Performance, Breach and Frustration (AQA A-Level Law): Revision Notes
Performance, Breach and Frustration
Introduction to discharge of contract
When a contract is discharged, it comes to an end and both parties are released from their contractual obligations. Under the AQA specification, there are three key ways a contract can be discharged: performance, breach, and frustration. Understanding these methods is essential, as they determine when parties are freed from their duties and what remedies may be available if something goes wrong.
This content will be assessed in Paper 2 of the AQA A-Level Law examination. Understanding how contracts end is fundamental to contract law and connects with other topics such as remedies and terms.
Performance
The general rule on performance
The fundamental principle is that a contract is not discharged until all obligations have been completely performed. This strict rule requires that performance must match the contract's obligations exactly and completely. The leading case establishing this principle is Cutter v Powell (1795), where correct goods were delivered but in the wrong size cases, demonstrating that part performance is not sufficient to discharge contractual obligations.
Case Application: Cutter v Powell (1795)
In this foundational case, the seller delivered the correct goods that were ordered under the contract. However, they arrived in packaging that did not match the contract specifications - the cases were the wrong size.
Legal outcome: The court held that this constituted incomplete performance. Even though the goods themselves were correct, the failure to deliver them in the specified packaging meant the contract had not been fully performed.
Principle established: Part performance is no performance. The strict rule requires exact and complete performance of all contractual obligations.
Under this strict approach, if one party fails to fully perform their contractual obligations, the other party can theoretically sue for breach of contract. However, the law recognises that applying this rule rigidly in all circumstances could lead to unfair outcomes, which is why several modifications have developed through case law.
Modifications to the general rule
The courts have developed several important exceptions that allow parties to recover payment even when performance is not completely perfect:
Divisible or severable contracts allow for situations where contractual obligations can be separated into distinct parts. When a contract is structured this way, each separate obligation can be individually enforceable, and payment can be claimed for each completed section.
Case Application: Taylor v Webb (1937)
A seaman entered into a contract to perform duties during a voyage. Unfortunately, the seaman died before completing the entire contract period.
The issue: Under the strict rule, no payment would be due because complete performance was impossible.
Legal outcome: The court held that because the contract's obligations were divisible into separate parts, fair payment could be claimed for each part that was fully performed before the seaman's death.
Principle established: This exception recognises that some contracts naturally break down into separate stages or deliverables, and it would be unfair to deny payment for completed portions.
Acceptance of part-performance provides another route to payment where the general rule might otherwise prevent recovery. If both parties genuinely accept that partial performance is satisfactory, then payment for the work actually completed can be enforceable. The case of Sumpter v Hedges (1898) established this principle.
The acceptance must be genuine and voluntary; it cannot be forced upon the other party. This exception protects parties who have provided some benefit, even if not complete performance, where the other party has willingly accepted that benefit.
Substantial performance represents a particularly important modification. Where a party has largely performed their obligations, even if some minor defects exist, it may be possible to enforce payment for the appropriate value of work done.
Case Application: Daken v Lee (1916)
A builder completed a construction contract, delivering the building as agreed. However, upon inspection, some of the work was found to be unsatisfactory and below the required standard.
The issue: The defendant refused to pay anything, arguing that complete performance had not occurred.
Legal outcome: The court held that because performance was substantial (mostly complete with only minor defects), recovery was possible. However, the payment could be reduced to account for the defective elements that needed correction.
Principle established: This doctrine prevents unjust enrichment and recognises that in practical terms, absolute perfection may not always be achievable. The key is whether the performance substantially fulfils the contract's main purpose.
Prevention from performing provides relief where one party is unable to complete their obligations because the other party has prevented them from doing so.
The case of Condor v Baron Knights (1966) established that if either party is prevented from performing the obligations under the contract, then the general rule requiring complete performance will not apply. This prevents a party from taking advantage of their own wrongdoing by blocking performance and then claiming breach.
There is also the principle established in Startup v Macdonald (1843), where the contract required delivery at the end of March, and the seller delivered at 8:30 p.m. on 31 March (a Saturday). The court held that if a party offers to perform and is refused by the other party, then payment is recoverable. This prevents a party from unreasonably refusing performance and then claiming the contract was not fulfilled.
Time of performance
The timing of contractual performance carries important legal consequences. Generally, a failure to perform on time is treated as a breach of warranty rather than a breach of condition. This distinction matters because a breach of warranty allows the injured party to claim damages but does not entitle them to repudiate (cancel) the entire contract. The contract remains in force, and both parties must continue performing their obligations.
However, the situation changes when time is of the essence. This phrase has specific legal meaning and indicates that timely performance is a fundamental term of the contract. When time is of the essence, failure to perform by the specified deadline allows the innocent party to repudiate the contract entirely.
When Time Becomes of the Essence:
Time becomes a fundamental term in three main circumstances:
1. Express agreement: When both parties have made clear in the contract that timing is crucial. This might be stated explicitly in the contract terms or may be evident from the nature of the agreement.
2. Nature of subject matter: When the subject matter of the contract dictates that time must be critical. For example, contracts involving perishable goods or time-sensitive events naturally require punctual performance.
3. Time extension with proviso: When one party has already failed to meet a deadline but the other party grants a time extension with the clear proviso that repudiation will occur if this new deadline is not met. This gives the defaulting party a final opportunity while making clear that no further delays will be tolerated.
Breach
What constitutes breach of contract
A breach occurs when a party fails to perform their obligations under the contract. This failure can take several forms, and understanding the type of breach is crucial because different breaches attract different remedies. Breach arises in three main scenarios:
Non-performance occurs when a party simply fails to carry out what they promised to do under the contract. This is the most straightforward type of breach.
Defective performance happens when a party attempts to fulfil their obligations but does so inadequately or incorrectly. The performance falls short of the standard required by the contract.
Repudiating obligations without justification involves a party refusing to perform their contractual duties when they have no legal excuse for doing so.
Practical Example: Consumer Contract Breach
Consider a breach of a condition under a consumer contract. For instance, a car dealership sells a "brand new" car that turns out to have been previously damaged and repaired.
If this is a breach of condition: The injured party (buyer) can repudiate the entire contract (return the car and get a full refund) and claim damages for any losses suffered.
If this were merely a breach of warranty: The buyer would only be entitled to damages (compensation for the reduced value) but would have to keep the car.
Principle: This distinction reflects the difference between fundamental and minor terms - conditions go to the heart of the contract, while warranties are ancillary.
Types of breach
Breach of an actual term refers to the violation of any express or implied term within the contract. Such breaches allow the injured party to bring an action for damages. The damages aim to put the innocent party in the position they would have been in had the contract been properly performed.
Breach of a condition is more serious. A condition is a fundamental term of the contract, whether expressed explicitly by the parties or implied by law. When a condition is breached, the injured party has two remedies available: they can repudiate the contract (bringing it to an end) and/or claim damages. This dual remedy reflects the serious nature of breaking a fundamental term.
Understanding Innominate Terms
An important development in this area is the concept of innominate terms (sometimes called intermediate terms). These are terms where the consequences of breach are not predetermined as either condition or warranty. Instead, the court examines the actual effect of the breach to decide the appropriate remedy.
This flexible approach allows courts to reach fair outcomes based on the actual consequences of breach, rather than being bound by rigid classifications.
Case Application: The Hong Kong Fir Case (1962)
A ship was chartered (leased) for two years to transport cargo. However, the ship turned out not to be seaworthy (fit for its purpose), and due to this defect, it was lost after only 18 weeks of the two-year charter period.
The issue: Was the term about seaworthiness a condition (allowing repudiation) or a warranty (allowing only damages)?
Legal outcome: The Court of Appeal held that the term was innominate. Rather than classifying it in advance, the court examined the actual effect of the breach. Despite the serious-sounding nature of unseaworthiness, the court concluded it functioned as a warranty in these circumstances, which only entitled the claimants to sue for damages rather than repudiate the contract.
Principle established: For innominate terms, courts look at the actual consequences of the breach to determine whether it should be treated as a condition or warranty.
Anticipatory breach occurs in a unique situation where one party indicates in advance that they will not perform their obligations when the time comes.
Case Application: Hochester v De La Tour (1853)
The defendant agreed to employ the claimant as a courier at a future date (starting 1 June). However, on 11 May, before the employment was due to start, the defendant wrote to the claimant saying his services were no longer required.
The issue: Could the claimant sue immediately for breach, or did he have to wait until 1 June (the actual performance date)?
Legal outcome: The court held that the defendant was liable for anticipatory breach. The advance repudiation removed the claimant's obligation to perform the contract. The claimant could sue immediately rather than waiting for the actual breach date.
Practical advantage: This allows the innocent party to take action immediately in mitigating losses and seeking alternative arrangements.
When anticipatory breach occurs, the innocent party has a choice. They can either accept the repudiation immediately and sue for damages, or they can wait until the actual performance date and see if the other party changes their mind and performs after all.
Further Illustration: Frost v Knight (1872)
The defendant promised to marry his fiancée when his father died. However, he broke off the engagement before the father's death.
The fiancée successfully sued for breach even though the actual breach date (the condition of the father's death) had not yet arrived. This reinforced that anticipatory breach allows immediate action without waiting for the stipulated performance date.
Frustration
Understanding frustration of contract
A frustrated contract occurs when an unforeseen event or change in circumstances prevents the absolute performance of the contract, and crucially, neither party is at fault. This is an important protection in contract law because it recognises that sometimes external events beyond anyone's control make it impossible or fundamentally different to continue with contractual obligations.
The doctrine of frustration developed to provide a remedy for situations that arise during the contract's duration which make future performance either illegal, impossible, or fundamentally different from what was originally agreed. Without this doctrine, parties would remain bound to perform contracts even when circumstances had changed so dramatically that performance had become pointless or impossible through no fault of either party.
Types of frustration
Frustration through illegality occurs when both parties are ready and willing to perform their obligations, but a change in the law prevents performance. This change might be in domestic law or in the law of another country relevant to the contract. A classic example is the outbreak of war making trade with a hostile country illegal.
Case Application: Metropolitan Water Board v Dick Kerr (1915)
A contract was entered into to build a reservoir. However, during the performance of the contract, World War I broke out. The government stopped the construction work due to the outbreak of war.
The issue: Were the parties still bound to perform once the war ended, or was the contract frustrated?
Legal outcome: This was held to be a clear frustrating event because it became impossible for the parties to continue legally during wartime, and the delay and changed circumstances made the contract fundamentally different.
Principle established: Changes in law (particularly due to war) that make performance illegal can frustrate a contract.
Frustration through impossibility can occur in four main ways. First, the subject matter of the contract may be destroyed, as illustrated in the foundational case Taylor v Caldwell (1863).
Case Application: Taylor v Caldwell (1863)
A music hall was hired for a series of concerts. The music hall was central to the contract - the venue was specifically named and essential to the agreement. Before the concerts could take place, the music hall was destroyed in a fire.
The issue: Were the parties still bound to find an alternative venue, or was the contract at an end?
Legal outcome: Since the specific venue was essential to the contract, its destruction made performance impossible and the contract was frustrated. Neither party was at fault for the fire.
Principle established: Destruction of specific subject matter that is fundamental to the contract frustrates the agreement.
Second, the subject matter may become unavailable. Morgan v Manser (1943) provides an example: an actor was contracted for ten years but was conscripted into the army for six of those years. Due to this obvious and important frustration, both parties were excused from performance. The actor's unavailability for such a substantial portion of the contract period made it fundamentally different from what was agreed.
Third, one of the parties may die. This obviously makes personal performance impossible in contracts requiring that specific person's services.
Fourth, there may be a risk that the contract cannot be performed completely due to changed circumstances that make the original arrangement unworkable.
Frustration through fundamental difference occurs when the central purpose of the contract is destroyed by a frustrating event, even though performance might technically still be possible. The development of this principle arose famously from cases involving the postponement of King Edward VII's coronation.
Case Application: Krell v Henry (1903)
A room overlooking Pall Mall was booked specifically to observe the coronation procession of King Edward VII. When the coronation was postponed due to the King's illness, the hirer argued the contract was frustrated.
The issue: The room still existed and could still be hired - was the contract really frustrated?
Legal outcome: The court held that the contract was frustrated because the central purpose was to observe the procession. Although the room still existed and could still be hired, the fundamental purpose of the contract had been destroyed.
Principle established: Frustration can occur when the fundamental purpose is destroyed, even if technical performance remains possible.
However, this must be contrasted with Herne Bay Steamboat Co. v Hutton (1903).
Case Application: Herne Bay Steamboat Co. v Hutton (1903)
As part of the coronation celebrations, the defendant hired a boat for a specific purpose that included watching the King review the fleet. When the coronation was postponed, the defendant argued the contract was frustrated.
The issue: Was this the same as Krell v Henry, or was it different?
Legal outcome: The court held that the central purpose of the contract (a pleasure cruise around the Solent) remained possible, even though one aspect (seeing the King) was no longer available. Therefore, there was no frustration.
Principle established: Courts examine what the fundamental purpose of the contract actually was, not merely whether some aspect of it has changed. Here, the boat trip retained value and purpose beyond just seeing the King.
Distinguishing Krell v Henry from Herne Bay
These two cases illustrate the critical importance of identifying the contract's true fundamental purpose:
- In Krell v Henry, the sole purpose was observing the coronation procession - nothing else
- In Herne Bay, the contract had value beyond seeing the King - it was also a pleasure cruise
The key question: Would the contract still have substantial value if the changed circumstance had been known at the outset?
Limits to the doctrine of frustration
The courts impose important restrictions on when frustration can be claimed, as it would be unfair to allow parties to escape their contractual obligations too easily. These limitations ensure that the doctrine is not abused and that legitimate contractual obligations remain enforceable.
Where one party induces the frustrating event, frustration will not apply. Instead, that party will be in breach of contract. This prevents a party from deliberately creating circumstances that would make performance impossible and then claiming to be freed from their obligations. The party who causes the frustrating event cannot benefit from their own actions.
If the event is expressly provided for in the contract, then frustration does not apply. This makes sense because if the parties contemplated and made provision for a particular eventuality, they have already agreed how to deal with it. The contract terms govern the situation rather than the doctrine of frustration.
Modern contracts often include detailed force majeure clauses that specify what happens in various unexpected circumstances. These clauses essentially contract out of the frustration doctrine by making express provision for events that might otherwise be frustrating.
Case Application: Canary Wharf v EMA (2019)
The European Medicines Agency (EMA) had a 25-year lease on a London building. After the Brexit referendum, the EMA sought to end its lease early, arguing that the contract was frustrated because EU law required EU agencies to be based in EU countries.
The issue: Did Brexit frustrate the lease contract?
Legal outcome: The High Court rejected this argument. The court noted that:
- A break clause could have been negotiated in the first place if the parties wanted protection against such events
- The lease allowed the EMA to sub-let to another tenant, providing an alternative solution
- The parties had structured their contract to deal with contingencies
Principle established: Where parties have made contractual provisions that could address changed circumstances, frustration is not available. The contract terms govern the situation.
Where the actual event was or should have been foreseen, frustration cannot be claimed. If parties enter a contract knowing that certain events might occur, or if reasonable businesspeople in their position would have anticipated such events, they cannot later claim frustration. The doctrine is reserved for truly unforeseen and unforeseeable circumstances.
Impact of the Law Reform (Frustrated Contracts) Act 1943
This Act was created to address unfairness in the common law doctrine of frustration. Before this Act, the common law position could leave parties in difficult situations regarding money already paid or benefits already received. The Act provides a more equitable framework.
Key Provisions of the 1943 Act:
The Act addresses four main situations to ensure fair distribution of losses when frustration occurs:
1. Money already paid: Any money already paid before the frustrating event is recoverable. This prevents one party from retaining payment when they will now not need to perform their side of the contract due to frustration.
2. Money that was payable: Any money that was payable before the frustrating event is no longer owed. The frustrating event releases both parties from future obligations, including payment obligations.
3. Expenses incurred: Where any expenses have occurred in preparing to perform the contract, payment can be ordered by the court to compensate for these preparatory costs. The court has discretion in determining what amount is fair.
4. Valuable benefit obtained: If any valuable benefit has been obtained by one party before the frustrating event, payment may be ordered by the court. This prevents unjust enrichment where one party has received something of value before the contract was frustrated. Again, the court has discretion in determining the appropriate payment.
Exam technique for discharge of contract questions
When answering questions about discharge, it is important to focus your answer on the specific type of discharge indicated by the scenario. If a question clearly leads you to breach, for example, it will be unnecessary to discuss all the other ways a contract can come to an end. Keep your answer relevant to the facts presented.
Unless the question specifically asks you to do so, you do not need to suggest all possible ways a contract might come to an end if your answer already suggests there is a problem with the contract in the scenario presented. Focus on applying the most relevant legal principles to the facts given.
Quality of analysis is more important than quantity of content!
Key cases summary
This table provides a quick reference for the key cases in this topic. Use it for revision, but ensure you understand the full context and principles from the detailed explanations above.
| Case | Facts | Legal principle |
|---|---|---|
| Cutter v Powell (1795) | Correct goods were delivered in wrong size cases | Part performance is no performance – establishes strict rule requiring complete performance |
| Taylor v Webb (1937) | A seaman died so performance was not complete | If the contract has divisible obligations, fair payment for each part completely performed can be expected |
| Daken v Lee (1916) | A builder completed a contract but some work was unsatisfactory, and the defendant refused to pay | If performance is substantial, then recovery is possible, though payment may be reduced for defects |
| Startup v Macdonald (1843) | Contract required delivery at end of March; seller delivered at 8:30 p.m. on 31 March (Saturday) | If a party offers to perform and is refused by the other party, then payment is recoverable |
| Williams v Roffey (1990) | Extra money was promised to builders if they would complete their contractual obligations on time | Consideration must be provided to end a contract; practical benefit can constitute consideration |
| Frost v Knight (1872) | Defendant promised to marry his fiancée when his father died but broke off the engagement before the father's death | With anticipatory breach, the innocent party can sue even though the actual breach date has not yet arrived |
| The Hong Kong Fir Case (1962) | A ship was chartered for two years but was not seaworthy and was lost after 18 weeks | Innominate terms require examination of the actual effect of breach; Court of Appeal held this was a warranty entitling only damages, not repudiation |
| Hochester v De La Tour (1853) | Defendant agreed to employ claimant at a future date but then wrote saying services were no longer required | Anticipatory breach allows immediate action; the repudiation removes the innocent party's obligation to perform |
| Taylor v Caldwell (1863) | A music hall central to the contract was destroyed in a fire | Frustration by impossibility – destruction of subject matter frustrates the contract |
| Morgan v Manser (1943) | An actor was contracted for ten years but conscripted into the army for six years | Frustration by impossibility – unavailability of subject matter for substantial period excuses performance |
| Metropolitan Water Board v Dick Kerr (1915) | A contract to build a reservoir was stopped by the government due to outbreak of war | Frustration by illegality – war making performance illegal was a clear frustrating event |
| Krell v Henry (1903) | A room was booked to observe the coronation procession; coronation postponed due to King's illness | Frustration by fundamental difference – the central purpose (observing procession) was destroyed, so contract was frustrated |
| Herne Bay Steamboat Co. v Hutton (1903) | Defendant hired boat to watch King during coronation celebrations; coronation postponed | The central purpose (pleasure cruise around Solent) remained, so there was no frustration despite one aspect changing |
| Canary Wharf v EMA (2019) | European Medicines Agency sought to end its 25-year lease on London building because of Brexit | Frustration rejected where contract terms (break clause, sub-letting) could have addressed the situation |
Remember!
Key Takeaways on Discharge of Contract:
-
Discharge of contract occurs when contractual obligations come to an end through performance, breach, or frustration
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Performance requires complete and exact fulfilment unless modified by exceptions such as:
- Divisible contracts
- Substantial performance
- Acceptance of part-performance
- Prevention from performing
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Breach can take several forms:
- Actual breach of terms (allows damages)
- Breach of condition (allows repudiation and damages)
- Anticipatory breach (where one party indicates in advance they will not perform)
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Frustration occurs when unforeseen events make performance illegal, impossible, or fundamentally different, with neither party at fault
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Limits on frustration apply where:
- Parties cause the event
- Contract provides for it
- Event was foreseeable
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The Law Reform (Frustrated Contracts) Act 1943 provides remedies for money paid or payable and benefits received before frustrating events
Essential Legal Terms:
- Discharge: when a contract comes to an end
- Repudiation: cancellation of the contract
- Condition: fundamental term of contract, breach allows repudiation
- Warranty: minor term of contract, breach allows only damages
- Innominate term: term where consequences of breach determine remedy
- Time is of the essence: timing is fundamental to the contract
- Anticipatory breach: advance notice of intention to breach
- Frustration: unforeseen event preventing absolute performance
- Substantial performance: largely complete performance with minor defects
Critical Legal Principles to Remember:
- Complete performance is required unless exceptions apply
- Breach of condition allows repudiation; breach of warranty allows only damages
- Frustration requires the event to be unforeseen, not caused by either party, and not provided for in the contract
- The 1943 Act provides fairer distribution of losses when frustration occurs
- When answering exam questions, focus on the specific type of discharge indicated by the scenario