Discharge in Contract Law: Key Rules and Case Summaries

Introduction

Discharge in contract law is the point at which a contract comes to an end and the parties are released from further obligations. This can happen because performance is complete, because the parties agree to bring the contract to an end, because one party’s breach allows the other to terminate, or because an unexpected event makes performance impossible or radically different. In some situations, misrepresentation also allows a party to set the contract aside.

This guide explains the main routes to discharge, the rules that apply in each, and the leading cases you should know. It is written for students and practitioners who need clear rules, practical steps, and reliable authorities in one place.

What You'll Learn

• The main ways a contract ends: performance, agreement, breach, and frustration
• When exact performance is required and when substantial performance or quantum meruit may apply
• How mutual discharge works, including release, accord and satisfaction, and novation
• The difference between actual, repudiatory, and anticipatory breach, and how election works
• How frustration operates and when it does not apply, plus the effect of the Law Reform (Frustrated Contracts) Act 1943
• How misrepresentation can lead to rescission and how damages are assessed in fraud
• Key cases including Re Moore & Co and Landauer & Co, Hochster v De La Tour, Taylor v Caldwell, Davis Contractors v Fareham UDC, and Canary Wharf (BP4) T1 Ltd v EMA

Core Concepts

Discharge by Performance

• Exact performance: As a starting point, each party must perform exactly as agreed. If performance is not in strict accordance with the contract, the other party may reject it. In Re Moore & Co and Landauer & Co [1921] 2 KB 519, goods were delivered in the correct quantity but in the wrong packaging; that was a breach entitling rejection.
• Substantial performance: The courts recognise that minor defects do not always defeat the claim for payment. In Dakin v Lee [1916] 1 KB 566, the contractor was entitled to the contract price less a deduction for defects because performance was substantially as agreed.
• Divisible obligations and payment: If the contract or circumstances show payment is not conditional on complete performance, payment may be due for work done. Roberts v Havelock (1832) 3 B & Ad 404 allowed recovery for work completed where payment was not expressly dependent on full completion.
• Practical points:
  • Check whether the obligation is “entire” (no payment until complete) or divisible.
  • Where defects are minor, expect deductions rather than a total refusal to pay.
  • Keep records of agreed specifications and any authorised variations.

Discharge by Agreement

• Mutual consent: Parties can end or vary their contract by agreeing to do so. This generally requires consideration unless the agreement is executed as a deed.
• Forms of agreement:
  • Release: One party lets the other off future performance. Without consideration, a deed is usually required for enforceability.
  • Accord and satisfaction: The parties agree (accord) to accept a new performance in place of the old one, and the new performance is carried out (satisfaction).
  • Novation: The parties replace the original contract (and possibly a party) with a new one, extinguishing the old contract.
• Practical points:
  • Record the discharge in writing and specify whether it is a variation or a complete termination.
  • Confirm consideration (or use a deed) so the agreement is binding.
  • Address accrued rights and how deposits, advances, or part payments will be treated.

Discharge by Breach

• Actual and repudiatory breach: A serious breach going to the root of the contract allows the innocent party to treat the contract as terminated (often called repudiation) and claim damages.
• Anticipatory breach: If a party declares before the due date that they will not perform, the other party may treat the contract as ended immediately and sue for damages. Hochster v De La Tour (1853) 2 E & B 678 is the leading case.
• Election and affirmation: If the innocent party chooses to continue with the contract despite a repudiatory or anticipatory breach, the contract remains in force. Avery v Bowden (1855) 5 E & B 714 shows that affirming the contract carries risk: later events may prevent recovery, and the innocent party must continue to perform or be ready and willing to do so.
• Practical points:
  • Identify whether the breach is sufficiently serious to justify termination.
  • Communicate your election clearly and without delay.
  • If you affirm, continue to perform or keep yourself ready to perform.
  • Preserve evidence and mitigate loss.

Discharge by Frustration

• Core test: A contract is frustrated if, after formation and without fault by either party, an event occurs that makes performance impossible or transforms the obligation into something radically different from what was agreed. The classic example is Taylor v Caldwell (1863) 3 B & S 826, where a music hall burned down before the concerts.
• Increased difficulty or expense is not enough: In Davis Contractors v Fareham UDC [1956] AC 696, delays, labour shortages, and increased costs did not frustrate the building contract. The obligation had not changed in kind.
• Foreseeability and allocation of risk: Where the event was reasonably foreseeable or the contract allocates the risk, frustration is unlikely. In Canary Wharf (BP4) T1 Ltd v European Medicines Agency [2019] EWHC 335 (Ch), Brexit did not frustrate a long lease.
• Statutory consequences: The Law Reform (Frustrated Contracts) Act 1943 deals with money paid or payable before the frustrating event, and allows the court to award a just sum for benefits conferred or expenses incurred.
• Limits:
  • Self-induced frustration will not succeed.
  • Force majeure clauses may displace or qualify frustration by allocating risk contractually.

Misrepresentation and Discharge

• Effect on the contract: A misrepresentation (a false statement of fact inducing the contract) makes the contract voidable. The remedy is rescission, which sets the contract aside, subject to bars such as affirmation, lapse of time, impossibility of restoring positions, or third-party rights.
• Damages:
  • Fraud: In Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158, all losses directly flowing from the fraud were recoverable, even if not foreseeable.
  • Negligent/innocent misrepresentation: Statutory claims may be available under the Misrepresentation Act 1967, including damages under section 2(1), which places the burden on the representor to show reasonable grounds for belief.
• Inducement and burden: In Museprime Properties Ltd v Adhill Properties Ltd (1990) 61 P & CR 111, a misrepresentation that actually induced entry into the contract was sufficient; the representor then had to show it did not in fact induce the representee.
• Not every mistake discharges a contract: A unilateral mistake generally does not end a contract, even if the other party is aware, unless strict rules on operative mistake are met. In Statoil ASA v Louis Dreyfus Energy Services LP [2008] EWHC 2257 (Comm), the contract was not discharged simply because one side had made an error.

Key Examples or Case Studies

• Re Moore & Co and Landauer & Co [1921] 2 KB 519

  • Issue: Correct quantity but wrong packaging for canned goods.
  • Takeaway: Performance must match the specification; exact performance rule applies.

• Dakin v Lee [1916] 1 KB 566

  • Issue: Building works with minor defects.
  • Takeaway: Substantial performance allows recovery of the contract price less deductions.

• Roberts v Havelock (1832) 3 B & Ad 404

  • Issue: Payment for part-completed work.
  • Takeaway: Where payment is not conditional on completion, payment may be due for work done.

• Hochster v De La Tour (1853) 2 E & B 678

  • Issue: Anticipatory breach in a services contract.
  • Takeaway: The innocent party can terminate and claim damages immediately on repudiation.

• Avery v Bowden (1855) 5 E & B 714

  • Issue: Election to keep a contract alive after anticipatory breach.
  • Takeaway: Affirmation keeps the contract in force and carries the risk of later events.

• Taylor v Caldwell (1863) 3 B & S 826

  • Issue: Destruction of the subject matter.
  • Takeaway: Impossibility arising without fault can discharge the contract for frustration.

• Davis Contractors v Fareham UDC [1956] AC 696

  • Issue: Delays, shortages, and cost increases in a building contract.
  • Takeaway: Hardship or expense is not frustration; obligations must be radically different.

• Canary Wharf (BP4) T1 Ltd v European Medicines Agency [2019] EWHC 335 (Ch)

  • Issue: Brexit and a long lease.
  • Takeaway: Foreseeable or allocable risks are unlikely to frustrate a contract.

• Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158

  • Issue: Fraudulent misrepresentation.
  • Takeaway: All direct losses flowing from fraud are recoverable, even if unforeseeable.

• Museprime Properties Ltd v Adhill Properties Ltd (1990) 61 P & CR 111

  • Issue: Materiality and inducement in misrepresentation.
  • Takeaway: Once inducement is shown, the representor must prove it did not in fact induce.

Practical Applications

• Drafting and negotiation

  • Include clear performance standards and acceptance criteria to avoid disputes about exact vs substantial performance.
  • Use variation and no oral modification clauses to control changes and maintain a clear record.
  • Consider force majeure clauses to allocate risk of supervening events rather than relying on frustration.

• Managing performance

  • Keep detailed records of work done, quality checks, and approvals.
  • Document authorised departures from the specification and agree any price adjustments in writing.

• Breach response

  • Assess seriousness: is the breach repudiatory? Seek legal advice before terminating.
  • Election: decide promptly whether to terminate or affirm; communicate the choice clearly.
  • If affirming, continue to perform or stay ready to perform; gather evidence and mitigate loss.

• Frustration assessment

  • Check if the event was foreseeable or covered by the contract; if so, frustration is unlikely.
  • Quantify payments made, expenses incurred, and benefits conferred to prepare for 1943 Act adjustments.

• Misrepresentation handling

  • Act quickly if you seek rescission; avoid steps that could be seen as affirmation.
  • Preserve evidence of inducement (what was said, when, and its effect on your decision).
  • Consider claims under the Misrepresentation Act 1967, including potential damages.

Summary Checklist

• Identify the route to discharge: performance, agreement, breach, frustration, or rescission for misrepresentation
• For performance: decide if obligations are entire, divisible, or substantially complete; consider deductions
• For agreement: confirm consideration or use a deed; record terms and deal with accrued rights
• For breach: assess if it is repudiatory; elect to terminate or affirm; mitigate and collect evidence
• For frustration: apply the radical change test; rule out self‑induced frustration and foreseeable risks; apply the 1943 Act
• For misrepresentation: check inducement, consider rescission and damages; beware of bars such as affirmation and lapse of time
• Know the leading authorities: Re Moore; Dakin; Roberts; Hochster; Avery; Taylor; Davis Contractors; Canary Wharf; Doyle v Olby; Museprime

Quick Reference