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PK504 BUSINESS LAW

LAW OF CONTRACT
WEEK 3 & 4

At the end of this topic, you should


be able to:
Explain clearly the position of law
regarding contract especially on
essential elements of contract
DISCHARGE OF
CONTRACTS

Discharged termination of contract


Once discharged, contracting parties are free
from further obligations under the contract
Contract discharged mode
Discharge by Performance; or
Discharge by Agreement; or
Discharge by Impossibility/Frustration; or
Discharge by Breach Of Contract
DISCHARGE OF CONTRACTS
1. DISCHARGE BY
PERFOMANCE
performance is the usual
mode of discharging a
contract
S38(1) parties to the
contract are bound to
perform their contract.
When both parties
performed it (carrying out
promises under the
contract) there is complete
DISCHARGE
If only one party
performed his part, he
DISCHARGE OF
CONTRACTS

1. Time For Performance


S56(1)
If it is essential/important, any delay by one party,
however slight, will entitled the other party to free
himself .
From any obligation of the contract
i.e. to make the contract voidable
S56(2)
If time is not essential, contract does not become
voidable but the promisee is entitled to
compensation for any loss
DISCHARGE OF CONTRACTS

SIM CHIO HUAT v WONG TED


FUI
Court Held: 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
is as subsisting
DISCHARGE OF
CONTRACTS

b. Place For 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
Refer s50 & illustration
DISCHARGE OF
CONTRACTS

c. Performance By Whom?
If it is the intention of the parties that the contract
should be performed by the promisor himself, then it
must be performed by him personally (s41 &
Illustration(b))
However in some situations, the promisor may employ a
competent person to perform the contract, but the
promisor will be personally liable under the contract
(S41 & Illustration (a))
DISCHARGE OF CONTRACTS
d) Performance By Third Party
If the promisee accepts performance from a third
party, he cannot enforce it anymore against the
promisor (S.42)
HJ. NIK ISHAK B HJ. NIK DAUD v NIK ZAINAB BT NIK
JAAFAR
Fact: The Appellant & Respondent agreed to transfer
land to each other. A land price at RM25000 and R
land price at RM14000. The difference of RM11000
was agreed by A to be settle by 2 sons of R in a
portion of RM4000 and RM7000.RM7000 was not
paid and A claimed payment from R.
Held: Since the A had agreed to accept performance of
the contract from a third party, he could not enforce
it against R.
DISCHARGE OF CONTRACTS

2. DISCHARGE BY AGREEMENT

A contract may be discharged by the


consent/agreement of all the parties in the form of
substitution/alteration/rescission of the original contract
(S63 & Illustration (a))
However, consent must be secured from all parties. If
any parties does not agree, then the contract is not
discharged (S63 Illustration ( c) )
The contract may also be discharged by the
consent/agreement of all parties in the form of
waiver/release/remission (S64)
DISCHARGE OF CONTRACTS

3. DISCHARGE BY IMPOSSIBILITY/FRUSTRATION

A contract is discharged if there is impossibility of


performance of the contract.
It may happen in 2 situations:
The contract is in itself impossible to be performed
(s.57(1) & illustration(a)
The contract is discharged if either one or both parties
aware of the impossibility
If only one party knew of the impossibility, he must
make compensation to the other party (s.57(3) &
illustration (c)
DISCHARGE OF CONTRACTS

b) The contract becomes impossible to be performed after it


has been made.
S.57(2) it happens because of a supervening impossibility,
which caused the contract becomes impossible to be
performed or radically difficult
Happen in several situation:
Destruction of the subject matter of the contract
There is supervening events which defeat the whole
purpose or object of the contract
Death or personal incapacity
There is a change in the law which make the contract
becomes unlawful if it is performed.
DISCHARGE OF CONTRACTS

1. Destruction of the subject matter of


the contract
Taylor v Caldwell
Fact: A music hall was rented by the P
from D for a series of concert.
However the hall was accidentally
burnt down before the date of the
concert.
Held: The contract was void due to the
frustration
ii. There is supervening events which
defeat the whole purpose or object of
the contract
Krell v Henry
Fact: A room was hired for the sole
purpose of watching the coronation
procession of King Edward VII.
However, owing to the Kings illness,
the procession was cancelled.
DISCHARGE OF CONTRACTS

iii. Death or personal incapacity s.57


Illustration (e)
Condor v Barron Knights (1966)
Facts: C, aged 16 contracted to
perform as drummer in a pop group.
His duties, when the group had
work, were to play on every night of
the work. He fell ill and doctor
advised him to restrict his
performance to 4 nights per week.
The group terminated his contract.
Court Held: A contract of personal
service is based on the assumption
that the employees health will
permit him to discharged by
frustration. But not every illness
discharges a contract of personal
service and permanent incapacity
must be established.
DISCHARGE OF CONTRACTS

iv. There is a change in the law


which make the contract
becomes unlawful if it is
performed
Lee Kin v Chan Suan Eng (1933)
Held: A lease for five yearly
renewals awas held to be
frustrated by the enactment of
a new law prescribing annual
renewals.
DISCHARGE OF CONTRACTS

A contract is discharged because of


any of the situations explained.
Those factors make the contract
becomes impossible to perform.
Contract is discharged not due to any
fault of the contracting parties.
Therefore, either party cannot sue the
other party for breach of contract.
However, if either party has received
any advantage, he has to return it.
(s.66) Illustration (d)
DISCHARGE OF CONTRACTS

4. DISHARGE BY BREACH OF CONTRACT

When a promisor fails to perform his obligations,


there is a breach of contract.
This entitles the other party who are not in breach,
to take appropriate action which include
repudiation (denial) / rescission of the
contract.s.40
The party not in breach has the option to continue /
repudiate it
S.40 illustration (a)
DISCHARGE OF
CONTRACTS

SMITH CONSTRUCTION CO LTD v PHIT KIRIVATA


Held: The refusal to issue an architects
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.
REMEDIES FOR BREACH OF
CONTRACT
1.RESCISSION
OF
CONTRACT
2.DAMAGES
3.SPECIFIC
PERFOMANCE
4.INJUNCTION
5.QUANTUM
MERUIT
RESCISSION OF
CONTRACT

If a party breaches his promise under a contract,


the party not in breach has the right to
rescind/terminate - s.40
If the party not in default choose to rescind, any
benefit which he has received from the defaulted
party must be restored/returned s.65 &
Illustration (c) s.66
Muralidhar Chatterjee v International Film Co Ltd
Held: If a party had wrongfully refused to perform
his part of the contract, the party not in default
had rightly rescinded the contract under s.40. P
DAMAGES

Damages is granted to a party as compensation for


the damage, loss or injury suffered due to a breach
of contract s.76 & Illustration
Categories
Under common law,
1. Substantial damages it is pecuniary/monetary
compensation intended to put the plaintiff in the
position he would have enjoy, had the contract
been performed.
2. Nominal damages consist of a small token
awarded when the plaintiff has proved the breach
of a contractual right but suffered no actual loss.
DAMAGES

3. Exemplary damages
Consists of a sum awarded which is far greater
than the actual pecuniary/monetary loss
suffered by the plaintiff
Exceptional circumstances: breach of promise
of marriage, banker wrongfully dishonors a
traders cheque.
DAMAGES
Types s.74(1) & s.75
Adopted the common law rule
under the case:
Hadley v Baxendale
Held: 2 parties made a contract,
one of them has broken, the
damages which the other party
ought to receiveshould be
consider either arising
naturally, i.e. according to the
usual course of things from
such breach of contract itself,
or such as may reasonably be
supposed to have been in the
contemplation of both parties
at the time they made the
DAMAGES
Under s.74(1), an
injured party is
entitled to 2
types of
damages:
1.Damages arising
naturally
That is according
to the usual
course of things
resulting from
the breach
S.74 illustration
(f) & (j)
DAMAGES

2. Special damages for any special loss sustained


Granted whenever plaintiff suffered some special loss or
loss of profit due to the breach of contract by the
defendant
Special damage plaintiff must prove defendant knew at
the time making the contract, special loss is likely to
result from the breach.
It is at the time making the contract, the defendant has
anticipated that some loss of profits would occur by
reason of their breach
The defendant could foresee the loss
If P failed to prove D could foresee the loss, then P
DAMAGES

Tham Cheow Toh v Associated Metal Smelters


Ltd.
Facts: D agree to sell metal melting furnace to P. D
promised that furnace would have a temperature
of not lower than 2,600F. This was not fulfill
brought an action alleging breach of condition
and claimed damages including loss of profits
Court Held: satisfied that D knew of the
requirement to deliver a furnace capable of
producing the specified temperature. Therefore,
D liable to pay for certain loss of profits suffered
DAMAGES

However, this special damages is not


granted for any remote& indirect
loss/damage
S.74(2) & Illustrations (n) & (p)
LIQUIDATED DAMAGES S.75
This is where the amount of
damages is stipulated or fixed by the
parties under the contract.
If there is a breach, the party at
fault must pay damages up to the
amount stipulated
Such stipulated amount is the
maximum limit of compensation.
SPECIFIC PERFOMANCE

Order of the court, to the party at fault to


carry out the contract according to its term.
Given at the discretion of the Court.
S.21 of the Specific Relief Act 1950 provides:
the jurisdiction to decree specific performance
is discretionary
SPECIFIC PERFOMANCE

When SP may be Granted?


If damages is not an adequate remedy
for breach of contract.
S.11 Specific Relief Act 1950 provide
some circumstances under SP may be
granted
1.s.11(1)(a):when the act agreed to be
done is in the performance wholly or
partly of a trust
Illustration: A holds certain stock in trust
for B. A wrongfully disposes of the
stock. The law requires A to restore the
same quantity of stock to B. B may
SPECIFIC PERFOMANCE
2. s.11(1)(b):when there exists
no standard for ascertaining
the actual damage caused by
the non-performance of the
act agreed to be done.
Illustration: A agrees to buy, B
agrees to sell, a picture by a
dead painter and 2 rare China
vases. A may compel B by SP
to perform this contract if B
refuses to deliver goods to A.
This is because there is no
standard for ascertaining the
actual damages which would
be caused due to the breach
SPECIFIC PERFOMANCE

3. s.11(1)(c): when the act to be performed is


such that pecuniary compensation for its non
performance would not afford adequate relief.
Illustration: A contracts with B to sell him a
house for RM1000. A then refuses to convey
the house to B. B entitled to a decree of
specific performance, directing A to convey
the house to him since a monetary
compensation would not satisfies B.
SPECIFIC PERFOMANCE

4. s.11(1)(d): when it is probable


that pecuniary compensation cannot
be got for the non-performance of
the act agreed to be done
Illustration: A made a contract with B
for delivery of certain goods.
Unfortunately A becomes insolvent
and C is appointed as his assignee. B
may compel C by SP to surrender the
goods to him because it is
impossible for B to get any
compensation for the breach, since
A is already insolvent.
SPECIFIC PERFOMANCE

5. s.11(2): when there is a breach of a contract to


transfer immovable property cannot be adequately
relieved by compensation in money.
Therefore, SP can usually enforce land transactions.
Zaibun Sa Bt Syed Ahmad v Loh Koon Moy
Fact: A contracted to sell B certain pieces of land
adjacent to some land which B was carrying out
mining operations. Later A refused to continue with
the contract. B sued for SP.
Court held: The land in question was of particular
importance for use in association with Bs tin mining
operation, and compensation by way of money to B
SPECIFIC PERFOMANCE

When SP cannot be granted?


s.20 Specific Relief Act 1950 lays down
the circumstances when SP cannot be
granted:
1. s.20(1)(a): A contract for the non-
performance of which compensation in
money is an adequate relief.
2. S.20(1)(b): a contract which is so
dependent on the personal qualifications
or volition of the parties
Illustration: A contracts to sing at a concert
for B. A refuses to sing. B cannot apply
for SP to enforce the contract between
him and A.
SPECIFIC
PERFOMANCE

iii. S.20(1)(c): a contract the terms


of which the court cannot find
with reasonable certainty.
iv. S.20(1)(d): a contract which in its
nature revocable
Illustration: A contract with B for
certain matter under a fraud.
The contract is therefore
revocable. Therefore B cannot
enforce the contract by SP if A
wishes to revoke the contract.
v. s.20(1)(e): a contract made by
trustees either in excess of their
powers or in breach of their
trust
SPECIFIC PERFOMANCE

v. s.20(1)(e): a contract made by


trustees either in excess of their
powers or in breach of their trust
Illustration: 2 trustees, A & B,
empowered to sell trust property
worth RM10000, contract to sell it to
C for RM3000. the contract is so
disadvantageous as to be a breach
of trust. A & B now cannot continue
the contract with C. C cannot
enforce the contract by SP.
vi. S.20(1)(f): a contract made by or on
behalf of a corporation or public
company created for special
purposes, or by the promoters of the
company, which is in excess of its
powers.
SPECIFIC PERFOMANCE

vi. S.20(1)(f): a contract made by or on behalf


of a corporation or public company created for
special purposes, or by the promoters of the
company, which is in excess of its powers.
Illustration: A company existing for the sole
purpose of making and working a railway,
contracts for the purchase of a piece of land
for the purpose of erecting a cotton-mill
thereon. This contract cannot be enforced by
SP.
SPECIFIC PERFOMANCE

s.20(1)(g): a contract the performance of which


involves the performance of a continuous duty
extending over a longer period than three
years from its date.
Illustration: A contract to let for 21 years to B
the right to use such part of certain railway
made by A on Bs land. Under the contract, B
should have the right of running carriages
over the whole line, and that A should during
the 21 years term, keep the whole railway in
SPECIFIC PERFOMANCE

viii) s.20(1)(h): a contract which


material part of the subject matter
supposed by both parties to exist,
has, before it has been made,
ceased to exist.
Illustration: A contracts to pay annuity
to B for the lives C and D. It turns
out that, at the date of the date, C,
though supposed by A and B to be
alive, was dead. The contract
cannot be specifically enforced by
SP.
ix)s.20(2): a contract which provide a
provision(condition) to refer a
controversy to
arbitration(negotiate).
SPECIFIC PERFOMANCE

xi) s.21(2)(b): where


the performance of the
contract would involve
some hardship to the
defendant which he
did not foresee.
Whereas its non-
performance would
involve no hardship on
the plaintiff.
INJUNCTION

Courts order to restrain the doing,


continuance or repetition of some wrongful
conduct, which is against the contract.
It is granted at the discretion of the Court.
S.50 of the Specific Relief Act 1950 provides:
preventive relief is granted at the discretion of
the court by injunction, temporary or
perpetual.
INJUNCTION

Types
1. Temporary injunction
s.51(1): temporary Injunctions are
such as are to continue until a
specified time, or until the further
order of the Court. They may be
granted at any period of a suit
It is synonymous with Interlocutory
or Interim injunction.
The purpose of Temporary Injunction
is to preserve the status quo of the
parties, pending the resolution of a
legal action.
INJUNCTION
American
Cyanamid Co. v
Ethicon(1975)
Court Held: An
interlocutory
injunction is
granted to
maintain the
status quo(keep
the things the
way they
present), if
there were
INJUNCTION

ii. Perpetual Injunction


S.51(2): A perpetual injunction can only be granted by
the decree made at the hearing & upon the merits of
the suit; the defendant is thereby perpetually
enjoined from the assertion of a right, or from the
commission of an act, which would be contrary to the
rights of the plaintiff.
To prohibit the defendant permanently from doing an
act or asserting a right, which is against the plaintiffs
right.
It is only granted only after a full trial by the Court &
upon the merit of the case.
INJUNCTION
Neoh Siew Eng v Too Chee
Kwong
Court Held: The Court granted
a perpetual injunction by
ordering the defendant who
was a landlord of the
plaintiff, to keep all
communication pipes in
proper repair and to comply
with all regulations of the
Waterworks Department so
that water supply to the
premises rented by the
plaintiff would not be
INJUNCTION

When it cannot be granted?


A contract that cannot be
enforced by SP could not also be
subjected to an Injunction.
S.54(f) provides
an injunction cannot be granted
to prevent the breach of a
contract the performance of
which could not be specifically
enforced
- For instance; a contract for
INJUNCTION

Exception
s.55 SRA 1950, provides an
exception to s.54(f)
notwithstanding s.54(f), where a
contract comprises an affirmative
agreement to do a certain act,
coupled with a negative agreement,
not to do a certain act, the
circumstance that the court is
unable to compel SP of the
affirmative agreement shall not
preclude it from granting an
Injunction to perform the negative
agreement
INJUNCTION

Therefore, any contract which


consists of both positive and
negative agreements, injunction can
be granted in order to prevent the
breach of the negative agreement.
Lumley v Wagner
Facts:W an opera singer contracted to
sing for L at a theatre for 3 months.
And promised that she will not sing
elsewhere during that period
without Ls written permission. W
later agreed, for a larger sum of
money to sing for C at the Covent
Gardens and abandoned her
contract with L. L sued W for SP
Court held: s20(1)(b) SRA 1950
provides that SP cants be enforce.
However injunction restraining W
from singing for C granted.
INJUNCTION

Pertama Cabaret Nite Club Sdn Bhd v Roman


Tam
Facts: Respondent had signed a contract to sing
at the appellants nightclub for a number of
days. The contract provided that, in the event
of a breach, the respondent should not
perform in KL during the fixed period of the
contract. Thereafter, the respondent refused
to honour the contract and tried to sing at a
rival club.
QUANTUM MERUIT

Claim for reasonable remuneration for work done or services


supplied under the contract, in the event of a breach of
contract.
When it can be claimed?
1. Where one party abandons/refuses to perform the contract
Planche v Colburn
Facts: P contracted with C to write a volume of ancient armour
for a periodical called The Juvenile Library for a fee of
$100. after P had written part of his work, C abandoned the
periodical. The contract could not therefore completely
performed. P sued C
Court Held: C had repudiated the contract & P was entitled to
treat it as discharged and recover a QM for the work he had
QUANTUM MERUIT

2. Where work has been performed and


accepted under a void contract.
Craven-Ellis v Canons Ltd
Facts: P was employed as managing
director of Canons Ltd under a contract
which provided for salary.
Unfortunately the directors who made
the appointment contracts were
unqualified. Therefore the contract of
appointment was void. P has rendered
his services and now sued on QM for a
reasonable sum.
Court held: P could recover on a QM since
there being no any valid contract.
End of CHAPTER
2