TUTORIAL

Question 1
What is discharge of contract? State how the contract can be discharged.
Discharge of contract can be defined as the termination of a contractual relationship or
contractual obligation between parties. A contract is said to be discharged when it ceases to
operate, for example when the rights & obligation created by it come to an end. Where a contract
is discharged, each party is freed from their continuing obligations under the contract.
In Malaysia, there are several methods or ways of how a contract can be discharge.
Firstly, discharge by frustration. A contract may be frustrated where there exists a change in
circumstances, after the contract was made, which is not the fault of either of the parties. The
doctrine of frustration operates in situations where it is established that due to subsequent change
in circumstances, the contract is rendered impossible to perform, or it has become deprived of its
commercial purpose by an event not due to the act or default of either party.
Secondly, discharge by agreement. As per Section 63 of the Contract Act 1957; if parties
to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract
need not be performed. A contract may be discharged by agreement when both parties agree to
bring the contract to an end and release each other from their contractual obligations. Under this
method, contract may be discharged via novation, rescission or variation.
Thirdly, discharge by breach. A contract is breached when a party fails to perform his
contractual obligation. Every breach will give the innocent party a right to claim damages for any
loss suffered. However, serious breached will entitle the innocent party to not only claim
damages but also be discharged from all future obligations. Section 40 of the Contract Act 1957
has provided situations in which innocent party may rescind the contract.
Next, discharge by performance. A contract becomes discharged through performance
where both parties have fully performed their contractual obligations. Performance must be exact
and precise and in accordance with what the parties have agreed as per Section 38(1) of Contract
Act 1957.

QUESTION 2
Explain self induced frustration with relevant cases.
Definition : Either one party is at fault causing the contract impossible to be carried out,
Contract no frustrated (simply because it doesnt fulfill the elements). If the party on his own
action makes performances of the contract impossible.
Relevant cases :
In the case of Yee Seng Plantation Sdn Bhd V Kerajaan Negeri Terengganu the
appelant challenged the acquisition by the state of Terengganu of certain land in Kerteh
in which the appelant was sub-lessee. Following the negotiations between the state legal
adviser for the respondents and the appellants solicitors, the parties compromised and
entered a consent order. Later the Exco of the first respondent decided to reject the
appelants application for alienation of the land referred to in the consent order and
the respondents contended that the decision by the Exco over which the resp. had no
control was a supervening event that frustrated the consent order.
Held : It is well settled that the doctrine of frustration has no room where there is
fault on the part of the party pleading. Self-induced frustration is no frustration.
( Syed Ahmad Alsagoff pg 513)
Secondly, in the case of Maritime National Fish Ltd. V Ocean Trawlers Ltd. The
charterers, hired a ship from the ownerswhoch both parties knew needed a license from
the Canadian Govt. The charterers had 4 of their ships and they applied for 5 licenses,
they were only granted 3 licensees and used for their own ships, they had claimed that
the charter was frustrated.

Held : It was their own choice not to use a license for the chartered ship and
therefore could not claim frustration.

QUESTION 3
Explain the test of things radically different as established in Davis Contractors case.
The juristic basis of the doctrine of frustration has evolved over number of years. The
English courts have over time rejected the notions of just solution, foundation of the
contract, failure of consideration and implied term, and instead adopted the test of a radical
change in the obligation, which is currently regarded by leading commentators as the preferred
approach.
Test for frustration as applied by the Malaysian courts was formulated by the House of
Lords in Davis Contractors ltd v Fareham UDC. In the case, Davis Contractors agreed to build
78 houses for Fareham Council within 8 months for an agreed price of 85,000. Due to a
shortage in skilled labour and material the contract took 22 months to complete and was much
more expensive than anticipated. Davis Contractors were paid the contractually agreed price but
bought an action arguing for more money based on the fact that the contract had become
frustrated and therefore they were entitled to further payment based on a quantum meruit basis. It
was held that the contract was not frustrated. The fact that a contract becomes more difficult to
perform or not so profitable is not sufficient to amount to frustration. It was still possible to
perform the contract.
That test was first formulated by the House of Lords in Davis Contractors Ltd v Fareham
U.D.C. As Lord Radcliffe put it frustration occurs when without default of either party a
contractual obligation becomes incapable of being performed because if it were performed, it
would render it a thing radically different than that which was contracted.
Lord Denning stated that the contract must first be construed to see whether the parties
have provided for the situation that had arisen. If they had, there is no frustration and the contract
applies. If they have not, then th new situation must be compared with the old situation which
they provided and the difference must be examined. The fact that it has become more difficult or
more expensive for one party is not sufficient to bring about frustration. It must be positively
unjust to hold the parties bound.
Furthermore, it is not simply a question whether there has been a radical change in the
circumstances, but whether there has been a radical change in the obligation or the actual effect
of the promises of the parties in the light of the new circumstances, viz. the court will have to
establish that the performance was fundamentally different in a commercial sense.

Question 4
Differentiate between doctrine of substantial performance and partial performance.
Support your answer with relevant cases.
How to explain?
1. Explain what is D.S.P and D.P.P
2. State the difference.
A doctrine of substantial performance is a doctrine which enables a party who has
performed substantially his obligations under the contract to make a claim for payment.
This doctrine is applicable even in an entire contract and what is important is that a substantial
part of the contract must have been performed, and the part unperformed must only be a small
portion of the whole contract. The application of the doctrine is that a party has the right to
claim for payment of the stipulated price subject only to a cross-claim or a counter claim by
the other party for the omission and defects due to the failure to perform the contract
completely and perfectly. To decide whether the contract has been substantially performed,
consideration must be given to the nature of the defects and the proportion between the cost
of rectifying such defects and the contract price.
In Building & Estate Ltd v Connor, the court held that the plf 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. In this case 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.
In partial performance, if the party does not perform his obligations under the contract
completely, the innocent party can accept the partial performance or choose to remedy the
contract.
If the party accepts the partial performance, the other party who rendered services or
supplied goods may make a quantum meruit claim. A quantum meruit is a reasonable
remuneration claim for the performance of the services rendered under the contract and the
claimant need to show that the party received some kind of benefit.
If the innocent party does not accept the partial performance, he may remedy the contract by
issuing a notice to put the contract to an end or to engage another person to complete the
unfinished work.
In Sumpter v Hedges, the court held that the plaintiff was entitled to the claim for the value
of the materials, but could not recover the value of the work done. This is because there was no
option to the defendant to take or not to take the benefit of a partially completed building. (No

option given by the plf to the def whether to take or not the benefit of a partially completed
bulding as they abandoned their work.)
In Haji Hasnan v Tan Ah Kian, the appellant was in a breach of contract and the respondent
was entitled to recover on the basis of quantum meruit because there was no notice given by the
appellant on the termination of the contract. Therefore, the respondent was entitled to claim for
the work and labour done and the materials supplied.
The differences between a substantial performance and partial performance is that the
doctrine of substantial performance is for the court to decide whether the claim is a substantial
work completion or not while a partial performance is a doctrine for the innocent party to accept
or to not accept the partial work done by the other party and remedy for the other party to claim
for the partial work completion.
Next, between the two is that the amount of work completed. In substantial performance, the
work that is incomplete by the party must only be a small portion of the whole contract.
However, in doctrine of partial performance, the amount of work done is not important, the court
will only concern whether the innocent party accepts or reject the partial work completion.
Futhermore, the doctrine of substantial performance is for the def to claim payment for work
done. The counter claim or cross-claim existed because the other party refuse to pay because of
the omission and defects due to the failure to perform the contract perfectly. This is to differ with
partial performance as the doctrine of partial performance is for the def to claim for quantum
meruit on the partial completion of the contract.

Question 5
Differentiate between entire contract and divisible contract.

Contracts can be entire or divisible. Contracts can be said to be divisible if the nature of
the contract is liable to division or apportionment. If an obligation is due to the same person at
the same time it is most likely to be entire if the obligation is due to different persons it could be
divisible.
If there is a contract to deliver goods by installments, and the price for the goods is fixed
for the item or the installment the contract could be divisible, or it may constitute a series of
separate contracts. If some contractual promises are divisible, the right to demand payment will
arise as each part of the contract is performed.

An example of a divisible contract is Roberts v Havelock (1832). A shipwright agreed to

repair a ship. The contract did not expressly state when payment was to be made. He chose not to
go on with the work. It was held that the shipwright was not bound to complete the repairs before
claiming some payment. He was entitled to payment as each complete repair was a separate part
of the contract.

An example of an entire contract is Sumpter v Hedges (1898). The plaintiff agreed to

erect upon the defendant's land two house and stables for 565. He did part of the work to the
value of about 333 and then abandoned the contract. The defendant completed the buildings.
The Court held that the plaintiff could not recover the value of the work done, as he had
abandoned the contract. He was not entitled to anything since the defendant had not accepted the
part performance or prevented performance and the contract was not divisible.

QUESTION 6
There are two issues in this case. The issues are whether there is a collateral contract
between Kedi and Cos and Apex Sdn Bhd ,and whether the discharge of the sale and purchase
agreement due to breach of contract by Kedi and Cos is lawful.
Collateral contract is used to overcome the parol evidence rule to admit pre-contractual
statement which had not been incorporated in the written agreement. A collateral contract must
be made prior to signing the original agreement. There are a few condition that need to be
fulfilled to give rise to a collateral contract which are, the collateral contract must exist side by
side with the main contract, the statement must be promissory in nature and has induced the
party to enter the contract, the collateral contract must override any inconsistent written term and
lastly, the collateral contract cannot destroy the written contract. The existence of collateral
contract is illustrated in the case Tan Swee Hoe Co Ltd v Ali Hussain Brothers. In this case, the
appellant orally agreed to allow the respondent to occupy their premises for as long as they want
on payment of $14,000 as tea money. Later, a dispute arise between them and the appellant
issued the respondent a notice to vacate the premises and the respondent argued that under the
agreement that were allowed to stay as long as they want. It was held that a collateral contract
exist as an oral promise, given at the time of contracting, which induces a party to enter into the
contract, overrides any inconsistent written agreement. The burden of proving the existence of a
collateral contract is upon the party alleging its existence. This is similar to the case of Mentari
Sekitar Sdn Bhd v Heritage Property Sdn Bhd whereby in this case, the respondent agreed to sell
a land to the appellant which is paid by the appellant by 10% of the purchase price as a deposit.
Under the sale and purchase agreement, the appellant was required to pay the balance purchase
price within three months but failed to do so thus he was given 4 extensions of time. When he
failed again, the respondent terminated the agreement. It was held in the Court of Appeal that
Mentari Sekitar can be held liable.
A contract is breached when a party fails to perform his contractual obligation. Every
breach will give the innocent party a right to claim damages for any loss suffered, serious
breaches will entitle the innocent party to not only claim damages but also be discharged from all
future obligation.There are two situations that give the innocent party the right to be discharged

for breach which are under the common law and under section 40 of the Contracts Act. Section
40 encompasses the common law which gives the innocent party the option whether to rescind or
to affirm the contract. Section 56(1) provides specifically for a right to be discharged in cases
where time is of the essence of the contract. As for the time is of the essence of the contract, the
case of Sim Chio Huat v Wong Ted Fui applies. In this case, Salleh Abbas FJ stated that if in a
contract in which time is of the essence, a party fails to perform it by stipulated time, the
innocent party has the right either to rescind, or to treat it as still subsisting. If he treats it either
expressly or by conduct as still continuing, the contract exist but time ceases to be of the essence.
Consequently, he cannot claim the liquidated damages under the contract unless there is
provision as to extension of time. However time can be restored to be of the essence by the
innocent party by giving a notice for a new date of completion. If time is made of the essence of
the contract, such right may be waived by the conduct of the parties through two situations. First,
where the parties continue to negotiate even after the time fixed for performance. In Syarikat
Eastern Plastics Industry v Syarikat Lam Seng Trading, the contract of sale to deliver certain
machines stipulated that the shipment should be during July 1968 and delivery in August 1968.
However, up to September, negotiations were still going on between the parties regarding the
date of shipment and delivery of the machinery and the model of the machinery to be delivered.
It was held that by indulging in further negotiations, the plaintiffs had waived the stipulation as
to time. If the plaintiffs had wanted to make time to be again of the essence, a notice should have
been given to the defendants to fix a reasonable time for the shipment and delivery.
In applying to the case, the collateral contract was actually made between Kedi and Co
and Apex Sdn Bhd on 10th May 2013 when Dato Aminah, the director of Kedi and Co had
orally agreed that the time for payment of the balance purchase price would be extended. This
oral agreement is made prior to the actual contract which is entered on 1st June 2013. This
statement is to be regarded as a collateral contract because it induces Apex Sdn Bhd to enter into
the sale and purchase agreement on 1st June 2013. This is similar to the case of Tan Swee Hoe
Co Ltd v Ali Hussain Brothers on the fact that the appellant initially orally agreed to allow the
respondent to occupy their premises for as long as they want on payment of tea money.
Therefore, there is an existence of collateral contract. The statement made by Dato Aminah is
inconsistent with the written agreement which stipulated that time is of the essence of the

contract which means the payment of the balance must be made on time. Thus when there is
inconsistency, oral agreement overrides the written contract. This indicates that when Apex Sdn
Bhd was not able to raise the required sum to complete the purchase on 31st December 2013, the
company is entitled for extension of time by Kedi and Co.
Clearly there is no breach of contract under Section 40 of the Contract Act as Apex does
not abandoned his promise wholly. Section 56(1) of the Contract Act does not apply here since
the time is not the essence of the contract because the existence of collateral contract that
mention that the time of payment of the balance purchase price would be extended pending the
construction and completion of a highway and access roads to the land, time was never the
essence of the agreement and instead the time for completion and payment of the balance
purchase remained at large. When Apex Sdn Bhd asked for extension of time and Kedi and Co
allows it, its shows that Kedi and Co expressly allowing the contract to continue, the time ceases
to be the essence of the contract like in the case of Sim Chio Huat v Wong Ted Fui. In the term of
making time is of the essence of the contract Apex Sdn Bhd can waive it because the negotiation
continued after the time fixed for performance. The evidence is Kedi and Co gave Apex Sdn Bhd
two time of extension of time to pay the balance. Also, if the Kedi and Co wanted to make time
is of the essence of the contract, Kedi and Co should allow Apex Sdn Bhd to make a fix time to
settle the the balance of payment.
In conclusion, the termination of the sale and purchase agreement by Kedi and Co on the
ground that Apex Sdn Bhd did not make the payment on time is not lawful as time is no longer of
the essence of the contract. Thus, there is no breach on the part of Apex Sdn Bhd as the collateral
contract overrides the written terms in the agreement. Apex Sdn Bhd therefore is entitled to
receive back the deposit of RM 250,000.