NH Chan JCA:

The Background

On 14 August 1992 the respondent (plaintiff) agreed to purchase two shophouses from the appellants (defendants) for RM1,879,200. A sum of RM187,920 (10% of the purchase price) was paid by the respondent to the appellants (cl. 3 of the sale and purchase agreement). The date for completion of the contract was stated in cl. 2 to be not later than three months from 14 August 1992 (the date of the agreement). The balance of the purchase price (RM1,691,280) was to be paid by the completion date (cl. 4.1). Time wherever mentioned shall be of the essence of the agreement (cl. 16).

On 13 November 1992, the respondent's solicitors wrote to the appellants' lawyers for an extension of time of two months to pay the balance of the purchase price. Clause 4.2 states:

4.2 Provided Always that the vendors shall on the written request of the purchaser made at any time prior to the expiration of the completion date grant to the purchaser an extension of time of a further period of two (2) months (hereinafter called the extended date) commencing from the date following immediately next after the expiration of the completion date to enable the purchaser to pay to the vendors' solicitors the balance of purchase price or any part thereof and Provided Further that the purchaser shall pay to the vendors interest on the balance sum or the outstanding part thereof from the commencement of the extended date until the date of payment to the vendors' solicitors of the balance of purchase price in full to be calculated daily at the rate of eight per centum (8%) per annum (hereinafter called the interest).

The appellants through their solicitors granted an extension (of two months) until 13 January 1993 to complete. They wrote (by their letter dated 30 November 1992) as follows:

Your letter dated 13th November, 1992 sent by post was received by us on 23rd November, 1992 and the post mark on the cover is dated 20.11.92.

Our clients are agreeable to grant your client a two (2) months extension within the time stipulated in clause 4.2 of the Sale and Purchase Agreement dated 14th August, 1992.

We are to emphasize that completion (sic) shall take place on 13 January, 1993 and no further extension will be allowed.

The respondent failed to do so and, on 14 January 1993 the appellants through their solicitors Messrs T.K. Sen & Co. rescinded the contract, thus:

By virtue of clause 19 of the said agreement, since you have failed to deposit the balance of purchase price with us within the extended date (13th January, 1993), we hereby give you notice that our clients terminate the said agreement with immediate effect and the said deposit is forfeited to our clients.

Clause 19 states:

19. If the purchaser fails to deposit the balance of purchase price within the completion date or the extended date the vendors shall be at liberty to terminate this agreement by notice in writing summarily and on termination aforesaid the purchaser's rights hereunder shall be ended and the said deposit shall be forfeited to the vendors who shall be at liberty to sell or otherwise deal with the said property in such manner as the vendors shall think fit and shall not be liable to account to the purchaser for any profit made on such sale or dealing.

Actually, s. 56(1) of the Contracts Act 1950 enables the contract to be rescinded ab initio which is not the same thing as in s. 40 of the Act which enables the contract to be terminated while leaving the rights under the contract to sue for damages on that footing intact. Section 56(1) reads:

56(1) When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract.

This is wh