CONTRACT ESSENTIALS

SEMINAR 4

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ESSENTIALS OF A 4CONTRACT
 A valid contract requires elements:

Offer

Intention to
create legal Contract Acceptance
relations

Consideration or
Seal/Deed

 If any 1 element is missing, there will be no valid contract.

 WRITING

 Aside from the 4 elements, it is generally not

a requirement that the contract has to be in
writing, for it to be valid.

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OFFER

 Offer: Offering to do something on specific terms - with a

clear intention of being bound should the other party accept.

 (1) Eg: X offers to sell his old TV to Y for $200 as X has

bought a new TV. If Y agrees – is there a contract, assuming
the other elements needed for a contract are met?

 Note: Offer must be distinguished from invitation to treat

under which - there is no clear intention of being bound.

 (2) Eg: If X rings up a store to find out how much a

particular model of a TV costs and the shop assistant
replies that it costs $2000, is X’s inquiry an offer?
 ITT - ADVERTISEMENTS

 Advertisements are generally invitations to treat.

 What is the reason?
Can the shop change the advertised price by a notice in the store?
ITT – DISPLAY OF GOODS

 Display of goods in a shop is usually an invitation to

treat.
 What is the reason?
Even if the word "offer" is used, it
may not amount to an offer in the
legal sense.

Source: Personal Photo

Can a comic bookshop
charge for a price of
a book that has been
dropped?

10
ITT - TENDERS

 When a business calls for a tender, that

is usually an invitation to treat.
 Eg: if a business calls for a tender for a
renovation contract, why does the
business not have a clear intention to be
bound to the lowest bid?
TERMINATION OF OFFER

 Once an offer is made, it may not be valid for forever. If an offer is no longer
valid, it cannot thereafter be accepted.

 Some ways in which an offer may become invalid/terminated are as follows:

 (1) An offer may be terminated by withdrawal before acceptance,

 (2) An offer may be terminated by a counter-offer,

(Eg: X offers Y his racket at $30; Y says he will pay $25; X refuses and later sells
it to Z; If Y subsequently offers $30 for that racket, that will be a new offer
which X does not have to accept – as the counter-offer of $25 destroyed the
original offer of $30)

 (3) An offer may be terminated by a lapse of time,

 (4) An offer may be terminated if the offer is subject to a condition and the
condition is not satisfied. Note: in this context, a condition is some external
factor or event or happening which cannot be determined at the time the offer
is made.
 Sometimes, the offer may
expressly state how long it
is open for.

Extract from Employment Contract

 ACCEPTANCE

 For acceptance to be valid, it must be on the same terms of the

offer.

 Communication of acceptance:
 (1) For the acceptance to be valid, it must be communicated to
the offerer.
 (2) Note: generally, the offerer cannot state that he will treat
the offeree’s silence as amounting to acceptance, as that may
result in unfairness.
(a)
(a) Did
Didthe
theguests
hotel know theoffer
make an newspapers were
in relation on offer?
to the newspaper?
(b)
(b) IfEven
so, was
if sothere acceptance
– was of that offer?
there acceptance of that offer?
IS THERE OFFER/ACCEPTANCE IN THE
FOLLOWING SITUATIONS?

 (1) going to the restaurant and having a meal

 (2) going on a public bus
 (3) studying in NUS
 (4) parking your car in a public car park
 (5) going to a toilet in a shopping centre
 (6) promising to pay $50 to a Charity and the Charity
agreeing
 (7) your parents promising you a trip to Europe, if you get
1st Class Honours and you agree
 CONSIDERATION
 (1) Consideration: Doing or agreeing to do something in return for the other party’s
promise.
FOR

 (2) Each party must provide consideration. If only party does, the agreement will have
no consideration.

FOR

 (3) What if I offer to sell you my TV for $100, delivery tomorrow and you agree.
Tomorrow, I call to find out when I can deliver the TV, but you say the deal is off. Can I
sue you? Is there consideration?
 Yes – as consideration is doing or "agreeing to do" something in return – ie a promise
for a promise is sufficient consideration.
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CONSIDERATION – OTHER MATTERS
 Consideration does not have to be adequate in the
sense that, so long as something in return is being
done, it does not matter how much it is or whether
it is equal to what is being given in return.
 Why is this so?
Consideration does not have to be adequate
DEED UNDER SEAL

 However note: a contract is

enforceable without consideration
if it is by deed under seal.

 A contract by deed under seal is

very formal agreement/document
typically drafted by lawyers and
there is a seal attached at the end
of it.

 Eg: I offer to give you my TV for

free in 2 days' time, you agree, and
we sign a deed to that effect. If in
2 days' time I don't deliver, you can
sue me for breach of contract –
because though there is no
consideration, the agreement is by
deed. Source: freepik.com
 INTENTION TO CREATE LEGAL RELATIONS

 The final element for there to be a valid contract is the

intention to create legal relations (ie: in the sense - if
something were to go wrong would the parties have
intended to take legal action?).
 INTENTION TO CREATE LEGAL
RELATIONS

 In domestic situations (ie between family/close

friends), it is usually presumed that the parties
do not intend to create legal relations.
 However, there can be exceptions.
INTENTION TO CREATE LEGAL RELATIONS

 In contrast, in commercial situations, it is usually

presumed that the parties intend to create legal
relations.
 However, again there can be exceptions (eg: when
parties use terms like “subject to contract”, “letter
of intent”, “memorandum of understanding”, there
may not be an intention to create legal relations).
 Parties may want to enter such an arrangement
because they want to retain more flexibility.
 IS THERE CONSIDERATION/INTENTION TO CREATE
LEGAL RELATIONS IN THE FOLLOWING SITUATIONS?

 (1) going to the restaurant and having a meal

 (2) going on a public bus
 (3) studying in NUS
 (4) parking your car in a public car park
 (5) going to a toilet in a shopping centre
 (6) promising to pay $50 to a Charity and the Charity
agreeing
 (7) your parents promising you a trip to Europe, if you get
1st Class Honours and you agree
 INTERNATIONAL COMPARISONS
Offer Acceptance Consideration Intention Generally,
to Create must it be
Legal in writing?
Relations

China Yes Yes No No No

US Yes Yes Yes No No

India Yes Yes Yes Yes No

Indonesia Yes Yes No No No

Vietnam Yes Yes No No No

Malaysia Yes Yes Yes Yes No

CONTRACT VARIATION
SEMINAR 4

Change

To

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VARIATION OF CONTRACT

 Once a contract is entered into,

subsequently one party may want to
make changes/variations to the
contract.

 Do you think the courts will allow such

variations easily? If not, why not?
VARIATION OF CONTRACT

 However, if the original contract

expressly and clearly states that
such changes can be made, then
the changes may be upheld.
VARIATION OF CONTRACT

 If the original contract does not expressly/clearly state

that such changes can be made, then effectively, it is like
making a new contract – in particular:
 One party must offer to make a change,
 The other party must agree to the change and
 There must be consideration for the change.
 Assuming the contract does not
allow the variation, for it to be
effective, there should be:

Offer Acceptance Consideration

Fresh O Seal or Deed O Promissory

Consideration R R Estoppel
(1) FRESH CONSIDERATION

 This refers to a situation where both

parties agree and both parties get a
fresh/new/direct benefit because of
the change.
 In such a situation, the change can be
enforced.
QUIZ

 I agree to manufacture pens at $10 each, delivery 1st

December. You agree. 2 days later, I ask you whether you can
pay $2 extra per pen. You agree. When I deliver the pens on
1st December – are you supposed to pay me $10 or $12 per
pen?
(a) $10 per pen, because though you agreed, there is no fresh
consideration because only I benefitted from the change
and you did not.
(b) $12, because you agreed to the change.
QUIZ

 I agree to manufacture pens at $10 each, delivery 1st

December. You agree. 2 days later, I ask you whether
you can pay $2 extra per pen if I deliver earlier on 1st
November. You agree. When I deliver the pens on 1st
November – are you supposed to pay me $10 or $12
per pen?
(a) $12 per pen, because we both agreed and we both
benefitted from the change.
(b) $10 per pen, because terms of the contract cannot be
changed.
(2) CHANGES BY DEED UNDER SEAL

 This refers to a situation where the change is agreed to by

both the parties by deed under seal.
 In such a situation, the change can be enforced.
 Eg: I offer to manufacture pens for you – for $10 each
delivery 1st December. You accept. 2 days later, I ask whether
you can pay $2 extra per pen instead. You agree and we sign
a deed to that effect. On 1st December I deliver the pens to
you. How much must you pay me per pen: $10 or $12?

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(3) PROMISSORY ESTOPPEL

 This refers to a situation where a change is initiated

by one party, X and the other party Y agrees .
 But subsequently,Y goes back on the promise.
 If the following conditions are satisfied, Y may
be
stopped (“estopped”) from going back on his
promise (ie: change can be enforced):
 If there is a clear representation by Y;
 X relied on the representation and acted in a particular
way; and
 It is inequitable or unfair to X (from the court’s
viewpoint) if Y were to go back on the promise.
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 EXAMPLE

 I agree to manufacture pens for you at $10 each;

Delivery: 30th September.
 Later I receive another urgent order from Z.
 I do not have the capacity to fulfill both orders and so ask you whether it is
alright if I delivered a week later (ie vary delivery date).You agree.
 However, when 30th September comes, you change your mind and decide to
sue me for non-delivery, and I am yet to manufacture the pens.
 (1) Am I liable (ie is the variation effective) if you just consider fresh
consideration/seal or deed?
 (2) However, what if my profits from the Z contract is $1K and the damages I
have to pay you now is $12K?
 What if my profits from the Z contract is 100K and the damages I have to pay
you now is 12K?
SUMMARY

 For there to be a valid contract, there must be

offer, acceptance, consideration (or the document
must be a deed under seal) and an intention to
create legal relations.
 If any one element is missing there will not be a
valid contract.
 For it to be valid, a contract generally does not
have to be in writing.
 Once a contract is made, if the parties seek to vary
the contract and such variations are not allowed by
the original contract, they may not be upheld unless
some “exception” (eg fresh consideration/deed
under seal/promissory estoppel) is satisfied.
 KEY BUSINESS TAKEAWAYS

 Though there can be a verbal contract if the essential terms

are agreed, it is better for a contract to be in writing where
possible.
 It should also be borne in mind that even if performance of the
contract has not started – there can be a valid contract and if
either party walks away from it – there can be a breach.
 Once a contract has been entered into, though it may be
possible to make changes – there are complicated rules
regarding surrounding this issue. Thus if changes are expected –
it is best to have an express variation clause. The more
detailed/specific such a clause is – the more likely for the
changes to be upheld.
 READINGS

 RC Chapter 6 (pg 131-158)

except:
 Waiver of communication of
acceptance/when acceptance is
effective (pg 142-143).
 Consideration cannot be
past/must move from
promise/cannot be
insufficient (pg 147-150).
 Williams v Roffey Exception
(pg 155-156).
 Note: Parties to the Contract will
be covered later.
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TUTORIAL 2 SLIDES
 QUESTION 1

 Nor Luc is a Malaysian and has a sole proprietorship in Singapore in the form of a retail shop. The shop is rented. He
has a car registered in his name and he uses it for both business and private purposes. He also owns an expensive
Rolex watch. He lives in a rented HDB house. He also has $1000 in his local bank account which is in his name. Of
late his business has not been doing well and he has run into huge debts. The total debts of the business amount to
$170000.

 (a) Advice the creditors as to some of the options open to them.

 (b) If after all the legal avenues for redress have been exhausted (such as bankruptcy), assuming the creditors have not
been fully repaid, is there anything else they can do at that stage?
 (c) Is there anything they could have done earlier (including some sort of insurance/etc – search the web) to protect
themselves or minimize the risks?
 (d) What if the facts were the same as stated in the first paragraph, but Nor Luc was in partnership with Slac Kah in
relation to the provision shop? Can they go after one partner instead of the other?
 (e) What if the facts were the same as stated in the first paragraph, but Nor Luc was running a company with Slac Kah
as a fellow shareholder and director?
 (f) What if the facts were the same as stated in the first paragraph, but Nor Luc and Slac Kah were carrying on a
limited liability partnership?
 (g) What if the facts were the same as stated in the first paragraph, but Nor Luc was a general partner and Slac Kah
was a limited partner in a firm registered as a limited partnership?
 QUESTION 2

 Tom, Dick and Harry are in an ordinary partnership running an accountancy firm. They have equal shares
and have contributed equally to the capital. Advise Dick and Harry in relation to following issues:

(a) Tom leaves home one morning by car to meet Joy who happens to be a client of the firm. On the way, he
knocks down Hope Loh. Is the firm liable? For the purposes of this question, assume insurance is not
available/applicable for some reason or other and that Tom does not have the means to pay the full amount.
Would your answer be the same if they were running a company and all three of them were directors or it was
an LLP?

(b) Tom also orders some standard stationary products in the name of the partnership from a sole proprietor
who knows Tom is a partner in the firm. When the other two partners find out, they do not think that the
partnership requires them because the items are slightly on the expensive side and so they do not want the
partnership to pay for them. Must the firm pay? Would your answer be the same if they were running a
company and all three of them were directors or it was an LLP?

(c) Tom also gives tax advice on the side, which is not disclosed to the other partners and makes a profit in the
process. The other partners subsequently find out. Must Tom account for the profits made? What if the firm
does not do tax work? Would your answer be generally the same if they were running a company and all three
of them were directors or it was an LLP?
QUESTION 3

 If you a running a “business”,

subject to certain limited
exceptions, it must be registered.
 But what amounts to running a
“business”? What do you think
are some relevant factors in
deciding whether a person is
running a “business”?
 For instance, if you are giving
tuition, do you need to register?

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 QUESTION 4

 Woods is a well-known chain in the US selling organic products. Ah Ding and Ah Dong visit America and see
the potential to open Woods outlets in Singapore. Assume that Woods is in principle agreeable to granting them
a franchise by entering into a contract with them under which Woods will get a cut of the gross profits arising
from the Singapore operations. Assume also that Ah Ding and Ah Dong intend to contribute about $500,000 as
capital for the business they are going to set up and that they intend to borrow another $500,000 from a bank in
Singapore.
(a) Advice Ah Ding and Ah Dong as to what sort of business organisation they should set up in Singapore.
(b) For the purposes of this question we have assumed that Woods only wants to enter into a contract with Ah Ding
and Ah Dong. What if Woods set up a partnership, LLP or Co with Ah Ding and Ah Dong in Singapore? In such an
event, what if due to the sale of defective products (arising from improper handling/storage in Singapore), the
Singapore operations incur a liability of $2m – what would be Woods level of exposure to the liability? (Read up
joint ventures in the textbook).
(c) In relation to (b) what if Woods US decided to directly invest in Singapore on its own and sets up a branch –
what would be Woods level of exposure to the liability? What if Woods US had assets worth $0.5m, but its
directors had personal assets worth $3m?
(d) If Ah Ding and Ah Dong set up a company (with both as directors) and Ah Ding caused the company a loss
directly attributable to his personal negligence, will Ah Ding face civil and/or criminal liability? What if it was a
LLP?