Discharge of Contract

Performance
 Performance
• Usual way of discharge – performance
• S38(1) – parties to fully perform their
contractual obligations ie exactly and
precisely in accordance with contract
• Traced back to old English case of Cutter v
Powell 101 ER 573.
– C was employed in a ship on a voyage from Jamaica
to Liverpool. Contract stated that payment would be
made upon completion of voyage. C died on the
voyage. Court held that C’s widow could not claim a
proportion of his wages.
• Bolton v Mahadeva - Contractor agreed to install
a central heating system. When work was done,
system was unable to heat the house
adequately. Contractor could not claim payment.
• Harsh results
 Exceptions to Cutter v Powell
• Contract is divisible
• Performance prevented by the other party
• Partial performance has been accepted
• There has been substantial performance
 1. Divisible contract
• Ie one capable of being divided into
component parts with each part
independent from the rest
• Where contract is divisible, the parties can
ask for payment for each part of the
contract that has been performed
• Divisible contract vs entire contract – not
always easy to ascertain. A question of
construction of the contract in each case
 Divisible vs entire contract
• Tong Aik (Far East) v Eastern Minerals
– P sued D for a sum being the balance of an agreed
remuneration under a contract for work and supply of
minerals at D’s mine in Kelantan. Contract stipulated
that the P should be able to supply the D with a
minimum of 5,000 tons of mineral ore per month.
Remuneration is according to agreed rate per ton. D
denied liability on ground that this is a lump sum
contract and that P was in breach of contract as P did
not supply the D with the mineral ore as stated in
contract.
– Held: Divisible contract. P must be paid for the
tonnages of ore actually produced and transported.
(cont’d)
• Tong Aik
– Entire contract : the consideration is one and entire or
– where it can be gathered by necessary inference that
no consideration is to pass from one party till the
whole of the obligations of the other party have been
completed
– Right to payment does not arise until the contract has
been completely performed
– Full and exact performance is necessary beofre
payment is due(cont’d)
• Tong Aik
– Divisible contract: a number of considerations
for a number of acts eg periodical payments
for a number of services which do not form
one complete whole
– Right to payment arises as each part of the
contract is performed
• Kunchi Raman
– Contract to lay water pipes while D was to supply the pipes.
Cl 2- D shall pay P for all work done in accordance with agreement
Cl 7- For purpose of payment, all pipes shall be measured along
the centre line of the finished pipeline
Cl 9 – On completion of work, the whole work shall be measured
and any variation on the above quantities shall be adjusted
accordingly
Dispute as to completion of the work. Q: whether P entitled to any
payment? Depends on whether contract is entire or divisible.
– Held: Depends on intention of parties. Court found a clear
intention that contract should be entire.
 2. Performance prevented
• Where a party to a contract has
performed part of his obligations but
is prevented from continuing further
by the other party, he is excused from
further performance by the
obstruction. He can sue for breach of
contract, claim for damages and sue
for work done.
Smith Construction v Phit Kirivatna
• P was employed to build a house for D.
Incorrect information was given by D to P
which caused house to be built so as to
encroach upon neighbouring land. P
asked D to slow down in their works while
he discussed with neighbour.
• Held: P could recover the full amount of
the work done and materials supplied. P
could also claim damages as a result of
slowing down and stoppage of the work.
 3. Partial Performance
• Where a party performs only part of his
obligations, the other party has the option of
accepting or rejecting the partial performance
• If he rejects, the party performing partially is not
entitled to make any claim for payment
• It he accepts the partial performance, the party
performing may claim for remuneration upon
quantum meruit basis.
 Quantum meruit
• Quantum meruit – as much as he has
earned
• Making a claim for a reasonable sum in
respect of the benefit (goods supplied or
work performed) conferred by the partial
performance under the contract
– Designed to restore the actual benefit or the
value of the benefit that one party has
conferred on the other
• .
• To succeed, must prove that the other
party has accepted the partial
performance.
• Can be inferred
 Quantum meruit
• Ie must be shown or inferred that a fresh
contract is implied in which the non-
defaulting party undertakes to pay for the
work already done or goods supplied
• Defaulting party may only claim quantum
meruit if the injured party has an option to
accept or refuse the partial performance
 Sumpter v Hedges
• Pl, a contractor, abandoned work on 2 houses.
Defendant had no option whether to accept the
benefit of the work or to reject it. Def had to
finish the buildings which were in an incomplete
state. As the defendant was not given any option
to accept the partial performance, it was held
that a claim in quantum meruit under such
circumstances failed.
• But if materials have been left on the site and
the building owner had used them to complete
the building, he may be liable to pay a
reasonable sum for the materials
 Haji Hasnan v Tan Ah Kian
• Def obtained contract to make a road in Tanjong Karang.
Def then engaged Pl to do the job. Pl agreed to complete
by 30/5/60. By that date, work partly completed. Def
terminated contract and immediately entered into
another contract with another person to complete work.
• Court: Def wrongly terminated contract without giving
notice to Pl to complete it by a certain date. By failing to
give notice to terminate, Def had repudiated the contract.
By appointing another contractor to complete the work,
there must be implied a contract on the part of the Def to
pay for work done. Pl entitled to recover work done and
material supplied on quantum meruit basis.
• Quantum meruit can also be based on
restitution. No further requirement of implied
contract needed
• Basis: Pl proves def has received benefit and
that benefit has a particular value. Def would be
unjustly enriched if he was not required to pay a
reasonable amount for the benefit which he
enjoyed: Hasbullah Chan v Rahika development
[2000] 4 AMR 4707
• S65, 66 and 71
 4. Substantial performance
• Doctrine – where a party has substantially performed his
part of the contract, though not in a precise and exact
manner, he can make a claim for payment. BUT the
other party is entitled to counterclaim or to set-off any
loss which he has suffered as a result of the incomplete
performance
• To determine whether work has been substantially
performed:
– Nature of defects
– Cost to rectify defects in relation to contract price
– Balance of work left undone
 Bolton v Mahadeva
• M had contracted with B to install central heating system.
System was defective and would have cost 25% more of
the contract price to make it function correctly. Fumes in
the living room and heating system in house was 10%-
30% less than it should have been.
• Held: B had not substantially performed and could not
recover the contract price with damages for the defects
set off against it. Cairns LJ : “The main Q is whether the
defects in workmanship … were of such character and
amount that the Pl could not be said to have
substantially performed his contract. That is in my view,
clearly the legal principle which has to be applied in
cases of this kind.”
Building & Estates Ltd v Connor
• Pl contracted to build for the Def a house. On completion, Def
moved in but refused to pay the balance of the contract price
on the ground that house was not built according to
specification and that the work was defective and inferior. Def
denied liability to pay the balance sum and counterclaimed for
the sum which had to be expended to rectify the defects.
• Held: A promisor who has substantially performed his side of
the contract may sue on the contract for a lump sum but
remains liable in damages for his partial failure to fulfil his
contractual obligations. Here, there was substantial
performance. Def liable to pay the balance of the contract
price to the Pl less a deduction for the costs of making good
the defects.
 Kunchi Raman v Goh Bros Sdn Bhd

• Pl, a contractor, agreed to lay water pipes between 2 towns in

the northern part of Malaysia. Pl claimed that he had
performed the work but Def denied this. Def claimed that
under the contract, the Pl should execute the works to the
satisfaction of the Def and the Chief Resident Engineer who
was in charge of the contract works. Def incurred expenses in
completing the work and counterclaimed for repayment of
sums paid to the plaintiff.
• Held: On facts, Pl had substantially completed the work. He
was entitled to claim for any balance due to him for work
done. The Def was also entitled to cross-claim for the defects
and the cost of completing the work. Although it was an entire
contract, the parties had not excluded the applicability of the
doctrine of substantial performance.
• If performance was not substantial, party
in default cannot rely on doctrine of
substantial performance to recover
• Doctrine of substantial performance can
only apply if, on construction of the
contract, exact and precise performance is
not a condition precedent to payment ie
doctrine can be excluded by the parties
 Time for performance
• If no time fixed for performance – s47 (reasonable time)
• Contracts that fix time for performance
• S56
• S56(1) : time of the essence
Where promisor promises to:
- Do a certain thing at or before a specified time
-Fails to do any such thing at or before the specified time
-Intention of parties was that time is of the essence of the
contract
-Effect = Contract becomes voidable at the option of the
promisee
 S56(1): “fails to do any such
thing” within the stipulated time
• Berjaya Times Square Sdn Bhd v M Concept
Sdn Bhd: The phrase “any such thing” refers to
the promise in its entirety.
• Court held that “s56(1) should be read together
with s40 when determining whether a party has
committed a breach of such a nature that goes
to the root of the contract. This is sometimes
described as a fundamental breach”
• S56(2) : time for performance stipulated
but not of the essence
– Contract does not become voidable
– Promisee entitled to compensation for any
loss caused
• S56(3): to be read with s56(1)
• Where contract is voidable:
–Promisee accepts performance at any time
other than that agreed
→ Promisee cannot claim compensation for
any loss caused by non-performance at agreed
time UNLESS at time of acceptance, he gives
notice of his intention to claim compensation
Eg: extension of time
 Yeow Kim Pong Realty Ltd v
Ng Kim Pong
• Sale and purchase agreement of land. Purchase price to
be paid by a certain date but purchaser failed to pay.
Purchaser requested for more time and seller agreed. A
supplementary agreement was entered into and
purchaser agreed to adhere to the terms. Purchaser
failed to meet the terms of the supplementary agreement
and seller rescinded the main contract.
• Held: contract lawfully rescinded. When one party fails to
perform his promise at the time agreed, s56(3) does not
prevent parties from entering into a new contract to vary
the time of payment and impose new terms.
 When is time of the essence?
• Tan Ah Kian v Haji Hasnan
Time may be made of the essence of the contract in
several ways:
- by the parties expressly stating in their contract that
time is of the essence
- If not expressly stated in contract, by the non-
defaulting party giving reasonable notice to make time
of the essence to the other party who has failed to
perform within stipulated time that he intends to make
time of the essence
- by looking at the nature and subject matter of the
contract, time must be taken to be of the essence (ie
court infers)
 Giving notice to make time of
essence
• Where time is mentioned in the contract but not
made of the essence of the contract, a party
may subsequently give reasonable notice to
make time of the essence if:
– (i) the other party has been guilty of
unreasonable delay
– and (ii) the time mentioned in the notice is
reasonable: Mensa Mercantile (Far East) Pte
Ltd v Ekobina Sdn Bhd [1989] 2 MLJ 170
 Associated Pan Malaysia S/B v Sykt
Teknikal & Kejuruteraan S/B
• Court construes the nature and content of the contract
• The contract must be construed as a whole, having
regard to the facts and surrounding circumstances of the
case
– Facts: Clause that payments will be made to the
contractor before the 10th working day of the following
month. Evidence that the term for payment was
reduced from 15 days in the first contract between the
parties to 10 days in a subsequent contract. Also,
respondent was dependent on the payment to pay his
workers. Held: time of essence
 Waiver of right that time of the
essence

• Possible for parties to waive their rights,

either by word or conduct, to enforce the
time of the essence clause
eg: negotiations continued after time fixed
Sharikat Eastern Plastics Industry v
Sharikat Lam Seng Trading

Written agreement to purchase certain machinery for

which shipment would take place in July and delivery in
August. Until Sept of that year, the parties were still
negotiating, not only with regard to the date of shipment
and delivery, but also, on the exact model of the
machinery.
Held: By taking part in the negotiations even after the
date for performance, the parties had waived their right
to insist that time is of the essence. BUT either party
can give notice to the other to make time of the essence
of the contract again, by requiring the other party to
perform within a reasonable time
 Extension of time - waiver?
• Siah Kwee Mow - Where time is of the
essence, a party who gives an extension
of time to complete performance is not to
be regarded as having waived his right to
insist that time is of the essence.
• The new time becomes the essence of the
contract
 Siah Kwee Mow
• Sale and purchase of a rubber estate.
Sale to be completed within stipulated
date. Time of the essence. Purchaser
requested for more time to complete and
seller agreed to grant extension of one
month.
• Held that the mere extension of time does
not amount to a waiver.
 KL Finance Bhd v Yap Poh Khian
• Distinction between merely extending time and
waiver of time of the essence
• 3 extensions of time but by the final extension,
purchasers had to pay full purchase price. No
evidence that Pl prepared to waive the condition
that time was to be the essence of the contract
of sale.
• BUT where many extensions of time have been
given, may suggest that there was intention to
waive the time of the essence clause: Wong Kup
Sing v Jeram Rubber Estate Ltd [1969] 1 MLJ
245 (6 extensions)
 Pl’s delay in acting -- waiver
• Sim Chio Huat v Wong Ted Fui : Pl
allowed the delivery date for the
completion of the 4 houses to pass and
had acquiesced in the work continuing
under the agreement.
• Held: Pl had waived his right to rescind the
agreement. Pl is to be regarded as having
elected to affirm agreement.
 Hock Huat Iron Foundry v Naga
Tembaga Sdn Bhd
• Pl, a contractor, sued Def based on a contract to
build a factory. Date of completion was 30/11/80.
Actual completion date: 24/9/81. Def claimed Pl
had to pay damages for failure to comply with
the time of the essence clause.
• Held: As Def did not rescind contract when Pl
failed to complete within stipulated time but
allowed Pl to continue with the project till
completion, time is no longer regarded as of the
essence of the contract. (cont’d)
• (cont’d) … Contract could no longer be
avoided under section 56(1)
• Therefore, Pl had reasonable time to
complete the project under s47
• Compensation could not be awarded for
the delay because there could not be any
delay as the Pl had a reasonable time to
complete and in fact was allowed to
complete the project
 Relief
• If time of the essence, voidable contract (s56(1))
• Linggi Plantations v Jegatheesan : If innocent
party decides to terminate the contract → s65
• Alternatively, s76 (Chye Fook & Anor v Teh
Teng Seng Realty S/B [1989] 1 MLJ 308) & 74
• If innocent party decides to continue with
contract → damages s76 & s74
• s56(1) to be read with s56(3)
• If time not of the essence > compensation
• S74 compensation

• If time not specified, s47 > performance

within a reasonable time