Hamsha Selvanayagam LL.

B
Attorney-at-law

Consideration

A promise is valid in law only in two circumstances.

1. if the promise is given in a deed or

2. if the promise is supported by consideration

Consideration is an essential element in every contract. Consideration means

something, which is of value given by a person in exchange for a promise
made to him. It is the element of exchange.
In Curie Vs Misa, consideration was defined as ‘some right, interest, profit or
benefit accruing to one party , or some forbearance, detriment loss or
responsibility given, suffered or undertaken by the other.’

There are certain rules with regard to consideration

1. Consideration need not be adequate, but it should have some identifiable

money value however slight. Courts generally will not weigh up the
comparative value or promises exchanged.

Thomas Vs Thomas
a person promised to give his house on rent to a widow on her promise to
pay £1 per year as rent . Held it is a valid consideration, even though the
amount given as consideration for the house is very small.

2. Consideration must be lawful.

3. When there is a binding contract between the parties, any promise for an
additional reward is not a valid consideration. But if some extra service is
given, that is sufficient consideration.

William Vs Roffey Brothers & Nicholls (contractors) Ltd

The plaintiff agreed to do carpentry work for defendants who
contractors to refurbish a block of flats. A flat rate of £20,000 was
agreed. The job ran rate, and the defendant would have to pay money
under the penalty clause for not finishing on time. To avoid this and
ensure the work is completed in time, defendant agreed to pay an
extra amount of £10,300 to the plaintiff. The plaintiff completed the
work within the time by doing extra work. But the defendant refused
to pay the extra money. Held, both parties derived benefit from the
extra consideration. Therefore it was binding on the parties.

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Hamsha Selvanayagam LL.B
Attorney-at-law

4. waiver of existing rights also should be supported by consideration

Foakes Vs Beer
Defendant obtained judgement against plaintiff for debt with interest. By
written agreement, the defendant agreed to accept payment by instalment.
No mention was made about the interest on instalments. After the plaintiff
settled the amount in full, the defendant claimed interest saying the
agreement was not supported by consideration. Held, no consideration has
been given by plaintiff for waiver of any part of the rights against him and
therefore the defendant was entitled to the debt with interest.

5. Consideration must move from the promise. this means that the party to
whom the promise is made must furnish the consideration
example:- X bought a television set from Y and gave it to Z as a gift, if
that Television is not working properly, it is X who can file a case
against Y and not Z, because money was paid by X.( this principle
interconnected with the privity of contract rule.

Consideration is generally divided in to three categories.

1. Executory consideration
When a promise is made in return for another promise it is
executory.
Eg- one party promises to deliver goods in return for payment. Here
everything is in the future; hence the consideration is ‘executory’

2. Executed consideration
Consideration is executed when one party performs his part and
expect the other party to perform his part.
eg- X gives 5000 rupees and tells to Y to paint X’s house. Here x has
done his part, but Y has to do his part.

3. past consideration
Consideration is past when it is made subsequent to the completion
of particular transaction. But the past consideration is not treated as
a valid consideration in law.

Eg- In REVs Ardle

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Hamsha Selvanayagam LL.B
Attorney-at-law

The children, by their father’s will, were entitled to a house

following their mother’s death. During her life, the mother made
some improvements to the house, following which the children
signed a document agreeing to pay her for these improvements. It
was held that, as all the work on the house had been completed
before the document was signed, this was a case of past
consideration.

In certain situation, even past consideration is a valid consideration.

1. Past consideration is sufficient to created liability on a Bill of Exchange

a cheque. Therefore if a cheque is issued in payment of work already
done, when the cheque is binding on the person who issued it.
2. When a request is made for a service, this request may imply a promise
to pay for it. If after the service has been rendered, the person who
made the request promises a specific reward, it will be binding because
the promise is treated as the amount to be paid for the requested work.

Justa causa

Under Roman Dutch law consideration is known as justacausa, i.e. any good
cause or any good reason. While consideration under English law refers to an
identifiable money value, under justacausa, good cause or good reason without
any money value would be sufficient to create a contract. The roman Dutch law
contract of justacausa is therefore far wider than the English law principle of
consideration.

For example- a gift from a father to his daughter due to natural love and
affection , is an accepted good cause to create a binding contract under roman
Dutch law , even though natural love and affection does not have an identifiable
money value.``

Intention to create Legal relations

Both parties must have an intention to make a valid and legally binding
agreement. That is at the time of making the contract both parties must intend
that if one of them does not perform his part of the obligation the other party is

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Hamsha Selvanayagam LL.B
Attorney-at-law

entitled to file a case to enforce the contract. Such an intention can be expressly
stated in the contract itself, if it is not expressly stated it will be implied by
looking at the nature of the contract. For this purpose the contract are divided in
two parts.

1. Commercial Agreements
In the case of ordinary commercial dealings (for example buying goods in
shop) there is a strong presumption that the parties intend to make a
legally binding agreement. As a result, when one causes a breach of the
agreement, the other is entitled to enforce the contract. However the
parties expressly state that they do not wish to be legally bound.Courts
may accept it. By the use of words such as “binding in honour only” or this
is not subject to legal jurisdiction” etc. the intention to create legal
relations may be expressly avoided

Esso petroleum co.ltd.Vs customs and excise commissioner

During a football world cup season, Esso Petroleum Co. ran a

promotion campaign stating that a customer who bought
four gallons of petrol would be given a free “world cup coin”
when a coin was claimed by customer who bought four
gallons of petrol, Esso contended that the parties never had
an intention to create a legal relationship and therefore no
contract was made between them.

Held that, it has been intended that a customer who accepts

the Esso offer by buying 4 gallons would become entitled in
law to have the coin therefore there was a legally binding
contract to supply “world cup coin” to the customer in
return for his buying 4 gallons of petrol.

2. Domestic Agreements

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Hamsha Selvanayagam LL.B
Attorney-at-law

Domestic agreements mean agreement made among friends, family members

or relatives. When there are such agreements the Law presumes that the
parties do not have an intention to create a legal binding agreement.

Balfour Vs Balfour

A husband and wife went to England to Ceylon. When the husband’s leave
was over, he had to return to Ceylon but his wife remind in England on
doctor’s advice. The husband promised the wife that he would pay her £30 a
month until her return to Ceylon. But the husband defaulted and the wife
sued claiming g the money. Held, it was a domestic agreement, therefore the
promise made by the husband is not binding.

However, depending on the circumstances even in domestic agreements.

Sometimes the intention to create legal relations is presumed.

Merrit Vs Merrit
A husband and a wife intended to separate and negotiated terms accordingly,
it was agreed that in consideration of wife paying the balance mortgage of
£180 on the matrimonial home, husband would transfer the house to the
wife’s name. The wife paid the amount but the husband refused to transfer
the house to wife’s name as promised.

Held that the decision in Balfour Vsbalfour will not apply to this case,because
inBalfour VsBalfor , the parties reached their agreement when they were
living in amity , but in this case , they negotiated the terms when they decided
to separate. Therefore a reasonable person would regard their agreement as
intended to be binding in law. Therefore the husband was held liable to
transfer the house to wife’s name.

Capacity to contract

As a general rule everyone is capable of entering in to contracts. However this

capacity may be restricted considering the mental status of parties. The mental
capacity may be affected by insanity, intoxication or by infancy

Insane persons and intoxicated persons

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Hamsha Selvanayagam LL.B
Attorney-at-law

The general rule is that if the party is aware of the fact that he is entering in to a
contract with an insane person or intoxicated person he cannot make a valid
contract, because the contract can be avoided by the intoxicated or insane
person. but if the other party can prove that at the time of making the contract,
the insane or intoxicated person was able to understand the nature of his
activity, then they can be enforced.

Minors

A person under the age of 18 years is called a minor. The law presumes that he
does not have the required mental capacity to (understand the nature and
consequences of his actions) enter in to a contract. Thereforein order to protect
him, the law provides that his capacity to enter into a contract is limited. As a
result a minor is not bound by every contract which he makes, and the person
who makes contracts with a minor cannot enforce all the contracts. However a
minor is bound by a contract, when it is made for necessaries.

The terms necessaries, includes all the things and services which are reasonably
necessary to the minor having regard to his station in life. Eg, Food, Cloth,
Medicine, Education etc. A minor must pay a reasonable price for necessaries
supplied to him.

A.G. Vs Costa
A minor had entered into a contract to undergo training in a teacher training
college and to serve the government for a certain period after the completion of
the training it was held, that this a valid contract and binding on the minor as he
was benefitted by the training.

Void, Voidable and Unenforceable Contracts

Void Contract
Agreements that do not have a legal value or effect are called void contracts. Such
a contract is completely null and void (Invalid) and no party can expect any right
on it. Void contracts cannot be ratified.
Eg: 1. Contracts of a minor to buy goods which are not necessary.

2. Illegal Contracts – If it is against public policy

-If the purpose is illegal

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Hamsha Selvanayagam LL.B
Attorney-at-law

- If it is immoral.

- When the subject matter is forbidden by statute.

Voidable Contracts

A voidable contract is one which can be legally cancelled by one party as his
option. He can exercise the option without reference to the other party.

Eg: A Contract made under mis-representation is voidable by innocent party.

Unenforceable Contracts

These are contracts which have been made violating the formalities specified by
the law. Certain statutes expressly prescribed those particular types of contracts
should be in a particular form. Either as a deed or as a written document. When
the statute prescribes a particular form contract should be in that form or
method. When such requirement is ignored it is unenforceable.

Eg: Prevention of Fraud Ordinance Section 2

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Hamsha Selvanayagam LL.B
Attorney-at-law

Terms of Contract

Usually classified in two categories

1. Conditions
A condition is a vital term and going to the use of the contract. Breech of a
condition will give 2 right to the innocent party.
a. To repudiate the contract
b. To claim damages.

Read – Pousserd vs Spiers

2. Warranties
Warranty is a lesser important term in the contract. If one party breeches
the warranty the innocent party doesn’t have the right to repudiate the
contract but he has the right to claim damages only.

Read – Bettiene vs Gye

3. Innominate Terms

There may be certain terms in a contract which may be difficult to be

identified as a condition or a warranty. When it is not possible to decide
whether a particular term is a condition or a warranty such term is
classified by the court as innominate, Intermediate or Indeterminate.

Hong Kong Fir Shipping Co. Ltd Vs Kawasaki Kisa Kaisha Ltd

4. Express Terms
Express terms means those terms which are specifically mentioned and
agreed by the parties at the time of making the contract that is the terms
which are agreed between the parties orally or in writing.

5. Implied Terms
Sometimes parties to a contract fail to express certain terms and it
becomes necessary to imply these terms in order to give effect to the
contractual intention of the parties. Terms may be implied in three
methods.
1. Statutes 2. Court 3. Trade customs.

Further reading

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Hamsha Selvanayagam LL.B
Attorney-at-law

- Exemption clauses

Term of the contract by which one of the parties to the

contract attempts to avoid his/her liability. When there is a
breach of contract or negligence on his part.Exemption
clauses can be incorporated into contract in any method.

- Unfair contract terms act 1997

To regulate and limit exemption clauses

Privity of Contract

A non-party to a contract cannot bring action on the contract. Eg–A buys a

car from B and gives it to his friend C. If the car is defective, C has no right under
the contract against B Because C is not a party to the contract.

Read: Tweddle Vs Atkinson

Mistake

As a general rule, genuine consent of both parties is important to enter in to a

contract. A mistake may affect this. It means in simple terms, no force whatever
should be allowed to an agreement based on obvious misunderstanding.

Mistake is classified usually into 3 groups

(a) Common mistake, that s where both parties are making the same
mistake on some fundamental point mainly regarding the existent of
the subject matter.

Couturier Vs Hastie
Contract was made in London regarding corn shipped in Salonika
unknown to the parties. the master of the ship had, at the time of the
contract was made sold the corn another. Held, contract was void since
it related to non-existent subject matter.

Galloway Vs Galloway
X was the wife of Y. one day X disappeared, thinking that X was dead.
Then Y got married to Z, Later due to differences of opinion , Y and Z
entered into separation agreement believing that they had a valid
marriage. In fat their marriage was invalid because X was alive .Held,
the separation agreement related to a non-existent subject matter, and
therefore it was void.

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Hamsha Selvanayagam LL.B
Attorney-at-law

(b) Mutual Mistake, where both parties are making mistakes, but each
making different mistake mainly regarding the identity of the subject
matter

Raffles Vs Wichelhaus

A agreed with B to purchase a quantity of cotton due to be

brought in a ship named ‘EX peerless’ coming from Bombay. In fact
there were 2 ships by that name due to bring cotton from Bombay. One
was due to sail in October and other in December. B intended the
contract to be for the October shipment while A to the December one.
Held, since there is no agreement between the parties on the subject
matter it can be declared void on the ground of mutual mistake.

Henkel V spape

Smith Vs Hughes

(c) Unilateral mistake, where only one party to the contract is making a
mistake and the other is aware of that fact-this is mainly regarding the
identity of the other party to the contract. It is divided in to 2 categories
a. face to face contracts
It is generally inferred that a party to a contract intends to enter in
to s contract with the other who is in front of him

Lewis Vs Averay

Plaintiff agreed to sell his car to a rough who gave the impression that he was
Richard Burton- a famous actor. He paid with a check and the cheque was
dishonoured. Held, that the contract is valid. Because it is presumed that plaintiff
knew the rogue and contracted with the rough.
Philips vs. Brooks

b. contracts by correspondence
Contract by correspondence can be declared invalid if there is a
mistake as to identity.
Cundy vs Lindsay

 Mistake over documents (read…)

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Hamsha Selvanayagam LL.B
Attorney-at-law

Misrepresentation

Misrepresentation means an untrue statement of facts which is made by one

party with a view to induce the other party to enter into a contract. When the
other party comes to know about the truth he may rescind the contract. That is
the contract is voidable by the innocent party. it can be either

1. Making an untrue statement

2. Non-disclosure of a material facts

There are three (3) types of misrepresentation

1. Innocent misrepresentation
This is an untrue statement made by a person believing it to be true
with reasonable grounds for that believe. This occurs when the false
representation has been made honestly. If there is innocent
misrepresentation there is only one remedy available to the innocent
party. That is rescission

Oscar Chess Limited Vs Williams

2. Negligent Misrepresentation
This is an untrue statement made by a person believing it to be true
without any reasonable grounds for believe .for this also only one
remedy which is rescission

3. Fraudulent misrepresentation
This is an untrue statement made by a person with the knowledge that
it was untrue.
Two remedies
1. Rescission
2. Damages for fraud

Leaf vs International Galleries

Duress

Undue Influenc

Discharge (Termination of Contracts)

Remedies for Breach of Contracts

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Hamsha Selvanayagam LL.B
Attorney-at-law

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