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The word discharge in law means the release froman obligation, debt or liability.

So, dischargeof a contractmeans the termination of

a contractual obligation or liability.

When a contract is discharged, it comes to an end and

imposes no further legal responsibilities on the

parties.

The original parties are therefore no longer bound by

the contract

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A contract may be discharged in one of the following

ways:

i) Performance; ii)Agreement;

iii) Breach;

iv) Impossibility (or frustration)

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A contract is discharged when both parties carry out

their promises.

If Sunshine Housepainters Sdn Bhd agrees to paint Mr.Mohanshouse for RM1,000, the contract is performed anddischarged when the house is painted according to the

specifications mentioned in the contract and full paymenthas been made.

Section 38(1) of the Contracts Act states that parties to acontract must either perform or offer to perform their

respective promises, unless such performance has beendispensed with by any law.

The general rule is that a party must do everythingpromised in the contract. Part performance is noperformance.

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The exceptions are:

i) Installment contracts in which A becomes obliged to payB even though B has only partly performed his part of thecontract; A normally has to pay a proportionate amount ofthe price at that stage.

ii) A may have accepted partial performance by B incircumstances in which A had a free choice; then A will berequired to pay on a quantum meruit (reasonable sum)basis.

iii) Some action on As part has prevented B fromcompleting the contract; then B will be entitled to aquantum meruitpayment.

Section 51 states that the performance of any promise maybe made in any manner, or at any time, which the promiseeprescribes or sanctions.

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As a general rule, failure to perform or pay on time is only a

breach of warrantyand will not bring an end to the contract.

However, in those cases where the time of performance iscrucial, then it is a conditionof the contract. The parties canalways make the time of performance a condition of thecontract by stipulating that time shall be of the essenceof thecontract.

Under section 56(1), where time is of the essence, failure toperform within the fixed time would render the contractvoidable.

Where time is not of the essence, then performance must be

within a reasonable timeof the date fixed, and payment mustbe withina reasonable timeof the completion of the contract.

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The parties, of course, can always agree to terminate acontract before it has been fully performed.

If the contract has not even started, it is known as an

executorycontract, and it can be terminated simply bya newagreement of the parties to waive their respective

rights under the contract.

This new agreement is in itself a binding contract (the

consideration from each party is the giving up of the

right to demand the other party to perform) and cancels

out the original contract.

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If one party has performed or partly performed his part ofthe contract, then before this contract is discharged, theother party who has done nothing must:

i) provide some new consideration to compensate theperforming party; or

ii) receive a discharge under seal from the performing party.

The parties may also agree beforehand that the occurrenceof some specific event would discharge the contract. Forexample, a charter party contract for the hire of a ship maycontain a term that a dock strike will discharge the contract.

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A contract is frustrated if an even occurs between thecontract being agreed and it being performed, which is thefault of neitherparty, but which renders the contract legallyor physically incapable of performance in its originallyintended form.

Section 57(2) states that: A contract to do an act which, after the contract is made,

becomes impossible, or by reason of some event which thepromisor could not prevent, unlawful, becomes void when

the act becomes impossible or unlawful. The contract, when frustrated, becomes void. Both parties

are discharged from any further obligations under thecontract without any liability incurred towards the other

party.

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H.A. Berney v Tronoh M ines Ltd[1949]

On the invasion of Malaya by the Japanese forces duringthe Second World War, the European staff of the defendantcompany was evacuated from Tronoh, Tanjong Tuallang

and other places, but the plaintiff elected to remain atTanjong Tuallang. Thereafter, the plaintiff was not paid anywages. After the War, the plaintiff sued the defendant forbreach of contract of service. The defendant contended thatconsequent on the Japanese occupation of Perak, the

contract of employment between them and the plaintiff wasdischarged by frustration.

The court held that the invasion of Malaya by the Japanesefrustrated the performance of the contract and there was no

breach of contract by the defendant.

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Re Shipton, Anderson & Co(1915) A contract for delivery of wheat was made, but before

delivery took place, An Act of Parliament was passed

requisitioning all wheat for the government.

The court held that the contract was frustrated.

Taylor v Caldwel l(1863)

The defendant agreed to let the plaintiff to have the useof the Old Surrey music hall for a concert. Before the

day of performance, the hall was destroyed by fire.

The court held that the contract was frustrated.

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Robinson v Davison(1871)

A piano player was to perform at a concert. She fell ill and could not play on

the appointed date.

The court held that as it was not her fault that she was unable to perform, the

contract was frustrated.

Krell v Henry(1903)

The defendant hired a room which overlook the route of the procession of King

Edward VIIs coronation. The King was ill and the coronation was cancelled.

The court held that the contract was frustrated because the procession was the

basis of the contract.

Herne Bay Steamboat Co v Hutton(1903)

After the coronation, the King was to travel to Spithead to review the fleet,

which was assembled there. Hutton hired a boat to follow the royal barge, but

because the Kings illness prevented the royal review, Hutton did not use the

boat.The court held that the contract was not frustrated, because the purpose of

the contract was to review the fleet, and as it was still assembled at Spithead,

the contract was possible. Hutton was liable to pay damages.

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(i) Contract becomes voidat the date of frustration.

(ii) Person who received advantage is bound to restore

or compensate.

(iii) Both parties retreat to their original position.

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A breach of contract occurs when: i) one party fails to perform a particular undertaking by the

appointed day; or

ii) one party does not perform as agreed (e.g. supplyingsub-standard goods); or

iii) one party will not perform as promised.

The other party may then sue for breach of contract.

Section 40 provides that:

When a party to a contract has refused to perform, ordisabled himself from performing, his promise in itsentirety, the promisee may put an end to the contract, unlesshe has signified, by words or conduct, his acquiescence in

its continuance.

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If one party indicates well in advance of the time due forperformance that he has no intention of performing hisobligations under the contract, the breach is known as ananticipatory breach.

The other party need not wait until the agreed time ofperformance, but can start a court action immediately. Forexample, if in June A contract to start work in September asan administrative officer with B Company, and B Company

in July informs A that it will not employ A, A can sue forbreach of contract in July; there is no need to wait untilSeptember before starting a court action. Of course, A canalso wait until September and then sue.

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TIME LIMITS

i) DAMAGES (REMOTENESS OF DAMAGES)

ii)SPECEFIC PERFORMANCE

iii) INJUNCTIONS

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Under the Limitation Act, no action based upon a breach ofcontract may normally be brought after six years haveexpired since the date upon which the cause of action arose;for contracts under seal, the time limit is twelve years.

Even though the limitation period, as it is called, may haveexpired (the action is said to be time-barred), the cause ofaction, where it involves a debt, may be revived by either anacknowledgement in writing, signed by the debtor to thecreditor, or by a part-payment clearly referable to theoriginal obligation.

If the cause of action involves fraud, or has been concealedby fraud, or is based on a mistake, the period will not rununtil the plaintiff ought reasonably to have discovered thetruth.

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A breach of contract entitles the injured party to

damagesto compensatehim for his loss.

So, if there is no loss, there will be no damages, other

than nominal damages to reflect the fact that acontract has been broken.

The purpose of damages is not to penalize or punish

the defaulting party. The general aim of damages is toput the injured party back where he started, in so far as

this is possible by financial means.

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A clause in a contract which provides that a party, should hedefaults, shall pay a higher then usual sum of money ascompensation to the other party, is called a penalty clause.

However, if the compensation specified is a genuine pre-

estimate of the probable loss which would be sufferedfollowing a breach, the clause is called a liquidated damagesclause.

Under English law, a penalty clause would be void, but a

liquidated damages clause would be valid. However, in Malaysia,there is no distinction between liquidated damages andpenalties as understood under English law: Selva Kumar a/lMurugiah v Thiagarajah a/l Retnasamy[1995], FC.

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Under section 75 of the Contracts Act, a plaintiff isonly allowed to recover a reasonable sum for breach

of contract.

If a sum is named in the contract to be paid in case ofsuch breach, then the amount of damages recoverable

cannot exceedthat sum.

The plaintiff is still required to prove the actualdamage

he has suffered and cannot just simply recover the

named sum (regardless of whether it is a penalty or

liquidated damages).

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Section 74(2) states that: Such compensation is not to be given for any remote and indirect

loss or damage sustained by reason of the breach.

Before a person may claim any damages, he must be able toprove that the loss which he suffered was the directconsequenceof the breach by the other party, and was not tooremotefrom it.

This usually amounts to a question of how foreseeable aparticular form of loss was, given the facts known to the

defendant at the time. Under section 74 of the Contracts Act, an injured party may

recover any loss or damage for any breach which: naturally arose in the usual course of things; or which the party knew, when they made the contract to be likely

to result from the breach of the contract.

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Hadley v Baxendale(1854) Hadley, a miller, delivered a broken crank-shaft to Baxendale, a carrier, for

transport to a firm of engineers who were to make a new one on the pattern ofthe broken one. The mill machinery could not be operated until the new shaftwas delivered, but Baxendale was not informed of this exceptionalcircumstance. Delayed delivery for an unreasonable time, with theconsequence that the mill was idle for a longer period than it would have been

had the shaft been delivered promptly. Hadley sued in respect of loss of profitsduring the period of additional delay.

The court held that the damage was too remote and Hadleysclaim failed.

Victor ia Laundry v Newman I ndustr ies(1949) Newman Industries Ltd agreed to deliver a new boiler to Victorial Laundry Ltd

by a certain date, but failed to do so, being 22 weeks late. As a result, VictorialLaundry Ltd lost (a) normal business profits during the period of delay, and (b)

profits from dyeing contracts which were offered to them during the sameperiod.

The court held that (a) was recoverable as damages, but (b) was too remote andnot recoverable because Newman Industries Ltd did not know, nor as

reasonable men ought to be aware of the dyeing contracts.

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The Illustrations to section 74 clearly indicate that a partymay recover damages for:

i) other expenses incurred as a result of the breach;

ii)the loss of profit arising as a result of the breach;

iii) the difference between the price of goods as contractedfor and the actual price the goods were sold for as a resultof the breach.

Where there is an available market for the goods, thenormal measure of damages is basically the differencebetween the contract price and the market price at the timeof the breach: Eikobina (M) Sdn Bhd v Mensa Mercantile(Far East) Pte Ltd[1994], SC.

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Once the type of loss is foreseeable by the defendant,he will be liable for the fullextent of it, even if it turns

out to be much greater than expected.

On the other hand, the plaintiff is expected to take

reasonable steps to mitigate(i.e. minimise) his loss.

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Sometimes, the injured party is more interested ingetting the contract actually performed than receivingdamages for a breach. The remedy he is seeking is knownas specific performance.

A typical example is the sale of a valuable and uniquecollectors item, say a painting by Leonardo Da Vinci,where if the seller refuses to deliver, the buyer would wantthe contract to be fulfilled (i.e. specific performance) ratherthan getting damages.

Under section 21 of the Specific Relief Act 1950, the HighCourt has a discretionary power to award a decree ofspecific performance. Failure to obey an order of specificperformance is a contempt of court and the penalty is

imprisonment.

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However, specific performance will not be awarded if:

i) the contract is an agreement for personal service (e.g.contract of employment); or

ii) it would be necessary for the court to constantlysupervise the working of the contract; or

iii) it would cause undue hardship to the defendant; or

iv) the terms of the contract are uncertain; or

v) damages would be adequate as a remedy; or

vi)there has been delay in bringing the action; or

vii) there is evidence of fraud on theplaintiffspart.

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An interlocutory injunction is a court orderprohibiting the party to whom it is addressed fromdoing something (e.g. breaking a contract).

The purpose is to maintain thestatus quobetween theparties. It is a discretionary remedy and is normallyonly awarded if damages would be inadequate as aremedy.

Thus, it may be used to prevent a breach of contract forpersonal services, e.g. to stop a party under anexclusive contract from contracting with another third

party.

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Warner Bros. v Nelson(1037) The defendant, a film actress better known as Bette Davies,

agreed to make a film for another company although shehad an exclusive contract with the plaintiffs.

The court granted the injunction to the plaintiff and

restrained the defendant from carrying out the contract withthe third party.

Page One Records L td v Britton(1967) The manager of a pop group, the Troggs, applied for an

injunction prohibiting the group from employing anyoneelse as their manager.

The court held that this was in effect a request forenforcement of the original contract. The application wasrejected.