PREPARED BY: NORAZLA BINTI ABDUL WAHAB

INTRODUCTION

When a contract is terminated, it is said to be discharged and the contracting

parties are free from further obligations arising from it.

How to discharge a contract?

1. DISCHARGE BY PERFORMANCE

Generally, parties to contract are bound by an obligation.

Performance is the usual method for the discharge of a contract

Section 38(1) provides ;:

they must either perform, or offer to perform their respective promises unless the performance is dispensed with or

excused under the law.

When the parties have performed their contracts, by carrying out

their promises under the contracts, there is a complete discharge of

the contract.

If only one of the parties has performed his part under the

contract, he alone will be discharged from the contract.

The other party is still BOUND to the contract until he performs his promise under the said contract.

a) TIME FOR PERFORMANCE

• General Rule:

• A promisor must be prepared to perform his obligation at the time and place at

which he has undertaken to do.

a) TIME FOR PERFORMANCEExample:

If Ali promise to deliver goods to Muthu on 3 Jan 2012 on payment of RM3000.

Thus, Ali is bound to deliver the said goods to Muthu on that day(3 Jan 2012) and Muthu is bound to pay the RM3000.

Thus, a delay even slight in performance , will entitle the other

party to free himself from the contract.

Time is said to be “ the essence of the contract”.

EFFECT OF FAILURE TO PERFORM AT THE FIXED DATE WHEN TIME IS

ESSENTIAL

Section 56(1)“When a party promise to do a certain thing at

or before the specified time, Fails to do such things, then

The contract become voidable at the option of one of the party.”

Sim Chio Huat v Wong Ted Fui [ 1983] 1 MLJ 151

Salleh Abbas F.J:“ in a contract in which time is the

essence of the contract, 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…”

• EFFECT OF FAILURE TO PERFORM AT THE FIXED DATE WHEN TIME IS NOT ESSENTIAL

• When there is a failure of the parties to perform the contract, the contract does not become voidable but the promisee is entitled

to compensation for any loss he suffered

b) PLACE OF PERFORMANCE

If there is a place being specified for the performance of the contract, the parties

must perform the contract at the place specified.

If there is no place specified, the promisor is under a duty to ask the promisee to specify the place of the

performance of the contract.

Section 50“When a promise to be performed without application

by the promisee, and where no place is fixed/ specified for the performance ; thus, it is the duty of

the promisor to ask promisee to appoint reasonable place for the performance of the

promise”.

• IllustrationA 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 A

must deliver it to B at that place

c) BY WHOM CONTRACT MUST BE PERFORMED

Section 41“If it appears from the nature of the case, intention of

the parties that the contract should be performed by the promisor himself,

Then, such promise must be done by promisor personally”.

Illustration (b)A promise to paint a picture for B. A must

perform this promise personally.

“However in other cases/ situations, a promisor or his representatives may employ

a competent person to perform it.”

(Second limb of S. 41 of the CA, 1950)

Illustration (a)“A promises to pay B a sum of money. A may perform this promise either by personally paying the money to B, or by

causing it to be paid to B by another; and if A dies before the time appointed for

payment, his representatives must perform the promise or employ some

proper person to do so”.

d) PERFORMANCE BY THIRD PARTY

Section 42“ When a promisee accepts

performance from a third party, he cannot enforce it anymore

against the promisor.”

Haji Ishak bin Haji Nik Daud v Nik Zainab bte Nik Jaafar [1975] 2 MLJ 82

The appellant and respondents agreed to transfer land to each other. The price of the appellant’s land is RM25,000 and the respondent’s land is RM14,000.

It was also agreed that the difference of RM11,000 will be settled by the sons of respondents (third party) whereby one would responsible to pay RM4,000 and another son for RM7,ooo.00. However, the said RM7,000.00 was not be paid and the appellant claimed payment from respondent.

Haji Nik Ishak bin Haji Nik Daud v Nik Zainab bte Nik Jaafar

Federal Court held: As the appellant had agreed to accept the

performance of the promise from third party, he could not under section 42 of

the Contract Act to enforce the contract.

2. DISCHARGE BY AGREEMENT

1) Where both parties consented to discharge the said contract ; or

2)when there is alteration, substitution, or rescission of the original contract.

Section 63 :“ If the parties to a contract agree to

substitute a new contract for it, or to rescind or alter it, the original

contract need not be performed”.

See illustration (a)A owes money to B under a contract.

It is agreed between A and B that C will become the new debtor. The old debt

between A and B is at end (discharged) , and a new debt is between A and C.

However, the consent must be secured from all parties.

If any of the parties does not agree with the substitution, alteration, rescission of the original contract, then the contract is not

discharged.

Illustration ( c) to S. 63“A owes B, RM 1,000 under a contract. B

owes C RM 1,000. B orders A to credit C with RM 1,000 in his book. But C does not assent to that agreement. Thus, B is still owes C and

no new contract has been entered into.

3) The contract may also be discharged by the consent /

agreement of all parties in the form of waiver/ release/remission.

Section 64 “ Every promisee may dispense with or remit,

Wholly or in part, the performance of the promise made to him; or

May extend the time for such performance; or May accept instead of it any satisfaction which

he thinks fit.”

Illustration (a) of S.64A promise to paint for B. B afterwards forbids him to

do so. A is nor longer bound to perform the promise.

Payment of lesser sum in satisfaction of a larger sum is binding on the promisee if he accepts it.

• Illustration (b) of S.64A owes B RM5,000. A pays to B RM2,000, and B accepts, in satisfaction of the whole debt at the time and place at which the RM5,000.00 were payable.

The whole debt is discharged.

3. DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE/ FRUSTRATION

A contract is discharged if there is impossibility of performance of the contract.

It may happen in following situations:

A. THE CONTRACT IS IN ITSELF IS IMPOSSIBLE TO BE

PERFORMED

i) The contract is discharged if either one or both parties aware of the impossibility .

Section 57 (1)

“ an agreement to do an act impossible in itself is void”

Illustration (a) A agrees with B to discover treasure by magis. The

agreement is void.

ii) If only one party knew of the impossibility, he must make compensation to the other party.

Section 57 (3) “Where one person has promised to do something

which he knew or, reasonable diligence, might have known and which the promisee did not

know to be impossible or unlawful, the promisor must make compensation to the

promise for any loss which the promisee sustains through the non performance of the promise” .

Continue…..Illustration (c) of S.57

A contracts to marry B, which is already maried to C and it is being forbidden by the law to which he is

subject to practise polygamy. A must make compensation to B for

the loss caused to her by non performance of his promise.

B) AFTER CONTRACT HAS BEEN MADE IT IS IMPOSSIBLE TO BE PERFORMED

Section 57 (2) of CA, 1950. “ After the contract is made, become

impossible, or by reason of some event which the promisor could not

prevent, unlawful, becomes void when the act becomes impossible

or unlawful.”

1. DESTRUCTION OF SUBJECT MATTER

The destruction of the subject matter of the contract would frustrate the contract as the contract cannot be performed as contract.

Taylor v Caldwell

a certain music hall was rented but burnt down just before the event.

The court held that the contract was impossible to be performed because

of destruction of the music hall.

2. Supervining events defeat the whole purpose of the contract

If the contract is entered into for a specific purpose known to the other

party and something happened beyond the control of either party

which results in the purpose of the contract to be defeated, the contract

is frustrated.

Krell v Henry

a room was hired for the sole purpose of watching the coronation procession of

King Edward VII but because the King was sick the procession was cancelled.

The court held that Henry could be excused from paying the rent for the room, as the contract was frustrated.

3. Death or personal incapacity

A person who is deceased or incapacitated cannot perform the

contract. Hence the contract is frustrated.

Illustration (e) Section 57

A contracts to act at a theatre for six months in consideration of a sum paid in advance by B. On several occasions A is to ill to act. The

contract to act on those occasions becomes void.

4. A change of law

A contract may be legal when formed but later, owing to a

change in law, its performance may become unlawful.

Lee Kin v Chan Suan Eng [1933] MLJ 197

A lease for five years renewals was held to be frustrated by the enactment of new law

prescribing annual renewals

CONSEQUENCE OF FRUSTRATIONFrustration terminates the contract

automatically and since the contract is void.

Section 66

Any person who received any advantage under the agreement or contract is bound to restore it, or to make compensation for it, to

the person from whom he received it.

Continue…..

Illustration (d) Section 66

A contracts to sing for B at a concert for RM1,000.00, which are paid in advance.

A is too ill to sing. A is not bound to make compensation to B for the loss of the profits

which B would have made if A had been able to sing, but must refund to B the RM1,000.00

paid in advance.

4. DISCHARGE BY BREACH OF CONTRACT

When a promisor fails to perform his obligations or to tender performance,

there is a breach of the contract. the party not in breach entitles to take

appropriate action may include repudiation/rescission of the contract .

Continue…..Section 40 of CA, 1950.

“When a party to a contract has refused to perform, or

Disabled himself from performing, his promise in its entirely;

The promisee may put an end to the contract, unless he has signifies by word

or conduct his acquiescence in its continuance”.

Illustration (a) section 40

A, a singer, enters into contract with B, the manager of a theater two nights in every week during the next two months, and B engages to pay her at the rate of RM100

for each performance for each nights performance. On the sixth night A willfully absents herself from the theater. B is at

liberty to put an end to the contract.

Smith Construction Co. Ltd v Phit Kirivata [1955].

Held :The refusal to issue an architect’s certificate

as agreed under a contract amounted to a breach of contract because it prevented the contractor from proceeding with the construction of the building.

Since the time is important in the contract, the party not in default has a choice either repudiating the contract or treating it as subsisting.

Tan Hock Chan v Kho Teck Sang

Facts: The respondent was a building contractor

employed by appellant to build certain shop houses and payment was to be made as progress payment.

The respondent could not complete work on the final lot because of a claim by the occupier of the land to tenancy rights.

• Held: The failure of the appellant to give effective

possession of the land to the respondent constituted a breach which entitled the respondent to rescind

the contract.