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Model Exam

IRAC method of completing exams

Issues - Outline the issues that you are going to discuss.

Rules - Define the legal rules that are relevant to the question.

Application - Apply the legal rules to the facts of the question (this is the hard part!).

Conclusion - Tie things up, usually in the form of an advice to your hypothetical
client.

Use this method for EACH issue that you address.

Always use your reading time wisely to PLAN YOUR ANSWER before writing. This is of
utmost importance as it will help you clarify your thoughts and ensure that you avoid
following desperate exam strategies that unprepared students commonly resort to, such
as:

i) ‘the kitchen sink’ i.e. spilling all of your knowledge that is vaguely related to
the topic onto the exam paper and hoping for the best.

ii) ‘the garden path’ i.e. going off on an irrelevant tangent

Remember that the APPLICATION IS THE MOST IMPORTANT SECTION of your


answer and should take up the bulk of your time. The actual conclusions you reach are
often superfluous. Rather, your marker will be most interested in how you arrived at
your conclusion.

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Each answer should include:


- An Introduction - Flag the issues that will arise in your answer.
- A Body - This should contain your answer to the issues flagged in the introduction.
- A Conclusion - A concise answer to the question based on what you have argued in
the body of the essay. For example -‘Tim will not be able to lawfully terminate the
contract. However, he will be able to successfully argue that he was induced into the
contract as a result of unconscionable conduct’.

When considering any possible actions in the answer, first look to see if there is anything
explicit in the contract that you can rely on (e.g. written and oral terms). If there is
nothing explicit in the contract, consider whether you can rely on any implied or
incorporated terms. If you cannot rely on these, then examine whether you can use
anything outside of the actual contract (e.g. promissory estoppel, part performance,
undue influence, misrepresentation, misleading conduct).
Use headings frequently to structure an answer.

Use the language of the question.

Be as comprehensive as possible when answering a question - canvas all possible


answers. An example of this is stating that ‘Although a Court would likely find that
termination was justified because of breach of an essential term, it is also necessary to
consider whether termination was justified because of repudiatory conduct’. Don’t merely
give an answer for whatever cause of action will be most likely to succeed.

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CONTRACT LAW MODEL EXAM

SAMPLE QUESTION
Minh, a self-taught wiz-kid, started a small business manufacturing personal computers
for home and office use. He constructed computers to fit the specifications required by
individual customers. Minh expected that the Pentium III would be a top seller for the
home computer market. He contacted Brett who is a salesman for Hot Chips, a
specialist supplier of computer chips and inquired whether he would be able to fill a
standing order for a regular supply of Pentium III computer chips. Minh emphasised to
Brett that the chips needed to be fully compatible with the COMPUSHADE v2.0
software, which served as the interface which he used to program his computers. Brett
replied by saying that he would be delighted to become Minh’s regular supplier and
recommended that he consider the Fasttrack brand of chip. Brett also said - “No
worries Minh. I guarantee that the Fasttrack chips will be compatible with the
COMPUSHADE v2.0 interface”. Minh was impressed with Brett’s professional attitude
and decided to finalise with Brett an order of 50 Fasttrack Pentium III chips per month.

A few days after the initial agreement, Brett phoned Minh to raise an issue that had
come to his attention. Brett realised that Minh was an inexperienced businessman and
that he had started his business at time when there was an oversupply of computer
manufacturers in the community. Brett thus sought to ensure that Minh would be able to
provide a guarantee for the liabilities of his business. Minh said that his parents would
be happy to provide such a guarantee.

Content with this assurance, Brett forwarded Minh a sales contact under which he
agreed to sell Minh 50 Fasttrack Pentium III chips per month, from March 2003 to March
2005. Clause 10 of the contract stated that the chips would be of industry standard size
for Pentium chips i.e. 2cm x 2cm. Minh read and signed the contract.

Brett then sent a guarantee contract to Minh, under which Minh’s parents agreed to pay
any outstanding money that Minh may end up owing Brett if the business failed. Late
one evening Minh took this contract to his parent’s apartment to get them to sign it.
Minh’s parents, who were in the middle of a game of poker at the time, asked what the
document was for and Minh replied ‘oh nothing much, just something for the new
business.’ Minh’s parents, who were very proud of their entrepreneurial son,
enthusiastically signed the document without reading it or pressing Minh for details. It

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should be noted that Minh’s parents are first-generation immigrants from Vietnam who
emigrated to Australia as refugees after the Vietnam war. They have both developed
only a tenuous grasp of the English language.

Everything was now set for the business arrangement between Minh and Brett to begin
functioning. The first package of chips arrived at Minh’s office on March 3. Minh
discovered that the chips were slightly larger than the industry standard 2cm x 2cm. In
order to get them to fit into his motherboards, Minh was forced to manually alter the
motherboard using a soldering iron. This is a fairly quick and easy operation.

However, when he installed a Fasttrack chip into the modified motherboard of a


computer to test its processing speed, Minh discovered that the chip operated
considerably below the standard Pentium III capacity that he was expecting. Being
pressed for time due to other arrangements which he needed to make for the business,
Minh neglected to make an immediate complaint to Brett.

On June 5 Minh began in earnest to start building computers that customers had
ordered. He was shocked to discover that all of the chips that he tested operated at a
speed ¾ of full Pentium III capacity. Minh came to the realisation that the chips would
not operate at full capacity unless he replaced his COMPUSHADE v2.0 interface with
the new COMPUEASE v1.0 software system. Minh reluctantly decided to purchase the
software package. The package cost him a considerable amount of money because it
was more than a simple upgrade. Minh also had to spend time learning how to use the
new interface. Minh went to see Brett to complain about this unacceptable situation.
Brett responded by highlighting that the contract contained no provision indicating that
the Fasttrack chips would function at full capacity with COMPUSHADE v2.0 software.
Brett also raised the fact that clause 15 of the contract said: ‘The entire agreement is
embodied in this contract, with respect to the subject matter thereof. There are no prior
warranties or representations relating thereto.’ Minh was incensed.

On July 2, Minh’s soldering iron broke down. Minh now decided that enough was
enough and he was sick of modifying the motherboards, even though it was pretty
routine job. He wrote to Brett pointing out that that the chips did not meet the contract
requirement that they be of size 2cm x 2cm and that he would not accept any further
deliveries of chips from Brett. Brett wrote back and said: ‘I am treating your latest letter

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as an unwarranted repudiation of your obligations under our contract and as such, I


hereby terminate the contract. I intend to claim $10,000 as damages. This is for the
profit for the remainder of the contract.’

By this stage Minh’s business was in dire straits. He had spent a lot of time and money
installing the new software on his machines and lost a lot of business during this time.

Minh asks you for advice as to:

i) his rights and liabilities arising from the business arrangement with Brett
which has turned sour; and
ii) if he is liable under the contract with Brett, whether his parents will be liable
under their guarantee.

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ANSWER

A legally binding contract exists between Minh and Brett. Brett made an offer to Minh
to sell him computer chips, and Minh accepted the offer and provided good
consideration in reliance on Brett’s offer (Australian Woollen Mills) to bind Brett to the
promise. As this was a commercial situation, there is a presumption that the agreement
is intended to be legally binding (Rose & Frank v JR Crompton). There is nothing from
the facts given that indicate that the presumption was rebutted. Therefore, the
presumption stands.

Issue (a): Does Minh have the right to terminate the contract?

In order to determine the liabilities, it is necessary to assess if Minh was justified in


repudiating the contract

-If yes, then Minh will not be liable to pay for damages that are being sought by Brett and
Brett would not be allowed to terminate the contract and he, himself. is liable for
anticipatory repudiation of the contract.

-If No, then Minh has committed a repudiatory breach of the contract and is liable to pay
for damages if Brett chooses to treat the contract as terminated.

Preliminaries

In order for Minh to be justified in terminating the contract, it has to be for a breach of a
condition in the contract or a clause that substantially deprives a party from the benefit of
the contract. It is to be noted that Singapore has adopted a much unique and collative
approach in dealing with conditions, warranties and intermediate terms. Reference
should be made to the case of RDC Concrete Pte Ltd v. Sato Kogyo Pte Ltd [2007] 4
SLR 413,where under the new law a party could terminate a contract for the breach of a
condition and/or a clause which substantially deprives the party of the whole benefit of
the contract.

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1. Can Minh terminate the contract?

-Was the breach of Clause 10 a sufficient breach to justify termination of the


contract?

Clause 10, which specifically states that the size of the chip will be industry

standard 2cm x 2cm, is a condition of the contract. A condition is an essential

term, the breach of which justifies termination (Oscar Chess v. Williams).

That the size of the chips was 2.5 x 2.5 cm is a breach of this condition which justifies
termination[ as evinced under Situation 3C in RDC Concrete].The breach of a condition
would confer onto Minh the right to accept or affirm the contract[ per Vitol v.
Norelf(1996)].

As such Minh is allowed to terminate the contract for the breach of clause 10 and will not
have committed repudiatory breach, THUS not liable to pay the $10k sought by Brett.

-Is Minh justified in terminating the contract due to the statement about the

chips being able to function with COMPUSHADE v2.0 being erroneous?

In order to justify termination due to breach of the promise made by Brett, Minh has to
prove that the statement had been properly incorporated into the contract. Issues may
arise as the statement was verbal in nature and nor was it recorded in the written
contract. On its face, admission of such oral extrinsic evidence will be barred due to the
Parol Evidence rule enshrined in Singapore’s Evidence Act [Cap 97, 1997 Rev Edn] S
94.The oral evidence might be seem to add, vary or contradict the written terms in the
contract.

However, Minh might avail himself to the exceptions to the Parol Evidence Rule codified
in the proviso to S94.In this situation. S94 (b) is applicable and allows the admission of
such oral extrinsic evidence to prove that Brett had assured Minh that the chips would be
compatible with the Compushade v 2.0 of which he is in breach now.

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As such, Brett’s oral promise would be seen as part of the contract, and he is in breach
of the term of the contract. Thus, Minh is justified in terminating the contract for the
breach of the oral promise made by Brett.

2. Alternative avenues to circumvent Parol evidence rule:

1) Partly Oral, Partly Written

Alternatively, Minh could argue that the contract was not wholly a written contract but
rather a party written and partly oral contract to which the Parol Evidence Rule [Cap 97,
1997 Rev Edn] does not apply to. However, such a route will be less taken, as courts will
be motivated by the already availability of the formal signed contract between Minh and
Brett to conclude that the contract was wholly written.

2) Collateral Contract:

It may be argued that the promise constituted a collateral contract, the consideration for
which was the act of entering into the main contract. The veracity of the statement was
certainly important to Minh. However, there is a heavy onus to be borne by the person
proving a collateral contract especially in these circumstances, as the subject matter –
the capacity of the chips – is the same as the main contract. Although, there is a
possibility that the court may consider the promise to amount to a collateral statement,
as it completely contradicts the main written contract, it would seem that clause 15 would
almost certainly rule out the possibility of an enforceable contract.

3) Estoppel

Another alternative is promissory estoppel that may be used to enforce the collateral
contract instead. Brett may be estopped from going back on his promise as to the
capacity of the chips if it can be established that a clear unequivocal statement was
made, there was detrimental reliance on Minh’s part and that it was reasonable to rely
on that promise. However, it should be noted that the crucial element of promissory
Estoppel is that at present, it can only be used as a ‘shield’ rather than a ‘sword’.
Therefore, Minh can only use promissory estoppel as a defence if he is sued by B and
not as a cause of action.

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3. Is the Entire Agreement Clause valid and thus excluding oral agreement made?:

Does the entire agreement clause exclude the availability of any form of extrinsic
evidence? For an informed decision on this matter, reference should be made to Lee
Chee Wei v. Tan Hor Peow Victor [2007] SGCA 22,where the CA went through a
detailed pronouncement of the entire agreement rule and law thus far.

Differing opinions:

1) Effect of entire agreement clause is voided, as S94 of the Evidence Act does not
give any hallowed exception to such a clause. So long as the requirements of
S94 are met, extrinsic evidence is admissible.{Exklusiv Auto Services Pte Ltd v.
Chan Yong Chua Eric [1996] 1 SLR 433, Rajendran J @ p439,[21]}
2) Clause stands and it excludes the exceptions to the Parol Evidence rule under s
94 of the Evidence Act. As stated by McLachlin CJSC in Power Consolidated
Pulp Inc v. British Columbia Resources Investment Corp (1988) 14 ACWS (3d),
that the parties have made their intentions clear by the inclusion of an entire
agreement clause which ought to be respected and upheld by the courts.

Singapore’s Courts likely position:

Minh would likely argue that the effect of the clause is voided as he had not agreed to it
and their oral agreement had served to allow the inclusion of oral agreements. Under S
94(e), the courts will take a contextual approach in interpreting the entire agreement
clause by looking at the contract and the circumstances surrounding the formation of the
contract including the purpose and object of the contract {as stated in Zurich Insurance v
B-Gold Pte Ltd [2008] SGCA 27}.

If the courts do find that the parties intention were to include the oral agreements, then
effect would not be given to the entire agreement clause.

However, if looking at the circumstances, party intention was to be wholly bound by the
contract itself, then effect will be given to the entire agreement clause and oral evidence
will not be admitted.

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Conclusion: It would be more likely that the courts would find that the parties intended to
include oral agreements between them as to be part of the contract. Thus, the effect of
entire agreement clause is nullified.

4. Did Minh affirm the breach and accepted the contract, thus losing his right to
terminate the contract?

Brett could possibly argue that by not brining the issue of the breach upfront first, Minh
had technically affirmed the contract and thus losing his right to terminate the contract.
As such, Minh does not have the right to terminate the contract and is only entitled to
claim of damages.

Though a sensible argument, the courts would not imply acceptance of the breach by
Minh’s silence. Making such an inference would lead to non-sensical results and thus
allowing parties to infer consent or acceptance from any party’s non-action.

ISSUE (a) Conclusion: Brett, legally, did not have the right to terminate the contract as
Minh was exercising his right to terminate the contract. Brett was in breach of an oral
promise which will be included under the Evidence Act. Minh is not liable to pay for the
$10k in damages sought by Brett as his termination of the contract is justified.

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Issue (b): What are the different damages claimable by Minh for
the breach of the contractual term by Brett?

Damages for Breach 1:

If Minh were to claim for damages for Breach 1(the size of the chips), he would not be
placed at a position as if the contract had been fulfilled. He would most probably be
awarded the cost of cure for replacement or repair. As in the case of Ruxley
Electronics& Construction Ltd v. Forsyth, Minh could ask for the cost of cure of
replacement (the amount required to replace all the chips with compatible sizes).
Though, the availability of the cost of cure is dependent on the reasonableness test that
was expounded in Ruxley that looked at

1) Intention of parties to effect the remedial repairs


2) Burden imposed on Brett and compared with the benefit conferred onto Minh by
rectifying the performance.

However, it should be noted that Minh would most likely want to claim for damages
caused by Breach 2 as it would allow him a larger claim of damages that were caused
by Brett’s oral promise. Damages from breach of clause 10 are not financially viable, as
it would not serve to put Minh in the position as if the contract had been performed.

Damages for Breach 2:

The claim for damages caused by Brett’s owns breach of his oral promise would be a
more sensible option.

He would/could claim for

1) Loss of business during the time he had to retrain himself


2) Loss of profits during retraining period and future loss of profits due Brett’s act of
terminating the contract.
3) Loss of chance to expand his business and gather future clients/contracts. Minh
would have to establish that there would have been a substantial chance as
opposed to a speculative one, that his business would have continued to

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generate profits if not for Brett’s breach. This is the claim under Category 3 laid
down by Stuart LJ in Allied Maples v. Simmons & Simmons (1995). Reference
should be made to the Singapore case of Asia Hotel Investments Ltd v. Starwood
Asia Pacific Management Pte Ltd (2005) 1 SLR 661,where the CA approved of
the categories laid down by Stuart LJ.

All the damages are governed by the causation-remoteness rule.

Causation:

No issue of causation arises even for the claims for future loss of profits as it was due to
Brett’s own action of terminating the contract that led to the ceasing of chips supply.

Mitigation:

The warranting of the chips being compatible had led to Minh entering into the contract
that turned out to be not true. Minh’s act of replacing his software to Compuease v1.0
can be seen as a mitigatory step to reduce his extent of losses .The law requires the
innocent party to reasonably mitigate their losses if possible, though it does not seek to
impose a huge burden on the innocent party itself.

Remoteness:

The rules of remoteness have been well established by the case of Hadley v. Baxendale
[1854] and recently modified by Transfield Shipping Inc v. Mercator Shipping Inc (The
‘Achilleas’) [2008].

It would seem that all of the losses would fall under Limb 1 of the Hadley-Baxendale
rule, occurring naturally from the breach of the oral promise made by Brett. As such the
courts would impute constructive knowledge on the guilty party to have known that such
losses would occur from his breach of his promise. Brett must compensate the Minh for
the ordinary losses that were reasonably foreseeable at the time of entering the contract,
as a serious possibility arising from a breach. It is suggested that there would be some
damages for loss of profit, as Minh had to take extra time and money to upgrade the
software.

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The loss of profits, that would have occurred if the business had taken off, can still be
claimed under Limb 2 as Brett had knowledge of the fact that Minh’s business was still
young and would not survive if Minh was not able to fill the orders as per specification.
Thus, with that element of special knowledge, claims for loss of profits that ought to have
been made can also be claimed.

It is to be noted that The Achilleas has allowed the limiting of the losses arising naturally
(falling under Limb 1) by reasoning that the parties had not assumed the risk of liability
for the types of losses claimed (as per Lord Hoffman’s reasoning).

Issue (c) : Can Minh claim that there has been a


Misrepresentation by Brett ?

If the statement was not found to be part of the terms of the contract, Minh could argue
along the lines that the statement was a misrepresentation by Brett that ought to be
actionable for damages under the Misrepresentation Act [Cap 390, 1994 Rev Edn].
Though, even if the statement had been found to be a term of the contract, it would not
be a bar to Minh to claim for damages under the Misrepresentation Act s 1(a).

Minh would have to establish an operative misrepresentation by establishing

(a) False, ambiguous statement

The statement made by Brett was definitely misleading and false, He had misstated that
the chip would be compatible with the Compushade v 2.0 which meant that it would be
running at full capacity.

Brett could counter argue that his statements are only opinions [Bisset v. Wilkinson
(1927)]. Minah could avail himself to the argument that as an seller, he is impliedly
saying that he knows facts which justifies his opinions as in the case of Smith v. Land
and House Property Corporation (1884). Furthermore, in Brown v. Raphael (1958), it is
established that an opinion is actionable as a misrepresentation where the representor is

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in a far stronger position to ascertain the facts then the representee, which is clearly the
case here.

(b) The statement had induced him into entering into the contract

It is clear from the facts that the statement had induced Minh to sign the contract as he
had placed huge importance on the compatibility of the chip with the software. Plus, no
other evidential reasons are given that Minh had other reasons to enter into the contract.

Moreover, the opportunity to discover the defect is irrelevant as laid down in Redgrave v.
Hurd, constructive knowledge is irrelevant.

Damages claimable under Misrepresentation Act [Cap 390, 1994 Rev Edn]:

Under s 2(1) of the Misrepresentation Act, it is pointless to establish the type of


misrepresentation, as it will be treated as a ‘fraudulent’ misrepresentation [fiction of
fraud]. The English Law position is clear that the measure of such damage is that of the
Tort of Deceit as decided by the case of Royscott Trust v. Rogerson [1991]. Singapore’s
position with regard to the measure of damages under s2(1) is unclear but it is highly
likely that the courts would follow the position in the English Law.

Thus, Minh would be able to claim an consequential losses under s 2(1). That being he
is able to claim for loss of business during which he had to re-train himself, he could
claim for loss of future business and loss of future profits. He could also claim for refund
of the prices paid for the chips and price to replace them completely with compatible
chips. The claims of damages are only limited by the remoteness rule.

Counter claim by Brett:

If Brett is able to establish that he had sufficient reasons to honestly believe in the truth
of his statements than Minh would only be entitled to the rescission of the contract. This
is highly unlikely as no such facts are given.

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Issue (d): Parent’s liabilities

Elements of Undue influence:

It seems probable that undue influence may be an issue here. The main authority on
undue influence is the case of Barclays Bank v O’Brien (1992) 1 WLR 1269 which was
further refined in Royal Bank of Scotland v Etridge (2002) 2 AC 773.Thus, Lois’s
mother(Lana) would want to establish under Cat 2A existence of undue influence.

The existence of a father/mother-son relationship would lead to the presumption of


undue influence. This can be substantiated by the fact that both mother and father
reposed trust and confidence onto Minh thus trusting him with all their affairs. Reference
should be made to the Singapore case of The Bank of East Asia v. Mody Sonal M and
others [2004] SGHC 149,where such a relationship was taken to lead to a presumption
of undue influence.

Was the Brett put on Inquiry?

Once the existence of undue influence has been established the burden of proof is then
shifted to the Brett to show that Minh’s parents had entered into the transaction without
any reservation. The courts will decide by asking whether the ‘transaction is one that
calls for explanation’. Thus coupled with the fact that Minh’s parents are uneducated and
unable to understand the English language, on its face it might seem that a higher
burden is imposed onto Brett to show that he had taken reasonable steps to ensure the
transaction was procured reasonably. Furthermore, the fact that the transaction was not
to Minh’s parents benefit ought to put Brett on Inquiry.

Thus, Brett must show that he had undertaken reasonable steps to ensure that the
practical implications of the transaction had been explained to Lana.

Did Brett take reasonable steps after being put on notice?

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Much difficulty lies in the law in defining what counts as unacceptable conduct such that
the bank should be put on notice. In Etridge, the courts held that it is adequate that the
Brett had informed Minh’s parents of the practical implications and she understood the
transaction.

It is to be noted that Brett knew nothing of Minh’s parents not understanding English and
himself had not taken any steps to explain the steps of the transaction to Minh’s parents.
Nor had he advised them to seek independent legal advice In this instance, it might be
likely the courts will hold that Brett’s conduct was unreasonable and thus the bank has
not satisfied its burden.

Elements of unconscionable Bargain:

As per Fry v. Lane (1888), the party must be at a serious disadvantage and Minh must
have exploited the weakness. This can be said to be the situation here, where Minh’s
parents were uneducated and not able to fully understand the transaction. However, it
might be the case that the courts would not recognize elements of unconscionable
bargain, as Minh’s parents could still read, albeit not well. Furthermore, they made no
enquiry to even read through the contract.

Conclusion: Thus, it will be highly likely that the Minh’s parents will not be held liable as
a guarantee to Brett.

♠♠♠♠

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