DISCHARGE OF CONTRACT

HOSPITALITY AND TRAVEL LAW

LAW 419
Nor Akhmal Hasmin

INTRODUCTION
When a contract is discharged, it is actually
terminated.
Once a contract is discharged, the contracting parties
are free from further obligations under the contract.
The contract may be discharged:
a) By performance of the contract; or
b) By consent or agreement between the parties of
the contract ; or
c) By impossibility or frustration; or
d) By breach of contract by anyone of the parties.

a) Discharge by performance
Under a contract, the parties to the contract are bound to
perform their part in the contract - Section 38(1) CA
Usual method to discharge a contract:
Parties need to perform or offer to perform
If both have carried out their obligations complete
discharge
If only one party carried out his obligations he alone is
discharged
It must be strictly performed in accordance with the terms
of the contract unless the parties have agreed otherwise
Section 40 CA 1950
Parties must be prepared to perform their obligations at the
time and place at which he is undertaken to do.

 The parties must perform contract within the stipulated time.

Section 56(1) CA If the time of the performance of the
contract is essential/ important, any delay by one party,
however slight, will entitle the other party to free himself
from any obligation of the contract i.e. to make the contract
voidable.
Case: Sim Chio Huat v Wong Ted Fui
It was held that if in a contract, in which time is of 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 it
as still subsisting.

 Section 56(2) CA If the time is not essential, the contract

does not become voidable but the promisee is entitled to
compensation for any loss he suffered.
When no time is fixed, the promise must be performed
within reasonable time.
If a party fails to perform it by the stipulated time, the
innocent party has the right to rescind the contract, or treat
it as still subsisting (time ceases to be of the essence and
thus becomes at large)
Here, the contract becomes voidable.

Case: Eng Mee Yong v Letchumanan

Lord Diplock, in considering the effect of failure to pay the
purchase price within a specified date where time is of the
essence, held that the caveator had breached a condition of
the sale agreement which entitled the caveatees to elect to
treat the contract as at an end. But if the innocent party
accepts performance after the agreed time, he cannot later
claim compensation for any loss by the non-performance at
the time agreed, unless at the time of acceptance of the
delayed performance, he gives notice to the promisor of his
intention to claim compensation as state in Section 56 (3) in
Contract Act 1950.

 A promisee cannot claim compensation for any loss incurred

by the non-performance of the promise at the time agreed if
he has accepted performance after the agreed time.
Exception: S. 56 (3) Contracts Act 1950 at the time of
acceptance of the delayed performance he gives notice to
the promisor of his intention to claim compensation but
applied only if the contract was performed between parties
outside the stipulated time.
Case: Yeow Kim Pong (Realty) Ltd v Ng Kim Pong
The view of Section 56(3) of the Contracts Act requires a
party who agrees to accept performance outside the
stipulated time to give notice to the defaulting party of its
intention to claim damages for any loss suffered as a
consequence of the delay.

 Section 50 Contracts Act Place for performance where no

place is specified for performance and the promise is to be
performed without application by the promisee, the promisor
has the duty to ask the promisee where would he like the
contract to be performed.
Performance by third part:
Promisor may also a competent person to perform the
contract but he will personally remain liable (section 41
CA)

Performance by whom?
Section 41 CA 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.
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.
If the promisee accepts performance from a third
party, he cannot enforce it anymore against the
promisor Section 42 CA

b) Discharge by Agreement
Section 63 CA A contract may be discharged by the
consent/ agreement of all parties in the form of substitution
/alteration/ rescission of the original contract.
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.
Illustrations (a) and (c) to S.63

c) Discharge by Impossibility or Frustration

A contract is discharged if there is impossibility of
performance of the contract.
It may happen in 2 situations:
1)

The contract is in itself impossible to be performed

Section 57
Illustration (a) to S. 57
The contract is discharged if either one or both parties
become 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) to S. 57

2) The contract becomes impossible to be performed after

it has been made Section 57(2)
It happens because of a supervening impossibility,
which caused the contract,
becomes impossible to be
performed or radically
difficult.
Circumstances in which supervening
illegality discharge a contract

impossibility

or

i.Destruction of the subject matter of the contract.

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

Case: Taylor v Caldwell

A music hall was rented by the ptf from the dft for a
series of concert. However the hall was accidentally
burnt down before the date of the concert. It was
held that the contract was void due to the
frustration.

Case: Berney v Tronoh Mines Ltd

A contract of employment was discharged by
frustration on the outbreak of war when Japan
invaded Malaya.

ii.

There is supervening event which defeats the whole

purpose or object of the contract.
If the contract is entered into for a specific purpose known
to the other party and something happens beyond the
control of either party which results in the purpose of the
contract to be defeated, the contract is frustrated.
Case: Krell v Henry
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. It was held
that Henry could be excused from paying the rent for the
room because the contract was frustrated.

iii. Death or personal incapacity.

A person who is deceased or incapacitated cannot perform
the contract. Hence, the contract is frustrated.
Illustration (e) to S. 57
Case: Robinson v Davidson
The dft contracted to play the piano at a concert on a
specified date. However, the dft fell ill and was unable to
perform on the specified date. The court held that the
contract was discharged by frustration.

iv. There is a change in the law which makes the contract

becomes unlawful if it is performed.
Case: Lee Kin v Chen Suan Eng
- A lease for 5 yearly renewed was held to be frustrated by
the enactment of a new law prescribing annual renewals.
In applying S. 57(2), the court will examine the nature and
terms of the contract, the circumstances under which it was
made and the event frustrating the contract including
whether it has been self-induced.
Case: Ramli B. Zakaria v Government of Malaysia.
It was held in this case that self-induced frustration does
not discharge a party of his contractual obligations.

Consequences of frustration.
Frustration terminates the contract automatically. Therefore, the
contract is void as it is impossible to be performed.
Under S. 66, any person who receives advantage under the
contract is bound to restore it or make compensation for it to the
person from whom he received it.
Section 15(2) Civil Law Act money due but not paid, ceases to
be payable and if money has actually been paid, it must be
restored.
Example: There is a contract to rent a hotel room between A and B
and deposit RM100 was paid by the hirer, A. However before the
performance of the contract, there was a fire at the hotel and it
destroyed the hotel building. In this case there was a frustration
occurred because the subject matter of the contract was
destroyed. Parties are discharge from their obligation, no need to
perform the contract as it is impossible.
A can claim the deposit the remaining balance needs not be paid.

c) Discharge by Breach
When the promisor fails to perform his obligations, there is a
breach of the contract.

This entitles the other party who is not in breach to take

appropriate action which include repudiation/rescission of
the contract - Section 40
The party not in breach has the option either to continue
with the contract or to repudiate it.
Illustration (a) to S. 40

Case: Smith Construction Co Ltd v Phit Kirivata

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

REMEDIES

INTRODUCTION
Remedy is the method by which an injured party
enforces a right or corrects a loss.
When there is a breach of contract, the party not
in default may claim one or more of the following
remedies:
1) Damages
2) Specific Performance
3) Injunction
4) Quantum Meruit

1)

Damages (Section 74-76 Of CA)

The most important remedy for breach of contract.

The purpose of damages to place the plaintiff so far as
the money can do it, in the same position as if the
contract had been performed by compensate the
injured party for loss or damage arising from the
breach.
Section 74 CA when contract has been broken the
injured party entitled to receive a compensation or
damages from the party that has broken the contract.
The party may recover damages for other expenses
incurred as a result of the breach, for the loss of profit
etc.

Categories of Damages
Under the common law, damages may be
classified into 3 categories with reference to
the scale of its amount:
a) Substantial damages
It
is
pecuniary/monetary
compensation
intended to put the plaintiff in the position he
would have enjoyed, had the contract been
performed.

b) Nominal damages
Consists of a small token award where the
plaintif has proven the breach of a
contractual right but suffered no actual loss.
c) Exemplary damages
Consists of a sum awarded which is far
greater than the actual pecuniary/
monetary loss suffered by the plaintiff. They
are
awarded
only
in
exceptional
circumstances. Example breach of promise
of marriage.

Case: Brown v Hilton Hotel

The hotel failed to honour plaintiffs confirmed
reservations. The plaintiffs were unable to find other
accommodation and were forced to fly home. The
plaintiff sought and received damages for breach of
contract.
Case: Freeman v Kiamesha Concord
In this case P failed in his action against the D, the
operator of Concorde hotel, to recover the rate for a
day charged and not refunded after he and his wife
checked out before out before the commencement of
the third day of the reserved 3 days.
The court gave judgment in favour of D, because it was
the guest that terminates the contract prior to the
expiration of contract that will deprive the hotel of
profit

 S. 74 Contracts Act (measure of damages recoverable)an

injured party is entitled to:
i.

Damages arising naturally, i.e. according to the normal

course of things resulting from the breach, and

ii. If he claims special damages for any loss sustained, he

must show that they are such that the other party know
at the time of making the contract that the special loss
is likely to result from the breach, but
iii. Such compensation is not to be given for any remote
and indirect loss or damage sustained as the result of
the breach.

 The party who seek damages is under duty to mitigate

the loss as explained under section 74.
Case: Kebatasan Timber v Chong Fah Sing
It was held that it was the duty of the respondent to
take reasonable steps to mitigate the damage.

Where a customer or the hotel breaches the contract in

a hotel reservation, the innocent party must attempt to
mitigate the loss by renting the room to another guest.

 Parties may also fix a term of contract as to the

amount of damages to be paid in the event of
breach liquidated damages.
S. 75 Contracts Act 1950 the effect of fixing
the sum is simply to determine the upper limit
of compensation.
Mitigation of loss duty to take reasonable step
whereby in failure, the party cannot recover
any such loss flowing from his neglect.

2)

Specific Performance

Equitable relief under the Specific Performance Act

1950
SP is an order of the court directing the contract to be
performed specifically according to its term.
It compels the contracting party who is in breach of the
terms of the contract to fulfil his obligation under the
contract.
This remedy is given at the discretion of the court as
provided under Section 21 SRA; The jurisdiction to
decree specific performance is discretionary.

 Section 11 (1) SRA provides circumstances where SP

may be granted:
a) when the act agreed to be done is in the
performance, wholly or partly of a trust.
b) where there is no standard for ascertaining the
actual damage caused by the non performance of
the act agreed to be done.
c) non-performance would not afford adequate relief
Section 20 SRA states circumstances where specific
performance cannot be enforce for example where
money consideration is an adequate relief where the
contract need personal performance.

Case: Zaibun SA Bt Syed Ahmad v Loh

Koon Moy
A contracted to sell to 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 applied to the court for SP. It was
held that the land in question was of particular
importance for use in association with Bs tin
mining operations, and compensation by way of
money i.e. damages, to B would not afford
adequate relief. The court granted SP.

 Section 21(2) SRA gives the court the discretion

not to enforce specifically a contract in the
following situation:
a) Where the circumstances under which the
contract is made are such as to give the Ptf an
unfair advantage over the dft, though there
may be no fraud or misrepresentation on the
ptfs part.
b) Where the performance of a contract would
involve some hardship on the dft which he did
not foresee, as its non-performance would
involve no such hardship on the ptf.

Case: Venkatachalam Chettiar v Arunasalam

Chettiar
In 1943 the fully authorised agent of the registered proprietor
negotiated with the plaintiffs regarding the sale of the land. In
due course, an oral agreement was entered into: the agreed
purchase money was paid in full and a transfer in accordance
with the provisions of the Land Code was executed but there
was a delay for registration as the registered proprietor was
died in January 1945.
The administrator of the deceased proprietor refused to take
the necessary steps to complete the contract, therefore the
plaintiffs applied for an order of specific performance. The
court granted the specific performance to the Ptf as if the
contract was not performed it seems that it will be at least a
commensurate hardship on the plaintiffs to be deprived of the
fruits of their bargain which may have turned out better than
they had anticipated.

 S. 18(3) SRA gives power to the court to award

compensation in addition to SP if SP is not sufficient to
satisfy the justice of the case.

Case: Lee Hoy v Chen Chi

It would appear that the Court may award
compensation under Section 18 only in a case where
the plaintiff asks for specific performance, and the
Court decides that specific performance ought not to
be granted, though there has been a breach of the
contract by the defendant, or where though specific
performance ought to be granted, but that it is not
sufficient to justify the justice of the case, and that
some compensation for breach of the contract should
also be made, to the plaintiff.

3)

Injunction

Is a 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.
An injunction may be:
1. Temporary injunction (interim or interlocutory
injunction)
It is granted to preserve status quo pending a
resolution of a legal action.

Case: American Cynamid Co v Ethicon

The basic principle in granting an interlocutory
injunction requires the court, in such an application, to
ask
whether there is a serious question to be tried in
the sense that a claim is not frivolous or vexatious and
whether the Ptf has made a prima facie case.
The court then must also consider whether if the ptfs
were to succeed at the trial, he would be adequately
compensated by damages for the interim restriction on
their activities which the grant of an interlocutory
injunction would have imposed. If the relevant factors
were evenly balanced, the court would grant an
interlocutory injunction which would maintain the
status quo.

2. Permanent or perpetual injunction

It is granted only after a full trial and upon the merits
of the case.

Effect of this injunction The Defendant is permanently

prohibited from doing the act or ascertaining a right for
which the injunction was granted.
Case: Neoh Siew Eng v Too Chee Kwong
The court granted a perpetual injunction by ordering
the dft who was a landlord of the ptf, 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 ptf
would not be disconnected.

Other types of Injunction:

3. Prohibitory injunction
It is in the form of a restraining order, stopping
something from being done.
4. Mareva injunction
Prevents the Defendant removing or disposing of any
assets in the jurisdiction until the court makes a
decision.
The Plaintiff must establish all of the following:
a) the defendant has assets that are in the courts
jurisdiction
b) there is a real risk that the defendant will remove
or get rid of any assets before judgement; and
c) the plaintiff can establish a substantive cause of
action such as a claim for damages.

Case: Mareva Compania Naviera Sa v

International Bulk Carriers, The Mareva
International Bulk carriers sub-chartered the Mareva
and let it on a voyage charter to the President of India.
The Indian High Commission paid the freight to them
but they failed to pay the third installment due by
them to the ship owners, despite having the funds to do
so.
They stated that they were unable to pay, and had no
alternative but to cease trading. The court held that if
it appears that a debt is due and owing, and there is a
danger that the debtor may dispose of his assets so as
to defeat it before judgment, the court has jurisdiction
in a proper case to grant an interlocutory judgment so
as to prevent him disposing of those assets. The court
granted an injunction restraining the disposal of
moneys in International Bulk carriers' bank account.

5. Anton Piller Order

May be made available in exceptional circumstances
where it can be shown that the defendant has
incriminating evidence in their possession, which is
necessary to the plaintiffs case and which may well be
destroyed before a court order for discovery can be
made.

Case: Anton Piller v Manufacturing Processes

Ltd
The defendants, an English company and their two directors, were
the United Kingdom agents of the plaintiffs, German manufacturers
of frequency converters for computers.
The plaintiffs claimed that the defendants were in secret
communication with other German manufacturers and were giving
them confidential information about the plaintiffs' power units and
details of a new converter, the disclosure of which could be most
damaging to the plaintiffs.
In order to prevent the disposal by the defendants, before discovery
in an action, of documents in their possession relating to the
plaintiffs' machines or designs, the plaintiffs applied ex parte for an
interim injunction to restrain the defendants from infringing their
copyrights and disclosing confidential information and for an order
for permission to enter the defendants' premises to inspect all such
documents and to remove them into the plaintiffs' solicitors'
custody.

 The court granting the Anton Pillar order as the

plaintiffs had a very strong prima facie case, actual or
potential damage to them was very serious and there
was clear evidence that defendants possessed vital
material which they might destroy or dispose of so as to
defeat the ends of justice before any application inter
partes could be made.
The court had inherent jurisdiction to order defendants
to "permit" plaintiffs' representatives to enter
defendants' premises to inspect and remove such
material; and that in the very exceptional
circumstances the court was justified in making the
order sought on the plaintiffs' ex parte application.

Situations where injunction cannot be granted.

A contract that cannot be enforced by SP could
not also be subjected to an injunction.
Section 54(f) an injunction cannot be granted
to prevent the breach of contract the
performance of which could not be specifically
enforced.
Section 55 SRA provides an exception to
Sectiom 54(f).

Case: Lumley v Wagner

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.
It was held that the court will not enforce a
positive contract of a personal service. Therefore
the contract would not enforce SP against W, to
order W to sing at Ls theatre. However, the court
granted an injunction restraining W from signing
for C at the Convent Gardens.

Case: Pertama Cabaret Nite Club Sdn Bhd v

Roman Tam
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 Kuala Lumpur during
the fixed period of the contract. Thereafter, the
respondent refused to honour the contract and tried to
sing at a rival club.
An interlocutory/ temporary injunction was granted.

4) Quantum Meruit
This mean that a party should be awarded as much as
he had earned .
If the parties enter into contractual agreement without
determining the reward that is to be provided for
performance, then in the event of any dispute, the
court will award reasonable sum.
It can arise where:
a) A defendant has prevented a plaintiff from carrying
out the remainder of their contractual duties;
b) The parties cannot agree on payment; and
c) The parties agree on payment for the partperformance but not the actual amount.

Case: Sumpter v Hedges

The claimant agreed to build two houses and stables for
the defendant. It was agreed that 565 would be
payable on completion. The claimant commenced
performance and then ran out of money and was unable
to complete. He had performed just over half of the
contract. The defendant completed the work himself.
The claimant sought to recover 333 representing the
value of the work he had completed. He argued that in
completing the work himself, the defendant had
thereby accepted partial performance and prevented
the claimant from completing the contract.
It was held that the claimant's action failed. The court
held that the defendant had no choice but to accept
partial performance as he was left with a half
completed house on his land.