Contract Law

Formation of contract

Offer + Acceptance:- Was the initial offer valid?- Was the acceptance of that offer valid?- Is the communication of the offer or acceptance through electronic means?- Was there any attempt to revoke the offer?

Consideration:- Is there good consideration provided?- Can you use promissory estoppel if there is no good consideration?

Intention to create legal relations:- Is there an intention to create legal relations?

Miscellaneous issues:- Unilateral contracts- Invitation to treat- Privity of contracts (to 3rd party)

Terms

What kind of (pre-contractual) statement was made?

Terms:- Were there any implied terms?- What type of terms are I looking at?- What happens when a term is breached?

Exemption Clauses- How to deal with exemption clauses?- Is the exemption clause incorporated?- Does the exemption clause cover the loss/damage in question?- Are there any unusual factors limiting the exemption clause?- Does the exemption clause contravene the UCTA?

Vitiating factors

Incapacity:- Is incapacity applicable in the question?

Illegality:- Is illegality applicable in the question?- How to deal with contracts that are contrary to statute?- How to deal with restraint of trade clauses?

Misrepresentation:- How to show misrepresentation?- What remedies can be claimed?- When is rescission not available?

Mistake:- Is mistake applicable in the question?

Discharge

Performance:- Is the contract discharged by performance?

Breach:- Is the contract discharged by breach?

Agreement- Is the contract discharged by agreement?

Frustration- Is the contract discharged by frustration?- What remedies do I get under the FCA if the contract is discharged by frustration?

Remedies

Common law damages:- How to calculate damages?- How to determine causation?- How to determine remoteness?- How to determine mitigation?- How to determine assessment?- What if it’s a non-pecuniary loss?- What to do with liquidated damages clauses (LDC)?

Equitable remedies- How to deal with equitable remedies?

Formation of contract4 key elements – offer, acceptance, consideration, intention to create legal relations. If one of them is missing, no contract

Majority of contracts are bilateral (between specific parties). However, other forms include unilateral contracts and invitation to treat

To see which type, determine who the offer was made to. If no specific party, see miscellaneous issues.

Was the initial offer valid?An offer is an expression made by the offeror to the offeree communicating the offeror’s willingness to perform a promise (pg 57)

1) Was the offer successfully communicated? Oral, written or conduct? If yes, contract likely.2) Is the so-called offer actually a provision of information? (pg 61)

Is it in response to a query? If yes, see below. If no, offer. Is there an intention by the party making the statement for it to have binding effect? If

yes, offer. If no, provision of information. o Case to cite: Harvey v Facey [1893]

Was the acceptance to that offer valid?An acceptance must be final and unconditional (pg 62)

Acceptance is valid even when the offeree is ignorant of the offer in the first place. (pg 62)

Case to cite: Gibbons v Proctor [1891]

However, this case has been criticised and the opposite approach were taken in the respective USA and Australia cases.

Case to cite: Fitch v Snedaker [1868], R v Clarke [1927]

1) Does the acceptance come with any conditions? If yes, no contract.2) Is the acceptance successfully communicated? Oral, written or conduct? If yes, contract

likely. If no, see below. General rule is that acceptance must be received by the offeror (Receipt rule)

o Case to cite: Entores Ltd v Miles Far East Corporation [1955]3) Are there any exceptions present, where communication is not necessary? (pg 63) If yes,

contract likely. Is there any waiver of communication of acceptance? Did both parties agree that silence constituted acceptance? Does the postal acceptance rule apply in this case?

The postal acceptance rule is the case where acceptance is deemed to be effective as soon as the letter is posted, regardless if the letter reaches the offeror (pg 65)

o For letters onlyo Both parties agree to the ruleo Did the parties always conduct business through the post?

Is the communication of the offer or acceptance through electronic means?

Everything using an information system is considered electronic means. So, even if the advertisement is posted on Facebook or an online version of Straits Times, it still counts as electronic means. S(2) ETA

S14 of ETA states that “An offer of goods and services via the internet is considered as an invitation of treat unless the offeror makes it clear he intends to be bound by it” (pg 66)

Stature to cite: s14 of ETA

Valid contract via electronic means when web advertisements use loose language that turns it into a unilateral contract

Case to cite: Chwee Kin Keong v Digilandmall.com Pte Ltd [2004]

S13 has nothing to do with offer and acceptance at all, so don’t bother with it

- Receipt rule still applies for electronic communications

Was there any attempt to revoke the offer?Valid acceptance CANNOT be revoked

Five ways of revoking offer. Can only be revoked prior to acceptance.

1) Was the offer withdrawn? (pg 69) Was the revocation successfully communicated to the offeree? If yes, revoking valid.

o Case to cite: Byrne v Van Tienhoven [1880] Doesn’t matter who communicates the revocation, so long as the

offeree has knowledge of it. Case to cite: Dickinson v Dodds [1876]

Is there a replacement of an offer? (pg 70) If yes, revoking of old offer valid provided that:

o The fresh offer supersedes the earlier offer Case to cite: Banque v Citibank NA [1989]

2) Was there a rejection or counter-offer? (pg 72) Was the rejection/counter-offer communicated to the offerer? If yes, revoking valid. Counter-offers count as rejection of initial offer since acceptance must be final and

unconditionalo Case to cite: Hyde v Wrench [1840]

3) Was the offer open for a specific time period? (Lapse of time) (pg 73) Has the offer been lapsed? If so, offer revoked

o If offer is lapsed, but there is evidence to show that the terms of the supposedly lapsed offer continue to govern relationship between offeror and offeree after the specified period, then offer still valid.

Case to cite: Panwell Pte Ltd & Anor v Indian Bank (No 2) [2002] Has a reasonable time already passed? If yes, offer revoked even if no period specified Case to cite: Ramsgate Victoria Hotel Co v Montefiore [1866]

4) Is there a failure in condition? (pg 73) (Overlap with terms section) Are there any conditions set in the offer? Can be expressed or implied. Are all of these conditions met? If no, offer revoked

o Case to cite: Financings Ltd v Stimson [1962]

5) Did the offeror or offeree die? (pg 74) If offeror dies, offer revoked provided that offeree received notice of his death

o Case to cite: Bradbury v Morgan [1862] If offeree dies before accepting offer, offer revoked

o Case to cite: Reynolds v Atherton [1921]

Is there good consideration provided?Consideration is deemed as an act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable. (pg 78)

Benefit to the promisor Detriment to the promisee

Three types of consideration, 2 of which are valid consideration

Must fit executory or executed consideration before you look at the 2 main rules of good consideration

“Acceptable” consideration (pg 79) (Generally no need to dwell on)

Executory consideration – consideration that is yet to be performed. Involves a promise to perform an act in the future.

Executed consideration – consideration that has been performed. Involves an act or forbearance which has been fulfilled

“Not acceptable” consideration (pg 80) (Need to explain)

Past consideration – an act performed prior to, and to that extent, independent of the promises being exchanged.

So long as it has been performed, it’s either past or executed consideration Case to cite: Pao On v Lau Yiu Long [1980] (pg 81)

o Is the act done at promisor’s request?o Did both parties come to an understanding that the act is to be remunerated?o Is the contract otherwise enforceable? (Eg offer/acceptance valid etc)

If all three fulfilled, it is executed consideration. If not, by default, it would be past consideration.

Two main rules of valid consideration (pg 82)

1) Did the consideration move from the promisee? If yes, contract likely General rule is that promisee must show the above point UNLESS the criteria of privity is

fulfilled Case to cite: Tweddle v Atkinson [1861] No need for consideration to move to promisor

2) Is the consideration sufficient? If yes, contract likely Does the consideration have some value in the eyes of the law?

o Goods, services, money, property (duh)o Forbearance to sue

Case to cite: Alliance Bank Ltd v Broom [1864]o Performance of existing contractual duty to 3rd party

Case to cite: The Eurymedon [1975] The law doesn’t care about adequacy ie fairness of the contract so long as both parties

agree to it

“Bad” considerations

1) Is the consideration a moral obligation? (pg 86) Case to cite: Eastwood v Kenyon [1840]

2) Is the consideration too vague or insubstantial in nature? (pg 86) Case to cite: White v Bluett [1953]

3) Is the promisee already under an existing public duty (pg 87) Case to cite: Collins v Godefroy [1831]

o Good consideration may be present if it can be shown that the promisee has done more than what is required of him.

Case to cite: Glassbrook Bros Ltd v Glamorgan City Council [1925]4) Is the promisee under an existing duty to the promisor to perform the act? (pg 88)

Case to cite: Stilk v Myrick [1809]o Good consideration may be present if it can be shown that the promisee has

done more than what is required of him under the contract. Case to cite: Hartley v Ponsonby [1857]

o Good consideration may also be present if it can be shown that the promisor received additional “practical benefits” from the successful discharge of duty

Case to cite: William v Roffey Bros and Nichollas (Contractors) Ltd (1991)

Can you use promissory estoppel if there is no good consideration?Must discuss rule in Pinnel’s case before mentioning promissory estoppel

Rule in Pinnel’s Case (1602) (pg 89)

Part payment of a debt does not discharge the entire debt unless the part payment was made at the request of the creditor and the payment was made earlier, in a different place or in a different mode.

When promissory estoppel is established, a promisee may have a valid defence against a promisor’s claim even though no consideration was given by the promisee. (pg 91)

Case to cite: Central London Property Trust v High Trees House Ltd (1947)

1) Did the parties have an existing legal relationship?2) Was the promise made clear, unequivocal and certain, and intended to affect the existing

legal relationship?3) Can it be shown that the promisee relied upon the promise and altered his position4) Is it inequitable for the promisor to be allowed to go back on his promise?

Two points to take note for promissory estoppel

1) Promissory estoppel seeks to suspend the promisor’s rights temporarily, unless it can be shown that there is no way to return the parties to the prior position Case to cite: Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955]

2) “Shield, not sword” – Promissory estoppel can only be raised when sued by a plaintiff Case to cite: Combe v Combe [1951]

Is there an intention to create legal relations?Intention to create legal relations refer to if the parties are willing to be legally bound by their words and actions. (pg 93)

1) Would a reasonable person viewing all the circumstances of the case consider that the promisor intended his promise to have legal consequences? In other words, would a reasonable man view you as being ready to sue the other party

for breach, and also be ready to be sued by the other party if you breach?

Generally absent in social and domestic agreements unless it fulfils the test mentioned above.

Generally present in commercial agreements. (Don’t waste time discussing unless question states otherwise)

Miscellaneous issues

Unilateral Contracts (pg 58)Case to cite: Carlill v Carbolic Smoke Ball Co [1982]

A contract brought into existence by the act of one party in response to a conditional promise of another

Is the offer made to the whole world to accept? Is the conditional promise clear and unambiguous? Is the act that must be performed also clear and unambiguous?

Unilateral contract if yes to all 3.

Valid contract via electronic means when web advertisements use loose language that turns it into a unilateral contract

Case to cite: Chwee Kin Keong v Digilandmall.com Pte Ltd [2004]

Acceptance

Acceptance is valid even when the offeree is ignorant of the offer in the first place. (pg 62)

Case to cite: Gibbons v Proctor [1891]

However, this case has been criticised and the opposite approach were taken in the respective USA and Australia cases.

Case to cite: Fitch v Snedaker [1868], R v Clarke [1927]

Waiver of communication normally present in unilateral contracts and performance of the act required could amount to acceptance

Revoking an unilateral contract

If an offeree within a reasonable time from the making of the offer begins to perform his obligations, the offeror cannot revoke his offer.

Case to cite: Dickson Trading (S) Pte Ltd v Transmarco Ltd [1989]

Invitations to treat (pg 59)Case/Stature to cite: Patridge v Crittenden [1968] for advertisement, s14 of ETA for web advertisements

An invitation to commence negotiations

Lack of intention for both parties to be bound, as too few information is present Generally all advertisements, display of goods and price Acceptance of invitations of treat does not lead to a contract

Privity of contracts (pg 98)General rule is that only parties in a contract may enforce or be bound by the terms of the contract. (Super rare, unlikely to come out)

Exceptions

Agency issues (See agency section) Pursuant to the Contracts (Rights of Third Parties) Act

o Did the contract state expressly that he may? S2(1)(a) CRTAo Does the contract purport to confer a benefit to him? S2(1)(b) and s2(2) CRTAo Is the third party expressly identified in the contract by name, as a member of a

class, or as answering a particular description? S2(3) CRTA

If all 3 fulfilled, 3rd party is able to enforce any term of a contract to which he is not a party

Exemption Clauses

The general rule is that 3rd parties cannot rely on exemption clauses.

Exceptions

Agency issues (See agency section) Pursuant to the Contracts (Rights of Third Parties) Act

o Did the contract state expressly that he may? S2(1)(a) CRTAo Does the contract purport to confer a benefit to him? S2(1)(b) and s2(2) CRTAo Is the third party expressly identified in the contract by name, as a member of a

class, or as answering a particular description? S2(3) CRTA

Terms

What kind of (pre-contractual) statement was made?Three types of possible statements – puffs, terms and representations

Puffs are statements that have no legal effect whatsoever (easiest to spot) (pg 105)

Representations are statements made before or at the time a contract is formed concerning some matter relating to the contract

Terms are statements which form part of the contract.

1) Was the statement made vague or exaggerated? If yes, puff. If no, see below

Terms vs Representations (pg 107)

Terms and representations are often difficult to tell apart.

First step is to apply basic test ie apply basic test before the guidelines

Basic test is look at the intention of the parties

1) Is there evidence that one or both contracting parties intended that there be contractual liability in respect to the statement? If yes, term. If no, representation Case to cite: Tan Chin Seng & Others v Raffles Town Club [2002]

2) What can I use to help discern the intention of the parties? 5 guidelines When was the statement made? If it is closer to contract, LIKELY term

o Case to cite: Routledge v Mckay [1954] Was there great emphasis in the statement made? If yes, LIKELY term

o Case to cite: Bannerman v White [1861] Does the maker of the statement have more knowledge regarding the matter in the

statement? If yes, LIKELY termo Case to cite: Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd

Was there any attempt by the maker of the statement to invite the other party to verify the statement? If it yes, LIKELY representation

o Case to cite: Ecay v Godfrey [1947] Was the statement put into writing? If yes, LIKELY term

Were there any implied terms?Express terms are terms that have been expressly agreed between the parties.

Implied terms are terms which has not been expressly agreed by the parties but is nevertheless implied into the contract. (pg 109)

Implied terms cannot override express terms.

Case to cite: Sembcorp Marine Ltd v PPL Holdings Pte Ltd [2013] (pg 112)

Steps to consider:

Ascertain how the gap in the contract arose. Was it because the parties did not contemplate the gap?

Is it necessary in the business or commercial sense to imply the term in order to give the contract efficacy?

Is the specific term to be implied so obvious that both parties would have responded “But, of course”?

1) Are there any long usage or custom applicable? (Generally inapplicable for Singapore’s context)

2) Can you successfully apply the business efficiency test? Will the courts supply a term which it considers as having been intended by the parties,

so as to ensure their contract will proceed along normal business lines?o Case to cite: The Moorcock [1889]

3) Can you successfully apply the officious bystander test? Terms that are so obvious that it goes without saying.

o Case to cite: Shirlaw v Southern Foundries [1926]4) Are there any statutes that imply the term?

What type of terms are I looking at?Three main types of terms – conditions, warranties and innominate terms

Conditions are terms which are important, essential or fundamental to the contract (pg 112)

Warranties are the less important terms and constitute secondary obligations

Default test: Did the parties intend the term to be a condition or a warranty? Judge would look at

All the circumstances surrounding the contract The parties of the contract The subject matter of the contract The importance of the term in question etc.

Innominate terms are terms that cannot be classified under conditions or warranty after applying default test. (pg 113)

If the intention really cannot be discerned, apply innominate term test to see if it falls under condition or warranty. Need to convince that the facts are really inconclusive before applying this test.

Case to cite: Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] (pg 113)

As a result of the breach, was the innocent party deprived of substantially the whole benefit that he was intended to get from the contract? If yes, term. If no, warranty

o Look at proportion of remaining benefit and compare with initial benefit.

What happens when a term is breached?Condition breached (Doesn’t matter the consequences of the breach) (pg 112)

Can repudiate contract (See discharge)o Discharge/Repudiation: contract still valid up to the point of breach

Claim damages (See remedies)

Warranty breached

Validity of Exemption Clause

Incorporation Construction Unusual factors

UCTA

Claim damages only UNLESS Case to cite: RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd & Another Appeal (2007) (pg

174) Apply Hong Kong Fir test mentioned above to see if innocent party is deprived of

substantially the whole benefit. If yes, can repudiate contract and claim damages even if term is a warranty

How to deal with exemption clauses?Exemption clauses are terms in a contract which seeks to limit the liability of the party relying on the clause. (pg 115)

Another similar type of clause is the limitation of liability of clause, which is less severe.

For ECs with respect to 3rd parties, see privity of contracts

Whether a particular exemption clause is reasonable or not depends on the facts of a particular case. A clause which is reasonable in one context may be unreasonable in another. Context is extremely important, so must discuss context when dealing with ECs.

4 factors that must be discussed (in order from left to right):

Is the exemption clause incorporated?Incorporated by 2 ways – signature or notice. (pg 116)

1) Was there a signed written contract? If yes, incorporated immediately The law doesn’t care if the signee read the EC Case to cite: L’Estrange v Graucob [1934]

2) Was reasonable sufficient notice given for the exemption clause? Where was the notice affixed? Was it in a place where a reasonable man would have

expected to find contractual terms?o Case to cite: Chapelton v Barry Urban District Council [1940]

Was the notice given before or after the contract was made?o Case to cite: Olley v Marlborough Court Ltd (1949)

Was there reasonably steps taken to bring the notice to the attention of the injured party?

o Case to cite: Thorton v Shoe Lane Parking Ltd [1971]

o Even if the party resisting the EC is unable to understand the clause, so long as reasonable notice is given, it would be sufficient UNLESS it can be shown that the party relying on the EC knew of the disability

o Case to cite: Thompson v London Midland Scottish Railway Co [1930] (for first half), Geier v Kujawa, Weston & Warne Bros (Transport) Ltd [1970] (for second half)

3) Was there any previous dealings between the parties that included an EC, and any indication that the parties would be bound by the EC in the current contract?

So long as one of the 3 points listed above is fulfilled, EC is incorporated.

Does the exemption clause cover the loss/damage in question?2 rules to look at – Contra Proferentem Rule and Main Purpose Rule

The Contra Proferentem Rule states that when there is any ambiguity in interpreting the clause, the construction to be adopted is the one which is least favourable to the person relying on the EC. (pg 120)

The Main Purpose rule states that there is a general presumption that the parties do not intend an exemption clause to defeat or be repugnant to the main purpose of the contract. (pg 120)

1) Does the EC cover the damage/loss in question? Look at the context of the question and the clause.

2) Is the EC against the main purpose of a contract? If yes, see below. If no, apply Contra Proferentem rule.

3) Is the EC clear and unambiguous? If yes, EC valid. If no, EC not valid Case to cite: Photo Production Ltd v Securicor Transport Ltd [1980]

Are there any unusual factors limiting the exemption clause?Unusual factors are factors that affect the interpretation of the clause and changes what the EC is supposed to do. (Very rarely will this ever appear)

1) Are there any collateral contracts present that will defeat the EC? Was there an oral contract prior to the signed contract? Can it be shown that oral exchanges are critical and important to the parties entering

the contracts? (Exemption of Parol Evidence Rule – which states that everything that was said is deemed to be in a contract)

Does the exemption clause contravene the UCTA?The UCTA requires the EC to be reasonable

Applicable to both ECs and disclaimers (See Tort) s1(3) UCTA

Primary focus of UCTA deals with protecting parties, especially consumers, who undertake business transactions.

1) Does the EC attempt to limit liability for death or personal injury? If yes, EC invalid s2(1) UCTA Only other loss or damage, such as financial loss or property damage, can be excluded

provided the clause is reasonable s2(2) UCTA

2) Is the EC reasonable? (pg 125) S11(1) UCTA Consider all circumstances which were known to the parties ie parties know the thing in

dispute Consider all circumstances which ought reasonably to have been known to ie the parties

may not have known, but they should have known Consider all circumstances which were in the contemplation of the parties when the

contract was made ie did the parties even consider this?o What could have happened? Did you understand what you signed? What have

you agreed to allow the other party to get away with when signing the contract?

In actual practice, courts may decide to use Second Schedule of UCTA as guidelines to determine reasonableness (pg 126)

What are the bargaining position of the parties? Did the customer receive an inducement to accept the exemption clause? Did the customer know of the exemption clause? Is compliance of the EC practical? When the goods ordered specially?

DO NOT APPLY SECOND SCHEDULE OF UCTA WITHOUT DISCUSSING S11(1) UCTA, AS THE SCENARIOS FOR EXCULSIVE USE OF SECOND SCHEDULE IS BEYOND OUR SYALLABUS!!!!!

Vitiating Factors

Incapacity Illegality Misrepresentation Mistake

Vitiating factors

Vitiating factors are factors which prevent a contract from being enforceable

4 main types:

Is incapacity applicable in the question?Incapacity refers to the lack of capacity which may characterise a contracting party.

1) Is the contracting party of unsound mind or intoxicated? If yes, contract unenforceable Was the person in question incapable of understanding the nature of the contracts Did the other party know or ought to have known of his incapacity?

2) Is the contracting party a minor? If yes, see below.

Minors (pg 133)

Minors are persons who have not reached the age of maturity (21 years old in Singapore common law)

Certain commercial contracts relating to starting and conducting business activities do not require the minor to be above 21 years of age. They only need to be above 18 years of age.

Contracts with minors fall under 3 categories – Valid, voidable or ratifiable

Valid contracts are contracts that will bind both the minor and the other party.

Does the contract benefit the minor? If yes, should be valid contracto Examples are beneficial contracts for necessaries and beneficial contracts of

employment. Necessaries are items that are considered appropriate for the minor in this position?

o Case to cite: Peters v Fleming [1840] Main rule for beneficial contracts are that on the whole, the contract must be beneficial

to him.o Case to cite: Chaplin v Leslie Frewin (Publishers) Ltd [1966]

Has the minor performed his obligations? If yes, minor cannot recover any money paid unless there is total failure of consideration by the other party.

Voidable contracts are contracts that binds the other party but the minor can repudiate it anytime during its infancy or within a reasonable period after he attains majority.

Is there a recurring future obligation for the minor? If yes, should be voidable contract

o Examples are minor’s contracts for a lease, partnership and purchases of shares in a company.

Case to cite: Davies v Benyon-Harries [1931]

Ratifiable contracts are contracts that does not bind the minor unless he ratifies it after he attains majority. Ratifiable contracts still bind the other party.

Does it fall into the first two categories? If not, by default it is a ratifiable contract.

Is illegality applicable in the question?Illegal contracts are generally void, with exceptions for contracts contrary to statute and contracts in restraint of trade. (pg 140) (Super rare other than contrary for stature, unlikely to come out)

1) Does the contract involve gaming or wagering? If yes, void. S5 Civil Law Act Exception for official gambling facilities such as Singapore Pools and the Integrated

Resorts2) Does the contract contravene some aspect of public policy? If yes, void

Is it a contract to commit a crime, a tort or a fraud on a third party? Does it promote sexual immorality? Does the contract benefit foreign enemies or undermine relationships with a friendly

nation? Does it negatively affect the administration of justice? Does it seek to oust the jurisdiction of the courts? Etc

3) Does the contract contravene any statutes? See below4) Does the contract include any restraint of trade clause? See below

How to deal with contracts that are contrary to statute?1) Look at what is the intent of the stature. (pg 143)

Does it seek to stop the activity all together, or merely regulate the activity? If it seeks to stop the activity and make the activity illegal to be performed, contract is

illegal and voido Case to cite: Re Mahmound and Ispahani [1921]

If it merely seeks to regulate the activity, contract would not be void. Ie performance of an unlawful act in an otherwise lawful contract would not render the contract void.

o Case to cite: St John Shipping Corporation v Joseph Rank Ltd [1957]2) If the stature does not void the contract, determine who the defaulting and innocent party

is. The innocent party may be able to claim damages from the defaulting party.

How to deal with restraint of trade clauses?Restraint of trade contracts are agreements under which a business or person agrees to refrain from undertaking certain types of trade of employment (pg 144) (Super rare, unlikely to come out)

General rule is that restraint of trade agreements are void

Case to cite: Asiawerks Global Investment Group Pte Ltd v Ismail bin Syed Ahmad [2004]

There are cases where restraint of trade clauses are valid:

Misrepresentation

Fraudulent Negligent Innocent

1) Does the RT clause protect the proprietary or negotiate interest of coventee? Legitimate interest must be non-monetary. For instance, goodwill or trade secrets.

2) Is the scope of the RT clause reasonable in terms of its period, geographical scope and subject matter? Does it “go no further than what is necessary to protect the interest concerned?” Case to cite: Man Financial (S) Pte Ltd v Wong Bark Chuan David [2008]

3) Is the RT clause not contrary to public interest? Case to cite: Asia Polyurethane Mfg Pte Ltd v Woon Sow Liong [1990]

4) Can the clause be saved by severing the invalid parts of the clause? If Are the promises severable in nature? Is it possible to ever the void part by deleting the offending words or clause without

adding, substituting, re-arranging or redrafting the contract? o Apply Blue Pencil Test

Does it change the basic nature of the contract?

If yes to first 3, or no to one or more in the first 3, but yes to 4, then RT clause valid

How to show misrepresentation?Determine firstly that statement made is a representation by applying the intention test (See terms)

A misrepresentation is a false statement of fact designed to be inducing and the representee relied on the inducing statement and altered his position to enter the contract. (pg 151)

The critical thing is first they have to ensure that they have to meet the elements of misrepresentation before deciding if it’s fraudulent, negligent or innocent

1) Can you prove that it’s a false statement of fact made? (statement of fact – a statement that can be verified)

Case to cite: Edgington v Fitzmaurice [1885]2) Can you show the inducing statement – which part is inducing?3) Can you show expressed proof of reliance of the inducing staement? (mere thought or

reaction does not suffice)

What remedies can be claimed?First determine which category the misrepresentation falls under

Three categories:

Misrepresentor can seek protection from EC if clause reasonable. s3 Misrepresentation Act

Fraudulent misrepresentation (Tort of deceit)

Fraudulent misrepresentations arises when the false statement is made by the representor knowing that it is false. (pg 155)

1) Can it be shown that there is dishonesty on the part of the representor? If yes, fraudulent. If no, negligent. (see below) Extremely high degree of proof required Case to cite: Derry v Peek [1889]

2) What remedies are available? Rescission of contract – contract is void ab initio, meaning that the contract is treated as

it never existed. (See below) Damages (See remedies)

Negligent misrepresentation

Negligent misrepresentation arises when the false statement is made by the representor without due care. (pg 156) (Most misrepresentation falls under this category)

No intent of dishonesty can be proven Stature to cite: s2(1) Misrepresentation Act

1) What remedies are available? Rescission of contract – contract is void ab initio, meaning that the contract is treated as

it never existed. OR damages in lieuo Can you rescind the contract? (See next section)o The judge takes away the innocent party’s rights to rescind and awards damages

instead. If rescission is too harsh a remedy to the representor, damages in lieu would be awarded. (See below)

o Stature to cite: s2(2) Misrepresentation Act Damages, if rescission is awarded (See remedies)

Innocent misrepresentation

Innocent misrepresentation arises when the representor made the false statement without fraud and without fault. (pg 157)

Burden of proof lies with the representor to show either (a) the statement is true or (b) he had reasonable grounds to believe the statement is true

Stature to cite: s2(1) Misrepresentation Act

1) What remedies are available? Rescission of contract – contract is void ab initio, meaning that the contract is treated as

it never existed. OR damages in lieuo Can you rescind the contract? (See next section)o The judge takes away the innocent party’s rights to rescind and awards damages

instead. If rescission is too harsh a remedy to the representor, damages in lieu would be awarded. (See below)

o Stature to cite: s2(2) Misrepresentation Act Indemnity (Super rare, unlikely to come out)

o The cost to correct the position of the subject in the contract so that the contract can go forward

o Case to cite: Whittington v Seal-Hayne [1900]

When is rescission not available?4 possible scenarios (pg 158) (Appears to be quite common, especially point 3)

1) Was the contract expressly or impliedly affirmed by the representee after he discovered the misrepresentation? The right to rescission is not lost easily. The representee must have communicated his

choice to the other party in clear and unequivocal terms Case to cite: Jurong Town Corp v Wishing Star Ltd (No 2)

2) Has a reasonable amount of time been lapsed since the discovery of the misrepresentation?3) Is it possible to restore the parties to the original position before the contract? If no,

rescission unlikely Restitutio in integrum impossible

4) Is the court exercising its discretion pursuant to s2(2) Misrepresentation Act to award damages in lieu of rescission? Must be exercised in accordance with established principles

Is mistake applicable in the question?There’re generally 4 types of mistakes for cases where contracts have been vitiated by mistake. (Super rare, shouldn’t come out in finals) (pg 160)

1) Common mistake Occurs when both parties make the same fundamental mistake of fact Case to cite: Couturier v Hastie [1852]

2) Mutual mistake Occurs when parties misunderstand each other and are at cross-purposes Both parties are not aware of each other’s mistake Case to cite: Wellmix Organics (International) Pte Ltd v Lau Yu Man [2006]

3) Unilateral mistake Occurs when one party is mistaken The other party knows or ought to have known the first party’s mistake Case to cite: Chwee Kin Keong & Others v Digilandmall.com Pte Ltd [2005]

4) Non est factum (This is not my deed) Occurs when a person signs a document that is fundamentally different in character

from that which he contemplated Case to cite: Lee Siew Chun v Sourgrapes Packaging Products Trading Pte Ltd [1993]

Other vitiating factors include duress (pg 162), undue influence (pg 163) as well as unconscionability (pg 164).

Discharge of Contract

Performance Breach Agreements Frustration

DischargeDischarge refers to the termination of a contract

4 main ways:

Is the contract discharged by performance?The general rule is that if a contract is to be discharged by performance, the parties must perform their obligations fully and precisely. (Precise Performance Rule) (pg 170)

Case to cite: Cutter v Powell [1795]

1) Is the contract performed fully and precisely? If yes, discharged by performance2) Does one of the 5 exceptions apply in this case? If yes, discharged by performance

De Minimis Rule – Is the deviation in performance microscopic in nature?o Full payment must be madeo Case to cite: Arcos Ltd v E A Ronaasen & Son [1933]

Divisible contracts – Are the obligations independent of each other in the contract?o Payment will be based on parts completedo Chronological reliance of tasks not an issue

Substantial performance – Has the party done enough work to deserve full contract price?

o Does not mean performing majority of the task. Whole task must be completed.o Promisor can then get contract price less cost to rectify error

Prevented performance – Was there an expressed act by the other party to stop the promisor from finishing his obligations?

o Act cannot be impliedo Payment based on quantum meruit basis (As much as he had earned based on

market value of goods and services)o Case to cite: Planche v Colburn [1831]

Acceptance of partial performance – Did the promisee voluntarily accept the partial performance of the promisor?

o Payment based on quantum meruit basis (As much as he had earned based on market value of goods and services)

Is the contract discharged by breach?2 types of breach – Actual and anticipatory (pg 173)

An actual breach arises when the time of performance for the obligation has arrived and the promisor failed to perform it.

An anticipatory breach occurs when the time of performance to occur has not yet arrived, but the promisor, by word or conduct, has clearly expressed his intention not to perform the obligation.

The breach must be repudiatory for the contract to be discharged (pg 175)

For actual breach,

1) Does it fulfil any one of the 3 scenarios mentioned in RDC Concrete? If yes, repudiatory breach. Breach of a condition Breach of an innominate term that passes the Hong Kong Fir test Breach of a warranty that passes the Hong Kong Fir test

Hong Kong Fir test – Was the innocent party deprived of substantially the whole benefit as a result of the breach?

2) Does the innocent party elect to affirm or terminate the contract? Actual breach does not require legitimate interest (see below) to affirm Either way, innocent party still can claim damages (See remedies)

For anticipatory breach,

1) Does the threatened non-action deprive the other party of substantially the whole benefit the contract was intended to bestow on him? If yes, repudiatory breach. Case to cite: RDC Concrete Situation 2

2) Does the innocent party elect to affirm or terminate the contract? Anticipatory breach MUST have legitimate interest to affirm

o Case to cite: White & Carter v McGregor [1962]o Legitimate interest are interests by the party that cannot be compensated by

monetary meanso For instance, protecting reputation, prevent future loss of business

Either way, innocent party still can claim damages (See remedies)

Is the contract discharged by agreement?What is effected by agreement may be undone by agreement (pg 181) (Super rare, unlikely to appear)

1) Existing agreement Is there a term in the contract that will discharge it upon the occurrence of a stipulated

event or at the expiration of a certain period?2) Subsequent agreement

Mutual releaseo Both parties execute a mutual release that discharges each party from all

obligations in the contract Unilateral release

o The party who have performed all his obligations opt to discharge the other party from performing his yet-to-perform obligations

Accord and satisfaction

o Using fresh consideration to purchase the release of the old contract Variation

o If the contract is altered by a subsequent agreement supported by fresh consideration, then old contract may be discharged depending on alteration.

Waivero When one party voluntarily grants the other party an indulgence not to perform

an obligation under the contract, contract discharged by agreement

Is the contract discharged by frustration?To determine if frustration applies (pg 183)

1) Is there a supervening event? - something occurring unexpectedly2) Was the event not the fault of either parties?3) Was there a radical change in circumstances opposed to what was originally contemplated?

If yes to all 3, frustration established.

Examples of frustrated contracts

1) Destruction of subject matter Case to cite: Taylor v Caldwell [1863]

2) Non-occurrence of event Would the contract still have been entered had the event not occurred? If yes, no

frustration. Case to cite: Herne Bay Steamboat v Hutton [1903] (if yes to above question), Krell v

Henry [1903] (if no to above question)3) Government interference

Was the government action or ruling preventing the performance expected? If yes, no frustration

Case to cite: Oakwell Engineering Ltd v Energy Power Systems Ltd [2003] (if yes to above question), Metropolitan Water Board v Dick, Kerr & Co. [1918] (if no to above question)

4) Personal Incapacity Is there a contract for personal services? Does the incapacity affect the performance by the individual in a fundamental way? Case to cite: Poussard v Spiers & Pond [1876] Is the person to perform the services dead?

Factors limiting frustration

1) Was the event foreseeable? Foreseeability is no bar to frustration Is the harm still foreseeable after all reasonable measures have been taken to prevent

the foreseeable harm? If yes, frustration2) Are there any Force Majuere clauses? (Quite rare) If yes, frustration cannot be held if clause

is valid Works like an exemption clause to limit liability

3) Was the frustration self-induced? If yes, no frustration Was it due to the voluntary action or lack of action of one of the parties? Case to cite: Maritime National Fish v Ocean Trawlers [1935]

What remedies do I get under the FCA if the contract is discharged by frustration?Frustration is effective immediately and requires no communications.

Frustrated Contracts Act (FCA) will apply to all cases in our syllabus (pg 187)

Under FCA,

1) All future obligations ceases: Fibrosa Case [1943]2) Money payable ceases to be payable: s2(2) FCA3) Money paid prior can be recovered: s2(2) FCA4) Expenses incurred by party for the purpose of conducting the contract prior can be

recovered: s2(3) FCA5) Benefits conferred (other than money) can be compensated: s2(4) FCA

Take the case between Timothy and SBD. Timothy has paid $5,000 for 5 years of blood storage, and will pay another $5,000 at the end. The contract was frustrated in year 4

Under FCA,

1) SBD no longer has to store Timothy’s blood2) The $5,000 he has to pay in the end ceases to be payable3) Timothy can reclaim the $5,000 paid initially

***** However, take note that according to FCA Section 2(3), the party to whom the sums were so paid or payable (In this case, Timothy is paying SBD, so SBD would be the party in question) incurred expenses (Eg, electrical bills etc) in storing Timothy’s blood, SBD may be allowed to recover part or whole of the expenses.

IE, Timothy is unlikely to get back the full $5,000 initially paid.

Furthermore, SBD has conferred a benefit to Timothy for storing his blood for 4 years. This benefit would allow SBD to claim back an amount considered just to make up for this benefit conferred.

Aspects of Damages

Causation Remoteness Mitigation Assessment

RemediesTwo main types: damages under common law remedies and specific performance and injunction under equitable remedies (pg 195)

How to calculate damages?Damages refers to the monetary compensation payable by the defaulting party to the injured party when a breach occurs. The intention would them be to place the plaintiff, in monetary terms, in the same position as he would be in if the contract had been performed properly.

Damages are meant to be compensatory and not punitive. Ie it’s not meant to punish the defaulting party. It is meant to restore the party to the same position as though the contract has been performed properly

All non-monetary losses not recoverable unless it fulfils criteria for exceptions. (See below)

4 main factors in determining damages. Determine in order:

How to determine causation?Causation means that the breach must have caused the loss suffered by the plaintiff. (pg 197)

1) Did the breach cause the loss? Does it pass the “but-for” test?

o But for (if not for) the <breach>, the plaintiff would not have suffered <loss>

How to determine remoteness?Remoteness in law – purpose is to prevent limitless causation ie limit how much is recoverable.

1) Is the damage proximate and not remote? (pg 198)

Case to cite: Hadley v Baxendale [1854]

Does it fall within the first limb or second limb? If not, damage is too remote.

First limb deals with normal loss and are considered as arising naturally

Recovery of losses within the scope of contract Eg. If the contract is to purchase goods, then first limb will only be applicable with

regards to this particular purchase of goods

Second limb deals with abnormal loss. 3 scenarios:

The injured party told the other party that he would suffer this loss. The other party now has actual knowledge of the loss

The other party did contemplate that the injured party will suffer this loss due to his breach

The other party did not contemplate that the injured party will suffer this loss due to his breach, but he should have contemplated that the injured party will suffer this loss.

How to determine mitigation?Mitigation refers to the fact that a plaintiff cannot recover losses which he could have avoided. (pg 202)

If the plaintiff failed to mitigate his losses, the amount of damages recoverable will be reduced by the amount that he would have saved if he had mitigated his loss.

1) Is mitigation possible? If yes, see below. If no, move on to assessment.2) Was the steps taken to mitigate the loss reasonable?

Case to cite: British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railways Co of London [1912]

If the reasonable mitigation led to more losses, the losses can be reclaimed Case to cite: Melachrino v Nickoll & Knight [1920] Burden of proof on defendant to show that mitigation is not reasonable

o If mitigation not reasonable, damages recoverable would be reduced by the amount if mitigation was made reasonably

How to determine assessment?The general principle of assessment is that the injured party is to be placed in the same financial position he would be in if the contract has been performed properly. (pg 205)

Case to cite: Trigen Industries Ltd v Sinko Technologies Pte Ltd & Another.

1) Is the loss an expectation loss or reliance loss?

Expectation loss is the amount the injured party would have expected to gain had the contract been performed properly. (Loss in profits)

Reliance loss is the expenses incurred by the injured party who, relying upon the contract, prepares to perform his obligations and incurs expenses which are rendered wasted because of the breach. (Wasted expenditure)

Can only claim expectation loss or reliance loss, unless expectation loss is calculated on a net basis (less expenses basis). Both must be calculable.

What if it’s a non-pecuniary loss?Default position not recoverable. (pg 209)

If non-pecuniary loss is identified, skip the 4 steps mentioned above and just state that it generally cannot be recovered

Exceptions: (If yes for either, can claim)

1) Did the plaintiff suffer substantial physical inconvenience? Case to cite: Bailey v Bullock [1950]

2) Was the main purpose of the contract to provide enjoyment or security? Case to cite: Jarvis v Swan Tours Ltd [1973]

What to do with liquidated damages clauses (LDC)?LDCs are clauses that specify the amount of damages to be paid by the defaulting party to the injured party if such a breach occurs. (Super rare, unlikely to come out) (pg 211)

1) Is the LDC a genuine pre-estimate of loss or a penalty? Genuine pre-estimates of loss are enforceable and will be the amount paid regardless of

actual loss Penalties are generally unenforceable unless it is lower than actual loss.

2) To determine the above point, apply Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] Is the liquidated damages extravagant and unconscionable in comparison with the

greatest conceivable loss? If yes, likely penalty. Is there a single lump sum payable on the occurrence of one or more breaches, of which

some are serious and others trifling? If yes, likely penalty. Exact description of clause as LDC or penalty relevant, but not conclusive

How to deal with equitable remedies?Remedies would only be considered when monetary compensation in the form of damages are inadequate. (Super rare, unlikely to come out) (pg 213)

Even if it is available, it is not a matter of right. It is still up to the judge.

To ask for remedies, you must have “clean hands” ie the idea is you cannot ask the judge to use the remedies in your favour if you yourself have been acting inequitably

2 main types, specific performance and injunction

Specific performance (pg 214)

It is an order of court requiring a party to perform his obligations as specified in the contract.

Usually for contracts involving land, rare or unique items etc.

Injunction (pg 215)

It is an order of court requiring a party to abide by a negative covenant in a contract. (Agreement not to do something).

1) Prohibitory injunction => Preventive. Seeks to restrain a person from conduct which he has agreed not to do.

2) Mandatory injunction => Restorative. Compels action to restore a breach of covenant which has already occurred.

*Different from specific performance which is ordered to enforce a positive obligation which has yet to be performed.