Analysis Of Contract Discharge And Validity Of Employment And Rental Agreements

Scenario 1: Contract Discharge due to Frustration

Section A

Question 1

Peter, the Managing Director of CompuMac Limited, was planning a company trip for the staff.

The staff wanted to go to Kuala Lumpur to visit the inaugural “Global 3-D Printing” exhibition that boasts of 3 -D printing technology experts participating from all around the world. They wanted to talk to the experts about CompuMac’s patented 3-D technology and to seek alliances with such experts on research and development projects.

Peter booked a 25-seater coach from BestCoach, at a price of S $2,000 for a return trip from Singapore to Kuala Lumpur. Peter, on behalf of CompuMac, paid a deposit of S$500 to BestCoach five days before departure date.

Analyse the following scenarios. For each scenario, advise Peter as to whether contract between CompuMac and BestCoach can be discharged and if yes, identify the appropriate grounds for such discharge. In your analysis, examine whether CompuMac is entitled to a refund of the deposit or alternatively, is required to pay the balance amount to BestCoach.

(a) Scenario 1 – There was heavy monsoon rain in Johor Bahru. The roads in Johor Bahru were flooded and no longer accessible. BestCoach refused to proceed with the coach journey on the departure date, although the roads after Johor Bahru and leading into Kuala Lumpur were clear and accessible.

(b) Scenario 2 – There was heavy flooding in Kuala Lumpur. BestCoach offered to provide a slow drive to Kuala Lumpur so that by the time that the coach reached the borders of Kuala Lumpur on the eve of the exhibition, the floods would likely have abated and the coach could then drive into Kuala Lumpur. Peter refused to proceed with the journey on the departure date.

In your answers, you are required to cite the relevant statutory provisions and case law to support your views as well as demonstrate well-developed written proficiency in the flow and content of your analysis.

Question 2

Cherlyn is 17 years old and had been unemployed. Three months ago, she accepted a job at CallNow Private Limited, a company providing 24/7 hotline support services to users of various types of software.

Her employment agreement stated that:

her working hours were from 8.00am to 10.00pm daily, from Monday to Saturday; and

she was permitted only 30-minute breaks for her lunches and dinners.

Her monthly salary was S$1,000 and she was entitled to 5 days of annual leave. During the interview, the Human Resource Manager of CallNow told her that the company would provide her with free 3-month intensive training so that she would become “extremely proficient” at handling support services calls. If she did not quit her job within 12 months of completing the training, the training fee of S$6,000 payable by Cherlyn would be waived. After completion of her training, she would be assigned a “mentor” who would guide her on the job.

Cherlyn also rented a room as she wanted to stay near her new workplace. The rental agreement was for three (3) years, with a monthly rental of S$350.

After a few weeks, she began having second thoughts about the job and wanted to resign. She did not want to pay the training fee and asked you if the employment agreement was valid and enforceable.

At the same time, she wanted to nullify her rental agreement and to also obtain a refund of rental amounts that she had paid for the past few weeks.

She has come to you for advice. Explain to Cherlyn whether:

(a) her employment agreement is valid and enforceable (and whether she is required to pay the training fee); and

(b) her rental agreement is valid and enforceable (and whether she is entitled to obtain a refund of the past rental amounts that she had paid).

You should identify and cite the relevant statutory provision(s) and case law to support your views.
 
Question 3

Consider a specific job in your organisation (or one that you are familiar with) and relate how the employee performing this job is an agent of that organisation. You may preserve confidentiality by disguising the name of the organisation. Remember to state the relevant legal principles and cite relevant case law to support your analysis.

(a) For context, you should describe the business of this organisation and some of the key functions of the identified job that are relevant to the agency relationship between the organisation and the individual.
 
(b) Discuss and analyse how the individual in that job is an agent of the organisation. In your answer, explain how the agency relationship was created as well as two (2) types of authority which the agent would possess. Provide specific examples to support your answer.

Scenario 2: Validity of Employment and Rental Agreements

Section A.I)

The facts in the given case relates to two statues i.e. “The Law of Contract” and another is “Frustrated Contracts Act”.

Here both CompuMac Limited & BestCoach have intentions of creating legal relations (Section 4 of The Law of Contract). We presumed that requirements of offer & acceptance are fulfilled so as to make it a valid contract (Section 2 of The Law of Contract). Moreover, it is also assumed that the rights & obligations of the parties to the contract are clear & definite i.e. it does not lead to any ambiguity so as to treat it as a valid contract (Section 5 of The Lea of Contract). Lee Pey Woan, Pearlie Koh, Tham Chee Ho, 2009, “The Law of Contract”

In this scenario, we can observe that Johor Bahru located in north of Singapore was heavily flooded. And it was no longer accessible.

As per provisions of Section 8 of The Law of Contract, the contract between the parties may be discharged in many situations like discharge of performance, non performance or defective performance, discharge by agreement, discharge by frustration, etc.

Discharge of contract by frustration is one of those situations where cause of the failure of performance of contract is because of events or incidents or situations or circumstances which are not in the hands of the parties to the contract. Moreover, it is also a stage of situation where neither or the parties would have foreseen the occurrence of certain events. In the sense, such situations are said to be uncontrollable in nature. Then contract is said to be discharged by frustration. Lee Pey Woan, Pearlie Koh, Tham Chee Ho, 2009, “The Law of Contract”

Here in this scenario, we can see that occurrence of the floods would fall under situations where it is uncontrollable in nature because neither of the parties would have anticipated that floods would occur and though the announcements of weather department can be considered as an excuse but it cannot be treated as a genuine reason to discharge the contract.

As per the provisions of Section 2(2) of Frustrated Contracts Act all amount of money which are payable or already payable to other party in the context of the contract before the time where parties to the contract were discharged, then in certain cases, the amount which is already paid shall be refundable to the other party who has paid it and in case such amount is to be payable, then it shall no longer be payable. ANON, 2014, “Frustrated Contracts Act”

In the given scenario, on behalf of CompuMac Limited Mr. Peter has paid S$500 as an advance deposit towards the execution of the contract to BestCoach before five days of the departure date i.e. five days before the day of the performance.

Moreover as per the provisions of Section 2(3) of Frustrated Contracts Act if the party to the contract to whom such amount of money was paid already or it is to be payable under sub section (2) of section 2 of the said Act has already incurred expenses towards the implementation of the performance of the contract, then subject to the nature of expenses incurred i.e. such expenses being genuine in nature or not, depending upon the situations or circumstances of the case to case, the party who has received such amount of money shall be permitted to retain such money or in case such amount is to be payable, the amount so incurred till date i.e. till the date of execution of the contract shall be available for recovery from the other party. But such amount of recovery in no case shall exceed the amount of expenses so incurred. ANON, 2014, “Frustrated Contracts Act”

Section B: Analysis of Agency Relationship in an Organization

In the absence of any specific information, we can assume that BestCoach has not incurred any such expenses exclusively for the performance of this contract. However, if any such expenses have been incurred then the amount of expenses so incurred shall be available to retain by BestCoach.

In view of the above observations, we can note that:

1. The contract is discharged by Frustration (Section 8 of The Law of Contract).

2. The deposit paid by CompuMac Limited shall be refundable by BestCoach as it amounts to impossibility of performance provided BestCoach has not incurred any such expenses for this. (Section 2(2) of Frustrated Contracts Act)

3. If BestCoach has incurred any such expenses exclusively for the purpose of this contract, then subject to it being genuine in nature, to that extent, BestCoach can retain the deposit amount or in the case where amount incurred is more than deposit amount (i.e. S$500), then amount exceeding S$500 shall be payable by CompuMac Limited to BestCoach. (Section 2(3) of Frustrated Contracts Act).

Here as per the information given, there were heavy floods in Kuala Lumpur.

BestCoach also provided an alternative approach to avoid the termination of the contract by offering slow drive to Kuala Lumpur so that by the time the staff of CompuMac Limited reaches there, the floods might have been abated and then they can drive to Kuala Lumpur safely.

Here the information provided is not clear with regard to weather atmosphere of Kuala Lumpur about the floods would have been abated or not.

However, relying on the judgment of BestCoach that it would have driven the vehicle slowly so that by the time they reach Kuala Lumpur, floods would have been abated. Again it is matter of risk of life for the staff of CompuMac Limited that what if the floods would not have been abated as it not the controllable in nature. Though the BestCoach being the best judge in such circumstances, whether to rely on such judgments or not again depends upon the personal call to take a risk considering the announcements by weather department.

In view of the above observations, we can note that:

1. The contract is discharged by Frustration (Section 8 of The Law of Contract).

2. The deposit paid by CompuMac Limited shall be refundable by BestCoach as it amounts to impossibility of performance provided BestCoach has not incurred any such expenses for this. (Section 2(2) of Frustrated Contracts Act)

3. If BestCoach has incurred any such expenses exclusively for the purpose of this contract, then subject to it being genuine in nature, to that extent, BestCoach can retain the deposit amount or in the case where amount incurred is more than deposit amount (i.e. S$500), then amount exceeding S$500 shall be payable by CompuMac Limited to BestCoach. (Section 2(3) of Frustrated Contracts Act).

The facts in the given case relates to statue i.e. “The Law of Contract”.

In the Singapore country, a person is treated as minor if he/she has not attained the age of 21 years. So it is clear from the information given that Cherlyn who is aged 17 years is minor.

Here Cherlyn has entered into two agreements:

1. Employment agreement with CallNow Private Limited for doing job from 8 am to 10 pm from Monday to Saturday at a monthly salary of S$1,000.

During her interview, the human resource manager of CallNow Private Limited also clearly mentioned that she would have to go intensive training for three months so as to make her extremely proficient at handling support services. There was also a term & condition that if she does not quit the job from CallNow Private Limited till the expiry of 12 months starting from her 1^st day after her training is completed, then the amount of the training fees of S$6,000 which is otherwise payable by Cherlyn would be waived i.e. it would not be so longer required to be paid. After she completes her training, she would also be assigned with a mentor who would guide her while she is on the job.

2. Rental agreement for three years rental with a monthly rent being S$350 to be payable by Cherlyn.

3. As per the provisions of Section 6 of The Law of Contract, as a general rule contracts against minors are not enforceable and they are treated as void. However, contracts for providing good and/or services which are wholly or partly for the benefit of the minor are also considered to be valid. They are enforceable in the eyes of the Law. Lee Pey Woan, Pearlie Koh, Tham Chee Ho, 2009, “The Law of Contract”

However, the contract for employment i.e. the contract between Cherlyn and CallNow Private Limited in this case, cannot be termed as a contract of service. So this contract is not valid and enforceable against Cherlyn.

Hence Cherlyn would also not be required to pay the training fees of S$6,000 to CallNow Private Limited even if she leaves the job before the expiry of 12 months of completing the training.

4. Here Cherlyn has entered into a rental agreement at a monthly rent of S$350 so that she can accommodate easily between her residence and work place.

As per the provisions of Section 6 of The Law of Contract, as a general rule contracts against minors are not enforceable. However, where a minor has been supplied with necessaries i.e. goods or services suitable for the survival of the life of person being minor, then even though such contracts are against minors, they are very well enforceable in nature. Lee Pey Woan, Pearlie Koh, Tham Chee Ho, 2009, “The Law of Contract”

Here rental agreement for the maintenance of life of Cherlyn as the residence is one of the basic requirements of life. So rental agreement is valid and enforceable.

Cherlyn would not be entitled to refund of the past rental amounts that she has paid.

Overall, we can note that:

• Employment agreement is not valid & enforceable. Cherlyn would not be required to pay training fees of S$6,000 even if she quits job before the expiry 12 months from the period started after she has completed her training. (Section 6 of The Law of Contract)
• Rental agreement is valid & enforceable. Cherlyn would not be entitled to refund of the past rental amounts that she has paid. Moreover, if any dues are pending to be paid by Cherlyn as tenant to Landlord, then she would also be required to pay the same. However, in the absence of any such particular information, we can assume that no dues are pending to paid by Cherlyn to her landlord towards this particular rental agreement of monthly rent being S$350. (Section 6 of The Law of Contract)

 The given question deals with The Law of Agency. There are several definitions given by various authors of agent, agency etc. but no one of them are very clear and leaves some space for ambiguity.

In general, it is defined as the tasks which are performed by agent are performed with the prior approval of principal. Such approvals may be express or may be implied in nature. It should also be noted that the relationship of agency can be created only when the tasks which are done by agent on behalf of principal, principal himself should be capable of being doing it. For example, agent provides some physical work services like labour work on behalf of his principal, then such relationship cannot be termed as a relationship of agency when principal himself is handicapped. Sometimes agency is created by the nature of urgency. However, it should be important to note that agency has no legal status if it is created for doing illegal business.

As per the provisions of Section 2 of The Law of Agency, agency is such a stage of relationship where one person works on behalf of another person with his express or implied consent. The person doing task is known as an agent and the person on whose behalf it is being done is known as a principal. The acts of the agent are capable enough to create a contractual legal relationship between third party and the principal. The agent may also be empowered with a right to sale, purchase, dispose of any asset or anything in kind or otherwise enter into an agreement with the third party with intentions of creating legal relationships so as to enforce it in a court of Law. So in a meaning we can say that agent does the task which is otherwise was to be done by the principal himself and therefore through the tasks performed by agent, he makes his principal legally bound for the same. Tan Cheng Han, 2009, “Law of Agency”

Moreover as per the provisions of Section 3 of The Law of Agency there are so many relationships which closely represent the relationship of agency but may not have differentiating attribute of being capable to affect the contractual relationship of another into an agency relationship. We can take examples of relationships between employer & employee, employer & Servant, bailer & bailee, trustee & member, etc. However, all these relationships also differentiate each other in one or the other way. Tan Cheng Han, 2009, “Law of Agency”

If we consider the relationship between employer & employee or employer & servant, in both the cases, the servant or an employee will always be empowered to some basic tasks which in general does not bind his principal legally. The accountant of the company is responsible to keep the accounts up to date, keep track records of taxation matters, however, he may not be authorized to take the decision any particular matter which s otherwise having financial implication on the organization for which he works.

 Mr. Michael Ghosh is a Managing Director of Whole & Sole Private Limited. The company is registered in Singapore. The company is engaged in the business of providing motor cars on hire basis. The company owns number of motor cars and also has the close relationship with auto mobile channel distributor so as to acquire certain vehicles on urgent basis as and when required during sudden peak season. Here if we see the relationship between Whole & Sole Private Limited and Mr. Ghosh, then as per the legal and/or binding documents, it is of the employer and employee relationship whereby Whole & Sole Private Limited is an employer and Mr. Ghosh is an employee.

However, if we consider the duties, authorities, responsibilities confronted to Mr. Ghosh, such a relationship is nevertheless than relationship of agency.

Mr. Ghosh is empowered with the list of authorities. Some of them are listed below:

1. To manage day to day affairs of the company.

2. To sign the legal documents on behalf of Whole & Sole Private Limited.

3. To enter into an agreement to sale, purchase, exchange or any other contract which has legal validity on behalf of Whole & Sole India Limited.

4. To enter into an agreement to give the motor cars on hire to certain tourism hotel industry on a negotiated rate considering its long term financial implication.

Here, by signing any legal document on behalf of company, Mr. Ghosh binds company for the same. Mr. Ghosh cam make third party & Whole & Sole Private Limited enter into a contractual relationship. For any tasks done by Mr. Ghosh, Whole & Sole Private Limited is also responsible for the same.

For example, if Mr. Ghosh signs the sale deed to sale particular asset at a given particular price, then Whole & Sole Private Limited is bound with legal responsibilities of such sale deed. In the sense, it can be termed as if Mr. Ghosh being an agent works for his principal being Whole & Sole Private Limited.

References:-

Lee Pey Woan, Pearlie Koh, Tham Chee Ho, 2009, “The Law of Contract”, Accessed on 5th March, 2015, <https://www.singaporelaw.sg/sglaw/laws-of-singapore/commercial-law/chapter-8>.

Tan Cheng Han, 2009, “Law of Agency”, Accessed on 5th March 2015, <https://www.singaporelaw.sg/sglaw/laws-of-singapore/commercial-law/chapter-15>.

ANON, 2014, “Frustrated Contracts Act”, Accessed on 5th March, 2015, <https://statutes.agc.gov.sg/aol/search/display/view.w3p;ident=bdeda432-ac15-4e76-aad9-9144d93ac87a;page=0;query=DocId%3A59e417b5-c0a0-4c57-8463-a0d240c4dc64%20Depth%3A0%20Status%3Ainforce;rec=0>.

ANON, N.D., “The Law of Contract”, Accessed on 5th March, 2015, <https://www.singaporelawwatch.com/slw/judgments.html>.

ANON, N.D., “Frustrated Contracts Act”, Accessed on 5th March, 2015, <https://statutes.agc.gov.sg/aol/search/display/view.w3p;page=0;query=Id%3A%2289766567-c067-4451-8ccb-9ec44db072cd%22%20Status%3Ainforce;rec=0>.

ANON, N.D., “Frustrated Contracts Act”, Accessed on 5th March, 2015, <https://www.sal.org.sg/digitallibrary/Lists/SAL%20Journal/Attachments/227/1998-10(2)-SAcLJ-391-AGC.pdf>.

ANON, 1994, “Minors’ Contracts Act”, Accessed on 5th March, 2015, <https://statutes.agc.gov.sg/aol/search/display/view.w3p;page=0;query=DocId%3A%229715fde7-7abb-4c80-bddc-c9b2d1fa238a%22%20Status%3Apublished%20Depth%3A0;rec=0>.

ANON, N.D., “Minors’ Contracts Act”, Accessed on 5th March, 2015, <https://commerciallaw.wikispaces.com/Minors+Contracts+Act+1969>.

Yeo Tiong Min, 2011, “Commercial Law”, Accessed on 5th March, 2015, <https://www.singaporelaw.sg/sglaw/laws-of-singapore/commercial-law/chapter-19>.

ANON, N.D., “Minors’ Contracts Act”, Accessed on 5th March, 2015, <https://www.aseanlawassociation.org/papers/sing_chp2.pdf>.