The document discusses various ways in which a contract can be terminated, including revocation, rejection, lapse of time, death or change of status of a party, and failure of a condition. It also covers capacity to contract, including discussing minors, married women, persons of unsound mind, corporations, prodigals, and insolvents. Various other elements of a valid contract are explained such as intention to create legal relations, consideration, causation, adherence to legal formalities, and factors that can invalidate a contract.

1. Termination of a contract etc.
For DGDIP -SLIM
By Maxwell Ranasinghe

2.  Termination of offer
 1. Revocation of the offer ( already discussed)
 2. Rejection of the offer ( already discussed)
 3. Lapse of Time ( already discussed)
 4. Death of one of the Parties or insanity or change of
status
 5. Failure of a condition subject to which the offer was
made

3.  4. Death of one of the parties ,insanity or change
of status
 Usually the death of the offeror or offeree terminates
the offer unless it is open to any other person to accept
on behalf of the other party.
 If a party becomes insane or of unsound mind even
then the offer gets terminated.
 Further even if a party gets bankrupt ( change of
status) the offer get terminated.

4.  5. Failure of a condition subject to which the offer
is made
 In any offer, there is an implied condition that until
the acceptance, the subject matter ( e.g.. product
offered) will remain substantially the same .
 If the subject matter changes, the offer gets terminated
as the offered product is different from what is
available.
 E.g.. A person offers to sell his car and it meets with an
accident before it is validly accepted.


5. Capacity of parties
 Every person has a right to contract despite sex, cast,
creed or an artificial person.
 However, minors, married women governed by
Thesawalamai Law, insane persons, prodigals and
insolvent persons do not have the capacity to enter
into contracts subject to certain exemptions.

6.  1. Minors- Who are under the age of 18 years
Minors cantracts can be classified as unassisted and assisted
contracts.
 Unassisted – minor enters into a contract on his own.
Generally they are unenforceable against the minor .
However, it could be ratified by the guardians assistance
during his or her minority or by the minor upon reaching
the age of majority
 Assisted – minor enters into a contract with the
assistance of his or her natural guardian (parents) or
person appointed by court. These contracts can be
enforced against the minor.

7.  Unassisted contracts by Minors
 This needs more explanation as some contracts can be
enforced against them.
 Generally contracts made by persons under the age of 18
years cannot be enforced against them. In other words
,they are voidable at the option of minor.
 However, a minor may enforce against the adult, if he or
she wishes to do so. ( limping contracts)
 On the other hand, there are some contracts that can be
enforced against even on minor by the other party. What
are they?

8. Contracts that can be enforced against
minors
 1.Contracts for necessities
 If the other party can prove that goods are suitable to his
status in life and it is required by him at the time of
delivery of the product, then a contract can be enforced
against a minor.
 However, if the parents can prove that the minor is
sufficiently provided with the goods then even though this
fact is not known to the other party he may not be able to
recover the price agreed.
 Nash Vs. Inman ( 12 waist coats ordered by a minor and
father's evidence showed- he was adequately provided with
and trader could not recover the price from minor)

9.  2.If the minor has fraudulently shown he was an adult
although in fact he was a minor.
 3.Beneficial Contract of Service – Costa Vs. AG.
 A Teacher when she was a minor entered into a
contract for teacher training. Then the contract of
serving for a specific period was breached and when
sued she claimed that she was not bound on the bond
as she was a minor at the time of signing the bond.
 But court held even then, training was for her benefit
and there is a valid contract created by the Bond.

10.  Married Women
 Under the Married Women's’ Property Ordinance of
1923 any married woman other than the women
governed by Thesawalamai Law can enter into any
contract
 However, under Thesawalamai Law, married woman
cannot enter into a contract to deal with her
immovable property acquired before or during the
marriage unless she obtains the consent of her
husband.

11.  2. Persons mentally unsound and drunkards –
 The general rule is that if the other party is aware that
the he is entering into a contract with an insane person
or intoxicated person he cannot make a valid contract.
 But if he can prove that at the time of making the
contract, insane or intoxicated person was able to
understand the nature of the contract, then the
contract could be enforced as a valid contract

12.  3. Unincorporated corporations/companies –
Artificial Persons( A company becomes a legal
person only after it is incorporated. Therefore if a
company contracts before it is incorporated then the
contract is not binding on the company)
 Corporations who go beyond the conferred powers (
ultra vires) also will loose capacity to contract
 ( both of these instances are now inapplicable under
the Companies Act of 2007)

13.  4. Prodigals – Under R&D law, a prodigal is
a person who cannot be trusted to look after
his or her own property.
 If the prodigal enters into a contract, it is
considered as an unassisted contract made
by a minor
 Therefore a curator(administrator) will be
appointed by court.

14.  5. Insolvents- Where a person is declared as insolvent
( cannot meet his debts as it falls due)under the
Insolvencies Ordinance No 7 of 1853, all conveyances
of transfers of any property by his are void except when
they are made upon the marriage of any of his children
or for some valuable consideration
 6. Persons of a country where war has formally
been declared

15. Intention to create legal
relations
 It is another essential element of a valid contract
 The intention should be there within the parties at the time
of entering into a contract
 It could be actual or presumed.
 The burden of proof of that there was intention to create
legal relations is on the party that asserts so ( who says so)
 Generally all the commercial agreements are considered as
having legal consequences unless it is specifically agreed
that it shall not be binding in law.

16.  Problems have arisen to domestic type agreements whether there
was intention to create legal relations
 Balfour Vs. Balfour ( 1919)
 Mr. Balfour, an Englishman, a civil servant who was in SL with
his wife went for a holiday to England. Then his wife fell ill and
she was asked by her doctor to stay in England. Mr. Balfour
returned to SL promising that he will send her pound 30.00 per
month. However, he failed to do so and wife sued him for breach
of contract.
 Court held: The husband is not in breach of contract to pay
pounds 30.00 as agreed as the agreements between husband and
wife are not contracts as they do not intend to be resolved by law
if there is any problem as to the agreement. ( do not intend to
have legal consequences)

17.  However, even if the parties are in domestic or social
relationship, if the nature of the transaction can be
interpreted that it should have legal intention, then it
could be considered as a contract.

18.  Merrit Vs. Merrit ( 1970)
 Husband had an affair with another woman. The husband left the wife
and agreed to pay pounds 40 to her where she had to pay the mortgage
of the house which was in husband’s name. Further, husband also
signed a written note that the house will be transferred to her after the
completion of the payment of the mortgage. The wife paid and
completed the mortgage from husband’s monthly payment plus her
own earnings. However, husband later refused to transfer the house to
her.
 Held : Although it was between husband and wife the written
agreement was intended to create legal relations. The presumption of “
no legal intention” cannot be applied when the husband and wife were
not living together in amity but were separated or about to separate.

19. Consideration & Causa
 Consideration is required as an essential
element for a contract under the English
Law.
 Instead of consideration, Causa ( Justa
Causa- mana hethuwa) is needed for a
contract under Roman Dutch law

20.  Consideration-
 Consideration has been defined as either some
detriment to the promisee or some benefit to the
promisor in Currie Vs. Misa ( 1875) the meaning of it
is that the promisor gives a promise or performs an act
and receives value.
 The promisee may give value upon the delivery of the
promise or execution of the act by the promisor
 Example ; “A” promise to sell his book for Rs. 2000 to
“B”. Upon receiving the book ( delivery of the promise)
“A” receives Rs. 2000 from “B” ( receives value)

21.  This Detriment and Benefit have not been very clear.
Promisor as well as promisee may receive a benefit in some
transactions. “A” thinks that his second hand car needs to
be sold. “B” thinks that he cannot afford to buy a new car
and wants to buy a second hand car. If A is willing to sell
the car for Rs. 500,000 and B thinks it is a bargain price
both are being benefitted.
 Therefore, in the modern day of business, consideration
could be easily described as the price agreed to be paid by
one party for the other parties promise ( promise could be
an offer of a product, service or any other act of doing or
not doing something)

22. Tea time….

23.  General rules on consideration
 1. Consideration must flow from the promisee. (
“A’ gets a gift from B, a television. B has
purchased it from “C”. A finds it is not working.
A cannot sue “C” as he has not paid money to B.
Only B can sue C.
 2. Moral obligation is not consideration ( A
guardian of a girl who provides facilities for a
girl’s education etc. on a promise that she will
reimburse when she comes of age was not
considered as a contract for the lack of
consideration )

24.  3. Consideration should have some value and need
not be adequate as to the value of transaction.
(One may ask to extend the validity of an offer to
sell a property of Rs. One Million even by paying
few hundred rupees )
 4. Promise to perform an existing obligation is not
a consideration ( A policeman cannot ask money
for retrieving a purse stolen by a thief)

25.  5. Consideration must be lawful
 6. Consideration must not be past ( “A” looks
after a house well. Then the owner comes and
promise to pay some money. ‘A” cannot sue
owner for want of consideration)
 7. Performance of something more than existing
contractual duty amounts to sufficient
consideration. ( A security guard provides
additional security for a function beyond his
duties is consideration)

26. Adherence to legal formalities
Certain contracts needs to done in the prescribed manner by
law. If not such a contract cannot be enforced in a court of
law.
Example : As per the Prevention of Frauds Ordinance of our
country, A contract as to Sale or mortgage of a house and
property should be on writing and notarially executed. The
seller or the mortgager should sign in front of a notary and
two witnesses. Then witnesses should sign the document
and Notary should sign and certify that seller or the
mortgagor and witnesses signed in front of him.

27. Justa Causa( reasonable cause)
 It is far wider than the concept of Consideration in English
Law
 If a promise is made voluntarily, deliberately and seriously
it could be taken as Causa under R& D
 Lipton Vs. Buchann ( 1904) Tea planter in Sri Lanka, Sir
Thomas Lipton promised Buchannan that he will not sue
him on a debt, until Lipton has exhausted all his remedies
against the Buchannan’s former partner.
 Court- Courts of fist instance held that Lipton’s promise
was not valid but it was later reversed by the Supreme
Court that the law applicable was R&D and Lipton’s
promise was legally enforceable.

28.  Jayawickrema Vs, Amerasuriya ( 1918)
 J stated that A has got property from his mother which was
ment to be held in trust for both J and A in equal shares
 J wanted to sue A to implement the trust but later
withdrew on the promise that A will pay him Rs. 150,000 for
each year for 5 years
 A did not pay so and J sued A and A s position was that
there was no contract to pay as there was no consideration.
 The court held that the J s undertaking not to sue A is
acceptable as Causa under R& D

29.  Vitiating Factors – factors defeating the validity of
contracts
1. Mistake – where on party or both parties enter into a
contract under a misunderstanding
2. Misrepresentation – where a statement or conduct
which conveys a false impression induces a person to
enter into a contract.
3. Undue Influence /duress- where a person enters into
an agreement due to compulsion brought upon him
4. Illegality- where a consideration or promise in a
contract involves doing something illegal

30. Discharge of contract
Breach of the contract
By frustration
By performance
By agreement

31.  Exemption Clauses and The Unfair Contract
Terms Act of 1997
 Exemption clauses are used by parties to a contract to
escape from liability on certain matters or events.
These are used mainly to avoid liability on negligence
or misrepresentation of certain facts relevant to the
contract by parties. It could be used to limit liability or
to totally exempt form liability.

32.  Following rules will apply as regards the exemption
clauses
 1. A party can rely on the exemption clauses if the other
party has signed the agreement even if the other party
may have not read the exemption clauses. ( In practice,
many of you sign documents with exemption clauses
mainly in fine print. Later, you cannot say that you did not
read them)
 2. If the party signs the exemption clauses, inquires about
the content and if an oral misrepresentation was made
by the other party to induce the party to sign the document
then the party who signed the document will not be bound
by it.

33.  Curtis Vs. Chemical Clearing & Dying Company ( 1951)
 Curtis took a white satin wedding dress to the Dying Company’s
shop to be cleaned. The shop assistant asked her to sign a
receipt, which in fact contained a condition excluding liability
for any damage however arising.
 When Curtis asked why she had to sign, the assistant told her
that the company would not accept liability for damage to the
beads and sequins with which the dress was trimmed with.
Curtis signed the receipt. When the dress was returned after
washing it was fully stained. The company argued that the clause
excluded their liability.
 Held the company could not rely on the exemption clause
because of the assistant’s innocent misrepresentation which had
misled Curtis as to the extent of the exemption clause and
thereby induced her to sign the receipt.

34.  3.Exemption clauses cannot be included into a
contract unilaterally by a party after the contract was
made.
 Olley Vs. Marlborough Court Ltd ( 1949)
 A contract of booking a room was made at a hotel reception
desk. In the hotel room upstairs, there was a notice excluding the
hotels responsibility for articles lost or stolen unless they were
deposited in the safe custody of the hotel.
 Plaintif’fs furs coat and jewellery were stolen. She brought a
damages action against the hotel. The court held that since the
contract was made at the reception desk, the terms of the notice
in the bedroom came too late and were not incorporated in the
contract and therefore, the hotel is liable to pay damages.

35.  4. Exemption clause indicated in a receipt given after the contract was made will not
have any binding.
Chapelton Vs. Barry Urban District Council ( 1940)
 The plaintiff hired two chairs from the chair attendant and received
two tickets. He did not know that there were conditions stated in the
ticket as he simply glanced and put them into his pocket. In fact on the
reverse side of the ticket were the words “ The council will not be liable
for any accident or damage arising from the hire of the chair” .
 Due to the negligence of the defendant council, the canvas on the
plaintiffs chair gave way when he sat on it. The council argued that the
clause on the ticket exempted them form liability. Held : The ticket was
a mere voucher or receipt and it cannot be considered as a notice before
the contract was made. Therefore the council was liable in damages
and cannot rely on the conditions stated in the ticket as an exemption
clause.


36.  5. Statutory terms in Sri Lanka as to exemptions
clauses as a result of the enactment of the unfair
Contract terms Act of 1997
 Any exemption clause that attempts to exclude liability for
death or personal injury arising from negligence is invalid
 In any other case where exemptions of liability to be relied
upon “requirement of reasonableness “should apply.
 Parties should be in a same bargaining power to make the
clauses reasonable.
 The liability for financial loss or loss of property can be
excluded or limited only if it is reasonable to do so.

37.  Law of contract is a very extensive subject and this is
only an introduction to part of the subject designed to
accommodate for your syllabus in Diploma in
Marketing . ( 40% of the combined subject with
Economics) You just had only 6 hours to cover this
module. Therefore, you have to read more to obtain a
better knowledge .