Learning Outcomes
This article explains the discharge of contract and the equitable remedy of specific performance in an SQE1-focused way, highlighting the doctrinal rules and their application to problem questions. It explains the main methods of discharge—performance, agreement, breach and frustration—and distinguishes strict from qualified obligations when assessing whether performance is complete. It examines substantial performance, the “entire obligations” rule and the key exceptions, including divisible obligations, voluntary acceptance, wrongful prevention, tender of performance and the effect of making time of the essence. It analyzes repudiatory and anticipatory breach, the election to terminate or affirm, and the consequences of each choice for future and accrued rights. It explores the doctrine of frustration, the limits of the doctrine, and the financial adjustments under the Law Reform (Frustrated Contracts) Act 1943. It also reviews discharge by agreement through mutual release, accord and satisfaction and related equitable principles. Finally, it details the nature, availability and limitations of specific performance, emphasizing adequacy of damages, uniqueness, supervision, hardship, mutuality and the typical treatment of land and specific or ascertained goods.
SQE1 Syllabus
For SQE1, you are required to understand the law and practice relating to discharge of contract and the remedy of specific performance, with a focus on the following syllabus points:
- the main ways in which contracts can be discharged (performance, agreement, breach, frustration)
- the distinction between strict and substantial performance
- the consequences of breach, including the right to terminate and claim damages
- the doctrine of frustration and its effect on contractual obligations
- the nature, scope, and limitations of specific performance as an equitable remedy
- the “entire obligations” rule and recognised exceptions (divisible obligations, substantial performance, voluntary acceptance, wrongful prevention)
- election: the choice to terminate or affirm following a repudiatory or anticipatory breach
- the statutory framework relevant to specific performance (for specific or ascertained goods and land)
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- What are the four main ways a contract can be discharged?
- When is specific performance available as a remedy for breach of contract?
- What is the effect of frustration on the parties’ contractual obligations?
- True or false? A party who has substantially performed a contract is always entitled to the full contract price.
Introduction
A contract is discharged when the parties’ obligations come to an end. For SQE1, you must know the main ways a contract can be discharged and the consequences for the parties. You also need to understand the remedy of specific performance, when it is available, and its limitations. This article covers the key principles and practical implications for exam scenarios. It also clarifies how strict performance differs from qualified obligations, how substantial performance can affect payment, and when the court will compel performance rather than award damages.
Discharge of Contract
A contract may be discharged in several ways. The main methods are:
- performance
- agreement
- breach
- frustration
Each method has different legal consequences for the parties.
Performance
The most common way a contract is discharged is by performance. If both parties perform their obligations exactly as agreed, the contract ends.
Key Term: performance
Fulfilling all contractual obligations as required by the contract.
There are two broad types of obligations:
- strict obligations: require exact performance according to the contract (time, quantity, quality, place etc.)
- qualified obligations: require a standard such as reasonable care, skill, or best/reasonable endeavours
Strict performance discharges the contract only if completed precisely. By contrast, qualified obligations are discharged if the party meets the required standard (e.g., uses reasonable endeavours or exercises reasonable care and skill).
Strict and Substantial Performance
Some contracts require strict performance—every obligation must be completed precisely. However, if a party has substantially performed (i.e., completed the main obligations with only minor defects), they may still be entitled to payment, subject to a deduction for defects. This is often described as an exception to the “entire obligations” rule (which otherwise requires exact performance before payment is due).
Key Term: substantial performance
Completion of the main obligations under a contract, with only minor defects remaining.
Substantial performance is fact-sensitive. It will be denied where defects deprive the innocent party of substantially the whole benefit of the contract. In borderline cases, the court may compare the cost of cure with the overall benefit, and award a reasonable sum or damages reflecting diminished value rather than the full contract price.
Other recognised exceptions to strict performance include:
- divisible/severable obligations: where payment is due in stages as parts of the work are completed, a party can claim for completed stages even if later stages are incomplete
- voluntary acceptance of part performance: if the innocent party chooses to accept partial performance where they had a genuine choice, the performing party may claim a reasonable sum (quantum meruit) for what was accepted
- wrongful prevention: if one party prevents the other from completing, the prevented party can claim damages or a reasonable sum for work done
- tender of performance: where completion requires the other party’s cooperation, a proper tender within time can discharge the performing party’s obligation (with remedies if acceptance is wrongly refused)
- time of performance: if time is of the essence and a party fails to perform on time, the innocent party may be entitled to terminate and/or claim damages
Worked Example 1.1
A builder agrees to renovate a kitchen for £10,000. The work is completed, but the cupboard doors are the wrong colour, costing £200 to replace. Is the builder entitled to payment?
Answer:
Yes, the builder has substantially performed the contract. The client must pay £10,000 minus £200 for the defect.
Worked Example 1.2
A contractor installs a central heating system for a fixed price. The system produces inadequate heat and fumes in one room, and it would cost a substantial sum to remedy. Is the contractor entitled to the price, subject to deductions?
Answer:
No. This is not substantial performance because the system fails to deliver the core benefit. The contractor cannot recover the contract price and may only be entitled to a reasonable sum if the work confers value that the owner voluntarily accepts.
Breach
A contract may be discharged by breach. If one party fails to perform a condition or commits a serious breach, the other party may treat the contract as ended (repudiatory breach) and claim damages.
Key Term: repudiatory breach
A breach so serious that it allows the innocent party to terminate the contract and claim damages.
Not every breach confers a right to terminate. The right depends on the nature of the term breached (condition/warranty), or the seriousness of consequences if the term is “innominate” (intermediate). A repudiatory breach does not automatically end the contract; the innocent party must elect either to terminate (ending future obligations) or to affirm (continue the contract). Rights accrued prior to termination usually survive.
Election matters:
- termination releases both parties from future primary obligations under the contract
- affirmation means the contract continues; the innocent party may still claim damages but cannot later terminate for that breach
- acceptance of repudiation must be communicated clearly; silence will rarely suffice
Anticipatory Breach
If a party indicates before performance is due that they will not perform, the other party may treat the contract as discharged immediately or choose to wait. If the innocent party accepts the anticipatory breach, they can sue at once. If they elect to wait and performance ultimately occurs, they lose the right based on anticipatory breach.
Key Term: anticipatory breach
A clear indication before performance is due that a party will not perform their obligations.
Worked Example 1.3
A supplier agrees to deliver goods on 1 June. On 15 May, they inform the buyer they will not deliver. What can the buyer do?
Answer:
The buyer may treat the contract as discharged immediately and claim damages for breach.
Worked Example 1.4
A customer prepays for a bespoke item due on 1 August. On 1 July, the seller emails to say they will not supply. The customer has two options: accept the anticipatory breach and sue now, or wait. What are the risks of waiting?
Answer:
If the customer waits and the seller performs on time after all, the customer cannot rely on the earlier repudiation to terminate. Accepting the anticipatory breach immediately secures a right to damages and allows mitigation.
Frustration
A contract is frustrated if, after formation, an unforeseen event occurs (not due to either party’s fault) that makes performance impossible, illegal, or radically different from what was agreed. Frustration automatically ends the contract.
Key Term: frustration
The automatic discharge of a contract due to an unforeseen event making performance impossible, illegal, or fundamentally different.
The doctrine is narrow. Increased expense, difficulty or delay is usually insufficient unless the change is so fundamental that performance would be of a different character. Frustration will not apply where the event was self-induced, where the contract allocates the risk (e.g., a force majeure clause), or where the event was foreseen or foreseeable and not provided for.
Common frustration scenarios:
- destruction of essential subject-matter makes performance impossible
- supervening illegality prevents performance lawfully
- cancellation of the shared purpose makes the contract radically different (e.g., hiring a venue to view a unique event that is postponed)
Effect of Frustration
When a contract is frustrated, both parties are released from future obligations. Financial adjustments are governed by the Law Reform (Frustrated Contracts) Act 1943:
- sums paid before discharge are recoverable
- sums payable cease to be payable
- the court may allow the recipient to retain or recover expenses incurred before discharge
- where one party has obtained a valuable non-monetary benefit, the court may award a just sum reflecting its value (taking account of expenses and the effect of the frustrating event)
Worked Example 1.5
A hall is hired for a concert, but it burns down before the event. What is the legal effect?
Answer:
The contract is frustrated. Both parties are discharged from further obligations. Prepaid sums may be recoverable, subject to deductions for expenses.
Worked Example 1.6
A promoter pays a venue fee for a show. A supervening event beyond both parties’ control makes the show impossible. Can the venue retain the fee to cover preparatory expenses?
Answer:
Under the Law Reform (Frustrated Contracts) Act 1943, prepaid sums are generally recoverable, but the court may allow the venue to retain or recover expenses incurred before discharge. The amount retained must be just in the circumstances.
Agreement
Parties may discharge a contract by mutual agreement. If neither party has fully performed, each gives up their rights and obligations, and the contract ends. If one party has fully performed, a deed or fresh consideration is needed to discharge the other’s obligations.
In practice:
- mutual release requires consideration unless executed by deed
- accord and satisfaction (agreeing to release in return for new consideration) is effective
- a waiver or promissory estoppel may suspend rights, but permanent discharge normally requires consideration or a deed
Specific Performance
Specific performance is an equitable remedy. It is a court order requiring a party to perform their contractual obligations, rather than paying damages. It is discretionary and only granted when damages would not be adequate.
Key Term: specific performance
A court order compelling a party to perform their contractual obligations.
Damages are the primary remedy at common law and are awarded as of right. Equity compels performance only where that is the most appropriate way to do justice and where damages would not adequately protect the claimant’s performance interest.
When is Specific Performance Available?
Specific performance is usually available for contracts involving unique goods or land, where damages would not compensate the innocent party. Land is generally treated as unique; if a seller refuses to complete a sale of a particular property, damages often cannot put the buyer into as good a position as performance.
It may be available for specific or ascertained goods where there is no adequate market substitute or delay would cause irremediable loss. Statutory recognition exists for specific performance of contracts to deliver specific or ascertained goods.
Other circumstances include:
- difficulty in quantifying loss with sufficient certainty
- nominal damages at common law that would undercompensate the claimant
- cases where ordering performance is the more appropriate remedy to achieve justice
Specific performance is not available where:
- the contract is for personal services or requires ongoing cooperative activity (equity avoids compelling a hostile relationship)
- performance would require constant judicial supervision
- performance would cause undue hardship or be impossible
- the claimant lacks “clean hands” (unfair conduct or sharp practice)
- there is no mutuality (the court will not compel performance if it cannot ensure the claimant’s reciprocal performance, unless damages would protect the defendant adequately)
Exam Warning
Specific performance is discretionary. The court will not grant it if damages are adequate, if the contract is for personal services, or if it would cause undue hardship.
Worked Example 1.7
A buyer contracts to purchase a rare painting. The seller refuses to deliver. Is specific performance available?
Answer:
Yes, because the painting is unique and damages would not be adequate. The court may order specific performance.
Worked Example 1.8
A long lease of an anchor unit in a shopping centre contains a “keep-open” covenant for retail trade. The tenant closes the store for commercial reasons. Can the landlord obtain specific performance to force the tenant to trade?
Answer:
Unlikely. Courts are reluctant to compel a business to run against its will due to oppression, hardship, and supervision difficulties. Damages or other remedies are considered more appropriate.
Limitations
Specific performance will not be ordered if:
- Damages are an adequate remedy
- The contract involves personal service or employment
- The order would require constant supervision by the court
- The claimant has acted unfairly (clean hands doctrine)
- Performance would cause undue hardship
- There is no mutuality of remedy (the court cannot simultaneously ensure the claimant’s performance of any outstanding obligations)
Further points for practice:
- For specific or ascertained goods, courts may order delivery where appropriate if no adequate substitute is available
- For land contracts, specific performance is common, subject to equitable defences
- Where a claim for specific performance or injunction is refused, the court may award damages in lieu to achieve a fair result
Worked Example 1.9
A buyer contracts to purchase a specially configured machine that cannot be sourced elsewhere within a reasonable time. The seller repudiates just before delivery. Is specific performance likely?
Answer:
Yes, if the machine is specific or ascertained and no adequate market substitute exists, damages may be inadequate. The court may order delivery, subject to equitable defences.
Revision Tip
For SQE1, always consider whether damages would be adequate before advising on specific performance.
Key Point Checklist
This article has covered the following key knowledge points:
- The main ways a contract can be discharged: performance, agreement, breach, frustration
- The difference between strict and substantial performance
- The exceptions to the “entire obligations” rule (divisible obligations, voluntary acceptance, wrongful prevention, tender)
- The consequences of repudiatory and anticipatory breach, and the need for election to terminate or affirm
- The doctrine of frustration and its effect on contractual obligations, including financial adjustments under the Law Reform (Frustrated Contracts) Act 1943
- The nature and limitations of specific performance as an equitable remedy, including the effect of uniqueness, adequacy of damages, mutuality, hardship, and supervision
- The typical availability of specific performance for land and specific or ascertained goods
Key Terms and Concepts
- performance
- substantial performance
- repudiatory breach
- anticipatory breach
- frustration
- specific performance