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1. Answer all questions according to the study guide and cite laws or status based on study guide

2.  Remember to cite relevant case law and/or statute 

3. Plagiarism check MUST BE DONE


Commercial Law Assignment 1

Section A: FOUR (4) Short Answer Questions (40 marks).

Instructions: Questions 1 to 4 are short answer questions.

Answer all FOUR (4) questions. Each question carries TEN (10) marks.

Please cite relevant case law and/or statute.


Question 1

JC loves movies. He has a huge DVD collection in his home and displays them in glass cabinets in his living room. One day, the police show up at his home and arrest him for “selling DVDs without a licence”.

Advise JC of the validity of the charges.


Question 2

When British businessman Manfred Lewis travels to Singapore for business, he always stays at the same hotel, The Class Holiday Hotel. There is an exemption clause notice in the rooms suggesting that the management is not liable for any loss of valuables.

Having stayed in the hotel in the past, suggest if the notice would be binding on Manfred should he stay in the hotel again.


Question 3

Toh & Sons, an SME in Singapore, wanted to revise the employment contract terms for all their employees. They sent out a memo to all staff saying that their employment contracts have been amended, and that the company has taken it that all staff have agreed and are bound by the new terms.

Briefly suggest if the company can adopt such an approach with regards to unilaterally amending its employees’ contract terms.


Question 4

When a company is formed, it is said to be distinct and separate from the member who set up this company.

Briefly explain the “veil of incorporation” of a company.

Section B: TWO (2) Essay Questions (40 marks).

Instructions: Questions 5 and 6 are essay questions.

Answer BOTH questions.

Each question carries TWENTY (20) marks.

Please cite relevant case law and/or statute.


Question 5

Chuck advertised his BMW car for sale at $200,000 cash. Charles came to accept the offer, but told Chuck he could only pay $100,000 cash and promised to pay the remaining $100,000 in two installments. Chuck said nothing.

Shortly after, Don came to view the car, and told Chuck that if he (Don) hears no more from Chuck by the next day, he will consider the car as his for $140,000. Again, Chuck remained silent.

Later that the evening, Eric came to view the car and told Chuck that $200,000 was “rather expensive”. He asked if Chuck would accept $120,000 cash. Chuck rejected this.

The next day, Fred came to view the car and after some discussion, agreed to Chuck’s price of $200,000. Chuck sold the BMW car to Fred for $200,000.

Charles, Don and Eric each believe they have a legally binding contract with Chuck, and as such are now contemplating legal action against him for “breach of contract”.

Required: Advise the parties of their legal positions with regards to contract law.


Question 6

Richard entered into negotiations with Jasmine, a property agent, for the purchase of a five-room re-sale flat in the Redhill area.

Richard told Jasmine that the flat he wished to purchase must be free of any adverse incident in its history. In other words, nothing terrible must have happened inside the flat. Richard explained that his wife was very superstitious over such matters.

Two weeks later, Jasmine chanced upon a seller of a five-room flat in the Redhill area who wished to sell his flat due to a murder that occurred in that flat when it was rented out to foreign workers. Believing that Richard would never know the truth behind the flat’s history, Jasmine took it upon herself to make false representations to Richard in an effort to get the flat sold to him and thereby earn her commission.

Jasmine then told Richard that she had found a flat for him. After viewing the flat, Richard again stipulated his condition that nothing out of the ordinary should have happened in the flat. Jasmine assured him that no such incident had occurred, stating that the current owners were selling the flat because they were emigrating to Australia.

After buying the flat and moving in, Richard’s neighbour told him that the former occupants of flat were two China nationals who were renting it while working in Singapore and that one day, during a drinking session, one killed the other in the flat. The previous owner, said the neighbour, felt that the flat carried a bad omen now and decided to sell it off. Adding further, the neighbour said he was surprised that Richard did not know this before buying the flat.

Required: Enraged, Richard now intends to rescind the contract. Discuss the grounds upon which the contract for the sale of flat could be rescinded.

Study Guide

HIGHER EDUCATION HIGHER EDUCATION

ACADEMY INSTITUTE

Diploma Programme

Commercial Law
v2.0

Copyright © 2021 Kaplan Singapore. All rights reserved.
i

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Kaplan Desired Graduate Attributes

Through the reading of this module, Kaplan
Singapore intends to:

• Instill in students the value of lifelong and self-
directed learning by stimulating intellectual
curiosity, creative and critical thinking and an
awareness of cultural diversity;

• Assist students in developing professional
attributes, ethical values, social skills and
strategies that will nurture success in both their
professional and personal lives;

• Foster integrity, commitment, responsibility and a
sense of service to the community;

• Prepare students to meet the ever-changing
needs of their communities both now and in the
future; and

• Promote innovative and effective teaching.

Culminating from these institutional values and
educational goals, Kaplan Singapore’s Desired
Graduate Attributes are:

Inquiry and criticality: Graduates will be able to
critically collect, evaluate and apply information and
data in order to make decisions in a wide variety of
professional situations. This attribute is demonstrated
when students:

• Undertake, evaluate and apply appropriate
research, theories, concepts and tools to
investigate problems and find solutions;

• Exercise critical thinking and independent
judgement to assess situations and determine
solutions; and

• Have an informed respect for the principles,
methods, values and boundaries of their profession
and the capacity to question these.

Ethicality and discernment: Graduates will be able to
assess situations and respond in an ethically, socially
and professionally responsible manner. This attributed
is demonstrated when students:

• Act responsibly, ethically and with integrity in their
profession;

• Hold personal values and beliefs and participate
in the broad discussion of these values and beliefs
while respecting the views of others;

• Understand the broad local and global economic,
political, social and environmental systems and
their impact as appropriate to their discipline and
profession; and

• Acknowledge personal responsibility for their own
judgments and behaviour

Ability to communicate well: Graduates will
recognise the importance and value of communication
in the learning and professional environment. This
attributed is demonstrated when students:

• Create and present knowledge, arguments and
ideas confidently and effectively using a variety of
methods and technologies;

• Recognise the wide range of possible audiences
for information and respond with communication
strategies appropriate to those audiences; and

• Work collaboratively with people from diverse
backgrounds and be aware of the different roles
of team members and to function within that team.

Independent and reflective practitioner
• Graduates will be able to work independently and

be self-directed learners with the capacity and
motivation for continued professional learning and
development; and

• They will be able to critically reflect on their own
practice and evaluate and understand current
capacity and further development needs

Embedded within the desired graduate attributes are
the following skills:
• Conduct research.
• Analyse, organise and present data and

information.
• Think and read critically.
• Make an oral presentation.
• Intellectual curiosity and awareness of culture and

diversity.
• Develop professional ethos and practice that will

foster success in career and life.
• Meet the ever changing needs of communities

now and in the future.

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Table of Contents

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Kaplan Desired Graduate Attributes
Table of Contents
About this module
Instructions to Students
Scheme of Work
Assessment Matters

Topic 1
Introduction to Law

Topic 2
The Law of Contract: Offer & Acceptance

Topic 3
The Law of Contract: Consideration & Intention to Create Legal Relations

Topic 4
Terms of a Contract

Topic 5
Exemption Clauses

Topic 6
Factors Vitiating a Contract

Topic 7
Discharge of Contract & Remedies for Breach of Contract

Topic 8
The Law of Tort

Topic 9
Sale of Goods

Topic 10
Business Organisations 101

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About this module

Commercial law is the body of law that governs the
broad areas of business, consumer transactions,
and commerce. The application of commercial law
has developed a specific set of laws that apply to
commercial activities, pursuits, and transactions.
All businesses use commercial law to create
wealth, and to identify and mitigate risks.

Included in the discussions are the Law of Torts,
essential in understanding non-contractual
obligations of individuals and organisations;
the Sales of Goods transactions, an important
facet in mercantile transactions; and Business
Organisations, the legal entities that exist to
facilitate business.

This broad study in commercial law will equip
the student with a comprehensive understanding
of the laws, i.e. rights and obligations, central to
consumer and business transactions, so vital to
the success of any thriving economy.

Module Learning Outcomes

Upon successful completion of this module, the
student should be able to:

• Describe the sources of law.

• Explain the elements necessary to create a
legally-binding contract.

• Evaluate the importance of terms of a
contract.

• Navigate through the factors that could
render a contract void or voidable.

• Distinguish between a breach of contract
and frustration of contract.

• Appreciate the various remedies available in
a breach of contract.

• Demonstrate an understanding of tort law
and its effects on business.

• Address the legalities involved in sale of
goods transactions.

• Understand and compare the various
business entities in Singapore.

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Activity Sheets

It is imperative that you sincerely attempt all the
activities in class and document your responses
faithfully. These activity sheets are specially
designed to scaffold your learning; working
through the tasks is an integral part of
developing the desired skills.

Also, by making your thinking visible through the
activity sheets, it is then possible for your lecturer
to provide you with growth producing feedback
so that you may improve your performance or
have your doubts clarified.

Instructions to Students

How to use this study guide

This study guide consists of written notes that
form the main treatise of the subject matter of
this module. You are strongly advised to study
these notes carefully and thoroughly, as well
as, examine the sources that have been cited.

Written quiz and examination will not test beyond
the scope of the contents found in the study guide.
However, in order to fully address the
assessment requirements of the assignment, you
will need to research beyond the confines of the
study guide. Nevertheless, the materials herein
are still a sound basis from which to build the
assignment.

Further supporting materials

The study guide is supplemented by the following:

• Reproduced PowerPoint slides used by the
lecturers

• Activity sheets

PowerPoint Slides

The PowerPoint slides are meant for the lecturers
to signpost the flow of the lesson and for you to
have a visual focus when in class. Outside of
class, they can also serve to help you recall the
activities that took place during the respective
lessons so that you might be reminded of key
learning points.

However, the PowerPoint slides must NOT
replace the need for you to read the written
notes in the study guide. The slides alone are
INSUFFICIENT for you to gain the necessary
understanding of the subject matter. As such,
they will NOT prepare you adequately for the
various summative assessment components.

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Overview of Learning Resources

Recommended Reading:

Other Suggested Reading:

Other Sources:
See Proquest and Newslink databases linked to
your Elearn LMS homepage. The National Library
Board on North Bridge Road (databases are for
Singaporean/PR only).

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Scheme of Work

SESSION
TOPICS

FT PT
1 1 Topic 01 Introduction to Law

2 Topic 02 The Law of Contract: Offer & Acceptance

3 2 Topic 03 The Law of Contract: Consideration & Intention to Create Legal
Relations

4 Topic 04 Terms of a Contract

5 3 Topic 05 Exemption Clauses

6 Recap of Topics 1-5
Discussion of Assignment Brief

7 4 Topic 06 Factors Vitiating a Contract (part 1)

8 Topic 06 Factors Vitiating a Contract (part 2)

9 5 Topic 07 Discharge of Contract & Remedies for Breach of Contract (part 1)

10 Topic 07 Discharge of Contract & Remedies for Breach of Contract (part 2)

11 6 Topic 08 The Law of Tort (part 1)

12 Topic 08 The Law of Tort (part 2)

13 7 Topic 09 Sale of Goods

14 Topic 10 Business Organisations

Recap of Topics 6-10

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Assessment Matters

Assessment Overview

Assessment 1: Continuous Assessment
(Quiz)
Weighting: 20%
Date: To be confirmed
Duration: 10 minutes per quiz
Test Format: 5 MCQs per topic

Assessment 2: Examination
Weighting: 80%
Duration: 2 hours
Date: To be confirmed
Format: 2 Case Studies

4 Short Answer Questions

Important Policies

Penalties for Plagiarism

Plagiarism in any form is not tolerated by
Kaplan Singapore. That said, direct quotations
and general similarities of common terms and
language mean the E-Learn LMS will often pick
up every small similarity so the likelihood of a
Turnitin Similarity report recording a result of 0%
is unrealistic. After all, no technology is perfect
and there is the need for some direct quotation
(provided you reference using APA guidelines,
of course) and to use commonly accepted terms
and language.

TOP TIP:
The surest way to succeed is to ensure all work
is correctly referenced. Keep a copy of the
Kaplan Singapore Academic Works and
APA Guide handy when you are typing your
assignments and use it to guide you as to
correct referencing, citation and other aspects of
academic writing.

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Penalties for late submissions

Kaplan Singapore prepares students for the
realities of the workforce and further education by
requiring students to meet deadlines and submit
all work on time. As such, students are required
to seek approval and penalties will be imposed
on late assignment submissions in accordance
with the table below and cited in the Programme
Handbook:

No of days late Penalty
1 – 5 days 10% deduction per day from the

marks attained by students.
After 5 days Assignments that are submitted

more than 5 days after the due
date will not be accepted and it
will be deemed as “No Submis-
sion”. Student will be required to
re-module.

Assignments and Kaplan Learning Management
System

Kaplan Singapore School of Diploma
Studies requires you to submit Assignments
through the Learning Management System (E-
Learn LMS). When submitted, your
assignment is checked for plagiarism by
software called Turnitin linked to the E-Learn
LMS. The software is intended to provide one
more tool to improve the quality of academic
writing and as such will be compulsory for use.
It is important to note that this is merely one of
many tools available to you and that final
decisions about the quality of your work rest with
your lecturer.

Assigment Submission: How to Use E-Learn
LMS for Assignment Submission

1. You will be enrolled by the School of
Diploma Studies Programme Management
into the E-Learn LMS system only after your
fee payment is confirmed.

2. You will be sent your USER NAME and
PASSWORD via email.

3. Reset your password as prompted.
4. Enter the site at the following address:

https://elearn-diploma.kaplan.com.sg
5. To submit assignment please refer to the

LMS Manual

Please refer to your Student Handbook for more
details on Penalties for Plagiarism, Misconduct,
Examinations Rules and Regulations. Should
you have any queries, please contact
[email protected]

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Topic 1
Introduction to Computers

Topic 2
Cache Memory

Topic 3
Internal Memory

Topic 4
External Memory

Topic 5
Number Systems

Topic 6
Matrices

Topic 7
Introduction to Problem Solving

Topic 8
MATLAB Environment

Topic 9
MATLAB Functions

Topic 10
Control Structures

Topic 11
Control Structures

Topic 12
Plotting

Topic 13
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Study Guide

Topic 1 – Introduction To Law

What is Law?

Law is a system of rules, usually enforced through a set of institutions. Law regulates the

behaviour of individuals, and well as offers rules and regulations that govern all organisations.

It shapes politics, economics and society in numerous ways, and serves as the foremost social

mediator in the relationships between all parties in a country. (The word “parties” is generally

a term used in law to describe either a person or an organisation. Therefore, it is not

uncommon to hear of term “parties to a contract” or “parties in a dispute”.)

It is therefore no surprise to anyone that law governs a wide variety of social activities. For

example, contract law regulates all commercial transactions such as buying a bus ticket or a

meal to entering in an employment contract or cell phone contract. All these are legally-binding

contracts. Another example would be property law, which defines rights and obligations

related to the transfer and title of real estate between parties. There is also tort law, which

protects the rights of parties even in the absence of any contract, and which allows a claim for

compensation should a party’s rights be violated by another.

Laws are grouped into “public law” and “private law”. Public law governs the relationship

between individuals and the state. Falling into this category are constitutional law,

administrative law and criminal law. Private law governs the relationships between individuals,

such as the law of contracts and the law of tort.

Commercial law (also known as business law) is the body of law which governs businesses

and commercial transactions. It is often considered to be a branch of civil law and deals both

with issues of private law and public law.

What do we need law?

Laws are very important for human beings to live a dignified and secured lifestyle. Laws

generally provide us a sense of security. A society lives in comfort knowing that there are

laws to keep them safe, that their rights are protected, as well as ensure that legally-binding

contracts are observed by all parties.

Laws also serve as deterrence for those who would commit crimes. For example, murderers,

thieves, and others with no moral code to live by must be deterred from harming others. If

we did not have laws, chaos would prevail.

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The rule of law

The Rule of Law, in its most basic form, is the principle that no one is above the law. Most

legal systems are based on this principle. It provides that governments and individuals can

only act in accordance with publicly-known laws. These laws must be adopted and enforced

in a manner that is consistent with established conventions, traditions and procedures.

It has been said that the Rule of Law cannot exist without a transparent legal system; the

main components being a clear set of laws that are freely and easily accessible to all, strong

enforcement structures, and an independent judiciary to protect citizens against the arbitrary

use of power by the state, individuals or any other organisation.

Categories of law

Law can be divided into civil law and criminal law.

• Civil law

Civil Law deals with legal relationship between private individuals (commercial or

personal injury disputes, for example). Typically, one-person (the plaintiff) will claim

that the other person’s (the defendant) actions caused him/her harm, and file a civil

suit against that person seeking compensation (i.e. damages) for that harm caused.

• Criminal law

Criminal Law is designed to prevent citizens from deliberately harming each other and

involves actions that have been declared illegal by the state (murder, theft, assault,

etc.). In a criminal case, the State (represented by the Public Prosecutor) brings a

defendant (who is accused of having committed an offence) to trial, and a guilty verdict

usually results in imprisonment, a fine, or both.

Sources of Law

Before engaging in the discussion on the sources of laws in Singapore, we need to briefly

examine Singapore’s history.

Modern Singapore was founded by Sir Stamford Raffles in 1819. It immediately served as a

trading post of the British Empire. In 1867, the colonies in Southeast Asia were reorganised

and Singapore came under the direct control of Britain as part of the Straits Settlements.

During World War II, the country was occupied by Japan, but returned to British control as a

separate crown colony following Japan’s defeat and surrender in 1945. Self-governance was

obtained in 1959 and in 1963, Singapore became part of the new federation of Malaysia, which

included Malaya, North Borneo and Sarawak. Singapore was expelled from the federation two

years later (due to ideological differences) and became an independent country.

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As a former British colony, the legal system in Singapore is based on the English common

law. There are (generally) four sources of law in Singapore: the constitution, legislation,

subsidiary legislation and legal decisions made by judges.

• The Constitution

The Constitution enshrines the fundamental rights of the individual. It also comprises

the fundamental principles and basic framework for the three organs of state – the

Executive (which consists of the President, Prime Minister and other ministers

responsible for government affairs and accountable to the Parliament), the Legislature

(which consists of the President and Parliament with its legislative authority

responsible for enacting legislation) and the Judiciary (the various courts of law which

operate independent of the Executive and Legislature).

• Legislation

Legislation or statutory laws are written laws enacted by the Singapore Parliament or

other bodies that had power to pass such laws in the past in Singapore. These are

called statutes.

o Statutes

A statute is a formal written enactment of a country’s parliament. Typically, statutes

command or prohibit something, or declare policy.

A statute of the Singapore Parliament begins its life as a Bill. In order for a Bill to

become law, it must go through three readings and it must be passed by a majority

of votes in Parliament. Even after the Third Reading, a Bill does not become law

until it goes the Presidential Council of Minority Rights to ensure that does not

discriminate against any racial or religious minority. The President must also

assent to the Bill and it must be published in the Gazette.

Some examples of Acts are the Sale of Goods Act (Cap 393, 1999 Rev Ed), the

Companies Act (Cap 50, 2006 Rev Ed), and more recently, the Covid-19

(Temporary Measures) Act 2020.

• Subsidiary Legislation

Subsidiary legislation or delegated legislation refers to written law made by ministers,

government agencies or statutory boards under the authority of a statute (often called

its “Parent Act”) or other lawful authority, and not directly by Parliament.

Delegated legislation frees up members of parliament to deal with broad issues of

policy, leaving it to the experts to fill in the gaps. There are various review and scrutiny

committees attached to parliament to examine delegated legislation to make sure that

it doesn’t go beyond the authority given under the enabling legislation.

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Some examples of subsidiary legislation are Environmental Public Health (Public

Cleansing) Regulations made under the Environmental Public Health Act (Cap. 95,

2002 Rev. Ed.) and Rapid Transit Systems Regulations (Cap. 263A, 1997 Rev. Ed.).

• Judge-made Law (Common Law)

More traditionally called “common law”, judge-made law refers to court judgments

which are considered a source of law. Such a court judgement is called a “judicial

precedent”. Judicial precedents derive their force from the doctrine of stare decisis,

also known as the doctrine of binding precedent. According to this doctrine, the

decisions of higher courts are (generally) binding on lower courts and courts at the

same level when cases come before these courts with similar facts. Thus, judgments

of the Court of Appeal are binding on the High Court, and judgments of both of these

superior courts are binding on State Courts.

According to the doctrine of stare decisis, only the ratio decidendi (that is, the legal

principle that determines the outcome) of a case is binding. Other principles expressed

during proceedings in court, such as the obiter dicta (a judge’s expression of opinion

uttered in court or in a written judgement, but not essential to the decision) are not

binding.

For example, in Pharmaceutical Society of Great Britain v Boots Cash Chemicals

(1952), where a pharmacy – whose medicines were displayed on shelves – was

accused of offering to sell medicines without a prescription. The court held that goods

placed on shop shelves constituted an invitation to treat, not an offer. An invitation to

treat is where a shop (business) invites customers to make an offer to buy, which may

be accepted or rejected by the shop. Therefore, no offence was committed by the

pharmacy.

This decision, the judicial precedent, was followed in the case of Fisher v Bell (1961)

where the court held that a display of an offensive weapon (flick knife) did not

constitute an offer for sale but was merely an invitation to treat.

Statutory Interpretation

Statutory Interpretation is the process by which judges are called to interpret the Acts of

Parliament (statutes). When interpreting a statute, the judges seek to determine the intention

of parliament, or the reason for parliament passing the law. Sometimes the words of a statute

have a plain and straightforward meaning, which allows for the statute to be interpreted easily.

But in most cases, however, there is some ambiguity; i.e. the statute can be interpreted in

more than one way, or the statute is vague and unclear. Under such a circumstance, the judge

will have to decide on the meaning of the statute or the intention of parliament, and this is

done by applying the facts of relevant cases to the relevant statute. An example of where the

language was unclear can be seen in the case of Twining v Myers (1982), where the court

has to decide whether roller skates amounted to a “vehicle” within the meaning of the relevant

statute.

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So, the problems with interpreting statues is that judges have to decide what parliament meant

by a particular piece of legislation, and they do this by generally applying certain rules or

canons. These canons are not hard and fast rules but a mixture of common-sense

presumptions about the law, as well as legal techniques in giving full effect to the words under

consideration. The four general approaches are:

1) The Literal Rule

This approach assumes that the intention of Parliament can be found in the statute itself

in that the words are read in their plain and ordinary meaning. However, when there is

ambiguity, adoption of this rule may lead to absurd results, i.e. the sale and/or purchase

of drugs are illegal in Singapore (absurdity; prescription drugs are not illegal). Thus, only

where the words clearly unambiguously state the intention of Parliament can the Literal

Rule be used.

2) The Golden Rule

The general principal underlying the Golden Rule is that a statute must be construed to

avoid manifest absurdity or contradiction with itself. See the case below.

In re Sigsworth (1935)

The Golden Rule was applied to prevent a murderer from inheriting an estate on the intestacy

of his victim although he was (as her son) her only heir (Literal Rule here clearly could not be

applied).

3) The Mischief Rule (also known as the Purposive Approach)

Known sometimes as the Rule in Heydon’s Case (1584), the Mischief Rule considers the

state of the law before the enactment (statute) in question and the “mischief” (or defect)

which Parliament intended to cure with the enactment or amendment. See the case below.

In Gardiner v Sevenoaks (1950)

The purpose of the Act was to provide for the safe storage of inflammable material wherever

it might be stored on “premises”. Notice was served on the Plaintiff who stored such material

in a cave to comply with safety rules. The Plaintiff argued that “premises” did not include a

cave. The court, in applying the Mischief Rule held that “premises” included the cave,

considering the intention of the Act (enactment).

The canons are not used exclusively. No judge will adopt one particular approach. Depending

on the facts of the case before him and the words with which he has to interpret, the judge

may adopt on or a combination of the three canons.

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The canons include the following rules (or maxims of interpretation) which assist the courts in

determining the meaning of particular words. These are:

The Ejusdem Generic Rule: Where specific words are followed by general words, it will be

presumed that the general words cover only the same kinds of things specifically mentioned.

For example, “traffic signs and other devices” were held in Evans v Cross (1938) to mean all

signals, warning sign posts, direction posts and not the white line on the road since all the

specific devices referred to were more in the nature of signs seen at eye level or higher.

The Noscitur a Sociis rule: Doubtful words are interpreted by looking at the other words which

they are associated with. For example: “public places” will take on a different meaning when

read with “parks and recreational spaces” than “government buildings.

The Expressio unius est exclusion alterius rule: An express mention of one thing impliedly

excludes anything else. So, a statutory rule on domestic animals would exclude wild animals

and other sea wild life.

The Court System in Singapore

The Chief Justice, who is appointed by the President, is the head of the Judiciary.

The Judiciary is made up of the Supreme Court and the State Courts.

The Supreme Court hears both civil and criminal matters and is separated into the Court of

Appeal and the High Court.

The State Courts consist of District Courts and the Magistrates’ Courts.

A Senior District Judge overlooks the State Courts.

The Supreme Court

▪ The Court of Appeal

As its name suggests, the Court of Appeal hears appeals from the decisions of the High

Court in both civil and criminal matters. It is the Chief Justice and Judges of Appeal who

sit in the Court of Appeal. The Court of Appeal is usually made up of three judges (the

Chief Justice and two Judges of Appeal). However, on certain occasions there may be

less than or more than three judges.

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▪ The High Court

It is the Chief Justice and Judges of the High Court (which can in certain instances

include a Judge of Appeal or subject matter experts to provide assistance in certain

cases) who comprise the High Court. Normally all proceedings are heard before a

single judge.

The High Court hears both criminal and civil cases, as well as appeals from the

decisions of District Courts and Magistrates’ Courts. In addition, it hears proceedings

concerning admiralty matters, company winding-up, bankruptcy and applications for the

admission of advocates and solicitors.

The High Court has general supervisory and revisionary jurisdiction over all State

Courts in any civil or criminal matter. In general, the High Court deals with matters

where the value of the subject matter of the claim exceeds $250,000. It has jurisdiction

to try all offences committed in Singapore and in certain cases, try offences committed

outside Singapore as well. The High Court tries criminal cases whose punishment

involves the death penalty or more than 10 years of imprisonment.

The Singapore International Commercial Court (SICC) is a division of the High

Court designed to deal with transnational commercial disputes. Established on 5

January 2015, this court has the jurisdiction to hear and try an action if:

o the claim in the action is of an international and commercial nature;

o the parties to the action have submitted to the SICC’s jurisdiction under a

written jurisdiction agreement; and

o the parties to the action do not seek any relief in the form of, or connected with,

a prerogative order (including a mandatory order, a prohibiting order, a

quashing order or an order for review of detention).

The SICC may also hear cases which are transferred from the High Court.

The State Courts

Originally called the Subordinate Courts, they were renamed “State Courts” on 7 March 2014.

The State Courts comprise the District and Magistrate Courts — both of which oversee civil

and criminal matters that do not fall under the jurisdiction of the Supreme Court. Over 90% of

all judicial cases in Singapore are heard in the State Courts.

District judges and magistrates are appointed by the President of the Republic of Singapore

upon the recommendation of the Chief Justice.

Appeals against decisions in the State Courts are made to the Supreme Court.

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• District Court

Civil cases involving claims of between $60,000 and $250,000, or up to $500,000 for

road traffic accident claims or claims for personal injuries arising out of industrial

accidents. For criminal matters, the District Court hear cases where the maximum

imprisonment term does not exceed 10 years, or which are punishable with a fine only.

• Magistrates Courts

Civil cases involving claims not exceeding $60,000 are dealt with by the Magistrates

Court. For criminal matters, Magistrates’ Courts hear cases where the maximum

imprisonment term does not exceed 5 years, or which are punishable with a fine only.

• Specialised Courts

Apart from the District and Magistrate Courts, the State Court system has the following

specialised courts:

o Coroner’s Court: This court holds inquiries to ascertain the cause of a

person’s death and determines if anyone is criminally responsible where the

death results from unnatural causes.

o Community Court: This court deal with cases such as offenders with mental

disabilities, animal abusers, and cases that affect race relations.

o Family Justice Courts: These courts, which comprise the Family Division of

the High Court, the Family Courts and the Youth Courts, deal with matters such

as divorce, family violence, adoption and guardianship cases, youth cases and

probate matters.

o Syariah Court: This court administers and resolves marriage and divorce

disputes between parties who have married under the provisions of Muslim

Law.

o Community Justice and Tribunals System: This venue generally hears

matters on employment claims and issues, community disputes, harassment

cases, and small claims.

o Community Disputes Resolution Tribunal: This tribunal hears cases

involving disputes between neighbours.

o Small Claims Tribunal: This tribunal deals with resolution of small claims

between consumers and suppliers, contracts arising from the sale of goods or

provision of services, and lease of residential premises not exceeding 2 years.

o Copyright Tribunal: This tribunal deals with disputes between copyright

owners and the users of that copyrighted material.

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o The Employment Claims Tribunal: This tribunal provides employees and

employers with a speedy and low-cost forum to resolve their salary-related

disputes and wrongful dismissal disputes.

o Traffic Court: As its name suggests, this court hears matters on traffic offences

and related offences.

Methods for Resolving Business Disputes

Going to Court can be an expensive as well as time-consuming process, depending on the

parties’ course of action. We now examine the alternative methods to going to court to resolve

disputes.

The State Courts Centre for Dispute Resolution (SCCDR) was established in March 2015.

This centre employs a judge-led Court Dispute Resolution (CDR) process to ensure that cases

in the State Courts are managed effectively. It also conducts mediation, neutral evaluation,

conciliation and arbitration to facilitate the resolution of civil matters without the need for a

trial. These methods are also less costly methods of resolving disputes. These methods,

however, do not apply to criminal cases.

• Mediation is a structured, interactive process where an impartial third-party will assist

disputing parties in resolving conflict through the use of specialized communication

and negotiation techniques. All participants in mediation are encouraged to actively

participate in the process. Mediation is a “party-centred” process in that it is focused

primarily upon the needs, rights, and interests of the parties.

• Neutral Evaluation is conducted by an unbiased third party, such as a former judge

or senior counsel, known as an “evaluator” who will review the case and provide an

early assessment of the merits of the case. The parties, with their respective lawyers,

will present their case and the key evidence to this evaluator, who will then provide his

best estimate of the parties’ likelihood of success at trial.

• Conciliation is a court dispute resolution process for parties in a case to resolve their

dispute without going for a trial in Court. It allows each party to seek guidance from the

Judge during the conciliation session to come up with an optimal settlement for all

parties.

• Arbitration is a process where parties agree to resolve the dispute by bringing the

matter before a neutral third party, i.e. an arbitrator, for decision. During an arbitration

hearing, both parties, with their respective lawyers, will present their case to the

arbitrator, who, after hearing all the parties, will come to a decision. This decision by

the arbitrator is legally binding even if one or both of the parties does not agree with it.

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Enforcement of Court Judgments and Orders in Singapore

After winning a lawsuit in one of the courts mentioned above, the party who wins the case is

known as the “judgment creditor”, and the party who loses is called the “judgement debtor”.

The judgment creditor must enforce his court judgment or order in order to obtain the relief

he/she is seeking against the judgment debtor. By not taking action to conduct enforcement,

the court judgment or order will not take effect.

The following are some of the different types of enforcement options available to a judgment

creditor:

• Small Claims Tribunals (SCT) – Order of Tribunal

An order of tribunal obtained from the SCT ordering money payments to be made by

the respondent (or judgment debtor) will generally be coupled with a deadline for

payment. If the respondent does not pay, the judgment creditor will have to take up

separate enforcement proceedings against the judgment debtor.

• Writ of Seizure and Sale

A writ of seizure and sale authorises the bailiff to seize and sell movable property

belonging to the judgment debtor to pay the judgment creditor.

• Writ of Delivery

A writ of delivery is a court order requiring the judgment debtor to deliver movable

property to the judgment creditor to satisfy the judgement debt.

• Garnishee Proceedings

Where a third-party owes money to the judgment debtor (such as an employer), a

garnishee proceeding can be taken out so that the garnishee must pay the money to

the judgment creditor instead of the judgment debtor.

• Committal Order

Where the judgment debtor fails to obey a court order, the judgment creditor can apply

to court to have the judgment debtor sanctioned with fine or imprisonment.

• Bankruptcy and Winding Up Applications

Where the judgment debtor cannot pay the debts owed, the judgment creditor can

apply for bankruptcy or winding up proceedings against the debtor depending on

whether the debtor is an individual or a company.

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General information on Court Procedures

– The person making the claim is the Plaintiff.

– The person being served or against whom the claim is made is the Defendant.

– Depending on the nature and amount of the claim a suit is filed in the appropriate Court.

– If the Defendant wishes to settle the claim and not dispute it, he can contact the Plaintiff or
the Plaintiff’s lawyer for an out-of-court settlement. If not, the Court will set a date to hear
both sides and evaluate all evidence and proof.

– There can still be an out-of-court settlement at this point.

– Once a ruling is made, it is enforceable.

– If the parties refuse to comply, the Court can issue a writ of seizure and sale. This allows
the claiming party to seize the assets and sell them to recover his compensation.

– The Court’s judgment can be contested by making an appeal to the High Court.

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Class Activity

Get into small groups and discuss the following:

1) Discuss the possibility that rights of Singapore citizens, as enshrined in the Constitution

of Singapore can be curtailed or removed.

2) Would you agree that litigation is still the best method of resolving business disputes

in Singapore?

3) Suggest reasons for Specialised Courts.

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Topic 2 – The Law Of Contract: Offer & Acceptance

Introduction

A contract is a legally binding agreement between two or more persons. For example, if you

buy a meal, purchase any goods, buy a house, engage a builder to carry out work on your

house, borrow money, order goods or machinery from a manufacturer, or sign up for a

telephone plan, these are all types of contracts.

The law of contracts is vital to the law which affects consumers. It is a complex area and is

governed both by the general law – that is, laws which have evolved from decisions made

over the years by judges, and laws introduced by the courts and parliament.

Who can make a contract?

Generally, a person is able to make a contract when they reach 18 years of age. However,

there are some circumstances when a person who is younger than 18 will be bound by a

contract into which he or she has entered.

A person who is mentally ill or intellectually disabled at the time may not be bound by a contract

entered into.

What makes a contract?

A contract involves certain basic elements:

• Offer – a willingness by one party to enter into a legal relationship with another party,

• Acceptance (of that offer) – the party to whom the offer is addressed accepts that

offer,

• Consideration – an exchange between the parties of some benefit or something of

value; for example, a party pays a sum of money for goods supplied by another party,

the exchange would be that one party receives the goods while the other receives the

money, and

• An intention to enter into legal relations – that is, the parties intended to enter into

a legally binding agreement (although this is often not specifically stated, it is usually

implied).

All four elements must exist for there to be a legally-binding contract.

Who decides the terms of a contract?

Generally, the terms of a contract are for the parties to decide. However, the law may “imply”

terms into the contract. An example of an implied term is that food sold by a hawker is fit for

human consumption.

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Does a contract have to be in writing?

Generally, contracts do not have to be in writing. A contract can be made in writing (as is usual

in commercial transactions) or it can be verbal (such as ordering food from at a hawker centre).

Are you bound by a clause you did not read?

If you sign a written contract, then generally you are bound by all of its terms even if you did

not read or understand them.

There are various types of contracts which you may come across in everyday life which do

not require your signature, for example, a car park ticket or a dry-cleaning docket which has

clauses printed on the back. Generally, the rule is that you are bound by the clauses if you

have read them or if you knew they were there but did not bother to read them, or if the other

person took reasonable steps to draw them to your attention.

It is important that you read all the terms of a contract before you enter into it, and you should

not sign any document until you are fully aware of what its terms and conditions are and what

they mean.

What happens if the terms of a contract are broken?

Once you make a contract you will be committing a breach of contract if you do not comply

fully with the terms, or if you change your mind and decide not to perform your side of the

contract. If a party breaches a contract, the following remedies are available:

• Damages – monetary compensation payable by the party who broke the contract to

the other party who suffers the breach of contract,

• Specific performance – a court order demanding that the party keeps to the contract,

• Injunction – a court order preventing a party from breaking the contract.

The Offer

In Preston Corporation Sdn Bhd v Edward Leong (1982), an offer was defined as:

“An offer is an intimation of willingness by an offeror to enter into a legally binding

contract. Its terms either expressly or impliedly must indicate that it is to be binding on

the offeror as soon as it has been accepted by the offeree.”

The party making the offer is the offeror, and the party receiving the offer is the offeree.

An offer must be a definite promise to be bound by specific terms, and ascertainable.

An offer cannot be vague. In Gunthing v Lynn (1831), the offeror offered to buy a horse “if

it was lucky”. The court held that such as offer was too vague.

When an offer is made to a party (the offeree) and no one else, only that party can accept the

offer.

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Offers may also be made to the world at large or to a certain group of persons. For example,

if an advertisement is placed in the newspapers offering a reward for the finding and returning

of a lost dog, this is said to amount to an offer made to the world at large. It can be accepted,

and the reward claimed by the person who finds this lost dog. This principle was established

in:

Carlill v Carbolic Smoke Ball Co (1893).

FACTS: Mrs Carlill saw a newspaper ad stating that the manufacturers of a smoke ball

would pay £100 to anybody who bought the smoke ball, used it correctly and still got

the flu. Mrs Carlill bought a smoke ball, used it correctly and still got the flu. Mrs Carlill

wanted to claim the £100, but the company refused to pay claiming the advertisement

was not an offer.

HELD: The court held the wording of the advertisement did amount to an offer, and

that by buying and using the smoke ball, Mrs Carlill had accepted that offer. The

company was made to pay the reward to Mrs Carlill.

Offers must be distinguished from the following:

1) An Invitation to Treat. An offer must be distinguished from an invitation to treat (i.e.

an invitation to make an offer). An invitation to treat is not an offer which is capable of

being turned into a contract by acceptance. An invitation to treat is a mere invitation by

one party to another to make an offer.

Some examples of invitation to treat

• Placing goods in a shop window

• Goods displayed in a catalogue.

• Goods displayed on shelves.

In these situations, it is the customer who must make the offer to buy. The following

cases illustrate the point that an advertisement is not considered an offer.

Pharmaceutical Society of Great Britain v Boots Cash Chemicals (1952)

FACTS: When Boots became a self-service pharmacy, problems arose because of

the need for certain drugs to be sold under a pharmacists’ supervision. If customers

were serving themselves, the question that arose was whether the sale of goods was

unsupervised. The court had to decide at what stage the contract was formed.

HELD: The court held that goods placed on shop shelves constituted an invitation to

treat. The customer was offering to buy the medicine at the checkout at which point

the assistant would accept or reject the customers offer. In this case, there was always

a pharmacist at the checkout, and thereby the pharmacy was not selling medicines

and drugs without a pharmacists’ supervision.

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Similarly, the display of goods with a price tag on the shop window is only an invitation

to treat, or an invitation to make an offer. It is not an offer. In the case of Fisher v Bell

(1961) it was held that a display of an offensive weapon (flick knife) for sale did not

constitute an offer for sale but was merely an invitation to treat.

2) Declaration of Intention. In Harris v Nickerson (1873) it was established that an

advertisement that goods will be put up for auction does not constitute an offer to any

person that the goods will actually be put up, and that the advertiser is, therefore, free

to withdraw the goods from the auction at any time prior to the auction. The court held

that a declaration of intention does not create a binding contract with those who acted

upon it.

So the use of the word ‘offer’ is not conclusive. For example, a prospectus offering to

sell cars or shares in a company is merely an invitation to treat. This would be the

same for auctions (in which the auctioneer is making an invitation to treat, and the

bidder making the offer), as well as tenders (in which companies invite tenders for a

project – the tender is the offer).

3) Provision of Information. In some cases, a communication may not be an offer but

a mere response to a request for information. This principle was established in the

case of Harvey v Facey (1893).

FACTS: Facey (D) was in negotiations with the Mayor and Council of Kingston

regarding the sale of his store. Harvey (P) sent Facey a telegram stating: “Will you sell

us Bumper Hall Pen? Telegraph lowest cash price-answer paid.” On the same day,

Facey sent Harvey a reply by telegram stating: “Lowest price for Bumper Hall Pen

£900.” Harvey sent Facey another telegram agreeing to purchase the property at the

asking price. D refused to sell, and P sued for specific performance and an injunction

to prevent Kingston from taking the property.

HELD: A mere statement of the minimum selling price is an invitation to treat and not

an offer to sell.

Termination of an Offer

An offer may be accepted as long as it is still being made.

The general principle is that an offer cannot be terminated once it has been accepted.

The offer may be terminated in the following manners:

• Lapse of time: An offer may state a specific time for acceptance. Example: “Offer valid

for one month only” and “Offer expires 31 December 2020.” If there is no specific time

mentioned, the law will presume an offer to have lapsed after a reasonable time.

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In Ramsgate Victoria Hotel v Montefiore (1866), the defendant applied for hotel

shares, but the acceptance came only after 5 months. By then the defendant had

already lost interest in the shares. Taken to court by the sellers in question, the court

held that 5 months was not a reasonable time, and therefore the defendant’s offer had

lapsed.

• Counteroffer: Where an offeree makes an alternative offer to the offer made to him,

this amounts to a counter-offer which effectively destroys the original offer. When this

happens, it is now the offeree who is making the offer. (In a sense, counteroffer could

be taken as bargaining, and in most cases, for a lower price.)

In Hyde v Wrench (1840), where in response to an offer to sell a farm at a certain

price, the plaintiff made an offer to buy at a lower price. This offer was refused and

subsequently, the plaintiffs sought to accept the initial offer. The seller refused and the

matter was brought to court. The court held that the seller was not bound to sell the

farm to the plaintiff as the plaintiff’s counteroffer destroyed the seller’s original offer to

sell the farm.

• Death of Offeror: An offer terminates upon the death of the offeror if the offeree has

notice of the offeror’s death. If the offeree has no notice of the offeror’s death, then

whether or not the offer can be accepted would likely depend on the nature of the offer.

If the offer was for a personal service, then the offer “dies” with the offeror; if the offer

related to something tangible, then it is likely that the offer could still be capable of

acceptance.

• Revocation of the Offer by Offeror: An offer may be revoked by the offeror at any

time before acceptance.

In Routledge v Grant (1828) there was an offer made to buy the house, giving the

offeree 6 weeks to accept. However, the offeror withdrew his offer before the 6 weeks.

The court held that the offeror had a right to do so, declaring that an offer was revocable

at any time before acceptance.

However, for revocation to be effective, the following requirements must be met:

o Revocation must be communicated

In Byrne v Van Tienhoven (1880), the defendants made an offer to the plaintiffs

by post. Following this on the 8th of October, they posted a letter revoking the offer.

This letter reached the plaintiffs on the 20th of October. Meanwhile, the plaintiffs

accepted the defendants’ offer on the 11th of October in ignorance of the

revocation.

The court held that revocation was effective only on the 20th of October and, since

by then the plaintiffs had accepted the defendants’ offer, there was a binding

contract.

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o Notice of revocation need not come from the offeror himself

In Dickinson v Dodds (1876), the defendant gave the plaintiff an offer to sell his

house and the offer was to be left open until 9 am on Friday, the 12th of June. On

Thursday, the defendant sold the house to someone else and another person

informed the plaintiff of this sale. Despite this, the plaintiff tried to hand over a

formal letter of acceptance before 9 am on the 12th of June.

The court held that since the plaintiff knew that the defendant had sold the property

to someone else, the offer was withdrawn and could not be accepted.

The Acceptance

An agreement comes into existence when the offer is accepted. However, the acceptance

must be made while the offer is still in force, i.e. before it has lapsed, been revoked or

rejected. And this acceptance must be communicated.

Once acceptance is complete, the offer cannot be revoked; to do so would constitute a breach

of contract.

Principles of Acceptance

• An acceptance of an offer may be express (orally or in writing), or implied by

conduct.

• Acceptance must be positive and not passive. The party accepting the contract must

actively accept an offer. He cannot be deemed to have accepted the offer by his doing

nothing.

In Felthouse v Bindley (1862), the plaintiff offered to buy his nephew’s horse and

stated, “If I hear no more about him, I consider the horse mine” at a certain price. The

nephew made no reply, and the horse was sold to someone else. The plaintiff sued.

The court held the offeror cannot impose silence on the offeree and so there was no

contract. If the rule were otherwise, that could lead to abuse. For instance, a business

could send goods to a person’s home and state in an accompanying document that if

it did not hear from that person in by a specific time, it would take it that the person has

accepted the goods. This is, of course, unacceptable. Therefore, silence can never

be taken to be acceptance.

• Acceptance must be unqualified. An introduction of new terms to the offer amounts

to a counteroffer and consequently a revocation of the original offer.

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In Neale v Merrett (1930), A offered land to B for $280 cash. B paid $80 and offered

to pay the remaining $200 in $50 instalments. When the matter was brought before

the court, the court held that there was no acceptance. The normal terms are that the

entire price is payable as a single sum. Unilaterally deciding to pay by instalments

amounts to a variation of the terms of the original offer, and therefore a

revocation of the offer.

• Acceptance must be communicated. The general rule is that acceptance must

actually be received by the offeror. Generally, to avoid complications, offerors specify

the mode of communications of acceptance required. For example, he may specify

that “written acceptance must be received at his office by 3pm and no later”. This

means that the acceptance must be made in writing, and it must physically reach the

offeror’s office by 3pm; any other form of acceptance or delay would render the

acceptance invalid.

If the acceptance us to be in writing, it must be received by the offeror; if it is to be

orally, it must be heard by the offeror: Entores Ltd v Miles Far East Corp. (1955).

If the offer specifies a method of acceptance (such as by WhatsApp or email),

acceptance must be by that method specified by the offeror. The failure to keep to the

specified method of acceptance would result in no acceptance being offered: Yates

Building Co. Ltd v R.J. Pulleyn & Sons (York) Ltd (1975)

Exceptions to Communication of Acceptance

There are three situations in which acceptance need not be communicated to or

received by the offeror:

o Waiver of Communication

(As seen above) in Carlill v Carbolic Smokeball, the offer was made to the

world at large. Here, communication of acceptance was dispensed with. So

long as someone bought the smokeball, used it according to the directions, he

is deemed to have accepted the offer.

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o Silence

This can only apply where parties have agreed that the offeree’s silence is to

be construed as his acceptance. For this to be effective, both parties must

agree to it. For example, if both parties agree that the offeree will have a

positive obligation to communicate only if he wishes to reject the offer, then

silence would amount to acceptance: Southern Ocean Shipbuilding v

Deutsche Bank AG (1993). Contrast this with Felthouse v Bindley

(discussed earlier). If the offeror, without the consent of the offeree, imposes a

condition that the offeree’s silence would be taken as acceptance, then, such

a condition would not be enforceable.

o The Postal Rule

The Postal Rule (also known as the “mailbox rule” or “deposited acceptance

rule”) provides that the contract is formed when a properly prepaid and properly

addressed letter of acceptance is posted: Adams v Lindsell (1818).

However, care must be taken when applying The Postal Rule. It should be

applied only in circumstances where it is clear that the parties agreed that the

acceptance be sent by post.

In Quenerduaine v Cole (1893) it was held that an offer made by telegram

gives rise to the presumption that a speedy reply is expected, so posting in

such a situation does not attract the application of The Postal Rule.

Electronic Communications of Acceptance

Here we consider acceptance by e-mails or online acceptances. In relation to e-mails or online

acceptances, the question is whether the general rule should apply (i.e. that acceptance must

be received) or the postal rule (i.e. once notification of acceptance is properly posted) should

apply, assuming such issues have not been addressed in the contract. The matter is yet to be

authoritatively settled, and there are arguments going both ways.

In the event that it is held that acceptance is effective upon receipt, the question might also

arise as to what is meant by receipt. In this regard, reference must be made to the Electronic

Transactions Act (Cap 88, 2011 Rev Ed). Under section 13 of the said Act, if the message

is sent to an electronic address that was designated by the addressee, receipt occurs when

the message is capable of being retrieved by that addressee; and where message is sent to

a non-designated electronic address, receipt occurs when the message becomes capable of

being retrieved by the addressee and that addressee becomes aware that the message has

been sent to that address.

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Subject to Contract

It is possible for an agreement to be made “subject to contract”. This phrase simply means

that the offeree is agreeable to the terms of the offer but proposes that the parties negotiate a

formal contract on the basis of the offer.

In Yap Eng Thong v Faber Union (1973), the court found the agreement to sell a house

“subject to contract” was not binding.

And in Chillingworth v Esche (1924), C and D signed an agreement for the purchase of a

house by D “subject to a proper contract” to be prepared by C’s solicitors. A contract was

prepared by C’s solicitors and approved by D’s solicitors, but D refused to sign it. The court

held that there was no contract as the agreement was conditional.

Making negotiations “subject to contract” is a very useful tool to ensure that everyone is only

bound to the contract when they sign the contract and not before.

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Class Activity

Get into small groups and discuss the following:

1) Would you suggest that taxis and buses plying the roads are making an offer, or are

potential commuters making the offer to board these public transport vehicles?

2) Why would you suggest that silence cannot be acceptance?

3) When Horace lost his dog, which wandered off in the neighbourhood, he placed an

advertisement in the newspapers suggesting that if anyone who found his dog and

returned it to him, he would receive a reward of $500. Does this amount to an offer?

How can it be accepted?

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Topic 3 – The Law of Contract: Consideration & Intention to Create Legal
Relations

Introduction

Having understood what constitutes a valid offer, how it is made and how it can be accepted;

the student must now grasp the other two components necessary to form a legally binding

contract – consideration and the intention to create legal relations.

Consideration

Consideration is the third necessary ingredient to form a legally binding agreement – i.e. a

contract.

Consideration is essential for all contracts (except for those under seal, such as a deed;

these are still binding notwithstanding the absence of consideration). Consideration can be

viewed as the exchange between the parties to a contract. For example, if A agrees to sell

his book to B for $50, then consideration for selling that book is $50; so A gets the $50 and B

gets the book (the exchange). In another example, in an employer-employee relationship, the

consideration between these parties is that the employer gets work done by the employee,

and the employee gets a wage (i.e. a salary consideration) in exchange.

In Currie v Misa (1875) consideration was defined as:

“……some right, interest, profit or benefit accruing to one party, or some forbearance,

detriment, loss or responsibility given, suffered or undertaken by the other”.

Further, in Chappell v Nestle (1960), the court held that “a contracting party can stipulate

what consideration he chooses……….”

Types of consideration:

• Executed consideration

An executed consideration is an act done by one party in exchange for a promise

made or an act done by the other. When the act constituting the consideration is

completely performed, the consideration is said to be executed.

For example, where A offers a reward of $500 to anyone who finds and returns his lost

cell phone, his promise becomes binding the moment B performs the act; i.e. finding

and returning the lost cell phone.

It should be noted that in the above example, A is not bound to pay anything to anyone

until that thing he requests is done.

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• Executory consideration

An executory consideration is a promise made by one party in exchange for a promise

made or an act done by the other. Where the consideration is a promise to be

performed in the future, it is executory. A promise is an executory consideration

that something will be done in the future.

An example of this would be where a customer orders goods which a shopkeeper

undertakes to obtain from the manufacturer. The shopkeeper promises to supply the

goods, and the customer promises to accept and pay for them. Neither has done

anything but each has given a promise.

• Past consideration

Past consideration refers to an act performed prior to, and to that extent

independent of, the promises being exchanged. In other words, the action that was

performed was not done in contemplation of, or in response to, a promise given.

Consequently, the general rule is that past consideration is not valid consideration.

The case of Roscorla v Thomas (1842) illustrates this point. At T’s request, R bought

T’s horse for $30. After the sale, T promised R that the horse was “sound and free of

vice”. The horse proved to be vicious. The court held that the defendant’s (T) promise

was made after the transaction had already been concluded and was therefore past

consideration.

Rules of Consideration:

1) Consideration must move from the promise.

(The promisor is the one making the promise; the promisee is the one receiving the

promise.)

The person to whom the promise is made must furnish the consideration. It must

always be remembered that a contract is a bargain. If a person gives no consideration

for a promise, he cannot sue on that promise whether or not he is the person to whom

the promise is made. The case below illustrates this point:

Tweedle v Atkinson (1861)

FACTS: A young couple married, and their fathers subsequently entered into a

contract which provided that each father was to pay a specified sum to the young

husband, Tweedle, and that he would be entitled to sue for the money. The fathers

later died. Tweedle, under the terms of the agreement made between the fathers, sued

the executors for one of the fathers for the money due to him.

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HELD: The court held that Tweedle could not enforce the contract between the two

fathers because a) he was not a party to the contract, and b) no consideration moved

from him.

The rule that consideration must move from the promisee is often associated with the

rule of Privity of Contract. This rule states that unless a person is actually a party to

the contract, he cannot sue.

In Beswick v Beswick (1967), P, a coal merchant, entered into a written agreement

with his nephew, J. Under the terms of the agreement, which was a contract of sale of

P’s business to J, it provided that upon the death of P, J should pay P’s widow an

annuity of $5 per week. P died and J refused to pay her. The widow brought legal

proceedings against the nephew. The court held that she could not enforce the

obligation of J to pay her the annuity because she was not a partly to the contract made

between her husband and his nephew.

New approach to the dilemma in Beswick’s case

This position just described in Beswick and Beswick has changed with the enactment

of the Contracts (Rights of Third Parties) Act 2001. Simply put, the Act allows a third

party (who is not a part of the contract) to enforce the contract if that third party is

named or is reasonably identifiable in that contract.

So, taking the situation in Beswick v Beswick, whereby the only reason why Mr

Beswick and his nephew contracted was for the benefit of Mrs Beswick. Under this

Act, and if the case was before the courts today, Mrs Beswick would be able to enforce

the performance of the contract in her own right. Therefore, the Act realises the

intentions of the parties.

This new approach has been welcomed by many as a relief from the strictness of the

doctrine of privity.

2) Consideration must be sufficient, but it need not be adequate

Consideration is sufficient if it is something that is of economic value such as

money or some other item with a monetary value. So, for example, a promise made

gratuitously, or one made on account of love and affection or out of a moral obligation

is not enforceable as it was given without sufficient consideration.

However, whilst the law requires sufficient consideration, it does not require the

consideration to be adequate. In other words, the law does not require that the

consideration given for a promise measures up, economically or financially, to the

promise given. So, if A offers to sell B a $100 book for $2, the consideration is valid.

The case of Chappell v Nestle (1959) illustrates the point that consideration is

sufficient if it has some value, although it may be nominal.

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There are at least two reasons why the law does not require consideration to be

adequate. The first is that the law would not interfere with the bargain made by the

parties. The fact that one party pays too little or too much in exchange for a promise

is, generally, not a matter of concern to the court. The second is that it is undesirable

for the court to be drawn into such an inquiry as it would mean that the court would

have to develop a system of price control for a whole range of transactions. This is

neither practical nor consistent with its main objective of administering the law.

3) Consideration must be legal

A criminal act is not consideration.

4) Consideration must be certain

Consideration cannot be vague. It must amount to something that is capable of

expression in economic terms.

In White v Bluett (1853), Bluett, when sued by his father’s executors for an outstanding

debt to his father, claimed that his father had promised to discharge him from it in return

for him stopping complaining about property distribution. The Court held that the

cessation of complaints was of no economic value; thus, Bluett’s father had received

no real consideration for the promise, and Bluett was still liable for the outstanding

debt.

5) Other issues with consideration

a. Performance of Existing Duty to Promisor

There may be insufficient consideration where the promisee is under an

existing duty to the promisor to perform an act which is to be the purported

consideration.

The case of Stilk v Myrick (1809) illustrates this point. Stilk was a seaman on

a ship sailing from London to the Baltic. During the voyage, two seamen

deserted the ship. The captain promised the crew that wages of the deserting

sailors would be divided among them if they worked to bring the ship home.

Stilk sought to claim the extra wages. The court held that there was no

consideration for the captain’s promise because the remaining crew did what

they were contractually required. Desertion of a few sailors was considered

within the usual emergencies of such a voyage.

Contrast this case with Hartley v Ponsonby (1857). In this case a number of

sailors had deserted that the ship became unseaworthy, and Hartley was

required to do much more than he was originally contracted to do. The court

found there was sufficient consideration here.

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In 1991 the rule in Stilk v Myrick was qualified in its application. The court held

in Williams v Roffey Bros and Nicholls (1991) that “…in certain

circumstances, discharging an existing duty owed to the promisor may, in

certain circumstances, constitute good consideration for a fresh promise”.

Below are the facts of the case.

Williams v Roffey Bros and Nicholls (1991)

FACTS: The Roffey Brothers entered into a contract to refurbish a block of flats

for a fixed price of £20,000. They sub-contracted carpentry work to Williams. It

became apparent that Williams was threatened by financial difficulties and

would not be able to complete his work on time. This would have breached a

term in the main contract, incurring a penalty. Roffey Brothers offered to pay

Williams an additional £575 for each flat completed. Williams continued to work

on this basis, but soon it became apparent that Roffey Brothers were not going

to pay the additional money. He ceased work and sued Roffey Brothers for the

extra money, for the eight flats he had completed after the promise of additional

payment. The defendants argued that there was no fresh consideration given

for their oral promise.

HELD: The Court of Appeal held that Roffey Brothers must pay Williams the

extra money because the defendants obtained “practical benefits” from

Williams’ work – this benefit was that they would not be liable under the main

contract for late completion.

b. Performance of Existing Public Duty

There would be no consideration if the person performs the duty he is

supposed to; e.g. as a policeman or other public servant, or as one who is

summoned to give evidence in the interest of justice: Collins v Godefroy

(1831).

However, while there is no consideration if one performs an existing obligation,

should an extra service be rendered, there is consideration.

In Glasbrook Brothers v Glanmoran City Council (1925), there was an

industrial dispute in which the mine owners agreed to pay for special police

guard. Later they refused to pay, arguing that the policemen were under a

public duty to protect property and lives. The court held that the police did do

extra work over and above what they were supposed to by providing that extra

protection; this was consideration for extra pay.

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c. Payment of a Lesser Sum

Part payment of a debt is no consideration for discharge of the whole

debt. For example, if a sum of money is owed by A to B, A must pay the full

sum. If A wishes to pay a lesser sum, he must offer further consideration. This

is sometimes known as the Rule in Pinnel’s Case, which was subsequently

confirmed by the House of Lords in Foakes v Beer (1884). In 2001, the rule

was endorsed in Singapore by the District Court in the case of Euro-Asia

Realty v Mayfair Investment.

However, there are some exceptions to the Rule in Pinnel’s Case:

o Payment of a smaller sum before the due day at the creditor’s request is

valid consideration;

o Payment of a smaller sum, at a different place at the creditor’s request is

valid consideration; and

o Payment of a smaller sum accompanied, at the creditor’s request, by

delivery of a chattel (a product) is valid. (Note: part payment by cheque,

where full payment was due by another means, is not consideration [D &

C Builders Ltd v Rees]).

Promissory Estoppel

An agreement without consideration intended to create legal relations, which to the knowledge

of the promisor has been acted upon by the promisee, although it cannot be enforced, is

binding on the promisor so that he will not be allowed to act inconsistently with it. In other

words, a party is stopped from going back on his/her promise when he/she knows that that

promise has been acted upon by the other party. This is the equitable principle of promissory

estoppel.

The principle was used in Central London Property Trust v High Trees (1947):

FACTS: In 1939, Y let out a block of flats to X for $2500 per annum. During World War

Two (1939 to 1945), it became difficult to let the flats out and Y agreed in writing to reduce

rent by half, i.e. $1250, per annum. The reduced rent was paid from 1940 to 1945. After

1945 the flats were fully rented out and Y demanded full $2500 for all future rentals and

also sought to recover the difference between the amount paid and the actual contractual

figure during 1940 to 1945.

HELD: The court held that Y was entitled to the future but not to past rent. He was

estopped from going back on his promise. Where one party to a contract waives his legal

right, another party, relying and acting on the waiver, acts to his detriment, the party

waiving his right is estopped from denying he has waived his rights.

It should however be noted that the equitable principle of promissory estoppel applies only to

promises made voluntarily and to existing rights.

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Shield not a sword

Another point to note is that promissory estoppel can only be used “as a shield and not a

sword”. This means that it can only be used as a defence against a claim made by a plaintiff.

Promissory estoppel cannot be used to commence a suit.

The case of Combe v Combe (1951) establishes this point:

FACTS: After obtaining a divorce, a husband promised his wife $100 per year as an

allowance. Relying on this promise, the wife chose not to obtain a formal court order for

maintenance. The husband failed to pay, and the wife sued on the basis of the promise.

HELD: The Court of Appeal rejected the wife’s claim on the principle that promissory

estoppel can only be “used as a shield and not as a sword”.

Intention to Create Legal Relations

This is the final element necessary for there to be a valid contract. If the intention is absent,

then the promise may not create any binding obligation at all.

In determining whether the promisor has the intention to create legal relations, the law applies

an objective test: Whether a reasonable person viewing all the circumstances of the case

would consider that the promisor intended his promise to have legal consequences.

Further, the party who asserts that the agreement was made without any intention to create

legal relations must prove that this; he who asserts must prove.

Situations in which the intention to create legal relations fall into two categories: Domestic

Agreements and Commercial Agreements.

Domestic Agreements

Agreements of purely domestic (family) or social nature are generally not intended to create

legal relations, and therefore not binding in law. Such agreements are intended to rely on

bonds of mutual trust and affection. Many kinds of domestic and social agreements are

unenforceable on the basis of public policy, for instance between children and parents.

Balfour v Balfour (1919)

FACTS: This case involved a husband and wife. The husband was due to return to

Ceylon where he had employment, but the wife, on medical advice was to remain in

England. The husband promised to pay the wife £30 per month until she was able to

join him in Ceylon. Later the parties separated and were divorced. The wife brought

this action for the money her husband had promised to pay to her but had failed to do

so.

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HELD: The parties did not intend the promise to be legally enforceable; the claim by

the wife failed.

In De Cruz Andrea Heidi v Guangzhou Yuzhitang Health Products Co Ltd (2003), the

plaintiff consumed some Slim 10 pills and suffered liver damage. She brought an action

against various parties including the defendant. She had asked the defendant to buy the pills

for her as a favour, and the question arose whether there was a contract between the

defendant and the plaintiff, in particular whether there was an intention to create legal

relations.

The court held that as the defendant was just doing her a favour, coupled with the fact that

both the plaintiff and defendant were very close friends, there was no intention to create legal

relations.

However, even if the parties are in a domestic or social relationship and do intend that their

agreement to have legal consequences, an enforceable contract is concluded:

Merrit v Merrit (1970)

FACTS: A husband and wife separated. They then met to make arrangements for the

future. After this the husband agreed to pay £40 per month maintenance, out of which

the wife would pay the mortgage. When the mortgage was paid off it was agreed he

would transfer the house from joint names to the wife’s name. He wrote this down and

signed the paper, but later refused to transfer the house.

HELD: When the agreement was made, the husband and wife were no longer living

together; therefore, they must have intended the agreement to be binding, as they

would base their future actions on it. This intention was evidenced by the writing and

therefore the husband had to transfer the house to the wife.

Commercial Agreements

In commercial agreements there is a general presumption that the parties do intend to make

their agreement a legally enforceable contract. This presumption flows partly from the desire

of the law to give efficacy to agreements made in a commercial context.

In Foo Jong Long Dennis v Ang Yee Lim Lawrence and anor (2016), the court concluded

that since the parties were dealing in a commercial capacity, a presumption arose that the

parties intended to create legal relations. This presumption was not rebutted as the contract

stated that the parties “agreed” to perform the contract, and even set out their liabilities to each

other in the event of a breach of contract.

In some situations, however, the parties may agree that their agreement, although couched in

legal terms, shall not be binding in law but shall be binding “in honour” only. Such agreements

are generally not enforceable and are also called “honour clauses”.

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Rose and Frank v J R Crompton and Brothers Ltd (1925)

FACTS: Rose and Frank Co. was the sole U.S. distributor of J.R. Crompton’s carbon

paper products. In 1913, the parties signed a new document which included this

clause: “This arrangement is not entered into, nor is this memorandum written, as a

formal or legal agreement and shall not be subject to legal jurisdiction in the law courts

…, but it is only a definite expression and record of the purpose and intention of the

three parties concerned to which they each honourably pledge themselves with the

fullest confidence, based upon past business with each other, that it will be carried

through by each of the three parties with mutual loyalty and friendly co-operation.”

The relationship between the two parties broke down as J.R. Crompton refused to

supply some of the orders of the plaintiff. Rose and Frank Co. sued on enforcement of

the agreement.

HELD: The agreement was not legally binding because the clause clearly and

expressly stated their intention that it would not give rise to legal relations.

In other situations, a company could assume a “moral” but not legal obligation to help another;

an agreement of this type will be deemed to have no contractual effect. Called Letters of

Comfort, these are letters written by one party unusually intended to vouch for the financial

soundness of another related party who wishes to enter into a contract with a third party.

Kleinwort Benson v Malaysia Mining Corp (1989)

FACTS: The plaintiff bank agreed with the defendants to lend money to a subsidiary

of the defendants. As part of the arrangement, the defendants gave the plaintiffs a

letter of comfort which stated that it was the company’s policy to ensure that the

business of its subsidiary is at all times in a position to meet its liabilities. The subsidiary

went into liquidation and the plaintiffs claimed payment from the defendants.

HELD: The letters of comfort were statements of the company’s present policy, and

not contractual promises as to future conduct. They were not intended to create legal

relations and gave rise to no more than a moral responsibility on the part of the

defendants to meet the subsidiary’s debt.

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Class Activity

Get into small groups and discuss the following:

1) What do you understand when it is said that “whilst the law requires sufficient

consideration, it does not require the consideration to be adequate”?

2) Would you presume an intention to create legal relations exists between friends who

become partners in a business?

3) Would a marriage amount to a legally-binding contract?

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Topic 4 – Terms Of A Contract

Introduction

Having studied the four essential components of a valid contract, students will now examine

both the express terms and implied terms of a contract, i.e. the heart of the contract. But before

engaging in the discussion on terms, it is important to note that terms should be distinguished

from advertising puffs, which have no legal effect.

Express Terms

Generally, every transaction one makes is a contract: whether it is to buy property, an

employment contract, a contact for the sale of goods, etc. The express undertakings and

promises contained in any contract are known as the terms of the contract. Parties are free

to negotiate and agree with just about any term they wish and have it as part of the contract,

as long as the terms negotiated are not against public policy or contravene any statute.

The heart of any contract is its terms. Terms are the promises and undertakings given by

each party to the other. Failure to keep to the terms generally constitutes a breach of

contract. The party suffering the breach would generally be entitled to sue for damages.

Terms of the contract must be distinguished from representations or pre-contractual

negotiations, which are made before the contract is entered into and are generally not intended

to form an integral part of it. Two cases demonstrate this application:

In Routledge v McKay (1954), (a case involving the sale of a motorcycle) R entered

into negotiations with M to purchase M’s motorcycle. M told R that the model was a

1942 model; it eventually turned out to be a 1930 model motorcycle.

The issue was whether there was a contract to purchase a 1942 model or a 1930

model; or whether the age of the motorcycle was irrelevant. The written contract

between R and M for the sale of the bike was made without reference to its age.

The court held that the statement about the date was a pre-contractual representation,

and the plaintiff could not sue for damages for breach of contract. It was also said in

this case that the fact that a verbal statement is not subsequently included in a written

contract, will suggest that it is not to be treated as a part of the contract.

In Bannerman v White (1861), the plaintiff was a buyer of hops and asked the seller

whether sulphur had been used in their cultivation. He added that if sulphur had been

used, he would not even bother to ask the price. The seller duly assured the plaintiff

that sulphur had not been used. It later transpired that sulphur had been used, and the

plaintiff brought an action for breach of contract.

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The court held that the assurance given by the seller was a condition of the contract

because without that assurance, the plaintiff would not have entered into a contract

with the seller.

In situations where the maker of the statement has greater knowledge concerning the

statement as compared to the other party, it is more likely that the statement is a term. The

rationale behind this is that the other party to whom the statement is made will be dependent

upon the maker of the statement for its accuracy. Two cases illustrate this point:

In Oscar Chess Ltd v Williams (1957), W sold his Morris car to the plaintiff, O, a

motor car dealer. He told the plaintiff that the car was a 1948 model on the basis that

the registration book showed that it was first registered in 1948. In fact, unknown to

both of them, the registration book had been tampered with and the car was actually a

1938 model. When it was discovered that the car was a 1938 model, O sued for breach

of contract.

The court held that W’s statement was not a term of the contract because, as a private

individual, W was not in a position to guarantee the accuracy of the year of registration.

In Dick Bentley Productions v Harold Smith (Motors) Ltd (1965), the defendant

motor car dealer told the plaintiff that a Bentley he was to buy had done 20,000 miles,

when in fact it had done 100,000 miles. After the plaintiff bought the car, he discovered

the true mileage and sued for breach of contract.

The court held that there was a breach of contract in this case because the defendant’s

statement, given that he was a car dealer, was a term of the contract.

[Note: In Oscar Chess v Williams, the seller, an individual, honestly believed his

statement and had no way of knowing otherwise. In the Dick Bentley case, the seller,

a motor car dealer, was in a better position to know the true facts regarding the

Bentley.]

The Parol Evidence Rule

This rule states that once an agreement has been reduced in writing, generally, evidence

cannot be introduced to contradict, vary, add to, or in any way modify the written agreement.

The reason for this is because, if it were otherwise, it would defeat the purpose of a written

contract because parties of that contract would be adding and subtracting at will.

In Hawrish v Bank of Montreal (1969), where oral terms of an agreement could not be

reconciled with the written terms of that agreement, the court held that oral evidence could not

be admitted to vary or contradict the express terms of the contract.

Similarly, in Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design &

Construction Pte Ltd (2008), the court held that extrinsic evidence was not admissible to add

to, vary, or contradict the terms of an agreement.

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An exception to the Parol Evidence Rule is where one party misrepresents the terms in a

written contract to the other party; under this circumstance, oral evidence of what that party

said may be admitted

In Exklusiv Auto Services Pte Ltd v Chan Yong Chua Eric (1996), a customer placed an

order to buy a new car and signed an agreement. The sales representative told the customer

that if he cancelled the order, he would only lose his deposit. However, the written agreement

stated otherwise. The customer then cancelled the order, and the customer contended that all

he would be liable for was the deposit. As a result of the misrepresentation, the court upheld

his argument, allowing the oral statement made by the sales representative to override the

express term in the contract.

While the terms discussed thus far are express terms, it is important to note that terms can

also be implied.

Implied Terms

An implied term is a term which has not been expressly agreed by the parties but is

nevertheless implied into the contract. Such terms are generally implied (understood to exist)

in order to make a contract workable. For example, when ordering a plate of chicken rice,

one just places the order for what he/she wants (express term). One does not have to tell the

seller to ensure that the food is not contaminated (implied term). Or say an employment

contract; there would be terms on the duties, benefits, entitlements, etc. listed in the terms

(express), but there would not be a term that allows that employee to use the washroom

(implied).

Implied terms can be implied into a contract by a custom, by a court, or by a statute.

• Terms implied by custom

These are unwritten terms that are long standing, well-established and particular

to a trade or industry. A bank dishonouring a cheque that is more than six months old

is a prime example.

• Terms implied by the courts

The court sometimes implies a term into a contract to ensure business efficacy; the

court will supply a term which it considers as having been intended by the parties. The

court will presume the intention of the parties using what’s termed as the “officious

bystander test”. This test is simply where an officious bystander, who had observed

the negotiation and/or concluding of the contract, had intervened to remind the parties

that in formulating their contract they failed to mention a particular point to which the

parties would have replied, “of course…we did not trouble to say that; it is too clear.”

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The Moorcock (1889)

FACTS: Owners of a wharf agreed that ship should be moored alongside to unload

cargo. Both wharfingers and ship owners knew that at low tide the ship would ground

on the mud at the bottom. At ebb tide the ship rested on a ridge concealed beneath

the mud and suffered damage.

HELD: It was an implied term, though not expressed, that the ground alongside the

wharf was safe at low tide since both parties knew that the ship must rest on it.

• Terms implied by statute

Terms can also be implied by statute such as the Sale of Goods Act, which seek to

protect the interests of buyers of goods. Terms implied by statue have the force of law,

and it is irrelevant that the parties are unaware of the statute.

For example, one of the key provisions in the Sale of Goods Act 1979 is section 12,

which states that the person selling the goods has the legal right to sell them.

Condition and Warranty

Having examined express and implied terms of the contract, we now address how the terms

can be classified as either a condition or a warranty. This distinction is important because

the legal consequences for breaching a condition and breaching a warranty are different.

A breach of condition gives the injured party the option to affirm the contract or discharge the

contract. In either case he may also sue for damages.

A breach of warranty does not give the injured party the right to discharge the contract. The

contract remains in force and the injured party can only sue for damages.

• Condition

A condition is a vital term of a contract which goes to the root of the contract.

If a condition is breached, it entitles the injured party to rescind the contract and claim

damages for non-performance.

In Wallis v Pratt (1910), a condition was defined as “an obligation which goes so

directly to the substance of the contract, or, in other words, is so essential to its very

nature, that its non-performance may fairly be considered by the other party as a

substantial failure to perform the contract.”

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• Warranty

A warranty is not a vital term in a contract, but one which is merely subsidiary, a breach

of which gives no right to rescind the contract but only an action for damages for the

loss which the injured party has suffered as the result of the breach. Failure to perform

it does not go to the substance of the contract.

However, whether a term is a condition, or a warranty depends on its importance in a given

situation. The two cases illustrate how similar fact situations can give rise to different

interpretations on the nature of the terms of a contract.

In Poussard v Spiers (1876), the plaintiff (P) agreed to sing in an opera throughout a series

of performances but failed to appear on the Opening Night and next few days due to illness.

The producers engaged a substitute for the whole run and when P recovered, the producers

refused her services to sing for the remaining performances. It was held by the court that

failure to sing on the Opening Night was a breach of condition which entitled producers to treat

contract as being discharged.

Compare this case with Bettini v Gye (1876). In this case the plaintiff agreed to sing for the

defendant, who was the director of Italian Opera in England, during certain dates and was to

arrive in London 6 days before the commencement of the engagement for rehearsals.

However, he arrived only 2 days before commencement, and the defendant refused to be

bound by the contract. In this case, the court held that the stipulation to arrive 6 days earlier

was not a condition, and that rehearsal clause was only subsidiary to main purpose of the

contract; the contract could not be rescinded but producer could claim damages if he could

prove loss.

The distinction between conditions and warranties are important because of their

consequences, and/or severity of damages.

Innominate Terms

Innominate terms (or intermediate terms) combine the nature of a condition and warranty in

so far as in some events of breach of such undertaking may even entitle the innocent party to

rescind the contract, and in other events the breach entitles him only to claim damages but

does not entitle him to rescind the contract:

In Hong Kong Fir Shipping Co v Kawasaki Kaisen Kaisha (1962), Kawasaki chartered a

ship to the plaintiffs. It was a term in the contract that the ship was “in every way fitted for

ordinary cargo service”. Unfortunately, the crew was insufficient in number and incompetent,

and so this term was breached. The question was whether the breach entitled the plaintiff to

terminate the charter.

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The court held that the term in question would cover both trivial matters such as a missing

nail, and serious matters such as the whole ship being unseaworthy. Thus, it could not be

classified as a condition or warranty (such a term was subsequently coined as an “innominate”

term). The court further held that the plaintiff could, nonetheless, terminate the contract if the

consequences of the breach were such that they substantially deprived the innocent party

of the whole benefit of the contract. On the facts, as the consequences of the breach were

not that serious, the plaintiffs could not terminate the charter. They could only claim damages.

Therefore, unlike a breach of condition, breach of an innominate term does not automatically

entitle the injured party to discharge the contract. If the breach and its consequences are not

serious, the breach of an innominate term will be treated like a breach of warranty. If the

breach and its consequences are serious, the breach of an innominate term will be treated

like a breach of condition.

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Class Activity

Get into small groups and discuss the following:

1) Explain the difference between express terms and implied terms. Give examples.

2) With regards to implied terms, would you consider them necessary in contracts?

3) When Alfred ordered laksa from a stall at a food court, he was given a bowl with yellow

noodles and laksa gravy. Using your understanding of conditions and warranties,

would Alfred be able to reject the laksa?

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Topic 5 – Exemption Clauses

Introduction

In relation to breach of contract, contracts often contain clauses that try to exclude or limit

liability in the event of a breach of contract, i.e. such clauses are, in effect, intended to be used

as a defence for breach of contract.

However, parties are free to include exemption clauses into their contracts as long as the

clauses are not against public policy or are prohibited by law (common law and statutes). For

example: a term exempting a party from liability in the event of his committing fraud against

the other party to the contract is void because it infringes public policy.

Exemption clauses will be examined here under statute and common law.

Exemption Clauses under Statute

The Unfair Contract Terms Act (UCTA) is a statute designed to protect consumers who may

be prejudiced by the weaker bargaining positions they occupy in most consumer transactions.

Main Provisions of the UCTA 1977

• The prohibitions and restrictions which the Act provides for apply only to business

liability (liability arising in the course of business (s 1 (3)).

• Any contract term excluding or restricting liability for death or personal injury

resulting from negligence is void (s 2 (1)).

• In the case of other kinds of loss or damage, contract terms aimed at excluding or

restricting liability are void unless they satisfy the “requirement of reasonableness”

(s 2 (2))

• Section 3 provides that where one party deals as a consumer or on the other’s written

standard terms (i.e. standard term contracts are contracts which cannot be

negotiated), liability for breach of contract cannot be excluded or restricted unless the

terms satisfy the requirement of reasonableness.

The Requirement of Reasonableness

Guidelines for the application of the requirement of reasonableness are provided in Schedule

2 of the UCTA 1977 Act. The Guidelines state that the following factors shall be taken into

consideration:

a) The bargaining strength of the parties: If the bargaining strength of the parties are

equal, it is likely that the exclusion clause will be reasonable as between the parties;

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b) Whether the customer received any inducement to agree to the exclusion clause, or

had an opportunity of entering into a similar contract with other persons without having

to agree to a similar clause;

c) Whether the customer knew, or ought reasonably to have known, of the clause;

d) Where the clause excludes or restricts a liability if some condition is not complied with,

whether it was reasonable at the time of the contract to expect that compliance with

that condition would be practicable;

e) Insurance of the goods in question: If the party relying on the exclusion clause

needs to take out insurance to cover liability, that clause could be unreasonable.

The following two cases with similar facts illustrate the operation of the UCTA. The first case,

Green v Cade (1978) was decided before the UCTA came into effect, whereas George

Mitchell v Finney Lock Seeds (1983) was decided after the UCTA became law.

Green v Cade (1978)

FACTS: A contract on standard written terms provided for the sale of seed potatoes

by potato merchants to farmers. There were 2 main disclaimer clauses which:

a) Excluded liability if the buyers did not give notice of defect within 3 days of

delivery and

b) Restricted the sellers’ liability for any consequential loss, limiting that liability to

amount of contract price.

The potatoes were planted and proved to be infected with virus. The farmers sued for

damages.

HELD: That the 1st clause was not reasonable but 2nd clause, which had been in use

for many years with the approval of the negotiating bodies representing potato

merchants and farmers was reasonable.

George Mitchell v Finney Lock Seeds (1983)

FACTS: A group of farmers ordered 30 lbs of cabbage seed from the sellers and

seeds arrived with invoices, which included a clause excluding all liability for any loss

or damage and limiting seller’s liability to an obligation to replace the seed or repay the

price. The price of the cabbage seeds was £192. The seeds were planted and proved

to be wrong type of cabbage, which was unfit for human consumption. The farmers

incurred a loss of £92,000, which farmers claimed from the sellers. The sellers relied

on the exclusion clause.

HELD: The court held in this case that the exemption clause in the contract was

unreasonable pursuant to s 6(3) UCTA because, among other things, the buyer could

not discover the breach until the plants grew; whereas the seller was at all times in a

position where it should have known whether the wrong seed was supplied.

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The courts have held that “…..whether a particular exemption clause is reasonable or not

depends on the facts of a particular case”: Kenwell & Co Pte Ltd v Southern Cross

Shipbuilding Co Pte Ltd (1999). Furthermore, in Press Automation Technology Ltd v

Trans-Link Exhibition Forwarding Pte Ltd (2002), the court held that “…even if a party

knowingly enters a contract with a restrictive condition, he will still be able to seek the

protection of UCTA”.

The Unfair Contract Terms Act does not apply to all contracts. For instance, pursuant to the

First Schedule to the Unfair Contract Terms Act, sections 2 and 3 (discussed above) do not

apply to certain contracts such as:

• contracts of insurance,

• contracts relating to the creation or transfer on interest in land,

• contracts relating to the creation or transfer of right or interest in patents, trademarks,

copyrights, registered designs or other intellectual property, and

• contracts relating to creation or transfer of securities.

Exemption Clauses under the Common Law

A clause is of no effect unless it is incorporated as a term in the contract. It must be

incorporated when the contract is made. Any attempt to incorporate it after the contract is

made will be unsuccessful. Consider the following cases.

1) An exemption clause cannot be introduced after the contract has been accepted

except by mutual agreement.

In Olley v Marlborough Court (1949), a husband and wife checked into a hotel room

that was paid for in advance. When the wife went into her room, she saw a notice on

the wall stating that the hotel disclaimed liability for loss of valuables unless they were

handed to the management for safe keeping. The wife locked room and gave key to

counter. A thief got the key and stole her furs. The hotel denied responsibility, citing

the notice in the room.

When the matter was pursued in court, the court held the defendants were liable. The

contract was concluded at the reception desk, and no additional term could be included

unilaterally. Therefore, the terms of the notice in the bedroom were not part of the

contract.

Exception: An exception to this rule is past dealings: Where the parties have had

consistent dealings with each other in the past and when the documents used contain

similar clauses. If the parties have had a history of previous dealings, then the person

to be bound by the exemption clause may be sufficiently aware of it (as a proposed

condition) at the time of making the latest contract. However, it is necessary to show

that he actually knew of the condition. It is not sufficient that he might have become

aware of it. The following case illustrates this point:

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Spurling v Bradshaw (1956)

FACTS: The defendant delivered eight barrels of orange juice to the plaintiffs who

were warehousemen. A few days later the defendant received a document from the

plaintiff which acknowledged receipt of the barrels. It also contained a clause

exempting the plaintiffs from liability for loss or damage “occasioned by the negligence,

wrongful act or default” caused by themselves, their employees or agents. When the

defendant collected the barrels, some were empty, and some contained dirty water.

He refused to pay the storage charges and was sued by the plaintiffs.

HELD: The court stated that although the defendants did not receive the document

containing the exclusion clause until after the conclusion of the contract, the clause

had been incorporated into the contract as a result of a regular course of dealings

between the parties over the years. The defendant had received similar documents on

previous occasions, and he was now bound by the terms contained in them.

Further, in Thornton v Shoe Lane Parking Ltd (1971), the plaintiff drove into an

automatic car park whereupon, after slotting money into the machine, a ticket was

issued to him by the machine.

The court held that the acceptance had taken place when the customer put the money

into the slot machine. The contract was formed at that point. Since the ticket

(containing terms) was introduced subsequent to that, the terms on the ticket were not

binding on the plaintiff.

2) An attempt to introduce an exemption clause in a receipt given after the

conclusion of the contract would not make it a term of the contract and

consequently not binding on the person receives it.

In the case of Chapelton v Barry UDC (1940), there was a pile of deck chairs and

notice stating: “Hire of chairs 3d per session of 3 hours.” The plaintiff took 2 chairs,

paid for them and received a receipt, which he put in his pocket. One of the chairs

collapsed and he was injured. The defendants relied on the notice on the back of the

receipt disclaiming liability for injury.

When the matter came before the court, the court held that the notice advertising chairs

for hire gave no warning of limiting conditions, and it was not reasonable to

communicate them on a receipt. The disclaimer of liability was, therefore, not binding.

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3) If a person signs a document, he is bound by the terms even if he does not read

them.

In L’Estrange v Graucob (1934), A sold to B, a shopkeeper, a slot machine under

conditions which excluded B’s normal rights under the Sale of Goods Act 1893

(warranty). B signed the document without reading it. The machine did not work, and

B refused to pay for it.

The court held that the conditions were binding on B since she signed them. It was not

material that A had given her no information of their terms nor called her attention to

them.

4) A person is not bound by an exemption clause if the other party has made a

misrepresentation of its terms.

In Curtis v Chemical Cleaning Co (1951), the plaintiff took her wedding dress to be

cleaned and was asked to sign a receipt in which the defendants disclaimed

responsibility for damage “howsoever arising”. The plaintiff made enquiries about the

effect of the disclaimer clause before signing and was told that the defendants would

not accept liability for damage to sequins or beads. The dress was returned badly

stained, and the defendants sought to rely on the clause.

The court held that the defendants could not rely on the clause since the assistant had

misrepresented the nature of the clause to the Plaintiff who thought that the exemption

only covered here sequins and beads.

5) Similarly, if at the time of the contract, a person gives an oral promise which

cannot be reconciled with a term in the printed contract, the oral promise takes

priority over the printed clause.

In Mendelssohn v Normand (1970) M left his car in N’s garage. Contrary to the rules

of the garage, the car attendant who took the car over told M that he must not lock the

car. M informed the attendant that there was valuable property in the car, and the

attendant promised to lock the car after he had had moved it. By the terms of the ticket

which the attendant gave M, N excluded responsibility for the loss of the contents of

the car. A suitcase containing valuables were stolen from the car.

The court held that N was liable; the oral promise made by the attendant took priority

over the printed exclusion clause and therefore could not be relied upon.

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Class Activity

Get into small groups and discuss the following:

1) When Rose went to Thailand for a holiday, she stayed at the Pied Piper Hotel. At the

reception desk, there was a sign, clearly visible to all guests, that “the hotel would not

be responsible for valuables not handed over to the reception for safekeeping. Rose

checked in to the hotel, and the next day, while she was out sight-seeing, a thief broke

into her room and stole her valuable.

Can Rose hold the hotel liable for her losses?

2) Consider the effect of the following exemption clause found at the payment counter of

a shop selling laptops: “Notice of any defect of laptops purchased must be given within

two days’ of purchase before any refund or exchange can be made”.

3) Discuss the implications (as well as validity) of the sign “no refunds or exchanges” in

a shop.

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Topic 6 – Factors Vitiating A Contract

Introduction

So far we have dealt with how a contract is formed, as well as the nature of its terms. We now

look at factors which can render a contract void, voidable or simply unenforceable. The

following vitiating factors will be examined:

• Incapacity

• Illegality

• Public Policy

• Misrepresentation

In Incapacity

Incapacity refers to the lack of capacity to enter into a legally binding contract. These can

come in the form of minority, intoxication or mental illness. So should a party with any of

the said incapacities enter into a contract, that contract can be set aside, unless that contract

was for necessaries that such parties would need.

Minority

Minors are individuals who have not reached the age of majority. Under section 35 of the Civil

Law Act, the age of majority is 18 years old. Persons below the age of 18 are considered

minors, and generally, minors cannot enter into legally binding contracts.

The law protects minors from entering into a legally binding contract because they may not

fully appreciate the consequences of their actions.

There are three classes of contracts by minors: Valid Contracts, Voidable Contracts, and

Ratifiable Contracts.

• Valid Contracts

Valid contracts bind both the minor and the other party and therefore fully enforceable:

o a minor is bound for necessary goods and services, and

o a minor is bound by contracts of employment.

o Necessary goods and services

These are restricted to things that are required to maintain bare existence – such

as food and clothing – and includes articles which are reasonably necessary to the

minor having regard to his situation in life.

• Duress

• Undue influence

• Mistake

• Unconscionability

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In Nash v Inman (1908), a tailor sued a minor to whom he had supplied clothes,

including 11 fancy waistcoats. It was decided that, as the minor was an

undergraduate at Cambridge University at the time, the clothes were suitable

according to the minor’s station in life. However, the court held that this was not a

necessity as he already had an ample supply of clothes.

Minors are only under a legal obligation to pay for things necessary for their

maintenance, although even then they will only be required to pay a reasonable

price for any necessaries.

However, it does not mean that a minor can get away with enjoying goods and

services that are not necessaries without paying for them. Under the Minor

Contracts Act (Cap 389, 1994 Rev Ed) the court may, in its discretion, require the

defendant who is not liable on a contract on the basis of minority to “transfer any

property acquired under the contract or any property representing it, if it is just and

equitable to do so”.

If the property cannot be returned, e.g. the minor has consumed the goods, “…it is

contrary to natural justice that he should recover the money which he has paid”:

Valentini v Canali (1889).

Contracts for the minor’s benefit will be binding on him. These can take the form of

education or apprenticeship, or anything that will enable him to earn a living:

Roberts v Gray (1913) and Chaplin v Leslie Ferwin Publishers Ltd (1966).

o Contracts of employment

Beneficial contracts of employment are enforceable because they enable the minor

to earn a living: Francesco v Barnum (1800).

• Voidable Contracts

The second class of a minor’s contract is voidable contract. This contract is valid and

binding on the other party, but a minor is entitled to repudiate the contract anytime during

his infancy, or within a reasonable period after he attains majority, without any liability on

his part. Examples of these contracts are leases, partnerships, and holding shares in a

company: Davies v Benyon-Harris (1931).

• Ratifiable Contracts

The third class of minor’s contact is ratifiable contract. Such a contract would not be valid

or enforceable against the minor unless he ratifies it after he attains majority. The contract

is nevertheless binding on the other party.

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Intoxication and Mental Illness

In the same way that the law seeks to protect minors from being bound by contracts which

may not benefit them, the law also protects mentally unsound and intoxicated persons. A

contract with such a person may be unenforceable against that person if it can be shown that,

at the time the contract was made:

a) he was incapable of understanding the nature of the contract; and

b) the other party knew or ought to have known of his incapacity.

As with minors, mentally disordered persons and intoxicated persons are liable for

necessaries supplied to them and are also bound to pay a reasonable price for them.

Illegality

The validity of a contract can be affected if it contravenes any statue or common law, and

thus would not be enforceable.

Some examples of contracts deemed to be illegal under statute:

a) Under section 14 of the Moneylenders Act, loans granted by unlicensed money lenders

are not enforceable.

b) Under section 5 of the Civil Law Act, contracts of gaming and wagering between

individuals are not enforceable. For example, if John bets $100 that soccer Team A

will win the match on Saturday, and Tom bets $100 that the other playing team, Team

B, will win the match, either party who wins the bet will not be able to enforce the

contract on the other.

Such contracts are unenforceable

Some examples of contracts deemed to be illegal under the common law:

a) Contracts to commit crime, tort or fraud:

In Ting Siew May v Boon Lay Choo (2014), where the buyer got the seller to backdate

the option to purchase a property in order to circumvent rules which restricted the

amount of bank loan the buyer could apply for, the court held that the contract was

illegal and hence the buyer could not enforce the contract.

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b) Contracts that are sexually immoral:

In Pearce v Brooks (1866), the plaintiffs let out on hire a coach to a prostitute knowing

that it would be used by her to ply her trade. When the coach was returned in a

damaged state, the plaintiffs tried to sue the prostitute. The court held that the plaintiffs

could not as the contract was illegal in that it promoted sexual immorality.

c) Contracts prejudicial to the administration of justice: such as a contract to give false

evidence to the police or court, and

d) Contracts to corrupt public life: such as bribery given to a public official to promote

some interest for the bribe-giver.

Public Policy

Public policy can be generally defined as a system of laws, regulatory measures, courses of

action, and funding priorities concerning a given topic promulgated by a governmental entity

or its representatives.

For example, clauses in contracts which are restraint of trade since are considered to be

contrary to public policy. Any restriction on a person’s freedom to carry on a trade, business

or profession in whatever way a person chooses is considered a restraint of trade and is void

unless it can be justified.

Sometimes called a “non-compete clause”, the use of such clauses is premised on the

possibility that upon their termination or resignation, an employee might begin working for a

competitor or starting a business and gain competitive advantage by abusing confidential

information about their former employer’s operations or trade secrets, or sensitive information

such as customer/client lists, business practices, upcoming products, and marketing plans.

Conversely, a business might abuse a non-compete covenant to prevent an employee from

working elsewhere at all. Courts have held that, as a matter of public policy, an individual

cannot be barred from carrying on his/her profession that he/she has been trained for except

to the extent that is necessary to protect the employer.

The common law uses three considerations to determine whether or not such clauses are

void:

1) The person imposing that restriction must have a legitimate interest to protect, i.e. trade

secrets;

2) The restraint must be reasonable between the parties as a protection of that interest;

and

3) The restraint is reasonable using the objective test.

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Misrepresentation

Misrepresentation means a false statement of fact made by one party to another party

before the conclusion of the contract and has the effect of inducing that party into the

contract. For example, under certain circumstances, false statements or promises made by

a seller of goods regarding the quality or nature of the product that the seller has may

constitute misrepresentation. A finding of misrepresentation allows for a remedy of rescission

and sometimes damages depending on the type of misrepresentation.

• False Statement of Fact

The representation must be one of fact. Mere puffing or commendatory statements by

traders as to their wares, or statements of opinion are not representations of fact. A

statement of intention is also not a representation of fact, but if can be proved that at

the time of making that statement that no such intention was held, there can be an

action for misrepresentation:

In Edgington v Fitzmaurice (1885), a company issued a prospectus stating that

money raised would be used to improve buildings and extend the business. In fact, the

real intention was to pay off debts. The court held that there was misrepresentation

because the stated intention was not actually held.

• Induces the Party into a Contract

The representation must be made with the intention that it should be acted upon by

the person to whom it is addressed.

In Edgington v Fitzmaurice, the plaintiff was induced to enter into a loan agreement

with the company on the basis that the company was to use the money for expansion

when in reality, the money was used to pay off debts. The court held that the company

had misrepresented the plaintiff.

But if the party to whom the statement was made does not rely on the false

representation, there would be no inducement: Smith v Chadwick (1884).

Further, even if the party misled had the means, of which he did not avail himself, of

discovering the falseness of the representation, he is still entitled to rely on the

representation made to him: Redgrave v Hurd (1881).

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Silence as Misrepresentation

The general rule is that silence itself does not constitute a misrepresentation except in several

situations:

a) If what is stated becomes a half-truth by what is left unsaid. For example, where a seller

of land told a purchaser that the land was fully let but did not say that the tenants had been

given notice to quit, the unsaid facts turned the stated facts into half-truths and constituted

a misrepresentation:

In Dimmock v Hallett (1866), the vendor of a land, in order to make the purchase sound

like a good investment stated that the land was tenanted. However, he did not disclose

that the tenant had given notice to quit. In the circumstances, since what he stated was

only half the truth, he was obliged to reveal the rest and since he did not, he was held

liable for the misrepresentation.

b) Where a change of circumstances renders a previously truthful statement misleading:

In With v O’Flanagan (1936), the defendant, a doctor, said truthfully in January 1934 that

his medical practice had a business of £2000 pa. However, in from May of that year,

business went down to only £5 a week because the defendant had become ill. The contract

was signed with the plaintiff to buy the medical practice, but the defendant did not disclose

the change in circumstances.

The court held that where a statement is rendered false by a change in circumstances,

there is a duty to disclose the change. A failure to do so will result in an action for

misrepresentation.

c) Where there is a special relationship between contracting parties:

o Fiduciary Relationships

A fiduciary relationship is one of trust and confidence; it involves one party acting for

the benefit of another. For this reason, when entering into a contract, it is important for

a fiduciary to disclose all facts which could be considered material even if not expressly

asked about.

In Lowther v Lord Lowther (1806), the plaintiff handed over a picture to an agent for

sale. The agent knew of the pictures true worth yet bought it for a considerably lower

price. The plaintiff subsequently discovered the pictures true worth and sued to rescind

the contract.

The court held that the defendant was in a fiduciary relationship with the plaintiff and

accordingly assumed an obligation to disclose all material facts. Accordingly, the

contract could be rescinded.

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o Contracts Uberrimae Fidei

A contract of uberrimae fidei is a contract of “utmost good faith”. Similarly, to fiduciary

relationships, the parties are required to make known all material facts influencing the

contract. Contracts uberrimae fidei usually arise when one party has knowledge which

the other does not have access to. Contracts which are commonly considered to be of

such a nature include contracts of insurance and family agreements.

When applying for insurance, for example, the party must disclose all material facts so

that the insurer can properly assess the risk involved with the offering of insurance.

Since the insurer cannot have access to all information relating to the insured and their

situation, which could affect the risks involved, it is necessary for this disclosure so that

both parties are entering into the contract on equal grounds.

Types of Misrepresentation

• Fraudulent Misrepresentation – arises when the false statement is made by the

representor knowing that it is false: Derry v Peek (1889).

• Negligent Misrepresentation – arises when the false statement is made by the

representor without due care: Howard Marine & Dredging Co Ltd v Ogden & Sons

(Excavations) Ltd (1978).

• Innocent Misrepresentation – arises where the representor made the false statement

without fraud or fault, i.e. he made the false statement believing and having reasonable

grounds to believe its truth: Redgrave v Hurd.

Remedies for Misrepresentation

The usual remedies for misrepresentation are either damages and/or recession, depending of

the facts of each case.

Duress

In order for there to be a valid contract the parties must act freely. If one of the parties is

forced to make the contract by violence or the threat of violence, that is duress, and renders

the contract voidable.

It should be pointed out that in the cases of a threat of violence being directed on the party

being forced to enter into the contract, the mere threat is sufficient for the successful plea of

duress. The actual threat need not be carried out.

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Further, the person making the threat must be in a position to actually carry out that threat.

So, if, for example, a wheelchair-bound individual threatens to harm to an able-bodied person

if this person refuses to enter into a contract with him, the plea of duress to vitiate that contract

is not likely to sustain.

In Barton v Armstrong (1976), A threatened to kill B if B did not enter a contract which was

wholly unfavourable to B. The court held that B could set aside the contract. This case

establishes conditions for a successful plea of duress to a person:

1) There must be a threat; and

2) That threat must be in relation to that of actual physical violence to life, limb or liberty

of the plaintiff or members of his family.

In some situations, a court may also be willing to find duress where the threat is made in

respect of a person’s assets (goods). This kind of commercial pressure is called economic

duress.

In Atlas Express v Kafco (1989), the court held that the plaintiff’s claim for a minimum fee for

transporting the defendant’s basket-ware to Woolworths store chain was not enforceable. This

was because the defendant’s agreement to the minimum fee was a new term negotiated after

the original contract and was obtained only because the defendant was, by the time question,

in the difficult position of not being able to find an alternative carrier and was fearful of

breaching their supply contract with Woolworths.

If duress is established, the innocent party could rescind the contract.

Undue Influence

This is another situation in which the contract entered into may not necessarily be through

one’s own free will. An equitable doctrine, undue influence is the unconscientious use of

one’s own power or authority over another to obtain a benefit or achieve a purpose by

exerting improper pressure.

A good illustration of this doctrine is found in the case of Inche Noriah v Shaik Allie bin Omar

(1929). Here the plaintiff was an old and illiterate woman who was living alone and dependant

on her nephew, the defendant. The defendant managed to get her to sign over her properties

to him. Realising her mistake, she sought to have the contract set aside. The court held that

there was indeed undue influence and set the contract aside.

Compare this case with Susilawati v American Express Bank Ltd (2008). In this case a

woman had given a guarantee to a bank for her son-in-law’s debts. When the son-in-law could

not pay the debts, the bank sought recovery from her. She pleaded undue influence of her

son-in-law. The court held that she was the main decision-maker in financial matters, and that

there was no undue influence. She was held liable for the debts of her son-in-law to the bank.

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In another example: Malayan Banking Berhad v Hwang Rose (1997), the Court of Appeal

held that each father-son relationship must be examined to see whether a presumption of

undue influence would arise. In that case, the father was an experienced businessman who

knew the nature and legal consequences of a guarantee and there could be no presumption

of undue influence.

Generally, commercial institutions such as banks, insurance companies, etc. should be alert

when dealing with parties whose relationship with each other are of a non-commercial nature,

e.g. husband and wife, father and son, mother and mother-in-law, etc.

There are two types of undue influence:

• Presumed undue influence (such presumption to be rebutted by the party

complained of having exercised undue influence), and

• Actual undue influence

• Presumed Undue Influence

Under this heading there are two subgroups:

o First subgroup

In the first subgroup, the relationship falls in a class of relationships that as of

law will raise a presumption of undue influence. Such classes include:

o Parent/child: Wright v Vanderplank (1855)

o Guardian/ward

o Priest/member of parish: Roche v Sherrington (1982)

o Solicitor/client: Wright v Carter (1903)

o Doctor/patient: Mitchell v Homfray (1881)

In such cases, the onus of proof lies on the party benefiting from the contract

to prove there was no undue influence when the contract was made.

o Second subgroup

The second subgroup covers relationships that do not fall into the first

subgroup, but on the facts of case, there was an antecedent relationship

between the parties that led to undue influence. The test is one of whether there

was a relationship of such trust and confidence that it should give rise to such

a presumption:

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Lloyds Bank v Bundy [1975]

FACTS: Bundy owned a house, which was the extent of his estate. His son

operated a business that did not do very well, and the son asked his father to

give him collateral for taking out loans from Lloyds Bank. The father signed the

original collateral for a smaller amount of money after considering it overnight

and talking to his lawyer. Later on, the son needed more collateral, and the only

way that Bundy could provide it was by using the house as collateral. When the

lawyers from the bank came over with his son, they explained that this was the

only thing that he could do to help his son, and Bundy signed the document.

Five months later the bank foreclosed on the son’s assets, and as he was

bankrupt, they sought to seize the house. Bundy refused to leave the house,

and the bank commenced legal action to have him evicted.

HELD: There was a relationship of trust and confidence between the father and

the bank manager giving rise to a presumption of undue influence. The charge

over the house and guarantee the farther signed were therefore set aside.

• Actual Undue Influence

An innocent party may also seek to have a contract set aside for actual undue influence,

where there is no presumption of undue influence, but there is evidence that the power

was unbalanced at the time of the signing of the contract.

Contracts can be set aside based on the ground of undue influence in which one party had

induced the other to enter into the transaction by actual pressure which equity regard as

improper, but which does not amount to duress at common law because no element of

violence to the person was involved. In this situation, it must be affirmatively proved that

one party in fact exerted undue influence over the other and that the transaction resulted

from that influence.

For example, a promise to pay money can be set aside if obtained by a threat to prosecute

the promisor or his close relative or his spouse for a criminal offence.

Undue influence can be exercised without making illegitimate threats or indeed any threats

at all. The party who claims relief on the ground of actual undue influence must show that

such influence existed and had been exercised, and that the transaction resulted from that

influence.

To establish actual undue influence, the person who raises the complaint must establish

the following:

a) that the other party had the capacity to influence the complainant;

b) the influence was exercised;

c) its exercise was undue; and

d) its exercise brought about the transaction.

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These principles were affirmed in the Singapore High Court in Tan Teck Khong &

Another v Tan Pian Meng (2002).

Mistake

The next vitiating factor to consider is mistake.

In law very few mistakes which can vitiate a contract. The High Court in Singapore, in the case

of Adani Wilmar Ltd v Cooperative Centrale Raiffeisen-Boerenleenbank BA (2002), held

that, “Contracts are robust creatures; they do not fall to just any mistake. Only mistakes which

lie at the root of the contract would have any effect.”

At common law, mistake vitiates a contract such that it becomes void ab intitio (from the

beginning) meaning that no party under the contract can claim any rights or be under any

obligation once the contract is avoided. Mistake has been generally classified under four types:

• Common mistake

• Mutual mistake

• Unilateral mistake

• Non est factum (it is not my deed)

• Common Mistake

Common mistake occurs when both parties to the contract make the same

fundamental mistake of fact. For example, the parties may have entered into a

contract relating to a cargo of fruit, but unknown to both parties, that cargo of fruit had

already perished: Couturier v Hastie (1852).

• Mutual Mistake

This occurs when parties misunderstand each other and are at cross purposes, i.e.

both parties are not aware of each other’s mistake. For example, A offers to sell B

three-bedroom apartment and B accepts what he thinks is A’s offer to sell a four-

bedroom apartment.

• Unilateral Mistake

This occurs when only one party is mistaken. The other party knows or ought to have

known the first party’s mistake. Using the example of the apartment above, if A is aware

of B’s mistake as to the kind of flat A is selling, then it is a unilateral mistake.

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In Chwee Kin Keong v Digilandmall.com Pte Ltd (2005), an IT company mistakenly

advertised its $3800++ printers for sale on its website for $66. Another IT company

saw this advertisement and ordered several. The first IT company argued the mistake

and could not sell the said printers for $66. The second IT company sued. The matter

before the court was whether the first IT company was bound to sell its $3800++

printers to the second IT company for $66. The court held that the second company,

being in the same profession must have known that there was a mistake in the

advertisement and refused the second IT company to take advantage of the mistake.

• Non est factum

The English language translation to this is that “it is not my deed”. This arises when a

person signs a document that is fundamentally different in character from that

which he contemplated or wanted to sign. This plea is available in 2 circumstances:

1) When the person who signs is blind and illiterate; or

2) When the person is induced to sign the document through fraud.

The party pleading this defence must also establish that:

o the document is fundamentally different in substance from what the signer believes

to be; and

o the mistake must be made without carelessness on the part of the party who signs.

Saunders v Anglia Building Society (1971)

FACTS: Mrs Gallie made a will leaving her house to her nephew, Parkin. Parkin has a

friend, Lee, who was in debt. Through a series of circumstances, Lee tricked Mrs.

Gallie into signing a document that Lee told her was a gift deed to her nephew, Parkin.

She could not read the document because she had broken her glasses. She signed it

nonetheless. What she did not realise until later was that the document she signed

was a deed (transfer of the house) to Lee. Lee mortgaged the house to the Anglia

Building Society. He defaulted and the Society sought possession of the house. Mrs.

Gallie argued that the document she signed was void under the doctrine of non est

factum.

HELD: Mrs Gallie knew that she was transferring her house; and her act of signing the

document during a temporary inability to read amounted to carelessness. The claim to

repudiate the transfer failed. Mrs Gallie could not plea non est factum.

Unconscionability

Unconscionability (also known as unconscientious dealings) is a term used in contract law to

describe a defence against the enforcement of a contract based on the presence of terms

unfair to one party. Typically, such a contract is held to be unenforceable because to enforce

the contract would be unfair to the party seeking to escape the contract.

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A court will consider evidence that one party to the contract took advantage of its superior

bargaining power, or his position of authority, to insert provisions that make the agreement

overwhelmingly favour the interests of that party. Usually, for a court to find a contract

unconscionable the party claiming unconscionability will have to prove that he/she was in a

weaker bargaining position, and that there was no choice but to enter into that contract given

the superior nature of the other party.

Upon finding unconscionability a court has a great deal of flexibility on how it remedies the

situation. It may refuse to enforce the contract, i.e. set the contract aside, refuse to enforce

the offending clause, or take other measures it deems necessary to have a fair outcome.

Damages are usually not awarded.

The doctrine is designed to prevent to protect individuals from victimization and abuse.

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Class Activity

Get into small groups and discuss the following:

1) Discuss if you think that the laws governing incapacity would apply to online contracts.

2) Sixty-seven-year-old retiree, Bernard Chen, had at twenty-something-year-old

mistress who was a foreigner. One day, Bernard and the mistress went to the bank,

and while there, Bernard instructed the bank to transfer all his money in his account to

the young lady’s account overseas. The mistress soon went back to her country and

has remained uncontactable.

Bernard’s wife has found about the transfer. Using your understanding of vitiating

factors, explain if the transaction could be set aside by the wife.

3) Examine the difference between undue influence and duress.

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Topic 7 – Discharge Of Contract & Remedies For Breach Of Contract

Discharge Of Contract

Introduction

A contract comes to an end when both parties are discharged from all their obligations under

the contract. There are four ways in which a contract may be discharged:

• Performance

• Agreement

• Breach

• Frustration

A contract can be breached if the (implied and/or express) terms are broken. Should this occur,

the following remedies would be available to the injured party: damages, and/or the court

orders of specific performance and injunction.

Performance

For a contract to be discharged through performance, there has to be precise performance.

The parties must have performed what they agreed to under the contract, and performance

must be strictly in accordance with the terms of the contract to be a discharge.

A partial performance will not normally suffice, nor does incorrect performance.

In Re Moore & Co Ltd and Landauer Co Ltd (1921), there was a contract for the supply of

canned fruit from Australia. The supplier agreed to pack the fruit in cases of 30 cans each.

When the cases were delivered, it was found that they contained 24 cans instead of the agreed

30 cans. The buyers rejected the shipment.

The court held that the buyers could reject the goods since they were not of contract

description, and that the contract had not been discharged by performance, i.e. there was no

performance.

Fundamentals of Performance:

1) Time for Performance

If one party fails to perform the contract at an agreed time, he may perform it later so long as

prompt performance does not constitute one of the essential conditions of the contract. The

effect will be that the contract will continue in force.

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If time is of the essence, i.e. an important aspect of the contract, and this is made known to

the other party, prompt delivery becomes a condition. If this aspect of time is breached, the

injured party may refuse the late performance and treat the contract as being discharged by

breach.

If time is not of the essence, then the injured party must accept late performance and claim

damages.

In Charles Rickards v Oppenheim (1950), a contract was made to produce a Rolls-Royce

chassis within 7 months. When this period expired without delivery, the purchaser agreed to

wait for another 3 months. At the end of that period, it was still not ready. The purchaser then

served a notice requiring completion within 4 weeks failing which he would cancel the order.

When there was still no delivery of the engine, he cancelled order. Yet the builders tendered

delivery 3 months after that cancellation, which was promptly rejected by the purchaser.

When the matter was brought to court, the court held that although purchaser had first waived

his rights, he could, by serving reasonable notice to complete the contract, make time of the

essence and treat the contract as discharged if there was no performance within the stipulated

period of the notice.

2) Payment

Payment of the amount due under a contract is a discharge. Payment of a smaller amount

is not a discharge, unless it is made at an earlier date or in a different manner from that

prescribed by the contract (for example, at the debtor’s premises instead of the creditor’s.)

Here, the issue of consideration arises. (Students should refer to that chapter.)

3) Complete Performance

Generally, the contract price is not payable till there is complete performance. At

common law, there is no right to demand proportionate payment for partially completed work.

In Cutter v Powell (1795), D employed P as second mate of ship sailing from Jamaica to

Liverpool at a wage for the complete voyage of 30 guineas. P died at sea after completing

three quarters of the journey. The court held that he was entitled to nothing unless he

completed the entire journey.

There are, however, exceptions to this rule of complete performance:

• Divisible Contracts. Some contracts may be divisible into stages. Such contracts will

see the party being paid at the various stages of completion of that part of the contract.

An example of this would be renovations contract, where a deposit is initially paid (say

5 percent), to be followed by something like 75 percent of the renovation cost when

the work is underway, with the remaining 20 percent to be paid at the end of the

renovations.

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• Complete Performance Prevented. Where, under the terms of a contract, one person

performs services for another, and the other breaks or repudiates the contract, the

person who has performed the services may usually, instead of claiming damages,

sue upon a quantum meruit to recover the amount earned by his labours. (Simply

explained: quantum meruit is simply the amount earned or to be paid up to the point

when the contract was ended.)

In Planche v Colburn (1831), the plaintiff agreed, for $100, to write a book for the

defendants, who were publishers. When he had written part of the book the defendants

abandoned the project and repudiated the contract. The court held that the plaintiff

could recover $50, upon a quantum meruit.

• Partial Performance Accepted. The other party may accept partial performance, in

which case he is entitled to be paid for the part performance, again in quantum meruit.

However, this acceptance of partial performance must be genuine acceptance.

In Sumpter v Hedges (1898), Sumpter was engaged by Hedges to construct a

structure on Hedges’s land. Sumpter failed to complete the job, so Hedges had to

complete the rest of the job. Sumpter sued for the value of work done. The court held

that he need not be paid, as Hedges had no choice but to accept the partially

completed structure. Hedges could not reasonably be expected to knock it down or

leave it standing on his land in its partially completed state.

• Doctrine of Substantial Performance. This doctrine may be applied especially in the

case of building contracts. Basically, its effect is that if the major part of the contract

has been fulfilled, the party who performed it may claim for performance of what has

been completed.

In the case of Hoenig v, Isaacs, D employed P to decorate his flat for £750, to be paid

as the work progressed. D paid an initial £400 when the work commenced. When it

was completed, D objected to quality of work and refused to pay the balance. The cost

of putting right incomplete or defective work was assessed at the trial at £56. The court

held that D must pay the balance less £56.

Agreement

Another way in which a contract can be brought to an end is through an agreement. The

discharge may be effected by a term within the existing agreement, or by a subsequent

agreement.

• Existing agreement – A contract may include a term that it would be discharges upon

the occurrence of a stipulated event or the expiration of a certain period. For example,

the notice period to terminate a fixed-term employment contract.

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• Subsequent agreement – A contract may also be discharged by the parties entering

into a fresh agreement seeking to end the earlier contract. Where both parties agree

to cancel a contract (rescind the contract) before it has been completely performed on

both sides, the agreement to cancel is itself a new contract, which calls for all the

four elements of a contract to exist in this new agreement.

• Accord and Satisfaction – Where one party purchases his release with fresh valuable

consideration provided to the other party, the understanding to do so it the accord, and

consideration provided is the satisfaction.

• Waiver – A party to the contract may also, without the request of the other party, allow

the other party not to perform an existing obligation under the contract without any

consideration. The courts have upheld such waivers on the basis of estoppel. (Refer

to the Doctrine of Promissory Estoppel, discussed earlier in the Guide.)

Breach of Contract

A breach of contract is a failure, without legal excuse, to perform any promise (term) that forms

all or part of the contract. Such a breach can happen in both written and oral contracts. The

parties involved in a breach of contract may resolve the issue among themselves, or in a court

of law.

There are different types of contract breaches, including a minor or material breach and an

actual or anticipatory breach.

• Minor breach: A breach is minor if, even though the breaching party failed to perform

some aspect of the contract, the other party still receives the item or service specified

in the contract.

For example, in a contract for the sale and delivery of goods on a specific date, but no

mention is made that time is of the essence, any reasonable delay would be

considered a minor breach. In such an instance, the other party is still required to

perform his obligations under the contract but may recover damages resulting from

this minor breach.

• Material breach: A breach is material if, as a result of the breaching party’s failure to

perform some aspect of the contract, the other party receives something substantially

different from what the contract specified.

For example, if the contract specifies the sale of boxes of canned fruit to be 30 cans

per box, but what is delivered are boxes with 24 cans per box. In such an instance, the

other party is no longer required to perform his obligations under the contract and has

the immediate right to all remedies for breach of the entire contract, i.e. damages.

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• Actual Breach: An actual breach occurs when one person refuses to fulfil his/her

side of the contract on the due date or refuses to perform some fundamental term of

the contract.

Here, there are many examples, such a breach of contracts for the sale and purchase

of goods, failure to keep to terms of, say, employment contracts, rental agreements,

etc.

It is also a case of actual breach of contract if a party to a contract by his own act

disables himself from performing the contract, the other party can treat the contract as

discharged.

In Synge v Synge (1894), a man agreed before marriage to settle a house on his wife

after marriage. He subsequently conveyed the house to a third party. The court held

that his wife could bring an action against him for breach of contract.

• Anticipatory Breach: A party may break a condition of a contract by declaring in

advance that he will not perform it when the time for performance arrives, or by some

action which makes future performance impossible. This is actionable immediately.

In Hochster v De La Tour (1853), D engaged P as courier to accompany him on

European tour starting on 1 June. On 11 May, D wrote to P saying that he no longer

required his services. On 22 May, P sued, but D claimed that there was no actionable

breach till 1 June. The court held that P was entitled to sue as soon as the anticipatory

breach occurred on 11 May.

The innocent party may treat this action as anticipatory breach and consider the

contract as being discharged forthwith, or he may allow the contract to continue until

there is an actual breach. In the latter case, the guilty party may decide to perform the

contract should he later decide to carry out performance.

Remedies for Breach of Contract

When there has been a breach of contract, and assuming the injured party’s (the one who

suffers the breach) has not waived his/her rights, remedies would be damages, orders for

specific performance and/or injunction.

Damages

Damages is monetary compensation to the party who suffers as the result of a breach of

contract. It should be noted that damages are not meant as a form of punishment. The

injured party to a breach of contract will not be able to profit in any way from the breach of

contract. The purpose of damages is simply to put the injured party in a position he/she would

have been had the breach of contract not occur.

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For example: if a lecturer in a private academic institution breaches his/her contract to lecture

for a whole module, resulting in that institution having to pay more to secure another lecturer

almost immediately to avoid any disruption in lessons, that institution can only claim that

amount it has paid to the new lecturer, plus costs. Costs are usually lawyers’ fees in pursuing

the breach of contract before the courts.

Two types damages will be examined here: unliquidated damages and liquidated

damages.

• Unliquidated Damages: This is damages that will be ascertained by the court, who

will be guided on principles and facts of the case before it. The main purpose of

unliquidated damages is to restore the party who as suffered the loss to the same

position as if the contract had been performed properly: Robinson v Harman (1948).

There are four aspects of this principle to consider:

1) Causation

2) Remoteness

3) Mitigation

4) Assessment

1) Causation

For damages to succeed, the loss must have been caused by the breach of

contract.

In the example given above, it was the lecturer’s breach that caused the private

academic institution to pay out more to a substitute lecturer to avoid any disruption of

classes. This amount, together with lawyer’s fees in pursuing the matter in court, is

what would likely be awarded by the court against the lecturer who breached the

contract.

2) Remoteness

The defendant will only be held liable (in damages) for the plaintiff’s losses if they are

generally foreseeable or if the plaintiff tells the defendant about any special

circumstances in advance.

Hadley v. Baxendale (1854)

FACTS: A mill belonging to X had a broken shaft, and X delivered the shaft to Y, a

carrier, to take to a manufacturer to copy it and make a new one. Y delayed delivery

of the shaft beyond a reasonable time, as a result of which the mill was idle for a long

period than would have been necessary. X did not make known to Y that delay

would result in a loss of profits.

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HELD: The court held that Y was not liable for the loss of profits during the period of

delay; this was because the only relevant information given by Hadley to Baxendale

was that the article to be carried was a broken shaft of a mill and the plaintiff were

millers of the mill. It was not disclosed that that was the only shaft and therefore it

should be returned as quickly as possible.

The rule in Hadley v Baxendale has two limbs to it.

a) The defendant must compensate the plaintiff for those ordinary losses which

were reasonably foreseeable, at the time of entering the contract, as a

serious possibility as arising from the breach.

b) In addition, the defendant may have to compensate the plaintiff for

extraordinary losses which arose from the breach, so long as those

extraordinary losses were brought to the attention of the defendant at the

time of formation of contract.

These two aspects of the rule in Hadley v Baxendale are neatly illustrated by the
facts of Victoria Laundry v Newman Industries (1949). In this case he defendant
was some 20 weeks late in delivering a boiler to the laundry. As a result of this, the
laundry lost profit from its ordinary day-to-day business (approximately £16 per
week) but, in addition, it lost the opportunity of taking advantage of some
particularly lucrative government contracts (approximately £262 per week).

The court held that the defendant must be expected to contemplate the former loss,
but the defendant was not made aware at the time of formation of the contract
about the particularly lucrative contracts and so was not liable for those
extraordinary losses. [In other words, expected loss can be claimed; unexpected
losses cannot be claimed]

3) Mitigation

Mitigation simply means that a party cannot recover loss which he could have avoided;

he must take all reasonable steps to minimize his/her losses. What amounts to

“reasonable steps” depends on the circumstances of the case.

In Holcim (Singapore Pte Ltd v Kwan Yong Construction Pte Ltd (2009) the

defendant could not supply concrete to the plaintiff because of a sudden ban on supply

by Indonesia. The court held that the defendant could have got alternative sand

supplies from elsewhere (in this case, government stockpiles) but failed to do so; the

defendant did not mitigate his losses and therefore could not claim those losses.

4) Assessment

Damages awarded to an injured party can be classified under two headings: damages

for loss of profit (or loss of bargain) and damages for wasted expenditure.

Loss of profit is sometimes called expectation loss, because this loss is the

amount which the injured party would have expected to gain had the contract been

properly performed.

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Wasted expenditure is sometimes referred to as reliance loss, because this loss

represents the expenses incurred by the injured party who, relying upon the contract,

prepares to perform his obligations incurring expenses which are rendered wasted

because of the breach.

Anglia Television Ltd v Reed (1970)

FACTS: Anglia (P) made preparations to produce a play for television. Anglia

contracted with Robert Reed (D) to star in the production. Reed agreed to come to

England and be available from September 9-October 11, 1968, to rehearse and act in

the film in exchange for 1,050 pounds, a living expense of 100 pounds per week, and

first class air fare between England and the United States. After significant expenses

had been incurred, D repudiated the contract. P sued D and sought wasted

expenditure but not lost profits.

HELD: The court held that P was entitled to recover damages of £2,700 representing

its wasted expenditure.

Some other points on unliquidated damages

o Difficulty in Assessment: The fact that damages are difficult to assess should

not prevent that injured party from obtaining them. Difficulties in assessing

damages often arise in cases where the loss is to some degree speculative in

nature. In such a situation, the court may take into account the probabilities

involved and award damages accordingly: Chaplin v Hicks (1911).

o Non-pecuniary losses: Damages could be claimed where the plaintiff suffers

substantial physical inconvenience as the result of the breach of contract:

Bailey v Bullock (1950); as well as where a contract, whose very aim is to

provide enjoyment and security is breached, giving rise to disappointment and

distress: Jarvis v Swan Tours Ltd (1973).

There have also been an award of damages for mental anguish and distress:

Baltic Shipping Co. v Dillon (The Mikhail Lermontov) (1993)

FACTS: Dillon was a passenger on a cruise ship that sank near New Zealand.

Dillon sued Baltic Shipping Co, claiming damages for distress and disappointment.

HELD: The High Court found that Dillon was entitled to damages for the

disappointment and distress she had suffered. The court recognised that it is

usually the aim of such travel contracts to provide pleasure and relaxation. Baltic

Shipping had failed in this regard and the loss suffered by Dillon was directly linked

to this breach of contract.

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• Liquidated damages: Also referred to as ascertained damages, are damages

whose amount the parties designate during the formation of a contract for the injured

party to collect as compensation upon a specific breach (e.g. late performance).

Generally, the courts will enforce a liquidated damages clause as long as it is a pre-

estimate of loss. Such a clause will not be enforced if it amounts to a penalty

clause; a clause designed to cause fear to the other party.

Whether a liquidated damages clause is a genuine pre-estimate of loss, or a penalty

is largely a matter of construction. The case of Dunlop Pneumatic Tyres Co Ltd v

New Garage & Motor Co Ltd (1915) offers the following guidelines:

a) It will be held to be a penalty if the sum stipulated is extravagant and

unconscionable in amount in comparison with the greatest loss that could

conceivably be proved to have followed from the breach.

b) Whether a single sum is payable regardless of the extent of the breach.

c) The description of the clause as a “penalty” or “liquidated damages clause”

is relevant but not conclusive.

Once the court determines that the clause is a genuine pre-estimate, only what is

stated in the clause can be recovered: Cellulose Acetate Silk Co Ltd v Widnes

Foundry Ltd (1993).

In Harris Hakim v Allgreen Properties Ltd (2001), it was held that where the

liquidated damages clause is prescribed by statute, the injured party can only claim

the amount stipulated in the clause; he is not allowed to claim damages at common

law nor to recover more than what he is entitled to under the clause.

If the liquidated damages clause is construed as a penalty and the amount stipulated

is higher than the actual loss suffered, the injured party could obtain damages for the

actual loss suffered. However, if the liquidated damages are construed as a penalty

but the amount is in fact less that the actual loss suffered, then the injured party has a

choice. He can sue on the clause and recover no more than the amount stipulated, or

he may sue for breach of contract, generally avoiding the clause and therefore seek to

recover damages in full.

Specific Performance (a court order)

There are situations where a party who suffers a breach of contract may not want damages.

Specific performance means that the court will exercise its discretion and insist that the

parties carry out their obligations under the terms of the contract; in other words, to keep

to the terms of the contract.

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Specific Performance is a court order that is usually granted in extreme circumstances where

other remedies fail. For example, if A has spent all his life searching for an ideal house, which

he finally found when B offered his house for sale. If B backs out of the agreement, A will not

be satisfied with damages because it is the house that he wants. In this case, A will apply to

the court for an order specific performance requiring B to sell the house to A.

While specific performance can be in the form of any type of forced action, it is usually used

to complete a previously established transaction, thus being the most effective remedy in

protecting the expectation interest of the innocent party to a contract.

Orders of specific performance are granted only when damages are not an adequate

remedy, and in some specific cases such as land sale. Such orders are discretionary, as with

all equitable remedies, so the availability of this remedy will depend on whether it is

appropriate in the circumstances of the case.

The key principles which will guide the court in deciding whether to exercise its discretion are:

1) Where damages would be an adequate remedy: Lee Chee Wei v Tan Hor Peow

Victor (2007)

2) Where such an order would require the court to supervise the obligations on a

continuous basis, e.g. a contract for the construction of a building;

3) Where one of the parties is a minor, and

4) Contracts for personal service.

Orders for specific performance are relatively rare compared to orders for damages.

In Tay Ah Poon & Another v. Chionh Hai Guan & Another (1997) the Court of Appeal in

Singapore held that the presence of a liquidated damages clause in a contract for the sale of

a flat does not preclude an order for specific performance.

Injunction (also a court order)

An injunction is a court order restraining a person from doing some act. For example, in an

agreement between two parties, A (the buyer, and B, the seller), over the purchase of a house

by A from B. If B, in an attempt to thwart the sale of the house to A (for whatever reason), then

attempts to transfer the house to a third party, A could apply for an injunction to prevent this.

In Lumley v Wagner, W agreed to sing at L’s theatre and nowhere else. A short while after

the contract was made, W wanted to sing for Z. The court held that W could be restrained by

injunction from singing for Z.

If the party that fails to adhere to the injunction, he/she will face civil or criminal penalties, and

may have to pay damages or accept sanctions for failing to follow the court’s order. In some

cases, breaches of injunctions are considered serious criminal offences that merit arrest and

possible prison sentences.

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An injunction will be granted where damages would not be an adequate remedy.

• The Mareva Injunction

This is an injunction ordering a person not to remove specified assets or goods

from the court’s jurisdiction. The purpose of this injunction is to prevent the

defendant from nullifying the effect of a judgment which the plaintiff is likely to obtain

against him. More often than not, such injunctions are used in divorce proceedings

where one party (usually the husband) is attempting to transfer his assets to someone

else in an effort to put it beyond the reach of the court (or his divorcing wife, for that

matter). Here, the wife will apply for an injunction to prevent this, so that the matrimonial

assets can be distributed by the court accordingly.

The Mareva Injunction is a temporary measure (granted only while a case in

pending in court).

It will be granted only if (1) the plaintiff is likely to recover judgment; and (2) there is

reason to believe that the defendant has assets in the jurisdiction to meet the judgment

but may take steps to remove them and make sure they are no longer available.

The plaintiff must specify which assets he wishes to “freeze”.

Limitations of Actions

Limitation of actions is defined as the period of time in which a person has to file with the
clerk of the court or appropriate agency what he believes is a valid lawsuit or claim. The period
varies greatly depending on what type of case is involved.

Section 6 of the Limitation Act in Singapore provides that for actions founded on contract,
the limitation period is 6 years. Time begins to run from the date the cause of action accrued.
For example, in a breach of contract situation, this would mean the date of the breach. After
that, the action is said to be time-barred and cannot be pursued. However, with regards to
fraud on the part of the defendant or mistake, the period does not begin to run until the plaintiff
discovers the fraud or mistake or could, with reasonable diligence, have discovered it.

Frustration of Contract

Frustration refers to the situation where an unexpected event occurs, for which neither party

is responsible, with the result that the very basis of the contract is destroyed, i.e. the common

object of the contract can no longer be achieved.

For a successful pleading of frustration, the following three requirements must be satisfied:

1) The event occurs which was outside the contemplation of the parties, see Jackson v

Union Marine Insurance (1874) below. [was not foreseeable]

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2) The contract, if performed, would be a different contract from that entered into (e.g.

where the contract is entered into for a particular purpose and that purpose is no longer

attainable): Krell v Henry (1903) below, and

3) The event is one for which neither party is responsible for; see Maritime National Fish

v Ocean Trawlers (1935) below. [was not a self-induced frustration]

Generally, such impossibility arises in one of the following circumstances:

• Destruction of a Subject Matter. In Taylor v Caldwell (1863), a hall was let for a

series of contracts on certain dates. However, the hall was destroyed by fire and the

organiser sued the owner of the hall. The court held that destruction of subject-matter

of the contract (i.e. the hall) rendered the contract impossible to perform and therefore

discharged the contract.

• Personal Incapacity (only in cases of personal service). In Condor v Barron

Knights (1966), P was to perform as drummer every night of the week, but he fell ill.

His doctor recommended that his performances be restricted to 4 nights a week. The

court held that the contract of personal service was based on assumption that

employee’s health allowed him to perform his duties. If that was not so, the contract,

was discharged for frustration.

• Government Intervention or illegality. In Singapore Woodcraft Manufacturing v

Mok Ah Sai (1979), P entered into an agreement with D to display their wares on a

commission basis for 10 years. In consideration, P paid D $1,000 a month. However,

in 1975, D’s property was acquired by the Singapore government. The court held that

the contract was discharged by frustration.

With regards to monies paid as a deposit in pursuance of a contract for the sale of land

or other property, these are recoverable. In Lim Kim Som v Sherriffa Taibah bte

Abdul Rahman (1994), P entered into an agreement to purchase a piece of property

which was subsequently acquired by the Singapore government under the Land

Acquisition Act. The Court of Appeal held that the frustration could apply to

transactions involving land and that compulsory acquisition had effectively frustrated

the agreement. Since a deposit had been paid, section 2(2) of the Frustrated

Contracts Act applied, and the deposit was recoverable.

• Non-occurrence of an Event if that Event is the Sole Purpose of the Contract. In

Krell v Henry (1903), a room overlooking the route of coronation procession of King

Edward VII was let for the day. However, the coronation was postponed as a result of

the King’s illness. The court held that since the event did not take place, and the event

was the sole purpose of the contract of room rental, the contract was discharged by

frustration.

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• Interruption Which Prevents Performance of the Contract in the Form intended

by the Parties. In Jackson v Union Marine Insurance (1874), there was a contract

for the charter of a ship to proceed immediately to load cargo for San Francisco.

However, the ship ran aground and could not be re-floated for over 1 month.

Thereafter, it needed to be repaired. It was held by the court that the interruption put

an end to the contract in a commercial sense since it was no longer possible to perform

contract intended by the parties. It was thus discharged by frustration.

Contrast the abovementioned case with Tsakiroglou & Co Lt v Noblee and Thorl

GmbH (1962) in which there was a contract for the sale of groundnut to be shipped to

Hamburg. The parties envisaged shipping through the Suez Canal, but the canal was

closed after the contract was concluded. The court held that the contract was not

frustrated as the ship could go round via the Cape of Good Hope (there being no

implied term that carriage was to be via Suez), an alternative route. The greater cost

of the freight was not so great as to render this a fundamentally different adventure.

A contract is not discharged in the following situations:

a) If alternative mode of performance is still possible.

b) If performance becomes suddenly more expensive: Tsakiroglou v Noblee (above).

c) If one party has self- induced frustration. In Maritime National Fish v Ocean Trawlers

(1935) it was held that if either party contributes to the occurrence of the event, they

cannot claim that it amounts to a frustrating event.

Force Majeure Clause

The Force Majeure clause in a contract excuses a party from not performing its

contractual obligations due to unforeseen events beyond its control. These events

include natural disasters such as floods, earthquakes, and other “acts of God”, as well as

uncontrollable events such as war and terrorist attacks.

Force Majeure clauses are meant to excuse a party provided the failure to perform could not

be avoided by the exercise of due diligence and care. However, it does not cover failures

resulting from a party’s financial condition or negligence.

The intention of the Force Majeure clause is to excuse liability of a party because of

uncontrollable outside events. For example, you signed a purchase agreement for a house,

and before you gained ownership of it, the house burned down due to a fire caused by

lightning. Neither the buyer nor the seller would be held liable under the terms of the contract;

the seller for not providing the property as stipulated in the contract, and the buyer for not

paying the balance of the purchase price.

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The Frustrated Contracts Act (cap 115). In many cases, the rights and liabilities of the

parties are regulated by the Frustrated Contracts Act. The main provisions may be summed

up as follows:

1) Any moneys paid under a frustrated contract are recoverable. And any moneys

payable at the time of frustration ceases to be payable: s 2(2) FCA.

2) Expenses incurred by a party in connection with the contract are recoverable from the

other party: s 2(2) FCA.

3) Benefits conferred (other than money) prior to the time of discharge can be

compensated with an amount the court considers just: s 2(3) FCA.

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Class Activity

Get into small groups and discuss the following:

1) Explain what you understand by discharge of contract through performance. How does

frustration of contract affect performance?

2) Harold Teo entered into a contract for the sale of his flat in Bishan to Rob Peters.

Before going through with the sale, Harold’s wife said that she didn’t want to leave the

neighbourhood and asked Harold to “cancel the sale”. When Harold told Rob about

this, Rob insisted they had an agreement, and demanded Harold to keep to this

agreement or “face legal action”. To prevent Rob from getting the flat, Harold intends

to transfer ownership of the flat to his brother, Luke.

Using the laws you have studies, explain how Rob to force Harold to keep to the

contract.

3) Examine several situations in which you believe a contract could be frustrated.

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Topic 8 – The Law of Tort

Introduction

Tort law is a body of rights, obligations, and remedies that is applied by courts in civil
proceedings to provide relief for persons who have suffered harm from the wrongful acts of
others. The person who sustains injury or suffers pecuniary damage as the result of tortious
conduct is known as the plaintiff, and the person who is responsible for inflicting the injury or
damage is known as the defendant or tortfeasor.

Examples of torts are nuisance, assault, battery, false imprisonment, trespass to the person,
trespass to land, and negligence.

The Tort of Negligence

Negligence as a tort covers both acts and omissions, i.e. a person could be negligent at law
for doing something he should not have done, as well as for not doing something he
should have.

The essentials that must be proved to succeed in an action for negligence are:

a) a duty of care;
b) breach of that duty; and
c) damage (or loss) resulting from that breach.

a) Duty of Care

In tort law, a duty of care is a legal obligation imposed on an individual requiring that they
adhere to a standard of reasonable care while performing any acts that could
foreseeably harm others. It is the first element that must be established to proceed with an
action in negligence.

The principle underlying the concept of duty of care concept is the “neighbour principle”, which
was declared in the landmark case of Donoghue v. Stevenson (1932) by Lord Atkin.

Donoghue v. Stevenson (1932)

FACTS: A friend of the plaintiff (Donoghue) bought a bottle of ginger beer for her. After
consuming the contents, the plaintiff found the remains of a partially decomposed snail at the
bottom of the ginger beer. This, she claimed, made her ill. She could not sue in contract
because she did not buy the ginger beer. She sued in tort.

HELD: The House of Lords held that the manufacturer of the ginger beer was liable in
negligence. Said Lord Atkin:

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“The rule that you are to love your neighbour becomes in law you must not injure your
neighbour; and the lawyer’s question: ‘who is my neighbour?’ receives a restricted reply. You
must take reasonable care to avoid acts or omissions which you can reasonably foresee would
be likely to injure your neighbour. Who, then, in law, is my neighbour? The answer seems
to be — persons who are so closely and directly affected by my act that I ought
reasonably to have them in contemplation as long as so affected when I am directing
my mind to the acts or omissions that are called in question.”

To establish a duty of care, the courts in Singapore have declared that it must first be
reasonably foreseeable that the defendant’s action or omission would cause damage to the
plaintiff. Once this is established, a two-stage test will be used: Spandeck Engineering (S)
Pte Ltd v Defence Science & Technology Agency (2007):

1) Was there a close and proximate relationship between the parties? and if so,
2) Whether there are policy considerations which negate the finding of a duty
of care.

• Foreseeability

For a duty of care to exist, it must be shown that it was foreseeable that the action of
the defendant could have caused harm to the plaintiff. The test is an objective one:
would a reasonable foresee that damage may result from the defendant’s action.

Wyong Shire Council v Shirt (1980)

FACTS: The plaintiff council had dredged a channel in the south lake of Tuggerah
Lake. The lake was normally shallow. The council erected signs that stated, “deep
water”. An inexperienced water-skier, believing the entire lake to be of deep water,
suffered serious injury when he entered the shallow area of the lake while water-skiing.

HELD: The sign was ambiguous, and a reasonable person might conclude that the
area beyond the sign was also deep water. It was therefore reasonably foreseeable
that damage of injury may occur. The plaintiff’s claim was successful.

It is not necessary to foresee the actual damage that will occur. It is enough if it can
be shown that some type of damage could arise as a result of the defendant’s
conduct.

• Proximity

Proximity is seen as a sense of closeness between the person who owes the duty of
care and the person to whom the duty of care is owed. For example, a motorist owes
a duty of care to other road users to drive and maintain control of his vehicle while
driving on the road. However, this proximity extends to, for example, a mechanic; the
mechanic owes a duty of care to repair a car such that it does not breakdown or cause
an accident 40 miles away. If it does, the mechanic would have breached his duty of
care by failing to ensure that this does not happen.

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• Public policy considerations

The case of Hill v Chief Constable of West Yorkshire (1989) illustrates this point. In
this case the father of a woman murdered by Peter Sutcliffe attempted to sue Yorkshire
police. The family claimed the police missed numerous opportunities to catch the
perpetrator of these crimes. The UK courts decided that the police did not owe a duty
of care to any individual member of the public. The case was decided on so-called
public policy grounds, meaning that even if the police were at any point negligent in
the way in which investigations or protection was provided, public policy would prevent
any such case coming to court. This decision was confirmed in Osman v. UK (1998).

In an action on negligence, the plaintiff must prove that the defendant owes him a duty of care.

b) Breach of that Duty

Once it is established that the defendant owed a duty to the plaintiff, the matter of whether or
not that duty was breached must be settled. The test is both subjective and objective. The
defendant who knowingly (subjective) exposes the plaintiff to a substantial risk of loss,
breaches that duty. The defendant who fails to realise the substantial risk of loss to the plaintiff,
which any reasonable person in the same situation would clearly have realised, also breaches
that duty (objective).

The test to determine whether a duty of care has been breached has been stated in Blyth v
Birmingham Waterworks (1856) as “….the omission to do something which a reasonable
man….would do; or doing something which a prudent and reasonable man would not do”.

Breach of duty is not restricted to professionals or persons under written or oral contract; all
members of society have a duty to exercise reasonable care toward others and their
property. A person who engages in activities that pose an unreasonable risk toward others
and their property that actually results in harm, breaches their duty of reasonable care.

An example is shown in the facts of Bolton v Stone (1951). In this case the House of Lords,
which established that a defendant is not negligent if the damage to the plaintiff was not a
reasonably foreseeable consequence of his conduct. In this case, Stone was struck on the
head by a cricket ball while standing outside her house. Cricket balls were not normally hit a
far enough distance to pose a danger to people standing as far away as was Stone. Although
she was injured, the court held that she did not have a legitimate claim because the danger
was not sufficiently foreseeable.

Furthermore, whether or not a duty of care has been breach would depend on the facts of the
case. One factor that would be taken into account would be the defendant’s level of skill. In
evaluating the facts, the court will consider the “standard of care” expected from the person
who owes the duty. For example, if the defendant is a doctor, then the standard of care
expected is that which a reasonably competent doctor will exercise. This is illustrated in the
case of:

Wells v Cooper (1958)

FACTS: The defendant, an amateur carpenter, fitted a new door handle onto the door of a
house. The plaintiff suffered injury when he pulled the door handle because the door handle
came off resulting in the plaintiff falling down some stairs. The plaintiff brought action against
the defendant for negligence.

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HELD: The defendant was not liable to the plaintiff because the defendant had not breached
his duty of care. The defendant had met the standard of care of a reasonably competent
amateur carpenter.

It should also be added that the more serious the injury, the higher the standard of care
required of the defendant. Therefore, not only the likelihood of injury is taken into account,
but also the type of injury which is likely to be suffered by the plaintiff.

Paris v. Stepney Borough Council (1951)

FACTS: S employed P as a garage mechanic. P had lost the sight of one eye during World
War II. In order to loosen a stiff bolt, he struck it with a hammer; a piece of metal flew off and
(because he was not wearing goggles) struck him in his good eye, causing him to become
totally blind. After the accident, P claimed damages for his injury.

HELD: The probability of such an event was very small, but its consequences were very
serious. His employers, knowing of his disability, should have taken extra care to provide
goggles for him. The more serious the possible damage, the greater the precautions that
should be taken. S owed a special duty of care to P and had been negligent in failing to
supply him with goggles.

The effort required to remove the risk of injury

Another factor relevant to determining whether the standard of care has been met is the
amount of effort that would be required to eliminate that risk. If it is relatively easy to remove
the risk and would cause little expense and inconvenience, then this may be required. A failure
to do so may result in a breach of a duty of care.

Latimer v AEC (1953)

FACTS: The plaintiff was employed by the defendant. On the afternoon of the day of
the accident, an exceptionally heavy rainstorm had flooded the whole of the
defendant’s premises. Oil, which normally ran in covered channels in the floor of the
building, rose to the surface and when the water drained away, left an oily film on the
floor. The defendants took measures to clean away the oil, using all the sawdust
available to them. The plaintiff came on duty with the night shift, unaware of the
condition of the floor. While endeavouring to place a heavy barrel on a trolley, his foot
slipped on the still oily surface, he fell on his back, and the barrel crushed his left ankle.
When the matter was brought before the court, the trial judge found a breach of
common law duty of care. The Court of Appeal reversed this decision.

HELD: The appellate court held that, in this case, a reasonable employer had to make
a decision whether or not to shut the factory down to totally eliminate the risk, which
was quite unnecessary. The employer took every step that reasonably could have
been taken in the circumstances and in so doing had negated any possible allegation
of negligence.

[In other words, the defendant does not have to totally eliminate the risk but must do
as much as the reasonable person would do in the circumstances.]

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Res ipsa loquitur

A Latin term meaning “the thing speaks for itself”. Res ipsa loquitur is a legal doctrine or
rule of evidence that creates a presumption that a defendant acted negligently simply because
a harmful accident occurred. The presumption arises only if:

1) the thing that caused the accident was under the defendant’s control,
2) the accident could happen only as a result of a careless act, and,
3) the plaintiff’s behaviour did not contribute to the accident.

This is alternative way in which a defendant can be shown to have breached his duty of care
to the plaintiff.

This is usually referred to in the “scalpel left behind” example of obvious negligence in the
case of a physician, in which a person goes to a doctor with abdominal pains after having his
appendix removed. X-rays show the patient has a metal object the size and shape of a scalpel
in his abdomen. It requires no further explanation to show the surgeon who removed the
appendix was negligent, as there is no legitimate reason for a doctor to leave a scalpel in a
body at the end of an appendectomy.

In Scott v London and St Katherine Docks Co (1865), the plaintiff was entering the doorway
of the defendant’s warehouse when six sacks of sugar fell from a crane on him. The plaintiff
brought an action for negligence. The court held that negligence was established without
having to prove that the defendant breached his duty of care to the plaintiff. Here, res ipsa
was established because the sacks of sugar were under the control of the defendant and the
accident could not, in the ordinary course of things, have occurred without the negligence of
the defendant.

c) Damage

This is the third and final requirement to prove the tort of negligence. The plaintiff must show
that he suffered damage as the result of the defendant’s breach. Two aspects must be
considered: causation and remoteness.

• Causation

A common test used to determine causation is the “but-for” test. According to this
test, the plaintiff would have not suffered damage “but-for” a certain event that caused
the damage.

Barnett v Chelsea & Kensington Hospital (1969)

FACTS: At a hospital casualty department, provided and run by the defendants, three
night-watchmen presented themselves, complaining to a nurse on duty that they had
been vomiting for three hours after drinking tea. The men were told to go home and
visit their own doctors the next day. The men then left, and, about five hours later, one
of the men died from poisoning by arsenic, which had been introduced into the tea.
The wife commenced action against the hospital for negligence resulting in the death
of her husband.

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HELD: While the court did find that there was a duty of care owed to the night-
watchmen, and this duty was breached by not attending to them when they showed
up at the hospital, it was discovered that this breach did not cause that man’s death.
Given that he was poisoned by arsenic, the experts pointed out that even if the correct
medical treatment had been given to the man, the death would have occurred anyway.

o Novus actus interveniens

It should, however, be noted that even if the “but-for” test is satisfied, there would not
be any liability on the part of the defendant if there is a new intervening act (novus
actus interveniens).

In Mckew v Holland and Hannens and Cubitts (1969), the plaintiff had suffered
injuries in the course of his employment, which meant his left leg could give way
underneath him. A few days after the incident and while in his recovery, he tried to
come down a set of steep steps, which did not have a handrail. His injured leg gave
way beneath him, and he attempted to jump the remaining 10 steps. However, he fell
down the stairs and severely fractured his ankle and was left with a disability.

While the defendant accepted liability for the leg injury resulting from the accident at
work, the issue in this case concerned the ankle fracture sustained in the second
incident. The defendant disputed liability for the act by the complainant. The court held
that the act of jumping down the stairs was a new action by the plaintiff, i.e. it was a
novus actus interveniens that broke the chain of causation. The defend has held not
liable for the second injury.

• Remoteness

In negligence, the test of causation not only requires that the defendant was the cause
in fact, but also requires that the loss or damage sustained by the claimant was not
too remote. As with the policy issues in establishing that there was a duty of care and
that that duty was breached, remoteness is designed as a further limit on a cause of
action to ensure that the liability to pay damages is fairly placed on the defendant. Here
the courts use what’s known as the “reasonable foreseeability” test.

In the Wagon Mound (No 2) (1967), a large quantity of oil was spilt into Sydney
Harbour from the Wagon Mound (a ship) and it drifted under the wharf where the
claimants were doing oxyacetylene welding. The resulting fire caused extensive
damage to the wharf and to vessels moored nearby.

HELD: The evidence shows that the discharge of so much oil on to the water must
have taken a considerable time, and a vigilant ship’s engineer would have noticed the
discharge at an early stage. The findings show that he ought to have known that it is
possible to ignite this kind of oil on water, and that the ship’s engineer probably ought
to have known that this had in fact happened before. The most that can be said to
justify inaction is that he would have known that this could only happen in very
exceptional circumstances. But that does not mean that a reasonable man would
dismiss such a risk from his mind and do nothing when it was so easy to prevent it. If
it is clear that the reasonable man would have realised or foreseen and
prevented the risk then it must follow that the appellants are liable in damages.

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It has further been held in Bradford v Robinson Rentals Ltd (1967) that what has to
be reasonably foreseeable is the kind of harm (damage), not the extent of the harm.
The defendant would still be liable notwithstanding that he did not know the
extent of harm, as long as he foresaw some type of harm resulting from his
action or inaction.

Thin Skull Rule

Furthermore, in relation to damage, the rule is that the defendant takes his plaintiff as he finds
him. Known as the “thin skull” rule, this means to say that if X, in breach of his duty, knocks
down C who dies as a result because he has a weak heart or an unusual condition (say, thin
skull), X would be liable for the death even if a normal person would not have died.

In Smith v Leech Brain & Co (1962), Smith’s husband worked in a factory owned by Leech
Brain galvanizing steel. He had previously worked in the gas industry, making him prone to
cancer. One day at work he came out from behind his protective shield when working and was
struck in the lip by molten metal. The burn was treated, but he eventually developed cancer
and died three years later. The protection provided to employees during their work was very
shoddy.

In finding the defendant liable for Smith’s death, the court stated: “If a man is negligently run
over… it is no answer to the sufferer’s claim for damages that he would have suffered less
injury… if he had not had an unusually thin skull or an unusually weak heart”. The ratio
decidendi is that a tortfeasor is liable for negligent damage, even when the claimant had a
predisposition that made that damage more severe than it otherwise would have been.

Defences to an Action for Negligence

A defendant taken to court for negligence can raise the following defences:

• Contributory Negligence – This defence can only be raised in situations where the
plaintiff’s injury was partly contributed by the plaintiff’s own fault.

In Sayers v Harlow UDC (1958), having paid to use a public toilet, a 36-year-old woman
found herself trapped inside a cubicle which had no door handle. She attempted to climb
out by stepping first on to the toilet and then on to the toilet-roll holder, which gave way.

The court held that the injuries she suffered were a natural and probable consequence
of the defendant’s negligence, but that the damages would be reduced by 25% since the
claimant had been careless in depending for support on the toilet-roll holder.

• Voluntary Assumption of Risk (volenti non fit injuria) – This defence is used when
the plaintiff willingly accepts the risk of being injured by the foreseeable behaviour of the
defendant.

In Morris v Murray (1990), the plaintiff helped an obviously drunken pilot (the defendant)
get into a small aeroplane which crashed as it attempted to take off. This was a classic
case for volenti to apply. The court held that the plaintiff must have known the condition
of the defendant and voluntarily took the risk of negligence by agreeing to be a
passenger.

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Other Torts Absorbed by Negligence

1) Occupier’s liability
2) Defective products
3) Defective structures
4) Negligent misstatements
5) Vicarious liability
6) Passing Off
7) Conspiracy
8) Confidence

1) Occupier’s Liability

An occupier is any person who has occupation or control, whether it is partial or whole, of land
or a structure standing on the land: AC Billings & Sons Ltd v. Rodem (1958). They owe a
common law duty of care to ensure that anyone who comes on to those premises is not injured:
Hackshaw v. Shaw (1984).

Premises include a wide range of fixed and movable structures.

Occupiers owe a duty of care to entrants of their premises to ensure that they are not
dangerous. Two questions need to be considered:

1) Would a reasonable person in the defendant’s position have foreseen that the
conduct involved a real risk of injury to the plaintiff? If the risk is real, and it doesn’t
matter whether it is remote or unlikely to happen; then

2) What would a reasonable person do in response to the risk? This requires
consideration of factors such as:

a) the magnitude of the risk;
b) its degree of probability;
c) whether it is obvious: Phillips v. Daly (1989); and
d) whether a person coming on to the occupier’s premises is acting reasonably.

In the case of those people who establish entry by contractual right, a higher standard of care
is required.

At common law, the duty owed will turn on whether there are express or implied terms of entry
in the contract. An occupier can be held liable even for the actions of third parties as it is a
non-delegable duty. For example, where an owner of a premises engages contractors to work
on renovations of that premises, that owner will be liable to a third party who is injured as the
result of those renovations.

This is fully addressed in Property Law and Conveyance.

2) Defective products

In the case of manufacturers, the same duty is owed in respect of all products, even though
the defect is hidden and unknown to the consumer.

In Grant v. Australian Knitting Mills (1936), the plaintiff, who bought undergarments and
proceeded to use them, contracted severe dermatitis due to a chemical residue on the
garments. He succeeded in an action against the manufacturers under the law of tort.

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3) Defective structures

Where the premises suffer a defect, and it could be reasonably foreseen that a person could
suffer injury as a result, the builder, owner or occupier may be liable to a purchaser where
they know about such defects.

4) Negligent misstatements

If one party gives advice, information or an opinion to another party in circumstances where
the other person reasonably relies upon the advice, information or opinion, the first person
may be liable for any loss or damage caused if the advice, information or opinion was given
negligently.

Common cases include advice given by professionals, such as solicitors or accountants.

Basic elements in negligent misstatements:

1) the defendant had, or claimed to have some special skill or knowledge;
2) the plaintiff relied on that skill or knowledge;
3) the claim is in relation to a serious matter; and
4) the plaintiff suffered loss or damage.

The remedy is usually damages. To succeed in such an action, however, the plaintiff must
show a “special relationship” with the defendant such that they have placed trust and reliance
in the defendant’s statement, and the defendant knew that the statement would be relied upon.

In Hedley Byrne & Co. Ltd v. Heller & Partners Ltd (1964), Hedley Byrne (HB) were a firm
of advertising agents. A customer, Easipower Ltd, placed a large order. Before proceeding,
HB wanted to check their financial position and creditworthiness, and so asked their bank to
get a report from Easipower’s bank, Heller & Partners Ltd (H&P), who replied in a letter that
Easipower is “considered good for its ordinary business engagements”, but added a clause in
its reply to HB that this information was given “without responsibility on the part of this bank”

Easipower soon went into liquidation, and HB lost £17,000 (equivalent to £400,000 in 2019)
on contracts. HB sued H&P for negligence, claiming that the information was given negligently
and was misleading.

The court found that H&P’s disclaimer was sufficient to protect them from liability and Hedley
Byrne’s claim failed. The court also ruled that damage for pure economic loss could arise in
situations where the following four conditions were met:

1) a fiduciary relationship of trust & confidence arises/exists between the parties;
2) the party preparing the advice/information has voluntarily assumed the risk;
3) there has been reliance on the advice/info by the other party, and
4) such reliance was reasonable in the circumstances.

This came to be known as the “Hedley Byrne test”

In Caparo Industries plc v Dickman(1990) the court refined the Hedley Byrne test with
regards to third parties relying on misstatements. In this case, an auditor (Dickman) negligently
approved an overstated account of a company’s profitability. A takeover bidder (Caparo) relied
on these statements and pursued its takeover on the basis that the company’s finances were
sound. Once it had spent its money acquiring the company’s shares, and company control, it
found that the finances were in poorer shape than it had been led to believe. Caparo sued the
auditor for negligence.

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The court held that there was no duty of care between an auditor and a third party pursuing a
takeover bid. The auditor had done the audit for the company, not the bidder. The bidder could
have paid for and done its own audit. Thus, there was neither a relationship of “proximity” nor
was it “fair, just and reasonable” to make the auditor liable for the lost sums of money that the
takeover incurred.

5) Vicarious liability

When one person is liable for the negligent actions of another person, even though the first
person was not directly responsible for the injury. For instance, a parent sometimes can be
vicariously liable for the harmful acts of a child, and an employer sometimes can be vicariously
liable for the acts of a worker.

This is a form of strict liability and arises principally in the case of an employer-employee
relationship. It has the effect of making the employer an insurer of the employee: Lister v.
Romford Ice and Cold Storage Co. Ltd [1957].

The employee must be acting in the course of their employment when they injure another
person to make their employer personally liable.

In Cassidy v. The Minister (1951), the plaintiff was a patient at a hospital run by the defendant
who required routine treatment to set the bones in his wrist. Due to negligence on the part of
one of the doctors, the operation caused his fingers to become stiff. The claimant sued the
defendant in the tort of negligence on the basis of vicarious liability. The defendant argued
that the doctor responsible for the negligence was not one of their servants, as they had no
control over how he performed his job.

The Court of Appeal held that the defendant was vicariously liable.
The fact that the worker engages in specialised and technical work for which he is specially
qualified does not mean that he is necessarily not a servant. The Court held that a person is
a servant of the defendant if he was chosen for the job by the defendant and is fully integrated
into the defendant’s organisation.
In this case, the doctors were appointed to the hospital by the defendant and not chosen by
the patient and were fully integrated into the hospital. They were therefore the defendant’s
servants.

6) Tort of Passing Off

Passing off is a common law tort which can be used to enforce unregistered trademark rights.
The tort of passing off protects the goodwill of a trader from a misrepresentation that causes
damage to goodwill. Goodwill is the reputation the firm enjoys.

The tort of passing off prevents one person from misrepresenting his or her goods or services
as being the goods and services of the claimant, and also prevents one person from holding
out his or her goods or services as having some association or connection with the plaintiff
when this is not true.

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• Passing off and trademark law

A cause of action (or claim) for passing off is a form of intellectual property enforcement
against the unauthorised use of a mark which is considered to be similar to another
party’s registered or unregistered trademarks.

Passing off is a form of common law, whereas statutory law such as the Trade Marks
Act provides for enforcement of registered trademarks through infringement
proceedings.

The law of passing off is designed to prevent misrepresentation in the course of trade
to the public, for example, that there is some sort of association between the business
of defendant and that of the claimant. Another example of passing off is where the
defendant does something so that the public is misled into thinking the activity is
associated with the claimant, and as a result the claimant suffers some damage, under
the law of passing off it may be possible for the claimant to initiate action against the
defendant.

In Reckitt & Coleman Products v Borden Inc (1990), it was held by the court that to establish
the tort of passing off, three conditions must be satisfied:

1) There is goodwill (reputation) owned by a trader;
2) There is misrepresentation by the defendant that the goods (or services)
offered by him are the same as those of the plaintiff; and
3) The plaintiff has suffered loss or is likely to suffer loss.

Plaintiffs have the burden of proving goodwill in its goods/services, get-up of goods, brand,
mark and/or itself per se. The plaintiff also has the burden of proof to show false representation
(intentional or otherwise) to the public to have them believe that goods/services of defendant
are that of the plaintiff; thus, there must be some connection between plaintiff’s and
defendant’s goods/services/trade.

7) Tort of Conspiracy

Two or more persons commit the tort of conspiracy if they agree on a course of conduct to
harm another. A conspiracy to commit an illegal act may also amount to a criminal offence. In
the civil sphere, there are two types of conspiracy: conspiracy by unlawful means and
conspiracy by lawful means.

The elements necessary to establish conspiracy are:

a) There must be a combination of two or more persons, and an agreement
between them to carry out certain acts;
b) If the conspiracy involves lawful acts, then the main purpose of the conspirators
must be to cause damage or injury to the plaintiff; if the conspiracy involves unlawful
means, then such a main purpose is not needed;
c) The acts must be performed in furtherance of the agreement; and
d) The plaintiff must have suffered damage.

For example, employees who conspire to resign from their jobs at once and together thereby,
depending on the situation, negatively affecting the employer’s business and this employer
suffers business losses as a result; the tort of conspiracy may have been committed.

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8) Tort of Confidence

The common law tort of breach of confidence deals with unauthorised use or disclosure of
certain types of confidential information and may protect such information on the basis of
actual or deemed agreement to keep such information secret.

If an employee comes into confidential or exclusive information during his course of
employment, and this employee resigns and uses the information to his advantage, the
employer may have a cause of action for breach of confidence.

The leading case to establish a breach of confidence is Coco v A N Clark (Engineering) Ltd
(1969). In this case Coco was developing a motor-assisted cycle or moped. He entered into
negotiations with AN Clark to develop the moped and provided information to Clark about his
moped. Negotiations fell through and soon after, Clark began to develop its own moped. Coco
discovered this and applied for an injunction to stop Clark from making or selling any moped
using his confidential information. The issues before the court was

1) if Coco established a strong prima facie case that the information was
confidential or that there had been a breach of confidence, and
2) if an injunction be awarded to prevent the making and selling of the
moped?

The court held that Coco had failed to establish that the similarities between the two mopeds
were achieved by the use of information provided by him to Clark; and further, an injunction
was not appropriate as the evidence for the case had not been properly tested and Coco had
not developed his own moped and therefore it did not need protection from the sale of the rival
moped.

The court laid out three elements to be established if a case of breach of confidence is to
succeed. The three elements are:-

1) The information must be generally of a confidential nature,

2) The information must have been communicated in circumstances importing an
obligation of confidence (on the part of the defendant), and

3) There must be unauthorised use or disclosure of the information by the
defendant, i.e. use by the defendant of the plaintiff’s information without his consent.

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Class Activity

Get into small groups and discuss the following:

1) In Singapore, weddings often see what’s locally termed as “gate crashing”. This
is when friends of the bride and/or groom arrive at a very early hour in the morning at
the bride’s or groom’s house to enjoy a noisy gathering. Their arrival in several cars is
usually announced by car horns blaring throughout the neighbourhood. Using your
understanding of tort law, is this permissible?

2) The tort of negligence requires three elements to be proved, i.e. duty of care,
breach of the duty of care, and damage resulting from the breach of that duty of care.
Explain this with reference to driving a car and walking a huge pet dog through the
neighbourhood.

Explain professional negligence.

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Topic 9 – The Sale of Goods

Introduction

Generally speaking, the sale of goods transactions is governed by the Sale of Goods Act
(Cap 393, 1999 Rev Ed), hereinafter referred to as “SGA”. The lays down compulsory rules
regarding the sale of goods and defines the meaning of “goods”. The Act also consists of an
array of presumptions and implied terms, which aim to reflect the commercial expectations in
the most commonly agreed sales contracts.

The Sale of Goods Act

The law relating to the domestic sale of goods in Singapore is governed by the SGA. This Act
applies to all contracts for the sale of goods: s 1(1). It does not apply to contracts such as hire-
purchase, leasing or barter.

The SGA applies to any contract for the sale of goods i.e. a contract in which the seller
transfers or agrees to transfer property in goods to the buyer for a money consideration called
the price: s 2(1).

Goods are defined in section 61(1) to include all personal chattels apart from things in action
(such as shares) and money.

The SGA does not apply to the provision of services.

If some consideration other than money is supplied, for example where goods are
exchanged for other goods, the SGA does not apply.

Contract for the Sale of Goods

• Formalities – Contract of sale of goods may be made in writing, orally, partly
in writing and partly orally, or it may be implied from the conduct of the parties.

• Capacity – Capacity to enter into sale contracts is determined according to the
general law relating to capacity to contract, but the SGA specifically provides that
where necessaries are sold and delivered to a minor or to a person who is incompetent
to contract because of mental capacity or drunkenness, he must pay a reasonable
price for the goods.

• The Price – The price of goods can be fixed by the contract, decided according
to a course of dealing between the parties, or decided in the way agreed under the
contract. Where the price cannot be decided by any of these methods, the buyer must
pay a reasonable price.

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• Types of Goods – “Goods” are referred to in SGA as:

o “existing goods” – goods in existence and which are possessed by the seller at
the time the contract is made: s 5(1);
o “future goods” – goods to be manufactured or acquired by the seller after the
contract is made: s 61(1);
o “specific goods” – goods identified and agreed upon by the seller and buyers
at the time the contract is made; and
o “unascertained goods” – goods which at the time of the making of the contract
of sale, have not yet been identified and agreed upon by the parties.

Terms of the Contract for the Sale of Goods

Two types of contractual terms are specifically mentioned in the SGA, conditions and
warranties. Breach of a condition will give the innocent party the right to terminate the
contract, whereas breach of a warranty gives rise to a right to claim damages but not to end
the contract.

Under the general law of contract, there is a third type of term, namely, the innominate or
intermediate term, a breach of which will entitle the innocent party to end the contract only if
such breach deprives him of substantially the whole benefit of the contract.

The classification of a term is usually a matter of construction of the contract, but it can
sometimes be provided for by statute.

Implied Terms

Sections 12 to 15 of SGA contain terms that are implied in a contract for the sale of goods.
Some are implied conditions, others implied warranties.

• Seller’s Right to Sell the Goods

Under section 12(1), there is an implied condition in a contract of sale that the seller
has the right to sell the goods. This condition would be breached where, for example,
the seller does not have title to the goods and is unable to pass a good title to the
buyer.

In Rowland v Divall (1923), the plaintiff bought a motor car from the defendant and
used it for several months. It then appeared that the defendant had had no title to it,
and the plaintiff was compelled to surrender the car to the true owner. The plaintiff
sued the defendant to recover the purchase money that he had paid, on the basis of a
total failure of consideration.

The court held that, notwithstanding that the plaintiff had had the use of the car, there
was a total failure of consideration, and he was entitled to recover his purchase price.

Sections 12(2) (a) and 12(2) (b) provide for implied warranties that the goods sold
are free from any encumbrances unknown to the buyer, and that the buyer will enjoy
quiet possession of the goods.

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• Correspondence with Description

Section 13 provides that where there is a sale of goods by description, there is an
implied condition that the goods correspond with the description. Even where the
goods are advertised for sale in a catalogue and are selected by the buyer, this implied
condition applies. The case of Beale v Taylor (1967), for example, involved a car that
turned out to be a collection of soldered together vehicles, not what the buyer intended
to purchase.

For s 13 to be successfully invoked, the buyer must have relied on the description:
Harlingdon & Leinster Enterprises Ltd v Christopher Fine Art Ltd (1991).

The implied condition must generally be complied with strictly. Refer to Re Moore &
Co Ltd and Landauer Co Ltd (1921) in Topic 7, under discharge of contract by
Performance.

• Satisfactory Quality

Where a seller sells goods in the course of a business, section 14(2) provides that is
an implied condition that the goods are of satisfactory quality. However, this condition
does not apply to any defect which is specifically drawn to the buyer’s attention before
the contract is made, nor if the buyer examines the goods before the contract, to any
defect which that examination ought to have revealed.

Section 14(2B) lists a number of aspects of quality which are to be taken into account
such as:

a) the fitness for purpose for which the goods in question are bought for;
b) their appearance and finish;
c) freedom from minor defects;
d) safety; and
e) durability.

Second-hand goods will attract a lower standard of satisfactory quality.

• Fitness for Purpose

Where the seller sells goods in the course of a business and the buyer makes known
expressly or by implication to the seller any particular purpose for which the goods are
being bought, section 14(3) provides that there is an implied condition that the goods
supplied are reasonably fit for that purpose. This is regardless of whether that is a
purpose for which such goods are commonly supplied. The implied condition does not
apply where the circumstances show that the buyer does not rely on the skill and
judgment of the seller or that it would be unreasonable for him to do so.

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Frost v. Aylsbury Dairy Co Ltd (1905)

FACTS: The plaintiff bought milk from the defendant for family consumption. The milk
was contaminated with typhoid germs. The plaintiff’s wife died after drinking the
contaminated milk.

HELD: The Court of Appeal held that the purpose for which the milk was bought was
clearly for human consumption. Clearly unfit for human consumption in this case, there
was a breach of the implied condition of fitness for purpose.

Further, section 14(3) would not apply if special conditions/situations relating to that
which is purchased is not made known to the other contracting party.

In Griffiths v Peter Conway Ltd (1939), a lady visited a shop and asked for a tweed
jacket. She was recommended a Harris Tweed jacket, which was made from rough
tweed. She bought the jacket and contracted dermatitis after wearing it. However, there
was nothing wrong with the jacket; it was the customer’s skin that was delicate. But
this was not made known to the seller at the time of the contract of sale. The rough
material on her skin gave her dermatitis. The seller’s defence was that if she had told
the seller, she had delicate skin, they would not have recommended that particular
tweed. The court held that the seller was not liable.

• Sale by Sample

Section 15 provides that where goods are sold by sample, there is an implied
condition that the bulk will correspond with the sample in quality, and that the goods
will be free from any defect making their quality unsatisfactory, that would not have
been apparent on a reasonable examination of the sample. If the sale is by sample as
well as by description, the goods must correspond with both the sample as well as the
description.

Exclusion of Implied Terms

The ability of a seller to exclude or restrict any liability that might otherwise arise under the
implied terms in sections 12 to 15 of the SGA is controlled by section 6 of the Unfair Contract
Terms Act (Cap 396, 1994 Rev Ed).

The terms implied by section 12 (the right to sell, freedom from encumbrance and quiet
enjoyment) cannot be excluded at all, whilst the conditions implied under sections 13, 14 and
15 (correspondence with description, satisfactory quality, fitness for purpose and sale by
sample) cannot be excluded or restricted as against a person dealing as a consumer.

In the case of a buyer who is not dealing as a consumer, the operation of sections 13 to 15
may be excluded or restricted by a contract term only if it satisfies the requirement of
reasonableness.

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Passing of Property

It is important to firstly distinguish between ownership, possession and title and
possession. Possession only refers to physical possession, but not ownership, i.e. borrowing
a friend’s car for the evening means the person who borrows that car for the evening has
possession of the car for that evening, ownership (property or title) is still retained by the
lender.

Determining when ownership, property or title in goods passes from the seller to the buyer is
important for three reasons:

1) If property has passed, the goods would belong to the buyer, and so the unpaid
seller would be able to sue the buyer for the price of the goods: (s 49).
2) Generally, risk passes with ownership (s20), so the owner of the property must
bear the loss should something happen to the goods.
3) If either the seller or buyer becomes insolvent, it is important to determine who
has property of the goods. If property has passed to the buyer who becomes the
subject of bankruptcy proceedings, it will be difficult to make a claim against the buyer;
if property has not passed to such a buyer, then the seller will be able to retrieve the
goods.

Intention of the Parties

The general rule under section 17 is that property in specific or ascertained goods
passes according to the intention of the parties, having regard to the terms of the contract,
the conduct of the parties and all the circumstances of the case. Under section 16, property
in unascertained goods cannot pass until they are ascertained, regardless of the intention
of the parties.

In the absence of any indication as when property will pass, Section 18 provides five default
rules to determine when property in goods passes. These rules are divided according to the
type of goods and the sale contract concerned.

• Section 18, Rule 1

This rule provides that in an unconditional contract for the sale of specific goods in a
deliverable state (i.e. such a state that the buyer would be bound under the contract to
take delivery of them), property in the goods passes when the contract is made, even
if payment or delivery, or both, might be postponed. This rule might apply, for instance,
when a customer selects an item in a shop.

What is considered to be in a “deliverable state” was seen in Philip Head & Sons Ltd
v Showfronts Ltd (1970) where it was held that delivered carpets that were stolen
before they could be laid on the buyers premises were not considered “deliverable
state”; as such property and risk remained with the seller.

• Section 18, Rule 2

Rule 2 governs the sale of specific goods where the seller is bound to do something to
the goods for the purpose of putting them in a deliverable state, and it provides that
property passes when the thing is done, and the buyer has notice that it has been
done. For example, if some of the furniture purchased is yet to be assembled, then
property does not pass to the buyer until the furniture has been fully assembled and
the shop notifies the buyer that this has been done.

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• Section 18, Rule 3

Under rule 3, where there is a sale of specific goods in a deliverable state, but the
seller is bound to weigh, measure, test, or do some other act to the goods for the
purpose of determining their price, property passes under this rule when the thing is
done, and the buyer has notice that it has been done.

• Section 18, Rule 4

Rule 4 applies where goods are delivered on sale or return, or on approval or other
similar terms. Here, property in the goods will pass to the buyer when the buyer
signifies his approval to the seller or does any other act adopting the transaction; or he
retains the goods beyond a certain time without giving notice of rejection. In Elphick v
Barnes (1880) a horse was passed on approval for 8 days but died after 3. The buyer
had possession but no liability to pay.

• Section 18, Rule 5

Rule 5 applies to the sale of unascertained goods or future goods by description.
Property will pass when goods of that description and in a deliverable state are
unconditionally appropriated to the contract. In order for unconditional appropriation to
take place, case law requires that the contract goods must be identified, separated
from other goods where applicable, and irrevocably attached to the contract.

In Aldridge v Johnson (1857), the buyer agreed to buy 100 quarters of barley out of
200 quarters which he had inspected and sent some sacks to contain the goods. The
court decided that property passed as soon as the seller filled the sacks, even before
the goods left the seller’s possession.

In Carlos Federspiel & Co SA v Charles Twigg & Co Ltd (1957) property in bicycles
manufactured to the buyer’s order by the seller was held not to have passed even after
the bicycles were made and packed into containers with the buyer’s name and address
because the seller did not ship them as he was supposed to do under the contract.

Reservation of Title Clause

Where there is a contract for the sale of specific goods, or where goods are subsequently
appropriated to a contract, section 19 allows the seller to reserve the right of disposal to the
goods until certain conditions are fulfilled. Under such a situation, property in the goods does
not pass to the buyer until the conditions imposed by the seller are fulfilled, notwithstanding
delivery of the goods to the buyer or to a carrier for transmission to him. This is also known as
a Romalpa clause, whereby a seller retains title to the goods sold until these have been paid
for by the buyer: Armour v. Thyssen Edelstahlwerke (1991).

Risk

• Passing of Risk

Where goods are at the risk of one party, he has to bear the loss if the goods are
damaged, lost or destroyed. Section 20(1) provides that the goods remain at the
seller’s risk until the property in them is transferred to the buyer, and that risk passes
to the buyer once property passes regardless of whether the goods have been
delivered.

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In Tarling v Baxter (1827), a haystack was sold to a buyer but burned down before
the buyer could take possession. The court held that property had passed to the buyer
and consequently, he bore the risk.

Section 20(1) is subject to a contrary agreement between the parties, and in such
cases property and risk may be separated.

Section 20(2) provides an exception to s 20(1) in that where delivery is delayed through
the fault of either the buyer or the seller, the goods are at the risk of the party at fault
“as regards any loss which might not have occurred but for such fault”. Demby,
Hamilton & Co v Barden (1949) illustrates this point. In this case, goods purchased
had perished due to the buyer failing to take delivery; the court held that the buyer was
at fault for delaying to take the goods.

• Specific Provisions where Goods have Perished

Where, in a contract for sale of specific goods, the goods, without the knowledge of
the seller, have perished at the time of the contract, section 6 provides that the
contract is void.

Section 7 provides that where in an agreement for the sale of goods, the goods perish
without fault of the buyer or the seller after agreement to sell but before risk passes to
buyer, the agreement is frustrated.

Delivery

Delivery is the voluntary transfer of possession from one person to another. Delivery may be
actual or constructive. Delivery is constructive when the goods themselves are not delivered,
but the means to obtaining possession of the goods is delivered; for example, by delivering
the key to the garage where the car sold is kept.

Whether the seller has to send the goods to the buyer, or the buyer has to take them from the
seller, depends on the terms of the contract: section 29(1). In the absence of any such terms,
the rules of delivery apply:

1) The place of delivery is the seller’s place of business, or his residence if he has
no place of business. If the contact if for sale of specific goods which, to the knowledge
of both parties, are in some other place, then that place is the place of delivery: section
29(2).
2) Where the seller is bound to send goods to the buyer, but no time for sending
them is fixed, the seller must send the goods to the buyer within a reasonable time:
section 29(3).
3) If the seller agrees to deliver goods to the buyer at a place other than where
they are sold, the buyer must, in the absence of such an agreement to the contrary,
take the risk of deterioration necessarily incident to the course of transit: section 33.
4) The expenses for putting the goods in a deliverable state must be borne by the
seller: section 29(6).

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Transfer of Title by Non-Owner

The general rule under section 21 is that where a person who is not the owner sells goods,
the buyer acquires no better title to the goods than the seller had. This rule is often expressed
in Latin as nemo dat quod non habet (no one can give what he has not got). According to this
rule, a thief cannot pass good title to stolen goods, and the original owner of the goods does
not lose his title to them.

There are, however, exceptions to the Nemo Dat Principle. It does not apply where:

a) a non-owner sells goods under the authority or with the consent of the owner
(an agency situation);
b) the owner of the goods is, by his conduct, precluded from denying the seller’s
authority to sell (an estoppel situation) [section 21(1) SGA];
c) a mercantile agent sells goods in certain circumstances under section 2 of the
Factors Act [section 21(1)(a)];
d) there is a contract of sale under any special common law or statutory power of
sale, or under a court order [section 21(2)(b)];
e) where a person with a voidable title sells goods – before the contract is
avoided – to a buyer who buys in good faith and without notice of the seller’s defect
in title (section 23);

Duties of the Seller and Buyer

• Payment and Delivery

Under section 27, the seller has a general duty to deliver goods according to the
terms of the contract. Delivery here does not mean the physical despatch of goods; it
means the voluntary transfer of possession of goods from one person to another.
Therefore, the seller must have the goods in a readily available state for the buyer to
take possession of them.

Likewise, it is the duty of the buyer to accept and pay for them in accordance with
the terms of the contract. Section 28 provides that delivery of the goods and payment
of the price are concurrent conditions. Neither party can claim that the other is in
breach if he himself is not ready and willing to perform his obligations.

• Good Title

A seller has the duty to pass a good title. In selling the goods, there is an implied
condition that the seller has the right to sell the goods or, in the case of an agreement
to sell, he will have that right to sell when property is to pass: section 12(1).

There is also an implied warranty, unless previously disclosed to the buyer, the goods
are free from encumbrances and that the buyer will enjoy quiet possession: section
12(2).

• Buyer’s Right to Reject the Goods

The buyer has the duty to accept goods only in accordance with the terms of the
contract. If there is a breach of condition, or if the breach of an innominate term is
sufficiently serious, the buyer may be entitled to reject the goods and terminate the
contract under the general law.

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• Delivery of Wrong Quantity

Under section 30, the buyer can choose to reject the goods if the seller delivers the
wrong quantity. However, if the excess or shortfall in quantity is so slight, it would be
unreasonable for the buyer to reject the goods (section 30(2A)).

• Instalments

The buyer is not bound to accept delivery by instalments unless this is agreed between
the parties (section 31).

• Loss of Right to Reject the Goods

A buyer will lose his right to reject the goods and terminate the contract for breach of
condition once he has accepted the goods. Section 35 sets out the situations where
a buyer is deemed to have accepted goods. These are

a) where the buyer intimates to the seller that he has accepted the goods;
b) where the buyer does an act inconsistent with the ownership of the seller; and
c) where the buyer retains the goods beyond a reasonable time without intimating
to the seller that he has rejected them.

Unpaid Seller’s Remedies against the Goods

Sections 38 to 48 provide an unpaid seller with real rights against the goods themselves. The
requirement before any of these rights are available is that the seller has to be an unpaid
seller. Section 38(1) stipulates that a seller is unpaid when the whole of the price has not
been paid or tendered, and this could be the case even if partial payment has been made, or
the seller has sold on credit.

Where property has passed to the buyer, an unpaid seller might in certain circumstances have
a right of lien over the goods, a right to stop the goods in transit, or a right to resell the
goods (section 39(1)).

A right of lien is a right of an unpaid seller who is in possession of the goods to retain them
until payment or tender of the price. This right is available provided that the goods are sold
without any stipulation as to credit, or the credit has expired, or the buyer has become
insolvent. Even where the seller has lost possession of the goods, he would have a right of
stoppage in transit if the buyer becomes insolvent, and this entitles him to resume possession
of the goods as long as they are in the course of transit and to retain them until payment or
tender of the price. An unpaid seller who has exercised his right of lien or stoppage in transit
may pass a good title to his buyer if he resells the goods (section 48(2)).

Where property has not passed to the buyer, the seller has the right to withhold delivery
(section 39(2)). The seller also has power under the general law to pass good title to the next
buyer upon resale, as property in the goods remains with him in this case.

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It should be noted that an unpaid seller will have the right to resell the goods in the following
circumstances:

• where he has expressly reserved the right to resell the goods in case the buyer
should make a default (section 48(4)),

• where the goods are of a perishable nature, and

• where he has given notice to the buyer of his intention to sell, and the buyer
does not pay or tender the price within a reasonable time: section 48(3).

Unpaid Seller’s Action for Breach of Contract

• Action for the Price

Where property in goods has passed to the buyer and he wrongfully neglects or
refuses to pay for them according to the terms of the contract, the seller may sue the
buyer for the price of the goods (section 49(1)). This action might be available even
for goods that have not yet been delivered, as long as property has passed.

When the property in the goods has not passed, the remedy available to the seller is
to bring an action for breach of contract.

• Damages for Non-acceptance

If a buyer has refused to accept and pay for the goods, section 50 allows the seller to
sue for damages for non-acceptance. This is commonly used in situations where
property has not passed to the buyer. If property has passed to the buyer, the seller
may bring an action for the price of the goods (as described earlier).

The measure of damages for non-acceptance is the loss directly and naturally
resulting, in the ordinary course of events, from the buyer’s breach of contract (section
50(2)). Where there is an available market for the type of goods in question, the
measure of damages is prima facie based on the difference between the contract price
and the market or current price of the goods at the time when they ought to have been
accepted, or if no time was fixed for acceptance, at the time of refusal to accept (section
51(3)).

Thompson Ltd v Robinson (Gunmakers) Ltd (1955)

FACTS: R contracted to buy a Vanguard motor car from T, who were car dealers. R
refused to accept delivery. There was no shortage of Vanguards.

HELD: T were entitled to damages for the loss of their bargain, i.e. the profit they would
have made, as they has sold one car less than they otherwise would have sold.

Note: If the demand of cars exceeds the supply and the car dealer can sell all the cars
he can get, he has suffered no loss of profit and the damages are nominal only:
Charter v Sullivan (1957).

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• Special Damages and other Rights

Where the seller suffers losses as a result of the buyer’s refusal to take delivery of the
goods within a reasonable time of a request by the seller, the seller can sue for any
loss caused by the buyer’s refusal to take delivery, as well as a reasonable charge for
the care and custody of the goods (section 37(1)).

Buyer’s Actions for Breach of Contract

• Damages for Non-delivery

Where the seller wrongfully neglects or refuses to deliver the goods, the buyer may
sue the seller for non-delivery (section 51(1)). The provisions for damages for non-
delivery are based on the same principles as those for damages for non-acceptance.

Section 51(2) expresses the measure of damages to be the estimated loss directly and
naturally resulting, in the ordinary course of events, from the seller’s breach of contract.
Where there is an available market, section 51(3) provides that the measure of
damages is prima facie the difference between the contract price and market or current
price of the goods at the time they ought to have been delivered, or if no time was
fixed, at the time of refusal to deliver.

If the buyer purchased the goods for resale and the seller knew of this, the measure of
damages will be the difference between the contract price and the resale price, if the
goods cannot be obtained from the market. If they can be obtained from the market,
the buyer ought to obtain them there and so fulfil his contract of resale, with the result
that the damages will be the difference between the market price and the contract
price.

• Specific Performance

Where the contract is one for the delivery of specific or ascertained goods, the court
has the discretion under section 52 to direct that the seller must perform the contract
specifically. Whether specific performance will actually be awarded in such contracts
will depend on the general principles under which the remedy is available at common
law.

• Damages for Breach of Warranty

Under section 53, where the seller has breached a warranty of the sale contract, or
where the buyer elects or is compelled to treat a breach of condition as a breach of
warranty, the buyer can bring an action against the seller for damages for breach of
warranty.

Consumer Protection

The Competition and Consumer Commission of Singapore (CCCS) administers the
Consumer Protection (Fair Trading) Act (Cap. 52A) or CPFTA, which seeks to protect
consumers against unfair trading practices by suppliers in Singapore and provides additional
rights to consumers in respect of goods that do not conform to contract.

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Under the CPFTA, a consumer who has entered into a consumer transaction involving an
unfair practice may bring an action against the supplier. A sale of goods transaction falls within
the ambit of this statute, and a consumer who buys goods may therefore rely on the statute
for protection.

Generally, it would constitute unfair practice for a supplier, in relation to a consumer
transaction

1) to do or say anything if as a result a consumer might reasonably
be deceived or misled;
2) to make a false claim; or
3) to take advantage of a consumer if the supplier knows or ought
reasonably to know that the consumer is not in a position to protect his
own interests, or is not reasonably able to understand the character,
nature, language or effect of the transaction.

The CPFTA also sets out a list of specific unfair practices (schedule 2). These include
representing that goods have performance characteristics, qualities or benefits that they do
not have; representing that goods are of a particular standard, origin or method of manufacture
if they are not; or representing that goods have a particular history when the supplier knows
that this is not the case.

Section 5(3) provides that in determining whether a supplier has engaged in any unfair
practice, the reasonableness of his actions in the circumstances should be considered.

Section 6(1) offers remedies to a consumer who has entered into a consumer transaction
involving unfair practice. Such a consumer may commence an action against the supplier, and
should a court actually find that the supplier did indeed engage in unfair practice, the court
may:

1) order restitution of any money or property or other consideration,
2) award damages,
3) make an order for specific performance,
4) direct the supplier to repair goods or provide parts for the goods, or
5) vary the contract between the consumer and the supplier.

Lemon Law

Lemon Law is a law that protects consumers against defective goods that fail to conform to
contract or are of unsatisfactory quality or performance standards at the time of delivery. Under
the CPFTA, suppliers have to repair, place, reduce the price or provide a refund for a defective
good within six months from the date the good was delivered to the consumer.

The Consumers Association of Singapore

The Consumers Association of Singapore (CASE) is a non-profit, non-governmental
organisation that seeks to protect consumers interest against ethical trade practices.

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Class Activity

Get into small groups and discuss the following:

1) Mrs Goh went to the we market to buy fish, intending to cook a fish dinner for
her family. At the market stall selling fish, she asked the price of the mackerel and was
told the price. Finding the price agreeable, she ordered five pieces of the fish, which
the seller sliced and bagged it. At that point in time, Mrs Goh said she changed her
mind about the mackerel and wanted some prawns instead.

Using you understanding of the concept of “property” in goods, and at which point in
time it passes from buyer to seller, would Mrs Goh be able to change her mind at this
point in time?

2) Consider the concept of “no refunds” in consumer transactions in Singapore.

Explain the role of the Consumers Association of Singapore.

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Topic 10 – Business Organisations

Introduction

This last chapter focuses the types of business organisations in Singapore; how they are
formed, and the advantages and disadvantages of each type of business. All businesses in
Singapore must be registered with The Accounting and Corporate Regulatory Authority
(ACRA).

Sole Proprietorship

A sole proprietorship is a type of business that is exclusively owned, managed and controlled
by a single person with all authority, responsibility and risks involved in running that business.
It is the easiest form of business to set up and operate.

Characteristics of a Sole Proprietorship

a) Single Ownership: The sole proprietorship form of business organisation has
a single owner who himself/herself starts the business by bringing together all the
resources.

b) No Separation of Ownership and Management: The owner himself/herself
manages the business as per his/her own skill and intelligence. There is no separation
of ownership and management as is the case with company form of business
organisation.

c) Fewer Legal Formalities: The formation and operation of a sole proprietorship
form of business organisation involves limited legal formalities. Thus, its formation is
quite easy and simple.

d) No Separate Entity: The business unit does not have an entity separate from
the owner. The businessman and the business enterprise are one and the same, and
the businessman is responsible for everything that happens in his business unit.

e) No Sharing of Profit and Loss: The sole proprietor enjoys the profits alone.
At the same time, the entire loss is also borne by him. No other person is there to share
the profits and losses of the business. He alone bears the risks and reaps the profits.

f) Unlimited Liability: The liability of the sole proprietor is unlimited. In case of
loss, if his business assets are not enough to pay the business liabilities, his personal
property can also be utilised to pay off the liabilities of the business.

g) Control: The controlling power of the sole proprietorship business always
remains with the owner. He/she runs the business as per his/her own will.

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Merits of a Sole Proprietorship

a) Easy to Form and Wind-Up: It is very easy and simple to form a sole
proprietorship form of business organisation. Minimal legal formalities are required to
be observed. Similarly, the business can be wind up any time if the proprietor so
decides.

b) Quick Decision and Prompt Action: As stated earlier, nobody interferes in
the affairs of the sole proprietary organisation. So, he/she can take quick decisions on
the various issues relating to business and accordingly prompt action can be taken.

c) Direct Motivation: With this type of business organisation, the entire profit of
the business goes to the owner. This motivates the proprietor to work hard and run the
business efficiently, and as profitably as possible.

d) Flexibility in Operation: It is very easy to effect changes as per the
requirements of the business. The expansion or curtailment of business activities does
not require many formalities as in the case of other forms of business organisations.

e) Maintenance of Business Secrets: The business secrets are known only to
the proprietor. He is not required to disclose any information to others unless and until
he himself so decides. He is also not bound to publish his business accounts.

f) Personal Touch: Since the proprietor himself handles everything relating to
business, it is easy to maintain a good personal contact with the customers and
employees. By knowing the likes, dislikes and tastes of the customers, the proprietor
can adjust his operations accordingly. Similarly, as the employees are few and work
directly under the proprietor, it helps in maintaining a harmonious relationship with
them, and run the business smoothly.

Limitations of a Sole Proprietorship

a) Limited Resources: The resources of a sole proprietor are always limited.
Being the single owner, it is not always possible to arrange sufficient funds from his
own. So, the proprietor has a limited capacity to raise funds for his business.

b) Lack of Continuity: The continuity of the business is linked with the life of the
proprietor. Illness, death or insolvency of the proprietor can lead to closure of the
business. Thus, the continuity of business is uncertain.

c) Unlimited Liability: In the eyes of law the proprietor and the business are one
and the same. So personal properties of the owner can also be used to meet the
business obligations and debts.

d) Not Suitable for Large Scale Operations: Since the resources and the
managerial ability is limited, sole proprietorship form of business organisation is not
suitable for large-scale business.

e) Limited Managerial Expertise: A sole proprietorship from of business
organisation always suffers from lack of managerial expertise. A single person may
not be an expert in all fields like, purchasing, selling, financing etc. Again, because of
limited financial resources, and the size of the business it is also not possible to engage
the professional managers in sole proprietorship form of business organisations.

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Partnership

A partnership is an association of two or more persons who pool their financial and managerial
resources and agree to carry on a business and share its profit. The persons who form a
partnership are individually known as partners and collectively a firm or partnership. The
statute governing partnerships is the Partnership Act (1994 Cap. 391 Rev. Ed.)

Characteristics of a Partnership

a) Number of Partners: To form a partnership firm at least two persons are
required, with a maximum limit 20 partners.

b) Contractual Relationship: A partnership is created by an agreement among
the persons who have agreed to join hands. Such persons must be competent to
contract. Thus, minors, persons with mental disabilities and bankrupts are not eligible
to become the partners.

c) Sharing Profits and Business: There must be an agreement among the
partners to share the profits and losses of the business of the partnership firm.

d) Lawful Business: The business of which the persons have agreed to engage
in as a partnership must be lawful.

e) Principal-Agent Relationship: There must be an agency relationship between
the partners. Every partner is the principal as well as the agent of the firm. When a
partner deals with other parties he/she acts as an agent of other partners, and at the
same time the other partners become the principal.

f) Unlimited Liability: The partners of the firm have unlimited liability. They are
jointly as well as individually liable for the debts and obligations of the partnership. If
the assets of the firm are insufficient to meet the partnership’s liabilities, the personal
properties of the partners can also be utilised for this purpose.

Merits of a Partnership

a) Easy to Form: A partnership can be formed easily without many legal
formalities. A simple registration with ACRA is all that is required.

b) Availability of Larger Resources: Since two or more partners are needed to
start a partnership, there will be a wider pool of resources as compared to sole
proprietorship.

c) Better Decisions: In partnership, each partner has a right to take part in the
management of the business. All major decisions are taken in consultation with all
partners.

d) Flexibility: The partnership firm is a flexible organisation. At any time, the
partners can decide to change the size or nature of business or area of its operation
after securing the necessary consent of all the partners.

e) Sharing of Risks: The losses of the firm are shared by all the partners equally
or as they have agreed.

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f) Benefits of Specialisation: All partners actively participate in the business as
per their specialisation and knowledge. For example, a partnership that is a law firm
could address many areas of law where each partner specialises in a particular field
of law. Therefore, such a partnership could deal with criminal and civil matters.

g) Secrecy: Business secrets of the firm are only known to the partners. It is not
required to disclose any information to the outsiders. It is also not mandatory to publish
the annual accounts of the firm.

Limitations of a Partnership

a) Unlimited Liability: The most important drawback of partnership firm is that
the liability of the partners are unlimited, i.e., the partners are personally liable for the
debt and obligations of the partnership. In other words, their personal property can also
be utilised for payment of partnership’s liabilities.

b) Instability: Every partnership firm has uncertain life. The death, insolvency,
incapacity or the retirement of any partner brings the firm to an end.

c) Limited Capital: Since the total number of partners cannot exceed 20, the
capacity to raise funds remains limited as compared to a company where there is no
limit on the number of shareholders.

d) Non-transferability of Partnership: The share of interest of any partner
cannot be transferred to other partners or to the outsiders.

e) Possibility of Conflict: In a partnership, there sometimes can be friction
among partners. Differences of opinion may give rise to difficulties, which could lead
to dissolution of the partnership.

Company

The relevant statute with regards to companies is Companies Act (Cap 50, 2006 Rev Ed),
hereinafter CA.

Once a company is set up (registered with ACRA) it becomes a “legal person” in the eyes of
the law, separate and distinct from the persons who set up the company. It is said to be a
separate legal entity (SLE); it has its own independent existence and has all the powers of
an individual. It can own property, enter into contracts, hire persons, etc., all in its own right.

The principle of separate legal entity was established in Salomon v Salomon (1897), in which
a prosperous boot and shoemaker, Mr Salomon, who ran a business as a sole proprietorship,
later formed a company with other members of his family and sold his business to the
company. He held 20,001 of the 20,007 shares and gave one each to his wife and 5 children
which were issued by the company, and $10,000 of debentures. About 2 years after its
formation the company was wound up. The assets at that time were worth about $6,000. The
persons claiming these assets were: a) creditors to the value of $7,000; and b) S, as holder of
$10,000 debentures. The creditors claimed priority because S and the company were one and
the same person.

The court held that S and the company were separate legal entities and since debenture
holders generally have priority over creditors, S was entitled to $6,000 assets.

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Veil of Incorporation

This recognition that a company is an SLE is often referred to as the veil of incorporation. This
veil of incorporation is a protective veil that shields members from personal liabilities of the
company.

Where a company is set up for illicit purposes by members, or where a company is set up to
avoid legal obligations, the veil will be lifted or pierced by the courts. Here are some examples
where the court lifted the veil:

• Re Darby (1911): the veil was lifted where it was found that the company was
created and used as a vehicle for fraud.

• Gilford Motor Co Ltd v Horne (1933): the veil lifted when it was found that
the company was created to avoid legal obligations of the member.

• Green v Bestobell Industries Pty Ltd (1982): the veil was lifted when it was
found that the company knowingly participated in a director’s breach of fiduciary duties.

Shareholders

Persons who “own” the company or who have provided finance for the setting up of a company
are known as shareholders or members. Such shares are generally transferrable, i.e. can
be sold to other parties. Should the company go into liquidation, the shareholders liabilities
are limited to the amount of shares that they own. In other words, their personal property
cannot be seized to settle any outstanding debts the company owes at the time of liquidation.

Further, a company could issue new shares should it require further capital for investment
and expansions. However, the company has to comply with the rules and regulations of the
Singapore Stock Exchange before being allowed to do so.

Characteristics of a company

a) Separate legal entity: Once a company is formed, it exists as a separate legal
entity, distinct and separate from the persons who formed (registered) the company.

b) Able to sue and be sued: A company may sue or be sued in its own name.
Thus, if a company enters into a contract which is breached by the other party, it is the
company who has the right to sue, not the members.

c) Perpetual Succession: A company will exist until such a time it is liquidated
or wound up. Even if the directors and/or shareholders change over time, the company
will continue its existence.

d) Able to Own and Sell Property: Because a company is a separate legal entity,
it can, like any other legal person. own and dispose of property.

e) Able to Hire or Terminate Employees: A company is able to hire and
terminate employees. It is important to note that when a person is employed to work
for the company, the employment contract is between that person and the company.

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f) Directors: At what is known as an Annual General Meeting (AGM), which takes
place every year of the company’s existence, the shareholders will elect a Board of
Directors (BoD) who will manage the company. From this BoD, the directors will elect,
from amongst themselves a Managing Director (or Executive Director) to manage the
company on a daily basis.

Merits of a Company

a) Larger Scale of Business Operation: More often than not, companies are
usually larger than sole proprietorships or partnerships. This is largely due to the effect
that they can issue shares to secure more funding.

b) Able to Secure Loans and to Attract Investment: Unlike sole proprietorships
and partnerships, it may be easier for companies to secure loans from banks, as well
as attract investors. Depending on the size of the company, such lending is usually
based on the collateral that the company is able to offer. The better the collateral, the
greater the loan or investment the company is able to secure.

c) Shareholders’ Liability Limited: As mentioned above, the shareholders’
liabilities are limited to the amount of shares they have purchased.

Limitations of a Company

a) Complexities: There are generally more rules and regulations involved in
setting up, maintaining and dissolving a company. Regulatory measures need to
be complied with, and more often than not, a web of outstanding debts need to be
addressed before the company is finally liquidated.

b) Stricter Rules: As mentioned, the CA is the main governing statute for
companies, and this statute offers rules and regulations governing companies in
Singapore. These must be complied with, failing which, penalties will be imposed
on the company and/or its officers depending on the breach or non-compliance of
any regulation.

c) Control: Control of the company vests with the directors who are appointed by
the shareholders at the AGM (as mentioned above). Directors have full control of
the company and, notwithstanding that they are voted in by the shareholders, the
shareholders cannot interfere with business decisions of directors. Automatic
Self-Cleansing Filter Syndicate Co Ltd v Cunningham (1906). This is so
because, more often than not, shareholders are ordinary individuals who have no
business experience of running a company.

However, the abovementioned does not mean that the shareholders have no
control over the directors. If shareholders are unhappy with the directors, they can
remove and replace the directors at the next AGM (by voting him out). The other
possibility available to the shareholders is that they are able to change the
constitution, limiting the powers of the directors. (Shareholders have the power to
change or amend the company’s constitution by passing a special resolution: s26
CA.)

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Types of Companies

There are a few types of companies (17(2) CA).

• Company Limited by Shares: The liability of the members (shareholders) are
only up to the amount of shares they have (purchased or invested); the members are
not personally liable for the debts of the company in the event the company goes into
liquidation.

Types of Shares

Two types of shares need to be considered here: fully-paid up and partially-paid up
shares. A fully-paid up share is a share that has been fully paid; a partially-paid up
share is a share in which full payment for that share has not been made. Usually, when
shares are offered by companies, purchasers need only to make a partial payment of
the share (the percentage usually decided by the company). The remaining amount
remains subject to being “called” at some later date. When the company makes such
a call, the shareholder must pay the outstanding amount on each share. A shareholder
is contractually bound to make payment upon call; this is the case even if the company
is going into liquidation and the call is made by the liquidator (section 250(1) CA).

• Company Limited by Guarantee: In such companies, the guarantee (of the
company’s debts) is usually made by the members; for companies limited by guarantee
(s250(1) CA), there are no shareholders in such cases. The liability of the members is
on the guarantee that they made. Such companies are usually charities or non-profit
organisations, as opposed to profit-driven companies.

• Unlimited: The liability of the members in such companies is unlimited and
could possibly extend to their personal property (s250(2) CA). Given its nature, such
companies are rare.

Public and Private Companies

Companies can also be classified into public or private companies. Simply put, the main
difference is that a public company is able to issue shares to be public when it needs to raise
capital for further expansion (or financing), whereas a private company cannot raise funds by
issuing shares to the public. Public companies are traded on the stock exchange; private
companies’ shares cannot do so.

The name of a public company is abbreviated as “Ltd” (limited), where are a private company
is abbreviated as “Pte Ltd” (private limited).

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Other Forms of Business Entities

As of 2005, other types of business entities have come into existence to facilitate and promote
the setting up of businesses in Singapore.

• Limited Liability Partnership (LLP): Has the similarities of a partnership and
company in that it is a SLE, meaning that the partners exist separately from this
partnership and therefore are not personally responsible for the debts of this
partnership, and each partner is responsible for acts of other partners (vicarious
liability).

• Limited Partnership (LP): Has all the similarities of a partnership, but the only
main difference is that there must be one or more limited partners (partners with limited
liability), while the others are general partners (personally liable for the debts of the
partnership in the event the partnership is liquidated, i.e. unlimited liability). The LP has
no separate legal entity; some partners remain personally liable for the debts of the
company (general partners).

• Joint Venture: This business relationship is unlike the sole-proprietor,
partnership or company. This is a one-time business undertaking in which the
parties come together, pursue or carry out a one-time business opportunity, and when
completed, the parties go their separate ways.

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Class Activity

Get into small groups and discuss the following:

1) Edmund Poh Tian Hock plans to start a business. He wants to be shielded from
any debts his business might incur, yet he wants be in control of the business. He also
plans to offer shares when he needs more capital to fund his business expansion
plans.

Explain to Edmund the best business entity that may suit his needs.

2) Discuss the protective nature of Separate Legal Entity. Would you suggest it
offers protection only to shareholders?

3) Examine the various business entities and suggest which is the best option for
a person going into business to sell cars.

– END OF STUDY GUIDE –

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