Chapter 7: Discharge of Contracts and Remedies

1. What is the meaning of discharge of contracts and what are the methods to discharge a contract?
When a contract is terminated, the contract is said to be discharged and the parties to the contract
are free from the obligations arising in the contract.
2. State the ways in which a contract may be discharged and briefly explain each of them.
A contract may be discharged in any of the following methods:-
1. By performance – S 38
Section 38(1) - The parties to a contract must either perform, or offer to perform, their respective
promises, unless the performance is dispensed with or excused under this Act, or of any other law.
The provision imposes a duty on the parties to perform or offer to perform their obligations under
the contract unless the law allows the parties to avoid their obligations under the contract.
In other words, once the parties have performed their promises as per the contract, then the
contract is said to have been completely discharged.
2. By consent or agreement between the parties – S 63.
A contract is discharged by agreement when both parties mutually agree to end their contractual
relationship. This option is allowable under 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.”
3. By frustration (impossibility of performance) – S 57.
A contract is frustrated when there is a change of circumstances makes it impossible for the parties
to perform the contract (impossibility of performance).
The contractual parties were not at fault for the change of circumstances that caused the
impossibility of performance.
Section 57(2) – a contract to do an act which becomes impossible to perform after the contract is
made by reason of some event which the promisor could not prevent or become unlawful. The
contract becomes void when it becomes impossible to perform or becomes unlawful.
4. By breach – S 40.
Where one of the parties indicates to the other either by conduct or in clear terms an intention not
to go on with the contract, the party is said to have repudiated or renounced the contract.
Section 40 – when one party has refused to perform or disabled himself from performing hi promise,
the other (innocent) party may put an end to the contract. This means the innocent part can treat
the contract as being discharged, (‘guilty’ party cannot do this).
The refusal to perform or disability must be due to the fault of the ‘guilty’ party.
3. Under Section 57, with reference to case law, explain the following circumstances/ instances that
would render the contract discharge by frustration and the consequences to the contract.
a) Instances of Frustration
Outbreak of War
HA Berney v Tronoh Mines Ltd
Plaintiff sued for breach of contract of service. When Malaya was attacked by the Japanese, the
European staff at defendant’s company was evacuated from Tanjong Tuallang. The plaintif
chose to remain at Tanjong Tuallang and claim damages from defendant. The defendant stated
that due to the Japanese occupation, the contract of service between them and the plaintiff
was discharged by frustration. Held: Invasion of Malaya by the Japanese frustrated the
contract. Therefore, no breach of contract by the defendant.
 a) Destruction of subject matter
Taylor v Caldwell
The D agreed to let to the P the use of his music hall and garden for the purpose of
entertainment. Before the day of the performance arrived, a fire destroyed the music hall. The
D, through no fault on his own, was unable to perform the contract by letting the hall to P.
The court held that the contract was frustrated due to the destruction of subject matter, i.e.
the hall, without the fault of either party.
b) Non-occurrence of particular event
Krell V Henry
The P placed advertisements outside his flat offering to let windows to view the coronation
procession of the new king. The P told the D that the flat gives a good view of the procession
and D agree to hired the flat for £75 for 2 days. D paid deposit of £25 and promised to pay the
balance of £50 later. Unfortunately, the King’s serious illness caused the cancellation of the
procession and P claimed for the balance of £50. The court held that the contract was void as
the procession of the King was the foundation of the agreement and it excused the D from
paying the £50 balance.
c) Death or incapacity for personal services
Sathiaval a/l Maruthamuthu V Shell Malaysia Trading Sdn Bhd
The court held that an employee’s inability to continue with his employment as a result of 2
years detention by the police has rendered the employment contract frustrated.
d) Supervening illegality / Statutory prohibition
Supervening illegality affects the performance of the contract after its formation. Supervening
illegality often happen due to the change in the law.
Lee Kin V Chan Suan Eng
A lease for 5 years renewals was held to be frustrated by the enactment of a new law
prescribing annual renewal, causing the 5 yearly leases to be unlawful.
4. What are the remedies available to the innocent party in a breach of contract? Explain each of the
remedies.
In a breach of contract, the party who is not at fault may claim one of the following
remedies i.e. Rescission of contract, Damages, Specific Performance, Injunction and
Quantum Meruit.
a) Rescission of contract
When there is a breach of condition the injured party may treat the contract as though it has
never been made at all.
Section 40 states that when one party to a contract has refused to perform, or disabled himself
from performing his promise in its entirety, the promisee may put an end to the contract unless
he has signified, by words or conduct, his acquiescence in its continuance. (This means the
innocent party can treat the contract as being discharged, the ‘guilty’ party cannot do this).
Section 76 states a person who rightly rescind a contract is entitle to compensation for any
damage which he has sustained through the non-fulfilment of the contract.
b) Damages
Damages is granted to a party as monetary compensation for the loss or damage suffered due
to breach of contract. The law relating to damages for breach of contract is found in Section 74,
75 & 76.
 c) Specific Performance
Specific performance is governed by the Specific Relief Act 1950, is a decree or an order of the
court directing the party who failed to perform his part of the contract to perform it specifically
according to the terms of the contract.
d) Injunction
An injunction is an order of the court directing a person to refrain from doing an act or
continuing to do an act complained of.
Under the Specific Relief Act, an injunction is a preventive remedy.
Section 50 SRA states that injunction is granted at the discretion of the court.
Injunction can be describe in two types:
i. Interlocutory or interim injunction – this is a temporary injunction given for a specific period of
time. It is given to temporarily maintain the status quo until trial.
ii. Perpetual injunction – this is a permanent relief. The party is permanently prohibited from
doing the act.
e) Quantum Meruit
Section 71 CA - When a person lawfully does anything for another person, or delivers anything
to him, not intending to do so gratuitously, and such persons enjoys the benefit thereof, the
latter is bound to make compensation to the former in respect of, or to restore, the thing so
done or delivered.
5. What is the meaning of ‘Mitigation of Loss’? Discuss.
The party asking for damages is under a duty imposed by law to mitigate the loss i.e. to take
reasonable steps to reduce or to minimized or mitigate his loss.
6. Is specific performance a compulsory remedy and if so, when will the court award such remedy?
Discuss briefly.
Section 11(1) SRA: Circumstances where specific performance will be enforced:
(a) When the act agreed to be done is in performance, wholly or partly, of a trust.
(b) when there exists no standard for ascertaining the actual damage caused by the non-
performance of the act agreed to be done.
(c) When the act agreed to be done is such that pecuniary compensation for its non-
performance would not afford adequate relief i.e. payment of money is not an adequate
relief.
(d) Where pecuniary compensation cannot be obtained for the breach of the act agreed to be
done.
Under section 21 SRA: Discretion of the court in decreeing specific performance
i. The remedy is only given at the discretion of the court.
ii. The Court may refuse specific relief where the defendant would suffer undue
hardship.
iii. Specific performance is usually ordered in contracts relating to land where
monetary compensation would be inadequate.
7. In what situations will the court refuse to grant specific performance?
Section 20 SRA 1950 - Contract which cannot be specifically enforced.
However, specific relief will not be granted in the following situations:
a. Where money compensation is an adequate relief – section 20 (1) (a)
b. Where the contract is for personal services – section 20 (1) (b)
c. Where the terms of the contract are uncertain – section 20(1)(c).
d. Where there is evidence of fraud
e. Where to order specific relief would require the constant supervision of the court –
section 20