A contract is only legal if the parties entering into it have the capacity to contract.
In Singapore, a contract entered into with a minor, a person of unsound mind or an inebriated person may not be an enforceable contract. Those individuals are deemed not to have the capacity to contract if they did not understand what they were agreeing to. However, under certain circumstances a contract with a potentially incompetent individual may be enforceable.
A contract with a company is always enforceable, as legally companies are defined as “persons” with the legal capacity to enter into contracts.
Under Singapore law, a contract is only formed if:
1) One party makes an “offer” of some good or service,
To satisfy the legal definition, the offer must express or imply a promise to be bound by the offer. An offer can be withdrawn at any time before it is accepted by the other party.
A situation where goods are displayed in a store with its price is merely an invitation to treat and not an “offer” in legal sense.
2) The other party “accepts” that offer, and
The acceptance must be unqualified and can be expressed through words or conduct, in recent years electronic offers and acceptances between parties are also considered legitimate, with it being deemed equally sufficient to form a contract. However, silence is almost never sufficient to be considered an acceptance.
3) Some consideration must pass between the parties.
Finally, to support that the contract is agreed upon, the parties must exchange something of value to each other. For instance, making payment for a service would be the type of consideration given to show the agreement is contractually bound. If no consideration is given, it will be considered a gift.
In commercial relationships, there is a legal presumption in Singapore that parties intend to be legally bound when they enter into agreements. Only a clear statement that the parties did not intend to be legally bound would overturn that presumption.
The opposite is true with social agreements between friends or family, as there is a legal presumption that between social relationships, parties do not intend to be legally bound, however if necessary you would need a clear statement of the intent to be legally bound.
The terms of the contract should highlight the rights and obligations that each party has towards their prior agreement, this is so that the contract will be deemed valid. Some of the essential terms include; the price being paid for a good or service, the description of the good or service being sold or provided and the details of parties in the contract. When a contract has been written down, Singapore uses the parol evidence rule, which states that only the written contract can be used in determining the terms of the agreement, not prior negotiations or other oral or written evidence.
For terms that were not explicitly stated in the contract, the court may imply a term where necessary for public policy reasons (such as; the Sale of Goods Act which each seller must have in sales contracts to imply that they have the right to sell a particular good) or because is it necessary to fulfill the intentions of the parties and to ensure that it does not contradict any express term in the existing contract.
If there is no written contract, the courts will have to look at the parties’ statements and actions to determine if there was an intention to be legally bounded. To make that determination, the courts look at when the representation was made, the importance the party attached to it and the sophistication of the party.
Once the terms have been confirmed by the court, they will interpret the terms by using a “reasonable person” standard. Which refers to how reasonable person understand the term and not how the actual parties understand it. Singapore courts emphasize the factual framework in which the contract was made to determine how a reasonable person would understand that contract.
If both parties do everything required under the terms of the contract, the law says there has been performance.
However, if one or both of the parties fails to perform, the law says there has been a breachof the contract.
There may not be an actual breach, if it is clear that one of the parties has no intention of following through with the contract, the other party can end the contract before performance. If there is an actual breach, the aggrieved party can choose to end the contract and look to the legal system to hold the party who breached the contract liable for the consequences of the breach.
A breach does not always mean that liability will be incurred to the party at fault. A brief run down of the defenses available for a breach is as per below.
The parties can agree to to release each other from a contract without any liability through a termination clause in the original contract.
Frustration releases the parties from liability if something that could not have been reasonably foreseen makes it impossible for one or more parties to perform.
Mistake voids a contract when one or both of the parties entered into the contract under a misinterpretation about a critical term.
A misrepresentation occurs when one party to a contract makes a false statement of fact to the other contracting party which induces the latter to enter into the contract, this contract is then nullified.
However, a ‘puff’ (vague or exaggerated sales promise) does not fall under misrepresentation.
- Duress & Undue Influence & Unconscionability
A contract will be voided if one party is forced into the contract under duress where the other party threatens or harms the first party, his or her property or economic interests.
Undue influence is a more subtle form of coercion, where one party dominates the other and undermines his or her independence.
- Illegality or Against Public Policy
A contract that is illegal or against public policies and laws will be voided immediately.
Examples include contracts that:
○ Deceive public officials
○ Undermine justice
○ Create a threat to public safety
○ Commit a crime, fraud or a tort
○ Promote sexual immorality
1. Contract Damages
The court can order the party who breached the contract to pay the aggrieved party for any financial loss suffered. When calculating the damages, the court compensates the aggrieved party for the amount that he or she would have gotten had there been no breach. That can include the contract amount plus consequential damages for costs incurred as a result of the breach.
However, the court does not compensate for mental distress or issues that arise from the aggrieved party’s failure to mitigate his or her damages.
2. Liquidated Damages
If the parties included a term in the contract stating what the damages would be in case of a breach, those are called liquidated damages. The court awards damages solely on quantifying the loss of the aggrieved party but not if the intention is to punish the party who breached the contract.
3. Specific Performance
In the rare case when damages will not adequately compensate the aggrieved party, the court may award specific performance, which means that the party in breach will have to do what is required under the contract.
An injunction is the opposite of specific performance, where the court prohibits a party from doing something.