Law of Contracts and Commercial Transactions
What the exam tests
Contract and commercial transactions in Sri Lanka are governed largely by Roman-Dutch common law, supplemented by statutes such as the Sale of Goods Ordinance No. 11 of 1896, the Bills of Exchange Ordinance No. 25 of 1927 and the Prevention of Frauds Ordinance No. 7 of 1840. The exam tests consensus, formalities, performance, remedies and commercial paper.
Core rules
- A contract requires consensus on essential terms, capacity, a lawful object and any required formalities. Roman-Dutch law speaks of justa causa rather than the English doctrine of consideration, though commercial drafts often recite consideration.
- Mistake, misrepresentation, duress, undue influence and illegality may vitiate consent. Remedies include rescission, damages or both.
- Sale of goods: property and risk pass according to the contract and the Ordinance; distinguish a sale from an agreement to sell.
- Certain land transactions and suretyships require writing under the Prevention of Frauds Ordinance; a sale of land requires a notarially attested deed.
- Negotiable instruments depend on delivery, indorsement and holder-in-due-course status.
Worked example
A offers to sell a machine for LKR 5 million. B replies: 'I accept if you deliver by Friday.' This is a counter-offer, not acceptance; no contract arises unless A accepts the new term. If A remains silent, silence is not acceptance.
Traps
Applying the Indian Contract Act wholesale; assuming consideration is always decisive; ignoring statutory writing requirements; confusing sale and agreement to sell; and failing to check the authority of a company signatory.