Learning Outcomes
After studying this article, you will be able to identify and explain the main ways a contract may be discharged: expiry, breach (including repudiatory and anticipatory breach), and frustration. You will understand the legal consequences of each method, the requirements for termination, and the remedies available to the innocent party, including damages, specific performance, and restitution. You will also be able to apply these principles to SQE1-style scenarios.
SQE1 Syllabus
For SQE1, you are required to understand the legal rules and practical implications of contract discharge and termination. In your revision, focus on:
- the different ways a contract can be discharged: expiry, breach, and frustration
- the distinction between repudiatory, anticipatory, and minor breaches
- the doctrine of frustration and its limitations
- the legal consequences and remedies following termination, including damages and specific performance
- the requirements for mitigation and remoteness of damages
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 is a repudiatory breach, and what rights does it give to the innocent party?
- When will a contract be discharged by frustration?
- What is the difference between rescission for breach and rescission for misrepresentation?
- What is the effect of termination by expiry?
Introduction
Contracts do not last forever. They may come to an end by expiry, by breach, or by frustration. For SQE1, you must be able to identify how and when a contract is discharged, the legal consequences of each method, and the remedies available to the innocent party. This article explains the main ways a contract can be terminated and the relevant remedies.
Discharge by Expiry
A contract may end automatically when it reaches the end of its agreed term or when a specified event occurs. This is known as discharge by expiry.
Key Term: discharge by expiry
The contract ends because the agreed period has passed or a specified event has occurred, without any breach by either party.
Many contracts specify a fixed duration or a clear end date. If so, the contract terminates on that date unless renewed. If the contract is for a particular project or event, it ends when that project or event is completed.
Some contracts require notice to be given before expiry. If so, the party wishing to end the contract must comply with any notice requirements.
Worked Example 1.1
A solicitor is employed on a 12-month fixed-term contract. At the end of the 12 months, neither party takes steps to renew. What is the legal position?
Answer: The contract is discharged by expiry. Both parties are released from further obligations, and there is no breach.
Discharge by Breach
A contract may be discharged if one party fails to perform their obligations. The seriousness of the breach determines the innocent party's rights.
Key Term: breach of contract
A party fails or refuses to perform their contractual obligations, or performs defectively, without lawful excuse.
Repudiatory Breach
A repudiatory breach is a serious breach that goes to the root of the contract. It allows the innocent party to terminate the contract and claim damages.
Key Term: repudiatory breach
A breach so serious that it deprives the innocent party of substantially the whole benefit of the contract.
The innocent party may choose to affirm the contract (continue with it) or terminate it. If affirmed, the right to terminate is lost.
Anticipatory Breach
If a party indicates before performance is due that they will not perform, this is an anticipatory breach. The innocent party can accept the breach and terminate immediately or wait to see if performance occurs.
Key Term: anticipatory breach
A party declares, before performance is due, that they will not perform their contractual obligations.
Minor Breach
A minor (non-repudiatory) breach does not entitle the innocent party to terminate the contract, but damages may still be claimed.
Innominate Terms
Some terms are neither conditions nor warranties. The effect of a breach of an innominate term depends on the seriousness of the consequences.
Key Term: innominate term
A contract term where the remedy for breach depends on the effect of the breach, not the label given to the term.
Worked Example 1.2
A company contracts for delivery of machinery by 1 June. The machinery is delivered on 5 June, causing no real loss. Can the buyer terminate the contract?
Answer: Unless time was expressly stated to be of the essence, a short delay is likely to be a minor breach. The buyer can claim damages for any loss but cannot terminate.
Exam Warning
In SQE1, always check whether the breach is serious enough to justify termination. Not every breach gives a right to end the contract.
Discharge by Frustration
Sometimes, after a contract is formed, an unforeseen event occurs that makes performance impossible or radically different. If neither party is at fault and the event was not provided for in the contract, the contract may be discharged by frustration.
Key Term: frustration
A contract is automatically discharged when an unforeseen event occurs, without fault of either party, making performance impossible or fundamentally different.
Frustration is only available in limited circumstances. It does not apply if the event was foreseeable, provided for in the contract (e.g., by a force majeure clause), or caused by one of the parties.
Worked Example 1.3
A venue is hired for a concert. Before the event, the venue is destroyed by fire. Is the contract frustrated?
Answer: Yes. The contract is frustrated because performance is now impossible due to an unforeseen event, and neither party is at fault.
Key Term: force majeure clause
A contract term that excuses performance if specified extraordinary events occur.
Legal Consequences of Termination
When a contract is discharged, the parties are released from future obligations. However, rights that have already accrued remain enforceable.
If a contract is terminated for breach or frustration, the innocent party may be entitled to remedies.
Remedies Following Termination
Damages
Damages are the primary remedy for breach of contract. The aim is to put the innocent party in the position they would have been in if the contract had been performed.
Key Term: damages
Financial compensation awarded for loss caused by breach of contract.Key Term: mitigation
The innocent party must take reasonable steps to reduce their loss. Failure to mitigate may reduce the damages recoverable.Key Term: remoteness
Damages are only recoverable for losses that were reasonably foreseeable at the time of contracting.
Specific Performance
In some cases, the court may order the party in breach to perform their contractual obligations. This remedy is discretionary and usually only available where damages are inadequate (e.g., contracts for unique goods or land).
Key Term: specific performance
A court order requiring a party to carry out their contractual obligations.
Injunction
An injunction is a court order restraining a party from doing a particular act. It may be granted to prevent a breach or to enforce a negative obligation.
Key Term: injunction
A court order prohibiting a party from breaching a contract or requiring them to do something.
Remedies for Frustration
When a contract is frustrated, the Law Reform (Frustrated Contracts) Act 1943 applies. Money paid before the frustrating event can be recovered, and money due but not yet paid ceases to be payable. The court may allow a party to recover expenses incurred before the frustrating event if it is just to do so.
Worked Example 1.4
A client pays £2,000 in advance for a festival ticket. The festival is cancelled due to a government ban on large gatherings. Can the client recover the money?
Answer: Yes. The contract is frustrated. Under the Law Reform (Frustrated Contracts) Act 1943, the client can recover the pre-paid sum.
Summary
| Method of Discharge | Description | Consequences/Remedies |
|---|---|---|
| Expiry | Contract ends at agreed time/event | No breach; parties released |
| Breach | Party fails to perform; may be repudiatory or minor | Damages; possible termination |
| Frustration | Unforeseen event makes performance impossible/radical | Contract ends; restitution possible |
Key Point Checklist
This article has covered the following key knowledge points:
- Discharge of contract may occur by expiry, breach, or frustration.
- Repudiatory breach allows the innocent party to terminate and claim damages.
- Anticipatory breach occurs when a party indicates in advance they will not perform.
- Minor breaches do not entitle the innocent party to terminate, but damages may be claimed.
- Frustration discharges a contract when an unforeseen event makes performance impossible or radically different.
- Remedies for breach include damages, specific performance, and injunctions.
- The innocent party must mitigate their loss and can only recover damages for reasonably foreseeable losses.
- On frustration, pre-paid sums may be recoverable and future obligations are discharged.
Key Terms and Concepts
- discharge by expiry
- breach of contract
- repudiatory breach
- anticipatory breach
- innominate term
- frustration
- force majeure clause
- damages
- mitigation
- remoteness
- specific performance
- injunction
