LAW OF CONTRACT 3

Discharge of a Contract Remedies For Breach of Contract

Discharge of a Contract

(a) (b) (c) (d)

Discharge of a contract means that the parties to an agreement are freed from their contractual obligations. A contract may be discharged by any one of the following ways: Agreement Performance Frustration breach

Agreement

A contract which has been made by agreement can be ended by agreement. The contract itself may contain express or implied provision for its discharge, either by the passage of a fixed period of time, or the occurrence of a particular event. Section 63 and 64 provide for the discharge of contracts by agreement or consent.

Performance

When the parties to a contract perform their obligations under it, the contract is discharged by performance. Section 38(1) states - The parties to a contract must either perform, or offer to perform, their respective promises, unless the performance is dispensed with or excused under this Act, or of any other law.

Cont

As a general rule, performance must be strictly in accordance with the terms of the contract unless the parties have agreed otherwise. If a contract provides a complete performance as a condition precedent to payment, the party who has partly performed the contract is not entitled to the payment.

Cont

However where the essential element of an agreement has been performed and only some minor part remains to be done, the party who performed the act can claim the contract price. This is known as the doctrine of substantial performance.

KP Kunchi Raman v Goh Brothers Sdn Bhd 1 ]1978[ MLJ 89

The plaintiff had agreed to lay pipelines for the defendant. The plaintiff claimed to have completed the work but the defendant alleged it was not to satisfaction. The defendant had incurred expenses in completing the contract. It was held that the plaintiff had substantially completed the contract and was entitled to the balance sum subject to the defendants cost in completing the work.

Frustration

A contract is frustrated when subsequent to its formation, a change of circumstances renders the contract legally or physically impossible of performance. Section 57(2) provides 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.

Two instances of frustration

when the contract becomes impossible anything which renders performance impossible can be a frustrating event. This includes destruction of the subject matter, personal incapacity, non-occurrence of an event etc. when the contract becomes unlawful the performance of the contract may be made illegal by a change in the law or due to the outbreak of war which make the other party an enemy alien.

Discharge by Breach

A breach of contract occurs where one of the parties to the agreement fails to comply, either completely or satisfactorily, with their obligations under it. Section 40 - 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 conducts, his acquiescence in its continuance.

3 types of a breach of contract

where a party, prior to the time of performance, states that they will not fulfill their contractual obligation (also known as anticipatory breach). Where a party fails to performs their contractual obligation when performance is due. Where a party performs their obligation in a defective or unsatisfactory manner.

Remedies For Breach of Contract

The principle remedies for breach of contract are: damages; specific performance; injunction.

Damages

Damages are granted to the innocent party as compensation for the damage, loss or injury he has suffered through a breach of contract. The aim of damages is to put the innocent party in the position he would have been in if the contract had been carried out properly. It is quite common in the business dealings for the parties to agree in advance the damages that will be payable in the event of a breach of contract, for example charges imposed for canceling a ticket.

Mitigation of loss

Explanation to section 74 states that In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account. In other words, the party seeking damages is under a duty to mitigate or reduce the loss.

Kabatasan Timber Extraction Co v Chong Fah Shing [1969] 2 MLJ 6

The appellant failed to deliver logs to the mill but left them some 500 feet away. The respondent had purchased timber from other sources to make good the shortage. The Federal Court held that it was the duty of the respondent to mitigate the damages, that is, by simply hauling the logs up to the mill instead of buying the new one. The damages awarded to the respondent were therefore reduced for failing to mitigate.

Specific performance

Specific performance is a decree of the court directing that the contract shall be performed. This remedy is governed by the Specific Relief Act 1950 and it is given at the discretion of the court.

Injunction

This is an order of the court restraining a person from acting in a way which will amount to a breach of contract. Section 50 of the Specific Relief Act states that an injunction is granted at the discretion of the court. Two types of injunction Temporary or interlocutory or interim injunction and perpetual injunction