Issue

Whether the contract between Perniagaan Spanova, defendant and Novo Hotel, plaintiff
is discharge under discharge by breach.

Law & Application

Under common law there are 2 situations which give the innocent party the right to be
discharged from the contract: a) Repudiation and b) a fundamental breach

The fundamental breach is a situation where allows an innocent party to rescind the
contract and treat himself as discharged. There are two alternative approaches; the first
approach is to look at the importance attached by the parties to the term which has
been broken; the second approach is to examine the consequences of the breach of the
term. The first is based on the traditional classification of terms as either a condition or
a warranty. The second is a result of the emergence of new category of innominate
or intermediate term in the case of Hongkong Fir Shipping Co Ltd v Kawasaki Kisen
Kaisha Ltd.

In relation to the approach of innominate term, the right to a discharge hinges upon the
gravity of the consequences flowing from the breach. If consequences are so severe
which strike at the very purpose of the contract, the breach will allow an innocent party
to be discharged. If the effect of the breach is only minor and capable of being
remedied, then it will only afford a remedy of damages.

Discharge by breach under Section 40 Contract Act 1950

In Malaysia, the right to rescind a contract flowing form a breach is governed by s40 of
the Contract Act. Section 40 provides:

When a party to a contract has refused to perform, or disabled himself from

performing, his promise in its entirety, the promise may put an end to the
contract, unless he has signified by words or conduct, his acquiescence in its
continuance.
Under s40 of the Contract Act, the innocent party may rescind (in the words of s 40
may put an end to the contract) in two situations: first, the defaulting party refuses to
perform and second, the defaulting party disables himself from performing, his promise
its entirety.

The concept of fundamental breach was explained in Ching Yik Development Sdn Bhd v
Setapak Heights Development Sdn Bhd where the Court of Appeal laid down the
following principles. First, where the term breached is fundamental to the contract, the
innocent party is entitled to treat himself as discharged from further obligations under it.
Second, where the term breached is only subsidiary or minor in nature, the innocent
party may not treat himself as discharged under the contract but may recover damages
for the non-performance of the subsidiary term. Thus, a party who

Application

Conclusion

Remedies