introduction to contract law termination of offer etc
Termination of a contract etc. For DGDIP -SLIM By Maxwell Ranasinghe
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
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.
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.
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.
1. Minors- Who are under the age of 18 yearsMinors 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.
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?
Contracts that can be enforced againstminors 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 fathers evidence showed- he was adequately provided with and trader could not recover the price from minor)
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.
Married Women Under the Married Womens’ 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.
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
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)
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.
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
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.
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)
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.
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.
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
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)
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)
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 )
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)
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)
Adherence to legal formalitiesCertain 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.
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.
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
Vitiating Factors – factors defeating the validity of contracts1. Mistake – where on party or both parties enter into a contract under a misunderstanding2. 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 him4. Illegality- where a consideration or promise in a contract involves doing something illegal
Discharge of contract Breach of the contract By frustration By performance By agreement
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.
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.
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.
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.
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.
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.
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 .