The word discharge in law means the release from

an obligation, debt or liability.

So, discharge of a contract means 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

A contract may be discharged in one of the following
ways:

i) Performance;
ii)Agreement;
iii) Breach;
iv) Impossibility (or frustration)


A contract is discharged when both parties carry out
their promises.

If Sunshine Housepainters Sdn Bhd agrees to paint Mr.
Mohans house for RM1,000, the contract is performed and
discharged when the house is painted according to the
specifications mentioned in the contract and full payment
has been made.

Section 38(1) of the Contracts Act states that parties to a
contract must either perform or offer to perform their
respective promises, unless such performance has been
dispensed with by any law.

The general rule is that a party must do everything
promised in the contract. Part performance is no
performance.

The exceptions are:
i) Installment contracts in which A becomes obliged to pay
B even though B has only partly performed his part of the
contract; A normally has to pay a proportionate amount of
the price at that stage.
ii) A may have accepted partial performance by B in
circumstances in which A had a free choice; then A will be
required to pay on a quantum meruit (reasonable sum)
basis.
iii) Some action on As part has prevented B from
completing the contract; then B will be entitled to a
quantum meruit payment.

Section 51 states that the performance of any promise may
be made in any manner, or at any time, which the promisee
prescribes or sanctions.

As a general rule, failure to perform or pay on time is only a
breach of warranty and will not bring an end to the contract.

However, in those cases where the time of performance is
crucial, then it is a condition of the contract. The parties can
always make the time of performance a condition of the
contract by stipulating that time shall be of the essence of the
contract.

Under section 56(1), where time is of the essence, failure to
perform within the fixed time would render the contract
voidable.

Where time is not of the essence, then performance must be
within a reasonable time of the date fixed, and payment must
be within a reasonable time of the completion of the contract.

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

If the contract has not even started, it is known as an
executory contract, and it can be terminated simply by
a new agreement 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.

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

i) provide some new consideration to compensate the
performing party; or

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

The parties may also agree beforehand that the occurrence
of some specific event would discharge the contract. For
example, a charter party contract for the hire of a ship may
contain a term that a dock strike will discharge the contract.


A contract is frustrated if an even occurs between the
contract being agreed and it being performed, which is the
fault of neither party, but which renders the contract legally
or physically incapable of performance in its originally
intended 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 the
promisor 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 the
contract without any liability incurred towards the other
party.

H.A. Berney v Tronoh Mines Ltd [1949]

On the invasion of Malaya by the Japanese forces during
the Second World War, the European staff of the defendant
company was evacuated from Tronoh, Tanjong Tuallang
and other places, but the plaintiff elected to remain at
Tanjong Tuallang. Thereafter, the plaintiff was not paid any
wages. After the War, the plaintiff sued the defendant for
breach of contract of service. The defendant contended that
consequent on the Japanese occupation of Perak, the
contract of employment between them and the plaintiff was
discharged by frustration.

The court held that the invasion of Malaya by the Japanese
frustrated the performance of the contract and there was no
breach of contract by the defendant.

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 Caldwell (1863)
The defendant agreed to let the plaintiff to have the use
of 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.

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.


(i) Contract becomes void at the date of frustration.

(ii) Person who received advantage is bound to restore
or compensate.

(iii) Both parties retreat to their original position.


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. supplying
sub-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, 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.

If one party indicates well in advance of the time due for
performance that he has no intention of performing his
obligations under the contract, the breach is known as an
anticipatory breach.

The other party need not wait until the agreed time of
performance, but can start a court action immediately. For
example, if in June A contract to start work in September as
an administrative officer with B Company, and B Company
in July informs A that it will not employ A, A can sue for
breach of contract in July; there is no need to wait until
September before starting a court action. Of course, A can
also wait until September and then sue.



TIME LIMITS

i) DAMAGES (REMOTENESS OF DAMAGES)

ii)SPECEFIC PERFORMANCE

iii) INJUNCTIONS

Under the Limitation Act, no action based upon a breach of
contract may normally be brought after six years have
expired 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 have
expired (the action is said to be time-barred), the cause of
action, where it involves a debt, may be revived by either an
acknowledgement in writing, signed by the debtor to the
creditor, or by a part-payment clearly referable to the
original obligation.

If the cause of action involves fraud, or has been concealed
by fraud, or is based on a mistake, the period will not run
until the plaintiff ought reasonably to have discovered the
truth.

A breach of contract entitles the injured party to
damages to compensate him for his loss.

So, if there is no loss, there will be no damages, other
than nominal damages to reflect the fact that a
contract has been broken.

The purpose of damages is not to penalize or punish
the defaulting party. The general aim of damages is to
put the injured party back where he started, in so far as
this is possible by financial means.

A clause in a contract which provides that a party, should he
defaults, shall pay a higher then usual sum of money as
compensation 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 suffered
following a breach, the clause is called a liquidated damages
clause.

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 and
penalties as understood under English law: Selva Kumar a/l
Murugiah v Thiagarajah a/l Retnasamy [1995], FC.



Under section 75 of the Contracts Act, a plaintiff is
only allowed to recover a reasonable sum for breach
of contract.

If a sum is named in the contract to be paid in case of
such breach, then the amount of damages recoverable
cannot exceed that sum.

The plaintiff is still required to prove the actual damage
he has suffered and cannot just simply recover the
named sum (regardless of whether it is a penalty or
liquidated damages).

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 to
prove that the loss which he suffered was the direct
consequence of the breach by the other party, and was not too
remote from it.

This usually amounts to a question of how foreseeable a
particular 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.

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 of
the broken one. The mill machinery could not be operated until the new shaft
was delivered, but Baxendale was not informed of this exceptional
circumstance. Delayed delivery for an unreasonable time, with the
consequence 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 profits
during the period of additional delay.
The court held that the damage was too remote and Hadleys claim failed.

Victoria Laundry v Newman I ndustries (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, Victorial
Laundry Ltd lost (a) normal business profits during the period of delay, and (b)
profits from dyeing contracts which were offered to them during the same
period.
The court held that (a) was recoverable as damages, but (b) was too remote and
not recoverable because Newman Industries Ltd did not know, nor as
reasonable men ought to be aware of the dyeing contracts.


The Illustrations to section 74 clearly indicate that a party
may 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 contracted
for and the actual price the goods were sold for as a result
of the breach.

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

Once the type of loss is foreseeable by the defendant,
he will be liable for the full extent 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.

Sometimes, the injured party is more interested in
getting the contract actually performed than receiving
damages for a breach. The remedy he is seeking is known
as specific performance.

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

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

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 constantly
supervise 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 the plaintiffs part.



An interlocutory injunction is a court order
prohibiting the party to whom it is addressed from
doing something (e.g. breaking a contract).

The purpose is to maintain the status quo between the
parties. It is a discretionary remedy and is normally
only awarded if damages would be inadequate as a
remedy.

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

Warner Bros. v Nelson (1037)
The defendant, a film actress better known as Bette Davies,
agreed to make a film for another company although she
had an exclusive contract with the plaintiffs.
The court granted the injunction to the plaintiff and
restrained the defendant from carrying out the contract with
the third party.

Page One Records Ltd v Britton (1967)
The manager of a pop group, the Troggs, applied for an
injunction prohibiting the group from employing anyone
else as their manager.
The court held that this was in effect a request for
enforcement of the original contract. The application was
rejected.