THE LAW OF CONTRACT

Definition of a contract

A contract is a legally binding agreement or a relationship that exists between two or more parties to do
or abstain from performing certain acts. The parties can be natural persons or artificial persons e.g
companies.

The parties to the agreement must have a final agreement i.e their minds must meet . This is what we
call Consensus ad idem. When the parties minds divert, then there is no contract.

A party in a contract is said to be in breach if he or she has failed to fulfil the terms of the contract.

Formation of a contract.

As an old maxim has it “ all contracts are agreements but not all agreements are Contracts”. The rules of
contract law determine whether or not an agreement is legally enforceable. There are certain necessary
legal formalities in the formation of a binding contract. These include;

i) That the agreement is made as a result of an offer and acceptance

ii) The agreement contains an element of value known as consideration.
iii) The parties must intend to create legal relations.
iv) The parties must have legal capacity to enter into the contract.
v) The subject matter of the contract must be lawful.
vi) There are certain contracts which require certain formalities before they are entertained by
Courts of law and such formalities must followed.
vii) It should be possible to perform
viii) It must be entered into freely (Genuine consent). The consent of the parties must be
genuine and not induced by fraud, duress, mistake or misrepresentation.
Types of Contracts
Simple contracts
This Contract need not be in any form . It may be in writting or agreed orally or even be implied from the
conduct of the parties.
Speciality contracts
These are contracts under seal. They must be executed in a prescribed form. They include gratituous
promises, Conveyances of leases and land etc. Usually such contracst are in writing and must be
properly signed if they are to be enforceable. Other contracts that must be supported by written
evidence include contracts of guarantee (Special promise to answer for the debt), Contracts of
employment for Six months or more, Hire Purchase Contracts or agreements and money lending
contracts.
Contracts can also be classified in terms of their validity as valid, Void and Voidable contract
A valid Contract is an agreement which is binding and enforceable. Such Contract must have the above
mentioned elements of a valid Contract.
Voidable contract: Voidable means Valid until avoided. When a contract is voidable the law will allow
one of the parties to withdraw from it if he wishes. Voidable contracts include some agreements made
by minors and contracts induced by misrepresentation, duress or undue influence. A voidable Contract
remains valid unless and until the innocent party chooses to terminate it.
Void Contracts: These are not contracts at all. If a contract is void, then it is of no legal effect . Void
contracts include those which are prohibited by the law or are against public policy.
Illegal Contracts. These are Contracts that involve a criminal element. They cannot be enforced in a
court of law e.g contracts to commit a crime.
Bilateral Contract:This is a contact that creates binding obligations on both parties to the contract.
Unilateral Contracts: This is a contract that creates binding obligations on one of the parties only. E.g
promising reward to whoever finds your lost item. Nobody is under obligation to look for the item but if
the item is found there is an obligation to give the promised reward.
QUESTIONS
i) Explain the role of law of Contract in a modern economy.
ii) Define a contract.
iii) Discuss the different types of contracts.
THE ESSENTIALS OF A VALID CONTRACT
Offer
Definition of an Offer
An Offer is an expression of readiness to contract on terms specified by the Offer which if accepted by
the offeree will give rise to a binding contract.
Generally the Offeror ( i.e the person who makes an offer) makes the offer to the Offeree (i.e the person
to whom the offer is made).
Types of Offer
1. Counter Offer
This is areply to an offer whose effect is to vary the terms of the original Offer. It is in fact an
offer itself, which operates as a rejection of the original offer.
2. Cross offer
Where A offers his property to B and B without knowing about A’s Offer also offers to buy the
same property from A . Each of these offers is a cross offer of the other and therefore no
contract can result from them a lone. A must specifically accept B’s Offer or B that of A if a valid
contract is to be made.
3. Conditional Offer
This is an offer which is made subject to a condition e.g to be accepted within a specific time.
Rules governing an offer/ characteristics of a valid Offer.
i) An offer may be made orally, in writting or by conduct.
An offer can be made orally , can be an express spoken statement or be made in writting or
implied. i.e people’s actions in certain circumstances can be classified as an offer.
ii) The Offer must be firm and Final
The Offeror must not merely be initiating negotiation from which an agreement may or
maynot result. He must be prepared to implement his/her promise if such is the wish of the
 other party. An offer must be conclusive in nature and must leave no room for further
negotiations.
iii) An offer can be made to an individual, a group of persons or the public at large.
The leading authority on this point is the case of Carlill Vs Carbolic Smoke Ball Company
(1893) the defendant company advertised in the Newspaper that it had manufactured a
drug called smoke ball and it was prevention against influenza. The defendant promised that
it would offer 100 pounds to any one who caught influenza after using it in accordance with
certain conditions. The defendant also stated that a sum of 1000 pounds had been
deposited with the bank to show sincerity in the matter. Relying on the advert the plaintiff
bought the drug and used it as directed but got influenza. She claimed for 100 pounds but
the company refused to pay her. She brought an action for breach of contract against the
company. The Defendant Company argued that;
It was not possible to make an offer to the whole world or to the public at large. The advert
was just a mere puff and there was no intention to create legal relations.
Held:
i) The Defendant’s act of depoisiting 1000 pounds with their bank was to show their
seriousness in the matter and as such the advert could not be reffered to as a mere
puff but it was an offer intended to be acted upon and as such creating a binding
obligation on the Defendant.
ii) The Defendant could not deny liability because this was a general offer. An offer can
be made to the whole world and accepted by anyone who comes forward and
performs the conditions even without prior notification of acceptance.
iv) An offer must be communictaed to the Offeree.
An offer becomes effective when it is communicated to the offeree e.g If B found A’S lost
dog and not having seen the advertisement by a offering a reward for its return , returns it
out of goodness of heart, B will not be able to claim the reward. This principle was
illustrated in the case of Fitch vs Snadakar; a two hundred US Dollars reward was offered
for the arrest of a criminal. The Plaintiff who was not aware of the reward apprehended the
criminal and later claimed the reward.
Court held that the claim must fail as he was not aware of the offer when he arrested the
Criminal.
v) The offer must be lawful.
A person cannot offer to perform something illegal e.g murder someone.
vi) The Offer may be made subject to any terms and conditions.
Where a condition attached to an offer is not fulfilled, the offer fails and no Contract can
result from it.
DISTINCTION BETWEEN AN OFFER AND AN INVITATION TO TREAT
An invitation to treat can be defined as an invitation to make an offer. The distinction is important in
that a firm offer if accepted, this will result in a contract, provided the other essential elements of a
contract are satisfied. But the acceptance of an invitation to treat will not create a contract. It is an
invitation to make an offer which the person making the invitation to treat may accept or reject.
The best examples of invitations to traet include the following;
1. Display of goods in a shop
The case to illustrate this is Fisher vs Bell in which a shopkeeper was prosecuted for offering
offensive weapons for sale by having flick knives on display on his window. It was held that the
 shopkeeper was not guilty as the display in the window was not an offer for sale but an
invitation to treat.
2. Display of goods in a supermarket with price tags.
In pharmaceutical Society of Great Britain vs Boots Chemists, The Defendant had a self service
store in which certain listed drugs were displayed on shelves. It was an offence to sell such drugs
unless the sale was done under supervision of a registered pharmacist. A customer selected
some of the drugs from the shelves. The defendants had placed the pharmacists at the cash
desk near the exit but not near the shelves. The defendants were charged with an offence of
selling such drugs without the supervision of a registered pharmacist.
The issue before the court was, if the sale took place when the customer picked the drugs from
the shelves, the defendant would be liable but if the sale took place at the cash desk where the
registered pharmacist was stationed, the defendants would not be liable. Court therefore had to
determine where the sale took place, Court held that the Defendants were not liable because
the display of goods on the shelves was merely an invitation to treat and not an offer.

It should be noted that declaration of intention and mere statemet of infomration doesnot
constitute an offer. This position was illustrated in Harris vs Nickerson, An auctioneer advertised
that there would be a sale of office furniture. The Plaintiff a prospective buyer travelled to
london to attend to the sale but all the furniture was withdrawn. He sued for loss of time and
travelling expenses. It was held that the auctioneer was not bound to sell the furniture as he
was merely stating the intentions to sell and not making an offer which by acceptance would be
transformed into a contract. The advertisement for bids in an action is mere invitation to treat.
3. Ordinary advertisements on radios, newspapers and television.
This was illustrated in the case of Patridge vs crittenden, where a person was charged with
offering a wild bird for sale contrary to the law after he had placed an advert relating to the sale
of such birds in a magazine. It was held that he could not be found guilty of offering the bird for
sale as the advert amounted to an invitation to treat not an offer.
4. Invitation for tenders.
They occur where someone wishes particular work to be done and issues a statement asking
those interested to submit the terms on which they are willing to work. The person who invites
the tender makes an invitation to treat and that one who submits his tender is an offeror.
5. A company prospectus.

TERMINATION OF AN OFFER
An offer may be terminated in the following ways;
1. Lapse of time
An offer cannot remain open for acceptance longer than the time if any prescribed in the
offer. If no time is indicated, it will terminate after a reasonable time. What amounts to
reasonable time depends on the nature of the contract and circumstances of each case .
Forexample in the case of Ramsgate Victoria Hotel Company Vs Montefoire, M applied for
the purchase of Shares in the Plaintiff Company on June 8th . His offer was not accepted
until November 23rd. When he received a letter of allotment he refused to take the shares
as by that time the price of shares had fallen. It was held that M was entittled to refuse as
his offer had lapsed because of the Plaintiff’s delay in accepting the Offer.
2. Revocation.
 An offer may be revoked or withdrawn by person who made it at any time before it is
accepted.
3. An offer comes to an end if not accepted in a manner prescribed (failure of a condition
subject to which an offer was made).
Ellason vs Henshaw, the Plaintiff offered to buy flour from the Defendant requesting the
reply to be sent with the wagon driver who communicated the offer, The Defendant
communicated the acceptance by post office . The driver reached before the letter was
received. Court held that there was no contract between the two parties.
4. Death or insanity of one of the parties.
If the contract envisaged or contemplated by the offer involves personal relationship e.g an
offer to act as an agent, then death or insanity of the offeror prevents acceptance. Death
after acceptance normally has no effect on the contract forexample if X sells his car to Y and
before the car is delivered , X dies, it is possible for Y to sue the legal representatives of X for
breach of Contract if they refuse to deliver the car.
5. Counter Offer
An offer is terminated by a counter Offer . This position is illustrated in Hyde Vs Wrench, The
Defendant offered in writting to sell his farm to the Plaintiff for 1000 pounds. The plantiff
wrote saying he would give 950 pounds for it. The Defendant refused to accept this. Later
the plaintiff agreed to pay 1000 pounds which the Defendant refused to accept . The
plaintiff sued for an order of specific performance. His action failed because his offer of 950
pounds was a counter offer, which terminated the defendant’s offer of 1000 pounds . Thus
when the plaintiff later accepted the 1000 pounds there was no offer in existence and so no
contract was offered.
6. Rejection.
An offer may also be termintaed when the offeree rejects it.
QUESTIONS
1. Discuss the rules that govern a valid offer
2. Under what circumstances may a valid offer be terminated.
3. Distinguish between an offer and an invitation to treat.

ACCEPTANCE
Definintion of Acceptance
This is an indication to enter into and be bound by the contract . It is a positive response to an offer.
Rules governing Acceptance
1. Acceptance can be
- In writting
- Oral form
- By conduct.
2. Communication of acceptance
The general rule is that acceptance must be communicated to and received by the offeror. Thus
if acceptance is not received because of misinterference on the telephone line or the offeree’s
words are too indistinct to be heard by the offeror, there is no contract.
The rule was stated in the case of Felthouse vs Bindley; The Plaintiff wrote to his nephew
offering to buy one of his horses adding “ if i hear no more about him i will consider that horse is
mine at 30 pounds and 15 pence”. The nephew didnot reply but told the Defendant who was an
 auctioneer not to sell the horse to anybody else. The Defendant sold the horse by mistake and
the Plaintiff sued him for damages. The issue was whether silence by the nephew amounted to
acceptance.
Court Hheld that since the nephew had not communicated his acceptance to the plaintiff , there
was no contract of sale and the auctioneer was not liable. Court therefore concluded that
silence doesnot amount to acceptance.
3. Acceptance of the offer must be absolute and an unqualified.
The offeree must accept the terms of the offer as made to him . He must not change them,. Any
change of the terms creates a Counter Offer hence no contract as was illustrated in the case of
Hyde vs Wrench.
4. The offeror may expressly state the method of communicating acceptance.
Acceptance must therefore be communicated to the offeror in the manner stated by him.
5. Acceptance must be communicated by the offeree or by someone with authority.
This principle was stated in the case of Powell vs lee; Where the Plaintiff applied for the post of
headmaster of a school which was run by the defendants who were the managers of the school.
He was called for an interview and the managers passed a resolution appointing him but they
didnot make any arrangements for notifying him. However one of them without authourity
informed the Plaintiff that he had been appointed . The managers subsequently re-opened the
matter and appointed another candidate. The Plaintiff sued for breach of contract. The issue
before court was whether acceptance was validly communicated to the plaintiff. Court held that
his action for breach of contract should fail because the defendants had not properly
communicated acceptance to him since the person who communicated had no authourity to do
so.
Exceptions to the communication of acceptance rule.
There are certain exceptions to the rule that acceptance must be communicated to and actually
received by the offeror. These include the following;
1. Unilateral Contracts:
These are contracts which where the offer consists of a promise to pay money in return for
performance of an act. In such cases performance of the act is suffecient acceptance.
2. An acceptance by post is effective as soon as the letter of acceptance which is correctly
addressed and stamped is put into the postal box, immediately a binding contract is created
between the parties. This rule was stated in the case of Adams vs Lindsell.
NB: If the letter is lost or delayed in the post office because the offeree has addressed it incorrectly the
postal rule will not apply. Posted means put into the control of the post office in the usual manner.
QUESTIONS:
a) Discuss the rules governing acceptance
b) Explain the postal rule of acceptance
CONSIDERATION
Consideration is defined as a benefit acquired by one party or a detriment suffered by the other. In the
case of Currie vs Misa Where Lush J said “ A valuable consideration in the sense of law may consist
either some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss
or responsibilty given, suffered or undertaken by the other.
Types of consideration
a) Executory Consideration
b) Executed Consideration
c) Past consideration
The Distinction between Executory and Executed Consideration.
Consideration is said to be Executory where there is an exchange of promises to perform acts in the
future.
Considerataion is said to executed when the [Link] does an act in return for the promisor’s
promise.
Past Consideration is defined as consideration that is given before the promise is made and the
considertaion and the promise are not in the same transaction.
Rules governing valid consideration.
1. The rule that Consideration must move from the promisee
The promisor is the person who makes the promise and the promisee is the person to whom the
promise is made.
In Twiddle vs Atknison Tweddle and william guy entered into a written contract by which they
agreed to give money to William Tweddle , William Guy didnot give the money promised. A fter
his death, William Tweddle sued Guy’s Estate to enforce Guys’s Promise. He didnot succeed as
he was not a party to the contract and didnot give consideration to buy guy’s promise. It was
stated that Consideration must move from the person entitled to sue upon the contract.
2. The Rule that consideration should not be past.
The general rule is that Past consideration is not suffecient consideration. This means that if
consideration which the promisee has given the promisor is past consideration, the promisee is
unable to enforce the promisor’s promise.
A case to ilustrate this principle that past consideration is not suffecient consideration is Re
McArdle, The Claimant had spent her own money in improving the house belonging to some
relatives. After the improvement had been carried out, the relatives signed a document
promising to pay her the money she had spent on improvements. They failed to honour their
promise and the claimant sued them to enforce the promise. She didnot succeed as she had
done the improvements before the relatives had made the promise and the court was unwilling
to treat the Claimants’s Consideration(i.e doing the improvements) and the relatives’s promise
as part of the same transaction.
Exception to the past consideration rule
i) If the promisor requested the promisee to carry out the act constituting the past consideration
In Lampleigh vs Brathwait, Brathwait had killed a man and asked Lampleigh to meet the king and get
him a pardon. Lampleigh met the king and obtained the pardon . Brathwait promised Lampleigh that he
will pay him 100 pounds for his services. But as Brathwait didnot honour this promise, Lampleigh sued
him. The Court held that Brathwait’s prior request to lampliegh contained an implied promise to pay him
a reasonable sum for his services and the subsequent mention of the 100 pounds was merely fixing the
sum. The Court treated the prior request and the subsequent promise as part of the same transaction.
3. Consideration must be of some value by the promisee to the promisor.
 4. Consideration must be lawful. It should not constittute a criminal element.
5. Consideration must not be performance of an existing duty. A promise to do what one is
already bound to do is not good consideration of a new promise.
6. The rule that Consideration must be suffecient but need not be adequate. The Promisee’s
Consideration does not have to be fair or equal in value to the promisor’s promise. If one of the
parties has made a bargain the Courts expect him or her to stick with it.
In Thomas Vs Thomas(1842) 2 QB 851, The Defendants promised to convey a cottage to the
claimant and in return she promised to pay 1 pound per year as rent. The court held that the
defendants were bound by their promise as the claimant had given suffecient consideration. This
case makes it clear that the Court is not concerned with the adequacy of consideration.
Circumstances that do not amount to suffecient consideration.
i) Where a person performs a public duty imposed upon him
If the promisee performs a legal duty imposed and nothing more, then this is not suffecient
consideration to buy the promisor’s promise. In Collins vs Godefroy, Godefroy was a litigant in a case
and had caused Collins to be served with an order to attend Court as a witness. Godefroy promised
Collins to pay him some money for his loss of time in attending Court but didnot fulfill his
promise .Collins Sued Godefroy . Court held that Collins had not given any Consideration to Godefroy to
buy his promise. Court stated that “if it be a duty imposed by law upon a party regulary summoned to
attend Court from time to time to give his evidence then a promise to give him any renumeration for
loss of time incurred in such attendance is a promise without consideration. We think that such a duty is
imposed by law.
However if the promisee exceeds his legal duty, he does provide consideration.
ii) Where the claimant is bound by an existing contractual duty to the defendant
If the promisee merely fulfills an existing contractual duty to the promisor, and nothing more, she
doesnot provide consideration to buy the promisor’s promise.
iii) In cases of part payment of debts;
Let’s assume that i (the debtor) have borrowed 10000shs from you (the creditor) and the due date
of payment is today. I inform you that i can only afford to pay you 8000shs . you feel sorry for me
and promise to forget about the balance of 2000shs and to accept the 8000shs in full settlement of
the debt . Are you bound by your promise to forget about the balance? what if you decide to sue me
for the balance? In Pininel’s case it was held that payment of a lesser sum on the day in satisfaction
of a greater, cannot be any satisfaction for the whole , because it appears to the judges that by no
possibility can a lesser sum be a satisfaction to the plaintiff for a greater sum.
The general rule in Pinnel’s case and Foakes vs Beer, is that if the debtor pays the creditor part of the
debt, on the due date of payment, and the creditor promised to forget about balance, the creditor is not
bound by his promise as part Payment is not suffecient consideration to buy the creditor’s promise.
The Principle in Pinnel’s case is still good law. However there are exceptions to this principle and these
are Common law and equitable exceptions;
Common law Exceptions;
1. Part payment by the debtor on an earlier date at the creditor’s request.
 2. Part payment by the debtor at a different place at the creditor’s request.
E.g lets assume that i owed you 200,000 shs to be paid in Kabale today, But this morning you ring me up
and say that you will be in mbarara today and that it is more convenient for you to be paid in mbarara. I
say to you that as i will have to spend time and money in travelling to mbarara i will only be able to pay
you 150,000shs if you want the money repaid in mbarara. You say to me that you will accept the
150,000 in full satisfaction of the debt. In accordance to this agreement i pay you 150,000 in Mbarara. If
you then decide to sue me for the balance of 50,000shs, you will not succeed as i have conferred a
benefit on you by paying you in mbarara.
3. When the debtor offers something other than money as payment and a creditor accepts this in full
settlement of the debt.
Lets assume that i owe you 10,000 shs and today is the due date of repayment. When i meet you today,
i inform you that i have no money but i offer you a copy of my entire set of my lecture notes If you are
willing to forget about the debt. You have missed many of my lectures and see this as an opportunity of
catching up. So you accept my offer of lecture notes and promise to forget about the debt.
Unfortunately for you, you will not be able to sue me for the debt as i have conferred a benefit on you
by giving you my lecture notes
[Link] a third party makes a part payment to the creditor;
So if your father , mother or partner makes a part payment of your debt to your creditor and your
creditor accepts the part payment in full satisfaction, but then decides to sue you for the balance, you
have a good defence i.e that it would be a fraud on a third party to sue you.
Equitable exception- Doctrine of Promisory Estoppel.
This doctrine was formulated “ it is the first principle upon which all courts of Equity proceed, that if
parties who have entered into definite and distinct terms involving certain legal results... afterwards by
their own act or with their own consent enter upon a course of negotiation which has the effect of
leading one of the parties to suppose that the strict rights arising under the contract will not be
enforced, the person who otherwise might have enforced those rights will not be allowed to enforce
them where it would be inequitable having regard to the dealings which have thus taken place between
the parties. You have to prove the following;
- That you made a promise to me that you will forget the balance of the debt.
- I did rely on your promise and acted upon it
- The circumstances are such that it would be inequitable to permit you to go back on your
promise.
QUESTIONS
i) Define Consideration
ii) Discuss the rules that govern Consideration
iii) State the rule in pinnel’s case and the exceptions to it.

PRIVITY OF CONTRACT DOCTRINE

The Privity of Contract Doctrine/Rule
The concept is based on the fundamental assumption of English law that a contract is a bargain such
that he who takes no part in the bargain takes no part in the contract. In effect this means that no one
can enforce another person’s promise unless he has been a party to the contract and that a stranger to
consideration or to a contract cannot sue on that contract even if it is made for his own benefit . this
expression is illustrated in the case of Dunlop vs Selfridge. The Plaintiff sold tyres to Dew and Company
where by Dew and Company agreed not to sell the tyres below the price list provided and it was also
agreed that Dew and Company would obtain similar arrangements with other dealers. Dew and
Company sold the tyres to Selfridge and it was agreed that they would not sell the goods below the price
provided. Selfrigde breached this arrangement and Dunlop sued for breach of contract. Court observed
that the Plaintiff had no right of action because no consideration moved from Selfridges to them.
This decision of Dunlop vs selfridge derives its basis on an earlier case of Price vs Easton, The Defendant
promised a one X that if he did some work for the Plaintiff the Defendant would pay some money to the
Plaintiff. The Obligation was performed as agreed but the Defendant declined to pay the Plaintiff. The
Plaintiff sued for breach of Contract. It was held that no consideration had moved from the Plaintiff to
the Defendant and as such the action would not be maintained.
It should be noted however that this is a general rule and there are some exceptions to this rule;.
1. Agency:
A principal may sue or be sued on a contract made by his agent. This appears more apparent because
the principal is the contracting party who has merely acted through the agent.
2. Bill of Exchange
A holder of a bill of exchange (cheque) can sue prior parties on that checque for example if A bought
goods from B and paid by cheque which B endorsed or negotiates in favour of C for value, C aquires a
right to sue A if the cheque is dishononured although no consideration moved from him to A.
3. Assignment.
Aperson who proves that a right under a contract was assigned to him can sue under that contract in his
own name.
4. The Law of trusts.
The law of trusts forms an exception in that a beneficiaries ( people entitled to benefit from the trust)
accquire a right to sue the trustee if he intermeddles/interferes with the trust property for his personal
benefit. Although the arrangement is between the settlor and the trustee, the beneficiaries though
strangers to the arrangement can successfully sue on such contracts.
5. Restrictive Convenants.
These are rights or conditions that are passed on with land. This is a negative term of stopping one of
the parties from doing something. They are common in land transactions where a person buys land from
another and it is agreed that the restrictions on the use of land will run with the land.
QUESTION
Explain the Doctrine of Privity of a Contract and the Exceptions to It.
INTENTION TO CREATE LEGAL RELATIONS.
Definition of intention to create legal Relations.
The Law demands that the parties must intend the agreement to be legally binding . After all if you invite
a friend over for a social evening at your house, you would not expect legal action to follow if the
occassion has to be cancelled.
Intentions of a party determine the creation of a binding contract. In the case of Broomer vs Palmer,
Lord Green said, “Law doesnt impute intentions to enter into legal relationship where circumstances and
the conduct of the parties negate any intentions of the kind” so it follows from this statement that
statements which form the basis of the contract must contemplate legal consequences.
For the purpose of establishing the intention of the parties, agreements are divided into two categories;
Business/ Commercial and Social / Domestic Agreements
Business/Commercial Agreements
In business agreements, it is automatically presumed that the parties intend to create legal relations and
make a contract. This presumption can however be rebutted by the inclusion of an express statement to
the effect that the parties donot intend to create legal relations.
Social/ domestic agreements.
This group covers agreements between family members and friends. The law presumes that social
agreements are not intended to be legally binding.
Social agreements between friends do not usually amount to contracts because the parties never intend
their agreement to be legally binding . You might agree to meet someone for lunch or accept an
invitation to a party, but in neither case have you entered into a contract. This principle was illustrated
in the case of Jones vs Padavatton (1969)2 ALLER 616 where it was held that a mother who had
promised her daughter that she would provide an allowance to allow the daughter to complete her legal
studies was not liable for breach of contract when she later withdrew from the arrangement because it
was a family arrangement and there was no intention to create legal relations.
If it can however be shown that the transaction had a commercial element, court may find that the
intention to create legal relations was present. This was illustrated in the case of Parker vs Clarke (1960)
1 ALLER 93, Mrs Parker was the niece of mrs Clarke. An agreement was made that the parkers would sell
their house and live with the Clarkes who were an elderly couple. They agreed that they would share
their bills and the clarkes promised to leave the house to them. Mrs clarke wrote to the parkers givig
them the details of expenses and confirming the agreement. The parkers sold their house and moved in
with the clarkes. Mr Clarke changed his will leaving the house to the parkers. Later the couple fell out
and the parkers were asked to leave. They claimed damages for breach of contract. The issue was
whether there was an intention to create legal relations between the parties.
Court held that the exchange of letters showed that the two couples were serious and the agreement
was intended to create legal relations/ to be legally binding because the parkers had sold their own
home and secondly Mr. Clarke changed his will. Therefore the parkers were entittled to the damages for
breach of contract.
An agreement between wife and husband leaving together as one is presumed not to be legally binding
unless the agreement states to the contrally normally give rise to a contract. The principle was stated in
the case of Balfour vs Balfour, a husband who worked in Ceylon promised to pay an allowance of 30
pounds per month to his wife who had to stay in England for medical reasons . The husband later
declined to pay the promised allowance and the plaintiff sued on this promise. The issue was whether
the agreement to pay the 30 pounds was legally binding.
Court held that there was no enforceable contract because the parties didnot intend to create a legal
relationship since agreements between husbands and wives are not intended to be legally binding.
However, this presumption will not apply where the spouses are not living together at the time of the
agreement (separated) . This was stated in the case of Merrit vs Merrit (1970) 2 ALLER 760; the husband
left his wife. He later agreed to pay 40 pounds per month for her maintenence . It was also agreed that
she would pay off the outstanding mortgage after which the husband had promised to transfer the
house into her name. He wrote this down and signed the paper but later refused to transfer the house.
She sued him for breach of contract. The issue was whether the agreement to transfer the house was
intended to be legally binding.
Court Held that the agreement having been made when the parties were nolonger living together was
enforceable at law.
NB: It should be noted that agreements made between wife and husband which are not necessary of a
domestic nature are valid and enforceable forexample a husband can be a tenant to his wife.
QUESTION
i) Social agreements are not legally binding. Do you agree?
Capacity to Contract.
Meaning of Capacity to contract
An essential element of a valid contract is that the contracting parties must be competent to contract.
The general rule is that all persons have the power to enter into any contract they wish. But special rules
apply to minors, mental patients, drunkards and corporations.
Minors/ infants
Aminor is defined by the contracts Act as a person who hasn’t attained the age of 18.
Contracts entered into by minors may be be valid (binding), void or voidable
Binding contracts.
Contracts which are binding on a minor are contracts for necessities and contracts of service
1. Contracts for necessities
Necessities of life are defined under the sale of Goods and supply of services Act 2017 as goods suitable
to the condition in life of an infant and to his actual requirements at the time of sale and delivery.
Necessities of life include services and goods, shelter, medical care , education and other services like
legal advise.
NB:
a) The minor is only liable to pay a reasonable price
b) If the necessaries are sold but not delivered, the minor is not bound.
A minor is liable on these contracts of necesseties of life. Therefore a minor is not bound to pay for
items that are deemed luxurious. Whether a particular comodity falls within the category of
“necessaries” depends on the circumstances of each case. Thus while a suit may be an item of
necessaries in the case of a minor who comes from a well to do family, it might be a luxury to the
peasant’s son.
c) The seller must show that the minor was not adequately supplied at the time of the contract
This position of law was stated in the case of Nash vs Inman; The Plaintiff who was a tailor, in the course
of 3 months sold 11 fancy waist Coats to the value of 145 pounds to the Defendant who was an infant
and an undergraduate of cambridge. The infant failed to pay and the Plaintiff sued for the price. The
defendant’s father proved that the minor was an infant and was suffeciently supplied with proper
clothings according to his position. It was held that the Defendant wasn’t liable on contracts as there
was no evidence to prove that the goods supplied were necessaries of life, which had not been
suffeciently supplied to the minor.
Threfore, a minor is not liable if he has an adequate supply, even if the supplier didnot know this.
2. Contracts of Service
These are contracts of a beneficial nature to the minor. They are also binding. These include contracts of
education, those enabling a minor to earn a living or improve his skills, occupation or proffession. The
contract must be beneficial to the minor. This is illustarted in Roberts Vs Grey, The infant defendant had
a greed to go on a world tour with the plaintiff a proffessional player competing against each other in
matches. The plaintiff made all the necessary arrangements but the defendant refused. The Plaintiff
sued and court observed that the contract was for the infant’s benefit as he would gain experience and
fame by his association with the outstanding player like the Plaintiff. However if a contract as a whole is
not beneficial to the minor, it wll not be binding on him.
Voidable contracts
Contracts entered into by minors can also be classified as voidable. Voidable means the contract is
binding on the minor until he decides to repudiate (reject) it. Threfore voidable contracts are those
contracts which a minor is entitled to repudiate during minority or within a reasonable time after
attaining majority age. A part from the minor’s option to repudiate, a voidable contract is similar to a
binding one in that in either case the contract must be beneficial to the minor. But in case of a voidable
contract, the subject matter is generally of a permanent nature or continuing nature. The most
outstanding examples of voidable contracts are;
- Lease agreements ( Here a minor aquires an interest in land)
- Contracts for the purchase of shares (Minor aquires an interest in a company)
- Contracts of Partnerships (Minor becomes a partner in a firm)
Void contracts
Minors must not enter the following contracts;
a) Trading Contracts and such contracts are not binding however beneficial they may be to the
infant thus if an infant receives goods on credit and sells them in course of his business for cash
he is still not bound to pay for them. In Merchantile Limited union vs Ball, the Defendant an
infant hired the plaintiff company lorry. He refused to pay a hire purchase price in breach of
 contract. The Defendant contended that it was for the Defendant’s benefit. Court held that
trading contracts whether beneficial or not are not binding on the infant.
b) Loan Contracts. The position is in the case of Leslie Vs Sheil. The Contract between the two
parties involved in a loan. The Defendant had requested for a loan which he failed to pay within
the prescribed time. When the matter came up in court, Court was of the opinion that such
contract couldn’t be enforced against the minor as it was prohibited by the law.
c) Contracts to buy luxuries.
Corporations.
These are artificial persons recognised by the law. Corporations can take two basic forms; those created
by the statute( statutory corporations or parastatals) these have only powers conferred upon them by
the creating statutes.
Those created under the companies act generally reffered to as companies. Like natural persons,
Corporations can enter into valid contracts. They are recognised by the law and are capable of suing or
being sued in their own names. They can own property and dispose it off, they can enter into tenancy
arrangements and occupy the premises, they can enter into employment contracts e.t.c.
Insane/Persons of unsound mind
A contract entered into by an insane person is not binding unless if at the time of the contract such
person was capable of understanding and appreciating the nature of the contract and the obligations it
imposed. Drunkards also fall under this category. A contract entered into by a drunkard is voidable but
ordinary drunkardness is not suffecient to avoid a contract. It must be proved that at the time of
entering into the contract, the party pleading drunkardness was incapable of understanding the full
implications of the transaction.
QUESTION
a) Explain the concept of contractual capacity of a minor, drunkards, Corporations and persons of
unsound mind.
Legality
This section deals with legality as an element of a contract , contracts that are illegal and the effect of
illegality on a contract.
Definition of legality
To support a contract, Consideration must be lawful. For a contract to be binding on both parties, the
subject matter of the contract must be lawful. The law will not give effect to a contract if it involves the
commision of a legal wrong or is invalidated by a statute and those contrary to public policy. This
position of the law derives its basis from the case of Foster vs Driscoll, A contract was entered into for
the shipment of whisky from England to the USA during the time when a prohibition was in force. The
plaintiff sued when the contract was breached. It was held that the contract couldn’t be enforced owing
to its illegal nature. Illegal contracts involve some degree of moral wrong and an element of crime and
fraud. Such contracts include the following;
- Contracts to commit a crime, a tort or fraud on a third party.
This is explained in the case of Dann vs Curson, an agreement was entered into to cause a disruption at
a theatre. The Plaintiff who agreed to create the disturbance and infact did so, sued for the
renumeration due to him under the agreement. Supreme court held that the action could not succeed
as it was an agreement to commit a crime and against public policy.
- An agreement to defraud or deceive is also illegal.
This is explained in the case of Waldo Vs Martin. In this case an agreement was concluded to the effect
that the Plaintiff would secure a job for the Defendant who agreed to pay part of the emoluments as a
secret commission . The Defendant failed to pay . Court held that the agreement was illegal and couldn’t
be enforced. Court further observed that the fruits of crime are irrevocable.
- Contracts involving sexual immorality.
If a man promises to pay money to a woman as recompense for sexual pleasure. Such illicit intercourse
is illegal and the contract is unenforceable. The law in uganda makes prostitution and living on earnings
of prosititution as an offence. This explanation was made in the case of Pearce vs Brooks, The Plaintiff
owned a carriage which was an attractive design intended to assist her obtain clients. The Defendant
hired the carriage and defaulted in payment. The Evidence produced in court indicated that the carriage
was basically intended and actually used for the purpose of soliciting clients. Court held that the
plaintiff’s claim of the sum due couldn’t be enforced due to it’s illegal nature.
- Contracts prejudicial to public safety.
This was illustrated in the case of Furtado vs Rogers, in this case Lord Alvanley observed “ we are all of
the opinion that it is not competent for any subject to enter into any arrangement which may be
detrimental to the interests of his own country and such a contract is as much prohibited as if it had
been expressly prohibited by the Acts of parliament. The detriment of contracts in this context are those
intended either to benefit an enemy country or to disturb the good relations of the state with a friendly
country.
- Contracts prejudicial to the Adminstration of justice.
It is a well established rule that courts will neither enforce nor recognise an agreement which has the
effect of withdrawing from the ordinary course of justice or prosecution of a public offence.
Consequently an agreement to compromise prosecution is illegal and void even though the prosecutor
derives no gain financial or otherwise.
- Contracts to corrupt public life.
Contracts that have material influence to diminish the respectability, responsibility and purity of public
officers are illegal. Contracts to procure a title for a man in consideration of money payment is illegal.
- Contracts to defraud revenue;
A contract whose terms are directly or impliedly designed to defraud revenue whether national or local
is illegal. Napier vs National Business Agency Limited; The defendant engaged the plaintiff as their
employee at a salary of 13 pounds and additional 6 pounds per week for expenses. Both parties were
aware that weekly expenses couldn’t exceed 1 pound . Income tax was deducted on 13 pounds and
nothing was deducted on the 6 pounds as it was taken as a re-imbursement of expenses. The Plaintiff
was summarily dismissed and claimed payment in lieu of the notice. Court held that the claim couldn’t
succeed because the contract of employment was tainted with elements of fraud.
There are other contracts which are not necessarily illegal but are generally invalid and unenforceable.
Such contracts are described as void. These include;
- Contracts to oust the Jurisdiction of Court
A contract which has the effect of taking away the right of one or both parties to bring an action before
the Courts of Law is Void. This was explained in the case of Lee Vs Shoromen Guilds of Great Britain
(1952) 11 QB 329; Lord Denning observed that if parties agree to take the law out of the hands of Court
and puts it into the hands of Private Tribunal, without any recourse at all to the Courts, incase of error of
Law then the agreement is to that extent contrary to public policy and void.
In Becker Vs Jonnes, An association was formed to promote a sport of weight lifting in Uk and control of
its affairs was vested in the Central Council. It was provided that this Council would be the sole
interpreter of the rules of the Association and it’s decisions would in all cases be final. When the issue
came up in Court, it was held that to give the council the sole right of interpretation was void and that
Court has Jurisdiction to consider whether the interpretation adoptedd by the Council was proper in
law.
- Contracts prejudicial to the status of marriage.
The status of marriage is a matter of public interest in all civilised countries and is important that
nothing should be allowed to impair the sanctity of its solemn obligations or to weaken the loyality that
one spouse owns the other. Under common law any contract which after marriage tends to encourage
the parties into an immoral mode of life incompatible with their mutual obligation is void. Marriage
ought to be free and any contract which restrains a person from marrying any body of his choice is
against the welfare of the state. In Lowee vs Peers, a contract was made by a man in the folowinng
terms; “I do truly promise miss Catherine Lowe that i will not marry any person besides herself. If i do,
i agree to pay to the said Catherine 200 Pounds within months next after i shall marry anybody else” .
Court observed that such clause was null and void (asolutely unenforceable). As a consequence, it has
also been asserted with approval that marriage brokerage contracts that is a contract where by A
undertakes in consideration of money payment to procure marriage for B is null and void. However
where spouses are nolonger living in a mity or actually separated, it is lawful for them to conclude a
separation agreement.
- Contracts in restraint of trade.
A contract in restraint of trade is one in which a party restricts his future liberty to carry on his trade,
business or proffession in such a manner and with such person he chooses. A contract of this nature is
primafacie void but it becomes binding upon proof that the restriction is justifiable in the circumstance
as being reasonable from the point of view of the parties themselves and the community. The issue of
reasonableness is a matter of law for the judge to determine on evidence presented to him which would
include forexample such matters as trade practices and customs. There are several restraints . However
what is dealt with here are restraints imposed upon an employee. They are basically two. Thus an
employer can legally protect;
a) Trade secrets: A restraint against an emloyee is justifiable if its objective is to prevent
exploitation of trade secrets learnt by the employee in the course of his employment e.g
production formulars.
b) Business connection: An employer may use a convenant to restrict solicitation of persons with
whom the employer deals with in business.
CONSEQUENCES OF ILLEGALITY
a) Where an illegal transaction or contract has been concluded court will not entertain a suit or
case for recovery.
b) Money paid in persuance of an illegal contract can’t be recovered.E.g conducting money lending
business without a money lenders licence.
c) Where the law provides for a punishment the individual should be punished accordingly.

GENUINE CONSENT
A contract must have been entered into voluntarily and involved a genuine meeting of minds. The
agreeement may therefore be invalidated by a number of factors e.g Misrepresentation, Mistake,
duress, Undue Influence. These factors are known as vitiating factors or elements of a contract.
Misrepresentation.
A misrepresentation is an untrue statement of fact which induces a party to enter a contract, but which
is not itself part of the contract. There must therefore be a statement. Mere silence cannot constitute
misrepresentation even when it is obvious that the other party is mistaken as to the facts, subject to
some exceptions.
Types of misrepresentation
Fraudulent misrepresentation occurs when a party makes a statement which he knows to be false, or
has no belief in its truth. In such a case the innocent party may rescind the contract and claim damages
for the tort of deceit.
Negligent Misrepresentation may occur when the person making the false statement has no reasonable
ground for believing the statement to be true. A person having a duty of care makes the false statement.
Innocent Misrepresentation occurs when a person who has reasonable ground to believe the statement
to be true makes a false statement.
In general, a misrepresentation makes a contract voidable rather than void. On discovering the
misrepresentation, no matter whether fraudulent, negligent or innocent the other party may affirm or
rescind the contract.
Mistake
It may be defined as an erroneous belief concernig something. Mistake can be divided into three types;
a) A common mistake is made when or where both parties assume some particular state of affair
where as the reality isn the other way round. Infact, both parties make exactly the same
mistatke. Contracts affected by common mistake are void at common law e.g where parties
make a contract believing that there are goods and yet the goods have already perished.
This was ilustrated in the case of Counturier Vs Hastie, A contract was concluded between the two
parties for the sale of corn, which at the time of the contract was believed to be the cargo on ship.
Unknown to both parties the goods had deteriorated in condition and sold on the way to mitigate the
loss. Court held that there was no contract concluded because the Contract contemplated the existence
of the subject matter of something to be sold and bought but at the time of the contract no such goods
existed.
b) Mutual mistake. This occurs where in relation to a particular matter one party assumes one
thing while the other party assumes a totally different thing, so that they both misunderstand
one another. Where each party is mistaken as to the intentions of the other , there is no
consensus ad idem and hence no contract. Raffles Vs Wichlaus, The parties entered into a
contract for the sale of goods to arrive Ex parless from Bombay , Infact there were two ships
called Ex Perless which sailed from Bombay. One in October , the other one in December. The
buyer thought the contract related to the ship sailing in December while the seller thought it
was the october ship and therefore the buyer didnot take delivery when the October ship
arrived. Court Held that the buyer was not liable as there was no contract due to mutual
mistake.
c) Unilateral Mistake
A unilateral Mistake occurs when just one party is mistaken as to some aspect of the contract and the
other is or is presumed to be aware of the mistake. Examples of unilateral mistakes are common in
fraud cases where one misrepresents his identity to the other thereby inducing the other party into
contracting with him in the false belief that he is contracting with the person whose identity has been
given.
Duress and undue influence.
Duress
This is an illegal threat applied to induce a party to enter a contract and makes the contarct voidable. It
is limited to illegal violence or threats of violence to the person of the contracting party. This was
illustrated in the case of Cunning vs Ince; an old lady was threatened with unlawful confinement in a
mental home if she didnot transfer certain property rights to one of her relatives. The transfer was set a
side because the threat of unlawful confinement amounted to Duress.
In the Case of Barton vs Armstraong, The Defendant threatened to kill the plaintiff if he didnot buy his
shares. Court set aside the sale because of Duress.
Undue influence
A contract is said to be affected by undue influence if the relationship between the parties is such that
one of the parties is in position to influence the will of the other and he uses the positioon to obtain an
unfair advantage over the other . where there is a confidential relationship existing between the parties,
undue influence is presumed. Forexample Parent-Child, Doctor- Patient, Trustee-Beneficiary, etc. Undue
influence renders the contract voidable.
QUESTIONS
- Discuss the various vitiating factors of the contract and their effect on the validity of a contract
- Discuss the different types of mistake.
DICHARGE OF A CONTRACT.
Definintion of discharge / termination of a contract
Discharge of a contract means that the parties are freed from their mutual obligations. A contract can be
discharged in various ways;
 a) Performance: This is where both parties have performed their obligations which the contract
placed upon them. Performance thus must be completed i.e it must be in accordance with the
terms of the contract. If the performance is incomplete (contrary to the terms) the defaulting
party may be sued for damages.
At common law , where performance is incomplete such party in default is not entittled to any
payment.
b) Discharge by agreement. Where a contract is still executory i.e where each of the parties is yet
to perform his contractual obligations, the parties may mutually agree to release each other
from their ontractual obligations. Each Party’s promise to release the other is consideration for
the other party’s promise to release him.
c) Discharge by Frustration. A contract is said to be frustrated if an event occurs which brings its
further performance or fulfillment to an abrupt end and upon occurence the parties are
discharged from their future obligation under the contract but remain liable for whatever rights
that may have accrued before the frustration, although the parties are both excused from
further performance of the contract.
It is difficult to determine the frustrating events but some examples are given below;
- Destruction of the subject matter: Taylor Vs Caldwell; The Defendant let a building to the
Plaintiff for holding concerts on specified days. Before the concerts could be held, the music hall
was accidentally destroyed by fire. A suit was filed for breach of contract and Court held that the
action couldn’t be maintained.
- Death or incapacity: Just as the destruction of the subject matter of the contract terminate it,
the death or serious indisposition of a party to whom personal services were contemplated by
the contract will similary terminate it. Thus if A contracts to stage a series of shows the month of
June-September but is in May sentenced to imprisonment for one year or becomes insane
permanently or for a substantial part of the period in question, the contract will similary be
discharged by frustration. The frustrating event being constituted by the imprisonment or
insanity.
- Supervening illegality: A contract is also frustrated if after its formation, a circumastance arises
which renders its further performance illegal. There is said to be supervening illegality, which
operates as a frustrating event e.g change in the law of the country.
d) Discharge by breach. Breach of a contract by a party thereto is also a method of discharge of a
contract because breach also brings to an end the obligations created by a contract on the part
of each of the parties. Ofcourse the aggrieved party i.e the party not at fault can sue for
damages for breach of contract as per the law but the contract as such stands terminated.
A contract is said to be breached when its terms are broken. Failure to honour ones contractual
obligation is what constitutes a breach of contract.
e) Discharge by operation of the law: A Contract may be discharged by operation of law in ceratin
cases. Some important instances are as here under
- Lapse of time: If a contract is made for a specific period then after the expiry of that period, the
contract is discharged e.g partnership deed, employment contracts e.t.c.
- Death:The death of either party to the contract discharges the contract where personal services
are involved.
- Substitution: If a contract is substituted with another contract then the first contract is
discharged.
 - Bankruptcy: Where a person becomes bankrupt, all his rights and obligations pass to his
trustees in bankruptcy. But a trustee is not liable on contracts of personal services to be
rendered by the bankrupt.
REMEDIES FOR BREACH OF CONTRACT.
Whenever there is a breach of contract, the injured party becomes entitled to some remedies. These
are;
a) Damages: These are monetary compensation allowed to the injured party of the loss or injury
suffered by him as a result of the breach of the contract. The fundamental principle underlying
damages is not punishment but compensation. By awarding damages the court aims to put the
injured party into the position in which he would have been had there been performance and
not breach and not punish the defaulter. As a general rule compensation must be
commensurate with the injury or loss sustained arising naturally from the breach, if actual loss is
not proved, no damages will be awarded to the other party. The plaintiff cannot claim for loss
which is attributed to his failure to mitigate.
b) Quantum meruit: The second remedy for breach of contract a vailable to an injured party
against a guilty party is to file a suit upon quantum meruit. The phrase quantum meruit literally
means, “as much as is earned” or “ in proportion to the work done”. The aggrieved party may
file a suit upon quantum meruit and may claim payment in proportion to work done or goods
supplied.
c) Specific performance:This is an equittable remedy. Specific performance means the actual
carrying out of the contract as agreed. Under certain circumstances an aggrieved party may file
a suit for specific performance i.e for a decree by the court directing the defendant to actually
perform the promise that he made,
d) Injunction. This an order of court restraining a person from doing a particular act. It is a mode of
securing the specific performance of a negative terms of the contract. To put it different, where
a party is in breach of a negative term of the contract(i.e where he is doing something which he
promised not to do), the court may by issuing an injunction restrain him from doing what he
promised not to do. Thus injunction is a preventative relief. It is particularly appropriate in cases
of anticipatory breach where damages would not be an adequate relief.
e) Rescission: where there is breach of contract by one party, the other may rescind the contract
and need not perform his part of obligation. Such innocent party may sit quietly at home if
decides not to take any legal action against the guilty party. But incase the aggrieved party
intends to sue the guilty party for damages for breach of contract, he has to file a suit for
rescission of the contract. When the court grants rescission, the aggrieved party is freed from all
his obligations under the contract and becomes entittled to compensation for any damages
which he has sustained through the non fulfillment of the contract.
QUESTION.
“Once a valid contract has been concluded it can never be terminated under any circumstances”. Do you
agree?