2.6 Discharges of Contract

2.6 DISCHARGES OF CONTRACT

 Discharges of contract refers to the release of the contract. It means that the contracting parties are free from the obligations arising thereafter.  It results in the contracting parties do not have to run away from their responsibilities as agreed on the contract before.  There are four ways to discharged a contract, which are;

Performance Impossibility (frustration)

Breach Agreement

Performance

 As general rule, performance of a contract must be exact and precise and should be in accordance with what the parties has promised.  Section 38(1) of the Contracts Act 1950 provides 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”.  E.g.: Peter agrees to sell his cycle to John an amount of RM250 to be paid by

John on the delivery of the cycle. As soon as it is delivered, John pays the promised amount.

Cutter v Powell

Facts: Cutter enter a contract which he will be paid if he performed his duty in a vessel sailing from Jamaica to Liverpool. However, he died when the ship was 19 days short. His widow could not claim the proportion wages as the court held that the contract requires entire performance by Cutter as promised.

Impossibility (Frustration)

 If a party promises to carry out a particular act, the law will hold them to their promise. This principle is commonly known as the doctrine of absolute liability.  There are 2 instances of frustration, i.e. when a contract to do an act become impossible or unlawful.  For frustration to apply, the impossibility of performing the contract must arise without the fault of either party.

H A Berney v Tronoh Mines Ltd [1949]

Facts: Plaintiff sued for breach of contract of service. On the invasion of Malaya by the Japanese forces, the European staff of the defendant company was evacuated from Tronoh, Tanjung Tuallang and other places, but the plaintiff elected to remain at Tanjong Tuallang. The defendants contended that on the Japanese occupation of Perak, the contract of employment between them and the plaintiff was discharged by frustration.

Held: That the invasion of Malaya by the Japanese frustrated the performance of the contract and therefore there was no breach of contract by the defendants. Claim dismissed.

 Frustration can only arise where: i. An unforeseen event outside the control of the contracting parties (a supervening event) has significantly or radically changed the obligations of the parties from their original intentions; ii. Neither party caused the supervening event; iii. Neither party contemplated the supervening event, so there was no provision in the contract for it, and iv. The new circumstances would make it unjust to hold the parties to their original contract.

Breach

 Where party fails to perform their obligations as agreed, they are in breach of contract.  A breach can occur in some ways including: i. A failure to comply with a term of the contract; ii. By a party announcing to the other party that they are no longer interested in carrying out their obligations prior to the time for performance; and iii. A delay in the performance where times is of the essence in the contract.

Agreement

 If all parties to a contract mutually agree to replace the contract with a new one or annul or remit or alter it, then it leads to a discharge of the original contract due to a mutual agreement.  E.g.: Peter owes RM5000 to John and agrees to repay it within one year. They document the debt under a contract. Subsequently, Peter loses his job and request John to accept RM3000 as a final settlement of the loan. John agrees and they make a contract to that effect.