Contract Law

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Transcript of Contract Law

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CAP 5Bizlaw Templates

CAP 5Bizlaw Templates

Essentials of Contract

This question deals with essentials of a contract. In order for a contract to be enforceable in law, there must be four elements present. They are: (1) Offer; (2) Acceptance; (3) Consideration; and (4) Intention to create legal relations. If any of those four elements are missing, there will not be a valid contract.

OfferIn Preston Corpn Sdn Bhd v Edward Leong (1982), an offer was defined as an intimation of willingness by an offeror to enter into a legally binding contract and is expressly or impliedly indicated that it is to be binding on the offeror as soon as it has been accepted by the offeree.

This is opposed to an Invitation To Treat (ITT). ITT is an offer to negotiate or an offer to receive offers, and is not an indication by the offeror that he is willing to be bound should the other party be interested in proceeding further. Page 24

For example, the case of Pharmaceutical Society of Great Britain v Boots Cash Chemicals (1952) provides that the display of goods is merely an ITT, and not an offer. Thus if there is a mistake in the displayed price, the cashier can refuse the offer at that price and instead make a new quote. Also, if display of goods is considered an offer, seller might not be able to state that the goods have been reserved.

Also, in Patridge v Crittenden (1968), it was held that an advertisement is an ITT. Following this it can be generally stated that advertisements, catalogues and menus would generally only amount to ITTs as it would be unreasonable to expect the advertiser to always have sufficient stocks of the items advertised. See Carlill v Carbolic Smoke Ball Co (1892) for an exception in the case of unilateral contracts. Page 26

An offer may be terminated by revocation, lapse of time, when the offer is subject to an unsatisfied condition, death of the offeror, and rejection.

For a revocation to be valid, it must be made before acceptance by the offeree, as provided by Byrne v Van Tienhoven (1880). If revocation is made by post, it is only valid upon receipt.

An offer is also terminated upon rejection by the offeree. It must be noted that if the offeree makes a counter-offer, that is an offer which is inconsistent with the original offer as new terms are introduced, the counter-offer has the effect of rejecting the original offer, as provided by Hyde v Wrench (1840). However, if the offeree is not making a counter-offer but just asking for more information, he is not rejecting the original offer and hence the original offer is still valid. Hence, whether or not there is a counter-offer is a question of fact for the court to decide.

Apply the law...any offer? Any counter-offer?

Acceptance

The next requirement would be an acceptance of the offer. Valid acceptance must be communicated properly. For communication of acceptance via post, the Postal Acceptance Rule, as provided by Adams v Lindsall (1818), applies in Singapore. It states that acceptance is effective when the letter is posted, unless the contract provides for otherwise. Page 33

It must also be noted that in order for both offer and acceptance to be valid, all essential terms must be agreed upon, as mentioned in Scammell v Ouston 1941). Page 36

Apply the law...was there a valid acceptance? For there to be an offer and acceptance, there must be a meeting of the minds and a reasonable person would have/would not have construed XXX to be an acceptance of the offer.

Consideration

The next essential of a valid contract would be consideration, unless the contract is by seal or deed. Consideration must move from the promisee, but need not move to the promisor. Consideration must be sufficient, but need not be adequate. The court will not help one out of a bad bargain. Whether or not consideration is sufficient depends on several points. Page 37

For example, if one party is already under public duty to perform what he subsequently agrees to do by contract, consideration will be insufficient, as stated in Collins v Godfroy (1831). Or, where one party is under existing contractual obligation to another to perform something, but thereafter that party demands more to perform the very same obligation, there will be no fresh or further consideration, and hence is insufficient, as stated in Stilk v Myrick (1809) (see variations to contract).

Apply the law...was there valid consideration?

Intention to Create Legal RelationsFinally, there must be intention to create legal relations. In domestic situations, it is presumed that there are no intentions to create legal relations, as in Balfour v Balfour (1919).

However, Merritt v Merritt (1970) rebuts this and provides that if it was envisaged from the beginning that should something go wrong, parties to the agreement would seek legal redress, and then there would be an intention to create legal relations. In this case, the parties were not on good terms and hence had intent to create legal relations.

Variation of ContractThere are four ways for any variations of a contract to be valid. They are:1. Fresh consideration2. Variation made by way of seal or deed, 3. Williams v Roffey exception, 4. Promissory estoppel.If there is fresh consideration for the variation, the variation will be valid, as both parties get something in return for agreeing to the change.The Williams v Roffey exception provides that when party A promises to pay more to party B in return for the proper completion of the contract, and in doing so, receives a benefit or obviates a disbenefit, and this promise is not given as a result of economic duress or fraud by party B, then the benefit or avoidance of disbenefit is capable of consideration, and the promise is legally binding. Page 45

Apply the law...

Promissory estoppel is generally used as a defence to a variation of a contract. Elements of Promissory Estoppel:1. Clear representation2. Representee suffered a detriment3. Detriment must be suffered in reliance of the representation4. It must be inequitable for the representor to insist on his legal rights

Party X had relied on the promise of party Y and it would be unfair for Y to renege on the terms

Termination of Contract

This question deals with contract law. There are four ways a contract can be terminated. They are: performance; agreement; repudiatory or fundamental breach; and frustration.

PerformanceGenerally, payment is conditional upon complete performance as in Cutter v Powell (1795), unless the following exceptions are applicable:

(1) There is substantial performance, as provided in Hoenig v Isaacs (1952) Whether or not there is substantial performance is a question of fact for the court to decide. Page 104

(2) The contract is divisible such that payment is made after completion of each stage.

(3) If one party has begun performing his obligations, but has been prevented by the other party from completing the contract, he may be entitled to payment on a quantum meruit basis, as provided in Planche v Colburn (1831).

(4) If one party has not completed his obligations, but the other party accepts the incomplete performance, then payment may be entitled on a quantum meruit basis. However, if the party has no choice but to accept the incomplete performance, then there is no acceptance, as provided by Sumpter v Hedges (1831).

AgreementA contract can also be terminated if both parties agree to its termination, subject to conditions provided by the contract.

Repudiatory or Fundamental Breach

The next way in which a contract may be terminated is by repudiatory or fundamental breach. Repudiation occurs when one party intimates to another that he no longer intends to be bound by the contract, and can be anticipatory or actual. A fundamental breach occurs when one party without repudiating the contract, commits a fundamental breach of the contact. However, the innocent party has the option to keep the contract alive and not terminate it, but he will be subject to all ensuing consequences Page 108

FrustrationFinally, a contract can be terminated by frustration. Frustration is the occurrence of an unexpected event beyond the control of the parties which makes further performance of the contract illegal, impossible, or radically different from what was originally envisaged by the parties. When frustrated, both parties are relieved from their contractual obligations. Page 111

For example, impossibility may arise if the contract states that it must be fulfilled in a particular manner and that becomes impossible, as provided by Nicholl & Knight v Ashton Edridge & Co (1901).

If the contract can now only be performed in a way that is radically different from what was originally envisaged by the parties that may result in frustration. Whether or not there is frustration if a particular purpose of the contract is no longer attainable depends on whether that purpose was understood by both parties to be the very basis of the contract, as in Krell v Henry (1903).

It is important to note that labour shortages or price increases do not amount to frustration, as stated in Davis Contractors Ltd v Fareham UDC (1956). Page 113

Also, if the parties foresaw a particular event or could have reasonably foreseen that a particular event would occur and nonetheless decided to go ahead with the contract, and that event occurs, making performance impossible, the doctrine of frustration would not apply. Page 114

In addition, frustration cannot be successfully raised if it is self-induced, as provided in Maritime National Fish Ltd v Ocean Trawlers (1935).

A force majeure clause can widen or narrow down what amounts