A contract creates certain obligations on one or all parties involved.

The discharge of a
contract happens when these obligations come to an end, dissolved or terminated. The
meaning discharged is when one or both parties to a contract are freed from their obligations.
There are many ways in which a contract is discharged which are performance, breach,
frustration and agreement.

Performance means the doing of that which is required by a contract. Discharge by

performance takes place when the parties to the contract fulfil their obligations arising under the
contract within the time and the manner prescribed. In such a case, the parties are discharged
and the contract comes to an end. But if only one party performs the promise, he alone is
discharged. Such a party gets a right of action against the other party who is guilty of breach.
According to Section 38(1) of Contracts Act, parties to contract must either perform or offer to
perform their respective promises, unless such performance has been dispensed with by any
law. In other words, the performance of a contract must be exact and precise and should be in
accordance with what the parties had promised. It is a question of construction of the contract,
what the parties meant by performance and whether what was done corresponded to what was
promised. If there is the slightest deviation from the terms of the contract, the party not in default
will be entitled to say that the contract has not been performed. He has two courses of action
where he may carry on with the contract and sue for damages for breach of contract or elect to
treat himself as discharged from the further performance of the contract. The exact performance
rule is well illustrated in the case of Cutter v Powell ,where the claimant's husband agreed by
contract to act as a second mate on the ship the 'Governor Parry' on a return voyage to
Jamaica. The voyage was to take eight weeks and he was to be paid on completion. Six weeks
into the voyage the claimant's husband died. The claimant sought to claim a sum to represent
the six weeks work undertaken but however it was held that the wife's action failed as payment
was on condition that he worked the ship to Liverpool, since he did not fulfil this condition the
widow was entitled to nothing. Also, in Bolton v Mahadeva, the plaintiff agreed to fix the central
heating system in the defendant’s house. Due to the inefficiency of the plaintiff’s work which
caused the central heating to worsen, the defendant refused to make payments. It was held that
the plaintiff was not entitled to claim for the payment on the ground that the plaintiff’s
performance was not complete.

The harshness of the rule on complete performance results in one party benefitting at
the expense of another. This has been mitigated by exceptions recognised by law which are the
entire and divisible contract, substantial performance, partial performance, performance
prevented and tender of performance.

The first exception is the entire and divisible contract. To ease the strict requirement of
complete performance before payment, it is pertinent to distinguish between entire and divisible
contracts. An entire contract which is also known as lump sum contract is one in which the
entire completion of the work by the contractor is a condition precedent to payment. In such a
contract, the consideration is usually a lump sum which is also payable only upon complete
performance by the other party. In an entire contract, the employer can insist on completion of
the entire contract by the contractor before the employer’s obligation to pay
arises. If the contractor fails to complete the work, he cannot claim in respect of partial
performance of the contract. On the other hand, a divisible contract is a contract which is
separated into parts so that payments are made at different stages in accordance with the work
done at each stage such as payment for instalments, progressive payments and periodical
payments. The right to payment arises as each part of the contract is performed. To determine
whether the contract is entire or divisible, it depends on the construction of the contract.
In KP Kunchi Raman v Goh Bros Sdn Bhd, the plaintiff, which is a contractor, agreed
to lay water pipes complete with specials and valves. It was agreed that the defendant
undertook to supply the pipes at the site of the work and the plaintiff was to supply all labour and
other equipment for laying the pipes. The contractor also agreed to perform the work of
reinstatement of a cycle track. There was a dispute as to the completion of the work and the
payment due. The issue arose whether the agreement was divisible or an entire contract. It was
held that such a contract will not be entire, but could be entire if that is the clear intention of the
parties. It was a contract for specified works and the price had to be ascertained and paid
according to a schedule of rates. The agreement was interpreted as a whole, and it was found
that it expressed a clear intention that the contract should be an entire contract.

( OPTIONAL ) Similarly, it can also be seen in the case of Yong Mok Hin v United Malay States
Industries Ltd, where the court held that the contracts to be entire contracts despite some
payments made by the employer. The appellant, a building contractor, entered into two separate
and independent contracts, A and B, to construct two stores and an office building for the
respondents. Later, at the instance of the respondents, the appellant had to make structural
changes to the building from time to time and to build a third store. The appellant claimed
against the respondents for work done and materials supplied under both contracts A and B.
The respondents contended that the contracts were lump sum and the appellant was not
entitled to any sum of money since he had not completed the project. It was held at the Federal
Court that the contracts were entire contracts. The court stated that the mode of payment
agreed by the parties was that ‘advances may be towards the contract during progress of
construction at the respondent’s discretion’. Since the contracts were entire contracts, the
appellant was not entitled to any payment for work done before completion of his work.

The second exception is doctrine of substantial performance. This doctrine allows a

contractor who has substantially performed his side of the contract to sue on the contract for the
agreed sum, although he remains liable in damages for his partial failure to fulfil his contractual
obligations. The court shall consider the nature of defects, it must not fall far short of the
required performance and the cost of remedying the defect, it must not be too great in amount
as compared to the contract price. The courts lean against construing the contract in a way that
would deprive the contractor of any payment at all simply because there are some defects or
omissions when a contract provides for a specific sum to be paid on completion of specified
work.
This can be seen in the case of KP Kunchi Raman v Goh Bros Sdn Bhd, the plaintiff
had agreed to lay pipelines for the defendant in Butterworth to the satisfaction of the defendant
and the Resident Engineer. The plaintiff claimed to have completed the work but the defendant
denied and alleged that it was not to satisfaction. The plaintiff claimed for work done and the
defendant, who incurred expenses in completing the contract, counterclaimed for the sums
already paid to the plaintiff or damages for breach of contract. The High Court stated that the
doctrine of substantial performance has modified the rigours of the common law rule and it was
held that the plaintiff has substantially completed the contract and was entitled to the balance
sum subject to the defendant’s cross-claim against the plaintiff for the defects and omissions in
the work done by the plaintiff.

(OPTIONAL) In H Dakin v Lee, the plaintiff, contracted to repair the defendant’s premises for
1500 pounds. They performed a substantial part of the contract but failed to do exactly what
was contracted for in 3 unimportant areas and it would cost only 80 pounds to rectify it. It was
held that the plaintiff had substantially performed the contract and could recover the price less a
reduction for the defective work. In Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja
Raya Negeri Sembilan Darul Khusus, the respondent repudiated the contract because the
appellant contractor delayed in building a school and failed to complete the grass-turfing of the
football field, using ‘cow-grass’ instead of ‘hydro turfing’. Zainun Ali JCA held that the appellant
contractor had substantially performed the contract having completed 93% of the contract
works. Where the performance was not substantial, the party in default cannot recover for the
partial performance and may also be liable to pay damages for the breach of Contract.

Thirdly, Partial performance is when a party to a contract does not perform his obligations
under the contract completely. If the injured party accepts partial performance of an entire
contract, the promisor may claim for quantum meruit. A reasonable sum in respect of the benefit
conferred by the partial performance. It has been stated in Section 30(1) of the English
Sale of Goods Act 1979 that where the sellers to the buyer a quantity of goods less than the
contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered he
must pay for them at the contract rate. Meaning to say, the defaulting party may only claim a
reasonable sum in respect of the benefit conferred if the injured party has an option to
accept or to refuse the partial performance.

In the case of Haji Hasnan v Tan Ah Kian, where the appellant which is Haji Hasnan
subcontracted with the respondent, Tan Ah Kian for the construction of roads. The appellant
inspected the work and found that it was not properly done. The appellant terminated the
contract before the work was complete without giving notice to the respondent. He immediately
entered into a fresh contract with another person for the completion of the work and the
respondent requested for an extension of time to complete the work, and when it was not
granted, brought an action for the work done and materials supplied. It was held that the
appellant was in breach of contract and the respondent was entitled to recover on the basis of
quantum meruit. There was an implied contract on the part of the appellant to pay for the work
and labour done and materials supplied.

Similarly, in the English case of Sumpter v Hedges, the plaintiff failed to complete a contract to
build certain buildings on the defendant’s land. The defendant completed the buildings himself
using the materials left on the site by the plaintiff. The Court of Appeal held that the plaintiff
could not recover any sum in respect of work done. The defendant had no option but to
complete the job. However, the plaintiff could recover the value of materials used by the
defendant as the defendant could choose whether or not to use these to complete the buildings.
As stated by Collins LJ, to claim for quantum meruit from the defendant having taken the benefit
of that work; the circumstances must be such as to give an option to the defendant to take or
not to take the benefit of the work done.

The fourth exception is performance prevented. It is when a party performs part of the work
and is then prevented by the fault of the other party from completing it, he is entitled to recover
for damages for breach of contract. This principle can be clearly seen in the case of Smith
Construction Co Ltd v Phit Kirivatna, where the plaintiffs were employed as contractors to
build a house for the defendant. As a result of the information given by the defendant to the
plaintiffs’ representative, the house was built so as to partly encroach upon adjoining land. The
plaintiffs were asked by the defendant to slow down in their works while the defendant was
negotiating a settlement with the owner of the encroached land. It was held that there should be
an implied contract by the defendant to pay for the work done. The plaintiffs were entitled to
recover the full amount of the work and labour done, and materials supplied, together with
additional damages suffered by reason of the slowing down of the work.

(OPTIONAL) Correspondingly,in Planche v Colburn 12 the claimant agreed to write a book on

costume and armour for the defendant as part of a series called 'the Juvenile Library' and the
agreed contract price was £100 to be payable on completion. The claimant commenced writing
and had completed a great deal of it when the defendant cancelled the series. The defendant
refused to pay the claimant despite his undertaking and the fact that the claimant was still willing
to complete. The claimant brought an action to enforce payment.It was held that the claimant
was entitled to recover £50 because the defendant had prevented the Performance.