Law on contract - offer and acceptance

Dear Mr.Tan,

I read your blog and find that you have very professional advices for the general public. In view of your professionalism and expertise in the insurance industry, I like to seek your advice for the following :

Under the Singapore Law, if an insurance company accepted a policy holder payment and clear his cheque payment, is the policy consider as contract binding and the company have no right to reject the policy.

S T

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Dear S T

This depends on the facts of the case. It is based on the law of contract. If the insurer has made a specific offer, and the customer has accepted it in good faith, then the contract is binding.

However, if there is a mistake, and the customer is aware about the mistake, then the contract can be voided (I think).

There was a case where the advertiser made a mistake in showing the price of the printer in the website. The customer sent in a payment to buy a large quantity of printers at that price. The court held that the advertiser was not bound by the mistake. I believe that the court acted fairly in this decision.

I will ask my colleague, who is a lawyer, to give his opinion.

Tan Kin Lian

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Dear S T

For a contract to be binding there should be an offer and an acceptance and more importantly a meeting of minds, there must be an intention to engage into a contract.

Usually the proposal sent out by the insurer is only regarded as an invitation and the application by the insured is the ‘offer’ which the insurer is free to accept or reject.

By implication, in life insurance contracts especially, the contract is accepted only when the policy is issued.

The clearing of a cheque sent with the application is merely administrative. There is no acceptance until the acceptance is communicated by the insurer to the applicant by issuing the policy.

Even if there was an offer that was accepted, either party may be able to get out of it by demonstrating that there was a genuine mistake.

The example quoted by Mr Tan involved HP and there were similar incidents involving Dell where they wrongly quoted a very low price on their web site. Dell and HP were not obliged to accept the orders although the customer had ordered the items based on the advertised price and the credit card payment was processed.

Stanley Jeremiah