CONTRACT – DISCHARGE (Pg 179)

Issue: Is A entitled to any payment for work done/performance of the contract?

Law: the General Rule is that if a contract is to be discharged by performance, the parties must perform their
obligations fully and precisely; Cutter v Powell; Re Moore & Co and Landauer & Co. [use case that is more
relevant to question]

Exceptions: [mention all exceptions of law but use relevant ones to case]

DEFINITION:Discharge refers to a termination of a contract. After a contract is discharged, the parties are relieved
of their obligations under the contract. There are four ways 🡪 Performance, Breach, Agreement and Frustration.

Performance (Pg 179) – discharging a contract by performing all obligations as stipulated in the contract
Precise Performance – General rule is that if a contract is to be discharged by performance, the parties must
perform their obligations fully and precisely.

Cutter v Powell (1795) – The court held that payment was conditional upon the completion of the voyage;
payment even part payment may not be made.

Re Moore & Co and Landauer & Co (1921) – The court held that the buyer was lawfully entitled to reject the
shipment in boxes of 24 cans instead of the contracted 30 cans based on less than full and precise performance.
E Over the years, the courts have acknowledged that this rule of full and precise performance, if applied
x strictly, may cause unfairness.
c
e If the deviation in performance is microscopic, then the contract is deemed to have been
p performed fully and precisely. What is microscopic depends on the facts of the case.
t De minimis
i rule Acros Ltd v E A Ronaasen & Sons (1933) – The HOL held that although the staves were
o of merchantable quality and could be used to manufacture cement barrels, the contract
n was breached because the staves did not correspond to the description of the goods.
s A contract may in certain circumstance be viewed as several independent obligations.
t These may be deemed as severable sub-contracts, e.g. Employment Contracts.
o Not applicable to expressly specified Lump Sum contracts.
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 Boone v Eyre (1779) – where a promisor has substantially performed his obligations
under a contract, he can claim the agreed payment, less the amount necessary to make
good the defect.

TWO cautionary remarks –

1. If the contact is an entire contract (Lump Sum contract) and payment is made
conditional upon the performance of the entire contact, then the promisor may not be
able to invoke substantial performance to claim payment. But it can be applied to
contracts that are not Lump Sum or Divisible contracts.

Bolton v Mahadeva (1972) – Whether a contract is an entire or divisible one is a

question of construction. The court of appeal refused to grant Bolton compensation on
a quantum meruit basis because it held that the use of the word lump sum suggested
that the contract was an entire one, and the nature and amount of the defects were
such that it could not be said that the contract had been substantially performed (not
Substantial
easily rectifiable). Bolton received nothing.
performance
Hoenig v Isaacs (1952) – That it was a lump sum contract does not mean that entire
performance was a condition precedent to payment. The courts lean against a
construction of the contract which would deprive the contractor of any payment at all
simply because there are some defects or omissions. The Official Referee held that
this was not an entire contact. Further there was substantial performance although
there were some defects. Hoenig was entitled to receive the amount less the cost of
rectifying the defects.

Dakin v Lee (1916) – Formula for substantial performance is:

Amount to Pay = Contract Price - Cost of Rectification

2. There is always a practical problem of determining what exacts to ‘substantial

performance’. The degree of completion required would again depend on the facts of
the case.
Where a promisor has performed part of his obligations but is prevented by the other
party from performing the rest of his obligations, the contract may be treated as
discharged on the basis of prevented performance. Promisor may claim payment to
Prevented commensurate with the obligations performed on the basis of quantum meruit.
performance
Planche v Colburn (1831) –Planche was entitled to reasonable remuneration based on
quantum meruit because the contract was discharged by Colburn’s action in abandoning
the project.
When promisee voluntarily accepts the partial performance of the promisor, the promisor
is entitled to pay the promisee the reasonable remuneration under the law of restitution.
Acceptance
of Partial
Sumpter v Hedges (1898) – The court did not allow Sumpter’s claim because Hedges did
Performance
not have a clear choice of accepting or rejecting the partially completed work (on his
land, so he had to accept it). If Hedges had clear choice, Sumpter may have succeeded.
Breach (Pg 183) – A breach occurs when a party fails to perform all obligations under the contract. First, one
has to determine if there is actual or anticipatory breach.
An actual breach arises then the time of performance for the obligation has arrived and the
Actual Breach
promisor fails to perform it.
An anticipatory breach arises when the time for performance has not yet arrived but the
promisor, by words or conduct, has clearly expressed his intention not to perform the
Anticipatory obligation.
Breach Hochster v De La Tour (1853) – The court held that De La Tour’s letter stating that Hochster’s
services were no longer required constituted a repudiatory breach entitling Hochster to sue prior
to the contracted date and claim damages.
Damages Monetary compensation that is the principal common law remedy for a breach of contract. The
(non injured party will always have a right to claim damages for loss resulting from breach of
repudiatory) contract whether or not he has is entitled to terminate the contract. (see remedies)
Repudiation
Not every breach result in the contract being discharged, to do so, the breach must amount to a
repudiation of the contract – the breach deprives the innocent party of substantially the
whole benefit which the contract was intended to bestow on him.

RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd & Another Appeal (2007)

Renunciation
Situation 2: Where a party, by his words or conduct, renounces all obligations under the
contract, the innocent party is entitled to terminate the contract.

By Products Traders Pte Ltd & Another v JAK Alhadad & Co Pte Ltd (2004) – The test of
whether an intention is sufficiently evinced by conduct is whether the party renunciating has
acted in such a way as to lead a reasonable person to the conclusion that he does not intend
to fulfil his part of the contract. In this case, the Singapore High Court rejected JAK’s
arguments that the plaintiffs had repudiated the contract because the plaintiffs had made it clear
Repudiation
that they still intended to purchase the properties from JAK (thus fulfilling their obligations in the
(Pg 184)
contract) if it could prove that it was in a position to sell.

Conditional Breach
Situation 3(a): Condition/warranty approach – where a party breaches a condition of the
contract, the innocent party is entitled to terminate the contract. The nature of the term depends
on the intention of the parties to so designate it.

Fundamental Breach
Situation 3(b): the Hongkong Fir approach – where the nature and consequences of the
breach are so serious as to “go to the root of the contract”, the innocent party is entitled to
terminate the contract.

Teo Teo Lee v Ong Swee Lan & Others (2002) – In commercial contracts, time is usually
considered of essence to the contract because prices can fluctuate significantly over a short
period. Performance of obligations outside the time limits specified in the contract may amount
to a fundamental breach.
Repudiation must be unequivocal
In all cases of breach, whether actual or anticipatory, the repudiation must be unequivocal
(clear). An honest misapprehension as to one’s obligations under a contact which leads to
non-performance would not amount to repudiation if there is underlying willingness to correct
one’s understanding and fulfill those obligations.

Repudiation Mersey Steel and Iron Co v Naylor Benson & Co (1884) – The HOL held that there was no
(Pg 186) repudiation because Mersey Steel was under a genuine misapprehension that they should
not pay for the shipments.

Wong Poh Oi v Gertrude Guok and Another (1966) – The court held that mere non-payment of
an installment or breach of one term does not necessarily put an end to a contract. Here, the
court found that the plaintiff did not evince an intention not to be bound by the contract. Hence,
the defendant’s purported repudiation was wrongful.
 Election
Even when a repudiatory breach is present, the contract is not automatically discharged.

RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd & Another Appeal (2007) – A repudiatory
breach grants the innocent party a right of election as to whether to terminate the contract. He
may choose to accept the repudiation or affirm the contract.

HG Metal Manufacturing Ltd v Nam Tat Hardware Co (2006) – In either case, the innocent
party should communicate unequivocally to the other party his decision.

Accept the Repudiation

Hong Fok Realty Pte Ltd v Bima Investment Pte Ltd (1993) – If the innocent party accepts
the repudiation, the contract is discharged and he is entitled to claim damages to put him into
the position as if the contract has been performed properly. Obligations that have already
arisen before the discharge remain unaffected.

Affirm the Contract

If the innocent party chooses to affirm the contract despite the repudiation, the contract remains
on foot and both parties must continue to fulfil their obligations and complete the contract. The
innocent party still retains the right to claim damages for the breach.

Prerequisites for Affirmation after Anticipatory Breach

Repudiation
(Pg 186) 1. Legitimate Financial Interest – If damages would be a sufficient compensation to the
innocent party, he should not be permitted to perpetuate the contract which may result
in even greater detriment to the defaulting party. To show legitimate interest, it would
help to show a labyrinth of financial commitments made in reliance of the
contract.

Clea Shipping Coronation v Bulk Oil International, “The Alaskan Trader” (1984) –
In the absence of “legitimate interest”, the innocent party must accept the anticipatory
breach, treat the contract as discharged and claim the damages.

2. Other party’s cooperation not needed (Unilateral)

White & Carter (Councils) Ltd v McGregor (1962) – After McGregor cancelled the
contract to hire advertising space for 3 years on White & Carter’s litter bins, White &
Carter elected to affirm the contract despite the anticipatory breach. The House of
Lords held that it was entitled to affirm the contract because they did not need the
cooperation of McGregor to carry out the contract.

Risk of Frustration
In affirming the contract, the innocent party places himself at risk that a supervening event may
occur, discharging the contract by frustration.

Avery v Bowen (1855) – It was held that Bowden’s liability for the anticipatory repudiation was
relieved by war which frustrated the contract.
Agreement (Pg 190)
Existing A contract may include a term that it would be discharged upon occurrence of a stipulated event
Agreement or at the expiration of a certain period.
A contract may be discharged by parties entering into a fresh agreement to extinguish the earlier
contract.
When the contract is partially or entire executory, the parties may execute a
mutual release which discharges each party from all their obligations under that
contract.
Mutual
Li Hwee Building Construction Pte Ltd v Advanced Construction & Engineering
Release
Pte Ltd (2002) – The parties may have acted in such a manner as to be
construed as having abandoned the contract, such that the contract is terminated
as a result of the common intention of the parties that it should no longer bind
them.
When one party who has performed all his obligations seeks to discharge the
Unilateral
other party who has not performed all his obligations, then the first party may
Release
execute a release in the form of a deed, so that no consideration is required.
When one party purchases his release with fresh valuable consideration
Accord and
Subsequent provided to the other party, the understanding to do so is the accord and the
Satisfaction
Agreement consideration provided is the satisfaction. This discharges the earlier contract.
Where the contract is altered by a subsequent agreement, supported by fresh
Variation consideration. Depending on the case, the contract may be discharged entirely
or amended by the subsequent agreement.
Where one party, at or without the request of the other party voluntarily grants
the other party an indulgence not to perform an obligation under a contract
without consideration passing, the first party has been given a waiver. Usually
given in respect of specific modes of performance but not usually in respect of
the whole contract, e.g. an employee consistently late. Employer can prevent by
including the clause “no waiver unless in writing” in the employment contract.
Waiver of
Rights
Leivest International Pte Ltd v Top Ten Entertainment Pte Ltd (2006) – When Top
Ten failed to pay the costs and interests on time, Leivest could have terminated
the lease, but chose instead to accept Top Ten’s delayed cheque payment. By its
demand for and acceptance of the costs and rent, Leivest had “waived the
breaches, and it cannot resurrect them”, and Leivest thus could not discharge
the lease agreement.

Frustration (Pg 192)

Frustration refers to the situation where a supervening event occurs, for which neither party is responsible,
with the result that the very basis of the contract is destroyed so that the venture to which the parties now find
themselves committed is radically different from that originally contemplated.

Davis Contractors Ltd v Fareham Urban District Council (1956) – the House of Lords rejected the appellant’s
claim as the cost increase did not alter the situation so much that the task undertaken was radically different
from what was originally contemplated by the parties. “It is not hardship or inconvenience or material loss itself
which calls the principle of frustration into play. There must be as well such a change in significance of the
obligation that the thing undertaken, would if performed, be a different thing than that contracted for.”

Frustrating events are not be lightly established.

Lee Chee Wei v Tan Hor Peow Victor (2007) – Imprudent commercial bargains cannot be aborted or modified
merely because of an adverse change of circumstances.
 Destruction of Taylor v Caldwell (1863) – The music hall was destroyed by a fire, thus the
subject matter court held that the contract of lease for the hall was discharged by frustration.
The real issue is whether the event which failed to occur could reasonably be
considered to be one which both parties hold to be the very basis of the
contract such that if the event did not take place, the parties would not have
contemplated entering into the contract in the first place.
Non-occurren
ce of event “Coronation Cases” – Coronation of King Edward VII postponed
Krell v Henry (1903) – The contract was frustrated as the purpose for
which the flat was rented vanished.
Herne Bay Steamboat v Hutton (1903) – The contract was not frustrated
as a tour of the fleet was still possible although naval review was cancelled.
A contract for personal services may be frustrated by personal incapacity if the
Supervening incapacity affects the performance of the contract in a fundamental way.
Events Possard v Spiers & Pond (1876) – Court held that the contract was frustrated
Personal
(Pg 194) because of Madam Puossard’s illness.
Incapacity
Lau Lay Hong v Hexapillar Pte Ltd (1993) – Except in cases of contracts based
on personal considerations, the death of a party to a contract does not affect
the enforceability of the contract.
Unexpected government action or ruling which prevents the performance of a
contract.
Government
Lim Kim Som v Sheriffa Taibah bte Abdul Rahman (1994) – The contract to
Interference
buy a piece of property was frustrated following the government’s order for
compulsory acquisition of the property under the Land Acquisition Act.
Tsakiroglou (1962) – A contract to sell groundnuts which were to be shipped
from Sudan to Hamburg during the Anglo-French invasion of Egypt in 1956
Outbreak of
could not be frustrated due to the closure of the Suez canal. This is because
war/hostilities
the ship could still reach Hamburg via Cape of Good Hope, and which would
not be so fundamentally different, but merely more expensive.
The more foreseeable the event the more unlikely the event will be held to
frustrate a contract. However, mere foreseeability of the event is no bar to
frustration.
Foreseeability
Oakwell Engineering Ltd v Energy Power Systems Ltd (2003) – Increased
costs is a highly foreseeable risk that should be considered by a prudent
contractor and is thus unlikely to give rise to frustration.
These clauses which expressly provide for the occurrence of events such as
war or natural disasters which will normally fall within the class of events which
lead to frustration. The effect of such a clause depends greatly on its
Factors
construction. If a force majeure clause turns out to be an exemption clause,
Limiting Force Majeure
then it would be subjected under the UCTA.
Frustration Clause
China Resources (S) Pte Ltd v Magenta Resources (s) Pte Ltd (1997) –
(Pg 197)
The Singapore Court of Appeal held that the force majeure clause applied and
that the USSR embassy letter, although not strictly complying with the clause,
was the ‘next best thing’ and hence adequate evidence of the force majeure.
If a frustrating event is the result of voluntary action of one of the parties, then
there is no frustration.
Self induced Maritime National Fish v Ocean Trawlers (1935) – The privy council held
frustration that the unavailability of a license for the use of otter trawls on its ships were
due to the allocative decision of Maritime National. Hence the Privy Council
held that there was no frustration because the event was self-induced.
Frustration automatically discharges a contract, is effective immediately and requires no
communication or advice from one party to the other.
Effects of
Frustrated Contracts Act (FCA)
Frustration
1. All future obligations cease – Fibrosa Case
(Pg 201)
2. Money paid (less expenses) prior to time of discharge is recoverable – s2(2)
3. Money payable ceases to be payable – s2(2)
4. Valuable benefit (non-financial) conferred prior to time of discharge is recoverable - s2(3)