Discharge 

A contract may come to an end in four ways: performance, agreement, breach giving rise to a right to terminate, and frustration. Only the last two generate much litigation.

Performance

The ordinary case. Obligations are discharged when performed, and the general rule is that performance must be complete and exact. Three qualifications matter:

• Substantial performance — where a party has substantially performed, they may claim the contract price less an allowance for defects, rather than being denied recovery entirely.
• Divisible obligations — where the contract can be read as a series of separate obligations, each is discharged as performed.
• Prevention and acceptance — a party prevented from performing, or whose partial performance is freely accepted, may recover on a restitutionary basis. See Restitutionary remedies for the separate benefit-and-valuation analysis.

Agreement

The parties may discharge the contract by a further agreement, which itself requires consideration or a deed. Variations include release, accord and satisfaction, and novation. Where the original contract required writing, so may its discharge.

Termination for breach

Not every breach permits termination. The right arises where:

• the term breached is a condition; or
• the term is intermediate and the breach is sufficiently serious to deprive the innocent party of substantially the whole benefit of the contract; or
• there is repudiation — words or conduct evincing an unwillingness or inability to be bound, including anticipatory repudiation before performance falls due; or
• an express termination clause applies according to its terms.

The innocent party must then elect: terminate, or affirm. Election requires knowledge of the facts and the right, and once made it is final. Delay may amount to affirmation. Termination operates prospectively — accrued rights survive.

Frustration

A contract is frustrated where, without the fault of either party, an event occurs after formation that makes performance impossible, or radically different from what was undertaken. The bar is high: increased expense, delay, or a bargain becoming unprofitable will not suffice. Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337¹ is the leading Australian authority for this high bar — an unforeseen injunction that made a construction contract's agreed method of performance radically different from what was planned was held to frustrate it.

Frustration does not apply where the event was foreseen and provided for, where a party was at fault (self-induced frustration), or where the contract allocates the risk.

The effect is automatic — the contract is discharged from the time of the frustrating event, without election. Several jurisdictions have frustrated contracts legislation adjusting the parties' positions; the common law's own position on money paid and benefits conferred is unsatisfactory, so check the applicable Act.

Applying this in a problem question

1. Identify which route to discharge is in issue.
2. For breach, classify the term and, for intermediate terms, assess the seriousness of the actual consequences.
3. Address election expressly — what did the innocent party do, and when?
4. For frustration, test radical difference and check foreseeability, fault and risk allocation.
5. Identify the applicable frustrated contracts legislation.

Where the authority sits

Common law, with State and Territory statute significantly modifying the consequences of frustration. State the jurisdiction.