Mobile Mania ("MM") operates a shop that sells mobile phone accessories. MM entered into a contract with ACME Precision Manufacturing ("APM") for APM to design a new mobile phone case and to manufacture 10,000 pieces of this new mobile phone case for MM. Under this contract, MM will pay APM a sum of $2,000 for the design of the new mobile phone case (the "design" component of the contract), and another sum of $10,000 for the manufacture of 10,000 pieces of the new mobile phone case (the "manufacture" component of the contract). The deadline for the design component is 1st January while the delivery date for the 10,000 mobile phone cases under the manufacture component is 1st June. It was clearly specified in the contract that the mobile phone case must be exactly 120 millimetres by 60 millimetres. This precision was necessary so that the mobile phone cases would fit well with a recently launched and popular mobile phone model.

APM managed to complete the design of the new mobile phone case by 1st January, and this was approved by MM. In the month of May and ahead of schedule, APM completed the manufacture of the 10,000 mobile phone cases and delivered them to MM. When MM measured the mobile phone cases, MM found out that all of the mobile phone cases deviated from the contract specifications by 2 millimetres in their length. Therefore, they did not fit the intended mobile phone well. It is possible to rectify this defect in the mobile phone cases through a special process that can only be carried out by another workshop, but it will cost MM another $3,000 to do so.

Examine whether the contract between MM and APM has been discharged by performance and conclude whether APM is entitled to any payment for the work it has completed. In your answer, please discuss the precise performance rule and all of the exceptions.

(25 marks)