The very seed of human civilisation was planted with the cherished notion of co-operation and in our daily interactions with others, we form oral or implied agreement with those around us. More recently, with the proliferation of “user agreements”, we find ourselves giving consent to organisations who seek to bind us legally with fine print and varied terms we have not bothered to read – thus exhibiting a widening gap between our intentions and what the other party believes we have agreed to.
So, if we do not mean what we have agreed to, does it mean we have been dishonest? Do breaches of contracts only happen because one party is being unfair to the other? What is a valid contract and what are the best ways to resolve disputes arising from the above-mentioned discrepancies?
Contract law comes under civil law – and they are different from the usual promises we make because contracts can be enforced in court (imagine if your 9-year-old took you to court for breaking the promise of taking her to the zoo). When one of the parties fails to live up to the obligations agreed to in the contract, we say that a breach of contract has occurred. Breaching a contract does not terminate it. Often, depending on the importance of the term (for e.g. a less important term is known as a warranty) breached, the courts have different solutions for the injured party ranging from injunction (an order to stop someone from doing something) to damages (liquidated or unliquidated) or specific performance.
If you are being sued for a breach of contract, some prudent questions to ask would be:
Is there a contract?
What kind of contract is it? Is it oral, written, or a contract by seal or deed?
Is the contract valid and enforceable?
In a previous article What Makes a Valid Contract?, you would have discovered the four elements that make an agreement enforceable by law, such as intention, offer, acceptance and consideration. You will also discover how an offer might be terminated by death, rejection, lapse of time, revocation and offer subject to condition, and the rules that determine if the consideration is valid. As highlighted in all our articles, these articles may not contain all of the information about the law or the exceptions and qualifications that are relevant to your circumstances. You will need a qualified professional adviser to take into account your particular circumstances and to tell you how the law applies to you.
Here, we examine some reasons why the contract cannot be enforced even though it is documented, offered, accepted and consideration was given.
The contract is illegal: Any agreement that violates existing laws or is forbidden by law is void. Suppose a foreigner pays the option money of one percent for a landed property before he has permission from Singapore Land Authority (Land Dealings Approval Unit) – and the seller grants him the option to purchase but the buyer is subsequently unable to – because he is forbidden by law to own any landed property as a foreigner. The seller cannot enforce the sale but the failed buyer cannot claim back the one percent (which can be a lot for a landed property in Singapore).
The contract is against public policy: When a contract is formed to promote corruption in public life, sexual immorality, to interfere with justice, to trade with an enemy, to damage foreign relations – these contracts would be judged on the merit of the case to reflect on the values of society.
The contract was formed under duress or undue influence, there were mistakes and or misrepresentations: When a contract is formed due to threats to one party, or when mistakes arise such that one or both parties signed a contract with complete misapprehension as to its effects. One recent example is a case of three siblings signing a deed under the mistaken impression that it related to their brother’s appointment as sole administrator of their father’s estate. They were under the impression that all four siblings agreed to waive their interests in favour of their mother solely but instead found that the brother had included himself as a joint tenant with his mother in the estate – which meant he was to become the sole owner of their father’s house upon the death of their mother. Depending on the type of misrepresentation (a false statement of fact made by one party to another which induces the other to enter into a contract), the misled party may rescind the contract and sue for damages for deceit (please see our article on “Fraud”).
Only contractual parties can use the contract to sue each other. Known as privity of contract, this principle states that only parties (e.g. A and B) to a contract can sue or be sued on contract. However, with the Contracts (Rights of Third Parties) Act 2001, C (who is not a contractual party) may enforce a term of the contract (if the contract specifically states that he may, or if any contract term purports to confer a benefit on him).
In the case that the contract does exist, is not void and is not voidable – these are the remedies that the injured party may seek.
Damages: Liquidated damages are monetary sums that are included as a provision should a breach of contract occurs. Law Society’s Conditions of Sale for e.g. provides a liquidated damage of 8% if there is a delay in completion. Unliquidated damages are, on the other hand, determined by the court.
Injunction: A court order that forces the person being sued to do something, not do something depending on what the person suing is requesting for. A Mareva injunction, which freezes the assets of someone being sued, is a well-known action taken against the risk of a defendant dissipating his assets to frustrate a judgement of the court.
Specific Performance: A requirement to fulfil exactly as stated in the contract – this notion is best understood by the Shakespearean play The Merchant of Venice where a moneylender refused damages but insisted on the specific performance of taking a pound of flesh off the borrower (whom he hated), when the loan was not repaid on the specific date. While all’s well that ends well (with the lawyer of the borrower pointing out the lender may remove the flesh but only so – without shedding a drop of the borrower’s blood) – it is rare that courts today grant specific performance when damages will do.