According to Section 76 Contracts Act 1950 stated that ‘a person who rightly rescinds a contract is entitled to compensation for any damage which he has sustained through the non-fulfilment of the contract’. It means that, the person that terminates the contract, are able to claim for compensation. The case that can be referred is Ha Berney v Tronah Mines Ltd (1949) MLJ 4.
The facts for this case Ha Berney v Tronah Mines Ltd (1949) MLJ 4, the event of Japanese invasion of Malaya in 1942, the employer arranged for the plaintiff to be evacuated. The plaintiff, however, elected to stay on at Tanjong Tuallang. He now sued for arrears of pay and other benefits on the basis that his staying had been pursuant to his contract of employment. The defendants contended that consequent on the Japanese occupation of Perak, such contract of employment as might have existed between them and the plaintiff was discharged by frustration. This court held that the contract of employment was discharged by frustration on the outbreak of war when Japan invaded Malaysia and the court ruled that there was no breach of contract by the defendants (Abdul Majid and Arjunan, 2005).
On the other hand, duty to mitigate can be applied according to Section 74 Contracts Act 1950 stated that in ‘estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account’. In other words, if the plaintiff incurs further loss or costs in his reasonable attempts to mitigate the loss from the original breach, he can recover these additional costs and damage, even when the mitigating steps were unsuccessful or led to greater loss (Abdul Majid and Arjunan, 2005). For instance, it enables the plaintiff to recover professional fees and accountants in reasonably mitigating his loss. The case that can be referred to is Hadley v Baxendale (1854).
The facts for this case Hadley v Baxendale (1854), a shaft in the plaintiffs’ mill broke down and the plaintiffs hired the defendant to transport the shaft for repairs. The Defendant delayed in returning the shaft and the Defendant did not know that the plaintiffs did not have a spare shaft. Consequently, the replacement was not delivered when it should have been. The Plaintiffs sued for damages for the loss of profits that would have been earned if the replacement shaft had been available on time. The Court held that the losses which are too remote are not recoverable. Here, the loss of profits did not fall under the 1st limb as normally mills would have spare shaft. Since the Defendant did not know that the Plaintiffs did not have spare shaft, the losses did not fall under 2nd limb. Consequently, it would not be reasonable in the circumstances to hold Defendant responsible for the loss of profit. Hence, the losses are not recoverable (Abdul Majid and Arjunan, 2005).
According to Section 74(1) Contracts Act 1950 stated that ‘when a contract has been broken, the party who suffers by the breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from the breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it’. As for Section 74(2) Contracts Act 1950 stated that ‘such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach’. Whereas under Section 74(3) Contracts Act 1950 stated that ‘when an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default as if the person had contracted to discharge it and had broken his contract’. This is to say that when a person breach of contract, he is able to apply compensation for loss or damage.
If contracts frustrated, the contract will become void, this is applied according to Section 57(2) Contracts Act 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’. It means that after the contract is form, there is a change in the circumstances for a contract to perform an act, for instance; destruction of subject matter which leads the contract frustrated (Abdul Majid and Arjunan, 2005). The case that can be referred to is Taylor v Caldwell (1863).
The facts for this case Taylor v Caldwell (1863), the defendants agreed to let the plaintiffs to use the Music Hall for four days with the purpose of giving a concert. Before the first of these four days on which a concert was to be given, the Hall was destroyed by fire, without the fault of either party. The concerts could not be held. The plaintiffs argued that the defendants were in breach of contract in failing to supply the Hall and sought damages for advertising expenditure. The court held that the continuation of the contract was subject to an implied condition that the parties would be excused if the subject matter was destroyed. Hence, the contract was discharged by frustration and both parties are excused in this case (Poole, 2006).
The following limitation to frustration is alternative mode of performance is available, foreseen and foreseeable events and self-induced frustration. Foreseeable events which enable the parties at the time of contracting foresee the risk that a supervening event may interfere with performance. Alternative performance is available which there is possible to perform contract in a different ways. Self induced frustration which the frustration is due to his conduct that he is responsible (Abdul Majid and Arjunan, 2005).
On the other hand, according to Section 57(3) Contracts Act 1950, stated that ‘where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promise did not know, to be impossible or unlawful, the promisor must make compensation to the promise for any loss which the promise sustains through the non-performance of the promise’. Since the contract is discharged by frustration, whatever payment that has been received by the Defendant through the non performance of the contract is recoverable by the Plaintiff (Abdul Majid and Arjunan, 2005).
According to Section 66 Contracts Act 1950 stated that ‘when an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under the agreement or contract is bound to restore it, or to make compensation for it, to the person from when he received it’. Based on the void contract, all parties who receive an advantage and benefit should return it or make compensation for it.
Based on this case, Danny is the one that create invitation to threat because he is the taxi driver for Everhopeless Bhd that is making an invitation to threat while he is driving around to provide taxi service. As a taxi driver, Danny can choose to accept or reject the offer from Rahul. By having such arrangement, there is a valid invitation to threat, so there was a contract. When Rahul held a cab and told Danny, the taxi driver, the destination that he wishes to go is located at Serdang, a town 15 kilometers away. Rahul is the offeror which is the person that make the proposal; whereas Danny is the offeree which is the person that accepting the proposal. According to Section 2(a) Contracts Act 1950, when Danny responds to Rahul that he agrees to send Rahul there and starts off his journey, this indicates that Danny is said to accept Rahul’s offer, thereby converting Rahul’s offer into a valid contract. According to Section 2(b) Contracts Act 1950, since there was a valid offer as it was completely communicated between Rahul and Danny, this make a clear communication of acceptance that the offer is said to be accepted when Danny signifies his assent to Rahul, hence there was a valid acceptance which leads to a valid contract. In this case, this is an executory consideration between the Danny and Rahul. According to Section 2(d) Contracts Act 1950, the Danny perform his service at the desire of the Rahul and the act of the Danny was consideration for the promise which is the taxi fees that Rahul have to pay to Danny, since there was an exchange of mutual promises, so there is consideration and binding contract between both parties.
Despite of the traffic congestion, Danny completed 12 kilometres of the journey and stops at a bus stop at the side of the road, and then he tells Rahul that it will be much better for Rahul to walk to Serdang as he will reach there much faster. However, after Rahul informs Danny that he is not in a hurry as long as he is in the air-conditioned environment, Danny still refuses to continue the journey and switches off the air condition. Hence, Rahul will claim that there was a breach of contract because Danny did not complete the 15 kilometres of the journey. Under Section 40 Contracts Act 1950, Danny have breach the contract by not performing his part of the contract which is between him and Rahul. Hence, Rahul can sue Danny for breach of contract and according to Section 76 Contracts Act 1950, Rahul can claim compensation.
By virtue of Section 74 Contracts Act 1950, Rahul can only claim compensation for any loss or damages caused to him, which either are naturally arising in the usual cause of things from the breach on which both parties knew when they made the contract, to be likely to result from the breach. This is known as the remoteness test. Under the first limb, damages are naturally arising, and any reasonable people would realize that such a loss can arise from a breach. For instance, if Rahul meets accidents and get hurt on the way walking to his destination. Hence, with the damages, this allows Rahul to claim compensation from Danny. Other than that, when Danny did not fulfill his agreement, and cause Rahul to get out of the car, Rahul may choose to take other transportation to go to Serdang and have to pay extra fares. Thus, this enables Rahul to claim the extra fares from Danny.
The second limb deals with special losses prior for special knowledge. For instance; assume Rahul got a meeting with a client that will give him a million dollar contract and because Rahul have to walk to Serdang from the place where Danny stop his journey, he was late for the meeting and lost the million dollar contract deal. In this case, Danny was not informed by Rahul that he was having an important meeting, so without the consent given to Danny to such special circumstances when the contract was made, Rahul cannot recover such special loss. Therefore, in this case, it is fall under the first limb, and Rahul can claim the compensation according to Section 74(1) Contracts Act 1950.
Moreover, the judges have to see whether the contract is frustrated by looking at the limitation to frustration in this contract. According to Section 57(2) Contracts Act 1950, if there is limitation to frustration occurs in this contract, then there is no frustration and the contract becomes void. The following limitation to frustration in this contract is, knowing that the alternative way will have traffic congestion, Danny still use the alternative way to reach the destination. Apart from that, Danny purposely use the way that is jam without the consent of Rahul, in result Danny cannot claim for frustration in the contract because self induced frustration occurred. Furthermore, if there is other shortcut to reach the destination and Danny knows the way, he also could not claim frustration. In addition, if Danny is an experience taxi driver that have drive on the road for many years, being the taxi driver that always travels the town, he should be able to foresee which way will be jam and which way will not cause traffic congestion at certain time. This will also not allow Danny to claim frustration in the contract. According to Section 76 Contracts Act 1950, Rahul can rescind the contract and is entitled to the compensation for any damage.
According to Section 57(3) Contracts Act 1950, In order for Danny to defend for himself, he can prove there is frustration. He would claim that the traffic congestion frustrated the contract. He will claim that he is unable to complete the journey because traffic congestion is beyond anyone’s control. Plus, if Danny is a new taxi driver with no experience about the traffic to Serdang, the contract may be discharge by frustration. Other circumstances that Danny can claim frustration includes the traffic congestion is caused by an accident, or there is a flood on the way. According to Section 66 Contracts Act 1950, Danny can claim for the taxi fair that he completed the 12 kilometre journey from Rahul.
In conclusion, if the contract is frustrated, there will be no breach of contract by Danny and the contract will be void. Danny does not have to pay any damages to Rahul and Danny is able to claim for the taxi fair that he completed the 12 kilometers journey. However, if there is no frustration in the contract, Rahul can sue Danny for breach of contract and According to Section 76 Contracts Act and Section 74(1) Contracts Act, Rahul can claim the compensation for any damage.
Reference List
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Legal Research Board (compiled by), 2009, Contract Act 1950 (Act 136), Contracts (Amendment) Act 1976 (A 329) & Government Contracts Act 1949 (Act 120), International Law Book Services, viewed 3 August 2009.
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Abdul Majid & Arjunan, 2005, Remedies For Breach Of Contract, Business Law in Malaysia, Malayan Law Journal, Malaysia, viewed 3 August 2009, pp. 353 – 354.
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Abdul Majid & Arjunan, 2005, The Discharge and Conclusion of a Contract, Business Law in Malaysia, Malayan Law Journal, Malaysia, viewed 3 August 2009, pp. 326 - 333.
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Poole J, 2006, Discharge by Frustration: Subsequent Impossibility, ed.8, Casebook on Contract Law, Oxford University Press, New York, viewed 5 August 2009, pp. 513 – 514.
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Lee, Mei Pheng, 2007, Sources of Malaysian Law, ed.5, General Principles of Malaysian Law, Oxford Fajar, Malaysia, viewed 1 August 2009, pp. 76 - 77.
