By Teddy Musonda
Law of contract - Offer and acceptance - illegal contracts - quantum meruit
BRIEF FACTS
The respondents invited tenders through the
national press from Valuation Surveying firms to undertake a compilation of the
Lusaka City Council Main Valuation Roll. Resulting from this invitation, the respondents
wrote to appellant appointing them as lead valuation surveyor of a consortium
company to be incorporated of three surveying firms.
There were several correspondences that
passed between the parties on the terms and conditions of the contract. The respondents’
first letter of terms and conditions to the appellant dated 2nd,
February, 2001 stipulated that;
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The
commencement date of the valuation will be 15th February, 2001;
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The total
contract price is k1.5 billion;
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A monthly
payment of k75 million over a period of six months
On 9th, February, 2001 the appellants
responded to the respondent’s letter signifying their acceptance to the said
terms and condition except that in their letter, they emphasized the need to
receive five percent 5% of the contract price within the first month of the
operations so as to supplement them in logistics and operational costs. Therefore,
on the 26th, February, 2001 the appellants wrote to the respondents
reporting to them how the works commenced on 15th, February, 2001
were going. Furthermore, the respondents also wrote to the minister of local
government and housing seeking approval of the minister to begin operations in
accordance with section 3(1) of the Rating
Act. It is important to note that the respondents wrote to the minister
after the appellants had already began the work. on 9th March 2001, the minister
then responded to the respondents rejecting the application for approval for
the following reasons:
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That the
advertisement in the Zambia daily mail of 29th June was invalid as
it had expired;
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In relation
to the same advertisement the tender was not advertised in the government
gazette which is a statutory requirement;
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The
bidding document containing the evaluation criteria was not submitted for their
review inter alia.
the respondents were ordered to call for a
fresh advertisement for bidders to undertake the same operations that the appellants
had already began doing. Consequentially, on 10th May 2001 the Respondent wrote
to the Appellant informing them that, the tender advertised on the appointment,
had been rejected by the Ministry of Local Government and Housing. There was
also evidence which was not disputed that the Respondent, after realizing that
the procedure for inviting bidders was irregular, only informed the Appellants
that the Ministry of Local Government and Housing had refused to grant the
approval/permission for the appointment and engagement of the Appellants in May
2001, which meant that the respondents could not fulfil their obligation to pay
the appellants because the contract was not approved.
PARTIED
ARGUMENTS
The appellants aggrieved by the respondent’s
behaviour, claimed that there was a valid contract between the parties as the
terms and conditions were very clear and unambiguous, therefore, the respondents
must continue with their obligation under the contract. The also argued that in
the case that the contract cannot be continued, then they were still entitled
to monies accrued to them within the months they worked as per the doctrine of Quantum Meruit.
On the other hand, the respondents argued
that the contract had not been formed, the parties were simply on the
negotiations stage and no conclusion was met, that the parties were not Ad Idem. The respondents fortressed this
point by making reference to the appellant’s letter dated 9th, February,
2001, indicating that the fact that the appellant’s respondents by asking for
payment of five percent (5%) within the first month amounted to a counter offer
thereby extinguishing the original offer that was proposed in the letter dated
2nd, February, 2001. They claimed that there was no letter that
followed after that which signified that they had accepted the five percent
(5%) payment, which meant that there was no acceptance thereby no valid
contract had been formed. The respondent
also argued that even in the case that acceptance is found, the contract is an
illegality because the law as enshrined in section
3 (1) of the Rating Act, the valuation works could only be commenced upon
the approval of the Minister of Local Government and Housing, of which in the
case the Minister did not approve of. They claimed that the appellants were aware
of this fact and the fact that the contract was an illegality by formation vitiated
the contract in total. In sum, the respondents submitted that; the Courts
cannot enforce an illegal contract thus any rights and claims under an illegal
contract cannot be awarded.
LEGAL
ISSUES
1.
Whether
the appellants letter request for five percent (5%) payment amounted to a
counter offer?
2.
Whether
the valid contract was not constituted due to lack of acceptance?
In an event that a contract was formed;
3.
Whether
the formation of the contract was an illegality therefore cannot be enforced?
4.
Whether
the appellants could be claim payment for work already done on the basis of the
doctrine of Quantum Meruit?
HOLDING
In reference to the first legal issue, the
Supreme Court held that the appellants letter, dated 9th, February,
2001 wherein the appellants made a request to the respondents to pay five (5)
percent of the total contract amount within the first month of work so as to
supplement them in logistics an operational cost, did not amount to a counter
offer because the appellants were simply seeking indulgence from the respondents
on whether the said payments would be made to them. A counter offer introduces
new terms to the contract therefore extinguishing the original offer, however,
in casu, the appellants in their
letter did not in whatsoever dispute or try to propose new terms but only made
a request and emphasized on why they felt such a request was important.
With regards to the second legal issue,
having found that the appellants letter dated 9th, February, 2001
did not amount to a counter offer, the Supreme Court therefore confirmed that
the letter was an acceptance to the offer made by the respondents. On that
basis, there was a valid contract between the parties.
Regarding the third legal issue, the Supreme
Court agreed with respondents that indeed the Courts do not enforce illegal
contracts and that the contract between the parties was illegally formed as due
to the fact that the respondents did not follow the legal requirements- as
guided by the Minister of Local Government and Housing. However, the Supreme
Court emphatically stated that it would be undesirable to allow one party to
overly benefit or enrich themselves out of the performance of the other party
while fully aware that such performance is illegal. The Supreme Court further stated
that the Courts will enforce a contract tainted with illegality if some parts
of the said contract can be legally enforced. They Supreme Court held that the
contract between the parties could be enforced partly, in a way as to guarantee
that the appellants are paid for the work they had already done.
Turning to the fourth legal issue, having
held that the contract between the parties could be enforced partly, in a way
as to guarantee that the appellants are paid for the work they had already
done, The Supreme Court held that the appellants were entitled to be paid for
the work they had done on the basis of quantum
meruit. (pay me for my work)
SIGNIFICANCE AND APPLICATION
1.
A
REQUEST FOR INFORMATION DOES NOT AMOUNT TO A COUNTER OFFER.
the Supreme Court emphatically distinguished
between an Offer and Counter offer. The Court took cognizance that a counter
offer is an offer made in response to an offer therefore, it kills or
extinguishes the original offer. This is done where a party presented with an
offer responds by introducing new terms and conditions, however, the Court held
that the appellants letter dated 9th, February,2001 was merely an
inquiry or request for information made to the respondents. Essentially, the appellants
were only seeking indulgence from the responds to whether they could consider
paying them five percent (5%) in the first month of work, and doing so did not
in whatever way introduce a new term or condition thereby falling short of
being a counter offer.
2.
THE COURTS
CAN PARTLY ENFORCE A CONTRACT TAINTED WITH ILLEGALITY
It is important to recognize that the Supreme
Court retained the position that Courts of law do not enforce contracts tainted
with an illegality. This position still remains valid, however, the Supreme
Court was at pains to register the undesirableness to allow one party to overly
benefit or enrich themselves out of the performance of the other party while
fully aware that such performance is illegal. The Supreme Court simply
emphasized on the need to adopt a suitable approach of dealing with a dishonest
party dealing in bad faith who procures a benefit off another contractual
party’ performance but hides under the shield of illegality so as to exonerate
themselves off their obligations under the contract.
To put things in perspective, in casu, the respondents were fully aware
that they needed approval from the minister of Local Government and Housing in
order for the works to commence, instead, they allowed the appellants to
commence the works without formal approval from the minister. The letter dated 26th,
February, 2001 shows that the respondents were provided with an update of how
the works were unfolding and they did not do anything to alert or stop the appellants
from continuing with the works (while knowing or ought to reasonably have known
that such was illegal)
Evidence also showed that the respondents,
after the minister had rejected their request for approval, had only informed
the appellants to stop their work a month later, the respondent did not deal
with the appellants in good faith, their actions were unscrupulous. The Supreme
Court indeed found the appellants to have been unfairly dealt with to that
regard, the respondents were ordered to pay the appellants for the works already
done- on the basis of quantum meruit. Basically,
the Supreme Court did not enforce the contract as a whole (doing so would
essentially mean that the appellants be paid the total contract price) because
it was tainted with an illegality, it only enforced part of it that could be
legally enforced (paying the respondents for the works the already rendered).
In line with immediate above, the author
submits that the Court whenever faced with a question of whether to enforce
parts of a contract tainted with illegality must be satisfied that the claimant
has proved that; (i) the respondents were aware or ought to have been aware of
the illegality tainting the contract between them and (ii) the illegality was
manifested as a result of the respondent’s negligence or actions. Applying
these two tests in casu would
translate that indeed (i) the respondents ‘were aware or ought to have been
aware’ that the contract with the appellants was tainted with an illegality as
the law clearly requires that the Minister of Local Government and Housing
approves the contract, whereas they minister did not in this case, (ii) the
illegality manifested as a result of the respondents negligence owing to the
fact that evidence clearly showed that they did not seek approval from the
minister authorising the contract with the appellants, of which they were
obligated to do.
3.
QUANTUM MERUIT
Quantum
meruit literally means ‘how
much is it worth’ it is common law remedy in the law of contract whereby a
party claims for a reasonable amount for the work they have done. Simply put, the party claiming quantum meruit is saying ‘pay me for
what I worked.’
Quantum
meruit is a restitutionary
award, it therefore serves as a unique remedy as it aims to restore the
plaintiff to the position they would have been in if the contract had not been
formed. Contrasting from an award of damages which aims to put the claimant in
the position they would have been had the contracted been fully performed. Therefore, Quantum meruit can be claimed on the following instances; (i) work
done under an illegal contract (emphasis only) (ii) one party prevents the
other from performing their obligation (iii) contract silent on remuneration
(iv) one party repudiated the contract.
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Work
done under an illegal contract: the case in focus confirms
this point. A party engaged in a contract tainted with an illegality may claim quantum meruit so as to receive a
reasonable payment for the performance they have rendered. However, it is
cardinal to understand that the courts will not enforce the entire contract but
simply award the claimant that which is reasonable for the performance they
rendered.
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