An Overview of Discharge by Performance

According to Contracts Act 1950, discharge by performance is separated into 6 parts which are Contracts which must be performed, by whom Contracts must be performed, time and place for performance, performance of reciprocal promises, appropriation of payments and Contracts which needs not be performed. And the performance of Contract will cover from Section 38 until 68 in the Contract Act 1950.

The general rule of performance must be complete. This mean that when a party perform completely and perfectly all his promises under the contract, then his obligation under the contract come to an end. Section 38(1) of the Contract Act 1950 mentions that “the parties to a contract must perform, or either perform, or offer to perform their respective promises unless the performance is excused under the law”. The obligation under the contract will come to an end once performed by the contracting parties. When the parties carried out whatever that he supposed to be carried out, then it is considered as a complete the contract. In the case of Bolton v Macarena [1972] 1 WLR 1009, the plaintiff agreed to fix the central heating system in the defendant’s house. The defendant refused to make payments as the work carried out by the plaintiff was defective. The Court of Appeal held that the defendant had no right to claim for the payment as the defendant’s performance was not complete.

But, if any party that fail to do so, then that particular party will be discharged alone. Besides, Section 40 of the Contract Act provides that “when a party refused to perform, the other party can repudiate the contract unless he has agreed, by word or conduct, his acquiescence in its continuance”. The illustration to Section 40 gives these examples:

(a) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre for two nights in every week during the next two months. And B engages to pay her at a rate of RM100 for each night. On the sixth night, A willfully absents herself. B is at liberty to put an end to the contract.

(b) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre for two nights in every week during the next two months. And B engages to pay her at a rate of RM100 for each night. On the sixth night, A willfully absents herself. With the assent of B, A sings on the seventh night, B has signified his acquiescence in the continuance of the contract, and cannot now put an end to it, but is entitled to compensation for the damage sustained by him through A’s failure to sing on sixth night.

As a general, performance in a contract must be strictly in accordance with the terms of the contract unless the parties agree to change it.

Circumstances where there is partial (incomplete) performance but the partial performance is accepted

a) Divisible Contract

If the contract is a divisible contract, payments under it are to be made progressively. Whether a contract is a divisible contract or an entire contract depend on the intention of the parties to the contract. In the case Ming & Co v Leong Ping Ching [1964] 1 MLJ 312 held that a contract in respect of which progress payment s are made from time to time is not an entire or lump sum contract.

b) Doctrine of Substantial Performance

The doctrine enable the party who has performed substantially (though he has not given exact and literal performance) his obligation under the contract, to claim for payment. This doctrine is applicable even if the contract is entire contract. What is important is that a substantial part of the contract has been performed. In the case of K P Kunchi Rahman v Goh Brothers Sdn. Bhd.[1978] 1 MLJ 89 whereby the court held that the plaintiff had substantially completed the contract he was entitled to claim for any balance due to him for work done.

Time as an important factor to performance

1) Time and Place for performance

As a general rule, the promisee has a duty to apply for performance at a proper place within the hours of business when a promise is to be performed on certain day and the promisor has not undertaken to perform it without application by the promisee.1But, people will always question “what is the proper time and place”, in each particular case, a question of fact. “When a promise is to be performed on a certain day and the promisor has undertaken to perform it without application by the promise, the promisor may perform it at any time during the usual hours of business on the day and at the place at which the promise ought to be performed.”2 The illustration to Section 48 gives an example:

A promises to deliver goods at B’s warehouse on the 1st January. On that day, A brings the goods to B’s warehouse, but after the usual hour for closing it, and they are not received. Therefore, in this case, A has not performed his promise.

Furthermore, Section 47 in the Contract Act 1950 provides that “a promisor is to perform his promise without application by the promisee and no time for performance is specified, the engagement must be performed within a reasonable time.” In the case Startup v. M’Donald [1843] 6 M&G 593, the plaintiffs agreed to sell 10 tons of oil to the defendant and deliver to him within the last 14 days of March while he will pay in cash at the end of March. Delivery was tendered at 8.30pm on 31 March. But, the defendant refused to accept or pay for the goods because of the late delivery. The court held that the tender was equivalent to performance and the damages for non-acceptance were entitled to the plaintiffs. The question “what is a reasonable time” is, in each particular case, a question of fact.

2) Section 56 time is essential to the contract

In the case of Tan Ah Kian v HajI Hasnan [1962] MLJ 400, there are three ways to make time the essence of the contract:-

a) The parties’ state in the contract that time is of the essence of the contract.

b) If this is not stated in the contract, any party may give reasonable notice to other party who has failed to perform his part of the contract within a fixed time to make time of essence of the contract.

c) Time should be deemed as being of the essence of the contract due to the nature or content of the contract itself.

Hence, there is some exception for those delays of the contract. Section 56 in the Contract Act 1950 explains the effect of failure to perform at fixed time, in contract in which time is essential. If the time is the essence of the contract, a slight delay will entitle the other to repudiate the contract and the contract will become voidable at the innocent’s option.1 In other word, time is treated as an important element in doing the contract.

Salleh Abas F.J. in Sim Chio Huat v. Wong Ted Fui [1983] 1 MLJ 151 held that “if in contract in which time is of essence, a party fails to perform it by the stipulated time, the innocent party has the right either to rescind the contract or treat it as still subsisting. If he treats it either expressly or by conduct as still conducting, the contract exists but time ceases to be of the essence and becomes at large.”

But, whether a part is entitled to repudiate the contract is based on the nature of the contract. Different types of contract will have different conditions. For example, in a contract of the sale of goods, time is generally not in essence of a contract. The freedom to contract in accordance to time of performance was reaffirmed in Yeow Kim Pong (Realty) Ltd v. Ng Kim Pong [1962] MLJ 118 when the Rt Hon L.M.D de Silva, delivering the judgment of the Privy Council, said:

‘The question whether time is the essence of a contract is one to be determined by ascertaining the real intention of the parties. This is to be gathered by the examination amongst other things of attendant circumstances.’

So, the mere inclusion of a clause in a contract fixing a time for performance and nothing more does not per se mean that time is of the essence. In the case: Ganam v. Somoo [1984] 2 MLJ 290, the Federal Court ruled that “since there was no provision in the contract expressing time to be of the essence, the innocent party could not rescind the contract for failure by the other party to pay the purchase price on the specified date.”

Contract Act 1950 s.56 (1)

In Eng Mee Yong & ors. v. Letchumanan [1972] 2 MLJ 89, Lord Diplock, in considering the effect of failure to pay the purchase price within a specified date where time is of the essence, held that the caveator had breached a condition of the sale agreement which entitled the caveatees to elect to treat the contract as at an end. But if the innocent party accepts performance after the agreed time, he cannot later claim compensation for any loss by the non-performance at the time agreed, unless at the time of acceptance of the delayed performance, he gives notice to the promisor of his intention to claim compensation as state in Section 56 (3) in Contract Act 1950. Different cases have stated different view on this Section. In Pan Ah Ba & Anor v. Nanyang Construction Sdn Bhd [1969] 1 MLJ 39, the case applied the view that where the contract was performed between parties outside the stipulated time and not when it had not been performed at all. In Yeow Kin Pong (Realty) Ltd v. Ng Kim [1962] MLJ 118 supra, the view is this section requires a party who agrees to accept performance outside the stipulated time to give notice to the defaulting party of its intention to claim damages for any loss suffered as a consequence of the delay.

In Sharikat Eastern Plastic Industry v. Sharikat Lam Seng Trading [1972] 1 MLJ 21, the court decided that even when time is stipulated to be of the essence of the contract, it may be waived so that time became at large. If a party wanted to make time become essence again, a reasonable notice is needed to provide. In the case above, the court held that the plaintiff had waived the initial stipulation making time the essence and had failed to give reasonable notice to revive it. Same thing happened in Wong Kup Sing v. Jeram Rubber Estates Ltd [196] 1 MLJ 245, the High Court held that the defendants had failed to give reasonable notice to the plaintiff that it intended to terminate the contract after having agreed to an extension of time for performance in a contract for the purchase of a rubber estate.

Moreover, according to Section 56 (2), if it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do the thing at or before the specified time. But, the promise is entitled to compensation from the promisor for any loss occasioned to him by the failure. In other word, if we not consider time is essence, then one party may be loss due to late and this party can claim for compensation. In Louinder v. Leis [1982] 41 ALR 187, an Australian case, the High Court held that mere delay in carrying out an obligation beyond the specified date, while constituting a breach, did not justify the rescission of a contract.