LAW OF CONTRACT

LXEB 1122

DISCHARGE OF CONTRACT
FRUSTRATION
 INTRODUCTION
• Obligations of parties to contract: 38(1)
• Obligations come to an end → contract is
discharged
• Ways contract may be discharged:
– Frustration
– Performance
– Agreement
– Breach
• Remedies depend on way in which discharge
occurred.
– If discharge by agreement, remedies decided by
parties
 Discharge by frustration
• Contract is frustrated when rendered
legally or physically impossible of
performance because of change of
circumstances
• Change of circumstances after contract is
made & parties could not prevent the
change
• S57(2)
• Test: Satyabrata Ghose v Mugneeram Bangur
(SC of India)
– Does not mean physical or literal impossibility
– Covers situation where performance of act may not
be literally impossible but may be impracticable and
useless from the point of view of the object and
purpose which the parties had in view
– Act would be impossible if an untoward event or
change of circumstances totally upsets the foundation
upon which the parties rested their bargain
• Test: Davis Contractors Ltd v Fareham
(HL)
– A frustrating situation must be one which
renders performance of the contract radically
different from that which was in the
agreement
 Examples
• Ramli b Zakaria & Ors v Govt of Malaysia
– Applied test in Davis Contractors
– Appellants pursued teachers’ training course. Offer
stated that on completion, they would be taken in as
teachers on a UTS scale. UTS scale subsequently
replaced
– FC: no frustration. There was a change of
circumstances but this did not amount to a
fundamental or radical change in the obligation
originally undertaken. Performance is not radically
different from that originally undertaken.
• Chinaya a/ Ganggaya v Sentul Raya S/B
Pl = purchaser of condo unit
Sued defendant (property developer) for late delivery of
vacant possession and claimed damages.
Def invoked frustration – delay due to dire financial
position brought about by the 1997-1998 economic crisis
which was beyond their control
Held: not impossible to complete condo because condo
was eventually completed. No frustration. Not sufficient
for defendant to merely refer to the national economic
crisis. There had to be a radical change in
circumstances.
Berney v Tronoh Mines Ltd
- Outbreak of WW2. Contract of
employment became frustrated
• Murugesan v Krishnasamy & Anor
– Defendants were occupants of several pieces
of TOL land. Applied for EMR titles for the
lands. While application was pending,
defendants agreed to sell land to plaintiff.
Application was rejected.
– Held: Contract for sale of land became
frustrated
• Goh Yew Chew & Anor v Soh Kian Tee
• - there must be a change of circumstances after
contract is made
– Appellants agreed to construct 2 buildings on
respondent’s land. Respondent paid earnest money.
Subsequently, it was discovered that the neighour’s
house had encroached into the land and, therefore,
not possible to construct buildings according to
plans. Is this a frustrating event?
– Held: No. For frustration, there must be a change of
circumstances after the formation of the contract
which renders it physically or impossible to fulfill
• Singapore Woodcraft Manufacturing Co v
Mok Ah Sai
– Tenancy agreement was frustrated when the
Collector of Land Revenue served a notice of
possession pursuant to an order of
compulsory acquisition.
 Hare v Murphy
• Employee was imprisoned for 12 months
in 1971. Involved in a fight not related to
work
• After imprisonment, employee wanted to
return to work. Employer disallowed.
• Held: Contract of employment was
frustrated when he was sent to prison
• Shigenori Ono v Thong Foo Ching
– Plaintiff had agreed to buy land from 3rd
defendant. Property was subject to an existing
tenancy. Tenant took out an injunction against
3rd defendant to prevent him from transferring
land to plaintiff. Injunction had prevented 3rd
defendant from continuing with his
obligations.
– Held: Frustration
 Standard Chartered Bank v KL Landmark

• Bank lent RM20 million to borrower. Def charged their

land to bankd as security. Borrower defaulted. Bank
applied to foreclose the land.
• Later, bank made agreement with def under which def
would pay RM2million to bank and give a bank
guarantee providing to repay the balance RM18 million
• Def paid RM2million. But subsequently, bank and def
were served with an injunction by Monsia Investment Pte
Ltd to stop them from acting under this agreement.
• Held: The agreement suspending the right of the bank to
foreclose def’s land had been frustrated.
 Frustration -Effect
• Contract becomes void
• Parties discharged from further
performance
• If parties have made provisions to allocate
the risks, effect will be given to the
provisions: s16(3) CLA
• If no provisions made by parties→ s66 CA,
s15 CLA
• Effect of s66
• Effect of s15(2) & (3) CLA
• S66 - contract becomes void
• restitutionary
• S66, Illustration (d).
 S15(1) CLA
• Where a contract has become impossible
of performance or been otherwise
frustrated, and the parties thereto have for
that reason been discharged from the
further performance of the contract,
subsection (2) to (6) shall, subject to
section 16, have effect in relation thereto.
 S15(2) CLA
All sums paid or payable to any party in
pursuance of the contract before the time
when the parties were so discharged …
shall, in the case of sums so paid, be
recoverable from him as money received
by him for the use of the party by which,
the sums were paid, and, in the case of
sums so payable, cease to be so payable.
 Proviso to s15(2)
Provided that, if the party to whom the sums
were so paid or payable incurred expenses
before the time of discharge in, or for the
purpose of, the performance of the contract, the
Court may, if it considers it just to do so having
regard to all the circumstances of the case, allow
him to retain or, as the case may be, recover the
whole or any part of the sums so paid or
payable, not being an amount in excess of the
expenses so incurred.
 S15(3) CLA
Where any party to the contract has, by reason
of anything done by any other party thereto in, or
for the purpose of, the performance of the
contract, obtained a valuable benefit (other than
a payment of money to which subsection (2)
applies) before the time of discharge, there shall
be recoverable from him by the said other party
such sum (if any), not exceeding the value of the
said benefit to the party obtaining it, as the Court
considers just, having regard to all the
circumstances of the case and, in particular –
 S15(3)(a)
(a) The amount of any expenses
incurred before the time of discharge
by the party benefited in, or for the
purpose of, the performance of the
contract, including any sums paid or
payable by him to any other party in
pursuance of the contract and
retained or recoverable by that party
under subsection (2); and
 S15(3)(b)
• The effect, in relation to the said benefit, of
the circumstances giving rise to the
frustration of the contract.
• Court’s discretion in s15(2) and (3)