A contract is essentially an agreement binding two or more parties with a set of terms, obligations and benefits. However, there are a few common misconceptions regarding business contracts which could potentially have an adverse impact on businesspersons and business relations. This article sets out 3 common misconceptions about business contracts in Singapore and aims to help the reader by dispelling them.
All contracts are valid only if they are signed on paper
It is a common misconception that all contracts have to be signed by putting pen to a paper agreement. This is not the case, as valid contracts can be entered into by way of verbal agreement, even when the terms of the contract are not provided in writing. Once the contract is entered into, it is valid and parties are bound by the terms of the contract even if the contract is not signed on paper.
That said, if a contract is not evidenced in writing, there might be issues in proving the contents of the contact if there is a dispute in the future. Furthermore, section 6 of the Civil Law Act (Chapter 43) provides that certain classes of contract have to be evidenced in writing before legal action based on the contact can be commenced. As such, it is nonetheless good practice to record the terms of the contract in writing.
Contracts are difficult to understand
Most people might view contracts as lengthy and complicated documents filled with incomprehensible phrases and terms. This does not have to be the case. While certain classes of contracts have standard clauses included, parties are generally able to draft their own clauses in a manner they can understand and in a way that reflects their intention. As such, businesspersons have the freedom to simplify the terms of the contract so long as the simplified version accurately reflects their understanding and intention.
Further, it is important for parties to note that they are generally expected to understand the terms of the contract when entering into an agreement. As such, it is difficult to argue that one does not understand what he/she was getting into if there is a dispute in the future.
It is illegal to breach a contract
Another misconception one might have is that breaching a contract results in criminal sanctions. This is generally untrue. A breach of contract could potentially result in a civil lawsuit against the party in breach. However, a lawsuit is does not always follow a contractual breach as parties may choose to settle the dispute or simply find it not worth the time and cost to pursue a small breach via litigation.
As such, where a breach becomes inevitable (and perhaps even more economical) than abiding by the contract, parties may wish to remember that a breach is not illegal per se. That said, a breach may affect business relations going forward. This is a factor that businesspersons who are thinking of breaching their contractual obligations should consider.
To learn more about contracts, take our course on Essential Contract Law for Non-Legal Professionals or Managing Risks in Contracts & Outsourcing + Contract Law. Upcoming course date is on the 15-16 November 2016. More details can be found here:
Please fill in the details below to download the event brochure
[contact-form-7 404 "Not Found"]