Commercial Law
Performance & Termination of Contract (Discharge of
Contract)
Discharge of Contract
What is discharge of contract?
Answer: It relates to the circumstances in which the
contract is brought to and end.
Why is it important?
Answer:
To free each party from their obligations under the
contract.
To end the contractual relationship.
To end potential liability that may arise from the contract.
Discharge of Contract
A contract may be discharged by FOUR circumstances.
Discharge by:
Performance
Agreement
Frustration
Breach
Discharge by Performance
General Rule: Performance of contract must be exact
and precise and should be in accordance with the
promise made by the parties.
Authority: S.38(1) CA - The parties to a contract must
either perform, or offer to perform, their respective
promises, unless the performance is dispensed with or
excused under this Act, or of any other law.
See also S.38(2) CA – what do you understand from it?
Obligation of parties to contracts
38. (1) The parties to a contract must either perform, or offer to
perform, their respective promises, unless the performance is
dispensed with or excused under this Act, or of any other law.
(2) Promises bind the representatives of the promisors in case of
the death of the promisors before performance, unless a
contrary intention appears from the contract.
ILLUSTRATIONS
(a) 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
RM1000 to A’s representatives.
(b) A promises to paint a picture for B by a certain day, at a
certain price. A dies before the day. The contract cannot be
enforced either by A’s representatives or by B.
Discharge by Performance
Example:
A and B enters into a contract for the sale and purchase
of a car. Contract stated that A shall deliver the car to
B’s place of study in Terengganu and B shall pay the
money due upon arrival of the car.
When does discharge by performance occur?
Discharge by Performance:
Exceptions
GR = Performance must be exact and precise = Entire
Contract (The Entire Contract Doctrine)
This GR as to performance is mitigated in a number of
instances (not fulfill GR but considered as Discharge
by Performance nonetheless)
Modification of the General Rule
Divisible Contracts
Acceptance of Partial Performance
Substantial Performance
Performance Prevented
Discharge by Performance
Divisible Contracts – A contract may be ENTIRE or
DIVISIBLE.
An ENTIRE contract is one where the agreement
provides that, complete performance = condition
precedent to contractual liability.
A DIVISIBLE contract is one where the agreement
provides that, part of consideration of one party = set
off against part performance of the other.
Case: Sumpter v Hedges (1898) 1 QB 673
Discharge by Performance
Acceptance of Partial Performance – A party received
the benefit of partial performance of the agreement
under such circumstances that he is able to accept or
reject the work, then he is obliged to pay reasonable
price for the benefit received.
The party who had rendered service may claim for
reasonable remuneration (Quantum Meruit – “as
much as he has earned”)
Case: Christy v Row (1808)
Discharge by Performance
Substantial Performance - When a person fully
performs the contract, but subject to such minor
defects that he can be said to have substantially
performed his promise.
It is regarded as far more just to allow him to recover
the contract price reduced by the extent to which his
breach of contract lessened the value of what was done,
than to leave him with no right of recovery at all.
See: Nirwana Construction v Pengarah JKR Negeri
Sembilan [2008] 4 MLJ 157 – the football turf case.
Discharge by Performance
Performance Prevented – if a party is prevented from
performing his promise under an agreement, what will
happen?
Solutions:
1. Recover Quantum Meruit; OR
2. Recover damages under Breach of Contract.
Discharge by Agreement
General Rule: When both parties to the contract
agrees that the contract shall no longer continue, then
parties are discharged from their obligations.
End a contract with a contract.
Discharge by Frustration
What is ‘Frustration’?
A contract that become legally or physically impossible
to perform (impossibility of performance)
‘Force Majeure’
Authority: S.57(2) CA - contract to do an act which,
after the contract is made, becomes impossible, or by
reason of some event which the promisor could not
prevent, unlawful, becomes void when the act becomes
impossible or unlawful.
Example - A agrees with B to discover treasure by
magic. The agreement is void.
Discharge by Frustration
The act must be ‘impossible to perform’ not merely
‘difficult’ to perform.
It occurs after formation of the contract.
Frustration must not be self induced.
Examples:
War, fire, natural disaster (act of God), riot, strike,
crime.
Discharge by Frustration:
Effects
Contract become VOID
What will happen to the parties?
Seek remedies available for contract discharged by
frustration, which are:
S.57(3) – compensation must be paid by the promisor to
the promisee for loss through non-performance of act
known to be impossible.
S.66 – any person who has received any advantage
under the agreement is bound to restore it OR
compensate it.
Discharge by Breach
Where one party indicates to the other the intention
not to go on with the contract, the party is said to have
REPUDIATED the contract.
A refusal to perform may occur before it is due
(anticipatory breach) OR during performance itself
(actual breach). Refusal will cause breach of contract.
Breach of contract will discharge the contract.
Discharge by Breach: Effect
Breach of Contract!