Chapter 6: Vitiating Factors

Even though a contract is formed, there are certain factors that can affect the
enforceability of a contract which are also known as vitiating factors.

4 Main Factors:
- Incapacity
- Illegality
- Misrepresentation
- Mistake (not covered)

Incapacity:
- Lack of capacity which may characterize a contract party
- General Rule: To form a valid contract, the parties must have the capacity to
do so.
- Minors and Intoxicated Persons.

Minors
- Have not reached the age of majority; 18.

Valid Minors Contract:

- Bind both minor and other party, thus fully enforceable
- Two groups of contracts: Beneficial contracts for necessaries and beneficial
contracts of employment.

Beneficial Contract for Necessaries:

Necessaries refer to those goods and services which the law deems reasonably
required by a minor in his life.

Exception:
If contract results in provision of necessary goods and services, the contract is
enforceable.

Nash V Inman (1908) – court held that necessaries are goods suitable to the
condition in life of the minor and to his actual requirements at the time of sale and
delivery.

Peters V Fleming (1840) – court held that necessaries need not be confined to
necessities. Necessaries may include luxurious items of utility if they are considered
appropriate for the minor in his position.

When contract deals with necessaries – minors should pay contracted price.
Section 3(2) SOGA states that the minor has to pay a reasonable price for the
necessaries that were sold and delivered.

What if goods are not necessaries and has been delivered to Minor?
Court may order Minor to return the goods – Section 3(1) Minors Act.

Loans for Necessaries:

 - Person who lend money to a minor is unable to enforce contract and recover
money from minor.
- Exception: Money was used by minor to purchase necessaries (Marlow
v Pitfield (1719)

Beneficial Contracts for Employments:

- Main rule is that a contract involving a minor will be binding upon the minor if
the contract is beneficial to him.
- De Franscesco v Barnum (1890) – not beneficial to minor.

**whole contract must benefit minor**

Voidable Minors Contract:

- Contract is valid and binding upon the other party.
- Minor can repudiate the contract without any liability on his party
- Any time before 18 years of age or a reasonable period after turning legal.
- Once repudiated, minor is no longer bound to perform future obligations

Ratifiable Minors Contract:

- If does not fall under voidable or valid
- Such contract would not be valid or enforceable against the minor unless his
ratifies it after attaining majority (18).

Mentally Unsound and Intoxicated Persons:

- Person who is suffering from disability is incapable of understanding the
nature of the contract
- And other party knows or ought to know of the disability
- Contract will be voidable at the option of the person suffering from disability.
- Che Som bte Yip & Ors v Maha Pte Ltd & Ors (1989) – Mortgage was
voidable as the bank should have known of his disability.

Misrepresentation:
Definition:
A misrepresentation is a false statement of past or existing fact made by one
party to another, which is induced and relied upon the representee to alter his
position (enter into contract) and caused loss to the representee.

Elements:

1. Past or existing fact

a. cannot be an opinion or a statement of an unlikely future event.
b. A statement cannot form the basis of a misrepresentation unless
representor had relevant facts to the case and has no reasonable
ground for holding such an opinion.
c. Silence does not mean misrepresentation unless
 i. Half-truth: owner wanted to let people know land was good and
so he tells that there is tenant living but he didn’t say that tenant
has given notice to terminate tenancy
ii. Change in circumstances
1. Representor made a previous statement which he knew
had become false or misleading subsequently before the
contract was made. Keeping silence about it amounts to
misrepresentation.
iii. Good faith contracts

2. Inducement and Reliance

a. Establish by the representee to show that he was induced and relied
on the false statement on fact to enter into contract.
b. If representee was not induced by false statement, there is no
misrepresentation.

Categories of Misrep:

- Fraudulent Misrepresentation
o Arises when false statement is made by the representor knowing that it
is false.
*Conditions:
 When representor made the statement,
o he knew it was false OR
o He did not believe the representation as true OR
o He spoke or made statement recklessly
 The statement was induced and relied on the representee to alter his position
 Caused loss to representee

- Negligent Misrepresentation
o False statement is made by the representor without due care

*Conditions
 Representor owes the representee a duty to be careful in making the
statements and
 The representor breached the duty when
o He failed to take reasonable care to ascertain whether the
representation is true or
o He did not have reasonable grounds to believe the statement was true
and did not believe to be true.
 The statement was induced and relied on
 Caused loss to representee

- Innocent Misrepresentation
o Made without fraud or fact

*Conditions
  Representor honestly believes or has reasonable grounds to believe
representation is true
 The statement was induced and relied on by representee
 Caused loss

Remedies for Misrepresentation

Fraudulent – Rescission and Damages
Negligent – Rescission (or damages in lieu) and Damages
Innocent – Rescission (or damages in lieu) and indemnity

Rescission:
- Representee rescission by expressing his intention not to be bound by the
contract
- Contract becomes voidable (still exists until time terminated by representee)
- AND by giving notice of rescission to the representor
- Therefore, after expressing and giving notice, the contract becomes void as if
the contract had never existed and the parties are back to their respectives
positions pre-contract.

Limits to the rights of rescission:

Representee cannot exercise the rights to rescission if
- He still continues with the contract after discovering the misrepresentation
- The representee did not rescind the contract within a reasonable time after
discovery of misrep
- Contracting parties cannot be restored to their original position of contract.
- Court exercise discretion to award damages in lieu of rescission.

Damages:
- Monetary compensation ordered by the court requiring the defaulting party to
pay to the injured party.

Section 2(2) of Misrepresentation Act states in case of negligent or innocent

misrepresentation, court can give damages in lieu instead of rescission if it is
equitable (fair) after considering:
- Nature of misrepresentation
- The loss caused to the representee if contract were to continue
- The loss caused to the representor if rescission was allowed

Indemnity:
- Obligation whereby one person is held responsible for the liability or loss of
another person
- Used to help restore the injured party to the position he was in beforehand

Illegality:
- Where a contract is prohibited by a legal rule
Statutory Illegality and its Effects
- Contracts prohibited by statues

Some statutes expressly or impliedly prohibit the formation of certain types of contract.
Where legislature’s intention to prohibit a type of contract is clear from the statue, then
the contract may be void and unenforceable by all the parties, regardless of whether
they are aware of the statutory illegality and there will be criminal sanctions and
additional civil consequences. Contract is illegal and is void from inception.
[Re Mahmoud and Ispahani (1921)]

Restraint of Trade
- Agreements under which a biz or a person agrees to refrain from undertaking
certain types of trade or employment.
- To prevent or minimise competition
- General Rule: such clauses or contracts in restraint of trade are void.

To be valid, the restraint of trade clause must fulfil 3 criteria:

1. Must protect a legitimate interest of the covenantee (person benefitting from the
interest)
2. In the case of sale of business, the main proprietary interest is goodwill (large part
of purchase price reflects goodwill of business, the intangibles.)
3. In the case of employment contracts, an employer (covenantee) may restrain a
former employee from exploiting trade secrets/contracts obtained from his
employment.

Trade secrets/contracts may constitute legitimate interests which can be protected by a

restraint of trade clause [Centre for Creative Leadership (CCL) Pte Ltd v Bryne Roger Peter
(2013)] where the court of appeal stated that the maintenance of a stable workforce could
constitute legitimate proprietary interests that merits protection by a non-solicitation clause
which may otherwise be seen as unreasonable restraint of trade.

Client information/supplier data

However, if the restraint is intended to merely minimise competition or to prevent an employee

from using their personal skills/knowledge acquired during his previous employment, it is likely
to be void. [Herbet Morris Ltd v Saxelby (1916)], [Buckman Laboratories (Asia) Pte Ltd v Lee
Wei Hoong (1999)]

Reasonable scope: In terms of time period, geographical scope and subject matter.
[CLAAS Medical Clinic Pte Ltd v Ng Boon Ching (2010)]

Public Interest: Must not be contrary to public interest. Will restricting this person from
protecting his legitimate interest that is reasonable in scope be against public interest? If there
is a monopoly in Singapore, likely to be against public interest as our law encourages
competition.
[Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd (1968)]

ALL MUST BE FULFILLED. If 1 or more are unfulfilled, the clause itself will be unenforceable.

Blue pencil test: court can help out your “too ambitious” clause by using the blue pencil
to cancel out words so as to narrow your initially too wide restraint of trade clause till it is
reasonable in scope, taking care to make sure that the nature of the clause does not change.
Clause must have been severable in nature.