4 Contract - Vitiating Factors

CONTRACT - VITIATING FACTORS (Pg 141) There are 4 main factors, which can affect the enforceability of a contract.

Incapacity (Pg 142) – lack of capacity which may characterize a contracting party Rationale - To protect society’s young form imprudent bargains - To place the responsibility on adults who contract with minors to exercise prudence, caution Age of Majority Raj Bahadur Singh & Anor v Bank of India (1993) – 21 years s35 Civil Law Act (Cap 43) – A minor who has attained 18 can now enter into most agreements and bring/defend legal proceedings as if minor was of full age in connection with acting as: 1. Director of company, manager of LLP 2. Drawer/drawee of bill of exchange 3. Sole-proprietor or partner of business 4. Partner of Limited Partnership 5. Landlord/tenant of leases less than 3 years But the minor cannot enter into purchase, sale, mortgage, assignment of settlement of any land or lease for more than 3 years. Application - Minor can always enforce contract (sue adult) - Adult can only sue minor in valid Contracts Valid Contracts – Binds both minor and other party If minor has paid for the good, he cannot recover the monies paid (Pg144) Valenti v Canali (1889) When an infant has paid for something and has consumed or used it, it is contrary to natural justice that he should recover back the money which he has paid Minors (Pg 142)

Beneficial Contracts for Necessaries – Executed contract (Pg145) s3(3) Sale of Goods Act – Goods suitable to the condition in life of the minor concerned and to his actual requirements at the time of the sale and delivery Nash v Inman (1908) – contract unenforceable because Nash failed to prove that the clothes were suitable to his actual requirements at the time of sale and delivery) Peters v Flemings (1840) – Flemmings bought gold watch and chains which could constitute necessaries given his position as the eldest son of a gentleman of fortune who was also a Member of Parliament) s3(2) Sale of Goods Act provides that a minor must pay “a reasonable price” for the goods which have been “sold and delivered” to the minor Executory Contracts for Necessaries (Pg146) Goods: Nash v Inman (1908) – the other party must have performed his obligations before the contract is binding upon the minor Services: Robers v Gray (1913) – binding upon the minor regardless whether the other party has performed his obligations or not Beneficial Contracts for Employment (Pg147) s12 Employment Act – A person below the age of 21 years shall…be competent to enter into a contract of service…[provided that] no contract of service…shall be enforceable against [that] person…unless it is for his benefit De Francesco v Barnum (1890) – terms of the deed not beneficial to Barnum (unenforceable) Chaplin v Leslie Frewin (Publishers) Ltd (1966) – contract was beneficial overall as it enabled Chaplin to get a start as an author and earn money even though there were certain disadvantageous aspects (book showed him as a ‘depraved creature’) (enforceable)

Loans for Necessaries (Pg146) Financial Institutions in Singapore typically lend money to minors only if minor can supply a guarantor who will guarantee the loan. s2 Minors’ Contract Act – guarantee is enforceable even if the underlying loan agreement is unenforceable Voidable Contracts – Binds other party and binds minor unless minor repudiate Voidable not Void (Pg148) Minor is entitled to repudiate the contract without any liability on his part any time during his infancy or within a reasonable period of time after he attains majority. Until he repudiates, the contract remains enforceable. Davies v Benyon-Harris (1931) – minor entered lease for flat

Minors (Pg 142)

Reasonable time for repudiation of a voidable contract (Pg148) What amounts to reasonable time within to repudiate a voidable contract is a question of fact which depends on the circumstance of the case. Effect of repudiation of a voidable contract (Pg148) Once repudiated, the minor is no longer bound to perform any future obligations. He would not be entitled to recover any money paid or property transferred by him to the other party unless there is a total failure of consideration: Steinberg v Scala (Leeds) Ltd (1923) Ratifiable Contracts – Binds other party and binds minor only if minor ratifies (Pg148) If a minor’s contract does not within the class of valid or voidable, it would be ratifiable. Such contracts would not be valid or enforceable against the minor unless he ratifies it after he attains majority. The contract nevertheless binds the other party. Restitution of Property Improperly Obtained (Pg149) s3(1) Minors’ Contracts Act – the court may, if it is just and equitable to do so, require the minor to transfer to the adult any property acquired by the minor under the contract, or any property representing it. In voidable and ratifiable contracts, this provides a partial remedy to a person who enters into a contract with a minor where he can at least recover the property from the minor

Mentally Unsound and Intoxicated Persons (Pg 149)

Contract with persons stated is valid but may not be enforceable against him if it can be shown that at the time the contract was made: - he was incapable of understanding the nature of the contract; - the other party knew or ought to have known of his incapacity. s3(2) Sale of Goods Act also applies to mentally unsound and intoxicated persons. When they have obtained goods which are necessaries, they may be required to pay a reasonable price for the goods: Che Som bte Yip & Ors Maha Pte Ltd & Ors (1989)

Illegality (Pg 150) – When the source of law is infringed – whether statute or common law Gaming and Wagering (Pg151) s5 Civil Law Act, all contracts of gaming and wagering are generally void by statute. Thus, no legal effect and cannot be enforced

Illegal Contracts (Pg 151)

Contracts Contrary to Public Policy (Pg152) When the contract contravenes some aspect of public policy. Eg. To commit a crime, contract which promotes sexual immorality, contract which benefits a foreign enemy or undermines the relationship with a friendly country, contract inimical to administration of justice, contract to oust the jurisdiction of the courts Contracts Illegal in Performance (Pg 152) Some contracts are illegal because statutory provisions prohibit them. When the legislature’s intention is to prohibit a type of contract is clear from the statute, the contract may be void and unenforceable by all the parties, whether or not they are aware of the statutory illegality Constraints in Restraint of Trade (Pg 153) General rule is that all Restraint of Trade (ROT) clauses are illegal and void prima facie, and it is for the covenantor to prove otherwise: Asiawerks Global Investment Group Pte Ltd v Ismail bin Syed Ahmad & Another (2004) To be valid, an ROT clause must fulfil the following 3 criteria:

1. Legitimate Interest (Pg154) The restraint must protect some proprietary or legitimate interest of the covenantee. Trade Secrets and trade contracts may constitute legitimate interests: Asia Business Forum Pte Ltd v Long Ai Sin & Another (2003). A restraint intended merely to minimize competition or to prevent an employee from using personal skills or knowledge acquired during his previous employment is then likely to be void: Stratech Systems Ltd v Nyam Chiu Shin & Others (2005)

Illegal Contracts (Pg 151)

2. Reasonable Scope (Pg155) The restraint must be reasonable in terms of its period, geographical scope and subject matter. Even where a legitimate proprietary interest is shown, the court will ensure that the covenant in ROT “goes no further than what is necessary to protect the interest concerned”: Man Financial (S) Pte Ltd v Wong Bark Chuan David (2008) Mason v Provident Clothing & Supply Co Ltd (1913) – area too large (void) Asiawerks v Ismail bin Syed Ahmad & Another (2004) – clause to be read narrowly (scope) 3. Public Interest (Pg156) Restraint must not be contrary/injurious to public interest Esso Petroleum Co Ltd v Harper’s Garage (Stourtport) Ltd (1968) – The House of Lords held that the 21 year solus agreement was unreasonable whereas the four-year five-month solus agreement was reasonable. The test of reasonableness requires a consideration of the public interest which must be protected in such exclusive dealing agreements. General Effect (Pg156) At common law, the general effect of illegality is that the contract is void. The law treats the contract as if it had not existed in the first place and no party can sue on the contract. Recovering Property (Pg 157) In some cases the court may allow an innocent party to recover property which would otherwise pass to the defaulting party under the illegal contract. Siow Soon Kim & Others v Lim Eng Beng (2004) – The test to apply to determine whether the court should assist a plaintiff to enforce an agreement was whether the plaintiff was able to establish his cause of action independently of the illegality. In this case, the culprit was really the first appellant, and he should not be allowed to rely on an illegal scheme hatched by himself, and unknown to the respondent, to deny the latter his just entitlement. Tokyu Investment v Tan Chor Thing (1993) – TCT allowed to recover the shares

Effects of Illegality (Pg 156)

Recovering Damages (Pg 158) The defaulting party may be prevented from enforcing the contract by the maxim ex turpi causa non oritur action (an action does not arise from a base cause). However the innocent party may be able to recover damages from the defaulting party Archbold’s (Freightage) Ltd v Spanglett Ltd (1961) – The English Court of Appeal held that the contract was illegal in its performance but, since Archbold’s was not aware of the illegality, it was entitled to claim damages. The lack of awareness of the illegality is different from ignorance of law. Koon Seng Construction Pte Ltd v Chenab Contractor Pte Ltd and Another (2008) – If both parties are in pari delicto (equally at fault), then neither can establish a cause of action against the other without relying on its own wrongdoing, thus neither party obtains a remedy. Severances (Pg 159) Sometimes within the clause itself particular words can be severed so as to save the rest of the clause. Generally, severance is possible in cases of illegality if: a) the promises are severable in nature b) it is possible to sever the void part by deleting the offending words or clause without adding, substituting, rearranging or re-drafting the contract (BLUE PENCIL TEST) c) Severance must not change the basic nature of the contract. Goldsoll v Goldman (1915) – using the blue pencil test, the court severed the other locations and the reference to real jewellery and allowed the remaining clause to stand

Misrepresentation (Pg 159) – When the source of law is infringed – whether statue or common law. A misrepresentation is a false statement of fact made by one party (representor) to another (representee) which induces and is relied upon by the representee to alter his position. Statement of Fact In a claim for misrepresentation, the operative statement must be one of past or existing fact, that is verifiable and/or capable of scientific proof. Not puff Not statement of intention It cannot be a statement of some likely future event, although in certain circumstances, a statement of intention as to future action could be a false statement of fact if, at the time of making the statement of intention, the representor did not in fact hold the intention. Edgington v Fitzmaurice (1885) – If it can be ascertained, [the state of a man’s mind] is as much as fact as anything else. A misrepresentation as to the state of a man’s mind is, therefore, a misstatement of fact. Tipper Corp Pte Ltd v JTC Corporation (2007) – The plaintiff had not asserted that the defendant had no intention of keeping its word when the alleged representation was made, nor had the plaintiff adduced evidence in relation to this issue. Not statement of opinion A statement of opinion usually cannot form the basis of a misrepresentation unless the representor had access to the relevant facts and had no reasonable ground for holding such an opinion. Bisset v Wilkinson (1927) – The property cannot hold that much sheep but that claim was a statement of opinion and did not amount to misrepresentation. False Statement of Fact (Pg 162)

Tai Kim San v Lim Cher Kia (2001) – Where the facts are not equally well known to both sides, then a statement of opinion by the one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justify his opinion (comparative knowledge of parties) Not statement of law An erroneous statement of law is normally not capable of founding a claim in misrepresentation. Ignorantia lexis non excusat – ignorance of law is not a defence. Not silence Silence in itself does not amount to misrepresentation. Keates v Lord Cadogan (1851) – Court held that Lord Cadogan had no duty to disclose the state of his house, therefore, no misrepresentation. However, silence may amount to misrepresentation if a. It becomes a half-truth by what is left unsaid (a half-truth is a whole-lie) Dimmock v Hallett (1866) – Seller said that the place was fully let but did not say the tenants had given notice to quit. The unsaid facts turned the stated facts into half-truths and this constituted misrepresentation. Trans-world (Aluminium) Ltd v Cornelder China (Singapore) (2003) – A mere silence could not, of itself, constitute willful conduct designed to deceive or mislead. The misrepresentation of statements comes from a willful suppression of material and important facts thereby rendering the statements untrue. b. a change of circumstance arose which rendered a previously truthful statement misleading: With v O’Flanagan (1936) c. a duty is imposed upon one party to disclose facts to the other party, as in fiduciary contracts such as insurance contracts.

Inducement Edgington v Fitzmaurice (1885), reaffirmed by the Singapore Court of Appeal in Panatron Pte Ltd v Lee Cheow Lee & Another (2001) – For a false statement to be a misrepresentation, the statement must induce the representee to enter into the contract. As long as it is one of the inducing causes, it is immaterial that it is not the sole inducing cause.

Inducement (Pg 164)

Tai Kim San v Lim Cher Kia (2001) – The Singapore High Court held that the plaintiffs had not been induced by any representations to sell their shares to the defendant. A misrepresentation is considered to be harmless if, amongst other things, a plaintiff did not allow it to affect his judgment. Opportunity to Investigate the Truth Redgrave v Hurd (1881) – The mere fact that the representee had an opportunity to investigate and ascertain whether a representation was true or false was not sufficient to deprive him of his right to rely on the misrepresentation. Jurong Town Corp v Wishing Star Ltd (No 2) (2005) – A person who has made a false representation cannot escape its consequences just because the innocent party has made his own inquiry or due diligence, unless the innocent party has come to learn of the misrepresentation before entering into the contract or does not rely on the misrepresentation when entering into the contract. Fraudulent Misrepresentation (Pg 165) The false statement is made by the representor knowing that it is false. It is also known as the tort of deceit. Unless a representee can show that there is dishonesty on the part of the representor, there is no fraud even if the statement is far fetched, negligent, or ill-conceived. Vellasamy Lakshimi v Muthusamy Suppiah David (2003) – The Singapore High Court has held that “whenever fraud or deceit is alleged, a high degree of proof is required on he who asserts” Derry v Peek (1889) – For fraudulent misrepresentation to arise, the false representation must be made knowingly, or without belief in its truth, or recklessly, careless whether it be true or false. None of these elements were present in this case, thus there was no fraudulent misrepresentation Panatron Pte Ltd v Lee Cheow Lee & Another (2001) – The Court of Appeal held that the trial judge’s findings satisfied the essential requirements of law on fraudulent misrepresentation as laid down in Derry v Peek. (misrepresentation)

Categories of Misrep. (Pg 165)

Negligent Misrepresentation (Pg 166) Negligent misrepresentation arises when the false statement is made by the representor without due care. s2(1) Misrepresentation Act – A representor who makes a false statement without fraudulent intent would still be liable unless he can prove that he has reasonable grounds to believe and did believe the statement to be true. Howard Marine & Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd (1978) – Although the manager made the statement honestly, he had no reasonable grounds for the figure given. A reasonable manager would have checked the shipping documents and not relied on the Lloyds Register. Innocent Misrepresentation (Pg 167) Innocent misrepresentation arises where the representor made the false statement without fraud and without fault. (burden of proof lies on the representor) Redgrave v Hurd (1881) – Because there was no fraud or negligence on the part of Redgrave, the misrepresentation was an innocent one and the contract was rescinded.

Rescission (Pg 168) s1 Misrepresentation Act – Rescission is available in all 3 types of misrepresentation, even if the false statement has become a term of the contract. Once representee chooses to rescind the contract, it becomes void ab initio, meaning that it is treated as if is has never existed. The representee must give notice of rescission to the other party

Remedies of Misrep. (Pg 168)

Rescission is not possible when: a. The contract is affirmed expressly or impliedly by the representee after he discovered the misrepresentation, although the court would not hold that a contract had been affirmed without very clear evidence to this effect: Jurong Town Corp v Wishing Star Ltd (No 2) (2005) b. A reasonable amount of time has lapsed since the discovery of the misrepresentation Leaf v International Galleries (1950) – The defendant only discovered the truth after 5 years, and the court held that the right to rescind had long been lost. c. The parties cannot be restored to their original position before the contract (restitution in integrum impossible) d. The court exercises its discretion pursuant to s2(2) Misrepresentation Act to award damages in lieu of rescission Damages (Pg 168) Damages is the monetary compensation ordered by a court requiring the defaulting party to pay money to the injured party. Common Law allows damages for fraudulent misrepresentation. s2(1) Misrepresentation Act allows the court to award damages for negligent misrepresentation. s2(2) Misrepresentation Act grants to the court a discretion to order damages in lieu of rescission for both negligent and innocent misrepresentation. Indemnity (Pg 168) An Indemnity is an obligation whereby one person is held responsible for the liability of another person. An indemnity is used to help restore the injured party to his status quo ante (the position he was in beforehand). Indemnity is available in cases of innocent misrepresentation.

Nonreliance Clause (Pg 168)

Non-reliance clause (Pg 169) Orient Centre Investment Ltd and Another v Societe Generale (2007) – The Singapore High Court has held that a non-reliance clause which prevents the representee from establishing reliance on the representation can be effective to exclude the representor’s liability for misrepresentation, subject to the reasonableness test expressed in s11(1) UCTA.

Mistake (Pg 170) Common Mutual Unilateral

Non est factum

Common mistake occurs when both parties to the contract make the same fundamental mistake. Couturier v Hastie (1852) Mutual mistake occurs when the parties misunderstand each other and are at cross purposes. Only when one party is mistaken. Non est factum means “it is not my deed”. Arises when a person signs a document that is fundamentally different in character from that which he contemplated. Lee Sire Chun v Sourgrapes Packaging Products Pte Ltd (1993). To avoid a contract on the this basis, the plaintiff must show a. the document signed is radically different or totally different in character or substance from that which he intended to sign b. he had not been careless in signing the document c. he took such care as a person in his position ought to have taken.

Other Vitiating Factors (Pg 172) If a person is forced to enter into a contract as a result of actual violence or threats of actual violence, the contract would be unenforceable. Barton v Armstrong (1976)

Duress

Economic Duress refers to unlawful or illegitimate commercial pressure. If a party to a commercial transaction is left with no choice but to agree to certain terms and agrees to those terms under protest such economic duress may be made out. Atlas Express Ltd v Kafco Ltd (1989) The party must have objected in the first place (protest) and take steps asap to avoid changes to the contract. If not they would lose their right as in North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd (1979) A situation when the contract may not be entered into by one’s own free will. Undue influence seeks to prevent victimization. Inche Noriah v Shaik Allie bin Omar (1929). Undue influence is also presumed in some relationships like solicitors and clients, doctors and patient. Husband and wife is not presumed and must be proved.

Undue Influence

Lim Geok Hian v Lim Guan Chin (1994) – When it is presumed, the presumed party has the burden of proving that there is no undue influence. On the other hand, when presumption is absent, the alleging party has the burden of proving it by establishing: a. that the other party had the capacity to influence the complainant b. the influence was exercised c. its exercise was undue d. its exercise brought about the transaction