The Important of the Contract
The proper performance of contracts is key to the economic functioning of our society. All contracts have to come to a close or, in legal terms, be “discharged.” If one or both of the parties to a contract fail to live up to their end of the bargain, the courts can impose remedies. In addition, most provinces have enacted legislation dealing with consumer purchases in an effort to clarify the rights of both the buyer and the seller.
Rights and Obligations
A contract creates rights and obligations only for the parties to the contract. This principle is called privity of contract. Only the parties privy to the contract may sue if the other party breaches it. Insurance contracts are an exception to privity because even though the beneficiary is not party to the contract, he or she could sue the insurance company in case of non-payment of benefits.
Under some circumstances, the rights and obligations of the contract may be transferred or assigned to someone other than one of the original parties to the agreement. In some businesses, such as the construction industry, the assignment of a portion of a contract may be a normal way of operating. The general contractor routinely subcontracts out plumbing or electrical work. This is known as vicarious or substituted performance.
Discharging a Contract
When a contract is discharged, or brought to an end, it means that the parties are no longer bound by any obligations within it. A contract can be discharged when the parties involved complete their parts of the bargain satisfactorily. This is called performance. Substantial performance means fulfilling the essential elements of what was required by a contract although some minor aspects of it have not been satisfied. The key to substantial performance is whether the party got more or less than what it bargained for, even though the agreement has been breached.
At times, the parties to a contract may wish to end the contract even if all its terms have not been completed. This is called “discharge by agreement.” The parties might agree to cancel or terminate the contract, or to substitute a new contract for the old one. This is known as novation. In circumstances where the terms of a contract simply cannot be carried out by one of the parties because of unforeseen events, frustration occurs. For example, a contract might be considered discharged by frustration if one of the parties dies.
Breach of contract occurs when one of the parties fails to live up to the obligations agreed to in the contract. Breach does not necessarily terminate a contract. If a party breaches a very important term or condition of a contract, it is said to have been repudiated. The innocent party can either accept or reject the repudiation. If, on the other hand, a minor term of the contract is not performed, a breach of warranty exists. When a contract is breached, the courts may become involved and impose a remedy to help the injured party. This may be in the form of monetary damages to make up for losses suffered or an injunction ordering a party to do something or refrain from doing something.
The Sale of Goods
Provincial legislatures have passed Sale of Goods Acts that set out rules governing contracts in which the seller transfers ownership of goods such as televisions, books, or furniture. The Acts do not cover land sales or services such as banking or automobile repair. Within the Acts, a sale refers to a situation whereby title to goods is transferred immediately when the contract is made. An agreement to sell, on the other hand, means that title will be transferred to the purchaser at some future time.
The Sale of Goods Act sets out clear guidelines of when title of goods passes from one party to another. When the item to be purchased is available in the store, title passes to the buyer immediately. This is called an unconditional sale of specific goods in a deliverable state. If the seller needs to do something to the goods to put them into a deliverable state, title passes when these changes have been made and the purchaser has been notified. On certain occasions, title passes only after there has been weighing, measuring, or other evaluation of the goods in order to determine the price. Sometimes the buyer is allowed to test the goods before deciding to buy them. If the goods have not yet been manufactured, title passes when the buyer accepts the item.
Some products such as appliances and audio equipment are covered by a manufacturer’s warranty that sets out the terms under which the maker is responsible for the goods after they have been purchased. The Act also contains a number of implied conditions concerning the sale of goods. These concern the quality and fitness of goods as well as the owner’s right to sell them. If these are breached, the buyer can sue the seller. The Sale of Goods Act provides remedies for both the buyer and seller if either party breaks the terms of a sales contract.
Protection for Consumers
The federal government has passed laws that deal with dishonest business practices and misleading advertising. For example, bait and switch advertising, a tactic to lure customers into a store by advertising items on sale and then trying to sell them higher priced items, is illegal. Provincial consumer laws protect consumers in door-to-door transactions by providing for a 10-day “cooling off” period in which the buyer can reconsider the purchase. Consumers engaged in credit buying are protected by provincial laws that require lenders to clearly define interest rates as well as the cost of borrowing money.
Invalidating Factors
Why do people often end up in court disputing their contracts? Many factors can cause the court to rule that a contract either does not exist, or exists but is unenforceable. These factors include incapacity, illegality, public policy, mistake, misrepresentation, duress, undue influence, and unconscionability.
A contract cannot be formed if one of the parties does not have the capacity to understand what they are getting into and the ability to perform the contract. While adults are free to enter into any contract they wish, minors and adults with impaired mental ability receive special treatment under contract law. People who are not mentally competent do not have the capacity to contract nor do persons who are intoxicated to the point that they obviously do not comprehend the terms of the contract. Minors can make contracts, but most adults will not contract with them because the contracts are usually unenforceable in court. Minors are bound by contracts for the purchase of necessaries such as food, clothing, and shelter. However, these contracts must be fair to the young person. Parents are not liable if their minor children fail to pay for goods that are not considered necessaries.
An enforceable contract must be formed for a legal purpose, and the consideration given must also be legal. In the case of an illegal contract, the courts will simply declare the contract void and refuse to have any further dealings with the parties. This is also true of agreements that are contrary to public policy, that is, against the morals and ethics of the community.
Also, a contract cannot be formed if one or both parties have made a mistake, or error, about an important aspect of the contract. Often the courts say the mistake must go to the root of the contract or concern a material or fundamental term. Mistakes are classified as common mistake (both parties make the same mistake); mutual mistake (both parties are mistaken but they make different mistakes); and unilateral mistake (one party is mistaken and the other party may or may not know it).
Misrepresentation means that one party has made a false or inaccurate statement of fact that causes the other party to enter into a contract.
A buyer who relied on the misrepresentation could go to court and ask that the contract be declared void on the grounds that no genuine consent actually existed. Contracts can also be voided if duress, unlawful force or pressure, is used to convince a person to enter into it. A situation of undue influence exists when there is a special relationship between the contracting parties that creates a power imbalance so that it impossible for the subordinate or less powerful party to freely give consent. Unconscionability is similar in that it involves a contract between a weak and a strong party in which the bargain is unreasonably weighted in favour of the strong. Both undue influence and unconsciounability render a contract void.
Going to court
The people involved in a civil action are called litigants. The plaintiff is the party that initiates the legal action and the defendant is the person (or litigant) against whom the action is taken.
Unsure if your contract is valid or enforceable?
While it is often easy to get the word of the law with a simple Google, it is often invaluable to get a lawyer to help interpret the law in your specific case. If you have a contract that you are unsure if valid or enforceable, consider speaking with a lawyer. You can do so with a Quick Consult where you can get answers to your questions from an experienced lawyer for a transparent, flat fee of S$49 HERE.
This article is written by Johanna Tay from KF Property Network Pte Ltd.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.