BUS201 - CONTRACT & AGENCY LAW

Chapter 7
DISCHARGE
Performance, Breach, Agreement, Frustration

STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

1. Define Discharge.
Discharge refers to the termination of a contract. After a contract is discharged, the parties are generally no longer required to perform their future
obligations under the contract.

There are 4 main ways in which a contract can be discharged: (a) performance, (b) breach, (c) agreement, and (d) frustration.

2. Identify the relevant Discharge for the Question.

Flip to the relevant guidelines for that Discharge category.

3. Conclude whether the contract is discharged (terminated) because of that Discharge category.
If the contract is discharged, state that both parties are generally relieved from their future obligations under the contract.

* See next few pages for guidelines on each Discharge category.

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 BUS201 - CONTRACT & AGENCY LAW

Chapter 7
DISCHARGE
Category 1 - Performance

STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

1. State the General Rule about Performance. Case law

Full & Precise Performance - When the parties Cutter v Powell (1795)
perform their obligations exactly and fully as stated in
the contract, the contract is discharged and comes to
natural end.
Eg. Party A has fully and precisely performed his obligations under the contract, so he is entitled to be paid. If Party B pays him and performed all
his other obligations under the contract. The contract is discharged and comes to an end.

2. Can we still argue that the contract is discharged by Performance, even when there is NO full & precise performance?
YES, if any one of the exceptions below (Steps 3 - 7) apply.
If the contract is discharged by one of the exceptions, the party who performed his obligations is entited to be paid accordingly, based on the
amount of work done.

3. Exception 1 - De Minimis Rule Case law

Is the deviation in performance of the contract so Arcos Ltd v E A Ronaasen (1933)
minor and microscopic?
If yes, then the contract may be deemed as fully
performed.

4. Exception 2 - Divisible Contract

Can the contract be viewed as severable and
separate sub-contracts? In other words, can the
contract be divided into separate sub-contracts?
If yes, then see if there has been proper performance of a sub-contract. If yes, then the sub-contract may be deemed as fully performed and that
sub-contract can be discharged (with the remaining sub-contracts still remaining to be performed).

5. Exception 3 - Substantial Performance IMPORTANT!!

Did the party "substantially performed" his
obligations under a contract?
If yes, he can claim the agreed payment, MINUS the
amount required to make good his non-performance
(ie, MINUS the amount required to perform the
unperformed balance of the contract).
Boon v Eyre (1779) Claiming payment for "Substantial Performance" may not be
successful in the following situation:
SITUATION #1 : If the contract is an entire obligation (it is
not divisible into separate sub-contracts) AND payment is to
be made only when the entire contract is performed -
Bolton v Mahadeva (1972).

6. Exception 4 - Prevented Performance

Did the party perform part of his obligations but was Planche v Colburn (1831)
prevented by the other party from performing the
rest of is obligations?
If yes, then the contract can be discharged (and terminated) on the basis of prevented performance.

7. Exception 5 - Acceptance of Partial Performance

Did the party voluntarily accept the partial Sumpter v Hedges (1898)

performance of the other party?

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STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS
If yes, then he should make partial payment to the
other party for the latter's partial performance on
quantum meruit basis.

8. Conclude whether the Contract is Discharged by Performance.

State if the contract was discharged by full & precise performance. If it was not, state if the contract was discharged by any of the exceptions
above. State if payment should be made and on what basis.

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STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

1. State the General Rule.

Not every breach of a contractual term will result in the contract being discharged (and terminated).
Only a Repudiatory Breach will result in a contract being discharged (and terminated).

2. Define and explain Repudiatory Breach. Case law IMPORTANT!

Look at the facts of the Question and determine if it is a repudiatory breach.

2a. In the case of an actual breach, it will be a repudiatory Actual breach occurs when it is time for Party A to perform
his obligation, he actually fails to do so.
breach IF:
- a breach of a condition; OR Behn v Burness (1863) Eg. Party A agrees to pay today. But he failed to do so. It is
an actual breach.
- it is a fundamental breach ie, the breach goes to Hong Kong Fir v Kawasaki (1962)
the root of the contract).

In other words, did the breach deprive the innocent

party of substantially the whole benefit which the
contract was intended to provide?

If yes, it is a fundamental breach.

2b. In the case of an anticipatory breach, it will be a Hochster v De La Tour (1853) Anticipatory breach occurs when a party announces in
advance that he will not perform his future obligations on
repudiatory breach IF:
the future due dates .

the threatened future breach will deprive the innocent Eg. Party A agrees to pay next week. But this week, he calls
party of substantially the whole benefit which the you and tells you in advance that he does not intend to pay
contract was intended to provide. next week. So it is an anticipatory breach.

3. Was the Repudiation unequivocal? Case law IMPORTANT!

The party must have clearly and definitively indicated Pacific Rim Palm Oil v PT Asiatic Persada (2003) An honest misunderstanding is NOT repudiation. If there is
an underlying willingness to correct one's understanding and
that it is repudiating the contract.
fulfil those obligations, it is NOT repudiation.

4. What can the innocent party do? (if the Question Case law IMPORTANT!
asks)
Innocent party can decide whether to: RDC Concrete v Sato Kogyo(2007)

- affirm the contract (ie, continue with the contract);

OR

- discharge (terminate the contract) and be relieved of

its obligations under the contract.

PLUS he can claim for damages in either case.

The innocent party must communicate clearly and

HG Metal v Nam Tat Hardware (2006)
unequivocally his decision.

5. Conclude whether the contract was discharged by

Repudiatory Breach.
To also state your recommendation on the innocent
party's remedies (if the Question asks) .

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 BUS201 - CONTRACT & AGENCY LAW

Chapter 7
DISCHARGE
Category 3 - Agreement

STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

1. State the General Rule.

Parties can agree to discharge (and terminate) a contract.
Such an agreement can be contained in the existing agreement OR in a subsequent agreement between the parties.

2. Did the parties agree to discharge the contract?

Look at the facts of the Question and determine how the parties had agreed to discharge (terminate) the contract.

3. Type #1 - Ex isting Agreement: Did the parties include a

clause in the existing agreement?
Was a clause already included in the exising agreement, to state that the parties can discharge (ie, terminate) the contract upon the occurencce of
certain events?

Eg. There is a contract for the sale and purchase of shares. Parties agree in the existing contract that if the share price falls below $1.00 per share,
both parties agree to end the contract and not follow through with the sale & purchase of shares.

4. Type #2 - New Agreement Case law IMPORTANT!

A contract may be discharged (terminated) if parties
agree to do so in a subsequent agreement.
4a. Mutual Release Li Hwee Building Construction v Advanced
Construction (2002)

Where the obligations under the existing agreement

have not been performed completely, the parties can
execute a mutual release to release each other from
the future obligations.

4b. Unilateral Release: usually executed in the form of a DEED;

Unilateral Release so there is no need for consideration. Only need Offer,
Acceptance and Intention to Create Legal Relations.
Party A has performed all his obligations but Party B
did not peform all or part of his obligations. Party A is
agreeable to discharging (terminating) the contract
and releasing Party B from all other obligations.

4c. Accord and Satisfaction

Party B has not performed all his obligations under the contract. So he provides fresh consideration for a new agreement to release him from the
performance of such obligations.

4d. Variation

Parties can amend the terms of the existing agreement by entering into a new agreement (supported by new consideration) to amend the terms of
the existing agreement.

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STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS
4e. Waiver

Party A voluntarily (at the request of Party B or otherwise) agrees that Party B shall be released from some of (not all) Party B's obligations. Courts
traditionally have held that in such cases of waiving (letting go) some of Party B's obligations will not need consideration.

5. Conclude whether the contract was discharged by

Agreement.

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 BUS201 - CONTRACT & AGENCY LAW

Chapter 7
DISCHARGE
Category 4 - Frustration

STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

1. What is Frustration? Define.

A contract can be discharged (ie, terminated) if a frustrating event occurs.
Frustration refers to a situation where: Davis Contractors v Fareham Urban District
Council (1956)

'(a) a supervening event occurs;

(b) due to no fault of either party; AND

(c) the event resulted in a radical change in

circumstances such that the basis of the contract is
destroyed.

2a. Analyse the facts of the Question according to the 3 criteria, step by step.

(I) Was it a supervening (unexpected) event?

(II) Was it due to no fault of the parties?
(III) Did it cause a radical change in circumstances?

2b. Some examples of Frustrating Events. IMPORTANT!

See if the event in the Question is similar to the examples of frustrating event below:
(I) Destruction of Subject Matter Taylor v Caldwell (1863) These are EXAMPLES only. There may be other types of
frustrating events, based on the definition in item 1 above.

Subject matter of the contract is destroyed due to no

fault of the parties.

Eg. The parties enter into a tenancy agreement for an

apartment. Before the tenant can move in, the
apartment is destroyed by fire.

(II) Non-Occurrence of Event Krell v Henry (1903)

Herne Bay Steamboat v Hutton (1903)

An event is the underlying basis of the contract. The
event is cancelled or postponed due to no fault of the
parties.

Eg. Party A rents a room from Party B solely to

watch a parade that is scheduled to take place along
that street.

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STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS
(III) Government Interference Lim Kim Som v Sheriffa Taibah bte Abdul Rahman
(19994)

An unexpected government policy, action or ruling

which prevents the performance of the contract.

Eg. Parties agree to build a house on a plot of land.

The government subsequently issued a notice that it is
compulsorily acquiring the land, for national
purposes.

(IV) Personal Incapacity Poussard v Spiers & Pond (1876)

Party A is fundamentally unable to perform the

contract due to personal incapacity.

Eg. A contract for employment can be frustrated by

the death of the employee.

3. Are there any factors which limit the relevance of Case law IMPORTANT!
Frustration?
Before you conclude whether there is a frustrating event, ask yourself if any of the following factors are relevant such that it is not considered a
frustration:
3a. Foreseeability Housing & Development Board v Microform
Precision (2003)

The more foreseeable the event, the more difficult it is

to establish that it is a frustrating event.

Eg. Party A has been aware, for a long time, of the

government's intention to compulsorily acquire the
land. Party A has been applying to the government to
reconsider its policy to acquire the land. But the
government has rejected its application many times.

3b. Force Majeure Clause A force majeure clause usually states that in the event of
war, terrorist acts, earthquakes, strikes etc (acts that are
beyond the control of the parties), the parties will still have
Was such a clause included in the contract? If yes, to perform their obligations under the contract if the event
then it is likely to prevent a frustration of the contract. persusts for less than X days.

Parties are bound to the contract and required to The clause can continue to state that if the event persists for
more than Y days, the parties are no longer required to
perform the obligations acccording to the terms of the perform their obligations under the contract.
force majeure clause.

3c. Self-Induced Frustration Maritime National Fish v Ocean Trawlers (1935)

If the parties voluntarily and purposely does

something to cause a frsutrating event to occur.

Eg. Party A purposely opened the warehouse doors so

that the goods are damaged by the floods. It then
claimed that the sale of goods was frustrated by an
event that was beyond its control (ie, the floods). It
would not be frustration as Party A purposely opened
the warehouse doors to let flood waters seep in.

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4. Discuss the effects of Frustration (if the Question Case law IMPORTANT!
asks). What are the remedies for the parties?

Need to consider common law AND statutory provisions:

4a. Common Law Fibrosa v Fairbairn (1943)

 Frustration is effective immediately - no need to give

notice to either party.

 The contract is discharged (ie, terminated) only for

future obligations. Hence, all future obligations are no
longer required to be performed.

 All costs, expenses or losses incurred prior to the

frustrating event "lie where they fall". Too bad - the
party who paid the expenses before the frustrating
even, cannot be reimbursed for the expenses.

4b. Statutory Provision Frustrated Contracts Act NOTE: Frustrated Contracts Act does not apply to:

(a) contract for carriage of goods by sea

 Money paid prior to the frustrating event is (b) a contract for insurance
recoverable - section 2(2) (c) contract for sale of specific goods where the contract is
frustrated because the goods have perished
 Money paid prior to the frustrating event can be (d) contract to which section 7 of the Sale of Goods Act
applies
retained by the other party BUT only if it is "just" (fair) (e) certain types off charter parties
and does not exceed the expenses incurred by him -
section 2(3)

 Money payable is not payable - section 2(2)

 Valuable benefits conferred (other than money)

prior to the frustrating event can be compensated
with an amount which the court considers just (fair) -
section 2(4)

5. Conclude whether the contract was discharged by

Frustration.

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 BUS201 - CONTRACT & AGENCY LAW

Chapter 8
REMEDIES
Damages - 4 aspects

STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

1. What are Damages? Define.

Damages are monetary compensation payable by the defaulting party to a party when there has been a breach of contract.
Purpose of Damages is to put the injured party in the same position he would be, if the contract had been performed properly.

2. Identify the 4 aspects of Damages.

To determine if damages are to be paid (and if yes, how much), we need to examine 4 aspects:

(a) Causation
(b) Remoteness
(c) Mitigation
(d) Assessment (to determine how much damages are payable)

3. 1st aspect - Causation Case law

The injured party can only claim for damages if his loss The Cherry (2003)
was caused by the other party's breach.
Monarch SS Co v Karlshamns (1949)

Was the breach the "effective" or "dominant" cause of

the loss?

4. 2nd aspect - Remoteness Case law

The loss must be proximate, and not too remote.

Hadley v Baxendale (1854)

The test has 2 parts:
(i) normal loss (damage) arising from naturally (in Koufos v C. Czamikow (1969)
the ordinary course of business).

Here, the parties are presumed to have knowledge of

"the natural course of things".

(ii) abnormal loss (damage) arising from special Victoria Laundry v Newman (1949)
circumstances.

Here, the parties must have actual knowledge of the

special circumstances that resulted in the loss
(damage).

NOTE 1: In both parts (i) and (ii), the defaulting party Victoria Laundry v Newman (1949)
must know that the loss (damage) is a "serious
possibility" or a "real danger".

NOTE 2: BUT he is not required to know of the exact Parsons v Uttley (1978)
loss (damage) actually suffered, so long as he is aware
of the type/kind of damage.

For eg. he should know that the pigs will be affected if

they ate his expired food. So he is liable. But he does
not need to know whether they will fall sick, die or
spread any disease.

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5. 3rd aspect - Mitigation Case law IMPORTANT!

Mitigation means that the injured party cannot be British Westinghouse v Underground Electric
(1912)
compensated for loss which he could have avoided.

He is legally obliged to minimise his loss. He is

required to take all reasonable steps available to him
to mitigate (minimise) his loss .

It does not matter if he took reasonable steps to
minimise his loss and failed. He can recover any
additional losses arising from his failed steps.
PT Master Mandiri v Yamakazi (2001) There is no requirement under S'pore law for an innocent
party to take steps to mitigate his loss before a breach has
occurred - MP-Bilt v Oey Widarto (1999)

6. 4th aspect - Assessment Case law IMPORTANT!

Principle #1: Damages is calculated based on the

value of the benefit to the injured party, and not
based on the cost of performing the obligation by the
defaulting party.
Principle #2: The injured party is not entitled to a AS Nordlandsbanken v Nederkoorn (2001) Some general categories of damages :
(a) expectation loss (ie, loss of profit); OR
windfall.
(b) reliance loss ie, wasted expenditure).

So the amount of damages must be just and fair, and Anglia Television v Reed (1970)
not out of proportion with the loss or damage.

7. Conclude whether the innocent party will be

awarded damages for each scenario of loss that was
suffered.

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