PERFORMANCE OF THE CONTRACT A contract may be

PERFORMANCE OF THE CONTRACT

A contract may be discharged by: performance, agreement, breach, or frustration.

The Rule The general rule is that the parties must perform precisely all the terms of the contract in order to discharge their obligations. E. g, in contracts for the sale of goods, the goods must correspond with the description. Case : Re Moore and Landauer [1921] 2 KB 519.

Re Moore and Landauer [1921] for the sale of 3, 000 tins of canned fruit packed in cases of 30 tins. agreement When delivered it was discovered that half the cases contained only 24 tins although the total number of tins was still 3, 000. The market value was not affected.

Held (Court of Appeal): that there was no loss to the buyer, he could reject the whole consignment because of the breach of s 13 of the Sale of Goods Act (goods must correspond with the description) notwithstanding

However, if the deviation is ‘microscopic’ (extremely small), the court will consider the contract correctly performed.

Case : Cutter v Powell (1795) 6 Term Rep 320. The rule. classic example of hardship caused by the A seaman who was to be paid his wages after the end of a voyage died just a few days away from port. His widow was not able to recover any of his wages because he had not completed performance of his contractual obligation. [However, this situation is now provided for by the Merchant Shipping Act 1970. ]

“Entire contract” Cutter v Powell represents the law on entire contract which has produced great injustice.

Modification Of The General Rule The strict rule as to performance is mitigated in a number of instances: DIVISIBLE THE CONTRACTS DOCTRINE OF SUBSTANTIAL PERFORMANCE

ENTIRE vs DIVISIBLE CONTRACTS A contract may be entire or divisible. An entire contract is one where the agreement provides that complete performance by one party is a condition precedent to contractual liability on the part of the other party. With a divisible contract, part of the consideration of one party is set off against part of the performance of the

Case : Sumpter v Hedges [1898] 1 QB 673 The plaintiff agreed to erect upon the defendant's land two houses and stables for £ 565. He did part of the work to the value of about £ 333 and then abandoned the contract. The defendant completed the buildings using plaintiff’s left in the site of the building. Held : Plaintiff could not recover the value of the work done, as he had abandoned the contract. But they could recover the value of the materials used. (Principle of Quantum Meruit)

Note: GH Treitel, The Law of Contract, states: In such cases, the question whether a particular obligation is entire or severable is one of construction; and where a party agrees to do work under a contract, the courts are reluctant to construe the contract so as to require complete performance before any payment becomes due.

Definition of entire or lump sum contract Chitty on Contracts, General Principles, 28 th edition : A contract is said to be ‘entire’ when complete performance by one party is a condition precedent to the liability of the other, in such a contract the consideration is usually a lump sum which is payable only upon complete performance by the other party (hence, the reference is sometimes to a ‘lump contract’).

ENTIRE vs DIVISIBLE CONTRACTS The opposite of an ‘entire contract’ is a ‘divisible contract’, which is separable into parts, E. g. , an agreement for payment pro rata. [ie proportionately]

Case : Yong Mok Hin v Unted Malay Sugar Industries Ltd [1967] 2 MLJ 9, FC Contracts between building contractor (appellant) and the respondent (purchaser of office building) Respondents did not pay the 5 th progress payment, hence the appellant then abandoned the work on the site.

Yong Mok Hin v Unted Malay Sugar Industries Ltd [1967] FC held that the contracts were lump sum or entire contract (based on the wordings of the agreement ; “advances may be made towards the contract during progress of construction at the respondents’ discretion”) The appellant was not entitled to any payment for work done before completion of the work.

New Contract Implied There is an exception to the gen. rule that allows the contractor to receive payment before completion of the work. How? contract is implied to pay remuneration equal to benefit derived from partial performance. New

Case : Smith Construction Co Ltd v Phit Kirivatna [1955] MLJ 8 Plaintiffs were building a house for the defendant. Problem arose—part of the house encroached upon an adjoining land. Def’s architect requested plaintiff to slowdown—resulting in increased costs.

Smith Construction Co Ltd v Phit Kirivatna [1955] Plaintiffs asked for the payment of the work already done. Defendant failed to issue architect’s cert. to value the work done, Plaintiffs stopped work and claimed breach.

Spencer Wilkinson J : “If it was an entire contract, the plaintiff could not sue until they have completed the work. However, exception applied in this case, where the defendant’s solicitors’ letter implied a contract by the defendant to pay for the work done. It is also common building practice that when work stopped, the builder will be paid up to date of stoppage. ”

Please read the case of: Yong Mok Hin v United Malay States Sugar Industries Ltd

THE DOCTRINE OF SUBSTANTIAL PERFORMANCE The law on entire contract has produced great injustice. To mitigate the harshness of this rule, the law developed the doctrine of substantial performance.

THE DOCTRINE OF SUBSTANTIAL PERFORMANCE Rule: Where the party to whom the promise of performance was made receives the benefit of partial performance of the promise under such circumstances that he is able to accept or reject the work and he accepts the work, then the promisee is obliged to pay a reasonable price for the benefit received.

THE DOCTRINE OF SUBSTANTIAL PERFORMANCE But it must be possible to infer from the circumstances a fresh agreement by the parties that payment shall be made for the goods or services in fact supplied.

Case : Kunchi Raman v Goh Bros Sdn Bhd [1978] It was stated in this case that the doctrine of substantial performance modified the rigours of the common law rule. Thus, a promisor who has substantially performed his side of the contract may sue on the contract for the agreed sum, although he remains liable in damages for his partial failure to fulfil his contractual obligations.

Kunchi Raman v Goh Bros Sdn Bhd [1978] Plaintiff agreed to execute certain works, namely, to lay water pipes complete with specials and valves. Defendant undertook to supply the pipes, etc. at the site of work, whereas the plaintiff was to supply all labour and other equipment for laying the pipes. The contract also included work for the reinstatement of a cycle track of a size and length and at rates detailed in the said

Kunchi Raman v Goh Bros Sdn Bhd [1978] Plaintiff claimed that he had performed the work of reinstatement of the cycle track and the other works. Defendant denied that the plaintiff had completed the works in question as claimed by him, and averred that it was a term of the contract that the plaintiff would execute the works to the satisfaction of the defendant and the Chief Resident Engineer who was in charge of the contract works, but in spite of repeated requests by the defendant to comply with the instructions, the plaintiff failed to complete the works as agreed.

Kunchi Raman v Goh Bros Sdn Bhd [1978] Because of the plaintiff's failure and refusal to complete the contract work and to carry out repairs in respect of work already completed, the defendant had to engage other sub-contractors to replace the plaintiff after giving him due notice.

Kunchi Raman v Goh Bros Sdn Bhd [1978] The defendant had to pay the other sub-contractors appointed in place of the plaintiff a total sum of $22, 451. 44 to complete the contract work and to carry out the necessary repairs on works which had been unsatisfactorily completed.

Issue? whether the said agreement was a divisible or entire contract

Held: the said agreement was an entire contract, but as the doctrine of substantial performance has not been excluded by an express provision in the said agreement it would also be necessary to examine whether the plaintiff had substantially performed his contract.

Kunchi Raman v Goh Bros Sdn Bhd [1978] “Substantial performance is not to be measured by strict financial calculation…it was for the Court to consider the defects and see whether the work was substantially completed. It was a question of fact and degree in every case. ”

Held: had substantially completed the contract and was entitled to balance sum subject to the defendant’s cross-claim against the plaintiff for the defects and omissions in the work done by the plaintiff

The rule… It is always a question of fact whether a contract has been substantially performed. The court shall consider; Nature of defect —must not fall far short of the required performance Cost of remedying defect –must not be too great as compared to the contract price.

Case : Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja Raya Negeri Sembilan [2008] 4 MLJ 157, CA Respondent repudiated the contract because the appellant contractor delayed in building school and failed to complete the grass-turfing of the football field, using ‘cow grass’ instead of ‘hydro turfing’.

Held (CA): The appellant has substantially performed the contract having completed 93% of the contract works. Substantial performance is not to be measured by rigid financial calculation. It is for the court to consider the defects and see whether the work was substantially completed.

Acceptance of partial performance If the promisee accepts the partial performance of an entire contract, the other party may claim for quantum meruit ie a reasonable sum in respect of the benefit conferred by the partial performance.

Acceptance of partial performance The basis for a claim in quantum meruit under such circumstances is that by the injured party accepting the partial performance, a fresh contract is implied whereby the injured party undertakes to pay for the work already done.

The test - Acceptance of partial performance The test appears to be that the recipient of the benefit should have an option either accepting or rejecting the benefit.

Sumpter v Hedges. plaintiff could recover the value of the materials used by the defendant as the defendant could choose whether or not to use these to complete the buildings. the

Case : Tong Aik (Far East) Ltd v Eastern Minerals and Trading [1963] MLJ 173 The plaintiff agreed to provide the labour to operate the defendants' manganese mine according to certain specifications and to transport the manganese ore produced therefrom to specified destinations.

Tong Aik (Far East) Ltd v Eastern Minerals and Trading [1963] The contract stipulated that the plaintiffs should 'be able" to supply the defendants with a minimum of 5, 000 tons monthly. The plaintiffs were also responsible for providing their own transport such as lorries etc. and the cost of all fuel was to be borne by them. All machinery operating at the mine would be provided by the defendants.

Tong Aik (Far East) Ltd v Eastern Minerals and Trading [1963] The plaintiffs claim a sum of $65, 268. 54 being the balance still owed to them by the defendants as their agreed remuneration for work and labour carried out at the mine and for materials supplied by them to the defendants' account.

Tong Aik (Far East) Ltd v Eastern Minerals and Trading [1963] The defendants deny this liability on the ground that nothing is due to the plaintiffs because they did not supply the defendants with manganese ore according to specifications of the quantity of not less than 5, 000 tons per month and were thereby in breach of contract and claim to set-off various sums said to be due to them and also counter-claim for loss of profits and penalties incurred by them as a result of the plaintiffs' breach, totaling nearly $800, 000.

Tong Aik (Far East) Ltd v Eastern Minerals and Trading [1963] The court came to the conclusion that it was a divisible contract. “If, however, I am held to be wrong in this conclusion about the divisible nature of this contract and that it is in fact an entire or lump sum contract, then Sumpter v. Hedges, would operate to defeat the plaintiffs' claim upon a quantum meruit unless there is something in the evidence from which the inference can be drawn that a fresh agreement arose to pay for work done. ”

Tong Aik (Far East) Ltd v Eastern Minerals and Trading [1963] The court found that the defendants have opted to take the benefit of the work done by the plaintiffs in extracting, cleaning and transporting the ore in question. The situation is accordingly more analogous to the acceptance of shortdelivered goods than to that of a partly -built house on their own land which they would have no option but to take.

Tong Aik (Far East) Ltd v Eastern Minerals and Trading [1963] The court was of the opinion that the contract between the parties in the present case, whether it is regarded as divisible or not, carries with it a right on the part of the plaintiffs to payment upon a quantum meruit for the services actually rendered thereunder

PERFORMANCE UNDER THE CA 1950 S. 38 specifically deals with performance of a contract by the parties to a contract, or in the case of the death of the promisor, by the representatives of the promisor. S. 41 if it was the intention of the parties that the obligation under the contract must be performed by the promisor himself, then in such cases, the obligation must be performed by the promisor.

EFFECT OF REFUSAL TO ACCEPT OFFER OF PERFORMANCE S. 39 CA S. 40 Effect of refusal of party to perform promise : the promisee may put an end to the contract, unless he acquiesces it.

Case : MM Ally & Co v Chellamah [1948] MLJ 202 This case highlights the scope of S. 39 of CA which deals with the effect of refusal to accept an offer of performance

MM Ally & Co v Chellamah [1948] In this case, a tenant of a rentcontrolled premises had sent the rent to the landlord. However, the landlord refused to accept the rent, and the tenant continued to make efforts to send the rent to the landlord.

MM Ally & Co v Chellamah [1948] The landlord subsequently attempted to evict the tenant on the grounds that the rent due from the tenant was in arrears. The question before the Court of Appeal was whether the tenant had made a sufficient tender of the rent to the landlord.

Held : (Court of Appeal) was sufficient tender of the rent by the tenant within the purview of S. 39 of CA. there need not be actual payment to constitute proper tender of performance. the tenant had attempted to pay the rent to the landlord, who in turn refused to accept it. there

MM Ally & Co v Chellamah [1948] mode of tender satisfied, in the special circumstances, all the requirements of s. 38 of the Contract Enactment. the tenants were never "in arrear" as regards payment of tent, that the notice to quit was unlawful and void, and that the tenants are entitled, subject to payment of tent due, to continue in occupation of the premises. the

What if the promisor disabled himself from performing? Case : Akitek Tenggara Sdn Bhd v Mid Valley City [2007] 5 MLJ 697, FC

“ Where a party by his own act makes it impossible for him to perform his contract at the due date, there is a constructive breach of contract, and the other party is entitled to enforce his rights as on a breach. The measure of damages following breach of contract is governed by S. 74 CA 1950. ”

Effect to the contract? When a party to the contract has refused to perform, or disabled himself from performing his promise in entirety, the contract is voidable at the option of the other party. Case : Yong Mok Hin v United Malay Sugar Industries Ltd

Effect The promisee could elect to treat the contract as at an end (terminating the contract) upon refusal or disability of the promisor to perform his promise, then recover damages under S. 76 CA Or, he could ignore the breach by treating the contract as alive and subsisting.

Case to read : Leong Weng Choon v Consolidate Leasing (M) Sdn Bhd [1998] 3 CLJ 619, CA

S. 65 and S. 66 of CA Case : Yong Mok Hin S. 65 – 2 consequences S. 66 – contract that becomes void—that includes voidable contracts that became void by rescission S. 42 – performance of promise from third person