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
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
Q:<\/strong> Is there a valid contract between K Sdn Bhd and M Sdn Bhd?<\/p>\n 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 Q:<\/strong> Can subcontractor M Sdn Bhd claim they are one of the entities as J Sdn Bhd?<\/p>\n A:<\/strong> No, they are two separate corporate entities.<\/p>\n Q:<\/strong> What is a novation?<\/p>\n 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 Q:<\/strong> What are the elements of novation?<\/p>\n A:<\/strong> The contracting parties in the existing contract must agree that:<\/p>\n 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 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 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 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":" 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"],"yoast_head":"\n\n