1. Business Law Discharge of Contract Remedies

2. Question 1 Budin owns a fruit shop in Subang Jaya. He entered into a contract with Fatimah to supply 10 kg of watermelon, 10 kg of bananas, 5 boxes of grapes, 10 boxes of apples to Balai Kayangan in Keramat for a wedding ceremony. Fatimah had paid a deposit for the order. On the day of the wedding, Budin used his lorry to send the above-mentioned fruits. After he had driven pass the Awan Besar Toll Station in Sri Petaling, one man jumped into his lorry pointing a gun at him. This man ordered Budin to get out from the lorry. He obliged out of fear of his life. Budin’s lorry together with its content was driven away by this man. Budin immediately went to the police station to make a police report about the incident. However, after he had lodged his police report, there was only an hour left for the wedding ceremony to start. Fatimah called Budin inquiring about her order. Budin told Fatimah about the incident. Fatimah is not happy with Budin and wants to sue him for breach of contract. She also wants a refund of her deposit. Advise Budin (15 marks)

3. Answer Issue  Is there a breach of contract?  Was the contract frustrated? Law  Under s40 CA 1950, if the other party to a contract has refused to perform or disabled himself from performing his promise, then the innocent party may put to an end to the contract  If the innocent party has paid money under the contract, he may be entitled to recover the sum paid (s65 CA 1950)  If the innocent party can rightly repudiate or terminate the contract, then he is entitled under s76 CA 1950 to obtain compensation for any damage or loss which you have suffered through the non-fulfillment of the contract by the other party

4. Answer Law  S74 CA 1950 states that the party may recover damages for other expenses incurred as a result of the breach; for the loss of profits arising as a result of the breach; and for the difference between the price of goods as contracted for and the actual price the goods were sold for as a result of the breach  By virtue of s74 CA 1950, you can only claim compensation for any loss or damage caused to you, which are either naturally arising in the usual course of things from the breach or which both parties knew when they made the contract, to be likely to result from the breach. This is called the remoteness test

5. Answer Law  Under the 1 st limb, damages are naturally arising if ordinary people in that business would realise that such a loss can arise from a breach. This is an objective test  Under the 2 nd limb, the specific damages must have been known to the parties from the very beginning when the contract is made. This is the subjective test  If the damages do not fall under either of these two limbs, then you cannot claim for that loss. Such loss is said to be too remote

6. Answer Law  The party seeking damages is under a duty to mitigate the loss (Explanation to s74 CA 1950)

7. Answer Law  S57(2) CA 1950 – a contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful  In H.A. Berney v Tronoh Mines Ltd. (1949), a contract was held to be frustrated and discharged although there was no breach nor default by either party. Here a contract of employment was frustrated by the Japanese occupation during World War II.

8. Answer Law  The non-availability of the subject-matter will render the contract to be frustrated. In Taylor v Caldwell (1863), C agreed to hire a hall to T for some concerts. Before the event, the hall was burnt down by fire.

9. Answer Law  Limits to Frustration Where an alternative mode of performance is available. Where performance becomes more expensive. Davis Contractors v Fareham UDC (1956) DC agreed to build a block of flats for £94,000 for Fareham UDC. Owing to cost overruns the work was completed much later than the period agreed and at a higher cost £119,000. DC argued that the contract was frustrated and claimed the higher amount. Held: Delays and extra expense did not amount to frustration. If the contingency was foreseen or ought to have been foreseen If the frustration is self-induced

10. Answer Law  When a contract is discharged by frustration, the contract does not become merely voidable but is brought to an end forthwith and automatically (Hirji Mulji v Cheong Yue Steamship Co. Ltd. (1962))  S57(2) CA 1950 states that such a contract becomes void  Ss57(3) and 66 CA 1950 provide restitutionary remedies

11. Answer Application  Budin did not perform his part of the contract. Thus, there may be breach of contract (s40 CA 1950). If so, Fatimah may be entitled to recover the deposit she has paid (s65 CA 1950)  Apart from that, as per s74 CA 1950, she may be entitled to obtain compensation for any damage or loss which she may have suffered through the non-fulfillment of the contract by Budin  By virtue of s74 CA 1950, Fatimah can only claim compensation for any loss or damage caused to her, which are either naturally arising in the usual course of things from the breach or which both parties knew when they made the contract, to be likely to result from the breach  Fatimah has a duty to mitigate the loss (Explanation to s74 CA 1950)

12. Answer Application  However, Budin will claim that the contract was not breached but frustrated. To do so, Budin must fulfil the requirements of s 57(2) CA 1950 which is The act happened after the contract was made It made the contract impossible to be performed

13. Answer Application  OTF, Budin’s lorry together with the content was stolen. According to Taylor v Caldwell (1863), the non-availability of the subject-matter will render the contract to be frustrated.  However, there is no frustration if Budin had an alternative mode of performing the contract.  There is also no frustration if the reason why Budin is not willing to fulfil his obligation is because the cost of transporting the order is higher now.  There is also no frustration if the contingency was foreseen or ought to have been foreseen by Budin  There is also no frustration if the frustrating event is self-induced

14. Answer Application  If Budin can show that the contract is frustrated then, s57(2) CA 1950 states that such a contract becomes void  However, ss57(3) and 66 CA 1950 provide for restitutionary remedies i.e. Budin will have to return the deposit

15. Answer Conclusion  If Budin can show that the contract was frustrated, then there is no breach of contract. If so, Budin will have to return the deposit to Fatimah  If Budin is not able to show that there was frustration, then Fatimah can sue him for breach of contract. If so, she may be able get back her deposit and be compensated for any losses she may have suffered.

16. Question 2 When there is a breach, the injured party of the contract may claim for remedies. Explain (15 marks)

17. Question 3 In February 2009, A entered into a contract with B to allow B to use his boat for one day for RM500 on 22 April 2009 for an expedition. In March 2009, A told B that he is terminating this contract because he has agreed to rent the boat to C for a higher amount. Advise B (15 marks)

18. Answer S40 Hochster v De La Tour (1853) Avery v Bowden (1855) S65 CA 1950 S76 and s74 Explanation to s74 CA 1950

19. Question 4 Chin Shee, a famous Malaysian singer, contracts with Kurry, the manager of a theatre, to perform a ballet dance at his theatre for two nights in every week during the next two months, and Kurry engages to pay her RM 2000 for each nights’s performance. On the sixth night, Chin Shee was intentionally absent from the theatre, and Kurry, in consequence, rescinds the contract. Advise Chin Shee. ( 15 Marks )

20. Question 5 Moz agreed to allow Lia the use of his hall for holding a concert. Before the day of the performance, the music hall was destroyed by fire. Lia sued Moz for damages for breach of contract. Advise Lia on her chances of success (10 marks)

21. Question 6 Where there is a breach of contract, the party seeking damages is under a duty to mitigate the loss. Explain the phase ‘mitigate the loss’ (5 marks)

22. Question 7 Xenon is a retailer of telecommunication appliances. To launch a new product, Xenon advertised in a local newspaper on 1 June as follows: “Grand Sale: Super Cellphones at giveaway prices. To be sold only at $50 to the first 10 customers who reply enclosing a cheque for $50.” On 2 June, Yoyo posted a letter to Xenon enclosing $50. Yoyo was one of the first 10 customers to respond to the advertisement. Unfortunately, there was a fire at Xenon’s warehouse that destroyed all of the Super Cellphones stock. Xenon immediately published a further advertisement in the same newspaper on 3 June canceling the Grand Sale and special offer on Super Cellphones. Yoyo’s letter arrived at Xenon’s address on 4 June. Xenon now refuses to supply Yoyo with a Super Cellphone. Identify the legal issues in this case and discuss the possible remedies for Yoyo. (15 marks)

23. Q & A