Summary notes from Business Law class
Relevant Law
A contract is an agreement which gives rise to legal remedies if the promise is broken. In Low Kin Kok v Lee Chiow Seng (2014), the Singapore High Court affirmed that the test of inferring consensus ad idem is an objective one.
To ascertain if a necessary meeting of minds is present, the four basic elements of a contract must be established:
1. Intention to create Legal relations
2. Offer
3. Acceptance of offer
4.Consideration for the agreement.
1. Intention to create legal relations
Following Eastern Resource Managment Services Ltd v Chiu Teng Construction Co Pte Ltd (2014), Whether reasonable person viewing all the circumstances considers the relevant party intended his promise to have legal consequences.
In the case of a commercial agreement, there is a presumption that intention to create legal relations exist.
In the case of personal relationships (e.g. husband and wife), no presumption of intention to create legal relations.
No Such Intention
Honor clause: This agreement is not a formal or legal document but is only a record of the purpose and intention of parties to which they honourably pledge.
Rose and Frank v Crompton (1923): Mere pledge
HSBC Institutional Trust Services (Singapore) Ltd v Toshin Development Singapore Pte Ltd (2012): “In good faith endeavour to agree” = intention
“Subject to contract” clause
Memo of understanding, Letters of comfort, Letters of intent:Words and circumstances, usually no intent
Kleinwort Benson Ltd v Malaysia Mining Corporation Berhad (1989):
Defendant sent the claimant a ‘comfort letter’ stating that‘it is our policy to ensure that the business of [the subsidiary] is at all times in a position to meet its liabilities’. Relying on this letter, the claimant granted the loan. In reliance on a second comfort letter from the defendant to the same effect, the claimant later doubled the loan facility.
After the tin market collapsed, the subsidiary went in to liquidation with its loans to the claimant unpaid. The defendant refused to pay the outstanding amount. They argued that they never intended to be legally bound by the two comfort letters.
Other factors: Commercial context, arm`s length, careful preparation, compliance done, etc.
2. Offer
Expression of readiness/willingness by 1 party (the Offeror)to enter into an agreement with another party (the Offeree), where the offeror intends to be bound to the terms of the offer upon its acceptance by the offeree. In other words, it is an expression that:
1. Communicates the Offeror’s willingness to perform a promise.
2. Shows that (“Offeror” is) Ready and willing to be bound to agreement if accepted
3. Acceptance
Acceptance is a final and unqualified assent to terms of the offer.
To be valid, acceptance must be:
1. Unqualified: “mirror image rule” is a doctrinestipulating that any acceptance of an offer is deemed to be an to be an unconditional assent to the terms of the offer exactly as it is, without any changes or modifications.
2. Communicated to the offeror: Receipt rule,effective at the time offeror is notified.
- If orally, must be heard by Offeror (Entores v Miles Far East)
- If in writing, physically received. (CS Bored Pile System Pte Ltd v Evan Lim and Co Pte Ltd）
EXCEPTION TO GENERAL RULE that Acceptance valid only on Communication:
Offeror waives requirement of communication
(Carlill v Carbolic Smoke Ball Company (1893), unilateral offer to the world)
It may be implied from the construction of the contract thatthe offeror has dispensed with the requirement of communication of acceptance
(called waiver of communication - which is generally implied in unilateral
contracts): Carlill v Carbolic Smokeball Co (1893)
Where both parties (offeror & offeree) agreed that silence would be the prescribed mode of acceptance.
Not as in Felthouse v Bindley (1862), where offeror made offer stating that if offeree does not reply, offeree is taken to have accepted the offer.
Silence cannot be treated as acceptance. Felthouse v Bindley(1862)
Uncle issue offer to Nephew saying if he does not hear from him he takes it as acceptance. Nephew willing but forgot to reply, told auctioneer not to sell horse but horse still got sold. Uncle sued auctioneer for selling his property however it was held that there was no contracted because silence not accepted.
This is to prevent people from forcing contracts onto unwilling parties.
Exception: If offeree was seeking possibility of acceptance by silence – Re Selectmove Ltd (1995)
Postal Acceptance rule
Acceptance effective upon posting and not upon receipt by offeror (Adams v Lindsell)
Conditions for applying the postal rule:
1. Properly stamped & addressed.
2. Both parties Intend that Postal acceptance ruleapplies.
3. Can be by express terms or objectivelyascertained from the circumstances: nature of contract, conduct of parties, “manifest inconvenience”, etc (para 28) Agree/appropriate/reasonable/contemplate to use the post
Where both parties (offeror & offeree) agreed thatsilence would be the prescribed mode of acceptance. Not as in Felthouse v Bindley (1862), where offeror made offer stating that if offeree does not reply, offeree is taken to have accepted the offer.
Cross-Offers:
In Tim v Hoffmann, there will be no contract in the case of cross offers. Cross-offers happen when two parties send offers to each other in
identical terms and at about the same time and the letters cross each other in
transit. No consensus ad idem, meeting of minds.
4. Consideration
Something of value in the eyes of the law given in exchange for another’s promise.
1. Benefit-Detriment Analysis
A benefit conferred upon, or detriment suffered by a party.Law only requires either a benefit conferred, or a detriment suffered to
constitute consideration.
Issue: Benefit-Detriment as compared to Condition
Note: Promisor gets benefit, promisee gets detriment.
Chappell & Co Ltd v Nestle Co Ltd (1960): Nestleoffered to sell records for a price and three chocolate bar wrappers. The House
of Lords held that the wrappers are part of the consideration of the purchase
of the records and not just a condition, as Nestle had indirectly benefited
from the receipt of the 2 wrappers since its chocolate sales might have
increased in connection with the promotion. Alternatively, the purchaser had
suffered a detriment having been put the trouble of purchasing the chocolate
bars to purchase the record.
2. Price of the promise analysis
Promisor obtains benefit or Promisee suffers detriment.Promisee pays the price for the promise. There can be many different promises in any particular transaction.
Can be Executed
• Performed. Delivered. $ given. Did not sue. Etc
Issue: Executed consideration CAN BE good consideration
Carlill v Carbolic Smoke Ball Co (1893): The plaintiff was held to have acceptedthe defendant’s unilateral offer by taking the smoke ball. This act of
acceptance is also consideration as the defendants benefited from the sale of
the smoke ball while the plaintiff suffered a detriment by using the smoke
ball.
Can be Executory
• PROMISES to/ not to perform, deliver, pay etc.
2) Consideration must not be past
Past consideration, which is an act done before andindependently of a promise, cannot be regarded as valid consideration for the promise since it is not done in exchange for the promise.
Past consideration = Good consideration WHEN:
- Act was done at promisor’s request.
- Parties understood that act will be compensated.
- Suchcompensation will be enforceable if promised in advance of act.
Issue: Past consideration is not good consideration
Sim Tony v Lim Ah Ghee (1995): Sim, a public servant,referred Ah Ghee, an estate agent, to a person selling houses. Ah Ghee would get a commission from the sale of the houses and Sim regarded his assistance as gratuitous as this stage. Sim later alleged that there was a contract between Ah Ghee and him to share the commission. The court rejected Sim’s appeal and held that Sim had not done anything after the agreement to constitute fresh
consideration.
EXCEPTION: Past consideration can be good consideration
Issue: Past consideration CAN BE good consideration
Pao On v Lau Yiu Long (1980): The defendants requested the plaintiffs not to sell shares for one year. Later, the defendants agreed to indemnify the plaintiffs for any loss which they might suffer as a result of their earlier promise not to sell the shares. The loss occurred and the courts held that the indemnity was enforceable even though the plaintiffs’ promise to hold the shares was given before the defendants’ promise to
indemnify, because (all 3 conditions must be satisfied):
I. The actwas done at the promisor’s request
II. There was an understanding between the parties, at the time the request was made,
that the act would be paid for;
III. Such payment would be enforceable if it had been promised in advance
For point III, the condition is best explained as a safeguard against enforcing a promise that would not have been enforceable for any reason under contract law (e.g. due to the lack of an intention to create legal relations or the presence of vitiating factors, etc.) even if the problem of past consideration is overcome by virtue of the first two conditions being
satisfied.
Consideration must flow from the promisee (but not necessarily move to the promisor]
Issue: A person can only enforce a promise if he furnishes the consideration for the promise
Tweddle v Atkinson (1861): A married couple’s fathersentered into a contract to pay the young husband Tweddle a sum of money. The fathers later died and the court held that Tweddle could not enforce the contract between the two fathers as no consideration flowed from him, and he was not a party to the contract.