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DISCHARGE OF CONTRACTS

INTRODUCTION
There are four ways by which the rights and obligations of the parties may come to an end, namely
performance, frustration, breach and agreement.
PERFORMANCE
A person who performs a contract in accordance with its terms is discharged from any further
obligations. Performance of a contract must be exact and precise and should be in accordance with
what the parties had promise.
Section 38(1) of the Contracts Act provides that parties to a contract must either perform or offer to
perform their respective promises, unless any law has dispensed with such performance.
Ex:

If Ali promises to deliver goods to Muthu on 3 January 2004 on payment of RM3, 000, Ali is
bound to deliver the goods to Muhtu on that day and Muthu is bound to pay the RM3, 000.

If a person's obligation is to deliver goods the goods must be tendered at a reasonable hour not for
example in the middle of the night. The goods must also comply exactly with the contract terms.
Case: LIM YOH v ASTANA STRATEGI (M) SDN.BHD. & ANOR [1998] 3 M.L.J. 117
Exceptions
Severable contracts
Acceptance of part performance
Prevention of performance
Substantial performance
Time of performance Frustration
The general rule is that if a person contracts to do something he is not discharged if performance
proves to be impossible. A contract is frustrated when there is a change in the circumstances, which
renders a contract legally or physically impossible of performance, Section 57(2) of the Contracts
Act.
Case: YEE SENG PLANTATIONS SDN BHD v KERAJAAN NEGERI TERENGGANU & ORS [2002] 3
C.L.J.666

In general if an event is to frustrate a contract it must be:

Not contemplated by parties when the contract was formed


One which makes the contract fundamentally different form the original contract.
One for which neither party was responsible
One which results in a situation to which the parties did not wish originally to be bound

Effect of frustration
When a contract is discharged by frustration, the contract does not become merely voidable but is
brought to an end forthwith and automatically, Hirji Mulji v Cheong Yue Stemship Co.Ltd [1962]
A.C. 497
Breach
Where one of the parties indicates to the other either by conduct or in clear terms an intention not to

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go on with the contract, the party is said to have repudiated or renounced the contract. A refusal to
perform a contract may occur before the time for performance is due (anticipatory breach) or during
the time of performance itself. A refusal to perform a contract when performance is due would amount
to a discharge.
Like refusal to perform, a party may put an end to the contract if the other party has disabled himself
from performing either before the time due for performance or during the time of performance. A
contract is discharged only if the disability to perform is brought about through the fault of the party
concerned.
If the disability is caused through the occurrence of some other events, beyond the control of the
parties, the contract may be discharged through frustration.
Effect of Breach
The effect of an innocent party putting an end to the contract is that the innocent party must restore
any benefits, which he may have received from the other party, Section 65 Contracts Act. If the
innocent party has rendered services or had supplied goods, he may recover a reasonable sum for such
services or goods rendered. If the innocent party has paid money under the contract, he may be
entitled to recover the sum paid. On the other hand, as general rule the party in default cannot
terminate the contract, which he himself had broken.
Remedies
Damages
Specific performance
Injunction
Case: WEARNE BROTHERS (M) LTD. v JACKSON [1966] 2 M.L.J. 155
Agreement
The basic rule is that an agreement to discharge a contract is binding only if it is by deed, or if it is
supported by consideration. It is not necessary for this type of agreement to be reached by means of
an offer from one party, which is accepted by the other. The legal position depends on whether the
discharge is bilateral or unilateral.
Bilateral Discharge
The contract is executory or partly executory on both sides (both parties have obligations outstanding)
Unilateral Discharge
Only one party has the rights to surrender.
There are two further ways in which a contract may be discharged by agreement:
Novation
Condition subsequent

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