DISCHARGE OF CONTRACT

BY PERFORMANCE

Discharge of contract
Meaning
> Contract is terminated
> Parties are released / discharged from
contractual obligations
NOTE:
Dispute arise where X demand performance
of contract, but Y claimed he was discharged
from contractual obligation to perform

GENERAL RULE
1. Each party to the contract has contractual
obligations to perform. Eg
a. Sale Agreement :
> Seller deliver the goods according to the terms /
specification stated.
> Buyers obligation is the payment when
contract is performed
b. Employment agreement:
When does Employers duty to pay salary
arise?

2. Order of performance
Question of who is to perform 1st
Sec 53 : when the order of performance of
contract for reciprocal promise is fixed by
the contract, they shall be performed in that
order
>>> Question of construction of terms on
WHO is the 1st person to perform the
contract

Mars Equity Sdn Bhd v Tis Ata ashar

Sdn Bhd [2006] 4 MLJ 302 CA
Facts:
2 agreements made simultaneously ie
SPA on land, Resp to transfer land title
&Timber agreemt , App to apply for
licence.
Issues: i) What is the order of the
agreemt?
ii) Relevant remedy?

Held
1. Order n sequence: S 53 Contract Act;
look at nature of transaction
2. Only registered owner of land can apply
for licence. Vendor (R) has breached
primary obligation.

Common law position

Rule:
1.Parties to contract must perform their
contractual obligations as per the terms.
2. Performance of entire / lump sum contract
i. must be exact, complete & precise
>> pre-condition to payment
ii. Agreement ends when each party fulfills
his contractual obligations
Case: Sumpter v Hedges

Consequence of non
compliance
Deviation / non performance = breach of contract.
>> Party in breach is not entitled to payment.
Reason: Contract was not fully performed as
per the terms
>> Where non performance is inexcusable,
contract breaker faced a claim of breach of
contract
>> Effect: Injured party is entitled to terminate all
future obligations under contract
Case: Re Moore v Landauer

Cutter v Powell [ 1795]

Employment contract as 2nd mate from Jamaica to
Liverpool. Term: Salary to be paid upon reaching the port.
Sailor however died en route. Claim by sailors widow for
his salary.
Held: Widow was not entitled to claim his salary
i. Entire contract / Lump sum contract.
ii. Right to payment was dependent on completion of the
journey.
iii. Deceased did not complete his task or perform the
contract in its entirety. Right to payment is
dependent upon completion of duties
Note: strict application of common law principle

Re Moore v Landauer
B ordered goods to be packed 30 cans per
box. B rejected goods delivered & refused to
pay. 50% were packed 24 cans per box. S
sued B for breach of contract.
Defence: S had not performed the terms of
contract
Held: No discharge of contract by performance
i. Breach of term ie condition by Seller.
ii. Seller was not entitled to payment. Did not
perform the contract according to the terms
iii. Buyer was entitled to repudiate the contract &
reject the goods

Sumpter v Hedges [1898]

Agreement to buildhouses & stables on
Ds land for 565 pound. Pl did part of the
work only & abandoned the work. Dthen
completed the work.
Issue: Was the Pl entitled to claim the
value of the work done by him , ie 333
pounds?
Held: NO

Bolton v Mahadeva [ 1972] HL

Claim by contractor for payment [ 800
pounds ] for installation of central heating
system. System was found ineffective.
Held: Claim failed.
1.Pl did not perform his contractual
obligation
2.Pl could get nothing

Effect of judgements
Strict application of complete & precise
performance of entire contracts
Criticism:
> unjust enrichment for Paying party
who had benefitted from the contract

EXCEPTION 1 : Payment can be

claimed if
Substantial Performance of Contract by
Performing Party
Case: Bolton v Mahadeva [ 1972] HL
RD: Paying party to pay if there was substantial
performance by contract breaker
Contract breaker is entitled to contract price ,
subject to counter claim for cost to remedy defect
(eg cost of hiring another contractor) if he can
show that he has substantially performed his
obligations

Hoenig v Isaacs [ 1952]

per Denning LJ
when a contract provides for for a
specific sum to be paid on completion of
specified work, the courts lean against a
construction which would deprive the
contractor of any payment simply because
there are some defects. The promise to
complete the work isconstrued as a
term of contract, but not a condition

Msian position
Kunchi Rahman v Goh Bros (1978)
FACTS
Contract worth $71000 was made with Pl to
supply & lay pipes between Mak Mandin & Prai
for $ 16580. Work was not completed despite
reminders given. D incurred expenses. Another
contractor was hired to complete the work.
Claim for payment was made by Pl. Def
counterclaimed for damages

Issues
> Was Contractor entitled to the contract sum?

How much?
> Was the contract substantially performed?
Note:
English law was followed. Ratio decidendi of
Bolton v Mahadeva was applied

Held
Agreement was an entire contract. Pl had
substantially performed / completed the
contract. Entitled to claim balance of
payment [ $11,000]
Def was also entitled to counterclaim for the
defects & cost to complete the contract [ ie $
22,000]. Damages awarded will diminish /
reduce amount claimed by Pl. Amount after
adjustment : $6047
Pls claim was dismissed

EXCEPTION 2
Divisible Contracts :
> Obligations broken down into smaller units
eg
i. building contracts ---payment according
to percentage of work done
ii. Employment contract----salary paid at
intervals eg on daily or weekly basis

Divisible Contracts
Difference from entire contract
> Separate payment for performance by
instalment
Question : How much to pay ?
Tong Aik v Eastern Mineral (1963 )

EXCEPTION 3
Prevention of Performance of Contracts
Unfair to disallow claims for portion of work done
Party who prevent performance of contract
committed breach of contract
Performing party allowed to sue payment on
quantum meruit: basis
Planche v Colburn [1831]

EXCEPTION 4
Acceptance of partial performance
Inference of new contract. Implied contract to
pay for work done
No entitlement to original contract price. Right
to payment on quantum meruit
Innocent partys option to accept or reject
incomplete / partial performance of contract
Case: Sumpter v Hedges
Smith Construction Co Ltd v Phit
Kiritvana [ 1955]

Time for performance of contract

Contract must be performed at the time
agreed by the parties
Effect of non compliance with stipulation /
term of contract?
>> No standard / uniform principles.
>> See the terms of contract

Time is of the essence.

1 Where time of performance is crucial, the
parties should make express mention in the
contract, ie make time of the essence
IMPLICATION
>> Important term of contract ;
>> compliance with the date is mandatory
2. In absence of such provision, reference is made
to industry practice
Right to terminate the contract ?
>> Yes

Contracts Act 1950

Sec 56(1)
Contractbecomes voidable at the option
of the promisee, if the intention of the
parties was that time should be of the
essence of the contract
Note:
Term on time of the essence of the
contract is thus a condition / important term
of contract

Sec 56 (2) : reasonable time to

complete
Where time is not of the essence,
performance is within reasonable time
Meaning of reasonable time?
Case
Penang Devmt Corporation v Khoo Chin
Boo
>> Question of fact

Time is of the essence : S56

What is the intention of parties?
Effect of breach of term: Contract is
voidable

Examples
i. Sale of goods
S11 SOGA, 1957: Stipulation / term as to time
of payment is not deemed as of the essence.
Stipulation as to time of delivery of goods
Case: Himatsing v Joitaram
ii. Sale of land :
Generally , time is not important, unless it is
specified that time is of the essence
Jamshed Khodaram Irani v Burjoji [1913] PC

Jamshed Khodaram Irani v Burjoji

[1913] PC
In relation to land,

completion is to take place within a

reasonable time, notwithstanding the
specific time named.[ General rule]
one looks at the intention of the parties
In equity , time is not of the essence of the
contract

 Equity will infer an intention that time

should be of the essence from what has
passed between the parties prior to the
signing of the contract
[ note: parties to specify in the agreement
if want to make time as an important
element/ condition of a contract ! ]

Sim Chio Huat v Wong Ted Fui

[1983] FC
Building contract with App, a housing
developer
Term that time was of the essence. No
term or provision on extension, or
alterations & additional works.
App was unable to complete & deliver the
houses within the stated time.
Claim for price of extra work done at
Resps instruction & expenses incurred

Issues:
Relevance of additional work given by
Resp?
Was the extra time to perform the work =
a waiver of the term that time is of the
essence?

Decision: Salleh Abas FJ

1. Stipulated time for delivery was
essential condition of the agreement.
Failure to fulfill it entitled Resp to exercise
the option of terminating / rescinding OR
continue with the contract
2.Resp did not repudiate the contract, but
had allowed time to pass ie acquiescence
in the work continuuing & ordering extra
work to be done ,

continue
where there was no such provision in the
agreement ,means he had waived his
right to rescind the contract & the right to
treat himself as discharged
3. The term / stipulation as to time ceased to
be of the essence of the agreement.
reason: Acquiescence in the
continuance of the work

Extension of time:
What is the legal implication?
CONSIDER:

1.Was the term that time is of the essence

no longer applicable?
2. Was there a waiver of that term?

Extension of time:
What is the legal implication?
3. If the performing party breached the
contract [ ie did not complete the contract
despite the new time extended ] , can the
parties rely on the original date of
performance?
4. Must there be insistence on time being of
the essence of contract [ for the new time /
date] ?

Loke Yuen Cheng v Vimtex [ 1998]

4 CLJ 352
Issue:
Whether mere grant of extension of time is a
waiver of express term that time is of the essence?
Facts: SPA of land made on14/08/1992.
Terms of contract:
1.10% deposit
2.Completion before 14/11/1992
3. Time is of the essence
4.Vendor to grant extension of time of 2 mths to
enable Purchaser to pay balance of price

Loke Yuen Cheng v Vimtex

> Time of payment was extended to 13/1/93.
> P did not pay the money on 13 / 1/ 93.
> V rescinded agreement on 14/01/1993 &
forfeited deposit.
P sent a cheque a few days later. P later
claimed specific performance of contract ie the
land be transferred to him.
Held: Ps application was rejected
1.Time was of the essence. P had breached the
term. Non compliance by P
2. V was entitled to forfeit the deposit

Yeow Kim Pong Realty v Ng Kim

Pong [ 1962] PC

1.Sale of land . Purchaser failed to pay on

the date specified.
2.Supplementary agreement: V agreed to
give P extension of time provided that
certain conditions were fulfilled; otherwise
extensionof time would be withdrawn . P
failed to pay. V forfeited the deposit n
terminated the contract

Held: The Rt Hon LMD De Silva

Question whether time is of the essence is
one to be determined by ascertaining the
real intention of the parties.
Sec 56[3] does not place a limitation upon
the freedom of parties when one of them
failed to perform the promise. The contract
could be reaffirmed in its original or varied
form and subject to such conditions as may
be agreed

CORRUGATED CARTON PRODUCTS

SDN BHD v. KONG LONG HUAT REALTY
SDN BHD [2004] 3 CLJ 1 FC
Issues: Whether termination proper
Whether purchaser entitled as of right for
extension of time to make payment

FACTS
App [P] entered into a sale and purchase
agreement dated 11 October 1989 with
the Resp [V] to purchase land at the
agreed price of RM550,000. At the time of
execution of the agreement, App had paid
Resp RM50,000.
By cl. 3(a) App was to pay the balance of
RM500,000 on or before 9 January 1990.

 3(a)Completion of the sale and purchase of the said

property shall take place within a period of Ninety
(90) days from the date of this Agreement
(hereinafter referred to as "the Completion Date").
Provided always and it is hereby agreed by and
between the parties hereto that the Vendor shall
grant to the Purchasers an extension of a further
thirty (30) days in respect of the Completion Date
but upon payment of interest on the outstanding
balance of the purchase price at the rate of eight
point five per centum (8.5%) per annum calculated
on a daily basis during the period of extension

HELD Abdul Malek Ahmad

FCJ
Read in its entirety, it was clear beyond doubt
that the completion date was ninety days after
the execution of the agreement. But a further
extension of thirty days shall be given by the
respondent upon payment of interest on the
outstanding balance of the purchase price
notification for the extension was essential
before the expiry of the initial period and a
written undertaking to pay

 With no interest paid by the appellant for the

extension period and without any notification
that an extension was needed despite the
exchange of correspondence during the
crucial period before and after the expiry of
the initial period of three months, how was the
respondent to know that the appellant needed
an extension to complete the agreement?

Resp [V] is entitled to have the deposit

forfeited in accordance with clause 9.

Sik Hong Photo Sdn Bhd v Chng Beng

Choo [2010] 3 MLJ 633 CA
1.Sale and purchase of property
2.Specified mandatory date of completion of sale
Issues:
a.Whether time was of essence
b.Whether purchaser could rescind sale and
purchase agreement for default of completion
date : Contracts Act 1950 s 56(1)

Held Low Hop Bing JCA

1.The essence of time in the SPA came
under s 56(1) of the Act and the failure of
consideration was within the ambit of s 40 of
the Act.
2. Section 40 must be read together with
Sec 56(1) when determining whether Def
as a promisor had committed a breach of
such a nature that went to the root of the
contract ie a fundamental breach.

Low Hop Bing JCA

That fundamental breach entitled Madam
Ng to rescind the contract and to have the
parties restored to a position where they
would stand as if the SPA had never been
made ie the return of the property by way of
restitutio in integrum to Madam Ng, and,
upon her death, to her estate

Soon Yee Ling & Anor v Lim Ah Hun [2011] 1

MLJ 735
FC, [2011] 1 MLJ 819 CA
1. Agreement dated 11 April 2000 ('the
SPA') whereby Respondent agreed to buy
the lands at RM1,600,992.20 & redeem
the land charged to the banks.
2. Deposit of RM264,992 was paid , &
balance sum of RM1,336,000

.
3. He applied to Bank for a loan of
RM800,000. It was approved on 26 June
2000. However, until 21 July 2000, ie the
date of the termination of the agreement,
the lands had not been redeemed by
Resp
4. Under cl 22 of the SPA, time shall be of
essence of the agreement

Issues
(i) whether the App [V] were entitled to terminate
the SPA and to forfeit the deposit for the noncompliance by the Resp [P] of the condition to
redeem the property within the time stipulated
[YES]
(i) whether the Resp was entitled to insist on the
App continuing with the SPA when the
respondent himself failed to redeem the
property within the stipulated time.
[ NO]

Held Arifin Zakaria CJ (Malaya)

Appeal allowed
the respondent's failure to pay the
redemption sum in accordance with
section 2 of the Fourth Schedule
tantamount to a failure to pay the balance
of the purchase price. That certainly
constituted a breach of the SPA

 the parties to the SPA has agreed that

time shall be of the essence of the
agreement (see cl 22 of the SPA). Resp
promised to pay the redemption sum on or
before 11 July 2000 and failed to do so at
or before the specified time. Therefore,
under s 56(1), the agreement, or so much
of it as has not been performed, becomes
voidable at the option of the appellants.

THE END