{"id":3645,"date":"2022-08-15T09:51:26","date_gmt":"2022-08-15T01:51:26","guid":{"rendered":"https:\/\/yhalaw.com.my\/?p=3645"},"modified":"2024-09-09T09:11:34","modified_gmt":"2024-09-09T01:11:34","slug":"contract-formation-consensus-ad-idem","status":"publish","type":"post","link":"https:\/\/yhalaw.com.my\/my\/contract-formation-consensus-ad-idem\/","title":{"rendered":"CONTRACT- FORMATION- CONSENSUS AD IDEM"},"content":{"rendered":"<p>Developer K Sdn Bhd has entered into a contract with the main contractor J Sdn Bhd. J Sdn Bhd later appointed M to be its subcontractor. A contract was entered between K Sdn Bhd and J Sdn Bhd on 1.4.2019. M has accepted J Sdn Bhd\u2019s request to be their sub-contractor. Later, M set up a new company called M Sdn Bhd on 1.6.2022 to undertake the work. M and M Sdn Bhd were dealing directly with K Sdn Bhd and K\u2019s consultant all along.<\/p>\n<p>Later, it was discovered that M Sdn Bhd both departed from the original specification of the construction contract between K Sdn Bhd and J Sdn Bhd. When the deadline was approaching, K Sdn Bhd confronted both J Sdn Bhd and M Sdn Bhd about the departure from the earlier contract. M Sdn Bhd later asked for an extension of time. Rejected. K Sdn Bhd insisted on the project being completed on time. Can M Sdn Bhd sue K Sdn Bhd for unreasonably refusing an extension of time?<\/p>\n<p><strong>Q:<\/strong> Is there a valid contract between K Sdn Bhd and M Sdn Bhd?<\/p>\n<p><strong>A:<\/strong> No, the contract is formed between K Sdn Bhd and J Sdn Bhd. There will only be a contract between K Sdn Bhd and M Sdn Bhd if there is a novation to M Sdn Bhd.<\/p>\n<p><strong>Q:<\/strong> Can subcontractor M Sdn Bhd claim they are one of the entities as J Sdn Bhd?<\/p>\n<p><strong>A:<\/strong> No, they are two separate corporate entities.<\/p>\n<p><strong>Q:<\/strong> What is a novation?<\/p>\n<p><strong>A:<\/strong> Novation is the transfer of legal obligations from one party to another party. Without novation between J Sdn Bhd and K Sdn Bhd, there is no valid contract between K Sdn Bhd and M Sdn Bhd. Even though M Sdn Bhd has commenced the work and has been dealing directly with K Sdn Bhd and K\u2019s consultant.<\/p>\n<p><strong>Q:<\/strong> What are the elements of novation?<\/p>\n<p><strong>A:<\/strong> The contracting parties in the existing contract must agree that:<\/p>\n<ul>\n<li>One party no longer wants to be bound by contract terms anymore, and a new party will replace him;<\/li>\n<li>The new party takes the burden of the contract; and<\/li>\n<li>Both parties to the existing contract agree that the new contracting party will perform the contract.<\/li>\n<\/ul>\n<p><strong>Q:<\/strong> Other than legal requirements, what element is needed in order to form a valid contract between K Sdn Bhd and M Sdn Bhd?<\/p>\n<p><strong>A:<\/strong> There must be consensus ad idem i.e. meaning of minds between the parties. Both parties must agree to and accept the terms of the contract.<\/p>\n<p><strong>Q:<\/strong> Can M Sdn Bhd claim that J Snd Bhd is negotiating with K Sdn Bhd on its behalf before it was incorporated on 1.6.2022?<\/p>\n<p><strong>A:<\/strong> No. M Sdn Bhd could not rely on s.35(1) and (2) of the Companies Act 1965. Under s.35(1), a contract entered prior to the formation of a company can only be ratified (validating the contract) if the contract is entered by someone representing the company (an agent). J Sdn Bhd is not an agent of M Sdn Bhd. To be an agent, J Sdn Bhd has to make it clear to K Sdn Bhd that they are representing M Sdn Bhd for negotiation. M Sdn Bhd has no right to ratify the contract since the contract is between K Sdn Bhd and J Sdn Bhd.<\/p>","protected":false},"excerpt":{"rendered":"<p>A contract was formed between two corporate entities. Can a third party jump in and claim there is a contract with the third party? <\/p>","protected":false},"author":1,"featured_media":3651,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1568],"tags":[3473,2286,3477],"class_list":["post-3645","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-contract-law","tag-consensus-ad-idem","tag-contract-law","tag-formation"],"_links":{"self":[{"href":"https:\/\/yhalaw.com.my\/my\/wp-json\/wp\/v2\/posts\/3645"}],"collection":[{"href":"https:\/\/yhalaw.com.my\/my\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/yhalaw.com.my\/my\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/yhalaw.com.my\/my\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/yhalaw.com.my\/my\/wp-json\/wp\/v2\/comments?post=3645"}],"version-history":[{"count":1,"href":"https:\/\/yhalaw.com.my\/my\/wp-json\/wp\/v2\/posts\/3645\/revisions"}],"predecessor-version":[{"id":3646,"href":"https:\/\/yhalaw.com.my\/my\/wp-json\/wp\/v2\/posts\/3645\/revisions\/3646"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/yhalaw.com.my\/my\/wp-json\/wp\/v2\/media\/3651"}],"wp:attachment":[{"href":"https:\/\/yhalaw.com.my\/my\/wp-json\/wp\/v2\/media?parent=3645"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/yhalaw.com.my\/my\/wp-json\/wp\/v2\/categories?post=3645"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/yhalaw.com.my\/my\/wp-json\/wp\/v2\/tags?post=3645"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}