There are many instances where two parties to a transaction have had one, or both of them, confer some benefit on the other. However, due to various reasons, the contract may be void. Where a contract is void, the position of the parties will be as if no contract had been entered into. In such a situation, no rights will be created and, consequently, no liabilities. Thus, there are effect and relief where a contract is void ab initio. It is illustrated in Hirji Mulji v Cheong Yue Steamship Co Ltd under section 57(2), Contract Act 1950 it is said that a contract discharged by frustration becomes void. The frustrating event brings the contract to an end forthwith, without more, and automatically. The contract is terminated as to the future only. It is not void from the very beginning. It starts life as a valid contract but comes to an abrupt and automatic end.
Besides that, at common law, the effect of frustration is that each part must fulfill his contractual obligation so far as they have fallen due for the frustrating event but he is excused from performing those that fall due later. This is shown in the case of Chandler v Webster, where the defendant agreed to let a room to a plaintiff to view coronation procession. The rent was £ 141.15 payable immediately. The plaintiff paid £ 100. He still owed the balance of £ 41.15. Later the contract was discharged by frustration when the procession was abandoned. The plaintiff sue to recover the £ 100 paid by him as on total failure of consideration and the defendant counterclaim for the sum of £ 41.15. The English Court of Appeal held that the plaintiff not only has no right to recover the £ 100 paid but must pay the balance as it was a contractual obligation due before the moment of frustration. This rule was unsatisfactory and harsh. A party has to pay the full price of the contract even though he has not received anything under the contract.
Whereas in the case of Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd, obviated the harshness of the rule in Chandler v Webster where it ruled that payments made before the frustrating event maybe recovered where there has been total failure of consideration. The House of Lords held that the sum was recoverable in quasi contract for total failure of consideration. In the circumstances that had happened where the appellants has not received what they bargained for the money prepaid to respondent must be regarded as received for the appellants use. The action rested not on a contractual bargain between the parties but upon a notional or imputed promise to repay.
When a contract becomes void, section 66 of Contracts Act 1950 provides the remedy of restitution for parties of a void contract. It is illustrated in the case of Public Finance Bhd v Ehwan bin Saring, where the respondent purchased a motorcar from T for RM 82 000. He paid T a sum of RM 57 000 and the balance sum, entered a hire purchase agreement with the appellants wherein the appellants advance to the respondent the sum of RM 25 000to pay T the balance of the purchase price. The Custom and Excise Department seized and forfeited the vehicle for an alleged offence. The Respondent claimed for RM 57 000. The court held that the agreement has become void under section 57(2) of the Act as it would now be impossible for the appellants to assign and make over all its right, benefit and interest in the vehicle as they have now a defective title and accordance to section 66 of the Act, the appellants must return the RM 57 000 that they received from the respondent.
Moreover, under section 15 and section 16 of the Civil Law Act 1956 provide remedy and relief where a contract had become impossible of performance or been otherwise frustrated. This can be seen in the case of National Land Finance Co-operative Society Ltd v Sharidal Sdn Bhd, the respondent agreed to sell Sharidal Complex in Petaling Jaya to appellants. It was a condition of the agreement that the sale should be subject to the approval of the Foreign Investment Committee. The court held that the agreement became void when the Foreign Investment Committee disapproved the sale and purchased. The Federal Court upheld the decision and held that the appellants deposit was refundable under section 15(2) of the Civil Law Act 1956, as the money held and received for the use of the appellants who paid it.
In Brown and Root ( Labuan) Sdn Bhd v Pada Sdn Bhd, the appellants owned a piece of land on which were six units of bungalows. They entered into an agreement whereby the respondents agreed to buy and the appellants agreed to sell the property. Payment was to be made in two lump sums. The first payment of $ 190,000 was paid on the date of execution and the balance was to be paid on or before November 31, 1983. Vacant possession of the bungalows was to be given on the execution of the memorandum of transfer on November 31, 1983. However the appellants gave vacant possession of the bungalows to the respondents before the execution of the memorandum of transfer. The agreement provided that in the event of the agreement becoming impossible of performance due to acts of the Government, the appellants shall on demand by the respondents refund all the monies received under the agreement. The land and bungalows were acquired by the Government and the respondents gave notice of the revocation of the agreement and requested for the refund of $ 190,000. The appellants admitted the respondent's claim but claimed a set-off for rentals received by the respondents. The learned trial judge struck out the appellants counterclaim and held that section 15 of the Civil Law Act 1956 did not apply as the claim about the respondent's having to account to the appellants for having received the rents or not having received it, had not been provided for under the agreement.
As a conclusion, above are the remedy and relief that can be provided where a contract is void ab initio due to frustration of the performance of a contract by the parties.
