Competency Unit 2.1: Law of Contract

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Competency Unit 2.1: Law of Contract

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Learning Outcomes 01
1. Principle of law of contract 02
1.1 Definition of contract 02
1.2 Legal capacity 03
1.3 Formation of a valid contract 04
2. Legal effects of a valid, void, voidable and unenforceable contract 11
3. Terms of Contract: Warranty Vs Condition 14
4. Misrepresentation, duty of disclosure and remedies for misrepresentation 15
4.1 What is misrepresentation? 15
4.2 Important elements of misrepresentation 16
4.3 Types of misrepresentation 18
4.4 Remedies of misrepresentation 19
5. Discharge of a contract and remedies for breaches 20
5.1 Breach of contract and remedies 21
6. Real estate contract 23
6.1 What is an Option to Purchase? 24
6.2 Content of sale contract 27
Ver. 17.2
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1. Principle of the law of contract

When the word “contract” is mentioned, most people equate it to a formal legal
document. At law, however, a contract is more than just a document. Many contracts
are made every day without people being aware of it.
The sale and purchase of goods such as groceries or cooked food, and services such as
facial treatment or tuition, all involve the making of contracts which are not in writing.
However, the parties to a contract may prefer to have a written record where the
transaction involves great value (e.g. the purchase of a luxury car), or may have
important consequences for one or both parties (e.g. an employment contract). A written
contract makes proving the agreed terms of the contract a lot easier if a dispute arises
between the parties.
Generally, contracts can be oral and yet enforceable. But for some forms of contract, the
law requires that they be evidenced in writing.
According to the Singapore Civil Law Act, Cap 43, Sec 6(d):-
“Contract for the sale or other disposition of immovable property, or any interest in
such property must be in writing to be enforceable by law.”
1.1 Definition of contract

We make agreements all the time. However, not all the agreements we make are legally
binding on us. Every contract is an agreement, but not every agreement is a contract.
For example, John may agree to meet his colleague for dinner and later breach the
agreement, common sense tells us that his colleague will not be able to sue him for not
turning up for the appointment.
In this part, we will learn the legal reasons why John’s friend will not succeed even if he
wanted to sue John. Let’s start with the following important definition:
“A valid contract is an agreement which binds the parties concerned, and is
enforceable by law.”
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1.2 Legal Capacity

For a contract to exist the parties must have contractual / legal capacity. There are
certain persons and classes of persons that lack the capacity to enter into a contract
with the consequence (normally) that resulting contracts will not be enforceable
against them. They are:
 Minors
Persons who have not reach the age of majority. In Singapore, the common
law age of majority applies, namely 21 years. At law, the age of majority
defines the stage at which a person reaches adulthood and is considered
legally responsible for his own actions.
 Mentally unsound persons

The law seek to protect mentally unsound persons from being bound to
contracts which may not benefit them even they reaches the age of majority, as
they are not likely to be able to make contractual decision by themselves.
 Intoxicated persons –
The ability of persons under the influence of drugs or alcohol to making sound
decision is questionable too.
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1.3 Formation of a valid contract

To establish if an agreement is a valid binding contract, the following four essential
elements must be present:
1) Offer
2) Acceptance (unconditionally)
3) Consideration
4) Intention to create legal relations
1.3.1 Offer
An offer is an expression made by one party (“offeror”) to another party (“offeree”)
communicating the offeror’s willingness to perform a promise. The intention is that, if
the offer is accepted by the offeree, there will be a binding agreement between them.
Example 1A:
A buyer pays an option fee to a seller showing his interest in buying a condo, or a
tenant pays a goodwill deposit to secure a tenancy.
 Rules relating to an offer:
(a) An offer must be clear and certain in its terms, whether made orally, in
writing or by conduct. (e.g. a tenant issuing a letter of intent to the
landlord stating the rent and term of tenancy.)
(b) An offer must be communicated to the offeree before it can be accepted.
A person cannot accept an offer unless he knows of its existence. (e.g.
the landlord receiving the letter of intent together with the deposit issued
by the tenant.)
(c) An offer may be made to (i) one specific person, or (ii) a specific group of
persons (including “all persons in the world”).
Example 1B:
A purchaser paying an option fee together with a letter of offer to the
seller a condo or a seller issuing an Option to Purchaser to the buyer of
his terrace house.
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 Offer ends if :
 Rejection- Offeree rejects offer,

 Revocation- Offeror may revoke or withdraw his offer any time up
to acceptance. Unless Offer comes with consideration by Offeree.
 Lapse of time- expiry,
 Offer subject of condition – When condition of offer is not satisfied
 Death
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 Invitation to treat
As there may be many statements made at the time when an agreement is
negotiated, it is important to distinguish which statements are offers and which
are not.
The above definition of “offer” is important. If a statement does not indicate the
willingness of the offeror to enter into a legally binding contract, then it is only an
invitation to the recipient to make a proper offer to the maker of the original
statement (e.g. If someone holds a sign stating “If you suggest a good price for
my painting, I might sell it to you.”). A statement like this is not an offer but an
“invitation to treat”.
An invitation to treat is an invitation by a party to another or make an offer, and
accordingly acceptance to an invitation to treat does not lead to a contract.
No agreement will be formed if an invitation to treat is acted upon, however, if an
offer is acted upon (that is, accepted by the offeree), an agreement comes into
existence.
The following are some example of invitation to treat:
(a) The display of goods for sale in a shop
A display (even if the price is indicated) is usually an invitation to treat
because the shopkeeper may have limited stocks or may have reserved
that item for another customer.
(b) Advertisements, catalogues and brochures (relating to the sale,
supply or provision of goods and services or otherwise)
Many businesses make use of the mass media to advertise their
products and services. Even though the word "offer" is used (e.g.
“Special Offer”), the advertisement is usually regarded by the law as an
invitation to treat. This is because such an advertisement is often
expected to lead to further bargaining. Another example is a vendor
placing a classified advertisement in the daily newspaper stating his
intention to sell his property and invite for viewing arrangement.
(c) Auctions
At an auction sale, the call for bids by an auctioneer is an invitation to
treat. The bids are the offers. The auctioneer selects the highest bid and
acceptance is completed by the fall of the hammer. If the hammer does
not fall (for instance, where the bids are not high enough), there is no
acceptance and therefore no agreement. In such a case, the highest
bidder cannot insist that the item be sold to him at his last bid price.
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(d) Notices inviting tenders.

Large organisations such as public authorities often place notices (e.g. in
the newspapers) to invite suppliers to tender for a project by stating their
prices. These invitations are usually merely invitations to treat. However,
if the person who invites the tenders, states in the invitation notice that he
definitely binds himself to accept the lowest price; the notice may be
regarded as an offer.
1.3.2 Acceptance
Once the existence of a valid offer has been established, the next stage in the formation
of an agreement is to find a valid acceptance of that offer. For an acceptance to be valid,
the following rules must be satisfied:
(a) The acceptance must be unqualified or unconditional
All the terms of the offer must be accepted without any change. For example, an
prospective buyer made an offer to purchase a condo stating the price of $X, if
the vendor accepts the offer by placing a condition to the acceptance, then such
“acceptance” will be treated as a “counter-offer” by the vendor as in Hyde v
Wrench and therefore a rejection of the original offer.
(b) The acceptance must be communicated to the offeror
The offeror must be told of the acceptance by the offeree, either by the offeree or
by a person authorised by the offeree (e.g. his agent), but not to an agent who
only has authority to transmit the acceptance to the offeror.
An agreement is formed at the time when and at the place where the acceptance
is received by the offeror personally. If the offeree keeps silent in response to an
offer, this is not acceptance.
(c) The mode of acceptance must be adopted by the offeree
If a method of acceptance has been specified by the offeror, that method must
be adopted. For example, in most Option to Purchase (OTP), the vendor (offeror)
would specify in the option that the purchaser (offeree) has to sign and hand in
the acceptance copy to the vendor’s solicitor within an appointed date and time.
The above mode of acceptance stated in the example is especially important to
real estate transactions to avoid the general “postal rule of acceptance” which
states that where acceptance is allowed to be communicated by post and the act
of acceptance is executed as soon as the letter of acceptance is posted.
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1.3.3 Consideration
Consideration is defined by Sir Frederick Pollock as:
“An act or forbearance of one party, or the promise thereof, is the price for which the
promise of the other is bought, and the promise thus given for value is enforceable.”
In layman terms, consideration can be understood as “the price or compensation for
the promise given by one party to the other.”
An enforceable contract requires a consideration, and in real estate transactions,
consideration usually comes in the form of money.
 There are four rules on consideration to be satisfied:
1) Consideration need not be adequate
The law is not concerned with whether the value of the consideration
given for a promise matches the value of the promise. This is because
the value of the promise is a matter of opinion and for the parties to
decide, and the law will not interfere with the parties’ bargain.
In real estate transaction, the law will not fault anyone who sells his
property below what seems to be the “market value” as long as he
agrees to it and the contract is not illegal.
2) Consideration must be sufficient
Consideration must be of some value that is sufficient in the eyes of the
law. Sufficient consideration is also known as good consideration or
valuable consideration. Goods, services, money and other forms of
property are clearly sufficient consideration. Therefore, the
consideration for a HDB flat vendor’s offer to keep the offer for his flat
open for the purchaser until the appointed date and time can be from a
minimum of $1/- to a maximum of $1,000/-.
3) Consideration must be current
Past consideration refers to an act performed prior to, and to that extent
independent of, the promises being exchanged. In other words, the
action which was performed was not done in contemplation of or in
response to a promise given. The general rule is that past consideration
is not sufficient to make a promise enforceable; hence “past
consideration is not consideration”.
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Example 1D:
Ben allows his friend Steve to use his warehouse to store some goods
out of friendship and then, subsequently, Steve promises to give Ben
$300 as rent, this will constitute past consideration. Ben’s act was not
done in exchange for the promise of $300.
If, however, Ben had discussed and agreed with Steve paying rent
before allowing Steve to move his goods in, then this will constitute
executed consideration as Ben’s act was done in exchange for the
promise of $300 rent.
4) Consideration must move from the promisee
The general rule is that for a promisee to enforce the promise, he must
show that consideration has moved from him. The consideration must
be given by the promisee.
Example 1E:
If Helen bought a sofa set from Chip Stuf Furniture for the price of
$1,000/- as a house warming present for Johnny and Mary. When the
sofa set was delivered, it was found to be defective. Neither Johnny nor
Mary will be able to sue Chip Stuf, as they were not parties to the
contract for the purchase of the sofa set. Chip Stuf and Helen are the
parties to the contract whilst Johnny and Mary are merely third parties.
They did not provide consideration for the sofa set. The $1,000 is
consideration given by the promisee, Helen, in exchange for the sofa set.
1.3.4 Intention to be legally binding

When parties enter into an agreement, especially a commercial one, they must at the
same time intend to enter into a legally binding relationship. This relationship creates
rights and duties between them. It entitles them to take legal action against each other if
one of them breaches his duties to the other or violates the rights of the other.
If, in spite of the agreement, there was no intention to create legal relations, the injured
party would not be able to sue the defaulting party. Whether the parties intended to
create legal relations is “objectively” assessed (i.e., whether a reasonable man, looking
at the facts of the case, thinks there was such an intention), rather than by the
“subjective” intentions reported by the parties.
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For the purpose of discussing the intention of the parties, agreements can be divided
into two categories, as follows:
(a) Domestic and social agreements
The law presumes that when parties enter into a domestic or social agreement,
they do not intend to create legal relations.
In Balfour v Balfour (1919) 2 KB 571, the defendant Mr Balfour was posted to
Ceylon to work leaving his wife in England. He promised to give her £30 a
month. His wife sued on his promise when he failed to pay her. The English
Court of Appeal held that the claim failed because the parties did not intent the
promise to be legally binding.
However, the legal presumption can be rebutted if the facts of the case indicate
otherwise.
In Merritt v Merritt (1970) I WLR 1121, a husband left his wife and went to live
with another woman. There was £180 left owing on the house which was jointly
owned by the couple. The husband signed an agreement whereby he would
pay the wife £40 per month to enable her to meet the mortgage payments and
if she paid all the charges in connection with the mortgage until it was paid off
he would transfer his share of the house to her. The husband failed to transfer
ownership after the wife paid off the mortgage, the wife then made a claim to
the court.
The Court of Appeal distinguished the case of Balfour v Balfour on the grounds that
the parties were separated. Where spouses have separated it is generally considered
that they do intend to be bound by their agreements. The written agreement signed
was further evidence of an intention to be bound.
(b) Business or commercial agreements
In the cases of business or commercial agreements, there is a general
presumption that there is the necessary intention to create legal relations. This
presumption flows partly from the desire of the law to give efficacy to agreements
made in a commercial content.
In almost all real estate transaction whether buying or renting a property, there is
usually an “intention to create legal relations”. The vendor and purchaser,
landlord and tenant are generally strangers to each other until they are being
introduced by their agents.
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2. Legal effects of a valid, void, voidable and unenforceable contract

In contract law, only valid contracts are enforceable, an essential element of a valid
contract is that agreement has reached by the parties to the contract.
The law recognises situations where the agreement of the parties has been interfered
with in a fundamental sense, and as such provides bases for contracts to be voided or
making the contracts to be voidable.
When dealing with contracts, the terms "void" and "voidable" are often confused. Even
though these two contract types seem similar, they are actually completely different.
The main difference between the two is that a void contract cannot be performed
under the law, while a voidable contract can still be performed, although the unbound
party to the contract can choose to void it before the other party performs.
 Void contract
A contract that is "void" cannot be enforced by either party. The law treats a
void contract as if it had never been formed. A contract will be considered void,
for example, when it requires one party to perform an act that is impossible or
illegal.
Void contracts are unenforceable by law. Even if one party breaches the
agreement, the injured party cannot recover anything because essentially there
was no valid contract. Some examples of void contracts include:
 Contracts involving an illegal subject matter such as gambling,
prostitution, or committing a crime.
 Contracts entered into by someone not mentally competent (mental
illness or minors).
 Contracts that require performing something impossible or depends on
an impossible event happening.
 Contracts that are against public policy because they are too unfair.
 Contracts that restrain certain activities (right to choose who to marry,
restraining legal proceedings, the right to work for a living, etc.).
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 Voidable contract
A "voidable" contract, on the other hand, is a valid contract and can be
enforced. Usually only one party is bound to the contract terms in a voidable
contract. The unbound party is allowed to cancel the contract, which makes the
contract void.
Voidable contracts are valid agreements, but one or both of the parties to the
contract can void the contract at any time. As a result, you may not be able to
enforce a voidable contract:
 Contracts entered into when one party was a minor. (The law often
treats minors as though they do not have the capacity to enter a
contract. As a result, a minor can walk away from a contract at any
time.)
 Contracts where one party was forced or tricked into entering it.
 Contracts entered when one party was incapacitated (drunk, insane,
delusional).
The legal bases that interfere with the agreement are known as vitiating factors, and
render a contract void or voidable at the option of the innocent person and they may
rescind the contract. The affected party may also elect affirm the contract, and in fact
should be cautious not to do so if that is not their intention.
The following are some of the common vitiating factors:
 Misrepresentation
A misrepresentation is a false statement of material fact made by one party to
another, which induces such other party into entering a contract.”
Representations are statements, verbal or in writing, which are made prior to a
contract being formed.
 Duress
A valid contract must be entered by parties acting voluntarily and freely. If one
of the parties is forced to make the contract by violence or the threat of
violence, that is duress, and renders the contract voidable. Duress can be
either physical (whether is a threat to the safety of the person or the any other
person so dear to him.) or economical (certain forms of commercial pressure
could amount to economic duress).
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 Undue influence
It occurs when there is an inequality of power between the contracting parties
which results in the weaker party entering into a contract with the dominant
party or where the dominant party holds a position of trust or confidence over
the weaker party (for example the relationship between a solicitor and a client -
in such a case it will be presumed that the influence that existed between them
when entering the contract was 'undue' unless the dominant party can prove
otherwise).
 Mistakes
A mistake can be simply defined as an erroneous belief. It may prevent the
mutuality of agreement that is necessary for the formation of a contract. If one
or both parties enter into a contract under a misapprehension of its basis, or of
an important aspect of the transaction, the contract may either be completely
void, or voidable. In the latter case, the contract is valid until it is rescinded (or
set aside) by the mistaken party.
 Illegality
The courts do not recognise agreements or contracts which are either illegal or
immoral or purely because of certain public policies refuse to recognise and
enforce such agreements or contract.
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3. Terms of contract
Terms are the promises and undertakings given by each party to the other. They for
the substance of a contract and they specify the way in which contractual obligations
are to be performed. A term can be an express term or an implied term. An express
term is a term which has been expressly agreed between the parties, and an implied
term is a term which has not been expressly agreed upon but is nevertheless implied
into the contract. Terms can also be classified into conditions and warranties:
 Conditions
They are terms which are important, essential or fundamental to the contract,
the breach of which entitles the injured party to rescind the contract and claim
for damages.
 Warranties
They are less important terms and constitute secondary obligation, a breach of
which does not give the injured party the right to rescind the contract, but only
claim in damages.
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4. Misrepresentation, duty of disclosure and remedies for misrepresentation

Generally in any part of the world especially the land-scarce and expensive-housing
Singapore, buying a property is regarded as one of the biggest investments
Singaporeans would ever make in their life. Considerable amounts of time and money
would have been spent engaging the real estate professionals to either assist in
house-hunt or for property owners to make time for prospective buyers to view their
home that is intended for sale.
Competition in the industry is intense and real estate salespersons may at times put
forth representations to their clients that may, to a certain extent, influence them to
enter into a sale contract upon their reliance on such statements being made by the
salespersons.
Agreed that the primary objective is to clinch the deals as soon as possible but there
are certain factors that salesperson must pay close attention to when marketing their
listings. We may, in our being zealous, consciously or unconsciously, present a wrong
fact or misrepresent something to our customers which our customers rely on and then
subsequently suffer a loss. In other words, a misrepresentation of fact on our part has
caused our customers to suffer losses financially.
4.1 What is misrepresentation?

“A misrepresentation is a false statement of fact made by one party (representor) to
another (representee) that induces and is relied upon by the representee to alter his
position – typically by entering into a contract with the representor – thus causing the
representee loss.”
Or in its simplest term, “a misrepresentation is a false statement of material fact
made by one party to another, which induces such other party into entering a
contract.” Representations are statements, verbal or in writing, which are made prior
to a contract being formed.
In other words, when we tell, give written advices to or act in such a manner towards
our customers on something which we know is not true or wrong with or without the
intention of causing our customers some form of harm as a result of them doing so, is
tantamount to a misrepresentation.
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4.2 Important elements of misrepresentation

 False statement of fact
In a claim for misrepresentation, the effective statement must be one of past or
existing fact. Such statement must be material enough to make an impact in
the decision making of the innocent party entering into a contract.
It cannot be a mere statement of opinion or a statement of some possible
future event. For instance, when a salesperson claimed that a property is of
wonderful “fengshui” and it is the “best ever available”, it is just salesman’s talk,
not a misrepresentation. In another example, if the salesperson told the
prospective buyers that a certain property has a high appreciation potential in
five years time, which statement would not constitute a statement of fact, as it
is merely a projection.
 How about silence?
The general rule is that silence in itself does not amount to a
misrepresentation. Contracting parties are generally not obliged to disclose any
information to the other party or even correct the other's misconception
provided he himself had not induced the said misconception. A mere passive
non-disclosure of the truth however deceptive in fact, does not amount to
deceit in law. Absence of a contractual duty to speak, unless provided for in
instances such as contract of insurance, means no such duty can arise in tort.
Hence, silence by one party, even in the face of an obvious misconception on
the part of the other, will still not amount to a representation that the
misconception is true although, in some cases, it may amount to a unilateral
mistake. For example, if the buyer purchases a property without asking the
salesperson or the vendor if the property is infested with termites and both the
salesperson and the vendor kept mum.
 Duty to disclose
There are however, exceptions to this general rule. If a party makes a positive
but incomplete disclosure, the omitted disclosure may amount to a
misrepresentation if it has the effect of distorting the truth of the information
disclosed. For example, a vendor of land told a purchaser that the land was
fully let but did not say that the tenants had given notice to quit, the unsaid
facts turned the stated facts into half-truths and this constitute
misrepresentation.
Second exception is, if there is a change of circumstances arose which
rendered a previously truthful statement misleading, will give rise to
misrepresentation if the representor fail to correct such representation
subsequently.
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 Caveat emptor
In Singapore, real estate agents have no responsibility to ensure that
purchasers take over a defect-free property. It means a purchaser buys what
he sees in the property “as is” condition.
This ‘as is’ condition is knows as the caveat emptor rule which means ‘let the
buyers beware’ that the real estate seller and his agent are not bound to deliver
a defect-free property.
While the seller and his agent are legally obliged not to mislead the purchaser,
the onus is on the purchaser to satisfy himself that the property is in the
condition he wants before buying.
 Inducement
For the false statement to be a misrepresentation, the statement must induce
the representee to enter into the contract. As long as it is one of the inducing
causes, it is immaterial that is not the sole inducing cause. In another word, so
long as the false statements had played a real and substantial part and operate
in the mind of the representee, no matter how strong or how many were the
other matters which played their part in inducing him to act, amount to a
misrepresentation.
However, if the false statement was made to the representee but he was not
induced by the statement to enter the contract, then there is no
misrepresentation.
A person who has made a false representation cannot escape its
consequences just because the innocent party has made his own inquiry or
due diligence, unless the innocent party has come to learn of the
misrepresentation before entering into the contract or does not reply on the
misrepresentation when entering into the contract.
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4.3 Types of misrepresentations

Essentially there are three types of misrepresentations, namely fraudulent, negligent
and innocent misrepresentation.
 Fraudulent misrepresentation
Fraudulent misrepresentation arises when a false statement is made by the
representor knowingly, without belief in its truth, or recklessly, carelessly about
whether it is true or false; with the intention to mislead and deceive or knowing
that it will be relied on by the representee to make a certain decision. In simple
terms, the representor lied to the representee.
There must be a representation of a material fact; which is false; or made in
culpable ignorance of its truth; which is made to be relied upon by a third party;
which is, in fact, reasonably relied upon by the third party; which leads to injury
to the third party.
For instance salesperson John told the prospective buyers that the tenure of a
landed property they are considering is free from pest infestation which is not
true! John is guilty of making a fraudulent misrepresentation if he knows that
the house is in fact infested by termites or he did not believe that the house
was free from pest or he had made the statement without caring whether the
house is really free from pest problem.
 Negligent misrepresentation
If a representation is made in the belief that it is true or without reasonable
grounds for belief; made in a reckless manner, without representor’s intention
to mislead (no element of fraud), but from his lack of care in confirming the
accuracy of the information gathered.
Relating to the similar example cited earlier, if John honestly believed that the
house is free from pest problem and relates his belief to the buyers without
reasonable ground to believe that it is such. In fact, John could have easily
cleared his doubts by checking with the owners of the house or suggest an
inspection by pest control professionals. In other words, John made an honest
but careless representation to the prospective buyers about the condition of the
house.
 Innocent misrepresentation
Such misrepresentations are those made by a representor, who honestly
believed in its truth (therefore not fraudulent), however, in reality; it was untrue,
and he is able to show that he has reasonable grounds to believe in its truth
(therefore not negligent).
In this instance, John believed that the house is free from pest problem after
checking with the owners and had engaged pest control professional to confirm
the same.
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4.4 Remedies for misrepresentation

The nature of remedies available for misrepresentation depends on the category of
misrepresentation proven. There are three possible types of remedies available,
rescission, damages in lieu or indemnity.
 Rescission
In all three types of misrepresentation, rescission is available. A contract is
rescinded when the representee elects to terminate the contract because of a
misrepresentation. This avenue puts the contracting parties to a position as if
the contract did not take place. It is as if the contract was terminated from the
beginning and parties are put back into position that they were before the
contract. Any goods or monies passed are returned to the respective original
owners. Once rescinded, the rescission is final and the contract cannot be
revived.
 Damages in lieu
Another remedy available for cases of misrepresentation is damages.
Damages is the monetary compensation ordered by court requiring the
defaulting party to pay money to the injured party for any losses suffered as a
result of the misrepresentation.
 Indemnity
The final remedy is called an indemnity and it is available in cases of innocent
misrepresentation. The representee could seek the representor to indemnify
him for losses suffered because of obligations and liabilities created by the
contract that was induced by the misrepresentation.
It must be noted that this remedy is relatively less costly than that of damages
as indemnity limits the claims for losses arising out of obligations, which are
necessarily created under the contract.
Summary of remedies applicable for different types of misrepresentations
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5. Discharge of contract
Discharge of a contract relates to the circumstances in which the contract is brought to
an end. Where a contract is discharged, each party is freed from their continuing
obligations under the contract. A contract may be discharged in one of the following
ways:
 By performance
When both parties have fully performed their contractual obligations.
 By agreement
When both parties agree to bring the contract to an end and release each other
from their contractual obligations.
 By breaches
Where there exists a breach of condition (as oppose to breach of warranty) this
will enable the innocent party the right to repudiate the contract (bring the
contract to an end) in addition to claiming damages. A contract cannot be
discharged by a breach of warranty.
 By frustration
Where there exists a change in circumstances, after the contract was made,
which is not the fault of either of the parties, which renders the contract either
impossible to perform or deprives the contract of its commercial purpose.
Where a contract is found to be frustrated, each party is discharged from future
obligations under the contract and neither party may sue for breach.
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5.1 Breach of contract and remedies

A breach of contract occurs when a party fails to perform his obligations under the
contract which implies wrongdoing on his part. Remedies are the cures which are
available to the injured party to rectify or compensate for the breach. For example: A
buyer or a vendor of a HDB resale flat fails to attend the HDB resale appointment with
the intention to call off the sale or a vendor of a landed property refuses to hand over
the title of his property.
There are various types of remedies available, the damages at common law as well as
specific performance and injunctions in equity.
 Damages
It refers to monetary compensation payable by the defaulting party to the
injured party whenever the breach occurs. Court is empowered to award
damages in addition to or in substitution of specific performance.
The measure of damages for the breach of a real estate is generally based on
the difference between the prevailing market value of the property and the
contracted price. Damages may be assessed from the date when the contract
was breached.
In a local case: Mohamed Ali s/o Abdul Razak v Tan Ah Bee [2009] SGHC
279 the court ordered the defendant to pay the following damages to the
plaintiff on top of specific performance (shall be discussed later):
(i) interest for late completion in accordance with The Singapore Law
Society’s Conditions of Sale 1999.
(ii) the sum of S$2,500 per month being the rental from 11 September
2009 (the original date of completion) to actual date of completion
pursuant to this Order.
(iii) the Plaintiff’s costs and disbursements, with such costs and
disbursements to be agreed or taxed.
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 Specific performance
It is an order of the court requiring a party to perform his obligations as
specified in the contract. The rationale for specific performance is that, in
certain cases, damages are not adequate remedy.
In respect of sale of real estate, the court would generally prefer the remedy of
specific performance as against damages, as each property is unique and
damages may not be a good compensation where the proprietary rights in
immovable property are involved. However, damages may at times be awarded
in addition to specific performance if the court deem fit.
In the same case of Mohamed Ali s/o Abdul Razak v Tan Ah Bee [2009]
SGHC 279 cited earlier, the court awarded the plaintiff damages in addition to
the order of specific performance as remedy for the contract to be executed
and also awarded.
 Injunction
An injunction is a court order requiring a party to abide by a negative covenant
in a contract, which means a promise to refrain from doing something.
In the area of real estate transactions, the caveat has the effect of an
injunction. It protects the interest of the caveator by prohibiting the registration
of any conflicting interest.
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6. Contract for Real Estate

As mentioned at the beginning of this chapter, the Singapore Civil Law Act, Cap 43,
Sec 6(d) requires:
“Contract for the sale or other disposition of immovable property, or any interest in
such property must be in writing to be enforceable by law.”
Thus it is important for real estate salespersons to have a good understanding of the
different types of contract for sale of land/property.
The most commonly used contract for the sale or purchase of land/property under
private treaty is the Option to Purchase (OTP), however, there are time where Sale
and Purchase Agreement (S&P) is to be used. The terms of sale agreed upon by both
parties are negotiated and expressively written in either contract.
The types of contracts used for uncompleted properties and Housing & Development
Board (HDB) properties are different. The Housing Developers Rules of The Housing
Developers (Control and Licensing) Act, Cap 130 requires licensed housing
developers to use the standard form of Option to Purchase (Form B) and Sale and
Purchase Agreement (Form E) in the sale of the units in a licensed housing project.
The developer is required to seek approval from the Controller of Housing for any
change to be made to the standard Option to Purchase. The standard Option to
Purchase cannot be amended even by mutual agreement between the buyer and
developer unless approval is given by the Controller of Housing.
As for the resale of HDB properties, buyers and sellers of resale flats must use an
HDB standard Option to Purchase (OTP) as the form of contract in resale transactions.
They are not allowed to enter into any other agreement relating to the sale/purchase of
the flat as it is not valid under the Housing and Development Act.
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6.1 What is an Option to Purchase?

An Option to Purchase is a right or option given by the vendor of a property to an
intending purchaser to buy the property at a specified price in consideration of an
option fee, usually 1% of the sale price, within a specified period of time, usually within
14 days of the OTP, (the validity period of the option).
 Important Rules of Option to purchase:
1) Important information to be entered into the OTP:
 Particulars of parties
Particulars of all parties whose names are listed in the title of the
property and particulars of all buyers involved.
 Property details
This will include the address of the property, legal address
(Mukim or lot number) and property type for uncompleted
property sold by developers.
 Price
The agreed sale price, option fee payable (usually 1% for private
properties, minimum $1/- to maximum of $1,000/- for HDB
resale properties), agreed exercise fee payable for the
exercising of option, (usually 4% or 9% for private properties and
maximum of $5,000/- less the option fee for a HDB resale
property).
For uncompleted properties, the booking fee shall be 5% of the
sale price and exercise fee payable shall be 15%.
 Date
Date of issuance of OTP, validity of the OTP (normally 14 days),
date of completion of the transaction (normally 5 to 12 weeks
from date of exercise of OTP).
 Stakeholder
Usually the solicitor representing the vendor will be entrusted to
collect the exercise fee and balance of the purchase price as
stakeholder until the transaction is completed.
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2) Right granted by vendor to the buyer to buy

The OTP is a unilateral contract that binds the vendor to the purchaser
in consideration of the purchaser paying a sum of money (option
money); he is in law considered as making to the purchaser an
irrevocable offer capable of acceptance by the purchaser for the period
stated in the OTP. The vendor will not be allowed to market the same
property to another prospective buyer even he offers a higher price until
the expiry the OTP.
When the OTP provides for “and/or nominee(s)”, the vendor has to
honour the contract with the eventual OTP holder whoever he or she
may be.
An “and/or nominee(s)” provision in the OTP allows the OTP
holder to NOMINATE another party or parties to:
a) to exercise the OTP together with the initial OTP holder. or
b) to take over the OTP and exercise the OTP without the initial
holder. When this happen, the initial holder will be dropped out
totally.
The in case of HDB resale, buyers are not allowed to assign or
transfer the OTP at all.
3) The OTP does not compel the buyer to buy

If the buyer (or OTP holder) decides not to exercise the OTP and go
ahead with the purchase, he is free to walk away from the deal and lose
only the option fee.
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4) The vendor is compelled to sell

On the contrary, once the vendor grants the OTP he will has to honour
the contract with the OTP holder whoever the holder may be, unless
there is a provision prohibiting the assignment or nomination of the
OTP. Once the OTP is exercise, and a contract is formed, neither party
could retract from the contract without facing legal consequences.
In the case of a sale of uncompleted property, developers prohibit
buyers from assignment or transfer of the OTP granted to them by
spelling such prohibition in both their OTP and S&P. Hence, buyers
need to ensure that all persons who are intending to purchase the
property are correctly identified and named as the 'intending
purchasers' in the OTP. Only the intending purchasers named in the
OTP may exercise the option and sign the Sale & Purchase Agreement
for the property as purchasers. After an Option has been granted, the
Controller's approval has to be obtained for any change of name in the
Option.
Changes will be granted only under the following circumstances:
a) deletion of names as long as one of the joint option holders
remain as the option holder; or
b) addition of names of immediate family members; or
c) substitution of a name with that of an immediate family member
as long as one of the joint holders of the option remains as the
option holder.
Only one such change is allowed and if the change is granted, the
developer has to issue a fresh OTP.
5) Vendors’ right to forfeit option money

In the event that the buyer decides not to go ahead with the purchase,
the vendor has the right to forfeit the Option fee and thereafter no party
shall have any further action against each other.
As for the case of an uncompleted property, if the OTP is not exercised
before it expires, the developer will be entitled to forfeit 25% of the
booking fee. The other 75% of the booking fee will be refunded to the
purchaser. Thereafter, the developer can sell the property to any other
interested party.
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6.2 Content of sale contract

The terms and conditions contained in a sale contract would include the conditions for
sale and the necessary particulars discussed in para 6.1(1).
 General conditions
These are general terms of sale commonly found in standard contract
templates used by solicitors and real estate salespersons. They would contain
the Law Society’s Conditions of Sale 2012 which are recommended standard
terms by Law Society.
 Special conditions
If the vendor and purchaser of the property agree on certain terms that deviate
from the standard ones found in the general conditions, the solicitors would
draft these terms as special conditions.
For example: The property is sold subject to the existing Tenancy Agreement
dated XX December XXXX. Upon the security deposit shall be transferred to
the purchaser subject to the Tenant’s consent to release the Vendors from all
obligations relating in respect of the security deposit…….
 Subject to contract
Any agreement which is made “subject to contract” falls short of a contract; it
means that there is no concluded contract yet. For example, a buyer of a condo
exercised an OTP may still be no binding contract on the vendor to sell such
property at the time of exercising the OTP, if the term of the OTP provides that
a further contract of sale and purchase agreement to be executed after the
exercise of OTP.
 By deed vs by hand
There is one exception to the requirement of "consideration" and that is a
"deed", which is a contract "under seal" or a "specialty contract".
In the olden days, persons contracting would drip a drop of hot wax on the
bottom of the contract and press a family ring into the wax, thereby signifying
consent to the terms of the document. In legal theory, if a contract is a "deed",
then no consideration is required.
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Competency Unit 2.1: Law of Contract

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