Discharging a contract by agreement

(a) State at least five (5) of the sources of both ‘written’ and ‘unwritten’ law in Malaysia. (5 marks)

(b) Under the law of contract:

(i) What is the meaning of the terms ‘offer’ and ‘acceptance’? (3 marks)

(ii) Distinguish between an ‘offer’ and ‘an invitation to treat’. (3 marks)

(iii) Explain how a contract may be ‘discharged by agreement’ under the Contracts Act 1950. (3 marks)

(c) N/A Sale of Goods Act 1957

(MIA QE 2015/3 Q1, 20 marks)

(b)(iii) Discharging by agreement is one of the ways to discharge obligation of a contract. The other ways are:

  1. Performance,
  2. Breach,
  3. Frustration.

MIA QE 2012/9 Q1 (b)(ii) ‘discharged by frustration’.
MIA QE 2015/3 Q1 (b)(iii) Discharging a contract by agreement (this question).
LPPEH 2011 D02 Q2'Discharging Obligation under a contract Q2'.

Sources of law in Malaysia

(a) 5 sources of written and unwritten law in Malaysia:

Sources of unwritten law:

- Principles of English Law (1)
- Judicial precedents
- Customs of local inhabitants (2)

Sources of written law:

- Federal Contitution (3)
- State Contitution
- Legislation enacted by Parliament (4)
- Legislation enacted by the State Assemblies (5)

(b) Under Contracts Act, 1950 (CA50),

(i) meaning of 'offer' and 'acceptance' according to CA50.

Similar question was asked in:
MIA QE 2009/9 Q1 (a)(i) explain the conditions of accepting an offer.
MIA QE 2010/3 Q1 (a)(i) Explain the meaning of ‘proposal’ and ‘acceptance’.
MIA QE 2012/9 Q1 (b)(i) Explain the meaning of the terms ‘proposal’ and ‘acceptance’.
MIA QE 2014/3 Q1 (b)(i) Define “offer” and “acceptance”.
MIA QE 2015/3 Q1 (b)(i) What is the meaning of the terms ‘offer’ and ‘acceptance’?

S.2(a) CA50

(a) when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to the act or abstinence, he is said to make a proposal;

S.2(b) CA50

(b) when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted: a proposal, when accepted, becomes a promise;

(ii) Offer vs Invitation to Treat

'Offer' is as above, which means it is a proposal by a promisor. When it is accepted, it becomes a promise.

'Invitation to treat' is shown in the cases below:

Invitation to treat is not an offer. It is just an invitation to potential promisee (or public) to make an offer to the promisor or advertiser.

Invitation to treat

Fisher v Bell [1961]

Fisher v Bell (1961)
The defendant had a flick knife displayed in his shop window with a price tag on it. Statute made it a criminal offence to 'offer' such flick knives for sale. His conviction was quashed as goods on display in shops are not 'offers' in the technical sense but an invitation to treat. The court applied the literal rule of statutory interpretation.

(iii) Contract can be discharged by agreement under CA50 in the following manner:

S.63 & S.64 of CA50:-

63. If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.

[An agreement to have a new contract on top of the existing one, so as to terminate the existing agreement.]


(a) A owes money to B under a contract. It is agreed between A, B and C that B shall henceforth accept C as his debtor, instead of A. The old debt of A to B is at an end, and a new debt from C to B has been contracted.

(b) A owes B RM10,000. A enters into an arrangement with B, and gives B a mortgage of his (A’s) estate for RM5,000 in place of the debt of RM10,000. This is a new contract and extinguishes the old.

(c) A owes B RM1,000 under a contract. B owes C RM1,000. B orders A to credit C with RM1,000 in his books, but C does not assent to the agreement. B still owes C RM 1,000, and no new contract has been entered into.

Promisee may dispense with or remit performance of promise

64. Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit.

[This means it is up to the promisee to 'sort out' the outstanding performance of the contract not yet fulfilled. One party, usually the receiving party promisee could choose to rescind, waive or 'forgive' the other party for not completing the contract, especially when the promisee had completed his part, ie pay in full for job undone.]

(a) A promises to paint a picture for B. B afterwards forbids him to do so.

A is no longer bound to perform the promise.

(b) A owes B RM5, 000. A pays to B, and B accepts, in satisfaction of the whole debt, RM2,000 paid at the time and place at which the RM5,000 were payable. The whole debt is discharged.



The general rule is that what has been created by agreement may be extinguished by agreement.

An agreement by the parties to an existing contract to extinguish the rights and obligations that have been created is itself a binding contract, provided that it is made under seal or supported by consideration. Where the agreement for discharge is not under seal, the legal position varies according to whether the discharge is bilateral or unilateral:


Bilateral discharge occurs whenever both parties to the contract have some right to surrender, eg where there has been non-performance by either party, or is partly performed by one or both parties.

The agreement by the parties to discharge their contract may be designed to have one of several effects:

ACCORD AND SATISFACTION The parties may intend to rescind their present agreement and nothing more. Where there is an agreement mutually to release the other from the obligations under the first agreement, there is an accord and satisfaction.
RESCISSION AND SUBSTITUTION The parties may intend rescission of the original contract and substitution of a new contract.
VARIATION The parties may agree on the variation of an existing contract, ie modifying or altering the terms of the original agreement.
WAIVER Where one party voluntarily accedes to a request by another to forbear his right to strict performance of the contract, or where he represents to another that he will not insist upon his right to strict performance of the contract, the court may hold that he has waived his right to performance as initially contemplated by the parties.


Unilateral discharge takes place where only one party has rights to surrender. Where one party has entirely performed his part of the agreement, he is no longer under obligations but has rights to compel the performance of the agreement by the other party.

For unilateral discharge, unless the agreement is under seal, consideration must be furnished in order to make the agreement enforceable, ie accord and satisfaction.


[x] own account.