Discharge of contract and remedies - Basic principles of res...

Learning Outcomes

This article outlines restitution and unjust enrichment following discharge or termination of a contract, including:

• Circumstances in which restitution and unjust enrichment arise following discharge or termination
• Distinction between contractual and restitutionary remedies
• Total failure of consideration
• Availability of quantum meruit and unjust enrichment claims
• Application to SQE1-style scenarios and common exam pitfalls
• Statutory rules after frustration and court powers under the Law Reform (Frustrated Contracts) Act 1943
• Impact of severable contracts and partial failure of consideration on recovery of money paid
• Defences to unjust enrichment, particularly change of position

SQE1 Syllabus

For SQE1, you are required to understand the basic principles of restitution and unjust enrichment as they apply to contract discharge and termination, with a focus on the following syllabus points:

• the meaning and significance of restitution and unjust enrichment in contract law
• when a claim for restitution may arise after contract termination (including total failure of consideration and quantum meruit)
• the distinction between contractual and restitutionary remedies
• the requirements for a claim based on unjust enrichment
• the effect of partial performance or partial failure of consideration
• how these remedies interact with the rules on contract discharge and termination
• the main features of the Law Reform (Frustrated Contracts) Act 1943 (including s 1(2) recovery of money paid and s 1(3) valuable benefit) following frustration
• the availability and scope of defences to unjust enrichment, with particular focus on change of position

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.

1. What is meant by "total failure of consideration" and when does it allow a party to recover money paid under a contract?
2. In what circumstances can a party claim a quantum meruit after a contract is terminated?
3. What are the four elements required for a successful unjust enrichment claim?
4. Can a party recover money paid if they have received part of the contractual benefit? Explain.

Introduction

When a contract is discharged or terminated, parties may have already performed some or all of their obligations. Sometimes, the usual contractual remedies (such as damages) are not available or are inadequate. In these cases, the law of restitution and unjust enrichment may provide an alternative remedy, allowing a party to recover benefits conferred on the other party or to claim a reasonable sum for work done. For SQE1, you must know when these remedies are available and how they interact with the rules on contract discharge.

Restitutionary remedies differ from contractual remedies in their aim and basis. Contractual damages primarily protect the expectation interest (putting the claimant, so far as money can do, in the position as if the contract had been properly performed) and often depend on breach. Restitution focuses on reversing unjust enrichment; it is not dependent on breach and may be available where a contract is void, voidable (and rescinded), or has come to an end (e.g., by frustration), or where no enforceable contract ever arose but work or services were requested and accepted.

Restitution and Unjust Enrichment: The Basics

Restitution is a remedy aimed at reversing unjust enrichment. It is available where one party has conferred a benefit on another, and it would be unjust for the recipient to retain it without payment. Unjust enrichment provides the substantive basis for recovery, while restitution is the remedy that effects the reversal of the enrichment.

Key Term: restitution
A remedy requiring a party to return a benefit received, to prevent unjust enrichment, usually when a contract is set aside or fails.

Key Term: unjust enrichment
A principle that a person should not retain a benefit at another's expense where it would be unjust to do so.

The typical unjust factors that arise in the contracts context include failure of consideration (particularly total failure), mistake (of fact or law), and benefits conferred under void or voidable contracts that have been rescinded. Restitution also overlaps with equitable rescission (e.g., for misrepresentation): rescission unwinds transfers, and restitution is the mechanism by which value or money is returned.

When Does Restitution Arise After Discharge?

Restitution may be available after a contract is discharged or terminated if:

• a party has paid money or supplied goods/services but received nothing in return (total failure of consideration)
• a party has performed part of the contract and the other party has accepted the benefit (quantum meruit)
• the contract is void, voidable, or set aside (e.g., for misrepresentation or mistake)
• the contract is discharged by frustration, in which case statutory rules govern recovery of money paid and allowances for benefits conferred

Key Term: total failure of consideration
A situation where a party has received no part of the contractual benefit for which they paid or performed.

Key Term: quantum meruit
A claim for a reasonable sum for work done or services provided, usually where there is no enforceable contract or the contract has been discharged.

Worked Example 1.1

A pays £5,000 in advance for goods. The seller never delivers any goods, and the contract is terminated. Can A recover the £5,000?

Answer:
Yes. There has been a total failure of consideration. A can claim restitution to recover the £5,000 paid.

Worked Example 1.2

B agrees to paint C's house for £3,000. B paints half the house, then C tells B to stop and hires someone else. C uses the work B has done. Can B claim anything?

Answer:
Yes. B can claim a quantum meruit for the reasonable value of the work done and accepted by C, even though the contract was not fully performed.

The Four Elements of Unjust Enrichment

To succeed in a claim for unjust enrichment, the claimant must show:

1. The defendant has been enriched (received a benefit)
2. The enrichment was at the claimant’s expense
3. The enrichment is unjust (e.g., due to failure of consideration, mistake, or other recognized ground)
4. There is no applicable defence (such as change of position)

The first two elements focus on the transfer and its source. The third element requires a recognised unjust factor; in contracts, this commonly includes total failure of consideration and mistake. The fourth turns attention to fairness and policy: even if the first three elements are met, restitution may be limited or barred if the defendant can show a defence (for example, they reasonably changed their position in reliance on the receipt, making repayment inequitable).

Key Term: enrichment
The receipt of a benefit, such as money, goods, or services.

Key Term: at the claimant’s expense
The benefit received by the defendant must have come directly from the claimant.

Key Term: unjust factor
A legally recognized reason that makes the enrichment unjust, such as total failure of consideration or mistake.

Key Term: change of position defence
A defence where the defendant has changed their position in reliance on the benefit, making restitution unfair.

Restitution for Money Paid: Total Failure of Consideration

If a party pays money under a contract and receives none of the promised benefit, they may recover the money by a restitution claim. “Consideration” here describes the performance bargained for under the contract. Failure is “total” if the claimant has received no part of the contractual performance for which the payment was made. Incidental or collateral benefits not forming part of the contractual exchange are disregarded.

If any substantive part of the contractual performance has been received, recovery is generally not allowed unless the contract (or payment) is divisible and the failure relates to a severable part. Courts examine the bargain and any divisibility: one lump-sum price for an indivisible performance is less likely to permit apportionment than payments tied to distinct stages or items.

Worked Example 1.3

D pays £2,000 for a training course. The provider cancels before any sessions are delivered. Can D recover the £2,000?

Answer:
Yes. D has received nothing in return, so there is a total failure of consideration.

Exam Warning​

If the claimant has received any part of the contractual benefit (even a small part), the failure is not "total" and restitution for money paid is usually not available. In such cases, the claimant may need to rely on a contractual damages claim instead.

Worked Example 1.4

F pays £900 for three separate online courses. Only one course is delivered. Can F recover any money?

Answer:
F may be able to recover the proportion of the payment relating to the two undelivered courses, if the contract is divisible.

Worked Example 1.5

G pays a single lump sum for a bundle of services described as a “complete programme”. One component is delivered, but the rest are not. Can G claim restitution of the whole price?

Answer:
Not usually for the whole price. If any part of the contractual programme was delivered, there is no total failure. G may claim damages for breach, and possibly restitution for any severable undelivered components, if the contract or pricing is divisible.

Quantum Meruit: Reasonable Payment for Work Done

Where a party has performed work and the other party has accepted the benefit, but the contract is later discharged or terminated, the performing party may claim a quantum meruit for the reasonable value of the work. This claim is restitutionary: the measure is the market value (or reasonable remuneration) for the benefit accepted.

This remedy is available when:

• the contract is void, voidable, or unenforceable
• the contract is terminated before full performance, but the other party has accepted part performance
• there is no contract, but work is requested and accepted

A related scenario is the “entire obligation” case. If the contract provides a single lump sum payable only on complete performance, a contractor who abandons before completion cannot usually sue for the price. However, if the recipient chooses to accept part performance freely (e.g., elects to use materials supplied), a quantum meruit may be available for what was voluntarily accepted.

Worked Example 1.6

E is hired to deliver 100 chairs for £1,000. After delivering 40 chairs, the contract is terminated. The buyer keeps and uses the 40 chairs. Can E claim payment?

Answer:
Yes. E can claim a quantum meruit for the reasonable value of the 40 chairs delivered and accepted.

Worked Example 1.7

H agrees to build a house for a lump sum payable on completion. H stops work halfway due to running out of funds. The owner finishes the house using materials left by H. Can H claim?

Answer:
H cannot claim the lump sum price. H may claim a reasonable sum for the materials the owner chose to use, but not for the unaccepted partial construction.

Worked Example 1.8

I completes a refurbishment with minor defects costing £300 to fix, under a single-price agreement payable on completion. The price is £7,500. Can I claim the price?

Answer:
The owner must pay the contract price less the reasonable cost of remedying defects. Where work is substantially performed, the price is payable subject to deduction.

Restitution and Unjust Enrichment vs. Contractual Remedies

Restitution is not a substitute for contractual damages. It is only available where the contract does not provide an adequate remedy, or where the contract is void, voidable, or set aside. If a contract is valid and provides for damages, the claimant must usually pursue a contractual claim. Termination for breach discharges future obligations but does not unwind the contract; accrued rights remain. Restitution is more aligned with scenarios where the basis for the transfer has disappeared (e.g., void or rescinded contract, total failure of consideration, frustration), or where work was done outside a valid contract but conferred a benefit.

Revision Tip

Restitution is most likely to arise where the contract is void, set aside, or terminated before any benefit is received. Always check if a contractual remedy is available first. Where there has been substantial performance with minor defects, contractual price less deductions is typically the correct route rather than restitution.

Partial Failure of Consideration

Generally, restitution for money paid is only available where there is a total failure of consideration. If the claimant has received part of the contractual benefit, they cannot recover the money paid, even if the benefit is small. However, apportionment may be allowed if the contract or payments are divisible into separate parts, and the failure relates to one or more severable elements.

In practice, courts look to the bargain’s structure: staged payments, itemised pricing, or distinct deliverables support divisibility; a single undifferentiated lump sum for an indivisible performance does not. If divisible, restitution may be available for the undelivered part, while breach of contract damages remain available for losses on delivered but defective components.

Exam Warning

Do not confuse “total failure” with “no value received.” The test is whether the claimant received any part of the contractual performance they paid for—not whether the delivered part was valuable to them. If the delivered element formed part of the bargain, recovery of the entire price by restitution is usually barred.

Unjust Enrichment and Discharge by Frustration

When a contract is discharged by frustration (i.e., due to an unforeseen event making performance impossible, illegal, or radically different), the Law Reform (Frustrated Contracts) Act 1943 allows recovery of money paid and, in some cases, allowances for benefits conferred before discharge. The Act aims to prevent unjust enrichment in the aftermath of frustration by rebalancing losses and benefits.

• Under s 1(2), sums paid are recoverable and sums payable cease to be due. The court may allow the payee to retain or recover an amount for expenses incurred before discharge, as it thinks just.
• Under s 1(3), where a party has conferred a valuable benefit (other than money) on the other party before discharge, the court may award a just sum to reflect the benefit’s value at the time of frustration.

These powers are discretionary and depend on the circumstances, including the nature of the benefit and expenses incurred. They prevent one party being enriched by the other’s pre-frustration performance without counterpayment, while tempering unjust outcomes where the payee has incurred significant costs.

Key Term: frustration
The automatic discharge of a contract due to an unforeseen event making performance impossible, illegal, or radically different.

Worked Example 1.9

J pays £10,000 in advance for venue hire. Before the event, the venue is destroyed by fire and the contract is frustrated. Can J recover the £10,000?

Answer:
Yes, under s 1(2). The £10,000 is recoverable. The court may allow the venue to retain a just amount for expenses incurred before frustration.

Worked Example 1.10

K provides audio-visual equipment setup at the venue the day before the event, which is later cancelled when the contract is frustrated. The venue benefitted from the setup work and hardware, but the event did not happen. Can K recover anything?

Answer:
Under s 1(3), K may recover a just sum reflecting the valuable benefit conferred (e.g., equipment installed or preparatory services), assessed at the time of frustration.

Defences to Unjust Enrichment

Even where the four elements are satisfied, defences may reduce or bar recovery. The most commonly examined defence is change of position. If the recipient has, in good faith, altered their position in reliance on the receipt and cannot be restored without injustice (e.g., they spent the money irreversibly or undertook obligations in reliance on the receipt), the court may reduce or defeat restitution to the extent necessary to avoid unfairness. Other defences are more fact-specific (such as counter-restitution being impossible in rescission cases) and should be assessed against the aim of preventing unjust enrichment while avoiding undue hardship.

Revision​ Tip

Always test for potential defences. On change of position, the court will ask whether the defendant’s reliance was reasonable, irreversible, and attributable to the receipt. Partial reduction in the award is common.

How These Principles Work Together

• Termination for breach: puts an end to future obligations but usually leaves you with contract remedies (damages). Restitution is exceptional in pure breach scenarios.
• Rescission (e.g., for misrepresentation): unwinds the contract; restitution then returns benefits conferred under the rescinded contract, subject to bars (e.g., impossibility, affirmation) and defences.
• Frustration: discharges the contract automatically; statutory rules govern recovery of money paid and the value of benefits conferred.
• Quantum meruit: bridges gaps where there is no enforceable contract or where part performance was accepted before discharge or termination.

Exam Warnin​g

Beware conflating “rescission” and “termination”: rescission sets the contract aside ab initio and triggers restitution (subject to bars), whereas termination for breach operates prospectively, leaving accrued rights intact and generally pointing you to damages.

Key Point Checklist

This article has covered the following key knowledge points:

• Restitution and unjust enrichment provide remedies when a contract is discharged or set aside and a party has conferred a benefit without receiving the agreed return.
• A claim for restitution of money paid is available where there is a total failure of consideration.
• Quantum meruit allows a party to claim a reasonable sum for work done and accepted, even if the contract is not fully performed or is unenforceable.
• Four elements are required for unjust enrichment: enrichment, at the claimant’s expense, unjust factor, and no defence.
• Restitution is not available where the contract is valid and provides a contractual remedy, unless the contract is void, voidable, or set aside.
• Partial failure of consideration usually bars restitution for money paid, unless the contract or payment is divisible into severable parts.
• After frustration, statutory rules may allow recovery of money paid (s 1(2)) and compensation for valuable benefits conferred (s 1(3)).
• Change of position is a key defence that can limit or defeat restitution where the defendant has reasonably and irreversibly relied on the receipt.

Key Terms and Concepts

• restitution
• unjust enrichment
• total failure of consideration
• quantum meruit
• enrichment
• at the claimant’s expense
• unjust factor
• change of position defence
• frustration