Lectures 6-7 of Business Law
Lectures 6-7 of Business Law
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Date Created: 10/10/15
Business Law 2014 BMO742 AY 2014 Semester 1 Lecture 7 Defects in Contract Part II General Rule Mistake does not make a contract void Why not Need for commercial certainty However at common law a fundamental mistake will result in the contract being void 3 categories of fundamental mistakes Common Mistake Mutual Mistake Unilateral Mistake Common Mistake Common Mistake Both parties contract on the SAME mistaken assumption that important or fundamental fact exists Common mistake can relate to Existence of the subject matter of the contract Possibility of performing the contract Effect of Common Mistake Contract is m Commn Mistake Couturier v Hastie 1856 Contract for the sale of corn that was being shipped to England Unknown to both parties at the time of the contract corn had begun to rot and had already been sold off by the master of the ship Was the contract between the parties enforceable Mutual Mistake X intends to deal with one thing Y intends to deal with a different one Parties are at crosspurposes No meeting of minds due to a misunderstanding Effect of mutual mistake Contract is void Mutual Mistake Raffles v Wichelhaus 1864 A contract was made for the sale of cotton Contract stated Cotton was to arrive by the ship quotPeerlessquot from Bombay By coincidence 2 ships named quotPeerlessquot sailing from Bombay one in October and the other in December Buyer was thinking of the one sailing in October while seller was referring to the one sailing in December Was there a contract between the parties Unilateral Mistake Only ONE party makes a mistake and Other party is aware of the mistake Unilateral Mistake may relate to An important term of the contract such as the price Identity of the person contracted with Signed document Unilatral Mistake Chwee Kin Keonq v Diqilandmallcom Pte Ltd 2005 Digilandmall operated website selling HP laser printers Due to a mistake posted price of printer as only 66 when the correct price should have been 3854 Chwee realised the mistake and ordered 1606 printers from the website Was there a contract between Chwee amp Digilandmall Mistake as t igned Document Recap Person bound by signature Even if he did not read document NonEst Factum Person who signs document can show contract is void if He was induced to sign the contract by a trick or fraud He made a fundamental mistake regarding the nature of the document and He was not careless in signing the document Mistake as Sined Document Awang Bin Omar v Omar Bin Ismail Omar did not know English Induced by brother to sign a document under the pretence that he was only witnessing his brother s signature In actual fact document was a guarantee in favour of the claimant Was Omar liable under the guarantee that he had signed Contracts may be illegal at common law OR by statute Effect of illegality Contract is void and cannot be enforced Money or property transferred under the contract cannot be recovered Corltrcts Illegal at Common Law Contracts where the objective is to commit a crime a tort civil wrong or a fraud E g 2 bank robbers agree to rob a bank and split the loot 5050 Contrcts Illegal at Common Law Contracts to defraud the l tax authorities TAX E g Company agrees with employee to conceal the employee s actual pay from the tax authorities so that employee will not have to pay so much income taX ta Contracts that interfere with the administration of justice Agreement between A and B thatA would not report a crime to the police Illegal Agreement between A and B thatA would not testify as a witness against B for a sum of money Illegal Cntracts lltegal by tatute Gaming orWagering r Contracts Void Civil Law Act V Loans granted by unlicensed moneylenders Not enforceable IVIoneernder s Act 2008 Contract in Restraint ofTrade ROT can be found in Employment Contracts Agreement in which a person restricts another from carrying on his trade business or profession Contracts for the sale of a business Solus Trading Agreements I General rule ROT is void and unenforceable as it is against public policy Typical ROTs in an employeremployee context 1 Employee agrees not to set up a competing business or work for a competitor NonCompetition Clause Employee agrees not to solicit the employment ofthe company s existing employees NonSolicitation Clause Employee agrees not to solicit the customers ofthe company NonSolicitation Clause ROT in employment contract is void and unenforceable unless employer can show that He has some legitimate interest that needs protection Trade Secrets Customer Connection Maintaining a stable trained workforce AND gt ROT is reasonable lLJUN How to decide if ROT is reasonable Look at Area of restraint Duration of restraint Position ofthe employee Scope ofthe restraint Em plyment ntracts Forster amp Sons Ltd v Suggett 1918 Employers were manufacturers of glass bottles Works manager trained in the use of secret manufacturing processes to be applied in the furnaces Manager s contract stated that For 5 years after his employment ends he would not be involved in the manufacture of glass bottles in the UK Was the ROT valid and enforceable Contracts for the Sale of a usiness Contracts for the sale of a business Usually contains a ROT clause seller agrees not to set up a similar business for a period oftime in the same area Courts will generally allow such ROT clauses Why Buyer has paid money for goodwill therefore reasonable to expect that seller will not compete with the buyer However area and duration of ROT must still be reasonable Solus Trading Agreements SolusTradingAgreement Agreement where a person agrees to sell only the products of a particular manufacturer or wholesaler in return for certain benefits Eg Petrol Companies making agreements with owners of petrol station to sell only their petrol Solus Trading reements Law states that Solus Trading Agreement must be reasonable in order to be valid eg Esso Petroleum Co Ltd v Harper39s Garage Ltd 1967 where agreement to sell only Esso s petrol for 21 years was not valid much longer than necessary to protect Esso s interest THE END weimeee Law M 74Z AY 2014 Semester 1 Lecture 6 Defects in Contract Part I Defects Faults in the formation of the contract Examples Misrepresentation Duress Unduelnfluence Illegality Mistake What happens to the contract Voidable Contract is regarded as valid until the innocent party chooses to rescind set aside the contract Void Contract treated as K invalid from the very beginning w representation False statement made by one party during negotiations which induces the other party to enter into a contract Effect of Misrepresentation Contract voidable Can be rescinded cancelled when truth is discovered Party misled can claim damages for some types of misrepresentation Misrepresentation To sue for misrepresentation party misled must Show that Innocent Misrepresentation Statement made honestly with reasonable grounds for k N egligent misrepresentation Statement made honestly but without reasonable grounds for believing it is believing that it is true true G raudulent misrepresentation k Statement made dishonestly knowing it is not true or being reokless as to whether it is true Misrepresentation INNOCENT MISREPRESENTATION FRAUDULENT MISREPRESENTATION NEGLIGENT MISREPRESENTATION K Salim says that his house has a floor area of 2500 sq ft This is based on a surveyor s report he has obtained Salim says that his house has a floor area of 2500 sq ft He knows for a fact that the house is much smaller Salim says that his house has a floor area of 2500 sq ft He has never checked the building plans or engaged a surveyor to measure the floor area Remedies for Misrepresentation Type of Remedies Misrepresentation Innocent I Rescission only I Generally NO damages I Court may award damages instead of rescission Where it would be fairer to do so Negligent I Rescission ANDOR I Damages Fraudulent I Rescission ANDOR I Damages Limits to the Right of escissin Person misled can no longer rescind the contract if Remedies for Misrepresentation Salim tells Bock that his bungalow has a floor size of 2500 square feet Relying on the statement Bock agrees to buy the bungalow for 15 million Bock engages lawyers to prepare the documents for the transfer of ownership The lawyer s fees incurred by Bock amounts to 3K The bungalow turns out to be much smaller Can Bock rescind the contract claim the 3K spent on legal fees Duress One party is forced into a contract as a result of a threat Does not give his free consent to the agreement Effect of Duress Contract is voidable Party under duress may set aside the contract Duress to the Person Threat to cause physical injury loss of life to person or immediate family member Duress at Common Law Duress to Goods Threat to damage person s goods e g to burn down house slash valuable picture Economic Duress Use of illegitimate commercial pressure Economic Duress One party uses illegitimate commercial pressure Weaker party may set aside contract if he can show that There was a threat to commit a civil wrong eg a breach of contract AND He had no practical alternative but to agree Economic uress Atlas Express Ltd v Kafco Ltd K secured a contract to supplyW with basketware K engaged A a transport company to deliver its goods to W at an agreed price A later informed Kthat it would not carry out any deliveries unless K agreed to pay an increased price Essential to K39s commercial survival that they meet the delivery dates K could not find another company to do the deliveries as it was around Christmas time K agreed to pay the increased price Was the agreement to pay the increased price binding What is undue influence Improper conduct eg pressure coercion or in uence Innocent party did not enter into contract out of his own free will Innocent party may apply to set aside the contract Undue Influence Undueln uence Undu Influnc When will there be presumed undue influence Parties are in relationship oftrust and confidence SolicitorClient DoctorPatient ParentChild 0 Other Relationships Client Lawyer Sale of house for 1 million House is in fact worth 2 million Client does not seek independent advice before agreeing to sell What can the client do about the contract Undue influence Bank may affect the rights ofthird parties as well Mortgage Husband Husband s Wlfe Company Undue In uence by Husband NOT the Bank Is the bank put on inquirygt Can the Wife set aside the transaction What should the bank do 9 Ensure that the wife has been advised by a lawyer on the fol lowing Nature Ofthe Risks Involved transaction K Wife has a choice whether to proceed with transaction I With effect from 1 March 2009 Age of contractual capacity in Singapore ie age at which a person can make legally binding contracts 18 years of age Exceptions Contracts for the sale or purchase of land age of contractual capacity remains at 21 years of age Cntracts Mae by Minrs What about those who are below 18 years of age General rule at common law apphea Minor may enforce contract against other party BUT Other party may not enforce contract against the minor Contracts Made by Minor Exceptions to the general rule Contract for Necessaries Basic necessities such as food medicine clothes which minor needs Other articles necessary for the minor according to his position in life Contract is enforceable against minor minor must pay for the goods Contracts Made by Minor Other exceptions where the contract is legally enforceable against the minor Educational Contracts Employment Contracts for IVIinor s Benefit THE END
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