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BUS201 - CONTRACT & AGENCY LAW

STUDY UNIT 2
Chapters 3 & 4
4 ELEMENTS OF A VALID CONTRACT
Offer, Acceptance, Consideration + Intention to Create Legal Relations

STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

1. Define "contract".
An agreement giving rise to obligations which are enforced or recognised at law.
For a contract to be valid, there must be consensus ad idem (meeting of the minds), ie, the 4 elements of a valid contract are present.

2. Is it an Invitation to Treat? Case law Does the exception apply? If yes, discuss.
Or is an Offer (the 1st element)?
** See the Note on ETA in item 3 below.
An Invita&on to Treat is an invita&on to commence
negotiations or an invitation to the other party to
make an offer. It can also be merely asking for
information. Examples:
 Advertisements - Patridge v Crittenden (1968) Some advertisements can be an offer (due to the specific
words in the advertisement) and hence, result in unilateral
contracts - see item 3 below - Carlill v Carbolic Smoke Ball
(1892).

 Display of goods in shops - Pharmaceutical Society of Great Britain v Boots


Cash Chemists (1952)
 Mere provision of info - Harvey v Facey (1893)
 Inviting others to bid in auctions - Section 57(2), Sale of Goods Act
 Advertisements inviting parties to submit a tender

3. Is it a valid Offer? (1st element) Case law NOTE


 An offer is an expression made by one party (A) to Offer can also be made to the whole world , open for
anyone to accept - Carlill v Carbolic Smoke Ball (1892).
another party (B) , communicating A's willingness to
perform a promise.

 Offer can be made orally or in writing , or by ** The Electronic Transactions Act (“ETA”), Cap. 88 of
conduct . Singapore was enacted in 1998 to facilitate e-commerce
and hence, contracts can be concluded electronically. In
particular, Section 11 of the ETA states that an offer or
 For an o ffer to valid, it must be heard, seen or acceptance can be sent electronically in the form of an
“electronic communication”.
received .
Section 14 of the ETA states that an “offer” of goods or
 Was o ffer terminated? services via the internet will be considered an invitation to
treat unless the offeror makes it clear that he intends to be
a. Was offer withdrawn (before acceptance) and it - Byrne v Van Tienhoven (1880)
bound by it (if he is, then it would be construed as an offer) .
was communicated to the offeree? Hence, in general, online “offers” essentially have the same
b. Was offer rejected? legal status as traditional advertisements and are generally
c. Was there a counter-offer? - Hyde v Wench (1840) considered to be invitations to treat.
d. Did the offer lapse because of passing of time? - Ramsgate Victoria Hotel v Montefiore (1866)
e. Was the offer based on a condition + condition - Financings v Stimson (1962)
was not met?
f. Did offeror / offeree die? - Dickinson v Dodds (1876)
- Reynolds v Atherton (1921)

4. Is it a valid Acceptance? (2nd element) Case law Does the exception apply? If yes, discuss.
 An acceptance must be final & unconditional .

 Acceptance can be made orally or in writing . - Lim Hwee Meng v Citadel Investment Pte Ltd ** See the Note on ETA in item 3 above.
(1998)

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STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS
 Acceptance must be communicated (heard, seen or - CS Bored Pile System v Evan Lim & Co (2006) 1. Offeror waived the need for communication - Carlill v
physically received). Carbolic Smoke Ball (1892).

2. Parties agreed that silence = acceptance - Felthouse v


Bindley (1862).

3. POSTAL ACCEPTANCE rule: Parties agree that


acceptance is by post. Acceptance is effective once letter is
posted - Adams v Lindsel (1818).

5. Was there Consideration? Case law Be careful and take note:


- Dunlop v Selfridge (1915) Past consideration is not valid - Roscorla v Thomas (1842).
 Consideration is an act / forbearance / promise by
one party, in exchange for , the other's promise.

 Typically, 2 sets of consideration by 2 parties. - Dunlop v Selfridge (1915)

 Rule #1 - Was the consideration sufficient (ie, it - Chappell & Co v Nestle Co (1960) NOT sufficient consideration:
need not be fair, so long as it has some value)? Eg.
- Goods, services, property 1. Moral obligations & motives - Eastwood v Kenyon
(1840); Thomas v Thomas (1842)
- Forbearance to sue - Alliance Bank Ltd v Brom (1864)

2. Vague or insubstantial consideration - White v Bluett


- Performance of existing contractual duty to a - The Eurymedon (1975)
(1853)
3rd party
3. Performance of existing public duty - Collins v Godefroy
(1831); Glassbrook Bros Ltd v Glamorgan City Council (1925)

4. Performance of existing contractual duty - Stilk v Myrick


(1809) unless the other party received practical benefits -
Williams v Roffey Bros and Nicholls (1991)

 Rule #2 - Consideration must move from the - Tweedle v Atkinson (1861)


promisee, but need not move to the promisor. - Malayan Banking Bhd v Lauw Wisanngeni
(2003)

Eg. Susan (the promisor) promises to deliver a car to


Bobby (the promisee), in exchange for Bobby paying
$100. So the $100 consideration must move from
Bobby, but need not move to Susan. They can agree
the $100 is paid to a 3rd party.

6. Was there Intention to Create Legal Relations? Case law Does the exception apply? If yes, discuss.
- ATS Specialized Inc v LAP Projects (Asia) (2012)
 Objective test : whether a reasonable person
viewing all the circumstances of the case would
consider that the promisor intended that his promise
to have legal consequences.

 Domestic agreements presumed to have no - Balfour v Balfour (1919) Presumption can be rebutted by evidence - Merritt v
ITCLR. Merritt (1970)

 Social agreements presumed to have no ITCLR. - De Cruz Andrea Heidi v Guangzhou Yuzhitang Presumption can be rebutted by evidence - Merritt v
Health Products (2003) Merritt (1970)

 Commercial agreements presumed to have - Edwards v Skyways (1964) But can be rebutted by:
1. Honour Clauses - Rose & Frank v JR Compton & Cros
ITCLR.
(1925)
2. Letters of Comfort
3. Letters of Intent
4. Memoranda of Understanding (MOUs)

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STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS
7. Conclude if there was a valid contract.

8. Who can sue on the contract (ie, who are bound to the contract and can enforce the contract)?
1. Parties to a valid contract Case law Exceptions:
- Privity of Contract principle - Price v Easton (1833) 1. Agency
- Management Corporation Strata Title Plan No. 2. Assignment of Choses in Action
2297 v Seasons Park (2005) 3. Letter of credit

2. 3rd party if: Statute Does not apply to certain types of contracts eg.
a. the contract states expressly that he can sue - s2(1)(a), Contracts (Rights of Third Parties) Act, employment contracts
Chapter 53B of Singapore
b. the contract purports to confer a benefit on him - s2(1)(b) and s2(2), CRTA
(UNLESS on a proper interpretation of the contract,
the parties to the contract did not intend for the
contract to be enforceable by him)
c. he is expressly identified in the contract, by name, - s2(3), CRTA
as a member of a class etc.

* Note the provisions of Electronic Transactions Act, Chapter 88 of Singapore; applicable to e-contracts
* Note the concept of Promissory Estoppel where no fresh consideration is required for a new promise

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