An agreement is defined in Section 2(e) of the Contract Act as “every promise and every set of promises, forming the consideration for each other”. Therefore, there is an enforceable agreements, when two parties have made mutual promises to each other. Section 2(g) of contract Act provides that “An agreement not enforceable by law is said to be void” while the section 2(h) provides that “an agreement enforceable by law” is a contract.
The requirement for a legally enforceable contract are: 1) free consent; 2) competency/ capacity to contract and 3) lawfulness of consideration and object.
Free Consent
The requirement of free consent is a necessity to contractual obligation, giving rise to the ideas of freedom and purity of contract. Freedom of contract means that a person is free to enter into contracts with any party and agree to the terms of any bargain. Purity of contract binds both parties to the contract freely entered into. Section 13 provides that “two or more persons are said to consent when they agree upon the same thing in the same sense”. The factors that invalidating consent are undue influence, fraud, coercion, and misrepresentation. The agreement is a contract voidable at the option of the party whose consent was so caused, when consent to an agreement is caused by any of these factors
LIM YOH v. ASTANA STRATEGI (M) SDN. BHD. & ANOR [1998] 3 M.L.J 117, High Court .
The plaintiff was one of the 37 co-proprietors of all that piece of land known as Lot 579 held under Grant No. 2958 (now Geran No. 16359), Mukim Ayer Panas, Daerah Jasin, Malacca. By a sale and purchase agreement dated 20 January 1996 (‘the agreement’) she agreed to sell her 11742/335540 undivided shares therein to the first defendant for a sum of RM245, 407.80. Clause 19 of the agreement provides that:
Time whenever mentioned shall in all respects be of the essence of the contract. Upon execution of the agreement the first defendant paid the plaintiff a deposit of RM245, 407.80.With regard to payment of the balance the second schedule to the agreement provides that:
The balance of the purchase price of Ringgit Malaysia TWO HUNDRED
Section 38(1) of the Contract Act provides that the parties to a contract must either perform, or offer to perform, their respective promises, unless the performance is dispensed with or excused under the Act, or of any other law. Section 56 of the Act regulates the position when time is of the essence of a contract.
Competency to contract
The competency of parties to enter into contracts is another important requirement to the enforceability of contracts. Section 11 provides that “every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject”. The age of majority is 18 years and the soundness of mind for the purposes of contracting is provided in section 12. By this, the law ensures that persons of full capacity are responsible for and are bound by law for their actions.
Lawful consideration and purpose
An agreement is only enforceable if the consideration for it is lawful and it is made for a lawful purpose. The law does not recognize illegal transactions and section 2(g) defined a void agreement as “an agreement not enforceable by law”. Section 24 is the main provision on void agreements, setting out what considerations and objects are lawful and what are not.
Besides the main concepts above (agreement, contract, voidable contract and void agreement), there is also the concept of contract becomes void. This is a valid contract not affected by vitiating factors or illegality, but becomes void when it “end to be enforceable by law” as defined in section 2(j). This occurs when the contract, although initially valid and enforceable, cannot continue due to factors beyond the control of both parties. Under the common law, such contracts are said to be frustrated. Under the Contract Act, the doctrine of frustration is covered in section 75(2) which provides that “a contact to an act which, after the contract is made, becomes impossible or unlawful”.
A contract may be discharge in agreement. The parties can always agree to terminate or bring to an end a contract before the contract has been fully performed. If the contract has not even started, it is known as an executory contract, and it can be terminated simply by a new agreement of the parties to waive or give up their respective rights under the contract. The new agreement is in itself a binding contract, it means that the consideration from each party is the giving up of the right to demand the other party to perform and cancels out the original contract.
If one party has performed or partly performed his part of the contract, then before this contract is discharged, the other party who has done nothing must provide some new consideration to compensate the performing party or receive a discharge under seal from the performing party. The parties may also agree beforehand that the occurrence of some specific event would discharge the contract.
A quantum meruit is an award made where one party has completed all or part of his side of the bargain before the other’s breach. It is a payment of the other’s breach. It is also a compensatory award.
There may be situations that the incomplete performance does not amount to substantial performance. In such cases of partial performance, the party who had rendered services or supplied goods may make a quantum meruit or quantum valebant claim respectively. A claim on quantum meruit is for reasonable remuneration for the performance of the services rendered under the contract. It is often assessed at the market price which is payable to obtain similar services. Historically, a claim for quantum meruit rested in implied contract. It is said that here must be an implicit promise by the defendant to pay for the part performance. Further, the defendant must have a choice whether to accept or reject the work done. It may also be possible to infer from the circumstances a fresh agreement by the parties that payment shall be made for the work already done.
In the cases of Sumpter v Hedges the plaintiff who had agreed to construct upon the defendant’s land two houses and stables for £565, did part of the work to the value of about £333 and then abandoned the contract. The plaintiff left behind some materials which the defendant used and completed the buildings. The judge allowed the plaintiff’s claim for the value of the materials but the plaintiff could not recover the value of the work done. Upon the plaintiff’s appeal, the Court of Appeal held that the plaintiff was not entitled to quantum meruit for the work done on the building as there was no option to be defendant to take or not to take the benefit of a partially completed building. There was, thus, no inference of a fresh contract to pay for the work. However, for the building materials left behind, the defendant had a choice whether to use or not to use them.
Yaku Shin (JB) Sdn Bhd v Panasonic AVC Networks Singapore Pte Ltd and Another
Facts
YKJB’s claim was against PS only for the purchase price of the goods supplied by YKJB to PS under 96 transactions for five months from September 2005 to February 2006 (less the price of components delivered for the account of PS, by PS to YKJB between December 2005 to February 2006 and sums already paid by PS to YKJB towards this claim). YKJB’s claim was based on contract and, alternatively, on quantum meruit. PS did not dispute that it received the goods from September 2005 to December 2005 from YKJB. However, P
S’s position was that prior to 2006, the supply of such goods was pursuant to a contract (the “Basic Contract”) between PS and YKM. Accordingly, PS argued that YKM was the party it was liable to.
The court held that:
(1) The contract for the disputed transactions in 2005 was between PS and YKM. Taking the evidence in totality, the court found that the supply of the goods for the disputed transactions was pursuant to PS’s purchase orders issued to YKM. This was pursuant to the Basic Contract which both these parties had been operating under; YKJB was performing the obligations of YKM. The court also concluded that PX’s supply of components in 2005 to YKJB was pursuant to a contract between PX and YKM.
(2) It was not necessary for there to have been a contract first before a claim on a quantum meruit might be made. Nevertheless, YKJB’s claim on quantum meruit must fail for the simple reason that this was not a case where PS was unjustly enriched. The court found that PS’s liability for the disputed transactions was to YKM. If PS was also liable to YKJB on a quantum meruit, then it would have double liabilities, one to YKM and one to YKJB, which could not be right. YKJB’s recourse was against YKM whether on an express or implied contract or on some other basis.
(3) In the circumstances, the counterclaims of PS and PX, which were premised on a finding by the court that the course of contractual dealing was with YKJB, also failed.
Section 40 of the Contract Act states that ‘When a party to a contact has refused to perform, or disabled himself to 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.
When Lance agreed to sell the shirts to Avril for the price of RM10, 000 with 3 times of installments which are RM 4,000 for the first two payment and RM 2,000 for the last payment. There is a valid contract formed between Lance and Avril. Both of them made the transaction under free consent by which they are not force by anyone to participant in the contract. Lance willing to accept the payment in three installments and Avril willing to buy, there are no other forces influence them at that time. Besides, the contract between them also included consideration which is one of the essential elements of a contract. According to Section 26 , an agreement without consideration is void. The word ‘consideration’ is defined in section 2(d). It means only the price in a bargain. The price need not be money, but must have a monetary value. Section 25 states that if the consideration or any part of it is unlawful, the agreement is void. Since the contract between Lance and Avril consists consideration which is money (RM 10,000) therefore, the contract is valid.
After the second payment was made, Avril said that she was not able to pay for the last payment because her family member has fallen sick and she had to bear the hospital bill. Lance sympathized her and offered her the shirts with RM8, 000 instead of RM10, 000. In this situation, Lance and Avril come into an agreement to discharge the contract at first two payments instead of three payments. In addition, the suggestion to discharge the contract at first two payments is initiative by Lance under free consent and his sympathized on Avril situation. Therefore, the quantum meruit act which stated that part performance is consider as breach of contact cannot apply because Lance and Avril had reached an agreement to discharge the contract at the first two payments. Moreover, Lance found out that Avril had won the second prize in a lottery after two weeks the contract being discharged. Hence, Lance is not entitle to demand back the money (RM 2,000) from Avril because the contact had discharged.
In conclusion, Lance cannot demand back the money from Avril and he should not take any legal action toward Avril because the contract was discharged by agreement between them under free consent. Moreover, Lance should also realize that the discharge of the contract was initiated by him due to his sympathize on Avril’s situation and he had neglect the probability of unseen incident would happens (Avril won the lottery). Besides, Avril also did not beg to Lance for discharge the contract at first two payments so Lance should think twice before he initiates to discharge the contract, he can also delayed the last payment to time when Avril able to pay instead of discharge the contract. Therefore, Lance should take this incident as an experience and get into same situation in the future.
References
Cheong, M. F (2010). Contract law in Malaysia (1st Ed.). Petaling Jaya, Selangor, Malaysia: Sweet & Maxwell Asia.
Contracts Act 1950, Contract (Amendment) Act 1976, Goverment Contracts Act 1949. (2009) (1st Ed.). Kuala Lumpur.