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 RULE1. Each party to the contract has contractual

obligations to perform. Eg

a. Sale Agreement :

> Seller deliver the goods according to the terms / specification stated.

> Buyer’s obligation is the payment when

contract is performed

b. Employment agreement: When does Employer’s 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 positionRule:

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 toLiverpool. Term: Salary to be paid upon reaching the port. Sailor however died en route. Claim by sailor’s widow for his salary.Held: Widow was not entitled to claim his salaryi. 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 LandauerB ordered goods to be packed 30 cans perbox. B rejected goods delivered & refused topay. 50% were packed 24 cans per box. Ssued B for breach of contract. Defence: S had not performed the terms of contractHeld: No discharge of contract by performancei. Breach of term ie condition by Seller. ii. Seller was not entitled to payment. Did not

perform the contract according to the termsiii. Buyer was entitled to repudiate the contract &

reject the goods

Sumpter v Hedges [1898]

• Agreement to buildhouses & stables on D’s 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 [ 800pounds ] for installation of central heating system. System was found ineffective. Held: Claim failed. 1.Pl did not perform his contractual

obligation2.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 byPerforming PartyCase: 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 canshow 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 is…construed as a term of contract, but not a condition…”

M’sian positionKunchi 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

• Pl’s 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 4Acceptance 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 party’s 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 mandatory2. In absence of such provision, reference is made

to industry practiceRight to terminate the contract ?>> Yes

Contracts Act 1950

• Sec 56(1)

Contract…becomes 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

Examplesi. 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 Resp’s 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% deposit2.Completion before 14/11/19923. Time is of the essence4.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: P’s application was rejected1.Time was of the essence. P had breached the

term. Non compliance by P2. 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 Ch’ng 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 non-compliance 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