Q.
Give an example of contingent contract in property transaction. What happens when the contingencies are not been realized by the expiry of the time period?
A.
See contingent contracts here and
Scenario 1 here,
Scenario 2 here, and
Scenario 3 here,
Contract on buying or selling of property usually have certain terms spelled out. This is fully covered by the Sale & Purchase Agreement (SPA). And, SPA in Malaysia is governed by the Housing Development (Control and Licensing) Act, 1966, National Land Code and Contracts Act, 1950, to name some specific laws that govern the SPA.
Contingent contract is usually not covered by the standard SPA.
What happens if when a buyer say to the seller that unless I have my own house sold, I would not have the down payment to buy your house.
If the seller is still adamant in selling to this buyer, the deal can be signed with contingency contract. This is an agreement that the seller is willing to take that offer with the contingency that collateral to the contract - house to be sold, the seller would not have a deal.
The other way is, the seller propose to the buyer that unless the buyer could come out with a big down payment, he would not want to sell his house. This is very common in the case of seller does not want the reported selling price to be too high. Although blur in law and taxation, selling price could be reported based on the SPA price but the valuation from JPPH would be determined for stamp duty and RPGT. Hence, some sellers would prefer more cash payment rather than loan, so as to report a lower figure in SPA.
In the second scenario, the contingency is to borrow or obtain other financing of cash before the buyer is able to buy the property.
Thus, the question of whether the contract is still binding when the buyer could not secure a large sum of cash! Is the contract still enforceable if the buyer could not get the cash down payment?
Below is an example of this scenario.
[Albert is getting agitated with his neighbour who disturbed his sleep when their twin babies cry. So, he wants to buy Mary's unit, which is higher up in the same block of condominium.
However, Albert cannot come out with a RM60,000 down payment as his eligibility to loan is only 70%. Due to such constraint, Albert propose to Mary that unless he can sell his house (lower unit), he cannot buy Mary's unit (higher unit).
However, the agreed term is if Albert can sell his house and come out with the money within 6 months, Mary would not wait for him. Over 6 months the period has expired, what happens to the contingency contract Albert has with Mary?]
In the above case, the contingency contract is void because it cannot be enforced.
S.36 When contracts become void which are contingent on happening of specified event within fixed time.
Here, the 'happening of specified event' is 'selling Albert's own house to get the down payment'. And, the 'within fixed time' is 'six months'.
Therefore, based on S.36, Albert's contingency contract with Mary becomes void as what is contingent - the selling of Albert's own house to get the down payment' 'within fixed time - 6 months' did not happen.
This is as provided by S.36 (1) that contingent contracts to do or not to do anything if a specified uncertain event happens within a fixed time become void if, at the expiration of the time fixed, the event has not happened, or if, before the time fixed, the event becomes impossible.
The second possible scenario of - event becomes impossible - can be illustrated below.
[Albert, being eager to get the down payment, engaged in an argument with the neighbour. His intention was to demand the neighbour to compensate him for the suffering of sleepless nights. During a heated argument, Albert accidentally kicked the neighbour who happened to be pregnant. Due to the miscarriage resulted, Albert is now fighting his court case for trespass and battery. Upon committing the offence, he can be jailed for criminal act of causing harm.]
Due to such condition, the event of selling his own house (intention to get the down payment) becomes irrelevant, or impossible to happen. Thus, Mary has the right to cancel the contract of selling her house to Albert.
Furthermore, the collateral event very much depends on Albert's personal willingness to pursue the down payment. Hence, the seller is at a disadvantage. So, the Law has a provision for such condition.
S.35 When event on which contract is contingent to be deemed impossible, if it is the future conduct of a living person.
If the future event on which a contract is contingent is the way in which a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time, or otherwise than under further contingencies.
Further contingencies would render the law on top of another law, a contract on another contract.
S.32 - 36, Contracts Act, 1950.
[x] fictitious narration entirely mine.