Discharge From Contract

Business Law
LAW1014
Introduction
Ways in which a contract can be
discharged

By agreement By Performance

Discharge
from
Contract

By Breach By Frustration
Discharge by
Agreement
Definition
Section 63, Contracts Act 1950

S. 63

Parties
agree

Substitute/ Amend/ Rescind/

Novation Variation Rescission
Novation
Principles

1. Since novation means making a new contract,

requirements of section 10 must be satisfied- LYL Hooker
Sdn Bhd v Tevanaigam Savisthri [1987] 2 M.L.J 52.

2. There must be an intention to substitute - Mawar Awal (M)

Sdn Bhd v Kepong Management Sdn Bhd [2005] 6 M.L.J. 132
Novation
substituting an old contract for a new one

They make a new

Contract (Y)
Parties have a
contract (X)
Effect: They are
released from the
old contract (X)
Variation
Principles.

1. Parties are bound by the new terms that have been

changed - Yong Mok Hin v United Malay States Sugar Industries
Ltd [1967] 2 M.L.J 9

2. There must be evidence to prove the variation took place

and was intended - Paul Murugesu Ponnusamy (as
representative of Nalamah Sangapillay (deceased) v Cheok Toh
Gong [1996] 1 M.L.J 843

3. The old terms that were varied no longer apply -Kepong

Wood Products Co Sdn Bhd v Daishowa (M) Wood Products Sdn
Bhd [1979] 1 M.L.J 195
Variation
parties agree to alter the existing contract between
them

Parties have They alter term B

a contract with D
(X).
Terms in
contract X
Effect: Contract X
are A, B and
now has terms A, D
C
and C
Rescission
Parties enter into an agreement to rescind the
existing contract

• Parties to the contract agree to release each other from

obligation under existing contract.

• This form of rescission is different from other forms of

rescission because
– This form of rescission is agreed;
– Other forms of rescission is triggered by law i.e.
breach of contract.
• See Law for Bussiness (Sweet & Maxwell)
Rescission
Parties enter into an agreement to rescind the
existing contract

Parties have
They now
a contract Something
want to be
between happens…
free
them
Discharge by
Performance
Discharge by Performance
The Duty to Perform

Parties must
perform

Section 38

Unless law says

otherwise
Discharge by Performance
Nature of the Duty to Perform

Good Faith Playing fair Coming Clean

Interfoto Picture Library

Ltd v Stiletto Visual
Programmes Ltd [1989]
1 Q.B. 433

Cards face up on
Fair open dealing
the table
Discharge by Performance
Principles-performance (section 38)

Promises bind parties

If law allows
to the contract
(s 38(1))

S 38(1)
S 38 Parties are not
bound
Death of one of
the parties
If parties provide
E.g. rescission a way for release
(s 63) (s 38(2))
Discharge by Performance
Principles- offer to perform (OTP) (section 39)

Person who has Refusal of OTP

OTP still retains S 39(1) leading to non-
rights under the performance is not
contract breach

S 39
OTP for goods –
Unconditional person receiving
S 39(2): delivery of goods
Conditions must be allowed
for OTP to inspect the
Reasonable
goods
Discharge by Performance
Principles- offer to perform (section 39)

Case example:
a) See MM Ally & Co v Chellamah [1948] 1 M.L.J
202
b) Interfoto Picture Library Ltd v Stiletto Visual
Programmes Ltd [1989] 1 Q.B. 433
c) Shencourt Sdn Bhd v Aseambankers Malaysia
Bhd [2011] M.L.J.U 552
d) section 68, Contracts Act 1950
Discharge by Performance
Principles – who performs (section 41)

• Either the promisor or a competent party

may perform;
• Who is a competent party is a question of
fact.
• See Illustration (a) to section 41
• See Illustration (b) to section 41
Discharge by performance
Federal Construction Co (Penang) Sdn Bhd v Chor
Kai Gun [2012] 10 M.L.J 571

• In this case the plaintiff gave assurances to the defendant

that the plaintiff’s share equity would be realised once the
development project was complete.
• The defendant however removed the plaintiff as member of
the company.
• One of the argument was that the company should be liable
not the defendant.
• It was held that the defendant was liable because of the
express assurance the defendant gave to the plaintiff, it was
an obligation that the defendant has to carry out not the
company.
Discharge by performance
Discharge by performance by third party

Also see the following points:

• Discharge by performance by third party
– Section 42, Contracts Act 1950
– Chin Swee Onn v Puchong Realty Sdn Bhd
[1990] 1 M.L.J 108: if the promisee agreed
performance from 3rd party, the promisee
cannot sue the promisor for non-performance.
Discharge by Performance
Partial Performance

Partial
Performance
Full
performance Ming & Co v Leong
(38(1) Ping Ching [1964] 1
M.L.J 312: Entire
obligations
Exception:
Partial Question of
Performance fact in each
case
Discharge by Performance
Partial Performance

Partial Performance The conditions of the

contract must be
performed: “shoe
analogy”

See Also: Smith Construction

Co Ltd v Phit Kirivatna Poh Geok Sing v HB
[1955] M.L.J 8, per Spencer J Enterprise Sdn Bhd
(See Law for Business [2006] 1 M.L.J 617,
(Sweet & Maxwell). Gopal Sri Ram JCA
Discharge by Performance
Partial Performance

Further Reading (Law for Business (Sweet &

Maxwell):
1. Cutter v Powell [1775-1802] All E.R
Rep 159
2. Sumpter v Hedges [1898] 1 Q.B 673
3. Hoenig v Isaacs. [1952] 2 All E.R 176
Discharge by Performance
Doctrine of Substantial Performance

See the following cases on the issue:

1. Bolton v Mahadeva. [1972] 1 W.L.R. 1009;
2. Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja Raya
Negeri Sembilan Darul Khusus. [2008] 4 M.L.J 157;
3. Kabelcom Sdn Bhd v Pakadiri Modal Sdn Bhd [2010] M.L.J.U
536;
4. M Yusnizam Yusoff (berniaga sebagai Yusnizam Enterprise) v
Pengarah Pembangunan Universiti Utara Malaysia [2010]
M.L.J.U 2148;
5. Chase Perdana Berhad v Pekeliling Triangle Sdn Bhd [2001]
M.L.J.U 389.
Discharge by
Breach
Discharge by Breach
Nature of Breach

Nature of Breach Terminate

the Contract

Which term has been

Conditions Breach
breached

Claim
Warranties Breach Damages
(section 74)
Discharge by Breach
Section 40, Contacts Act 1950 Claim

Conditions to prove and

breach

the person who

breach the contract Disability or refusal
either affects the entire
promise breached

Refuse to Disabled
perform from
performing
Discharge by Breach
Section 40, Contacts Act 1950 Interpretation

No Breach If promisee had Illustration (a)

waived performance and (b) of
Section 40

If promisor intended
to perform /offered to
Loke Yuen Cheng v
perform BUT was
Vimtex Sdn Bhd,
refused
[1998] 4 M.L.J 169
Discharge by Breach
Section 40, Contacts Act 1950 Interpretation

• If the innocent party to the contract wishes to terminate

because of the breach, the intention to terminate and reason
must be communicated to the other party either expressly or
impliedly - Mintye Properties Sdn Bhd v Yayasan Melaka,
[2006] 6 M.L.J 420 (Law for Business (Sweet & Maxwell).
Discharge by Breach
Further cases to Consider

1. Araprop Development Sdn Bhd v Leong Chee Kong, [2008] 1 M.L.J 783.
2. Loke Yuen Cheng v Vimtex Sdn Bhd [1998] 4 M.L.J 169 at p. 174.
3. Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja Raya Negeri
Sembilan Darul Khusus [2008] 4 M.L.J 157, at pp. 165-166,
4. Sik Hong Photo Sdn Bhd v Ch' ng Beng Choo (suing for and on behalf of
Ng Hua’s estate, deceased), [2010] 3 M.L.J 633 (total failure of
consideration)
5. Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943]
A.C 32, at p. 48.
6. Berjaya Times Squares Sdn Bhd (formerly known as Berjaya Ditan Sdn
Bhd) v M Concept Sdn Bhd [2010] 1 M.L.J 597, at p. 605, per Gopal Sri
Ram F.C.J (F.C).
Discharge by Frustration
What is frustration?

“…frustration may be explained as a

circumstance outside the control of the parties
to the contract which makes performance of the
control impossible.”

Law for Business (Sweet & Maxwell).

Discharge by Frustration
Case Examples

• Taylor v Caldwell, (1863) 3 B & S 826.

• Denny, Mott and Dickson Ltd v James Fraser & Co
Ltd. [1944] A.C 265.
• Krell v Henry [1903] 2 K.B. 740.
• Herne Bay Steam Boat Co. v Hutton. I [1903] 2 K.B.
683
• Hamdan bin Johan v FELCRA Bhd, [2012] 4 M.L.J
785.
Discharge by Frustration
Frustration under Malaysian Law – section 57(2),
Contracts Act 1950

• Focusses on acts (i.e obligations) which later ‘become’

impossible or unlawful to perform.

• Pacific Forest Industries Sdn Bhd & Anor v Lin Wen-

Chih, [2009] 6 M.L.J 293 – whether the act has become
‘impossible’ is a question of fact.

• Difficulty in performing the contract does not mean there is

frustration - Pacific Forest Industries Sdn Bhd v Lin Wen-
Chih [2009] 6 M.L.J 293, at p. 306, per Azmi Zaki C.J.
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