THE DISCHARGE AND CONCLUSION OF A CONTRACT

INTRODUCTION

DISCHARGE BY PERFORMANCE

Generally, where parties entering into a contract, each party will acquire rights as well

as obligation since every contractual right carries with it a corresponding obligation.

For example, A intent to purchase goods from B at a given price. So, when A and B

entered into a contract for the sale and purchase of the goods, A as purchaser has the right to

have the goods transferred to him upon payment of the agreed price and obligation to pay for

the car. B as the vendor has the right to payment and obligation to affect the transfer on

receiving the agreed payment. When the seller delivers the goods in exchange for payment by

the purchaser, each party is said as has performed or discharged his obligations under the

contract. It assumed the parties under the contract discharges or terminates the contract.

The general rule in contractual relations that performance must be exact and precise

and in accordance with what the parties have agreed.

Complete and proper performance will discharge both parties. The original rule was

that the performance must be precise and exact.

Re Moore & Co Ltd and Landauer & Co1. A contract was drawn up for the sale of

tinned fruit stating that the tins were to be packed 330 tins to a case. When the goods arrived,

although the correct number of tins was delivered, they were packed in cases of only 24 tins.

This could lead to unjust results. In Cutter v Powell2 the defendant agreed to pay Cutter 30

guineas provided he executed his dutied as second mate on a voyage from Kingston, Jamaica

to Liverpool. Cutter began the voyage but died when the ship was 19 days short of Liverpool.

Cutter’s widow claimed a portion of the wages. The court have established a number of

equitable principles with the aim of achieving justice between the parties.

1 [1921] 2 KB 519.2 [1795] 6 Term Rep 320.

Bolton v Mahadeva3, a contractor agreed to install a central heating system for £560.

When the work was done, it was found that it was unable to heat the house properly and

emitted fumes. The cost of repair was £174. The claimant sued for the contract price less this

cost of repair.

So, when the contract has been duly performed, discharge occurs. Opposite to this,

where the contract has not duly performed, issue of breach of contract arise.

But there is exception to this; it is under the maxim of de minimis non curat lex.

Based on Black’s Law Dictionary this Latin maxim mean the law does not concern itself with

trifles. The expression of the rule that the law will not remedy an injury that is minimal.

So, for discharge by performance, we need to look at Part V of the Contracts Act

1950, comprising section 38 until 68.

3 [1972] 1 WLR 1009.

Contract which must be performed

Section 38 of the Contracts Act 1950 sets out the obligation of the parties to a

contract, the parties to a contract must perform or offer to perform their respective promises,

save accordance with the law4. Where a promisor dies before the performance is done, the

promise binds the representatives of the promisor unless there are contrary intention appears

from the contract5.

So, in the case of death of promisor before the day of performance, the promises will

bind upon the promisor’s representative. In illustration (a) of Section 38, A promises to

deliver goods to B on a certain day on payment of RM1, 000. A dies before that day. A’s

representatives are bound to deliver the goods to B, and B is bound to pay the RM1, 000 to

A’s representatives.

In illustration (b), A promises to paint a picture for B by a certain day, at certain

price. A dies before the day. The contract cannot be enforced either by A’s representatives of

by B. in this illustration, A’s promise is not binding on his representatives because a contrary

intention appears from the contract, ie that A is to perform the promise personally.

Section 39(1) provides that where an offer of performance by a promisor is not

accepted by a promise, the promise is not responsible for the non-performance nor does he

thereby lose his rights under the contract. In amplification of the foregoing section 39(2) sets

out the requirements that must be satisfied for an offer of performance to be valid. Such an

offer: (a) must be unconditional, (b) must be made at a proper time and place and in

circumstances in which the promise can reasonably ascertain that the promisor is able and

willing then and there to perform the whole of his promise; and, (c)if it is to deliver anything,

the promisee must have a reasonable opportunity of ascertaining that the thing offered is the

thing that has been promised to promise.

Section 39(3) states that an offer of performance to one of several joint promises has

the same legal consequence as an offer to all of them. The illustration of the subsection

provides, A contracts to deliver to B at his warehouse, on the 1st March, 100 bales of cotton

of a particular quality. In order to make an offer of a performance with the effect stated in this

4 Section 38(1) of the Contracts Act 1950.5 Section 38(2) of the Contracts Act 1950.

section, A must bring the cotton to B’s warehouse, on the appointed day, under such

circumstances that B, may have a reasonable opportunity of satisfying himself that the thing

offered is cotton of the quality contracted for, and that there are 100 bales.

The operation of Section 39 is illustrated in the case MM Ally & Co v Chellamah6,in

this case, the appellants were the tenant of the respondent. The appellants sent the respondent

a Money Order for $5550 as rent for the months of April and May 1946. This was returned

by the respondent who refused to accept it. In the following month, the appellants sent the

respondent a cheque for $25 for payment of rent for the month of June. Again it was returned.

The appellants repeated this process for the months of July and August with similar results.

The appellants wrote to the respondent offering to send her anew the said money order for

$550 and a fresh cheque for $125 on condition that she undertook to issue receipts for

payment of rent for the months from April to October 1946 as well as for rental paid in

future. One of the issues in this case was the respondent’s contention that the offer of

payment was not unconditional as required by Section 38(ii)(a) of the Contracts Enactment

[Section 39(2) of the Contracts Act 1950] because of the demand for receipts for rent paid or

to be paid. The respondent also contended that a mere offer by letter to pay a sum due was

ineffective because it breached section 38(ii)(b) of the Contracts Enactment [section 39(2)(a)

of the Contracts Act 1950] in not affording the promise the facilities set out therein.

In the court of Appeal, Briggs J held that as a landlord has the duty to issue receipts

for rent paid, the demand for them could not amount to a ‘condition’ contrary to the terms of

Section 38 of the Contracts Enactment [Section 39 of the Contracts Act 1950]. Ordinarily, a

mere offer by letter to pay a sum due does not amount to a sufficient tender since it does not

afford the promise the facilities prescribed by Section 38(ii)(b) of the Contract Enactment

[Section 39(2)(b) of the Contracts Act 1950]. However, the requirements of Section 38 are

practical, and not merely technical, and the question whether those requirements have been

fulfilled can only be answered by reference to the facts of a specific case. The practical test

is, assuming the creditor desires to obtain payment, does the tender afford him an immediate

and certain means of obtaining payment either in cash or, if he is willing to accept it, in

another medium, eg a cheque. The letter of offer satisfied, in the special circumstances of this

case, all the requirement of Section 38 of the Contracts Enactment and was a valid tender of

performance.

6 [1948] MLJ 202 CA.

Whether payment tendered ‘under protest’ is an ‘an unconditional offer’ amounting to

a valid offer of performance of a contract was considered in Quah Ban Poh v Dragon Garden

Pte Limited7. In this case, the plaintiff purchased from the defendant’ a double-storey house

for $38, 500 which the defendant was to complete by 31 December 1975. On 28 November

1975, the plaintiff received a letter from the defendant’s solicitors asking him to take

possession of the house and pay the final instalment of $3, 850, within a given period. The

plaintiff did not pay because construction of the house not completed. On 10 April 1976, the

defendant wrote to the plaintiff informing him that the uncompleted works had been fully

remedied and requesting payment of the last instalment of $3, 850 failing which it would

terminate the agreement. As construction was not completed and defects not rectified, on 13

May 1976, the plaintiff sent a cheque for $3,850 to the solicitors paying under protest. The

solicitors returned the cheque to the plaintiff without the defendant’s instructions. The parties

failed to settle their differences and the plaintiff sued. One of the issues was whether the

tender of the aforesaid payment under the payment of the last instalment of $3, 850 by the

plaintiff was a tender of the said sum under protest and was unconditional. It was a good and

valid offer of performance.

A promisor may refuse to perform or may disable himself from performing his

promise in its entirety. In such a situation, section 40 provides that the promise may put an

end to the contract unless he has signified, by words or conduct, his acquiescence in it

continuance.

Illustration to the section provides (a) A, a singer, enters into a contract with B, the

manager of a theatre, to sing at his theatre two nights in every week during the next two

months, and B engages to pay her RM100 for each night’s performance. On the sixth night A

wilfully absents herself from the theatre. B is at liberty to put an end to the contract.

(b) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his

theatre two nights in every week during the next two months, and B engages to pay her at the

rate of RM100 for each night. On the sixth night A wilfully absents herself. With the assent

of B, A sings on the seventh night. B has signified his acquiescence in the continuance of the

contract, and cannot now put an end to it, but is entitled to compensation for the damage

sustained by him through A’s failure to sing on the sixth night.

7 [19855] 2 MLJ 159.

In Leong Weng Choon v Consolidated Leasing (M) Sdn Bhd8 the respondent hired a

luxury air-conditioned bus to the first defendant. The appellant guaranteed the payment of all

sums of money due by the first defendant to the appellant and agreed to indemnify (a contract

by which one party promises to save the other from loss caused to him by the conduct of the

promisor himself, or by the conduct of any other person – section 77 of the Act) the

respondent against any loss that the respondent might sustain as a result of the venture.

The first defendant defaulted on the payment of the monthly rentals. The respondent

could not repossess the bus from the first defendant under the hire purchase agreement as

custom officials had seized and confiscated the bus from being used as a vehicle to smuggle

tin ore into Malaysia. In an action against both the first defendant and the appellant, the

respondent claimed that the first defendant had breached the terms of the agreement and it

was thereby terminated. The first defendant had also breached the agreement when the bus

was confiscated. Thus the appellant, as guarantor, was liable to indemnify any loss that the

respondent suffered. The respondent obtained judgement and the appellant appealed.

The Court of Appeal allowed appeal. NH Chan JCA (KC Vohrah J and Mohd Noor

Ahmad J with him) held that even if the first defendant had repudiated the agreement, i.e.

“refused to perform” the agreement “in its entirety” by refusing to pay at all any further rental

instalments, that would not terminated the agreement. Similarly, the fact that the first

defendant had disabled it from performing its agreement in its entirety by losing the bus to

the authorities would not mean that the first defendant had terminated the hire purchase

agreement.

Under Section 40, only the respondent could elect to treat the contract as at an end by

accepting the repudiation and terminating the contract. The respondent could either elect to

terminate the agreement and recover damages under section 76 of the Act or it could ignore

the breach by treating the contract as alive and subsisting. As a matter of fact, as well as on

pleadings, the respondent did not terminate the contract despite the repudiation of the first

defendant so that the contract was still subsisting.

Since the contract was still subsisting, the respondent still has the right to recover

instalments due under the agreement. Unfortunately, the respondent did not claim for arrears

of instalments against the first defendant in its statement of claim. Therefore, there was no

liability of the first defendant (hirer) for the appellant (guarantor) to make good under the

8 [1998] CLJ 619.

terms of the guarantee. The court also found that the respondent in his statement of claim did

not claim to be indemnified by the appellant for the loss of the bus to customs.

By Whom Contract must be performed

Section 41 provides that if it appears to be the intention of the parties that the

promises in the contract be performed by the promisor himself, then the obligation must be

performed by the promisor.

This is established by Letchumi Ammal v Nam Fong Housing Sdn Bhd9 in which

section 42 was also, unsuccessfully invoked. In Letchumi Ammal v Nam Fong Housing Sdn

Bhd (supra) the appellant had built a squatter house on a piece of land and had let it out to a

tenant. The owner of the land entered into an agreement to pay the appellant a stated sum of

money as compensation if she demolished or delivered up possession of the house by 10

April 1974. The appellant did not fulfil her part of the bargain because the tenant refused to

quit. The owner then paid the tenant who vacated the house. The appellant reacted by

bringing an action seeking payment of the agreed compensation. She submitted that she was

entitled to the payment because the recovery of the house from the tenant conferred upon the

owner the benefit of his agreement with the appellant. The appellant also invoked section 42

of the Contracts Act 1950 which provides, ‘when a promise accepts performance of a

promise from a third person, he cannot afterwards enforce it against the promisor’. The

appellant submitted that her promise had been performed by a third party, the tenant, and that

this brought Section 42 of the Contracts Act 1950 into play. The appellant was unsuccessful

and her appeal ultimately reached the Federal Court.

Syed Othman FJ delivered the judgement of the Federal Court. His Lordship held that

Section 42 of the Contracts Act 1950 could not apply as (a) the performance was not effected

within the stipulated time as promised; (b) the appellant’s plea that she was unable to perform

because the tenant had refused to vacate the house could not be accepted in view of her

express undertaking under the agreement; (c) the performance by the tenant cannot be

regarded as performance by the third person within the meaning of Section 42 of the Act, as

the tenant was in the same position as the appellant; and, (d) the owner by getting back the

land did not get any benefit as what he got was rightly his own from the beginning. His

Lordship held that the agreement came under section 41 of the Contracts Act 1950 in that it

clearly revealed the intention of the parties that the appellant would get the agreed

compensation only if she herself demolished or delivered possession of the house by 10 April

9 [1982] 2 MLJ 19, FC.

1974 and she had not given effect to that intention within the prescribed time or even

thereafter.

The promisor, as we have seen, does not always have to perform his promise

personally. Unless the contract specifically requires personal performance, the promise may

be performed by a competent third party employed by the promisor or his representative. If

performance of the promise is tendered by a third party and accepted by the promise, Section

42 provides that the promise cannot subsequently enforce it against the promisor.

In Chin Swee Onn v Puchong Realty Sdn Bhd10, the respondents had obtained

judgement by default of appearance against the appellant. The respondents also agreed to

forbear from levying execution on the judgement in consideration of the appellant instructing

a third party to pay the judgement debt by instalments of $2, 000 a month. After having

received $10, 000 from the third party, the respondents took out a bankruptcy notice against

the appellant. The appellant applied to set aside the bankruptcy notice but this application

was dismissed in the High Court. The appellant appealed. The Supreme Court held that the

acceptance of the payments from the third party by the respondents activated Section 42 of

the Contracts Act 1950. That section reads, ‘When a promisee accepts performance of the

promise form a third person, he cannot afterwards enforce it against the promisor’. In

delivering the judgment of the Supreme Court, Ajaib Singh SCJ said:

“We are of the view that the learned judge failed to give due regard to Section 42 of

the Contracts Act 1950. … In the present appeal before us, counsel for the appellant

relied strongly on Section 42 of the Contracts Act 1950 and we agree with him … the

respondents having accepted the performance of the appellant’s obligation to pay his

debt to them by a third party, … were precluded from enforcing the judgement debt

against the appellant.”

Consequently, the respondents were not entitled to enforce their claim against the appellant.

This meant that they could not execute their judgement. The appeal was allowed.

At has to be noted that a contracting party can invoke Section 42 only if the third

party has actually performed the promise on the behalf of the promisor, non-performance or

less than complete performance of obligations.

10 [1990] 1 MLJ 108

In Scott & English (Malaysia) Sdn Bhd v Foo Thor Lombong Bijih Sdn Bhd & Anor11

the plaintiff was a repairer of machines. The first defendant was the owner of a Cummins

gravel pumpset. The second defendant was an insurance agent for N.E.M. Insurance Bhd

with whom the first defendant insured the machine.

The first defendant and second defendant took the machine to the plaintiff to repair.

They agreed to pay the plaintiff the sum of $37, 115.77 based on quotation to be submitted

and approved by the insurance company. The quotations were duly submitted by the plaintiff

and the second defendant issued cheques in purported settlement of the plaintiff’s bills but the

cheques were dishonoured. The insurance company subsequently refused to meet the claim

stating that they never authorised the second defendant to inform the plaintiff that it had

authorised the plaintiff do repairs or given any such approval. The plaintiff’s claim against

the first and the second defendants for the cost of repairs was dismissed. The appeal against

the said decision was proceeded only against the first defendant.

The first defendant submitted that as a third party (ie the second defendant) had

performed its obligations to the plaintiff by settling the plaintiff’s bills, the plaintiff was

barred from proceeding against it by Section 42 of the Contracts Act 1950. Razak J held that

Section 42 of the Contracts Act 1950 applies only when a contract has in fact been performed

by a third person. In this case the contract was, however, never performed by the second

defendant since the cheques they gave in payment of the debt were all dishonoured. The

appeal was allowed.

11 [1985] 1 MLJ 73.

The Time and Place for Performance

Section 47 to 50 of the Contracts Act 1950 deal with the time and place of performance.

The Time for Performance

Performance should take place within the time and at the place specified in the

contract or, if no time is specified, within a reasonable time: Section 47. The explanation

under this section states that the question “what is a reasonable time” is, in each particular

case, a question of fact. If it dealt about the product, it depend on the product itself as some

product expired faster than other product.

Reasonable time for performance vary from case to case, depending on the nature, say

a fishmonger, must perform the delivery, within a day at a fish landing, and not 3 or 4 days

after, but for canned food, which have a long lifespan, a week may be reasonable.

In Macon Works & Trading Sdn Bhd v Phang Hon Chin12, the defendants gave an

option to A or his nominees to purchase a piece of land. The option was exercisable only after

one LK showed no more interest in the land. The plaintiff, A’s nominee, exercised the option

and claimed specific performance. The defendants resisted, contending inter alia, that the

offer had already lapsed.

It was held that the question of what is reasonable time is a question of fact …

depends in each case on the circumstances which actually exists and on nature of the

business.

The Ipoh High Court held that where no time was fixed, an offer would lapse after the

expiration of a reasonable time (section 47 of the Contracts Act 1950). What is reasonable is

a question of fact depending on the actual circumstances of each and the nature of the

business. Failure to accept within a reasonable time implies rejection by the offeree.

In Ramsgate Victoria Hotel Co v Mantefiore13, the defendant applied for shares in the

plaintiff company on 8 June, and had paid a deposit. He received no further news until 23

November when he was informed that the shares had been allotted to him and that he should

pay the balance due on them. It was held that there was no valid binding contract because

12 [1976] 2 MLJ 177 CA.13 (1866) LR 1 Ex 109

acceptance was not made within a reasonable time. The interval between June and November

was too excessive and the offer had lapsed.

Section 51 states that the performance of any promise may be made in any manner, or

at any time prescribed by the promise.

In Nyap Kui Fah v Len On Contractor were that the appellant, by an agreement in

writing, subcontracted to the respondents who were logging contractors, the extraction of

timber logs from an area of timber land. The contract envisaged that the timber would be

extracted by tractor. The respondent extracted timber from all the land accessible by tractor

(but not from the hilly land inaccessible to tractors) and considering itself as having

completed the contract, applied to the appellant for payment.

The appellant insisted that the contract would be completed only when timber from

the area inaccessible to tractors had been extracted, mere hardship or inconvenience or extra

cost did not respondent disagreed and sued the appellant for payment. The appellant

responded by the counterclaiming for general damages on the ground that the respondents

had not totally performed the contract. The trial court found that the contract had been

completed within a reasonable time. On that and other grounds, the counterclaim was

dismissed. The appellant dismissed.

The Federal Court held that having done all that the contract envisaged it as doing, the

respondent had performed the contract, so far as it was possible, in the manner envisaged, if

not prescribed, by the contract and within a reasonable time. As the law does not require

performance of the impossible, the appeal was dismissed.

Illustration (a) under Section 51, B owes A RM2, 000. A desires B to pay the amount

to A’s account with C, a banker. B, who also banks with C, orders the amount to be

transferred from his account to A’s credit, and this is done by C. Afterwards, and before A

knows of the transfer, C fails. There has been a good payment by B.

Illustration (b), A and B are mutually indebted. A and B settle an account by setting

off one item against another, and B pays A the balance found to be due from him upon such

settlement. This amounts to a payment by A and B, respectively, of the sums which they

owed to each other.

Illustration (c), A owes B RM2, 000. B accepts some of A’s goods in reduction of the

debt. The delivery of the goods operates as a part payment. (d) A desires B, who owes him

RM100, to send him a note for RM100 by post. The debt is discharged as soon as B puts into

the post a letter containing the note duly addressed to A.

Where a promise is to be performed on a certain day, and the promisor has undertaken

to perform it without application by the promise, the promise may be performed at any time

during the usual hours of the business on the day: Section 48.

It also can be understand by looking at Illustration under Section 48, a promises to

deliver goods at B’s warehouse on the 1st of January. On that day A brings the goods to B’s

warehouse, but after the usual hour for closing it, and they are not received. A has not

performed his promise.

When a promise is to be performed on a certain day, and the promisor has not

undertaken to perform it without application by the promisee, it is the duty of the promisee to

apply for performance at a proper place and within the hours of business: Section 49 of the

Contracts Act 1950. The question “what is a proper time and place” is, in each particular

case, a question of fact.

In the case Tan Ah Kian v Haji Hasnan14, the appellant having obtained a contract to

construct roads subcontracted with the respondent for its performance. The respondent agreed

to complete the whole work on or before 30 May 1960. On 6 May 1960 the respondent

commenced work and on 27 May 1960 the appellant inspected the work and found it had not

been properly contract with another person for the completion of the work. The respondent,

on 4 June 1960 requested an extension of time to complete the work and on it not being

granted brought an action for work done and materials supplied. Judgement having been

entered for the respondent as claimed, the appellant appealed.

The court of Appeal held that the nature of the contract or of its subject matter was

such that it could not be implied that this time was of the essence. The appellant was thus in

breach of his contract. In the instant case, there must be an implied contact on the part of the

appellant to pay for the work done and therefore the respondent was entitled to recover the

full amount of the work and labour done and material supplied. The respondent succeeded in

his quantum meruit.

14 [1962] MLJ 400; [1963] MLJ 175 FC.

In this case, the court sets out 3 situations where time is of the essence of the contract.

Whether the time is essential in only when time will cause the serious consequences. The 3

situations are: (1) expressly stated in the contract, (2) making time essential by giving

reasonable notice; and, (3) based on the nature of the contract.

First situation where the time is essential is where the parties have expressly

stipulated in the contract that it shall be so. The time is essential where it is expressly stated

in the contract that the time is of the essence of the contract.

Secondly, the time is essential where it was not originally stated to be but had been

made so by one party by giving reasonable notice to the other, who had failed to perform the

contract with sufficient promptitude. The case Mensa Mercantile (Far East) Pte Ltd v

Eikobina (M) Sdn Bhd15 the High Court held that where time was not originally of the essence

of the contract, time can only be made of the essence by one party giving notice to the other

subject to two requirements. Both elements must be fulfilled: (a) the other party has been

guilty of unreasonable delay; and (b) the time mentioned in the notice must be reasonable.

Thirdly is where from the nature of the contract or of its subject matter, time must be

taken to be of the essence of the agreement.

There are some examples of contracts where time is essential.

For commercial contracts, we may refer to the case Bunge Corp, New York v Tradax

SA, Panama16 Bunge Corp New York v Tradax Export SA Panama. The issue in this case was

whether a breach of a time clause was serious enough to justify termination. This was a

contract for the purchase, sale and shipment of Soya bean meal. The purchaser was obliged

under the contract to give the seller 15 days' notice nominating a port and vessel for

shipment. The purchasers were 4 days late in giving this notice. The sellers then said that they

treated this as a repudiatory breach and terminated the contract and sued for damages. The

buyers (not surprisingly) argued that, although they were late, this was a trivial breach and

should be tested by reference to the Hong Kong Fir approach, namely, to assess what effect

being 4 days late had on the contract as a whole. On this argument, so the buyers said, the

breach did not justify termination.

15 [1989] 2 MLJ 170.16 [1981] 2 All ER 513 HL.

The House of Lords took a very hard-nosed approach. They held that the time clause

was essential (a ‘condition’ in terms of the language of condition/warranty). Lord

Wilberforce said that applying the Hong Kong Fir approach to a time clause was

fundamentally flawed because the reason for the approach adopted in Hong Kong Fir was

that the clause in that contract, like many contract clauses, could be broken in so many

different ways. But, as Lord Wilberforce so wisely said, there is only one way to break a time

clause, and that is to be late. All the law Lords stressed that in mercantile contracts like this

time clauses are very important because they provide certainty. In other words these sorts of

contracts are not the place for rubbery time clauses. This case also reflects the very important

role that the English courts play in sorting out shipping disputes. Shipping litigation is a

major and successful export industry for the UK and so it must deliver what the shipping

world wants in terms of the applicable law. There is, for understandable reasons, a premium

on certainty and security in these types of contracts (they are not "rubbery").

For the sale of goods, the time always consider as essential to the contract.

Where the contract involved building contracts, the time is essential as refer to case

Chye Fook & Anor v Teh Teng Seng Realty Sdn Bhd.17 In this case, the court held that the

buyer has right to rescind the contract on the ground of delay.

This principle same applied in contract of sale of the land. In Union Eagle Ltd v

Golden Achievement Ltd18 where in the case, 10 minutes delayed give right to the party to

rescind the contract. For sale of land, time is so important as it different from time to time.

When a party to a contract promises to do a certain thing at or before a specified time,

or certain thins at or before a specified time and fails to do such thing at or before a specified

time, and fails to do such thing at or before a specified time, the contract or so much of it as

has not been performed, becomes voidable at the option of the promisee, if the intention of

the parties was that time should be of essence of the contract: Section 56(1). So it means that

if the time is essential, the contract will become voidable at option of innocent party.

Where the party failed to perform the contract at the agreed time, only the person has

right to rescind the contract can claim for compensation. When an agreement is discovered to

be void, or when a contract becomes void, any person who has received any advantage under

17 [1989] 1 MLJ 308.18 [1997] 2 All ER 215 PC.

the agreement or contract is bound to restore it, or to make compensation for it, to the person

from whom he received it.19

Same as provision under Section 76, a person who rightly rescinds a contract is

entitled to compensation for any damage which he has sustained through the non-fulfilment

of the contract.

For instance, see illustration of Section 76. A, a singer, contracts with B, the manager

of a theatre, to sing at his theatre for two nights in every week during the next two months,

and B engages to pay her RM100 for each night’s performance. On the sixth night A wilfully

absents herself from the theatre, and B, in consequence, rescinds the contract. B is entitled to

claim compensation for the damage which he has sustained through the non-fulfilment of the

contract.

In Sim Chio Huat v Wong Ted Fui, as per Salleh Abas FJ at 156:

‘If in a contract in which time is of the essence, a party fails to perform it by the

stipulated time, the innocent party has the right either to rescind the contract, or to

treat it as still subsisting. If he treats it either expressly or by conduct as still

continuing, the contract exists but time ceases to be of the essence and becomes at

large. Consequently, he cannot claim the liquidated damages under the contract unless

there is provision as to extension of time. However, this cessation can be revived and

so time can be restored to be of the essence by the innocent party serving a notice to

the party in default giving a new date of completion.’

So what have been stated by Salleh Abas FJ mean at first, the time is essential. Then party

failed to perform it within stipulated time. So the innocent party has right either to rescind the

contract or treating it as still existed. If party choose to treat as still exist, time become at

large. So time is no longer essential. So the act must be performed in reasonable time. But the

party can make time to be essential by giving another notice.

Section 56(3) provides that if the party failed to perform the act at specified time, but

performed it at other than what have agreed, you cannot claim for compensation.

In Yeow Kim Pong Realty Ltd v Ng Kim Pong20, where appellant accepted the

performance at another day, the appellant is said as introduced new supplementary condition

19 Section 66.20 [1962] MLJ 118 PC.

to original agreement. But later respondent failed to fulfil the new condition. Then appellant

want to rescind the contract. The court then allowed the appellant to rescind the contact.

In Upperton v Nicholson21, one who has the right to insist on time to be of the essence

of the contract may waive his right.

The time is not essential where parties are still in negotiation. In Sharikat Eastern

Plastics Industry v Sharikat Lam Seng Trading22, the contract is to deliver machinery.

Shipment should be done in July, and delivery in August 1969. The fact show until

September 1969 the party was still negotiating of type of model of shape of the ship. So, in

this case, time is not essential.

In Sim Chio Huat v Wong Ted Fui23, when respondent did not do anything but allowed

the delivery date is passed, so, it must be deemed to have elected to treat the agreement as

still exists. In Cheah Khoon Tee v Crimson Development Sdn Bhd24, the issue is whether the

plaintiff has right to rescind or terminate the contract. It was held that the party cannot take

too long to rescind the contract.

It is essential for us to distinguish a waiver from a mere extension of time for

completion. In Siah Kwee Mow v Kulim Rubber Plantations Ltd25, it is regarding the purchase

of rubber estates. The plaintiff in this case could not do his part in that day, then the

defendant apply for extension of time, then plaintiff allow extension of 1 month. Later, the

defendant failed to do and want to terminate the contract. The judge held that the extension of

time make the time become essential.

But the right may be waived if it is something more than a mere extension of time. In

Wong Kup Sing v Jeram Rubber Estates Ltd [1969] 1 MLJ 245, the time is essential as it

involved contract of purchase of rubber estate. The defendant failed to perform the contract.

The defendant asked on certain date but failed again to perform the contract. The court found

that it is not mere extension because still in negotiation.

Section 56(2) provides the effect of such failure when time is not essential. If it was

not the intention of the parties that time should be of the essence of the contract, the contract

21 [1871] 6 Ch App 436.22 [1972] 1 MLJ 21.23 [1983] 1 MLJ 151 FC.24 [1999] 8 CLJ 79.25 [1979] 2 MLJ 190.

does not become voidable by the failure to do such thing at or before the specified time; but

the promisee is entitled to compensation from the promisor for any loss occasioned to him by

such failure.

When a contract has been broken, the party who suffers by the breach is entitled to

receive, from the party who has broken the contract, compensation for any loss or damage

caused to him thereby, which naturally arose in the usual course of things from the breach, or

which the parties knew, when they made the contract, to be likely to result from the breach of

it: Section 74(1) of the Contracts Act 1950.

In the case of Koh Shey Guan v Lee Kok Chan26, A give B 14 days to settle the

balance of purchase price. But commonly, they should give 3 months despite of 14 days

which is too short. So, it was held by the court that the time given by A is not reasonable, so

time is inessential.

26 [1971] 1 MLJ 79 FC.

The Place for Performance

The place of performance is depends on the express or implied intentions of the

parties, to be judge from the nature of the contract and the surrounding circumstances.

In Am. Mfrs. Mut. Ins. Co. v. Sherborn Meadows27, the court held that the nature of a

contract obligation and its interpretation commonly are governed by the law of the place

where the contract is made.

Section 48 states when a promise is to be performed on a certain day, and the

promisor has undertaken to perform it without application by the promisee, the promisor may

perform it at any time during the usual hours of business on the day and at the place at which

the promise ought to be application performed.

It has been illustrated under Section 48, for instance, promises to deliver goods at B’s

warehouse on the 1st of January. On that day A brings the goods to B’s warehouse, but after

the usual hour for closing it, and they are not received. A has not performed his promise.

In Pinnacle Pizza Co. v. Little Caesar Enters28, the court found that under the South

Dakota law, a contract must be construed in accordance with the law of the place where made

unless it is shown that it was the intention of the parties to be bound by the law of some other

place. The test of the place of a contract is the place where the last act is done by either of the

parties which is necessary to complete the contract and give it validity.

But how about the contract where no place is fixed for performance? When a promise

is to be performed on a certain day, and the promisor has not undertaken to perform it without

application by the promisee, it is the duty of the promisee to apply for performance at a

proper place and within the hours of business: Section 49. What is amount to proper place is

depends on circumstances.

According to Section 50 of the Contracts Act 1950, when a promise is to be

performed without application by the promisee, and no place is fixed for the performance of

it, it is the duty of the promisor to apply to the promisee to appoint a reasonable place for the

performance of the promise, and to perform it at that place.

27 LLC, 2008 U.S. Dist. LEXIS 103909 (D. Mass. Dec. 22, 2008).28 560 F. Supp. 2d 786 (D.S.D. 2008).

For example, illustration under Section 50 of the Contracts Act 1950, A undertakes to

deliver a thousand gantangs of rice to B on a fixed day. A must apply to B to appoint a

reasonable place for the purpose of receiving it, and must deliver it to him at that place.