ISSUE :

Whether the contract entered into by Peter Pan and OZ Sdn Bhd is an entire contract or
divisible contract?

LAW 1 :

The general rule for discharge by performance, also known as exact performance rule,
is performance must be exact and precise and in accordance with what the parties have agreed
upon. That is to say when the contract is fully performed, both parties will be discharged by
performance. This is further strengthen pursuant to Section 38(1) of the Contracts Act
whereby parties to contract must either perform or offer to perform their respective promises,
unless such performance has been dispensed with by any law. In the case of Bolton v
Mahadeva, the plaintiff agreed to fix the central heating system in the defendant’s house. Due
to the inefficiency of the plaintiff’s work which caused the central heating to worsen, because
of that,the defendant refused to make payments. It was held that the plaintiff was not entitled
to claim for the payment on the ground that the plaintiff’s performance was not complete. This
shows the rigidness and strict application of the general rule which resulted in one party gaining
benefit at the expense of another.

Hence, exceptions are introduced to mitigate the harshness of the exact performance
rule that is recognized by the law. One of the ways is by differentiating between entire and
divisible contract. For entire contract, contract can only be fulfilled as a whole, as a result,
failure in any part is failure as a whole. Besides, complete performance is a prerequisite for
payment, meaning that right to payment does not arise until the contract has been completely
performed. Meanwhile, for a divisible contract, it is a contract of which the performance can
be separated, so that failure in one part affects the parties’ rights as to that part only. Payments
are made progressively, thus, right to payment arises as each part of the contract is performed.
To determine the type of the contract, whether entire or divisible, the intention of the parties
need to be observed.

In the case of Tong Aik (Far East) Ltd v Eastern Minerals & Trading Ltd, the
defendants claimed to set off various sums said to be due to them and counterclaimed for loss
of profits and penalties incurred by them as a result of plaintiff’s breach. The court construed
the contract and held that it was a divisible contract as the parties did not intend the contract to
be fulfilled as a whole. Meanwhile, in the case of KP Kunchi Raman v Goh Bros Sdn Bhd,
the plaintiff, a contractor, agreed to lay water pipes complete with specials and valves. Under
the agreement, the defendant undertook to supply the pipes at the site of the work and the
plaintiff was to supply all labour and other equipment for laying the pipes. The plaintiff also
agreed to perform the work of reinstate of a cycle track. There was a dispute as to the
completion of the work and the payment due. The issue was whether the agreement was a
divisible or an entire contract. It was held that generally, such contract will not be entire but it
could be so if the intention of the parties is clear. The said agreement as a whole has a clear
expressed intention and the contract should be entire.

APPLICATION 1 :

To apply in this current situation, Peter Pan had entered into a contract with OZ Sdn
Bhd to execute certain works which are to lay water pipes complete with valves between Ajil
and Kuala Terengganu and between Ajil and Jalan Benut in Kuala Berang as well as the work
to replace of a cycle track of a size and length and at rates detailed in the said agreement. Peter
Pan then abandoned their contract with OZ Sdn Bhd in order to work with Messrs Arlow
Construction Co. They claim to be paid accordingly by OZ Sdn Bhd as they had completed
their work on 15 July 2015 and 15 September 2015, however, according to OZ Sdn Bhd the
works were not completed due to not achieving their desired satisfaction over the work done.
Observing Clause 16 of the contract made between Peter Pan and Oz Sdn Bhd that stated that
“shall make progress payment at regular interval to Peter Pan for the work done at the rate of
90%” and “the balance 10% shall be paid within fourteen days upon the completion of all work
by Peter Pan in accordance with the agreement”, this shows that payments are made
progressively and that the payment arises as each part of the contract is performed. Thus, by
applying the case of Tong Aik (Far East) Ltd and in contrast with the case of KP Kunchi
Raman, it is clear that the intention of the parties is to treat the contract as a divisible contract
and not an entire contract as the progress of the payments are included in the contract between
Peter Pan and OZ Sdn Bhd through Clause 16.

CONCLUSION 1 :

The contract entered into by Peter Pan and OZ Sdn Bhd is a divisible contract, thus,
Peter Pan is entitled to claim for their payments.
ISSUE 2 :

Whether the contract between Peter Pan and OZ Sdn Bhd is a part of doctrine of
substantial performance or not?

LAW 2 :

The doctrine of substantial performance enables a party who has performed

substantially his obligations under the contract to make a claim for payment. A substantial part
of the contract must have been performed, and the part unperformed must only be a small part
to the whole contract. Because of that, the right for payment of the stipulated price can be
claimed by the parties subject to cross-claim or a counter-claim by the other party for the
omission and defects due to the failure to perform the contract completely. Two considerations
must be taken in order to determine whether a contract has been substantially performed,
namely, the nature of the defects and the proportion between the cost of rectifying such defects
and the contract price. The first consideration is seen through the case of Building & Estates
Ltd v Connor. In this case, the plaintiffs claimed from the defendant the unpaid purchase
money in respect of a house which the plaintiffs had built for the defendant. The defendant
began occupying the house but refused to pay the balance of the purchase price as it was not
built according to specification and that much of the works were defective and of inferior
quality. It was held that the plaintiffs are entitled to claim from the defendant the contract price
if they can show that the work which they have done constitutes substantial compliance with
the contract. The defects and omissions proven by the defendant were not such as to entitle the
defendant to say that the plaintiff had not substantially performed their promise under the
contract. Meanwhile, the second consideration is seen in the case of KP Kunchi Raman v
Goh Bros whereby in this case, the court found that the defendant was not entitled to repayment
of the sum paid as the plaintiff had substantially completed the greater part of the contract
which cost $55k out of $71k, but the defendant is entitled to a cross-claim for defects and
omissions.

APPLICATION 2 :

Applying in the current situation, both of the considerations to determine that the
contract entered into by Peter Pan and OZ Sdn Bhd has been substantially performed, has been
fulfilled. By applying the case of Building & Estates Ltd and KP Kunchi Raman, Peter Pan
has fulfilled the considerations as they have performed the greater part of the contract and had
been paid RM55,000 over Rm71,000, thus, considering that almost 80% of the work had been
done, the contract entered into has been substantially done hence, they may claim for the
remaining payment although they failed to completely execute the work as agreed.

CONCLUSION 2 :

The contract between Peter Pan and OZ Sdn Bhd is a part of doctrine of substantial
performance