BUS201 - CONTRACT & AGENCY LAW

Chapter 6
VITIATING FACTORS
Incapacity, Illegality, Misrepresentation, Mistake and Others

STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

1. Define Vitiating Factors

Vitiating factors are factors which prevent a contract from being enforceable, to some degree or entirely. Typical vitiating factors are (a)
incapacity, (b) illegality, (c) misrepresentation and (d) mistake.

2. Identify the relevant Vitiating Factor for the Question.

Flip to the relevant guidelines for that Vitiating Factor.

3. Conclude whether the contract is unenforceable because of that Vitiating Factor.

* See next few pages for guidelines on each Vitiating Factor.

* There is a residual category "Others" of vitiating factors that you should read on your own.

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 BUS201 - CONTRACT & AGENCY LAW

Chapter 6
VITIATING FACTORS
Category 1 - Incapacity - Minors and Mentally Unsound/Intoxicated Persons

STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

1. Is it INCAPACITY?

Explain Incapacity: it refers to lack of capacity. The general rule is that a party must have capacity to form a valid contract.
2 types of incapacity: (i) Minors and (ii) Mentally Unsound and Intoxicated Persons.

2. Does it relate to a Minor? Statutory Provision IMPORTANT!

Explain who are Minors: They are persons who have
not reached the age of majority and do not have
capacity to enter into contracts.
In Singapore, the contractual age of capacity is 18 Section 35 and 36, Civil Law (Amendment) Act The age of majority for all other cases (non-contractual
matters) is still 21 years old.
years old.

3. What type of Minor Contract is it? Case law / Statute IMPORTANT!

3a. 1st Type of Minor Contracts: Valid
(a) Beneficial Contracts for Necessaries Necessaries is NOT the same as necessities.

There are slight differences in how common law

defines "necessaries", compared to the statutory
definition:
- Under common law, "necessaries" refer to the
goods and services which the law deems are
reasonably required by a minor for his specific station
in life.
- Under Sale of Goods Act, "necessaries" refer to
goods suitable for the condition in life of the minor,
and to his actual requirement at the time of sale or
delivery.
Nash v Inman (1908)
In addition, common law states that minor
must pay contracted price .
Section 3(3), Sale of Goods Act
In addition, Section 3(2) of SGA states that
minor must pay reasonable price for goods.
Luxury items may be considered "necessaries" if they are
considered appropriate for the minor's position in life -
Peters v Fleming (1840).
' Loans to a minor to buy necessaries - repayment of the
loan can be enforced against the minor - Marlow v Pitfield
(1719). If the loan is not to buy necessaries, then
generally, it cannot be enforced.

(b) Beneficial Contracts for Employment

A contract of employment or a contract which enables De Francesco v Barnum (1890)
a minor to earn a living is enforceable only if it is, Chaplin v Leslie Frewin (1966)

overall, beneficial to him.

3b. 2nd Type of Minor Contracts: Voidable For 2nd and 3rd type of contracts ( items 3b and 3c),
Typically for contracts with a recurring, future section 3(1) of Minor Contracts Act allows the court to
instruct the minor to pay for (or return) any property that
obligations on the minor eg. rental payments. he has improperly obtained under the voidable/ratifiable
Davies v Benyon-Harris (1931) contract.
A minor is entitled to repudiate the contract (with no
liability imposed on him): For eg. when he repudiates the contract or refuses to ratify
the contract, and yet insists on keeping the goods.
- any time during his infancy; or
- with a reasonable time of attaining age of majority.

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STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS
3c. 3rd Type of Minor Contracts: Ratifiable
Contracts which do not fall within the above 2
categories.
Such contracts are not valid nor enforceable against
the minor, unless the minor ratifies it after he attains
majority.

4. Does the contract involve a Mentally Unsound or Case law NOTE:

Intoxicated Person?

The contract is generally unenforceable if it can be Che Som v Maha (1989) Section 3(2) of SGA states that minor must pay reasonable
shown that, at the time of the contract: price for goods.

- he was incapable of understanding the nature of the

contract; AND
- the other party knew or ought to have known of the
person's incapacity.

5. Conclude whether the contract was vitiated by Incapacity.

Briefly state what the minor or the other party can do.

For example, for voidable contracts (see item 3b above ), the minor can void the contract and need not perform further obligations. However, the
minor must still pay for past outstanding amounts for goods or services provided to the minor prior to him voiding the contract.

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 BUS201 - CONTRACT & AGENCY LAW

Chapter 6
VITIATING FACTORS
Category 2 - Illegality

STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

1. Is it ILLEGAL?

There are four categories of illegal contracts: (a) gaming & wagering contracts, (b) contracts that are contrary to public policy, (c) contracts that are
illegal in performance, and (d) contracts that are restraint of trade.
Select the correct category and analyse, according to the guidelines below for that category.

2. Is the contract related to Gaming & Wagering? Case law IMPORTANT!

In Singapore, all gaming & wagering contracts are Section 5, Civil Law Act BUT certain gamming contracts are legal eg. casino,
generally void. legalised betting on football, horse racing and TOTO.

3. Is the contract against Public Policy? Case law

Examples
(a) contract to commit a crime, tort or fraud on a 3rd Apthorp v Neville (1907)
party
Ahvena Ravena v Lim Ah Han (1894)
(b) contract to promote sexual immorality eg. loan to
a person to fund a brothel
Regazzoni v KC Sethia (1958)
(c) contract which benefits a foreign enemy or
undermines the relationship with a friendly country
eg. a contract to do something that is illegal under the
laws of the friendly foreign country

(d) contract which is harmful to the administration of R v Andrews (1973)

justice eg. contract to give false evidence in court

(e) contract to circumvent the jurisdiction of the court Baker v Jones (1954)

4. Is the contract against a Statute? Case law IMPORTANT!

- Some statutes prohibit certain types of contracts eg. Sinnathamby v Lim Chong Seng (2002)
selling guns without a licence, or lending money as a
business, without a licence
- Some statutes only prohibit certain types of St John Shipping v Joseph Rank (1957) Example: Overloading of a lorry is illegal under statute.
behaviour/conduct, but does not prohibit the But the underlying contract for transport of goods is
legal.
underlying contract.

5. Is the contract about Restraint of Trade? Case law IMPORTANT!

Define Restraint of Trade: A restraint of trade is an Such restraint of trade clauses are typically found in
employment contracts and contracts for sale of businesses.
agreement where a business or person agrees to
refrain from undertaking certain types of trades or
employment.

General rule: Such restraint of trade is void UNLESS it satisfies 3 criteria.

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STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS
5a. 1st criteria: Restraint must protect the legitimate interest of the person imposing the restraint clause
The restraint must protect some proprietary or Stratech Systems v Nyam Chiu Shin (2005)
legitimate interest eg. trade contacts, trade secrets.

Maintaining a stable, trained workforce is also a

legitimate interest BUT it is illegal to impose a
restraint merely because you are afraid of
competition or prevent a former employee from using
his personal skills / knowledge acquired during his
employment.

5b. 2nd criteria: Restraint must be REASONABLE in time duration, geographical scope & subject matter
Hence, the restraint cannot be: Asiawerks v Ismail bin Syed Ahmad (2004)

- too long in time period (eg. 10 years);

- too wide in geographical scope (eg. anywhere in the

world); OR

- too wide in subject matter (eg. the former employee

was hired by a F&B restaurant but is now restrained
from joining a computer software company)

5c. 3rd criteria: Restraint must not be against public policy

If the restraint has significant impact on business Esso Petroleum v Harper's Garage (1968)
environment and reduces competition, resulting in
detriment to the consumers (as an example), the
clause maybe void.

6. Is there any way to "save" the restraint clause if it

does not meet the 3 criteria above?
Use the blue pencil test
Sever / delete the illegal words in the clause so that
you can save the rest of the clause. Delete the illegal
words and the rest of the clause remains valid.

Severance is possible if: National Aerated Water v Monarch (2000).

Goldsoll v Goldman (1915)

(a) the obligations are severable in nature;
(b) it is possible to sever the illegal part in the clause,
without having to add, substitute, re-arrange or re-
draft the contract or clause; and
(c) severance must not change the basic nature of the
contract.

7. Conclude whether the contract is illegal and void.

State clearly which category of illegality.

8. State available remedies (if the question asks about

it).
Contract is void. Archbold's (Freightage) v Spanglett (1961)

No party can sue on the contract.

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STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS
If property has passed to the other party under the
contract, generally the property is not recoverable.
In some cases, the innocent party can sue for damages
if the innocent party did not commit any wrongdoing
OR if thecases,
In some innocent
the party has party
innocent a basiscan
forrecover
the claim that
property that was handed over under the illegal
contract - see Para 6-314 of the textbook ( Tokyo
Investments v Tan Chor Ting (1993) ).

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 BUS201 - CONTRACT & AGENCY LAW

Chapter 6
VITIATING FACTORS
Category 3 - Misrepresentation

STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

1. Define Misrepresentation.

Representations are statements, verbal or in writing,

which are made prior to a contract. They are not part
of the contractual terms.

However, not all incorrect or untrue representations

will become misrepresentations.
For a representation to become a misrepresentation, Koh Keow Neo v Chee Johnny (2004)
it must fulfil 2 criteria:

(a) false statement of fact, and

(b) it was relied upon by the other party and induced

the contract.

2. Identify the statements made.

Read the scenario carefully and list out each relevant statement that was made by the parties.
Analyse each statement based on the following guidelines.

3. 1st criteria - Is the representation a FALSE statement Case law Does the Exceptions apply? If yes, discuss.
of fact?
In general, the statement made must be of past or Section 5, Civil Law Act
existing fact.

It cannnot be a mere statement of some likely Tan Chin Seng v Raflfes Town Club (2003) Exception 1: A statement of intention as to future action
event . could be a false statement of fact if, at the time of making
the statement of intention, the party making the
statement did not have such an intention - Edgington v
Fitzmaurice (1885)

It cannot be a mere statement of opinion .
Tan Chin Seng v Raffles Town Club (2003)
Exception 2 : A statement of opinion could result in a
misrepresentation if the party making the statement had
access to the relevant facts and had no reasonable
grounds for holding such an opinion - Bisset v Wilkinson
(1927)

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STEPS ASK YOURSELF

In general, silence does not amount to a
misrepresentation.
4. 2nd criteria - Did the other party rely on the
statement and it caused him to enter into the
contract?
As long as the misleading statement was one of the
causes, it does not have to be the sole inducement for
the other party to enter into the contract.
5. Conclude whether the statement(s) were
misrepresentations.
List out the statements that are misrepresentations.
6. Conclude what the innocent party can do.
Identify the innocent party (the party who heard or
received the misrepresentation).
Generally, the innocent party is entitled to rescind
(terminate) the contract.
Once the innocent party chooses to rescind the
contract, the contract is void ab initio (ie, void right
from the start).
He must give notice of his intention to rescind to the
other party. Once rescinded, the contract cannot be
revived.
SUPPORTING CASE/LAW
Keates v Lord Cadogan (1851)
Case law
Tan Kim San v Lim Cher Kia (2001)
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EXCEPTIONS
Exception 3 : Silence can be misrepresentation in 3
situations:
(i) silence amounts to partial non-disclosure (what is
stated becomes half-truth due to what was left unsaid) eg.
the landlord says to a potential buyer of the house that the
house is fully tenanted, but the tenancy is about to expire -
Dimmock Hallet (1866)
(ii) a change of circumstances has occurred which caused
a previously truthful statement to be become misleading -
With v O'Flanagan (1936);
(iii) where the law imposes a duty on 1 party to disclose
facts to the other eg. insurance contracts where the
insured is required by law to make full disclosure of all his
health conditions.
IMPORTANT!

Just because there was an opportunity given to the
other party to verify or investigate the truth of the
statement, does not mean that there was less inducement
caused by the misleading statement - Panatron v Lee
Cheow Lee (2001)

Just because the other party went to verify or
investigate the truth of the statement, does not mean that
he did not rely on the statement - Jurong Town Corp v
Wishing Star (2005)
IMPORTANT
Rescission (termination) of the contract is NOT available
when:
(i) the contract was affirmed expressly (or impliedly via
conduct) by the innocent party after he discovered the
misrepresentation - Jurong Town Hall v Wishing Start
(2005);
(ii) a reasonable amount of time had elapsed since the
discovery of the misrepresentation;
(iii) the parties can no longer be restored to their original
position before the contract; or
(iv) the court exercises its discretion to award damages
instead of rescission, under Section 2(2) of the
Misrepresentation Act.
STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS
7. State whether it is fraudulent, negligent or innocent Case law REMEDIES
misrepresentation (if the question asks).

7a. Fraudulent misrepresentation is when the party made Derry v Peek (1889) Rescission + Damages
the statement knowing that it is false (ie, he lied).

7b. Section 2(1) Misrepresentation Act Rescission (or damages in lieu) + Damages
Negligent misrepresentation is when the party made
the statement carelessly and without due care.

7c. Innocent misrepresentation is when the party made Redgrave v Hurd (1881) Rescission (or damages in lieu) + Damages
the statement without fraud and without fault.

He made the statement believing that he had

reasonable grounds to believe that it was true (and
such reasonable grounds did exist).

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 BUS201 - CONTRACT & AGENCY LAW

Chapter 6
VITIATING FACTORS
Category 4 - Mistake

STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

1. Were the parties mistaken?

In law, contracts become void ab initio (ie, null and no Adani Wilmar v Cooperative Generale (2002)
effect from the beginning) if the mistake is at the root
of the contract.
There are 4 categories of mistake.

2. Which category of mistake is applicable?

Read the scenario carefully and select the right category of mistake.
Analyse the Questions, based on the following guidelines for the correct category of mistake.

3. 1st category - Common Mistake Case law

Both parties make the same mistake about the same Couturier v Hastie (1852)
fact.
Eg. both parties sign a contract to sell a Toyota car,
without realising that the car had burst into flames
and can no longer be sold.

4. 2nd category - Mutual Mistake Case law

Both parties misunderstand each other; they are at Wellmix Organics v Lau Yu Man (2006)
cross-purposes.
They are not aware of each other's mistake.
Eg. Party A offers to sell his Toyota but Party B thinks
that the seller is trying to sell a Jaguar. They are not
aware of each other's mistake.

5. 3rd category - Unilateral Mistake Case law

When only 1 party is mistaken. BUT the other party Ho Seng Lee Construction v Nian Chuan
knows or ought to have known the 1st party's Construction (2001)

mistake.
The court uses an objective test - whether a
reasonable person would have known of the mistake
in similar circumstances.
Eg. Party A knows that the buyer mistakenly thinks
that he is buying a Jaguar when in fact, the car is a
Toyota.

6. 4th category - Non Est Factum ("it is not my deed") Case law

A person signs a document that is fundamentally Lee Siew Chun v Sourgrapes Packaging (1993).
different from what he had contemplated.
Eg. Party A thinks he is signing that he is signing a
testimonial, where in fact, he is signing a mortgage
document.

7. Conclude whether there was a mistake. Case law

State which category of mistake was relevant. Derry v Peek (1889)

State that the contract is void ab initio (null and no

effect from the beginning). Page 10 of 10