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2021 MarsdenLR 2396
HIGH COURT MALAYA KUALA LUMPUR
PENGERUSI MAJLIS AGAMA ISLAM WILAYAH PERSEKUTUAN – Appellant
Versus
ALWASAYET TRAVELS & TOURS UMRAH SERVICES SDN BHD.... – Respondent
[Suit No: WA-12BNCVC-110-11/2020]
A third party's payment does not grant them privity of contract rights, and therefore they cannot claim performance or benefits under that contract.
Headnote:(A) Contracts Act 1950 – Sections 2, 41, and 42 – Tenancy dispute – Appeal against the order to return rental deposit – Court found that the Plaintiff, not being privy to the agreement between 3rd and 4th Defendant, could not claim the deposit paid by a 3rd party. The learned Sessions Judge's order was deemed incorrect as the obligation was to return to the 3rd Defendant. (Paras 4, 6, 12, 16, 18)
(B) Privity of Contract – Court clarified that privity must be established for claims – Payment by a 3rd party does not grant them party status under the agreement. (Paras 11, 16)
Facts of the case: The Plaintiff paid a deposit for tenancy shares that were not transferred, leading to a dispute over the deposit’s rightful owner upon termination of the tenancy agreement.
Findings of Court: The Court identified that the learned Sessions Court’s decision to return the deposit to the Plaintiff was legally incorrect. The 4th Defendant was obligated to return the deposit to the 3rd Defendant.
Issues: The central issue was the legality of returning the rent deposit to a non-party of the tenancy agreement.
Ratio Decidendi: The Court emphasized that a non-party cannot claim benefits under a contract due to lacking privity, even though consideration was made by that non-party.
Result: Appeal allowed.
JUDGMENT
Introduction
[1] The 4th Defendant appealed to this Court against part of the decision of the learned Sessions Judge hearing a tenancy dispute between the Plaintiff and the Defendants.
[2] The appeal is against the decision of the Judge ordering the return of the rental deposit to the Plaintiff.
Facts
[3] The Plaintiff had paid a sum of RM65,000 to purchase shares in the 3rd Defendant a limited liability company. However the shares were not transferred to the Plaintiff.
[4] Meanwhile the 3rd Defendant had entered into a tenancy agreement with the 4th Defendant to rent a 15 stories building at Persiaran Dutamas, Kuala Lumpur ("the premises").
[5] On the promise by the 1st Defendant to sell the entire share in the 3rd Defendant, the Plaintiff had paid a sum of RM115,550.00 as a rental deposit for the tenancy of the premises.
[6] On a termination of the tenancy the 4th Defendant insisted to return the deposit to the 3rd Defendant as a party to the tenancy agreement despite knowing that the deposit had been paid by the Plaintiff.
[7] The learned Sessions Judge allowed this deposit to be returned to the Plaintiff instead of the 3rd Defendant and hence this appeal.
The Issue
[8] In the Court's view the only issue arising in this case is whether it is legal to return the money to the Plaintiff although it is not a privy of the contract between the 3rd Defendant and the 4th Defendant.
Privity Of Contract
[9] To determine privity of contract the Court deemed it fit to rely on the provisions of the Contracts Act 1950 ("the Act").
[10] Section 2 of the Act explains in detail how an agreement is formed. For ease of reference to portion of the section detailing out the formation of agreement is reproduced here and is as follows:
(a) when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to the act or abstinence, he is said to make a proposal;
(b) when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted: a proposal, when accepted, becomes a promise;
(c) the person making the proposal is called the "promisor" and the person accepting the proposal is called the "promisee";
(d) when, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise;
(e) every promise and every set of promises, forming the consideration for each other, is an agreement;
[11] From the facts of the case it is clear that the parties to the tenancy agreement are the 3rd Defendant as the promisor and the 4th Defendant is the promisee.
[12] An essential element of the agreement is consideration. In this case the payment of deposit and payment of rental by the promisor are considerations for the 4th Defendant as promisee renting out the premise to the 3rd Defendant as promisor.
[13] It is the duty of the promisor to provide the consideration but the Act allows the consideration to be paid by a 3rd party. The relevant provisions are ss 41 and 42 of the Act which provides as follows:
Section 41
If it appears from the nature of the case that it was the intention of the parties to any contract that any promise contained in it should be performed by the promisor himself, such promise must be performed by the promisor. In other cases, the promisor or his representatives may employ a competent person to perform it.
Illustrations
(a) A promises to pay B a sum of money. A may perform this promise, either by personally paying the money to 6, or by causing it to be paid to B by another; and* if A dies before the time appointed for payment, his representatives must perform the promise, or employ some proper person to do so.
(b) A promises to paint a picture for B. A must perform this promise personally.
Section 42
When a promisee accepts performanc
