover around £300. Festoon cannot claim under s1(3) as no valuable benefit was conferred.

Several discharge issues arise; each is taken in turn.

Issue 1 — performance and prevention. The general rule is that performance must be complete and exact (the entire performance rule: Cutter v Powell; Re Moore & Landauer), and payment was due 'on completion', which Pinnacle has not reached. On the face of it Pinnacle could recover nothing. However, an exception applies where performance is prevented by the other party: in Planché v Colburn an author who had done part of the work before the other party abandoned the project could claim a reasonable sum on a quantum meruit. Here Quay prevented completion by ordering Pinnacle to stop. Applying Planché v Colburn, Pinnacle is not defeated by the entire performance rule and may claim a reasonable sum (quantum meruit) for the bedroom work already done — about £50,000 in value, subject to assessment.

Issue 2 — breach by Quay. Quay's instruction to stop is also an actual/anticipatory breach of its own obligations: it has repudiated the contract. Pinnacle may accept the repudiation and sue for damages immediately (Hochster v De La Tour), recovering its losses (including loss of the profit it would have made on the remaining work), or affirm and wait — though affirmation carries the Avery v Bowden risk that an intervening event destroys the claim. As Quay has clearly repudiated, Pinnacle should accept and sue.

Issue 3 — supervening illegality / frustration. The new regulation banning the required cladding would make the original exterior obligation illegal, a recognised frustrating event (performance becomes illegal: Davis Contractors v Fareham UDC test; cf. supervening illegality in Avery v Bowden). BUT frustration only matters for an obligation still on foot. Because Quay had already repudiated and prevented performance BEFORE the regulation came into force, the contract was effectively discharged by Quay's breach first; frustration cannot be used by Quay to escape liability, and self-induced or post-repudiation events do not rescue a party already in breach (Maritime National Fish v Ocean Trawlers confirms a party cannot rely on a frustration it controls). Even if frustration did apply to the exterior work, the LR(FC)A 1943 would govern: under s1(3) the court could award Pinnacle a just sum for the valuable benefit (the completed, refurbished bedrooms) already conferred on Quay, and under s1(2) any money paid would be recoverable subject to an expenses allowance.

Conclusion. Pinnacle's strongest route is to treat Quay as having breached/prevented performance: under Planché v Colburn it can claim a reasonable sum (quantum meruit) for the bedroom work (~£50,000), and under Hochster v De La Tour it can accept the repudiation and sue for damages for the lost profit on the rest. The cladding regulation does not let Quay rely on frustration to avoid liability; but if any frustration analysis were applied, LR(FC)A 1943 s1(3) would still secure Pinnacle a just sum for the valuable benefit of the completed bedrooms.

Frustration discharges a contract where an outside event makes performance impossible, illegal or radically different (Davis Contractors v Fareham UDC). Whether the modern law deals 'fairly' with the consequences requires weighing the doctrine's deliberately narrow scope and the reforms of the Law Reform (Frustrated Contracts) Act 1943 against the uncertainty they introduce. This essay argues that the law is substantially fairer than the old common law, but at the cost of considerable uncertainty.

The doctrine is fair in keeping frustration narrow. Frustration is not an easy escape route. A contract is not frustrated merely because it has become more expensive or difficult (Davis Contractors v Fareham UDC), nor where the event was foreseeable, where a force majeure clause allocated the risk, or where the frustration is self-induced (Maritime National Fish v Ocean Trawlers). These limits are fair to the party who would otherwise be left without a remedy: they prevent contracting parties from walking away from bad bargains and uphold the principle that contracts should be kept. The careful contrast between Krell v Henry (sole purpose destroyed — frustrated) and Herne Bay Steamboat v Hutton (one purpose surviving — not frustrated) shows the courts confining the doctrine to events that truly go to the root of the agreement.

The 1943 Act is fairer than the old common law. Before the Act, the common law left losses where they fell at the moment of frustration. This produced real injustice: money already paid was often irrecoverable, while money that had just fallen due still had to be paid, regardless of whether any benefit had been received. The LR(FC)A 1943 corrected this. Under s1(2), money paid before frustration is recoverable and money payable ceases to be payable, with a discretion to let the payee retain expenses already incurred — apportioning loss rather than letting it lie arbitrarily. Under s1(3), a party who has conferred a valuable benefit before frustration may recover a just sum, preventing unjust enrichment. This is a marked improvement in fairness over the all-or-nothing common law position.

But the modern law is uncertain, which itself can be unfair. The test of 'radically different' is vague: it gives little guidance to parties trying to predict whether a given event frustrates their contract. The 1943 Act, in solving one problem, created another — both the s1(2) expenses allowance and the s1(3) 'just sum' rest on broad judicial discretion, so outcomes are difficult to forecast. Valuing a 'valuable benefit' under s1(3) is notoriously difficult, especially where the very event that frustrates the contract also destroys the benefit, an issue that exposed the complexity of the section. Wide discretion may produce a fair result in the individual case, but unpredictability is itself a kind of unfairness because parties cannot plan around it. Automatic discharge can also be a blunt instrument, ending the whole contract even where partial continuation might have suited both sides better.

Judgement. On balance the statement is largely correct: the doctrine of frustration, modified by the 1943 Act, deals far more fairly with unforeseen events than the harsh common law it replaced, because s1(2) and s1(3) allow loss to be recovered and apportioned rather than left to fall arbitrarily. However, fairness has been purchased at the price of certainty — the breadth of 'radically different' and of the court's discretion under the Act means parties still cannot reliably predict the consequences of a frustrating event. The law is fair in result more than in clarity; well-drafted force majeure clauses, which let parties allocate the risk themselves, remain the surest route to a predictable and fair outcome.