In the ever-changing world of business and personal transactions, contract law is vital for establishing your legal relationships and ensuring smooth agreement execution.
Singapore, known for its strong legal framework, provides clear and comprehensive principles to govern contracts.
Want to grasp Contract Law in under 5 minutes? In this article, we’ll cover everything you need to know about Contract Law, so you can navigate it with confidence and clarity.
What defines a contract?
In Singapore, contracts are generally governed by the Civil Law Act, which is part of the country’s statute books.
A contract is a legally binding agreement between two or more parties. It creates an obligation to either perform a specific action or refrain from doing so, in exchange for something of value.
In Singapore, 4 elements that make up a valid contract are:
Offer and Acceptance
A contract begins with an offer that clearly outlines the terms and conditions of the proposed agreement.
To be valid, an offer must be specific, certain, and effectively communicated.
Upon receiving an offer, the recipient can choose to accept it, leading to the formation of a contract.
Consideration
This represents the exchange of value between parties, the “price” paid for the promise. It is the foundation of a contract, reflecting the mutual intention to be bound.
For a contract to be enforceable, both parties must offer something valuable, such as goods, services, or money.
Intention to create legal relations
To be legally enforceable, a contract requires the parties to show genuine intent.
Contracts can be categorized as social agreements (typically among family or friends) lacking legal intention, and legally binding contracts, which presume the intent to create legal relations for business purposes.
Capacity to contract
To enter into a contract, parties must have legal capacity. This includes being of legal age, mentally sound, and free from undue influence or duress.
Special considerations apply to minors, mentally incapacitated individuals, and corporations, as their capacity may be limited or different.
What are the types of contracts?
There are various types of contracts recognized in Singapore. Each type will have its own standard clauses and conditions, tailored to the scope of the deal being made.
In this section, we’ll cover the 4 most basic contract types that you should be familiar with:
Express contracts
Express contracts explicitly state the terms and conditions in a clear and unambiguous manner.
These contracts are formed through written or spoken communication and leave little room for interpretation.
The clarity in expressing the parties’ intentions is crucial to avoid misunderstandings.
For instance, when you hire a website developer to build your business’s website, this can be considered an express contract.
Implied contracts
Implied contracts arise from the parties’ conduct rather than explicit verbal or written agreements.
When the actions of the parties imply mutual obligations, an implied contract is formed.
Common examples include payment for services rendered, even in the absence of a written agreement.
Read more about Payment Service Act in Singapore.
Unilateral Contracts
Unilateral contracts involve a promise in exchange for an action.
One party offers a reward or benefit upon the completion of a specified task by the other party.
The contract comes into effect only upon the completion of the task, making unilateral contracts distinct from bilateral contracts.
An example of a unilateral contract would be when a company offers a reward for a well-performed employee at the end of the year.
Bilateral contracts
Bilateral contracts are formed when two parties make mutual promises or exchange something of value.
Both parties commit to fulfilling certain obligations, creating a balanced and symmetrical agreement.
The contract is formed as soon as the promises are exchanged.
For instance, a lease agreement is a bilateral contract between a landlord and a tenant. The landlord agrees to grant the tenant the right to use the property in return for the payment of rent.
What are contractual terms and conditions?
Contracts typically contain terms and conditions that govern the contractual relationship.
These are legally binding rules which each party must follow, such as a specific payment schedule and deadlines for completion of tasks.
Failure to comply with the agreed-upon terms may give rise to legal action or contract termination.
Conditions, Warranties, and Innominate Terms
Conditions are essential terms of a contract. Breaching a condition gives the innocent party the right to terminate the agreement.
Warranties, on the other hand, are less critical terms. Breaching a warranty allows the injured party to claim damages.
Innominate terms fall in between; their consequences vary based on the severity of the breach.
For example, a contract for the sale of goods may include terms about quality, delivery, and payment. If the seller fails to deliver on time, this would be a breach of condition. However, if they fail to meet certain standards of quality then it could constitute a breach of warranty.
Exemption Clauses
Exemption clauses seek to limit or exclude liability in the event of a breach or failure to perform contractual obligations.
Under Singapore law, such clauses are subject to scrutiny for reasonableness.
If a clause is found to be unreasonable, it may not be enforced, highlighting the importance of fairness and equity.
An example of an exemption clause could be the seller is not liable for any loss suffered by the buyer as a result of defective goods.
What is a breach of contract?
A breach of contract occurs when one party fails to fulfill the obligations as set out in the agreement.
Material vs. Minor Breach
A material breach refers to a significant violation that strikes at the core of the contract, whereas a minor breach is less substantial.
In the case of a material breach, the innocent party has the right to terminate the contract and pursue damages.
On the other hand, a minor breach may only merit a claim for compensation.
For example, if one party fails to pay the agreed sum within the timeline, this would be a material breach. If they fail to provide certain supporting documents as specified in the contract, this could be considered a minor breach.
Remedies for Breach
In cases of breach, several remedies are available.
Specific performance: requires the breaching party to fulfill obligations as originally agreed upon. It ensures that the promised action is carried out as specified in the contract.
Damages: restore the innocent party to the position they would have been in had the breach not occurred (e.g., compensatory, nominal, or exemplary)
Injunctions: a court order that prevents the party in breach from taking specific actions that could result in irreparable harm to the innocent party.
By having these remedies available, the legal system in Singapore ensures that parties have effective means to address breaches of contract and seek appropriate resolution.
The bottom line
Contract law in Singapore plays an important role in providing parties with a framework for dispute resolution and protecting their rights.
By understanding the principles of contract law, you can ensure that your agreements are legally enforceable, and protect yourself from any potential disputes.
If you have further questions regarding this matter, we’re more than happy to assist you. Get in touch with us via service@bbcincorp.com today for details.
Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.
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