Agreement, Performance and Breach Lecture

We have explored both the formation of the contract, and circumstances in which a formation of a contract can be invalid. The next two chapters will focus on circumstances which discharge a party to the contract from their obligations. This chapter will focus on discharge via agreement, performance and breach.

Discharge releases the parties from the obligations concerned. Rights already accrued, including claims for an earlier breach, and terms intended to survive termination may still be enforced. Here are the three main ways this can occur:

1. Agreement - a mutual agreement that the contract is no longer binding on both parties
2. Performance - when both parties have performed all of their obligations under the contract
3. Breach - when the innocent party accepts a repudiatory breach or exercises an applicable contractual right to terminate

This chapter will discuss each of these three methods, aiming to build an understanding of exactly how and when they occur.

Discharge by Agreement

An agreement to discharge a contract must meet the ordinary requirements for a binding agreement. In particular:

1. The discharge is mutual
2. The consent is free

Once a binding discharge agreement is made, a change of heart by one party does not revive the original obligations.

Forming a discharge agreement

Unless the release is made by deed, a discharge agreement requires consideration. Where both parties still owe obligations, each gives consideration by releasing the other. Agreement can be inferred from conduct, but inactivity on its own does not establish mutual abandonment (The Hannah Blumenthal [1983] 1 AC 854).

The discharge may be express or inferred from what the parties have said and done. Any applicable formalities must also be met.

Where only one party’s obligations remain

There may be a situation in which one party has performed their obligations under the contract, and only one party’s obligations remain. A release can bind the party entitled to performance if it is made by deed or the other party gives fresh consideration for it (accord and satisfaction).

Agreement to replace obligations

Parties may also make an agreement similar to a discharge agreement, but instead of simply discharging the obligations, it also replaces those obligations with new ones under a separate contract. Similar to a discharge agreement, the surrender of outstanding rights and the exchange of new promises may provide consideration. The leading authority for this kind of agreement is Compagnie Noga D’Importation et D’Exportation v Abacha (No. 4) [2003] EWCA Civ 1100

Agreement to alter obligations

Parties may also only discharge certain parts of the contract, by severing the unwanted terms from the main contract, then either choosing to replace those terms or simply leave the contract without the removed terms. In order for a party to enforce such an alteration, there must usually be consideration or a deed. A clause requiring variations to be in writing is generally effective (Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24).

Part-payment of an undisputed debt on the due date is not, by itself, consideration for a promise to release the balance (Pinnel’s Case (1602) 5 Co Rep 117a and Foakes v Beer (1884) 9 App Cas 605). A different performance accepted in settlement may supply consideration. Promissory estoppel may prevent the creditor from insisting on strict rights where the debtor relied on the promise and it would be inequitable to go back on it.

Discharge by Performance

In order to discharge a contract by performance, both the express and implied terms must be performed. Furthermore, the terms must be performed to the expected standard of performance. There are two different types of performance:

1. The strict contractual obligations
2. The qualified contractual obligations

Strict contractual obligation

A strict contractual obligation is a strict obligation which must be met. These obligations will usually use definitive words, such as must, or will, and will discuss a definite result, rather than an aim or a target. For example, A must do B.

Strict obligations must be fulfilled before a contract can be discharged for completed performance. Showing reasonable care is no answer to a promise to achieve a specified result, although the contract may excuse performance in defined circumstances.

Qualified contractual obligations

Qualified contractual obligations differ to strict obligations as they are not definitive. Qualified obligations will not have to result in a specific outcome; the obligation will be to perform to a standard. The most common example of a qualified obligation is to exercise reasonable care and skill.

Case in focus: Platform Funding Ltd v Bank of Scotland plc [2008] EWCA Civ 930

In this case, a surveyor was employed to inspect and value a property. The standard of care a surveyor is held to is to survey with the reasonable care and skill that others in the profession would do so. The surveyor surveyed the wrong house. There was therefore a question of whether this fell under a strict contractual obligation, or a qualified in relation to the standard of care.

The court held that the surveying of the correct property was a strict contractual undertaking, and it was not part of the reasonable care and skill qualified contractual obligation.

If you can identify that all of the contractual obligations have been met in full, the obligations under the contract may be discharged.

Discharge by breach

The final way in which contractual obligations can cease to exist is through a breach of contract. In order to gain a full understanding of this process, we will first explore what exactly amounts to a breach of contract.

Breach of contract

The general definition of a breach of contract is where there is a failure or refusal by one or both of the parties to perform one or all of the obligations imposed upon them under the contract. A breach of contract may also occur where one of the terms has been performed, but it has not been performed to the appropriate standard imposed by the contract. A failure to perform is not a breach if the obligation has already been discharged by frustration, which is covered in the next chapter.

A breach of contract will usually result in the innocent party seeking one of the various contractual remedies against the party who breached the contract. These will be discussed in depth in a later chapter, but include damages and, in appropriate cases, an injunction or specific performance. At common law the innocent party can terminate for a repudiatory breach. A contract may give a separate right to terminate for a lesser breach. In Great Asia Maritime Ltd v Orion Shipping and Trading LLC [2026] UKSC 23, an express compensation clause also allowed the buyer to recover its loss of bargain after such a termination.

Repudiatory breaches

A repudiatory breach can be defined as a breach of contract which entitles the innocent party to terminate. This may be a breach of condition, a sufficiently serious breach of an innominate term, or a renunciation of the bargain.  There are some tests and presumptions in order to assess whether a certain breach will amount to repudiatory:

1. What type of term has been breached?
2. What are the consequences of the breach for the other party?
3. Has the party in breach indicated an intention to abandon the contractual obligations?

In order to identify a repudiatory breach you will need to have knowledge of all three of these tests, as one or all of these tests may apply to a breach of contract.

Where the claim is based on renunciation, the conduct must clearly show that the party will not perform in a respect that goes to the root of the contract. A separate case arises if a party has put the promised performance beyond its power. The mere risk that it will be unable to perform is insufficient (Alfred Toepfer International GmbH v Itex Itagrani Export SA [1993] 1 Lloyd’s Rep 360).

The more recent case of Eminence Property Developments Ltd v Heaney [2010] EWCA Civ 1168 further developed this test: From the perspective of a reasonable person in the non-breaching party’s position, has the other party shown a clear intention to abandon and refuse to perform?

Type of term breached

The type of term breached helps determine whether the innocent party may terminate. Therefore, one of the key parts of a question relating to breach of contract is to identify whether the term breached can be classed as one of these:

1. Conditions
   • Condition subsequent
   • Condition precedent
   • Condition
2. Warranties
3. Innominate terms

Contingent conditions

A Condition should first be distinguished from a condition precedent and a condition subsequent. Conditions precedent and subsequent are ‘contingent’ conditions. The non-occurrence of a contingent event is not itself a breach. The parties may, however, undertake a separate obligation to bring the event about or to cooperate.

A condition precedent is a condition which must be met before the contract, or a particular obligation under it, takes effect. A common example of a condition precedent can be found in mortgage agreements. It will be usually be a condition precedent that the property is inspected to assess the value before the mortgages contractual obligations may arise. Another example is where a contract is formed on the basis of a certain event (Pym v Campbell (1856) 6 E & B 370).

If a party breaks a promise to cooperate and prevents a condition from being met, damages may follow. In King Crude Carriers SA v Ridgebury November LLC [2025] UKSC 39, the Supreme Court held that English law has no general rule deeming a condition precedent to payment fulfilled in those circumstances. The sellers could claim damages for breach, but not the deposit as a debt.

A condition subsequent is a condition which will terminate the existing contractual obligations. For example, the parties may agree that an ongoing obligation will end if a specified licence is withdrawn.

Conditions

A condition is a promissory term any breach of which ordinarily entitles the innocent party to terminate, even if the particular breach causes little loss. Its classification depends on the statute or the proper interpretation of the contract.

If a condition is breached, the innocent party has a choice to do one of two things:

1. Affirm the contract, and continue to be party to the contract
2. Terminate the contract, which releases both parties from future performance, subject to terms that survive termination

Warranties

Breach of a warranty, by itself, gives a right to damages but no right to terminate at common law. The consequences of the particular breach do not change the classification of the term.

Innominate terms

The result of a breach of an innominate term will be dependent on exactly how the breach has occurred and the seriousness of the breach in those circumstances. The innocent party may terminate if the consequences deprive it of substantially the whole benefit it was intended to obtain under the contract. Otherwise it may claim damages but cannot terminate for that breach alone.

Breach of condition v serious breach of innominate term

I’m sure you will have read the above differences between the types of terms and wondered how on earth you will be able to tell the difference between a breach of condition and a serious breach of an innominate term! Thankfully there is some guidance under the common law.

Case in focus: Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26

In this case, Hong Kong Fir hired a ship to Kisen for two years. One of the terms in the agreement was that the ship would be seaworthy and “in every way fitted for ordinary cargo service”. Unfortunately, the ship’s crew, machinery and engineer were not satisfactory. Kisen argued that these issues breached the condition that the ship would be seaworthy, meaning the contract was repudiated. Hong Kong Fir’s response was that this was not a breach of a condition, and therefore Kisen were in breach for repudiating the contract wrongfully.

The court held that the term breached was innominate. When the charterers purported to terminate, the repairs would still leave about seventeen months of the two-year charter available. The delay did not deprive them of substantially the whole benefit of the charter, so they were entitled to damages but not to terminate.

The case of BS & N Ltd v Micado Shipping Ltd (The ‘Seaflower’) [2001] 1 Lloyd’s Rep 341 identified four categories or rules which can help classify a term as a condition or an innominate term.

1. Express conditions
2. Condition by precedent
3. Designated by contract or consequences
4. Nature of the contract

The first of these categories is the most obvious and easy to identify. Express conditions refer to where a statute expressly states that a particular term or type of term is to be a condition. The most common example of an express condition are the terms implied into certain contracts by the Sale of Goods Act 1979. Section 12(5A) states ‘the term implied by subsection (1) above is a condition and the terms implied by subsections (2), (4) and (5) above are warranties’. Here you have some express statements which leave no doubt as to which parts of the section are warranties.

In Arcos v EA Ronaasen & Son [1933] AC 470, there was a contract to purchase some staves sold by description. The staves were described as being half an inch thick. Many were thicker, and the buyer could reject them under the Sale of Goods Act 1893. The corresponding provision is now section 13 of the Sale of Goods Act 1979. In England and Wales, section 15A ordinarily prevents rejection for breach of sections 13 to 15 if the seller shows that the breach is so slight that rejection would be unreasonable. For trader-to-consumer sales, description and remedies are governed by sections 11 and 19 to 24 of the Consumer Rights Act 2015.

The second rule is that an earlier decision classifying the same term as a condition may settle its meaning in a contract using it in the same context. This may seem like it would be impossible in practice, but the fact that many commercial contracts use standard contractual terms means that this is an efficient method of categorising terms.

The court will not usually categorise the exact wording of a term as a condition, but more so the idea and aim of the term. In Bunge Corporation v Tradax Export SA Panama [1981] UKHL 11 the requirement for the buyer to give at least fifteen consecutive days’ notice of the vessel’s probable readiness to load was a condition. The seller needed the notice to nominate the loading port within a fixed shipment period.

The third rule is that a term will be a condition if it is designated so in the contract or the contract states the consequence of a breach of the term will be that the innocent party may repudiate the contract. In order for this rule to operate, it must be express and very clear that this was the intention of the parties.

The simple use of the word ‘condition’ will not usually be enough. The term defined as a condition must be considered in the context of the whole contract - is it consistent with the rest of the terms?

Case in focus: Schuler AG v Wickman Machine Tool Sales Ltd [1973] UKHL 2

In this case, clause seven of the contract was stated to be a condition. Clause eleven provided for termination for a material breach not remedied within sixty days of written notice. Wickman missed some of the weekly visits required by clause seven.

The House of Lords held that the word ‘condition’, read with clause eleven and the rest of the agreement, did not entitle Schuler to terminate for a single missed visit. There would otherwise have been a right to terminate even for a minor lapse over the life of the agreement.

On the flipside, sometimes the term does not even have to make reference to it being a condition or the consequences of its breach. The term must simply highlight its importance to the contract. For example, the phrase ‘time is of the essence’ is considered a condition, as it highlights the importance of keeping to the timings stipulated by the contract.

The fourth and final rule is that a term is a condition where the nature of the contract, subject matter or the circumstances of the contract imply that a breach of the term would obviously mean that the innocent party could discharge their obligations under the contract.

The courts will consider the importance of the term in the context of the contract as a whole. In Samarenko v Dawn Hill House Ltd [2011] EWCA Civ 1445 a term which required a purchaser to pay a deposit for a property following planning permission being obtained was held to be a condition. The court decided that a deposit was of such importance that is was obvious that the innocent party should be allowed to repudiate the contract if the deposit was not paid.

A buyer’s motive for wishing to reject goods does not determine whether a term is a condition. In The Hansa Nord [1976] QB 44 there was a contract for the sale of animal feed pellets. The pellets were damaged on arrival, but were still fit for their purpose of feeding animals. The buyer attempted to repudiate the contract on the grounds that the pellets were damaged, when in fact their motive was the fact the market value for the pellets had dropped. The sound-condition term was innominate, and the damage did not deprive the buyers of substantially the whole benefit of the sale.

A term that is not even included in the contract may be implied as a condition dependent on the commercial circumstances. An example of this would be a sale of goods that have a volatile market value. It may be implied into the contract that the time for performance is a condition.

Entire obligations

An entire obligation is one whose completion is a condition of the other party’s duty to pay or perform. Failure to earn the contract price does not, by itself, entitle the other party to terminate for breach.

Case in focus: Cutter v Powell (1795) 6 TR 320

In this case, a sailor was hired for a voyage from Jamaica to England. The hire price was above the normal market value, and would be paid once the voyage was complete. The sailor died before the voyage was complete, and his wife attempted to claim some of the sum for the partial completion of the voyage.

The court held that the completion of the voyage was an entire obligation, which meant he could only be paid once he had completed the entire journey - which he did not. This case highlights how harsh the entire obligations rule may be. The agreed lump sum had not been earned by partial performance.

The courts have identified the harshness of the entire obligations rule, and in response have attempted to avoid applying the rule. The first way in which the courts will do this is by treating contracts as a number of smaller, separate contractual obligations. Take for example a contract for the construction of a building, there will be many stages of the construction, but it could be treated as an entire obligation. If the contract provides for separately payable stages, payment may be earned for completed stages even if later work is not completed.

For a sale of goods by stated instalments to be separately paid for, section 31(2) of the Sale of Goods Act 1979 makes the effect of a defective delivery, or refusal to take or pay for one, depend on the terms and circumstances. The breach may go to the whole contract or give rise only to a claim for compensation. For trader-to-consumer sales the instalment rules are in section 26 of the Consumer Rights Act 2015.

A number of minor breaches could have the cumulative effect of a repudiatory breach. In the case of Rice v Great Yarmouth Borough Council [2003] TCLR 1, the court considered the breaches cumulatively but upheld the finding that they were not serious enough to justify the council terminating the contracts.

A party who freely accepts partial performance may have to pay a reasonable sum for it. The case of Sumpter v Hedges [1898] 1 QB 673 shows this rule in operation. The builder abandoned a contract to build two houses and stables on the owner’s land. The owner completed the work himself.

In Sumpter v Hedges, the owner had no real choice about retaining the buildings already on his land. He therefore owed nothing further for that work. He did have a choice about using the loose materials the builder had left, and had to pay for those he used.

The final circumstance in which the entire obligation rule will not apply is where the performance is substantial. If the extent of the failure to perform is small in comparison to the performance they have undertaken, the contract price may be payable subject to a deduction for the defects, unless the parties made complete performance a condition of payment.

A clear example would be a contract for the sale of a quantity of goods. If the seller only manages to provide 999 of the 1000 goods, would this amount to substantial performance? For a non-consumer sale, section 30 of the Sale of Goods Act 1979 allows the buyer to reject a short delivery unless the seller shows the shortfall is so slight that rejection would be unreasonable, subject to the terms and usages governing the sale. A consumer buying from a trader may reject a short delivery under section 25 of the Consumer Rights Act 2015, or accept it and pay at the contract rate.

In a contract for work, the party receiving substantial performance may deduct damages for defects from the price. In Hoenig v Isaacs [1952] 2 All ER 176, the decorator recovered the balance due less the cost of putting the defective furniture right.

In order to assess whether the performance is substantial enough, the seriousness of the breach should be considered in the context of the contract as a whole.

Intention to breach - anticipatory breaches

Obligations under a contract may be discharged before performance is due if one party renounces the contract or makes performance impossible and the other accepts the repudiation. This is referred to as an ‘anticipatory breach’.

Case in focus: Hochster v De La Tour (1853) 2 E & B 678

In this case, the defendant employed the plaintiff as a courier for three months. The defendant had a subsequent change of mind and told the plaintiff he would not be required. The plaintiff claimed that this was a breach of contract, but the defendant claimed that there could not have been a breach since the contract of employment had not yet started.

The court held that this amounted to an anticipatory breach, and the plaintiff could choose to accept the repudiation and claim damages immediately for the anticipatory breach, or wait until the date the contract should start and claim damages for the actual breach.

Without the anticipatory breach rule the innocent party would have to wait for the performance date before suing. The rule allows that party to accept the repudiation, make other arrangements and claim damages immediately.

As with all circumstances under which a contract may be repudiated, the breach intended must be sufficiently serious. In order to assess the seriousness of the breach you should consider the points covered earlier in the chapter.

A party can show their intention to breach the contract through an express statement, but the intention may also be inferred from certain conduct. The conduct must also be clear and unequivocal as to intent to abandon the contract, the simple fact that one party seems unlikely to meet their contractual obligations will not be sufficient. If the allegation is inability to perform, rather than an outright refusal, the future breach must be practically inevitable (Universal Cargo Carriers Corp v Citati [1957] 2 QB 401).

The more recent case of Eminence Property Developments Ltd v Heaney [2010] EWCA Civ 1168 further developed this test: From the perspective of a reasonable person in the non-breaching party’s position, has the other party shown a clear intention to abandon and refuse to perform?

The innocent party can choose to accept the repudiation or affirm the contract, as shown in Fercometal SARL v Mediterranean Shipping Co. SA [1989] AC 788. However, there are some limitations on the innocent party’s ability to insist on performance.

In White & Carter (Councils) Ltd v McGregor [1962] AC 413 the innocent party performed without the other party’s cooperation and recovered the agreed price. That course is unavailable if performance requires cooperation which is withheld, or if the innocent party has no legitimate interest in performing rather than claiming damages.

The affirmation of an anticipatory breach must be clear and unequivocal, and there must be evidence to this effect (Yukong Line Ltd of Korea v Rendsburg Investments Corporation of Liberia [1996] 2 Lloyd’s Rep 604). The reason for this is that the affirmation of an anticipatory breach is irrevocable under most circumstances.

The case of Stocznia Gdanska SA v Latvian Shipping Co [2001] 1 Lloyd’s Rep 537 illustrates the effect of a continuing repudiation. Affirming the contract does not prevent the innocent party from accepting a fresh or continuing repudiation later. A subsequent actual breach may also justify termination if it is repudiatory.

Where an innocent party intends to terminate the contract as a result of the anticipated breach, they must make it clear to the party in breach that they are terminating the contract. Vitol SA v Norelf Ltd, The Santa Clara [1996] AC 800 confirms that a failure to perform can communicate acceptance if, in the circumstances, it unequivocally conveys that the contract is being treated as at an end. However, this is not always the case and it is a question of fact in each different case. In most cases, it will be best for the innocent party to inform the party in breach directly.

The final point with regards to an anticipatory breach is that damages can be claimed from the date of the termination of the contract. The innocent party does not need to wait until the date of the supposed performance of the contract (Hochster v De La Tour (1853) 2 E & B 678).

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