DISCHARGE OF LIABILITY

We are concerned here with the various ways in which the parties may become discharged (released) from their contractual
obligations.
1. Performance (13.2)
2. Breach (13.3)
3. Agreement (13.4)
4. Frustration (13.5)

Definition
The difficulty of exposition of discharge by performance or by breach is that performance and breach are in reality mirror images
of each other (“two sides of the same coin” Anson).
E.g. X contracts to build a shed for Y for £800. X carries out the work, feels that he has performed his obligations, has no further
obligation under the contract, and claims the £800 contract price. However, Y may claim that X's performance is defective i.e.
that X is in breach of contract, and that he, Y, is released from his contractual obligation to pay, or at least X should remedy the
defect or make a deduction from the contract price because of the defective work. X may claim the work is not defective.
THUS – in reality performance and breach should be considered at one and the same time. In addition, of course, the extent of
one's contractual obligations is to be discovered from the terms of the contract. They will provide the answer to the question of
what performance is to be required.
Conversely, if performance is defective i.e. there is breach of a term, we need to know what sort of term (condition, warranty or
intermediate term) in order to ascertain whether or not the innocent party has any right to repudiate the contract i.e. to regard
himself as discharged from his contractual obligations.

DISCHARGE BY PERFORMANCE

Historical approach
An historical approach is useful. The original rule at Common Law was always that performance must be precise and exact. In
other words, the obligation under the contract was entire and only an entire performance would entitle a party to payment under
the contract.
Cutter v Powell (1795) 6 Term Reports 320
D agreed to pay Cutter 30 guineas provided he executed his duties as second mate on a voyage from Kingston, Jamaica to
Liverpool. Cutter began the voyage but died when the ship was 19 days short of Liverpool. Cutter's wife sought a proportion of
his wage equivalent to the amount of the voyage for which Cutter had acted as second mate. It was HELD that she failed
because Cutter hadn't performed his entire contractual obligation.
Harsh rule
Both of the above decisions are harsh because the defendant either receives a benefit or makes a profit without having to pay
anything. Consequently, the courts have developed certain doctrines in order to achieve justice between the contracting parties:
(i) Substantial Performance
If the contract has been substantially performed, though not necessarily literally or exactly, the injured party cannot treat himself
as discharged from his obligation to pay, though he will have a counterclaim or a right of set-off for any loss sustained by reason
of the incomplete performance.
No right to repudiate
In other words, the injured party has no right to repudiate for breach of condition but does have a right to compensation for
breach of warranty.
(ii) Acceptance of Partial Performance
The usual rule is that a party who partly performs a contract (i.e. there is no substantial performance, and thus a breach of
condition is committed) is not entitled to recover anything.
HOWEVER – a claim to remuneration may arise if the other party accepts the partial performance.
In sale of goods cases this is recognised by the Sale of Goods Act 1979  s.30(1):
“Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them, but if he
accepts them he must pay for them at the contract rate.”
Quantum meruit
In other cases any such claim rests upon a quantum meruit basis (a reasonable sum in respect of the benefit conferred by the
partial performance). The basis of the liability here is that if Y accepts X's partial performance, both parties by implication
mutually release one another from the original contract and agree to a new contract to pay for the work done or the goods
supplied.

 DISCHARGE BY BREACH

Definition
When can the innocent party terminate the contract and regard himself as discharged from his contractual obligations because of
the other party's breach?
It is always possible to sue for damages for breach of contract (i.e. for breach of condition or warranty), but the right of the
innocent party to treat the contract as discharged arises only where there has been a breach of condition, or a repudiatory
breach in the case of an intermediate term, viz.
(a) Where the party in default repudiates either before performance is due (anticipatory breach) or before the contract has been
fully performed.
(b) The defaulting party has committed breach of a term of major importance.
Repudiation before or during performance
Such repudiation may be either express or implied, and it must be established that the defaulting party has made it clear beyond
reasonable doubt that he no longer intends to perform his part of the contract.
Breach before performance becomes due is known as – Anticipatory Breach
In this situation the innocent party may accept the breach and immediately sue for breach of contract, or he may refuse to accept
the breach and wait until the due date for performance, hoping the other party will change his mind.
Hochster v De La Tour [1853] 2 E & B 678
In April the defendant agreed to engage the plaintiff as a courier during a foreign tour starting on the 1st June. On 11th May the
defendant wrote to the plaintiff informing him of a change of mind and that his services would no longer be required. The plaintiff
sued for damages immediately and succeeded.
N.B. It may be dangerous for the innocent party to wait for the due date for performance as the contract continues at the risk of
both parties.
Breach occurring during performance
Such breach raises a difficult question of construction of the contract for the court, for it has to decide whether an act alleged by
one party to be a repudiatory breach in fact amounts to such in law.
Thus, in the general law of contract, if X breaches the contract and Y repudiates, alleging a breach of condition by X, then if the
court agrees, Y has acted perfectly properly. However, if the court finds X's breach to be of warranty only, then Y also will be in
breach of contract due to wrongful repudiation.
Mersey Steel & Iron Co v Naylor Benzon & Co [1884] 9 App Cas 434
Some guidance as to the test of construction to be applied, at least in sale of goods cases, was given by the Court of Appeal in:
Maple Flock Co Ltd v Universal Furniture Products [1934] 1 KB 148
“First, the ratio quantitatively which the breach bears to the contract as a whole, and secondly, the degree of probability or
improbability that the breach will be repeated.”
Thus, in the case itself the buyer was held not to be entitled to repudiate on the following facts: the contract was for 100 tons of
rag flock; the first 15 deliveries were in order; the 16th was defective; deliveries 17-20 were in order. Thus, only 12 tons of the
deliveries had been defective, and the breach was unlikely to be repeated.
Cf Munro & Co Ltd v Meyer [1930] 2 KB 312The buyer was held to be entitled to repudiate the whole contract for 1,500 tons of
meat and bone meal, when more than half of the total quantity delivered was found to be seriously defective.
 
Breach of a term of major importance
The relevant law here was considered in the earlier section on terms (conditions/warranties/intermediate terms).
Consequences of repudiation or breach of a major term
There are two possibilities here. The innocent party will either (a) treat the contract as still operative or (b) treat the contract as
terminated.
(a) Contract still operative
Breach in itself does not discharge the innocent party from his obligations, he must accept the breach. Thus, if he refuses to
accept the breach, the contract remains in being for the future on both sides.
In the case of breach of a major term the plaintiff cannot repudiate or sue for damages until he accepts the breach, and in the
case of an unaccepted anticipatory breach the plaintiff cannot sue for damages until the due date for performance arrives.
(b) Contract treated as terminated
The contract will be terminated for the future as from the moment the acceptance of the breach is communicated to the
defaulting party.
However, it is clear from the House of Lords decision in Johnson v Agnew [1980] AC 367; [1979] 1 All ER 883 that the breach
doesn't operate retrospectively, i.e. the defaulting party will be liable in damages both for any earlier breaches and also for the
breach leading to the discharge of the contract, but will be excused any further performance.

DISCHARGE BY AGREEMENT

Definition
Just as a contract is formed by agreement so it can be discharged or varied by agreement; BUT – just as consideration is
essential to agreement so it is substantially necessary for discharge or variation, unless the release is executed by deed. The
process is known as ACCORD AND SATISFACTION; the accord is the agreement and the satisfaction the consideration.
13.4.2 Two forms of accord and satisfaction
There are two forms of discharge by agreement:
(a) Bilateral
Applies to executory agreements. X and Y mutually release one another from their obligations.
(b) Unilateral
If X has performed his part of the contract a promise from him to release Y from further performance will not bind him unless Y
provides consideration.
Pinnel's Case (1602) 5 Co Rep 117a, Elton Cop Dyeing Co Ltd v Robert Broadbent & Son Ltd (1920) 89 LJKB 186
Of course, even if Y hasn't provided consideration, he may be able to set up promissory estoppel by way of defence.

DISCHARGE BY FRUSTRATION

Whilst the doctrine has seen expansion from its inception, it is still narrow in application; Lord Roskill stated that it is: "not lightly
to be invoked to relieve contracting parties of the normal consequences of imprudent bargains."
CTI Group v Transclear SA [2008] EWCA Civ 856
Court of Appeal
The case illustrates the principle that Frustration, as a doctrine, is very narrowly applied. To show frustration it would be
necessary to demonstrate that performance of the new contract would be fundamentally different from that originally
contemplated. The Court of Appeal also confirmed that frustration can apply to a contract for the sale by description of
unascertained goods of a specified origin.
 
Concept
Frustration occurs whenever a contract, after its formation, becomes impossible to perform without default of either party; the
doctrine is often called subsequent or supervening impossibility, and its effect is that the parties are released from their
contractual obligations.
Frustration of the common adventure
FA Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2 AC 397 A steam ship was chartered for a
period of five years, 1912-1917. However, in 1915 the government requisitioned the ship for use as a troopship. The charterers
were willing to continue paying the agreed freight, but the owners claimed the charterparty to be frustrated as they wished to
obtain a larger amount by way of compensation from the Crown.
The House of Lords HELD that there was no frustration, the interruption being of insufficient duration and insufficiently
continuous to make it unreasonable for the parties to continue.
Cf Jackson v Union Marine Insurance Co Ltd [1874] LR 10 CP 125 where the interruption was of sufficient duration for the
contract to become frustrated.
(i) Express Provision
If the contract expressly provides for the risk in question that provision will usually apply and the doctrine of frustration will not.
HOWEVER – such provision must be full and complete, and embrace totally the nature of the risk in question.
Jackson v Union Marine Insurance Co Ltd [1874] LR 10 CP 125
A provision: “dangers and accidents of navigation excepted” didn't apply when a tanker's availability under a charterparty was
delayed for 8 months after it ran aground, because it was deemed not to cover an accident causing injury of such an extensive
nature.
SIMILARLY – in:
Metropolitan Water Board v Dick, Kerr & Co Ltd [1918] AC 119 A proviso to the effect that if the work should be “unduly delayed
or impeded” an extension of time for completion was to be granted was deemed inapplicable to a delay causing a radical change
in the obligation.
(ii) Can a contract be frustrated by events which are foreseeable by both parties?
The most obvious suggestion is that if the event was foreseeable the parties should have provided for it in the contract. Indeed,
many of the cases refer to frustration applying to “unexpected” or “uncontemplated” events, and many obiter dicta express the
view that a contract cannot be frustrated by foreseen or foreseeable events.
However, the point remains undecided, and there is support for the opposite view, viz. Lord Denning MR obiter in The Eugenia
[1964] 1 All ER 161, and the strange decision of Goddard J in W J Tatem Ltd v Gamboa [1938] 3 All ER 135 where he held a
charterparty to be frustrated by its foreseeable seizure, because it was not foreseeable that it would be seized for such a lengthy
period of time; i.e. a very high degree of foreseeability is required to exclude frustration!
(iii) A party cannot rely, as a basis for frustration, on an event foreseen by him but not by the other party
Walton Harvey Ltd v Walker & Homfrays Ltd [1931] 1 Ch 274 The plaintiffs were granted the right by the defendant to display an
advertising sign on the defendant's hotel during a seven year period. Within this period the hotel was compulsorily acquired and
demolished, a risk of which the defendants were aware and the plaintiffs were not. The defendant was HELD liable in damages,
the contract not being frustrated since the defendant could have provided for such risk in the contract.

(iv) Lack of common assumption

A contract cannot be frustrated by an event which prevents performance in a manner contemplated by one of the parties only.
Blackburn Bobbin Co Ltd v Allen & Sons Ltd [1918] 2 KB 467
Edwinton v Tsavliris [2007] EWCA CIV 547
Rix LJ said that a multi-factorial approach had to be taken to see if a contract is frustrated. This case is worth reviewing.
For a detailed review of recent judicial analysis of Frustration - see Lord Justice Riux's judgment extracted at the foot of this
section.
Self-Induced Frustration
Frustration cannot apply where the alleged frustrating event arises from a deliberate act or choice of one of the parties.
Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524
The respondents chartered to the appellants a steam trawler fitted with an otter trawl. Both parties knew that it was illegal to use
an otter trawl without a licence from the Canadian government. The appellants applied for five licenses for the trawlers they were
operating, including the respondent's trawler. However, they were granted three licenses only, which they used for their own
vessels, and proceeded to repudiate the charterparty on grounds of frustration. The Privy Council HELD that there was no
frustration; the failure of the charterparty was a result of the appellant's own election.
N.B. It is uncertain whether a negligent act can amount to self-induced frustration, though the House of Lords have suggested
that it might in obiter dicta in Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd [1942] AC 154
Furthermore, the burden of proof of self-induced frustration rests upon the party alleging it.
The effects of the doctrine of frustration
At common law
At common law the contract was terminated automatically and immediately, and both parties were released from their future
obligations under the contract; however, they were required to fulfil any obligations which fell due before the occurrence of the
frustrating event i.e. the loss lay where it fell.
In other words the contract was not void right from the outset, but only from the occurrence of the frustrating event (cf the effect
of mistake which overrides the contract right from the beginning).