Discharge of Contract

PREPARED BY:
NORAZLA BINTI ABDUL WAHAB
INTRODUCTION
When a contract is terminated, it is said
to be discharged and the contracting

parties are free from further
obligations arising from it.
How to discharge a contract?
1. DISCHARGE BY PERFORMANCE
Generally, parties to contract are bound by an
obligation.
Performance is the usual method for the
discharge of a contract
Section 38(1) provides ;:

they must either perform,
or offer to perform their respective promises
unless the performance is dispensed with or
excused under the law.
When the parties have performed
their contracts, by carrying out

their promises under the contracts,
there is a complete discharge of
the contract.
If only one of the parties has
performed his part under the

contract, he alone will be
discharged from the contract.
The other party is still BOUND to
the contract until he performs his
promise under the said contract.
a) TIME FOR
PERFORMANCE
General Rule:
A promisor must be prepared to perform
his obligation at the time and place at
which he has undertaken to do.
a) TIME FOR
Example:
PERFORMANCE
If Ali promise to deliver goods to Muthu on
3 Jan 2012 on payment of RM3000.
Thus, Ali is bound to deliver the said goods
to Muthu on that day(3 Jan 2012) and
Muthu is bound to pay the RM3000.
Thus, a delay even slight in
performance , will entitle the other

party to free himself from the
contract.
Time is said to be the essence of
the contract.
EFFECT OF FAILURE TO PERFORM AT
THE FIXED DATE WHEN TIME IS

ESSENTIAL
Section 56(1)
When a party promise to do a certain thing at
or before the specified time,

Fails to do such things, then
The contract become voidable at the option of
one of the party.
Ted Fui
[ 1983] 1 MLJ 151
Salleh Abbas F.J:
in a contract in which time is the

essence of the contract, 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
EFFECT OF FAILURE TO PERFORM AT
THE FIXED DATE WHEN TIME IS NOT

ESSENTIAL
When there is a failure of the parties to
perform the contract, the contract does not

become voidable but the promisee is entitled
to compensation for any loss he suffered
b) PLACE OF 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.
Section 50
When a promise to be performed without application
by the promisee, and where no place is fixed/

specified for the performance ; thus, it is the duty of
the promisor to ask promisee to appoint reasonable
place for the performance of the promise.
Illustration
A undertakes to deliver a thousand gantangs of rice to
B on a fixed day. A must apply to B to appoint a

reasonable place for the purpose of receiving it, and A
must deliver it to B at that place
c) BY WHOM CONTRACT MUST

BE PERFORMED
Section 41
If it appears from the nature of the case, intention of
the parties that the contract should be performed

by the promisor himself,
Then, such promise must be done by promisor
personally.
Illustration (b)
A promise to paint a picture for B. A must
perform this promise personally.
However in other cases/ situations, a
promisor or his representatives may employ

a competent person to perform it.
(Second limb of S. 41 of the CA, 1950)
Illustration (a)
A promises to pay B a sum of money.
A may perform this promise either by
personally paying the money to B, or by
causing it to be paid to B by another; and if
A dies before the time appointed for
payment, his representatives must perform
the promise or employ some proper
person to do so.
d) PERFORMANCE BY THIRD
PARTY
Section 42
When a promisee accepts
performance from a third party,

he cannot enforce it anymore
against the promisor.
Haji Ishak bin Haji Nik Daud v Nik Zainab
bte Nik Jaafar [1975] 2 MLJ 82

The appellant and respondents agreed to
transfer land to each other. The price of the

appellants land
is RM25,000 and the
respondents land is RM14,000.
It was also agreed that the difference of
RM11,000 will be settled by the sons of

respondents (third party) whereby one would
responsible to pay RM4,000 and another son
for
RM7,ooo.00.
However,
the
said
RM7,000.00 was not be paid and the appellant
claimed payment from respondent.
Haji Nik Ishak bin Haji Nik Daud v Nik
Zainab bte Nik Jaafar

Federal Court held:
As the appellant had agreed to accept the

performance of the promise from third
party, he could not under section 42 of
the Contract Act to enforce the contract.
2. DISCHARGE BY
AGREEMENT
1) Where both parties consented to
discharge the said contract ; or

2)when there is alteration, substitution,
or rescission of the original contract.
Section 63 :
If the 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.
See illustration (a)
A owes money to B under a contract. It

is agreed between A and B that C will
become the new debtor. The old debt
between A and B is at end (discharged) ,
and a new debt is between A and C.
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.
Illustration ( c) to S. 63
A owes B, RM 1,000 under a contract. B owes

C RM 1,000. B orders A to credit C with RM
1,000 in his book. But C does not assent to
that agreement. Thus, B is still owes C and
no new contract has been entered into.
3) The contract may also be
discharged by the consent /

agreement of all parties in the form
of waiver/ release/remission.
Section 64
Every promisee may dispense with or remit,
Wholly or in part, the performance of the
promise made to him; or

May extend the time for such performance; or
May accept instead of it any satisfaction which
he thinks fit.
Illustration (a) of S.64

A promise to paint for B. B afterwards forbids him to
do so. A is nor longer bound to perform the promise.

Payment of lesser sum in satisfaction of a larger sum
is binding on the promisee if he accepts it.

Illustration (b) of S.64
A owes B RM5,000. A pays to B RM2,000, and B
accepts, in satisfaction of the whole debt at the time
and place at which the RM5,000.00 were payable.
The whole debt is discharged.
3. DISCHARGE BY IMPOSSIBILITY
OF PERFORMANCE/ FRUSTRATION
A contract is discharged if there is
impossibility of performance of the contract.

It may happen in following situations:
A. THE CONTRACT IS IN ITSELF

IS IMPOSSIBLE TO BE
PERFORMED
i)
The contract is discharged if either one or both

parties aware of the impossibility .
Section 57 (1)
an agreement to do an act impossible in itself is void
Illustration (a)
A agrees with B to discover treasure by magis. The
agreement is void.
ii) If only one party knew of the impossibility, he

must make compensation to the other party.
Section 57 (3)
Where one person has promised to do

something which he knew or, reasonable
diligence, might have known and which the
promisee did not know to be impossible or
unlawful, the promisor must make
compensation to the promise for any loss which
the promisee sustains through the non
performance of the promise .
Continue..
Illustration (c) of S.57
A contracts to marry B, which is

already maried to C and it is being
forbidden by the law to which he is
subject to practise polygamy.
A must make compensation to B for
the loss caused to her by non
performance of his promise.
B) AFTER CONTRACT HAS BEEN MADE

IT IS IMPOSSIBLE TO BE PERFORMED
Section 57 (2) of CA,

1950.
After the contract is made, become
impossible, or by reason of some

event which the promisor could not
prevent, unlawful, becomes void
when the act becomes impossible
or unlawful.
1. DESTRUCTION OF SUBJECT
MATTER
The destruction of the subject matter
of the contract would frustrate the

contract as the contract cannot be
performed as contract.
Taylor v Caldwell
a certain music hall was rented but
burnt down just before the event.

The court held that the contract was
impossible to be performed because
of destruction of the music hall.
2. Supervining events defeat

the whole purpose of the
contract
If the contract is entered into for a
specific purpose known to the other

party and something happened
beyond the control of either party
which results in the purpose of the
contract to be defeated, the contract
is frustrated.
Krell v Henry
a room was hired for the sole purpose of
watching the coronation procession of King

Edward VII but because the King was sick
the procession was cancelled.
The court held that Henry could be
excused from paying the rent for the room,

as the contract was frustrated.
3. Death or personal
incapacity
A person who is deceased or
incapacitated cannot perform the

contract. Hence the contract is
frustrated.
Illustration (e) Section 57
A contracts to act at a theatre for six

months in consideration of a sum
paid in advance by B. On several
occasions A is to ill to act. The
contract to act on those occasions
becomes void.
4. A change of law
A contract may be legal when
formed but later, owing to a

change in law, its performance
may become unlawful.
Lee Kin v Chan Suan

Eng [1933] MLJ 197
A lease for five years renewals was held to
be frustrated by the enactment of new law
prescribing annual renewals
CONSEQUENCE OF
FRUSTRATION
Frustration terminates the contract
automatically and since the contract is void.

Section 66
Any person who received any advantage

under the agreement or contract is bound to
restore it, or to make compensation for it, to
the person from whom he received it.
Continue..
Illustration (d) Section 66
A contracts to sing for B at a concert for

RM1,000.00, which are paid in advance.
A is too ill to sing. A is not bound to make
compensation to B for the loss of the profits
which B would have made if A had been able
to sing, but must refund to B the RM1,000.00
paid in advance.
4. DISCHARGE BY
BREACH OF CONTRACT
When a promisor fails to perform his
obligations or to tender performance,

there is a breach of the contract.
the party not in breach entitles to take
appropriate action may include
repudiation/rescission of the contract .
Continue..
Section 40 of CA, 1950.
When a party to a contract has refused to
perform, or
Disabled himself from performing, his
promise in its entirely;
The promisee may put an end to the
contract, unless he has signifies by word
or conduct his acquiescence in its
continuance.
Illustration (a) section 40
A, a singer, enters into contract with B, the

manager of a theater two nights in every
week during the next two months, and B
engages to pay her at the rate of RM100
for each performance for each nights
performance. On the sixth night A willfully
absents herself from the theater. B is at
liberty to put an end to the contract.
Co. Ltd v Phit Kirivata

[1955].
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.
Tan Hock Chan v Kho

Teck Sang
Facts:
The respondent was a building contractor employed
by appellant to build
certain shop houses and
payment was to be made as progress payment.
The respondent could not complete work on the final
lot because of a claim by the occupier of the land to
tenancy rights.
Held:
The failure of the appellant to give effective
possession of the land to the respondent constituted
a breach which entitled the respondent to rescind
the contract.

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PREPARED BY:

NORAZLA BINTI ABDUL WAHAB

to be discharged and the contracting

How to discharge a contract?

Generally, parties to contract are bound by an

Section 38(1) provides ;:

excused under the law.

When the parties have performed

their contracts, by carrying out

If only one of the parties has

performed his part under the

Thus, a delay even slight in

performance , will entitle the other

EFFECT OF FAILURE TO PERFORM AT

THE FIXED DATE WHEN TIME IS

or before the specified time,

in a contract in which time is the

EFFECT OF FAILURE TO PERFORM AT

THE FIXED DATE WHEN TIME IS NOT

perform the contract, the contract does not

performance of the contract, the parties

promisor is under a duty to ask the

by the promisee, and where no place is fixed/

B on a fixed day. A must apply to B to appoint a

c) BY WHOM CONTRACT MUST

the parties that the contract should be performed

However in other cases/ situations, a

promisor or his representatives may employ

performance from a third party,

Haji Ishak bin Haji Nik Daud v Nik Zainab

bte Nik Jaafar [1975] 2 MLJ 82

transfer land to each other. The price of the

RM11,000 will be settled by the sons of

Haji Nik Ishak bin Haji Nik Daud v Nik

Zainab bte Nik Jaafar

As the appellant had agreed to accept the

1) Where both parties consented to

discharge the said contract ; or

or rescission of the original contract.

If the parties to a contract agree to

A owes money to B under a contract. It

However, the consent must be secured

from all parties.

the substitution, alteration, rescission of the

A owes B, RM 1,000 under a contract. B owes

3) The contract may also be

discharged by the consent /

promise made to him; or

Illustration (a) of S.64

do so. A is nor longer bound to perform the promise.

is binding on the promisee if he accepts it.

impossibility of performance of the contract.

A. THE CONTRACT IS IN ITSELF

The contract is discharged if either one or both

ii) If only one party knew of the impossibility, he

Where one person has promised to do

A contracts to marry B, which is

B) AFTER CONTRACT HAS BEEN MADE

Section 57 (2) of CA,