The matter of contractual obligations in Malaysia should not be taken for granted as it can make or break an agreement. Continue reading to understand the importance of contractual obligations and the consequences of failing to fulfil them.
But First, What are Contractual Obligations in Malaysia?
To put it simply, contractual obligations are the legal responsibilities or duties each party must perform. In an agreement, both parties will exchange something of value while meeting certain conditions or expectations.
Such expectations are outlined by the contract’s terms and must be obliged. Failure by either party to carry out their duties will typically constitute a breach of contract. Hence, both parties must analyse their contractual obligations with great care.
Examples of Contractual Obligations
Each contract is unique and comes with a different set of expectations. As such, no contractual obligations are the exact same as they depend on the terms and type of contract.
For instance, the obligations for a rental agreement will be much different from a contract of sale. However, there are certain common obligations that one may expect to see in almost any contract, namely:
Payment
- With the exception of a one-sided or bilateral contract, you will have to exchange something of value for the thing or service you are receiving. This can be a one-time transaction, or the payment can happen over the course of the contract’s specified time frame as agreed by both parties.
Delivery
- Subsequently, the other party must deliver what they are being paid for, whether it is a service or product.
Quality
- Most of the time, the seller will be expected to deliver a product or service that satisfies certain quality requirements laid forth in the contract.
- Also, both parties are expected to uphold certain principles of contract law, ensure a fair and honest deal, and refrain from using coercion or force to achieve their desired outcomes.
Read More: Running a Business: 7 Common Types of Contracts in Malaysia
Can a Party Not Perform Their Contractual Obligations?
When entering a valid contract, it is compulsory for both parties to perform their contractual obligations. Having said that, there are certain instances in which a party is not required to fulfil their contractual obligations, such as:
Force Majeure
A force majeure event is an event or circumstance beyond a party’s reasonable control of a party. The event could not have been expected at the time the contract was entered into, preventing the party from performing their contractual duties.
The case of RHB Capital Bhd v Carta Bintang [2012] 10 MLJ 469 states that an effective force majeure clause typically includes:
- A description of what amount to a force majeure event; and
- The consequences of a force majeure event.
Frustration
As stipulated in Section 57(2) of the Contracts Act 1950, frustration is defined as “a contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.”
The case of Guan Aik Moh (KL) Sdn Bhd v Selangor Properties Bhd [2007] 4 MLJ 201 states that there are three components of frustration:
- The event that caused the frustration must have been something for which no provision has been made in the contract.
- The parties must not be responsible for the frustrating event, as self-induced frustration is ineffective; and
- The event which is said to discharge the promise has to render it radically different from that which was undertaken by the contract.
Breach of Contractual Obligations
If a party refuses to perform their contractual commitment without providing any rationale, the party is deemed to have violated the agreement. Listed below are three remedies the law offers to the innocent party in such situations.
1. Sue for Damages
To recover losses incurred due to the contract violation, the innocent party may take legal action against the breaching party. The suing party would be entitled to either:
- Nominal damages: when the party suffers no loss;
- Substantial damages: when the party suffers a substantial loss, with proof that the damage sustained was solely due to the other party’s breach of contractual obligation.
2. Claim for Specific Performance
In lieu of filing a lawsuit, the innocent party may also demand the breaching party perform the duties outlined in the agreement. This may be the preferable alternative for individuals who want to avoid litigation.
3. Terminate the Contract
One can also request to terminate the contract, in which the innocent party is released from all contractual responsibilities from the point the other party refuses to fulfil their obligations.
Read More: An Informative Guide to Rescission of Contract in Malaysia
In Conclusion
Ultimately, parties in a contractual agreement must perform their respective responsibilities and fulfil their contractual obligations. This is to ensure a fair contract that benefits both parties and prevents legal disputes.
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