DEPARTMENT OF LAW AND CONTINUING LEGAL EDUCATION

THE LAW OF CONTRACT NOTES

THE LAW OF CONTRACT.

A contract may be defined as an agreement between two or more parties that is

intended to be legally binding.
The primary purpose of contract law, is to enforce the agreement of the parties. For
there to be a contract, substantial agreement must exist and the parties must have
freely intended to be legally bound. In interpreting contracts, courts are primarily
trying to carry out the intent of the parties.

In the case of Printing and Numerical Registering Co v Sampson (1875) 19 Eq 462

MR Sir George Jessel noted that;
“If there is one thing more than the other which public policy requires, it is that men of full
age and competent understanding shall have the at most liberty in contracting and that their
contract when entered into freely and voluntarily shall be held sacred and shall be enforced by
the courts of justice.”

TYPES OF CONTRACTS.
Contracts can be categorised into Valid, Void, Voidable, Illegal and Unenforceable
Contracts.
Valid contracts: These are contracts which are enforceable in a court of law. To
attain validity, the contract should have all the elements of the contract.

Void contracts: these are contracts which are deficient of the major elements of the
contract and are therefore unenforceable. Examples are contracts made by persons
without the capacity to contract,

Voidable contracts, these are contracts which are vitiated by mistake,

misrepresentation or undue influence or duress. Such contracts are valid but can be
avoided by the innocent party. Once avoided, they then become void.

Illegal contracts: If the contract has unlawful object it is called Illegal Contract.

Example: There is a contract between X and Z according to which Z has to murder Y

for a consideration of Ug. Shs 10000/- from X. It is illegal contract.

Unenforceable contracts, eg contracts which is frustrated by impossibility. Such

contract is brought to an end.

FORMATION OF A CONTRACT

A contract may be defined as an agreement between two or more parties that is

intended to be legally binding.

Thus, the first requisite of any contract is an agreement (consensus ad idem – the
meeting of the mind, consisting of an offer and acceptance). Agreement Between the
Parties. all parties must agree on all major issues and not mere preliminary
discussion about the possibility of making an agreement.

For there to be an agreement, at least two parties are required; one of them, the
offeror, makes an offer which the other, the offeree, accepts. Thus, the agreement has
two elements of offer and acceptance, which also form the first two elements of the
contract.

The elements of a valid contract are contained under S.10 of the Contract Act, 2010
as, an agreement made with free consent of parties with capacity to contract, fora
lawful consideration and with lawful object, with the intention to be legally bound.

William Kasozi Vs DFCU Bank. H.C.C.S NO 2326 OF 2000 Byamugisha CK. Held
that in order for the contract to be valid and enforceable the following prerequisites
must exist.
a) Capacity to contract;
b) Intention to contract;
c) Consensus adedem;
d) Legality of purpose
e) Sufficient certainty of terms.
Once a contract is valid, it creates reciprocal rights and obligations between the
parties to it. I think is the law that when a document containing contractual terms is
signed, then in absence of fraud, or misrepresentation of the party signing it, is
bound by its terms. This is in line with section 91 of the Evidence Act.
The court found that the plaintiff was an adult human being of sound mind thus
capable of entering into a valid contract. The defendant was also found to be a
limited liability company which can enter into a valid contract

OFFER.

Sections 2 of the Contracts Act 2010 defines an offer as the willingness to or abstain
from doing anything signified by a person to another, with a view of obtaining the
assent of that other person to the act or abstinence.

According to decided cases, an offer isn’t just the willingness to enter into that
contract but the expression of the willingness to enter into a contract by one party
called the offerer to another called the offeree the acceptance of which is backed by
consideration gives rise to a contract.
The law doesn’t require an offer to take a specific form, it can be by words which are
oral or written, it can be signs or gestures and can even be inferred from the conduct
of the parties.
Section 3 subsection 1 of the Contracts Act provides that any act of the offerer which
has the effect of effectively communicating the offer to the offeree is sufficient to give
rise to a valid offer however, there will be no offer and there is no contract if the act
in question is so vague and ambiguous that one can’t infer from it the terms of the
intended contract therefore there must be certainty of expression.

CLASSIFICATION OF OFFERS
Specific and general offers.
An offer is specific if it is addressed to a given person and only he/she is capable of
accepting it to be called a. offer. Sometimes however an offer is floated and bound
for anybody to accept, this is called a general offer.
Until 1893 it was assumed that a general offer thrown to the public generally can’t
give rise to a contract. In the case;
Carlill-v-Carbolic Smoke Ball Co. Ltd [1893] Vol I QB 256. The defendants were
manufacturers of a medication known as the Carbolic Smoke Ball which they
claimed could cure influenza if it was used in the prescribed way; they placed an
advert in the Newspapers stating that they would pay 100 pounds to any person
who used their smoke ball and still contracted influenza. To emphasize their
seriousness, they indicated that they would deposit 1000pounds in the bank from
which these payments could be made, relying on the advert, the plaintiff bought and
used the smoke ball but she still contracted influenza so she demanded the payment
but the defendant refused to pay and she sued them. The defendant argued that
there was no contract because this was a mere trade puff i.e. a statement that was so
obviously exaggerated that it isn’t intended to be taken at face value but only to be
regarded as sales talk. Secondly, that even if there was an offer the same wasn’t
capable of being accepted because it was for a specific person and an offer can’t be
made to the whole world. Finally they argued that in any event the Plaintiff never
communicated her acceptance of the offer. The Court rejected all those arguments
and held that a public advert may or may not amount to an offer depending on its
nature. That if it is categorical enough i.e. if it exhibits certainty of expression then it
amounts to an offer. Secondly that an offer can be made to the whole world it will
still be valid in respect to those members of the public who took it up.

Finally that such an offer doesn’t have to be accepted through direct communication
of acceptance but the mere fact of performing the conditions contained in the offer
amounts to acceptance of the offer.

The difference between an offer and invitation to treat.

An invitation to treat is a situation where a party is merely inviting people to make

their offers and are in themselves not offers. an invitation to treat is an expression of
willingness to negotiate. A person making an invitation to treat does not intend to be
bound as soon as it is accepted by the person to whom the statement is addressed.

The following are examples of invitations to treat:

Advertisements.
Generally, advertisements are not offers but invitations to treat, so the person
advertising is not compelled to sell. In Partridge v Crittenden [1968] 1 WLR 1204, a
defendant who was charged with "offering for sale protected birds -cocks and hens
that he had advertised for sale in a newspaper—was not offering to sell them. Lord
Parker CJ said it did not make business sense for advertisements to be offers, as the
person making the advertisement may find himself in a situation where he would be
contractually obliged to sell more goods than he actually owned.

However, in certain circumstances called unilateral contracts, an advertisement can

be an offer. Unilateral Contract is where considerations is to be moved in one
direction only. In the case of Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256,
where it was held that the defendants, who advertised that they would pay £100 to
anyone who sniffed a smoke ball in the prescribed manner and yet caught influenza,
were contractually obliged to pay £100 to whomever accepted it by performing the
required acts.
Auctions Sale and tenders
In an auction, the act of the auctioneer calling for bids from the members of the
public is not an offer but rather an invitation to treat. The bids made by persons at
the auction are offers, which the auctioneer can accept or reject as he or she chooses.
The bid is an offer; when the auctioneer brings his hammer down he has accepted
the offer. The rationale for the above proposition is to enable the bidder to reject
some bids and take accept the highest without running the risk of breaching the
contract.

Display of Goods for sale.

The practice by some traders of displaying of goods in a shop window or on a
supermarket shelves is by itself not an offer to sell but an invitation to treat calling
upon the potential customers to make an offer to buy. This is intended to enable the
seller to refuse to sell a customer the displayed goods for one reason or the other. Eg
some goods which are displayed are only samples and not the bulk.

In the case of Pharmaceutical Society of Great Britain v Boots Cash Chemists

(Southern) Ltd [1953] the company would let shoppers pick drugs off the shelves in
the chemist and then pay for them at the till. The pharmacist was seated behind at
the cashier’s desk to supervise the medicine at the point the customer was making
payment. Under the Pharmacy and Poison law, it was an unlawful to sell the
medicine without the supervision of the pharmacists. The Society argued that Boots
was in breach of the law by selling the drugs without the supervision of the
pharmacist.

It was held that the display of goods was not an offer but rather, by placing the
goods into the basket, it was the customer that made the offer to buy the goods. This
offer could be either accepted or rejected by the pharmacist at the cash desk. The
contract was completed at the cash desk, in the presence of the supervising
pharmacist and therefore the company did not breach the law. Read the case of
Fisher v Bell [1961] 1 QB 394

COMMUNICATION OF THE OFFER.

The offer takes effect one commutated to the offeree. See S.3 of the Contract Act. To
be effective, an offer must be communicated by the offeror to the offerree. The logic
is simple, the offerree cannot accept the offer which he or she has no idea about. The
reason for this requirement is that if we say that a contract is an agreement, there can
be no agreement without knowledge of both parties to the same. There can be no
‘meeting of the minds’ if one side has no idea of what the offer is offering. Poor or
lack of communication of the offer can only result into cross offer.

Communication of an offer can be made by a positive act or omission by the offeror.

See S. 3(1) of the Contract Act. Communication of an offer is complete when it
comes to the knowledge of the offeree. See S.4 (1) of the contract Act.
The authorities are, however, divided on the need to communicate the offer. In
Gibbons v Proctor(1891) a policeman was allowed to recover a reward when he sent
information in ignorance of the offer of reward. The better view is thought to be
expressed in the Australian case of R v Clarke (1927): there cannot be assent without
knowledge of the offer; and ignorance of the offer is the same thing whether it is due
to never hearing of it or forgetting it after hearing.

TERMINATION OF AN OFFER
There are various ways through which an offer is terminated,
1. By Revocation
This is a situation where an offer is cancelled or withdrawn. For revocation to be
made the offer must have been made.
Secondly the revocation should be brought to the notice of the offeree. Section 3
states that the communication of revocation of an offer or acceptance is made by
any act or omission of the offerer/acceptor respectively intended to communicate
the revocation or having the effect of doing so.
 Section 4 (3) provides that on the part of the offerer, the revocation is complete as
soon as it’s put into transmission to the offeree in such a way that it comes to
his/her knowledge.

Case; Financings Ltd v Stimson. Stimson signed a form at car dealers premises
on 16th March 1961 by which he agreed to take the car on hire purchase terms. On
18th March, he returned the car to the dealer saying he didn’t want it because he
believed he was bound by the contract he agreed to forfeit the deposit. On 24th
March, the car was stolen from the dealer’s premises, badly damaged and
abandoned on the highway. On 25th March, the Plaintiff which was the Company
financing the transactions and not being aware that the defendant had returned
the car, signed the hire purchase agreement.

The defendant denied liability. It was held that the defendant revoked the offer
when the car was returned on 20th and so when the Plaintiff Company purported to
accept the offer, there was nothing to offer. The Defendant Mr. Stimson has revoked
his offer before acceptance and there was no concluded contract between the parties.

Case Routledge v Grant (1828) [Unilateral Contract]

The defendant offered to lease the Plaintiffs premises and required that the Plaintiff
should give a definite answer within 6 weeks. After 4 weeks the defendant withdraw
the offer and 10 days later which was within the 6 weeks the Plaintiff then purported
the offer. If an offer is conditional and the offeree starts to perform the condition of
the offer then the right to revoke it is lost.

In Dickson v Dodds where the notice of revocation is by letter it’s not effective to
revoke the offer until the offerer has received the letter. It doesn’t matter whether he
has read the letter or not so long as he has received it.

Byrne v Leon Van Tienhoven & Co (1880) CPD 42 LT 371 The Defendants wrote to
Byrne at his New york office offering goods for sale on October. Byrne received this
letter on October, 11th and telegraphed an acceptance the same day following it up
with a letter confirming acceptance posted on October 15th. Meanwhile on October
8th, the Defendants wrote to Byrne revoking their offer but this letter did not reach
the Plaintiff until October, 20th. The Court of Common Pleas Division held that as the
offer had been accepted before the revocation had been communicated there was a
binding contract.

The issue to be determined is whether posting the letter on 8 th October was sufficient
to revoke the offer and it was held that the attempted revocation wasn’t valid and so
when the plaintiff accepted the offer, a contract came into existence.

2. Rejection
The 2nd way in which to terminate an offer is by rejection when the offeree after
receiving the offer rejects it, he can’t turn around and purport to accept it so as to
create a contract. The rejection may be express or by conduct.

3. Counter offer
The third way is by counter offer when a party makes an offer and the offeree
instead of accepting an offer proposes new terms of the intended contract, the initial
offeree is said to have made a counter offer and that extinguishes the original offer.
Assuming the original offeror rejects the terms of the counter offer, the original
offeree can’t go back to the original terms to accept and enforce them.

Case; Hyde v Wrench in that case, the defendant wrote to the Plaintiff offering to
sale his farm at 1000 pounds, the Plaintiffs agent called the defendant asked for a few
days to accept this offer. On 25th June the defendant wrote to say that he couldn’t
accept this offer on 29th June the plaintiff wrote accepting the offer of 800 pounds, the
defendant rejected and the plaintiff now sued the defendant for specific
performance. It was held therefore that under the circumstances, there was no
contract to enforce because when the plaintiff asked to buy at 950 pounds he thereby
made a counter offer.
 4. Lapse of time

If the offer comes with a provision requiring that it should be acceptable within a
given period of time, it is not accepted at that time. If there is no time frame given,
then it expires within a given time. Reasonable time depends on the nature of the
goods, relationship between the parties and the circumstances generally i.e.
perishable goods it’s a short part.

5. Failure to perform/fulfill a condition precedent

The 5th way is failure to perform the condition where an offer is conditional and the
conditions set do not arise then the offer is terminated. Roultledge v Grant

6. Death or insanity

Where the offeror dies or becomes insane the offer is terminated. However, note that
the death or insanity must have come to the knowledge of the acceptor before
acceptance.

When a general offer is made each of them is entitled to accept the offer. When one
of such offerees doesn’t accept the offer this terminates the offer as that against
offerees they cannot hold the offerer to the offer thereafter.

7. WINDING UP
Section 6 (d) of the contracts Act provides that the death or insanity comes to the
knowledge of the offeree but he accepts the offer.

The death of the offeror also terminates the offer because an offer is regarded as
being personal to the offeree S. 6 (d) has abridged to the position under common
law.
Under common law, the death of the offeror only terminated the contract if it was a
contract for personal services e.g an offer to apply ones skills for the benefit of the
offeree otherwise in other transactions, the offer could still be enforced on the estate
of the offeree/offeror.

ACCEPTANCE OF AN OFFER.
Acceptance may be defined as an unconditional assent, communicated by the offeree
to the offeror, to all terms of the offer, made with the intention of accepting. It
completes the agreement which is the vital element of the contract.

- Acceptance must be absolute and unqualified and expressed in a usual and

reasonable manner. If the offeree attempts to add new conditions when
accepting, this is a counter-offer and not an acceptance. A counter-offer
implies a rejection of the original offer, which is thereby destroyed and cannot
subsequently be accepted.
- Acceptance must correspond with the conditions of the offer. see S 7 (8) & S.8
of the Contact Act. It is sometimes said that the acceptance must be a ‘mirror
image’ of the offer.

Conditional offer.
As general rule, when the offer specifies the mode of acceptance, a valid acceptance
must conform with the condition of the offer. S. 7(2) and (3) of the Contract Act.
While acceptance can be by conduct, it is an established principle of law that silence
does not amounts to acceptance.

Counter Offer.
A counter offer is a proposal that is made as a result of an undesirable offer. A
counteroffer revises the initial offer and makes it more desirable for the person
making the new offer. This type of offer permits a person to decline a previous offer
and allows offer negotiations to continue.
If in his reply to an offer, the offeree introduces a new term or varies the terms of the
offer, then that reply cannot amount to an acceptance. Instead, the reply is treated as
a "counter offer", which the original offeror is free to accept or reject. A counter-offer
also amounts to a rejection of the original offer which cannot then be subsequently
accepted. A counter-offer should be distinguished from a mere request for
information.
The common ty of counteroffer in our market is the process of negotiations and
bargains for discount.
For example, A wrote to B offering to sell him 300 bags of beans at Ug. Shs. 100,000/=per
bag. B wrote in reply that she was willing to buy each bag at Ug. Shs. 90,000,000/= which A
rejected. B heard a rumour that the price of Beans was about to rise. She immediately called
A stating, ‘Accept your price of Ug. Shs 100,000/= per bag. A relied that he was nolonger
selling the beans. The question is whether there is a valid contract.

Communication of acceptance.
The general rule is that acceptance is not effective until it is communicated to the
offeror. Communication of an acceptance is complete as against the offeror, when
the same put in a course of transmission and leaves the control and power of the
offeree. However, the communication of acceptance as against the offeree, is
effective when it comes to the knowledge of the offeror. See S. 4 (a) and (b) of the
contract Act.

Acceptance must be in words, written or oral or by conduct acceptance can’t be

inferred from silence.
Felthouse v Bindley 1862 vol 2 CHD Pg 868
A gentleman offered to buy a horse from his nephew, in his letter, he stated that “if I
hear no more about him, I consider the horse mine at 30 pounds”. The nephew
didn’t reply, later on the defendant purchased the horse from an auctioneer who
sold the horse without knowing that the nephew no longer wanted to sale the horse
by auction, it was held that the offeree’s silence didn’t amount to acceptance of the
offer. A person can’t purport to accept an offer which hasn’t been made to her.
In other words, one has to prove that there was an offer and it was communicated to
you by the offeror.

Unilateral contracts.
The above rule on communication of acceptance does not apply to unilateral
contracts. A unilateral contract is one where one party makes an offer to pay another
if that other party performs some act or refrains from some act. In such a case,
acceptance of the offer occurs through performance and there is no need to
communicate acceptance in advance of performance.

An example of the offer of a unilateral contract is an offer of a reward for the return
of a lost item. In the case of Carlill. Vs. Carbolic Smoke Ball Company (1893) it was
established that performance is the acceptance of the offer and there is no need to
communicate the attempt to perform. Communication of the acceptance is waived
because it would be unreasonable of the offeror to rely on the absence of a
communication of the acceptance to avoid his or her contractual obligation.

The postal acceptance rule.

This differs from the general rule of an offer that it must be communicated to the
offeror.

When the communication of acceptance is made through post, acceptance is deemed

to be effective and valid when a duly addressed letter of acceptance is posted. This is
the rule propounded by the case of Adams v Lindsell. The rule is intended to
address the practical challenged posed by Communication by post. For example, an
offer is posted. The offeree receives the offer and posts her or her acceptance. The
letter of acceptance will take several days to arrive and the offeree has no means of
knowing when the offeror receives the acceptance. On the contrary, the offeree
knows from the time he or she posted the letter that she has accepted the offer, and
the same is considered as the effective time.
Entores Ltd v Miles Far East Corporation Court of Appeal [1955] 1 All E.R
The Plaintiffs made an offer by telex from their London office to the Defendant’s
agents in Holland. The offer was duly accepted by a communication received on the
Plaintiff’s telex machine in London.
The question arose as to where the contract had been made, viz London or
Holland|?
The Court of Appeal held that the contract was completed in London where the
acceptance was received by the offeror, because communication is virtually
instantaneous and there was no reason for extending the post rule.

DENNING L.J noted: When a contract is made by post it is clear law throughout
the common law countries that the acceptance is complete as soon as the letter of
acceptance is put into the post box, and that is the place where the contract is made.
But there is no clear rule about contracts made by telephone or by telex.
Communications by these means are virtually instantaneous and stand on a
different footing.

Acceptance under sale by auction.

A sale by auction is complete when the auctioneer so announces by the fall of the
hammer or in other customary manner. Where a bid is made while the hammer is
falling in acceptance of a prior bid the auctioneer may in his discretion reopen the
bidding or declare the goods sold under the bid on which the hammer was falling.

CONSIDERATION.
The law of contract isn’t designed to cover transactions made gratis [free of charge] it
is meant to protect transactions of a commercial nature.
A contract is based on promises. both the promisor and a promisee must each give
benefit and suffer a detriment in fulfilment of his or her promise. This benefit or
detriment is what is referred to as consideration. Therefore, in contract law,
consideration is concerned with making good of the promise.
The Contract Act of Uganda. Section 1 of the Contract Act defines ‘consideration’ to
means a right, interest, profit or benefit accruing to one party or forbearance,
detriment, loss or responsibility given, suffered or undertaken by the other party.
The same section defines ‘consideration for a promise’ means where, at the desire of
a promisor, a promisee or any other person does or abstains from doing or promises
to do or to abstain from doing something;

Case Law.
LUSH J. in Currie v Misa (1875) LR 10 Exch 153 referred to consideration as
consisting of adetriment to the promisee or a benefit to the promisor:"... some right, interest,
profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility
given, suffered or undertaken by the other."
Consideration must be something of value in the eyes of the law. This excludes
promises of love and affection among others. A one sided promise which is not
supported by consideration is a gift. The law does not enforce gifts save for limited
exceptions.

TYPES OF CONSIDERATION.
Consideration may either be executed or executory. Executed consideration is that
consideration which is given at the time when the contract is concluded by both
parties. If A. walks into hardware shop to buy 100 bags of cement. He pays Ug. Shs.
3,000,000/= for the cement which he loads on his truck and goes away. Such consideration is
said to be executed because each party furnishes his or her consideration at the time of
concluding the contract.

Executory Consideration on the other hand is that consideration which the party to
the contract promises to furnish at some future date. This covers the satiation where
the goods are paid for but are to be delivered at a future date. It also covers goods
which are sold on credit. Another example is where a student pays fees at the
beginning of the term for lecture services to be rendered throughout the term.
Rules of governing consideration.
There are various rules governing the law of consideration:
1. The consideration must not be past.
2. The consideration must be sufficient but need not be adequate.
3. The consideration must move from the promisee.
4. Performance of an existing duty does not amount to valid consideration.
5. An existing contractual duty will not amount to valid consideration
6. . Part payment of a debt is not valid consideration for a promise to forego the
balance.
7. Forbearance to sue amounts to sufficient consideration.

Consideration must not be past.

If one party voluntarily performs an act, and the other party then makes a promise
after the act done, such subsequent act is said to be past consideration. The rule is
that past consideration is no consideration and the same cannot be used to enforce
the contract. For example, A gives B a lift from Kampala to Gulu in his car. Onarrival, B
promises to give A Ug. Shs. 200,000/= towards the fuel. A cannot enforce this promise as
hisconsideration, giving B a lift, is past.

In the case of Re McArdle (1951) Ch 669 Majorie Mc Ardle carried out certain
improvements and repairs on a house for the defendant. After the work had been carried out
the defendant promised that in consideration of you carrying out the repairs would pay extra
£480 after selling the house which he did not fulfil and the plaintiff sued for breach of
contract.
It was held that the promise to make payment came after the consideration had been
performed therefore the promise to make payment was not binding. Past consideration is not
valid and the claim failed.

Consideration must be sufficient but need not be adequate.

Provided consideration has some value, the courts will not investigate its adequacy.
Where consideration is recognised by the law as having some value, it is described
as "real" or "sufficient “consideration. The courts will not investigate contracts to see
if the parties have got equal value. Example, when X offers to sale to Y is Lexus motor
vehicle 2013 model at the price of Ug. Shs. 30,000,000/= Y pays the said purchase price.
After paying for the vehicle, X realises that he has sold his vehicle cheaply bellow market
price. Shs. 300,000,000/=. X cannot come back to and asks to refund 30m and have the
vehicle back on the ground that Y had bought it cheaply. Refer and read the case of
Chappel v Nestle [1960] AC 87,

Thomas v Thomas.
The plaintiff’s deceased husband had decreed that upon his death, she should
occupy the matrimonial home as long as she paid for it one pound a year. It was
held that the husband’s wishes and the love underlying those wishes wouldn’t
amount to consideration at law and therefore the one pound to be paid by the
woman rendered the contract enforceable.

Hassanali Isa v Jeraj Produce Store

Where the defendant took his motorbike to the plaintiff’s garage for repair and he
abandoned it for two years. When he finally came to collect it, he was presented with
a bill for repairs and storage which was almost equivalent to the value of the bike
and the repairer refused to release that bike unless that amount was paid.

The repairer was given a cheque, the owner was given the bike after which he
countermanded the cheque and the plaintiff sued. In deciding that the defendant
was bound to pay the value of the cheque it was pointed out that it wasn’t for the
court to reconsider whether the sum paid in the cheque was fair payment for the
services rendered.

It should be noted however that the inadequacy of consideration may be evidence of

fraud, duress, undue influence or mistake which may therefore nullify this
consideration.
Consideration must move from the promisee.
The person who wishes to enforce the contract must show that they provided
consideration. The promisee must show that consideration "moved from" (i.e., was
provided by) him.
The law of contract only deals with the parties to the contract and does not entertain
a stranger to the contract. A stranger to the contract, who has not finished
consideration cannot enforce the contract.

In the case of Tweddle v Atkinson [1861] EWHC QB J57, a couple were getting married.
The father of the bride entered an agreement with the father of the groom that they would
each pay the couple a sum of money. Both parents died before making good of their promise.
The groom made a claim against the executor of the will which claim failed: The groom was
not party to the agreement and the consideration did not move from him. Therefore, he was
not entitled to enforce the contract.
In order to enforce a contract, one must prove that he or she has furnished
consideration.

Performance of the existing public duty is not sufficient consideration.

If someone is under a public duty to do a particular task, then agreeing to do that
task is not sufficient consideration for a contract. A good example when one
promises a reward of Ug. Shs. 5,000,000/ to anyone who arrests the thief and
recovered the stolen items. When the police officer on duty arrests the said thief and
recovers the stolen items, he or she cannot claim the said reward because it was his
or her duty to arrest the thief and recover the stolen items. Equally whenever,
someone promises to do something they are already bound to do under a contract
that is not valid consideration.

In the case of Stilk v Myrick [1809] EWHC KB J58, the claimant was a seaman on a
voyage from London to the Baltic and back. He was to be paid £5 per month. During the
voyage two of the 12 crew deserted. The captain promised the remaining crew members that if
they worked the ship undermanned as it was back to London he would divide the wages due
to the deserters between them. The claimant agreed. The captain never made the extra
payment promised. It was held that the claimant was under an existing duty to work the ship
back to London and undertook to submit to all the emergencies that entailed. Therefore, he
had not provided any consideration for the promise for extra money. Consequently, he was
entitled to nothing.

However, when someone exceeds their public duty, then this may be valid
consideration.

In the case of Glasbrook Bros v Glamorgan County Council [1925] AC 270, the
defendant owners of a colliery asked the police to provide protection during a miner's strike.
The police provided the protection as requested and provided the man power as directed by
the defendants although they disputed the level of protection required to keep the peace. At
the end of the strike the police submitted an invoice to cover the extra costs of providing the
protection. The defendants refused to pay arguing that the police were under an existing
public duty to provide protection and keep the peace. It was held that in providing additional
officers to that required, the police had gone beyond their existing duty. They were therefore
entitled to payment.

Part payment of a debt is not sufficient consideration.

The general rule is that when someone owes a sum of money to another and agrees
to pay part of the debt settlement, such part payment is not sufficient consideration.
This is a common law rule propounded in Pinnels Case (1602) 5 CoRep 117a) where it
was observed that part-payment of a debt is not good consideration for a promise to
forgo the balance. Thus, if A owes B Ug.Shs. 10,000,000/= and B accepts Ug. Shs.
1,000,000/= in full satisfaction on the due date, there is nothing to prevent B from claiming
the balance at a later date, since there is no consideration proceeding from A to enforce the
promise of Bto accept part-payment. This is because he is already bound to pay the full
amount.
In Pinnels Case (1602), Cole owed Pinnel £8-10s-0d (£8.50) which was due on 11
November. AtPinnels request, Cole payed £5-2s-2d (£5.11) on 1 October, which Pinnel
accepted in full settlement of the debt. Pinnel sued Cole for the amount owed. It was held that
part-payment in itself was not consideration.

Although part payment of a debt is not valid consideration for a promise to forebear
the balance, sometimes it may be when at the promisor's request part payment is
made:

a). before the due date.

b). with a chattel.

c). to a different destination.

d). is paid by a third party.

Forbearance to sue is sufficient consideration.

If one person has a valid claim against another (in contract or tort) but promises to
forbear from enforcing it, that will constitute valid consideration if made in return
for a promise by the other to settle the claim. See Alliance Bank v Broom (1864) 2 Dr&
Sm 289

Consideration must be legal.

Consideration cannot be something or some act which is illegal, immoral or contrary
to public morals. See e.g. Wyatt Vs. Kreglinger and Fernau (1933).

Consideration must be requested. There must be express or implied request by

promisor to promise for consideration. If consideration is not requested for, then it
will be a mere gift.
PROMISSORY ESTOPPEL
this is the principle of equity to the effect that if someone (the promisor) makes a
promise, which another person acts on, the promisor is stopped (or estopped) from
going back on the promise, even though the other person did not provide
consideration.

The modern doctrine is largely based on dicta of DENNING J in Central London

Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130. High Trees (1947) - In
1937 the Plaintiffs granted a 99-year lease on a block of flats in London to the
Defendants at an annual rent of £2500. Because of the outbreak of war in 1939, the
Defendants could not get enough tenants and in 1940 the Plaintiffs agreed in writing
to reduce the rent to £1250. After the war in 1945 all the flats were occupied and the
Plaintiffs sued to recover the arrears of rent as fixed by the 1937 agreement for the
last two quarters of 1945.
DENNING J held that they were entitled to recover this money as their promise to
accept only half was intended to apply during war conditions. His lordship stated,
that if the Plaintiffs sued for the arrears from 1940-45, the 1940 agreement would
have defeated their claim. Even though the Defendants did not provide
consideration for the Plaintiff’s promise to accept half rent, this promise was
intended to be binding and was acted on by the Defendants. Therefore, the Plaintiffs
were stopped from going back on their promise and could not claim the full rent for
1940-
The requirements for the promissory estoppels are that
1. There have to be a contractual/legal relationship between the promisor and the
promissee before the promise is made.
2. There must be a clear and unambiguous statement by the promisor that his strict
legal rights will not be enforced, ie one party must make a promise which is
intended to be binding:
3. The promisee must have acted in reliance on the promise. There is some
uncertainty as to whether the promisee (i) should have relied on the promise by
 changing his position to their detriment (ie, so that he is put in a worse position
if the promise is revoked):
4. It must be inequitable for the promisor to go back on his promise and revert to
his strict legal rights. If the promisors promise has been extracted by improper
pressure it will not be inequitable for thepromisor to go back on his promise.
Note, the doctrine of promissory estoppels is only beraised as a defence: "as a shield
and not a sword" in the case of Coombe v Coombe [1951] 2 KB 215, it was held that the
doctrine cannot be raised as acause of action. This means that the doctrine only
operates as a defence to a claim and cannot beused as the basis for a case.

PRIVITY OF CONTRACT

In the middle of the 19th Century the Common Law Judges reached a decisive
agreement upon the scope of contract that no one is entitled to or bound by the
terms of the contract to which he is not a party. This principle is still the determinant
factor in Common Law but it must be received with exceptions.
With time, this came to be known as the doctrine of privity of contracts and these
are;
That a person who is not a party to a contract can’t enforce it and neither can it be
enforced against him.
A person who hasn’t supplied consideration for a promise can’t enforce the promise
i.e. he is a stranger to the contract.
This rule was established in two old cases i.e.
Price v Easton.
A man was indebted to price in the sum of 13£, he offered to work for Easton on the
understanding that Easton would pay the price. Whereas the man worked as agreed
Easton didn’t pay and so Easton sued price for not paying. It was held that no
contract had been entered between him and Easton.
Tweddle v Atkinson.
The parents of an intending bride and groom promised one another that when their
children get married they would each contribute a sum of money to their Children.
The two Children did get married but the bride’s father didn’t pay up, so the groom
sued him on the promise. It was held that in the law of England, certain principles
are fundamental and one such principle is that no one who isn’t party to contract can
sue on it even if it was made for his benefit.

The doctrine of Privity reached its peak in the case of Dunlop v Selfridge where
Dunlop sold tyres to Dew at discount and at which he was told not to sell below a
given price. Dew then sold these tyres to Selfridge ref to case note. It was held that
there was no contract btn Dunlop and Selfridge. Dunlop could not enforce a promise
made to Selfridge by Dew.
The following are the exceptions to privity of contract.

- Third party insurance

- Negotiable Instruments-cheques –where the convenants in settlements
- Constructive trusts
- Agency
- Assignment

1. Third Party Insurance; The motor vehicle insurance [Third Party Risks Act]
Cap 214 read together with the Traffic and Road Safety Act require all motor
vehicle owners to take out third party insurance cover on their vehicles. The
contract will be between the insurance company. and the insured i.e. vehicle
owner. However as its name suggest if a 3rd party is injured in an accident
following that vehicle he will claim compensation from the insurance though
he wasn’t a party. S 2(1)-12. If it was an ordinary comprehensive insurance
policy, the 3rd party wouldn’t recover.

2. Negotiable Instruments; These are documents which convey value through

the process of negotiation i.e. endorsement and delivery. Examples are
cheques, promissory notes, bonds. These are governed by the Bills of
Exchange Act. A typical bill of exchange e.g. a cheque is made by a party
 known as the drawer addressed to another known as a drawee mandating the
drawee to pay the sum named therein to a 3rd party known as a payee.

The drawer delivers the instrument to the payee, he is said to have issued the
cheque. The payee will be entitled to enforce payment of the sum of
instrument against the drawee although he wasn’t a party to the arrangement
between the drawer and the drawee. More importantly the payee can endorse
the instrument in favour of yet another person altogether and that 3 rd party
will be able to enforce the contract. That process of the transfer of the
instrument to the 3rd party by endorsement is known as negotiation.

3. Constructive trusts, a trust relationship arises when one party called a settler
conveys property to another party called the trustee upon the understanding
that the trustee will use the property for the benefit of another party called the
beneficiary.

If the trustee applies the property for his own benefit he therefore breaches
the contract and the beneficiaries can press charges on the trustee not
withstanding that they weren’t party to the agreement. The trustee is bound
according to the beneficiaries, he can’t hide to privity. A trust relationship is
an equitable relationship. It can be created inter vivos or it can take effect
upon the death or bankruptcy or insanity of the settler.

4. Restrictive Covenants i.e. the rule in Tulk v Moxhay. In leases there are
usually terms which may be expressed or implied. Terms in leases are of 2
types i.e. some are covenants and conditions. Some of the covenants which
attach to and run with the land e.g. the obligation to keep the property in a
state of repair, the obligation not to interfere with the adjoining land etc…
 When covenants are inform of undertakings not to do certain things e.g. not
to block the access road, the drainage they are referred to as restrictive
covenants. By their nature they attach to the land and if it is transferred or
sub-leased the transferee or sub-lease inherit those obligations and so they can
be enforced against him not withstanding that he wasn’t a party to the
original undertakings. In Tulk v Moxhay, it was held that though restrictive
covenants are common in leases they can also apply to freehold estates.

5. Agency [S118-172]. Agency is a relationship which exists/subsists when one

person called the principal appoints another called an agent whereby the
agent is empowered to enter into contracts with 3rd parties on behalf of the
Principal. This appointment creates 3 kinds of relationships.
The Principal – Agent relationship

THE INTENTION TO CREATE A BINDING AND LEGALLY ENFORCEABLE

AGREEMENT.

it is important to note that not every agreement leads to a binding contract which
can be enforced through the courts. For example, you may have made a promise to
take your spouse on a holiday. You may have a moral duty to honour that
agreement but not a legal duty to do so. This is because in general the parties to such
agreements do not intend to be legally bound and the law seeks to give effect to the
party's wishes.

Express denial of the contractual intention.

Sometimes the parties in their agreement which has all the other elements of the
contract may choose to expressly state it clear that they don’t intend the same to be
legally binding onto them.

In the case of Rose & Frank Co v Crompton Bros [1925] AC 445, the claimants and
defendants entered an agreement for the supply of some carbonised tissue paper.
Under the agreement the claimants were to be the defendant's sole agents in the US
until March 1920. The contract contained an honourable pledge clause which stated
the agreement was not a formal or legal agreement and shall not be subject to the
jurisdiction of the courts in neither England nor the US. The defendants terminated
the agreement early and the claimants brought an action for breach. It was held that
the agreement therefore had no legal affect and was not enforceable by the courts.

In social and domestic agreements, the law raises a presumption that the parties do
not intend to create legal relations:

In the case of Jones v Padavatton [1969] 1 WLR 328 Court of Appeal, A mother
promised to pay her daughter $200 per month if she gave up her job in the US and
went to London to study law. The daughter was reluctant to do so at first as she had
a well-paid job with the Indian embassy in Washington and was quite happy and
settled, however, the mother persuaded her that it would be in her interest to do so.
To persuade her to leave the Us, the Mother agreed to purchase a house for the
daughter to live in. The daughter then married and did not complete her studies.
The mother sought possession of the house. The question for the court was whether
there existed a legally binding agreement between the mother and daughter or
whether the agreement was merely a family agreement not intended to be binding. It
was Held that the agreement was purely a domestic agreement which raises a
presumption that the parties do not intend to be legally bound by the agreement.

Equally in the case of Balfour v Balfour [1919] 2 KB 571, A husband worked

overseas and agreed to send maintenance payments to his wife. At the time of the
agreement the couple were happily married. The relationship later soured and the
husband stopped making the payments. The wife sought to enforce the agreement.It
was held that the agreement was a purely social and domestic agreement and
therefore it was presumed that the parties did not intend to be legally bound.

However, in the case of Errington v Errington Woods [1952] 1 KB 290, a father-in-

law purchased a house for his son and daughter-in-law to live in. The house was put
in the father's name alone. He paid the deposit as a wedding gift and promised the
couple that if they paid the mortgage instalments, the father would transfer the
house to them. The father then became ill and died. The mother inherited the house.
After the father's death the son went to live with his mother but the wife refused to
live with the mother and continued to pay the mortgage instalments. The mother
brought an action to remove the wife from the house. It was held that the wife was
entitled to remain in the house because there was an intention to create legal
relations despite it being a family agreement.

Where the parties have separated:

Where spouses have separated it is generally considered that they do intend to be

bound by their agreements. Merritt v Merritt [1970] 1 WLR 1211 Court of Appeal.

Intention to create legal relations in commercial agreements.

Where an agreement is made in a commercial context, the law raises a presumption

that the parties do intend to create legal relations by the agreement:

In the case of Esso Petroleum v Customs & Excise [1976] 1 WLR 1 Esso ran a
promotion whereby any person purchasing four gallons of petrol would get a free
coin from their World Cup Coins Collection. The question for the court was whether
these coins were 'produced in quantity for general resale' if so they would be subject
to tax and Esso would be liable to pay £200,000. Esso argued that the coins were
simply a free gift and the promotion was not intended to have legal effect and also
that there was no resale. It was held that there was an intention to create legal
relations. The coins were offered in a commercial context which raised a
presumption that they did intend to be bound.

CONTRACTUAL CAPACITY.

In addition to offer, acceptance and intention to be legally bound, the parties should
have sufficient legal capacity to enter into the contract. The presumption is that all
parties to a contract have the power to enter into a contract.
Capacity of natural persons

Section 11 of the Contract Act provides that (1) A person has capacity to contract
where that person is—

(a) eighteen years or above;

(b) of sound mind; and

(c) not disqualified from contracting by any law to which he or she is subject.

(2) Notwithstanding this section, a person of sixteen years or above has the capacity
to contract as provided under article 34 (4) and (5) of the Constitution.

The contractual capacity element of a binding contract serves to exclude and protect
certain categories of people in our society from contractual obligations which they
may enter into innocently without appreciating the nature of the obligations or as a
result of being taken advantage of because of their peculiar conditions.

Both at common law and statutory law, the law protects the children, otherwise
infants, people of unsound mind or those in drunken state from contractual liability.
Either way mental deficiency or underage can have serious legal implications on
enforceability of a contract. In general terms, contracts made by infants, people of
unsound mind and those made under the influence of drink are voidable.

Persons with mental disorders

Section 12. Sound mind for purposes of contracting.

(1) For purposes of entering into a contract, a person is said to be of sound mind, if at
the time of entering into the contract, that person is capable of understanding the
contract and of forming a rational judgment as to its effect upon his or her interests.

(2) A person who is usually of unsound mind but occasionally of sound mind may
enter into a contract during periods when he or she is of sound mind.
(3) A person who is usually of sound mind but occasionally of unsound mind may
not enter into a contract during periods when he or she is of unsound mind.

Soundness of mind at the time of the contract is important because the contract is
only valid when freely entered into and consent has genuinely been given from an
informed position.

This is so because mental impairment affects ability to understand and to act

rationally i.e. the functioning of the mind. Where there is mental deficiency arising
from sickness it cannot be said that such persons can be expected to reasonably
understand the nature and extent of obligations being entered into.

In cases of mental disorder, the courts usually deal with the question; “whether the
affected party at the time of contracting was suffering from such a degree of mental
disability that he was incapable of understanding the nature of the contract.

Contractual capacity of drunken persons

These are said to be in the same position as the mentally disabled, the level of
drunkenness must be such as not to enable the person to know what he/she was
doing at the time of the contract and if that fact was appreciated by the other party,
then the contract is voidable at the instance of the drunken. He can however ratify
the contract when he sobers up.

CONTRACTS BY MINORS
It has been stated that for purposes of contracting, a minor is a person who is under
the age of 18 years. Contracts made by a minor are voidable at his option, the
options available to the minor in such a contract are two fold;
(a) To repudiate the contract within a reasonable time upon attaining a
majority age. These types of contracts are valid until upon attaining the
valid majority age.
 (b) To ratify the contract notwithstanding the contractual capacity which is
provided for in S. 11 of the contract Act where there are contracts
which are generally held to bind an infant.

Contracts for necessaries;

In defining necessaries for the purpose interpretation of infants the authorities have
applied a more general interpretation. It should not be restricted to things which are
but may include articles which are reasonably necessary to the minor having regard
to his station in life. The goods must be suitable to the condition in life of the infant
to his actual requirement at the time of the sale and time of delivery:
Nash v Inman (1908-10) ALL ER REP. 317.

The Defendant upon being sued for clothes supplied to him while still a minor
argued that he was a minor at the time the goods were supplied and that the goods
were not necessaries as he was already well supplied with clothes. Court held that
the clothes were not necessaries within the act and the defendant was not liable to
pay for them.

There must be things without which the infant cannot reasonably exist. These are not
restricted to goods, shelter, and clothes. It extends to cover things which will
cultivate the mind positively.

Accordingly, instruction in art or trade or intellectual or moral and all religious

information can be necessaries. Similarly assistance or attendance of others may be a
necessary to an infant’s well-being.

It is therefore not possible to have a uniform standard test for contracts for
necessaries of infants. This will usually vary from one minor to another largely
dependent on the class of the infant and the item of service in question. The most
important factor appears to be a state and condition of the infant himself i.e. the
station in life of the infant.

The law talks about things which are reasonably within the class of the infant in the
society and should be essential to his existence with reasonable advantage and
comfort of the infant. Articles of a luxury nature are excluded because they can’t be
said to be reasonably essential to the life of the infant.

The goods must be proved not only to be suitable to the station of life of the infant
but that they are also suitable to his actual requirement at the time of delivery

THE CONTENTS OF THE CONTRACT.

A contract may be oral or written or oral and partly written or may be implied from
the conduct of the parties. However, under S. 10 of the Contract Act, there are
contracts which are required to be in writing, these include. Contracts by
corporations; a contract above 25 CP. Ug sh. 500,000/=; contract of guarantee or
indemnity.

Upon fulfilling the elements of the contract, the parties now have to negotiate the
content or terms of the contract. During the negotiation, each party has to ensure
gets maximum benefits and minimises his or her loses. Each party tries to persuade
the other into concluding the contract on his or her favourable terms. What the
parties agree upon or envisage in the contract constitutes the terms of the contract
and are binding on the parties.

DIFFERENCES BETWEEN THE TERM AND REPRESENTATION.

Usually during the negotiation of the contract, what the parties say to each other or
refrain from stating may have different implications. Some statement or omissions
which form the basis of the parties’ agreement are binding on the party that made
such statement and are called the terms of the contract. There are other pre-
contractual statements which are made by the offeror as by the way in order to be
able to conclude the contract, such statement are far-fetched and cannot be believed
to be true by the other party. They are regarded as by the way statement which have
no effect on the contract and are termed as representation. Representation is only
regarded as a trade – puff -the statements that a party makes to market his goods or
services.

The difference between the term of the contract and representation is that the term
forms the content of the contract while the representation does not form part of the
contract. Therefore, the breach of a term of the contract entitles the injured party to
claim damages or be able to repudiate the contract if there is the breach of a
condition. However, the breach of the representation ordinarily entitles the innocent
party with nothing to under the contract.

Factors that assist in determining whether a pre-contractual statement is a term or

representation.
It was established in the case of Heilbut, Symons & Co v Buckleton [1913] AC 30, that
intention is the overall guide as to whether a statement is a term of the contract. In
seeking to implement the parties' intentions and decide whether a statement is a
term or a mere representation, the courts will consider the following four factors:

Time when the statement is made.

The court will consider the lapse of time between the making of the statement and
the contract's conclusion. If the interval is short the statement is more likely to be a
term. This is clearly demonstrated by the case of Routledge v Mckay[1954] 1 WLR
615. In that case, the claimant acquired a Douglas BSA motorcycle and sidecar by
exchanging another motorcycle and paying £30. The registration documents stated that it
was a 1942 model and this is what the defendant stated the year of the motorcycle to be when
the claimant came to look at it. The motorcycle was in fact a 1936 model but had been
modified and re-registered by a previous owner. The purchaser went away to think about it
and then returned a few days later a written agreement was produced to the effect of the
exchange which ended with the words "It is understood that when the £30 is paid over that
this transaction is closed".

It was held that the statement was a representation and not a contractual term. The
registration document was not prima facie evidence of a contractual term. Neither party was
an expert, and there was a lapse of time between the making of the statement and
entering the contract giving the claimant the opportunity to check the statement.
Furthermore there was no mention of the date in the written agreement and the words of the
agreement stating the transaction is considered closed excluded any possible collateral
warranty.

IMPORTANCE OF THE STATEMENT

The court will consider the importance of the truth of the statement as an essential
factor in finalising the contract. The statement may be of such importance that if it
had not been made the injured party would not have entered into the contract at all.

In the case of Bannerman v White (1861) 10 CBNS 844. The claimant agreed by contract
to purchase some hops to be used for making beer. He asked the seller if the hops had been
treated with sulphur and told him if they had he wouldn't buy them as he would not be able
to use them for making beer if they had. The seller assured him that the hops had not been
treated with sulphur. In fact they had been treated with sulphur.

It was held that the statement that the hops had not been treated with sulphur was a term of
the contract rather than a representation as the claimant had communicated the importance
of the term and relied on the statement. His action for breach of contract was successful. See
Couchman v Hill [1947] 1 All ER 103.

Reduction of the statement in writing.

The court will consider whether the statement was omitted in a later, formal contract
in writing. If the written contract does not incorporate the statement, this would
suggest that the parties did not intend the statement to be a contractual term.
In the case of Routledge v Mckay [1954] 1 WLR 615.The claimant acquired a Douglas
BSA motorcycle and sidecar by exchanging another motorcycle and paying £30. The
registration documents stated that it was a 1942 model and this is what the defendant stated
the year of the motorcycle to be when the claimant came to look at it. The motorcycle was in
fact a 1936 model but had been modified and re-registered by a previous owner. The
purchaser went away to think about it and then returned a few days later a written
agreement was produced to the effect of the exchange which ended with the words "It is
understood that when the £30 is paid over that this transaction is closed".

It was held that the statement was a representation and not a contractual term. The
registration document was not prima facie evidence of a contractual term. Neither party was
an expert, and there was a lapse of time between the making of the statement and entering the
contract giving the claimant the opportunity to check the statement. Furthermore there was
no mention of the date in the written agreement and the words of the agreement stating the
transaction is considered closed excluded any possible collateral warranty.

Special knowledge/skills

The court will consider whether the maker of the statement had specialist
knowledge or was in a better position than the other party to verify the statement's
accuracy.

In Oscar Chess Ltd v Williams [1957] 1WLR 370, Williams sold his can to Oscar Chess
Ltd a car dealer. Williams had honestly given a later year as the year of manufacture. It was a
second hand car which he had got from his mother. The car dealer later found out that the car
had been manufactured at an earlier period. He therefore sued Williams for a reduction in the
price they had paid on the ground that it was an older car. The court held that the statement
made by Williams as to the year of manufacture was only a ‘representation’ and not a ‘term’
of the contract of sale. Also the car dealer could have verified the year of manufacture and
since they had not done so before they bought the car, they should bear the loss, and that
Williams could not be sued. See also Dick Bentley Productions v Harold Smith Motors
[1965] 2 All ER 65.
Written contract.
If contract is put down in writing, any statement appearing in that written
agreement will usually be regarded as a term, and any prior oral statement that is
not repeated in the written agreement will usually be regarded as a representation,
due to the assumption that if a statement is left out of a written agreement, the
parties did not view the statement as important. See e.g. Routledge v. McKay
(above);

Parole evidence rule.

Where a contract is reduced to writing, neither party can submit evidence extrinsic
to (falling outside) the contractual document alleging terms agreed upon but not
contained in the document.

EXPRESS AND IMPLIED TERMS OF THE CONTRACT.

Terms of contract set out duties of each party under that agreement.
The terms of contract are of two categories ie express terms which are laid down by
the parties themselves. For example, in the contract for sale of the motor vehicle, the
parties will agree on the price, model, type and colour of the vehicle. They may also
agree on the delivery terms. Whatever the parties agree upon is what is called the
express terms. Express terms can easily be ascertained in written contract because
they are contained in one document. In such a case one has to look at the contract
document and nowhere else.

In the case Lailey and Roberts (T) Ltd Vs. Salum [1962] EA 376. X agreed to buy a
tractor from Y. Y agreed to repair the same and put it in running condition. Later Y
asked X to sign another document purportedly excluding his liability. The court held
that the contract was made on the earlier occasion.

Implied terms. Usually in the court of negotiating the contract, the parties will not
state or write each and everything thing that entails the contract. There are such
aspects of the contract that are so obvious that need no mention. There also those
terms though not mentioned, have to be read into the contract for the same to make
commercial sense. These are what are termed as implied terms. See section 9 of the
Contract Act.

Implied Terms
• Four categories of implied terms:
1. Implied by fact
2. Implied by law
3. Implied by custom
4. Implied by trade usage

Terms implied by fact:

Ordinarily, it is presumed that the parties to a contract would discuss the terms and
conditions of the contract between them and all the relevant terms would be
incorporated into the contract.
Despite all this, it can happen than an important term can be accidentally omitted or
left out in a contract between two parties. In such a case, a term will be implied by
the law, if it is necessary to carry out the obvious intention of the parties. Terms will
be implied by a court only if it is essential or necessary to give efficacy to the contract
which both the parties contemplated: The Moorcock (1889) 14 PD 64.

Thus implied terms are those terms that courts assume both parties would have
intended to include in the contract had they thought about the issue.

The test used to ascertain the intention of the parties is what is termed as tests have
the ‘officious bystander test: this to the effect that if, while the parties were making
the bargain, an officious bystander were to suggest some express provision for it in
the agreement, they would testily suppress him with a common “Oh, of course! It
goes without saying “per MacKinnon LJ). (Shirlaw v. Southern Foundries (1926)
Another test is the ‘the business efficacy test: terms must be implied to make contract
work. Such term can only be implied if contract cannot work without it; not
sufficient that term makes contract fairer or more sensible. Trollope and Colls Ltd. V.
North West Regional Hospital Board (1973).Such terms can be implied by fact, in.
law, by custom or trade usage.

Relative significance of terms.

Three types of contractual terms, each of which has normative importance relative to
the others:
1. Conditions
2. Warranties
3. Innominate terms

Conditions
A condition is a major term which is vital to the main purpose of the contract. A
breach of condition will entitle the injured party to repudiate the contract and claim
damages.

In the case of Kampala General Agencies Limited Vs Moody (EA) Limited (1963)
EA 549Sir Charles Newbold J A stated that "A condition in a contract of sale is an
obligation the performance of which is so essential to the contract that if it is not
performed the other party may fairly consider that there has been a substantial
failure to perform the contract." in that case, A sold cotton to B to be delivered in
Soroti. A discovered that Aloi station was near B’s ginnery, he delivered the cotton
there and B rejected it. The court held that the said breach was a breach of the
warranty.
Description in contract of term as “condition” is not necessarily determinative of
question whether term is condition. Courts tend to search for evidence that parties
really intended term to be such. See e.g. Schuler AG v. Wickman Machine Tool Sales
Ltd. (1974).
Warranties
A warranty is a less important term: it does not go to the root of the contract. A
breach of warranty will only give the injured party the right to claim damages; he
cannot repudiate the contract.

In the case of Bettini v Gye(1876) QBD 183,Bettini agreed by contract to perform as

an opera singer for a three month period. He became ill and missed 6 days of
rehearsals. The employer sacked him and replaced him with another opera singer.
Held: Bettini was in breach of warranty and therefore the employer was not entitled
to end the contract. Missing the rehearsals did not go to the root of the contract.

EXCLUSION AND LIMITING CLAUSES IN CONTACTS.

An exemption clause is an agreement in a contract that stipulates that a party is
limited or excluded from liability. Exclusion clauses have the tendency of
exonerating or excluding the dominating party from certain basic liability (ies). The
justification for their use is that both sides are free to negotiate whatever terms they
like. If the condition is harsh or unfair, then the other party can reject it. The concept
of exclusion clauses is based on the presumption of freedom of contract which
mainly arose from the Laissez – faire doctrine of the 19th Century. This position was
echoed by Sir. Jessel M.R. in Printing and Numerical Registering Company v
Sampson;

“If there is one thing more than the other which public policy requires is that men of full age
and competent understanding shall have the utmost liberty of contracting and that their
contracts when entered into freely and voluntarily shall be scared and shall be enforced by
Courts of justice….”

S.67 of the Contract Act provides that where any right, duty or liability would arise
under a contract, it may be varied by the express agreement of by the course of
dealing between the parties or by usage or custom if the usage or custom would
bind both parties to the contract
However, it is of course unfair or unjust to say that the average consumer (who is
illiterate, poor, ignorant) has an equal or any bargaining power when dealing with a
stronger/more powerful partner like a company, a manufacturer or retailer who in
many cases may be a monopolist leaving the consumer with no or very little options
from which to exercise freedom of choice. It is because of this unequal power
relation that it is contended that there is no freedom of contract and an exclusion
clause is an instrument of unfairness or injustice.
Such exclusion clauses are common in standard form contracts [Contracts of
adhesion] i.e. contracts contained in one or more documents, one of the parties to
which habitually makes contracts of the same type in a particular form and will
allow little, if any, alteration from that form. Examples include receipts, insurance
policies, mortgage agreements, banking agreements etc. These contracts are
normally already prepared by the one party and the other party only has to accept it.
In most of these cases, the average consumer is caught up in a take it or leave it
situation.

The bus or railway companies usually have phrases like “luggage carried at owners
risk”, “parking at owners risk”, receipts contain the phrase “goods once sold are not
returnable” other contract are couched in words like “all conditions and warranties are
hereby excluded” The fundamental question is whether, amidst the use of such clauses
with average consumers, there can be said to be freedom of contract.

Incorporation. The term of ‘incorporation’ means including the clause within the
contract. The person wishing to rely on the exclusion clause must show that it
formed part of the contract. An exclusion clause can be incorporated in the contract
by signature, by notice, or by a course of dealing.
SIGNED DOCUMENTS
The basic presumption is that a person who signs a contract has read it and is
therefore bound by its contents. It is no defence to say that one did not or could not
understand it or that the print was too small for him to read. By signing the
document, one indicates to be bound by the terms.

Thus in L’Estrange v Graucob [1934], the Plaintiff signed a printed contract of sale of
an automatic vending machine without reading. The machine was found to be
unsatisfactory and the Plaintiff claimed damages for breach of contract. The seller
relied on the clause in the contract that excluded the application of all implied
warranties and conditions statutory or otherwise

The Court held that the printed clause excluded the implied condition under the sale
of Goods Act; that since the Plaintiff had signed the contract it was irrelevant that
she had not read it even though the sale agreement was in “regrettably small print”.
Scrutton L. J. said that ………….. there was no evidence that the Plaintiff was induced to
sign the contract by fraud or misrepresentation. The Plaintiff had signed a document headed
„sale agreement‟ which she admits had to do with an intended purchase and contained a
clause excluding all conditions and warranties. That being so, the Plaintiff having put her
signature to the document and not having been induced by fraud or misrepresentation,
cannot be heard to say that she is not bound by the terms of the document because she has not
read them.

Limitations:
• Most contracts are in English language which many people cannot read.
• Some contracts are usually in very small print that cannot be easily read.
• Some of contracts are in technical language that cannot be understood.

A great number of exclusion clauses are found in unsigned documents like tickets
and notices.
In Thompson v L. M. & S Railway Company, an illiterate Plaintiff was issued a
ticket with the words “see back” on the face. At the back, it was stated that the ticket
was subject to the defendant‟s conditions set out in the company‟s time table, which
excluded liability for injury. It was held that inspite of the Plaintiff‟s inability to read
the conditions, she was bound by them as the notice was clear and the ticket was a
common form of a contractual document.

These two cases show the injustice that can be created when relying on exclusion
clauses especially in light of an ignorant or illiterate consumer, or in cases where
terms are drafted in technical language that cannot be easily understood even by the
elite.
In order to deal with the injustices caused by these exclusion clauses, some countries
have completely banned them (e.g. the UK has enacted the Fair Trading Act 1973,
Unfair Contract terms Act Cap 1977 banning the use of unfair terms in contracts).
The courts have developed various rules to offer some protection to weak
consumers.

1) The Contra Proferentum rule.

Here the rule is that an exclusion clause is interpreted restrictively against the person
relying on it/or its maker. Any ambiguity is interpreted in favour of the other
contracting party.

In Wallis v Pratt, the buyer of seed found when it grew that it was not what he had
ordered. The sellers relied on a clause in the contract excluding all warranties,
express or implied as to growth and description. It was held that the clause could
not protect them because the term broken was a condition not a warranty
Under this rule, a court does not readily accept exclusion of liability for the negligent
acts unless the wording clearly shows that such was the intention. Hence a person
wishing to avoid liability is required to be very precise in the use of language to
achieve that aim.

In White v John Warrick & Co. Ltd, the plaintiff hired a tricycle. The contract
provided that “nothing in this agreement shall render the owners liable…..” The plaintiff
was injured when the saddle tilted forward. It was held that the clause only
excluded liability for breach of contract; the owners might still be liable for the tort of
negligence.

2) The doctrine of / need for Reasonable notice

This is in relation to unsigned documents. The general rule is that if the document
containing the exclusion clause is to be regarded as an integral part of the contract, it
must be seen or brought to the attention of the party either before or at the time of
entering into the contract, in order for it to form part of the contract. It therefore
follows that any attempt to introduce an exemption clause after the contract has been
made will be ineffective.

In Olley V Marlborough Court, property was stolen from the Plaintiff during her
stay at a hotel. There was a notice in the bedroom that the proprietors accepted no
responsibility for articles stolen. It was held that the notice was ineffective. The
plaintiff only saw it after the contract had been made at the reception desk.

In Thornton v Shoe Lane Parking Ltd (1971), the Plaintiff made his contract with a
car park company when he inserted a coin in the automatic ticket machine (at the
entrance). The ticket which he received referred to conditions displayed inside the
car park and which he could only see after entry. It was held that he was not bound
by the conditions, which purported to exempt the company from liability for injury
to customers or damage to customers‟ cars.

In the case of Parker v South Eastern Railway (1877) 2 CPD 416, the plaintiff
deposited a bag in a cloak-room at the defendants' railway station. He received a
paper ticket which read 'See back'. On the other side were printed several clauses
including "The company will not be responsible for any package exceeding the value
of £10." The plaintiff presented his ticket on the same day, but his bag could not be
found. He claimed £24 10s. as the value of his bag, and the company pleaded the
limitation clause in defence. In the Court of Appeal, Mellish LJ gave the following
opinion:

•If the person receiving the ticket did not see or know that there was any writing on
the ticket, he is not bound by the conditions;

•If he knew there was writing, and knew or believed that the writing contained
conditions, then he is bound by the conditions;

•If he knew there was writing on the ticket, but did not know or believe that the
writing contained conditions, nevertheless he would be bound, if the delivering of
the ticket to him in such a manner that he could see there was writing upon it, was
reasonable notice that the writing contained conditions

3) Where there is fundamental breach of a contract

The phrase fundamental breach of a contract is where the essence of a contract has
been affected. The breach goes to the root of the contract and a party in breach
cannot rely on the exclusion clause. What amounts to fundamental breach is
dependant on the circumstances of each case.

In Karsales v Wallis(1956) 2 ALL E.R. 866,, the contract was for the supply of a Buick
car, which the Plaintiff had inspected and found to be in good condition. When
delivered at night, however, it had to be towed, because it was incapable of self-
propulsion. Amongst other things, the cylinder head had been removed, the valve
had been burnt out, and the two of the pistons had been broken. The defendant
purported to rely on a clause of the agreement which stated “No condition or warranty
that the vehicle is road worthy, or as to its age, condition or fitness for purpose is given by the
owner or implied herein.”

The judges of the Court of Appeal held that what had been delivered was not, in
effect a „car‟. The defendant‟s performance was totally different from that which
had been contemplated by the contract. [That is the supply of the motor vehicle in
working order]. There was a fundamental breach of contract and the exclusion
clause had no application.

4). Court can strike out a clause in a signed document, where the signatory can
prove that the contents of the document were orally misrepresented to him/her.

In Curtis Chemical Cleaning and Dying Co. Ltd, the Plaintiff took her white satin
dress to the Defendant cleaners. She was asked to sign a document and on asking
what it was all about, she was told that it excluded the firm from damages done to
sequins and beads. In fact the clause excluded them from any damages howsoever
caused. The Plaintiff signed without reading. The issue was whether the Plaintiff
could be bound by her signature when she had been induced to sign on the basis of a
false nature of exemption clause described by the shop assistant. The court held that
she was not bound by her signature because the shop assistant had given her an oral
explanation amounting to misrepresentation.

VITIATING FACTORS - THAT UNDERMINE A CONTRACT.

While the contract is concluded when all the elements thereof are established in any
given transaction, there are situations which may arise and destroy the basis upon
which that agreement was reached so that the contract is discharged or in some
other way vitiated. There are five vitiating factors, misrepresentation, mistake,
duress, undue influence, and illegality.

Section 13 of the Contract Act, provides for ‘free consent of parties to a contract’. That
consent of parties to a contract is taken to be free where it is not caused by— (a)
coercion; (b) undue influence, (c) fraud; (d) misrepresentation; or (e) mistake.

Unser section 16 (1) of the Contract Act, where consent to an agreement is obtained by
coercion, undue influence, fraud or misrepresentation, the agreement is voidable
contract at the option of the party whose consent was obtained by coercion, undue
influence, fraud or misrepresentation.
MISTAKES IN CONTRACT.

The effect of a mistake on the validity of a contract depends on the type and nature
of the mistake made. In general, the contract entered into or induced by mistake can
be void or voidable depending on the type of the mistake. The law of contract
recognises three types of mistake:

• Common mistake - Where both parties make or operate under the same
mistake,

• Mutual mistake - Where the parties are at cross –purposes with regards to the
contract.

• Unilateral mistake - Where only one party to the contract is mistaken with
regards to the contract.

Common Mistake.
A common mistake in Contract Law is one shared by both parties to the contract.
Where a common mistake occurs, the parties appear to be in agreement, but have
entered into the contract under the same misapprehension of the true nature of the
facts. Section 17 (1) of the Contract Act, 2010, provides that where both parties to the
‘contract’/ agreement are under a mistake as to a matter of fact which is essential to
the agreement, the contract is void. the common examples of common mistakes are:-

Mistake as to the existence of the subject matter

Sometimes the parties enter into a contract when they are not aware that the subject
matter of the contract does not exist. Where the subject matter of the contract does
not exist or ceases to exist, there is no contract to talk about- the contract is void.
In the case of Galloway v Galloway (1914) 30 TLR 531. The two believing that they
were legally married parties made a separation agreement - (an agreement between
husband and wife to stay a part). It was later discovered that the man’s first wife was
alive and therefore the second marriage was invalid.
It was held that the separation agreement was void as it had been entered into on the
basis of the common assumption that the parties were married to each other.

Further, a common mistake arises when unknown to the contracting parties, the
subject matter to the contract is destroyed or perishes. Refer to Section 7 of the SOGA
deals with a situation when the goods which are the subject matter of the contract is
destroyed without the knowledge of the contracting parties the contract is void.

In the case of Couturier v Hastie [1856] 5 HL Case 673,

A cargo of corn was in transit being shipped from the Mediterranean to England. The owner
of the cargo sold the corn to a buyer in London. The cargo had however, perished and been
disposed of before the contract was made. The seller sought to enforce payment for the goods
on the grounds that the purchaser had attained title to the goods and therefore bore the risk of
the goods being damaged, lost or stolen. The court held that the contract was void because the
subject matter of the contract did not exist at the time the contract was made.

Mistake as to title/ ownership.

This covers the situation where one sells the goods that he or she does not own.
Sometimes someone may think that he or she owns the property when in actual
sense does not. For example, where one unknowingly bought a stolen property, may
think that he or she has good tittle to it whereas not. Any attempt to sell the same to
another person does not give rise to a valid contract and such contract is entered into
under mistake as to ownership and is therefore void.

This also covers situations where one buys what already belongs to him. Take
example of the beneficiary buying the property which is bequest to him or her. The car owner
buying a spare-part stolen from his car. Cochrane Vs Wills (1865) 1 Ch. App. 58.
Mutual Mistake.
Where a mutual mistake occurs, there is a misunderstanding between the parties
and are said to be at cross-purposes. A mutual mistake negates consent and
therefore no agreement is said to have been formed at all.

Mutual mistake as to the identity of the subject matter.

This happens when the two contracting parties are mistaken as to the identity of the
subject matter of the contract.
Assuming A has two vehicles a Mercedes Benz ML32 and Toyota Corona. A offers to sell his
car to B and B accepts to buy the same at Ug. Shs. 40,000,000/= and the contract is
concluded. Later it transpires that A was offering to sell his Corona while B in accepting the
offer thought that A was selling ML 32. The question is whether there is any contract. Such
contract is void due to the operation of a mutual mistake.

In the case of Raffles vs. Wichelhaus, 2 H & C 906, 159 Eng Rep 373 (Ex. 1864)
There was a contract for sale of cotton which was described to be on Peerless ship. Unknown
to both parties, there was 2 Peerless and parties agreed to different boats. The court held that
there was no agreement as the parties were thinking of two different ships when they entered
into the agreement and it was therefore too ambiguous to enforce.

UNILATERAL MISTAKE
A unilateral mistake occurs where only one party to the contract is mistaken and the
other party knows about such a mistake and takes advantage of it. A unilateral
mistake also negates consent and the existence of an agreement and renders the
contract void. Section 17 (2) of the Contract Act provides that a contract is void where
one of the parties to it operates under a mistake as to a matter of fact essential to the contract.

Mistake as to identity of the contracting party

Where a mistake is to the identity of the other party to the contract, the contract will
be deemed void if the identity of that person is central to the contract. However,
where the parties negotiate in person, there is a presumption that there is an
intention to do business with the person in their presence, in which case it is unlikely
that a contract will be void.

As regards mistaken identity of the parties even where identity is concerned, the
general rule is that identity of contracting parties is immaterial. It is assumed that
what the contracting party is interested in is the subject matter of contract and not
the contracting party.
Given the above rule, it follows that in order for identity of contracting parties to
affect the validity of the contract, the burden is on the party seeking to vitiate the
contract to prove that identity of the other party was crucial.

A party relying on mistaken identity must prove that:

(a) He intended to deal with somebody else other than the person he dealt with.
(b) The party he dealt with knew that he was not the one intended to be dealt
with.
(c) He would not have dealt with the party he dealt with if he knew the true
situation.
(d) He took reasonable steps to verify the identity of that other party.

In Candy v Lindsay (credit transaction), a fraudster called Blenkarn ordered goods

from Lindsay and Co. and gave his address as 37 Wood Street. He signed his name
in such a way to look like Blenkiron and Co. The Plaintiff had not dealt with that
company but knew of it by reputation as having a business at 123 Wood Street. The
goods were duly delivered for the rogue’s address at 37 Wood Street. The rogue
resold them to Candy and did not pay Lindsay and Co. who then sued to recover the
goods from Candy.

It was held that the contract between Lindsay and the rogue was void because the
Plaintiff never intended to deal with him and being a credit sale, identity of the
rogue was crucial. Accordingly, the rogue never acquired title to the goods and
could not pass any to Candy.
Under the sale of goods and supply of Services Act 2017 the principle is expressed in
the latin maxim, nemo dat quod non habet , that is, no person can pass what he does
not have, applies

Similary In Ingram v Little, a rogue (Swindler) claiming to be Hutchinson visited the

Plaintiff’s residence in response to an advert and offered to buy a family car. They
refused to accept a Cheque. He told them he was P.G.M. Hutchinson with a business
at Buildford and a residence at Stanstead House, Caterham. Hearing this, one of the
ladies quietly went to a separate room and searched a directory which showed that
P.G.M. Hutchinson lived at that address. The rogue issued to the Plaintiffs a cheque
which bounced. In the meantime the Rogue had sold the car to the Defendant who
bought in good faith.

It was held, that the offer was only intended for P.G.M. Hutchinson and a rogue was
incapable for of accepting it. So there was no contract, the rogue never acquired title
and he could pass none to the Defendants who were thus ordered to return the car.

Documents mistakenly signed and the plea of non-est factum

Unilateral mistake may arise as to the nature of a document signed or sealed. As a

general rule, a person is bound by his or her signature to a document, whether or not
they have read or understood the document. Where a person has been induced to
sign a contractual document by fraud or misrepresentation, the transaction will be
voidable.

However, courts are generally hostile towards reliance on this plea. They take the
position that persons of full age and sound mind who voluntarily sign documents
should not be lightly allowed to avoid of consequences of so doing. Consequently,
the Courts have imposed stringent conditions which must be met for non est factum
to operate.
 • The plea is only available to a limited group of people i.e. persons who may
be unable to read and understand documents e.g. illiterates, minors, persons
of unsound mind, persons who at the time of signing are intoxicated, the
blind and the senile.

• The mistake must be a serious one in a sense that it must relate to the
character of the document and not merely to its exact contents. The distinction
was expounded in Saunders v Anglia Building Society. (1971). AC 1004. A
78 year old lady wanted to transfer the title of her house to the nephew. A
clerk who was a friend of the nephew knew of the intention. He prepared a
document by which the house would go to himself (the clerk). He brought the
documents to the lady for signing.

The lady’s eye sight was bad and she had lost her glasses. She asked the Clerk to
read it to her and he assured her that it was a transfer of land to her nephew and she
signed. The clerk used the document and title deeds of the house to borrow money
from Anglia Building Society and then defaulted. The Building Society sought to
take over the house and the old lady pleaded non est factum

It was held that the document she intended to sign was not fundamentally different
from the one she signed because she intended to sign the document by which she
would lose the house. The mistake was to the exact content not character of
document. The Court clarified that to benefit from non est factum, she had to show
that the document was radically, fundamentally, basically, totally, and essentially
different from the one she intended to sign and this was not the case.

On the other hand in Lewis v Clay, Lord Neville produced a document before Clay
and asked him to sign on the document. The words on the document had been
covered with blotting paper except for some small spaces which had been cut in the
blotting paper through which Clay would sign.
He told clay that the document concerned a private family matter when in fact it was
a promissory note and by signing it, Clay was promising to pay € 1,113.
Neville then used the promissory note to obtain a loan from Lewis. Lewis gave the
money but Clay could not pay. Clay pleaded non est factum. It was held that the
document to which Clay put his sign was entirely different in character from the one
he intended to sign. He could plead non est factum to escape liability.

(iii)Mere ignorance of the contents of the document as opposed to inability to read

and understanding may not protect the person.

(iv)The illiterate will not benefit from non est factum if it is shown that he would have
known the true contents of the document if he was not careless hence in Kakande v
Nsimbi, an illiterate seller of land could not take advantage of non est factum because
he never bothered to ask his lawyer to translate the document he signed.

THE ILLITERATES PROTECTION ACT.

The Act is intended to protect illiterate persons from the effect of documents
purportedly written or signed on their behalf. To invoke the Act, one must be an
illiterate person. It defines an illiterate person as one who is unable to read and
understand the script or language in which the document is written or printed.

S.3 provides that any person who shall write any document for or at the request or
on behalf or in the name of any illiterate shall also write on the document his full
names as the writer thereof and his full and true address. By so doing, the writer
implies that he was instructed by the illiterate to write the document, that the
document accurately represents the instructions, that it was read over and explained
to the illiterate.

Under S.4, any person who signs or writes a document on behalf of an illiterate
person without complying with the requirements above commits an offence and on
conviction is liable to a fine of 300/= or in default of payment to imprisonment for a
period not exceeding 3 months. In addition such a person could be liable to other
civil or criminal consequences for fraud, forgery, misrepresentation etc.

DURESS AND UNDUE INFLUENCE

Duress at common law means actual violence or threats of violence to the person.
These are threats calculated to produce fear of loss of life or bodily harm. The threat
must be illegal that is it must be a threat to commit a crime or a tort. Thus in order to
amount to duress or coercion, it must be shown that the threats were to commit an
unlawful act and had the intention of causing or inducing the aggrieved party to
enter the contract. It should be pointed out that at common law, for the plaintiff to
successfully plead duress, it had to be duress of his or her person and not his or her
property. However under the Act, threats to detain his or her property may amount
to coercion. (see section 2 of the Contracts Act).

Contrast section 2 of the contracts Act with the case of Skeate V Beale

In the case of Skeate v Beale [1840] 11 Ad & El 983 a landlord was owed money by a
tenant. He seized goods owned by the tenant and threatened to sell them
immediately unless the tenant entered an agreement for repayment of the sums
owned. The tenant agreed to the repayment terms but then sought to have the
agreement set aside for duress. It was held that duress to goods will not suffice to
render a contract voidable.

Undue influence exists where a contract has been entered as a result of undue
pressure, the party subject to the pressure may set aside the contract on the
grounds of undue influence.

Undue influence operates where there exists a relationship between the parties
which has been exploited by one party to gain an unfair advantage.

Under section 14 of the Contract Act, a contract is induced by undue influence where
the relationship subsisting between the parties to a contract is such that one of the
parties is in a position to dominate the will of the other party and uses that position
to obtain an unfair advantage over the other party.

A party is taken to be in a position to dominate the will of another party, where—

- (a) the party holds a real or apparent authority over the other party;
- (b) the party stands in a fiduciary relationship to the other party; or
- (c) the mental capacity of the other party is temporarily or permanently
affected by reason of age, illness, mental or bodily distress.

Relationships capable of giving rise to an automatic presumption of undue influence

are those of a fiduciary nature and include:

- Parent - child
- Solicitor- Client
- Religious advisor – member of the congregation.
- Doctor - Patient
- Trustee - beneficiary

The law presumes undue influence where a party who is in a position to dominate
the will of the other party, enters into a contract with that other party and the
transaction appears to be unconscionable.

Where a contract is found to be entered into as a result of undue influence, this will
render the contract voidable. This will enable the person influenced to have the
contract set aside as against a party who subjected the other to such influence.

In Allcard v skinner (1887) 36 Ch D 145, the Plaintiff a 35 year old lady, was
introduced by her spiritual advisor, a lady superior of a religious organization
known as the sisters of the poor. She became a sister and took three vows; the vow of
poverty, chastity and obedience. The vow of poverty required her to surrender all
her individual property to the institution forever. The vow of obedience required her
to obey her lady superior without question.
She remained a sister for 8 years during which period she surrendered most of her
property to the institution and the proceeds from it were used for purposes of
running the institution. She left the sisterhood and 6 years later she sued to recover
the value of her property contending that she surrendered it through undue
influence.

It was held that although no personal pressure had been proved to have been used,
the relationship between the two gave rise to the presumption of undue influence
especially since she was required to obey her lady superior without question and not
to seek the advice of any person without the superior‟s consent.

The legal effect of undue influence

Where consent to an agreement is obtained by undue influence, the agreement is a
contract voidable at the option of the victim of undue influence (S.16 (1)). He may set
the contract aside absolutely but if he received any benefit under the contract, he can
only set it aside upon such terms and conditions as may seem just to court (S.16(5))

MISREPRESENTATION AND FRAUD.

It often happens that the actual conclusion of a contract is preceded by negotiations

between the interested parties. During the course of negotiations, each party gives
assurances to the other with a view to inducing the other to enter into the contract
which eventually forms the basis of the contract. Sometimes such assurances may
turn out to be false which may make the innocent party aggrieved. This false
statement is what is known as misrepresentation.

Conditions for the misrepresentation.

A misrepresentation is relevant in the law of contracts only is the following

conditions are present;

1. It must be a representation of material fact.

 2. It must have been made before the conclusion of the contract with a view to
inducing a party to enter into the contract.
3. It must have been made with the intention that it should be acted upon by
the party to whom it is addressed.
4. It must actually have been acted upon and must have induced the contract,
and
5. It must have been false to the knowledge of the person making it.

The effect misrepresentation is to make the contract voidable, giving the innocent
party the right to rescind the contract and/or claim damages. This is so because
under section 13 (d) of the Contract Act, parties are enjoined to enter into contract with
free consent. Consent of the parties is taken not to be free when the same is obtained
through among others misrepresentation.

Misrepresentation must be the statement of fact and not an expression of the

opinion. A false statement of opinion is not a misrepresentation of fact.

In the case of Bisset Vs.Wilkinson [1927] AC 177, A purchased a piece of farm land from B
to use as a sheep farm. Before purchasing the land, A asked B as to how many sheep the land
would accommodate. B who had not used it as a sheep farm, estimated that it would
accommodate 2,000 sheep. A relied on B’s statement and went ahead to purchase the land.
The estimate turned out to be wrong and A, brought an action for misrepresentation against
B.

The court held that the statement was only an expression of opinion and not a statement of
fact and therefore not misrepresentation and dismissed the case.

Smith v Land and House Property Corp (1884) 28 Ch D 7

A. purchased a hotel from B. Before the sale was concluded, B. described the business as the
'most desirable'. In fact, as the seller knew, the business was on the verge of bankruptcy. This
was held to be a statement of fact rather than opinion as B was in a position to know the facts.
Types of misrepresentation.

There are three main types of misrepresentation; these are innocent

misrepresentation, negligent misrepresentation and fraudulent misrepresentation

Innocent misrepresentation.

Innocent misrepresentation occurs where the false statement has been made honestly
without knowing the same to be false. Even innocent misrepresentation invalidates
the contract. An innocent Misrepresentation exists where the representor can
demonstrate reasonable grounds for belief in the truth of the statement.

In Redgrave v Hurd (1881) 20 Ch D 1, a lawyer wanted to buy the firm of another lawyer.
The seller said that he earned about 300 pounds every year from his practice but advised the
buyer to examine the books of account to verify this fact. The buyer did not examine any
books of accounts and later found that the sum of 300 pounds per year was untrue and sued
the seller on account of misrepresentation. The court held that the contract was bad because of
the misrepresentation. The seller had made a false statement although he had done so
innocently. However, he was liable for the misrepresentation.

NEGLIGENT MISREPRESENTATION

This is a false statement made by a person who had no reasonable grounds for
believing it to be true. The innocent party may rescind the contract or may sue under
tort for negligent statement and recover damages.

FRAUD.

Section 15 of the contract Act contract is induced by fraud where any of the
following acts is committed by a party to a contract, or with the connivance of that
party, or by the agents of that party, with intent of deceiving the other party to the
contract or the agent of the other party, or to induce the other party to enter into the
contract—

(a) a suggestion to a fact which is not true, made by a person who does not believe it
to be true;
(b) the concealment of a fact by a person having knowledge or belief of the fact; (c) a
promise made without any intention of performing it;

(d) any act intended to deceive the other party or any other person; or

(e) any act or omission declared fraudulent by any law.

According to Lord Herscell in Derry Vs. Peek (1889) 14 App Case 337, Fraudulent
representation is proved when it is shown that a false representation has been made:
-

1) Knowingly, or

2) Without belief in its truth: or

3) Recklessly and carelessly without having regard to its truth.

It is not easy to prove fraud. To allege a fraud is a serious matter because fraudulent
conduct can also result in a criminal charge.

Silent is not fraud.

However, mere silence as to facts likely to affect the willingness of a person to enter
into a contract is not fraud, unless the circumstances of the case are such that, it is the
duty of the person keeping silence to speak, or unless the silence is, in itself,
equivalent to speech. Section 15 (2) of the Act.

According to section 16 (2) of the Contract Act, where consent is caused by

misrepresentation or by silence which is deemed fraudulent the contract is not
voidable if the innocent party was not diligent in his failure to find out the truth.

In the case of Fredrick Zabwe Vs Orient Bank Ltd & 5Ors SCCA No 04 0f 2006
[2007] 1HCB. 24, the Supreme Court defines fraud as;

An intentional perversion of truth for the purpose of inducing another in reliance upon it to
part with some valuable thing belonging to him or to surrender a legal right. A false
representation of a matter of fact, whether by words or by conduct, by false or misleading
allegations, or by concealment of that which deceives and is intended to deceive another so
that he shall act upon it to his legal injury. Anything calculated to deceive, whether by a
single act or combination, or by suppression of truth, or suggestion of what is false, whether
it is by direct falsehood or innuendo by speech or silence, word of mouth, or look or
gesture…”

Remedies for fraudulent misrepresentation

Where there has been a fraudulent misrepresentation, the innocent party is entitled
to rescind the contract and claim damages. The damages that are awarded are not
based on contractual principles but the damages available in the tort of deceit.

Remedies for misrepresentation.

Remedies available for misrepresentation are dependent on the type of

misrepresentation. For all types the remedy of rescission is available. This is putting
the parties back in their pre-contractual position. Each party gives back the benefit
which they have received under the contract.

ILLEGALITY
S.19 of the Contract Act provides that consideration or an object of an agreement is
lawful except where
a) It is forbidden by law One example of illegality is an agreement to purchase land
by a non-citizen. Under S. 40 of the Land Act, a non-citizen can only acquire a lease
in land in Uganda and is therefore barred from purchasing mailo or freehold land.
b) Is of such nature that if permitted would defeat the provisions of any law
c) Is fraudulent
d) Involves or involves injury to a person or the property of another or
e) Is declared immoral or against public policy by a court

Consideration or objects declared immoral or against public policy by a court

Public policy means the values which society attaches to some aspects. Examples in
this context include committing crimes, defrauding the revenue, promoting sexual
immorality, promoting corruption in public life etc.

An agreement to commit a crime

Foster v Driscoll [1929]
In the 1920s, the US constitution was amended to insert a provision which
prohibited importing in and consumption of liquor. The plaintiff agreed with the
defendant to form a partnership whose business was to smuggle liquor from the UK
to the US through the Canadian border. The Defendant breached the contract. It was
held that English courts could not enforce such a contract even though it was lawful
to transact in liquor in the UK because to enforce it would be to undermine the
relationship between the UK and the US

In Regazzoni v KC Sethia there was a contract for the sale of Indian jut to Italy. The
parties knew that from Italy it would be re-exported to SA. And yet trade relations
between India and SA were prohibited by the economic sanctions between India and
SA at the time. It was held that such a contract was contrary to public policy.

An agreement prejudicial to public safety

A contract which undermines the safety of the public like one trading with enemy
aliens is unenforceable.
Daimler v Continental Rubber Co. [1916] the plaintiff company was incorporated in
England with the object of selling tyres manufactured by a German company. All its
directors except one were all Germans. After the outbreak of World War I, the
company sued the defendant for payment of a trade debt. The defendant argued that
payment of the trade debt would amount to trading with the enemy which was
illegal. Court agreed.

An agreement to promote corruption in public life

A promise to pay a bribe cannot be enforced in a court of law.
Tekele Gebresellasie v Sebhabu Woldemariam [1965]
The two parties were candidates for an election. They agreed to cast lots and that the
winner of the lots would stand unopposed for the other; and that if the loser insisted
on standing the loser would pay £5000 to the winner. The loser of the lots went on to
contest for the election and was sued. It was held that the contract was immoral and
unlawful. It is stated that every citizen has a right to vote and freedom cannot be
sold. Furthermore, one cannot acquire a right to become a representative of the
people through money or deceit.

An agreement to promote sexual immorality

These are called contracts “contra bonos mores” i.e. contracts against morality hence
illegal. At common law, court cannot entertain a case by a prostitute to regain her
fees even if prostitution was not illegal. Neither would it assist a landlord to recover
rent from a prostitute if he knew that the premises were being used wholly or
largely for prostitutes.

Pearce v Brooks [1866] a taxi driver allowed his taxis to be used by prostitutes to
look for customers. His suit to recover hire charges failed.

Effect of illegality
An agreement whose object or consideration is unlawful is void and a suit shall not
be brought for the recovery of any money paid or thing delivered or for
compensation for anything done under the agreement unless
a) Court is satisfied that the plaintiff was ignorant of the illegality of the
consideration or object of the agreement at the time the plaintiff paid the money or
delivered the thing sought to be delivered or did the thing in respect of which
compensation is sought

b) Court is satisfied that the illegal consideration or object had not been effected at
the time the plaintiff became aware of the illegality and repudiated the agreement
c) Court is satisfied that the consent of the plaintiff to the agreement was induced by
fraud, misrepresentation coercion or undue influence

d) The agreement is declared illegal by any written law with the object of protecting
a particular class of persons of which the plaintiff is one

DISCHARGE OF THE CONTRACT.

A contract creates certain obligations on one or all parties involved. The discharge of
a contract happens when these obligations come to an end. A contract may be
discharged in four ways: by performance, by agreement, by breach and under the
doctrine of frustration.

1. DISCHARGE BY PERFORMANCE.

The general rule is that performance must be carried out strictly and precisely in
accordance with the terms of the contract. The effect of the general rule is that where
a contract provides for payment by one party after performance by the other, no
action for payment may be maintained until performance is complete.

When the parties to a contract fulfil the obligations arising under the contract within
the time and manner prescribed, then the contract is discharged by performance.

Example: A agrees to sell his car to B for an amount of Ug. Shs. 10,000,000/= to be paid by
A on the delivery of the car. As soon as it is delivered, A pays the promised amount.

Since both the parties to the contract fulfil their obligation arising under the contract,
then it is discharged by performance.

This rule may produce harsh and unjust consequences as happened in Cutter v
Powell. In this case the plaintiff sued as administrator of her husband‟s estate. The
defendant had agreed to pay Cutter, the deceased, some money provided that he
moved a ship up to its destination. The voyage began on August 2 and Cutter died
on 20 September when the ship was left with 19 days to its destination. It was held
that according to the express terms of the contract, the money was payable only
upon completion of the whole contract.

The Sale of Goods and Supply of Services Act, 2017 recognizes this rule of strict
performance. It provides in S. 37 that where the seller delivers to the buyer a
quantity of goods less that he contracted to sell, the buyer may reject them.

Because of the harshness of the rule, over the years the courts and the legislature
developed some mitigating factors by way of exceptions.

• Substantial performance
The doctrine of substantial performance arises where a person performs his or
her side of the bargain but there are minor defects in the performance of the
contract, under the substantial performance rule, the company would be paid
for the substantial work done on the project.

Hoening V Isaacs (1952)2 ALL ER 176, there was a contract by the plaintiff to
decorate and furnish the defendant’s flat for 750 pounds. The defendant alleged that
the workmanship was poor and defective but paid 400 pounds. The plaintiff sued for
the balance. The court found that there were defects in the work but these could be
cured for 55 pounds. The Court awarded the plaintiff the full amount of the contract
less the cost of putting right the defects plus the amount already paid.

• Partial performance
This arises where a person only partially performs his or her side of the contract but
the other party rather than reject the work, decides to accept what has actually been
done. In such a case if the promise accepts the partial work done, he or she will be
obliged to pay for the work on a quantum meruit basis. The Latin principle of
quantum meruit means as much as deserved or what one has earned. It basically
means payment for the actual or reasonable services rendered
 • Divisible Contracts
The general rule that performance must be precise and exact does not apply to
divisible contracts. A divisible contract is a contract in which partial performance
attracts an obligation to provide payment of part of the consideration. For
example X agrees to supply 100 tonnes of maize to Y in ten installments of 10
tonnes each. X delivers only two installments but becomes broke. Under the
notion of divisible contract, Y will be obliged to pay X the moneys owed under
the contract, that is for the two installments.

2. DISCHARGE BY AGREEMENT

The general rule is that whatever is commenced by an agreement can be ended by an

agreement. Thus a contract can be discharged by the fresh agreement between the
same parties. A contract may be terminated by agreement in any of the following
ways:

A) Novation:
Novation of contract means replacement of an existing contract by another contract.
In novation the parties may change. If the parties are not changed then the material
terms of the contract must be altered in the new contract because a mere variation of
some of the terms of a contract is not novation but alteration.

Example:
A is indebted to B and B to C. By mutual agreement B’s debt to C and B’s loan to A
are cancelled and G accepts A as his debtor. There is novation involving change of
parties.

B) Alteration:
Alteration of a contract takes place when one or more of the terms of the contract are
changed. If a material alteration in a written contract is made with the consent of all
the parties, the original contract is discharged by alteration and a new contract takes
its place. An alteration may be a change in the amount of money, the rate of interest,
or the names of the parties. Alteration results in the discharge of the original
contract.

The difference between “novation and “alteration” is that in case of novation there
may be a change of parties but in case of alteration parties remain the same and only
the terms of the contract are changed.

Example:
A agrees to supply B. 100 bags of beans at Ug. Shs. 100,000/- per bag within 2
months from date of the contract. Later on, A and B alter the agreement in the
following way: A agrees to supply 80 bags of beans at Ug. Shs 120,000/= within 3
months instead of two. The latter agreement puts an end to the former.

C) Rescission:
Means cancellation of contract by mutual consent. A contract may be cancelled ‘by
agreement between the parties at any time before it is discharged by performance.
The cancellation of agreement releases the parties form their obligation arising out of
the contract.

Example:
A promises to deliver 100 bags of beans to B within two months. Before the date of
performance, A and B mutually agree that the contract will not be performed. The
parties have cancelled the contract.

3. Discharge by Breach.
Where one of the parties fails to perform their side of the contract the innocent party
may be able to terminate the contract and commence proceedings for damages (or
other appropriate remedy).

Type of term breached.

The type of term breached can result in a presumption that the contract has been
breached and thus releases both parties from their obligations. Therefore, one of the
key parts of a question relating to breach of contract is to identify whether the term
breached can be classed as one of these:

1. Conditions
2. Warranties
3. Innominate terms

Conditions.

A condition is a term which is central to the contract. If a condition is breached, the

innocent party has a choice to do one of two things:

1. Affirm the breach of contract, and continue to be party to the contract

2. Terminate the contract, which releases both parties from all of the obligations
under the contract

In the case of Kampala General Agency Ltd Vs Mody’s (EA) Ltd [1963] EA 549, it
was stated that

“A condition of a contract of sale is an obligation, the performance of which is essential to the

contract that if it is not performed the other party may fairly consider that there has been a
substantial failure to perform the contract….”;

Warranties.

A warranty is a term which is not central to the contract. Therefore, a breach of a

warranty will not result in an option to terminate the contract. A breach of warranty
can be adequately compensated for with damages.

Innominate terms
An innominate term is somewhere between a condition and a warranty. If the breach
is more serious, it is likely the innocent party will be given the option to repudiate
the contract. If the breach is less serious, the only available remedy will be damages.

4. DISCHARGE BY FRUSTRATION.

Discharge of a contract by frustration

Performance can be excused under S.66 of the Act which provides that where a
contact becomes impossible to perform or is frustrated and where a party cannot
show that the other party assumed the risk of impossibility, the parties to the
contract shall be discharged from further performance of the contract.

As already noted, the general rule is that there must be strict performance of
obligations in the contract. However there are instances where a party may find it
impossible to carry out his obligations. There may be initial impossibility to perform
the contract for example due to disappearance or destruction of the subject matter
which arises in cases of common mistake. But where the impossibility arises
subsequent to the contract, then this is called frustration.

The basic common law rule was that where performance had become unexpectedly
onerous or even impossible due to the occurrence of a subsequent event, the party
whose performance is affected could not be discharged. In Paradine v Jane, court
held that if a party wishes to protect himself from the effect of subsequent
difficulties, he should expressly state so in the contract. However in the 19th and
20th centuries, a lenient approach was developed by the court.

In Taylor v Caldwell, the defendant agreed to hire a musical hall to the plaintiff.
After the contract was made but before the day of the first concert, a fire broke out
completely destroying the musical hall. By this time, the plaintiffs had made
extensive arrangements in relation to the productions they intended to perform.
Because of loss of the music hall, their concerts had to be cancelled. This resulted
into substantial financial losses to the plaintiffs. The contract contained no express
provision covering this eventuality. Consequently the plaintiff sued for non-
performance of the contract in order to recover their losses. The defendants argued
that they were not liable since the music hall had been destroyed through no fault of
their own. The court upheld the defendants‟ defence

The doctrine of frustration discharges both parties from their contractual obligations
where following the formation of the contract, performance of the contractual
obligations become either:

a) Impossible; or
b) Radically different.

Effect on the contract.

In the case Hirji Mulji vs. Cheong Yue Steamship Co Ltd [1926] AC 497 confirms the
effect of frustration is that it brings the contract to an immediate end, whether or not
the parties wish this to be the result. In other words, it is void, not voidable (as is the
case for repudiatory breaches).

The case which established the doctrine of frustration was Taylor vs. Caldwell (1863) 3
B & S 826.An important quality of frustration is that it must be based on an
assumption made by both parties.

The test for frustration.

There are three main elements when assessing whether frustration applies to a
contract:

1. Has the contract allocated the risk of the particular event occurring?
2. Has there been a radical change in obligations?
3. Was the radical change due to the fault of one of the parties?

The frustrating events.

 1. Non-occurrence of contractual event
2. Destruction of subject matter
3. Illegality
4. Alteration of manner of performance or impossibility by one party
5. Outbreak of war
6. Delay or interruption

Destruction of subject matter

Similar to the non-occurrence of an event, a contract may be formed with a particular

subject matter in mind. This section covers what will happen where the subject
matter is destroyed - Taylor v Caldwell (1863). Generally speaking, where the subject
matter of a contract has been destroyed due to no fault of either party, the contract
will be frustrated. See Appleby v Myers (1867) LR 2 CP 65.

In these cases, the parties have both made an assumption that the subject matter will
exist at the time of the contract. You ensure that this is the case, and that the
destroyed thing is the actual subject matter of the contract.

Death or incapacity
A contract for personal services will be frustrated on the death of either party. The
same principle applies where either party is permanently incapacitated from
performing the contract. In Condor v Barron Knights, a 17-year-old drummer
collapsed and was admitted to a psychiatric hospital. Medical opinion was that he
would only be fit to work four nights a week. The band had engagements for seven
nights a week and so the defendants decided to dismiss the drummer. The court
held it was, in a business sense, impossible for the drummer to perform the contract
and for that reason the contract was discharged for frustration.

Act of God
Ryde v Bushell and Harvey, the Plaintiff leased his farm to the defendants and one
of the terms of the contract was that certain acreage of coffee was to be planted.
However, because of the heavy rains, they could not complete their obligations. The
plaintiff brought an action for breach of contract. Court rejected the plea of act of
God advanced by the Defendants.

Newbold P stated:
But before the plea can succeed, it must be established that it was an Act of God which
prevented performance or which destroyed the results of performance. Nothing can be said to
be an Act of God unless it is an occurrence due exclusively to natural causes of so
extraordinary a nature that it could not reasonably have been foreseen and the results of
which occurrence could not have been avoided by any action which would reasonably have
been taken by the person who seeks to avoid liability.

Non-occurrence of an event central to the contract

A situation may arise where although it is physically possible to carry out the
contract, non-occurrence of the event renders the object of that contract defeated.
In Krell v Henry, the Plaintiff let a flat to the defendant for 26th and 27th June 1902.
The defendant intended to use the flat in order to watch and celebrate the coronation
procession of King Edward VII. A payment of one third of the rent was made. Due
the sudden illness of the King, the Coronation procession was cancelled. The
defendant refused to pay the balance of the rent owing. Court held that the Plaintiff
could never recover the money since the contract had been frustrated by the
cancellation of the procession; that without the procession, the foundation of the
contract had disappeared.

Government intervention
Where a party is prevented from carrying out his obligation because of government
laws or policies, the contract may be frustrated.
Denny, Mott and Dickinson Ltd v James B Fraser and Co Ltd, Lord Macmillan
stated: it is plain that a contract to do what has become illegal to do cannot be legally
enforceable.
Consequently, where X a Ugandan contracts to sell goods to Y a Kenyan, but
subsequently the Kenyan government bars the importation of goods of any kind
from Uganda, such a contract would be discharged.

Where the contract becomes illegal.

Illegality refers to where the parties form a contract, and subsequently, before or
during performance, the contract becomes illegal to perform. The general rule is that
this will frustrate the contract if the effect on the contract is serious enough. If the
effect is minimal and only partial, the doctrine of frustration will not apply.

It is important to remember that the rules of illegality, will apply where the contract
is illegal at the time of formation. Frustration here only applies where the contract
becomes illegal following its formation.

The most common example of illegality is where legislation is enacted which renders
the contract illegal (Denny, Mott and Dickson v James B. Fraser & Co Ltd [1944] AC
265).

In some cases, the illegality of the contract is temporary. If the length of time is short
enough, the contract may not be frustrated and the parties will simply have to wait
out the period of time before continuing the contractual obligations. The courts
which consider the length of time the contract will operate for, combined with the
length of time of the illegality - National Carriers Ltd v Panalpina (Northern) Ltd [1981]
AC 675.

Outbreak of war

Where both parties have assumed performance will be done in a specific way which
is rendered impossible by the outbreak of war, this may amount to frustration -
Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93.

A contract will not be frustrated where:

1. It is more difficult or expensive to perform

 2. Impossibility of performance is the fault of either of the parties
3. Where there is a force majeure clause
4. Where the frustrating event could be foreseen.

THE LEGAL EFFECTS OF FRUSTRATION

At common law a contract is terminated at the time of the frustrating event. From
the date of that event, the parties are released from all future contractual obligations.
Thus obligations which accrue before the event are not discharged by frustration and
must be honoured.

In Chandler v Webster, the defendant agreed to let a room to the plaintiff for the
purpose of viewing the coronation procession. The cost of the hire was payable
immediately but in fact the plaintiff only paid £100 in advance. Before he had paid
the balance, the procession was cancelled and the contract was as a result frustrated.
It was held that the plaintiff had no right to recover the £100 but he was also liable to
pay the balance since the obligation to pay this had already accrued prior to the
supervening event. The plaintiff‟s counsel argued that he was entitled to recover the
£100 since there was a total failure of consideration. Court rejected the argument and
held that the effect of frustration was not to discharge the contract ab initio but only
from the time of the supervening event and that there was no total failure of
consideration.

This decision could clearly produce extremely harsh consequences. The decision was
overruled by the House of Lords in Fibrosa Spolka Akeyjna v Fairbairn Lawson
Combe Barbour Ltd. The appellants ordered some machinery from the respondents
for delivery to their factory in Poland paying £1000 in advance by virtue of the terms
of the contract. In 1939, Germany invaded Poland and the contract was frustrated.
The London agent for the appellants asked for the return of their £1000 but the
respondent refused on the basis that a substantial amount of time and money had
been spent on the order.
Had the court relied on Chandler’s case, the £1000 would have been irrecoverable.
The House of Lords allowed the claim holding that there had been a total failure of
consideration thus overruling the Chandler case. The court observed that the
appellants had not received anything that they had bargained for under the contract
and could thus recover the money they had paid.

Though the Fibrosa case diminished the injustice of the Chandler case, it did not
eliminate every hardship. Fibrosa does not apply where there is a partial failure of
consideration. As Viscount Simon LC noted
“………………English common law does not undertake to a position a prepaid sum; in such
circumstances it must be for the legislature to decide whether provision should be made for an
equitable apportionment of prepaid monies which have to be returned by the recipient in view
of the frustration of the contract in respect of which they were paid.

Indeed to clarify the law, the Contract Act 2010 re-enacting the provisions of the Law
Reform (Frustrated Contracts) Act of England improved on the Fibrosa case by
allowing a party to recover money prepaid even though at the date of frustration
there had been no total failure of consideration.

Recovery of money paid

The Contract Act provides that any sum paid or payable to a party under a contract
before the time the parties are discharged above, shall in the case of a sum paid be
recoverable from the party as money received by that party for his or her use and in
the case of any sum payable cease to be payable (S.66 (2)).

Where a party to whom any sum was paid or was payable incurred expenses before
the time of discharged in or for the purpose of performance of the contract, the court
may where it considers just to do so having regard to all circumstances of the case,
allow the party to retain or, as the case may be, recover the whole or any part of the
sums paid or payable which shall not exceed the expenses incurred (S.66 (3).

Self-induced frustration.
The basis of frustration lies on the fact that it amounts to a supervening event that is
beyond the control of the parties to the contract. It therefore follows that if the event
arises out the actions of a party to the contract, then frustration cannot be pleaded.

REMEDIES FOR BREACH OF CONTRACT

When a Contract is breached, the aggrieved party (the party who is not in breach)
has one or more of the following remedies –

1. Rescission of the Contract

2. Suit for Damages
3. Suit upon Quantum Meruit (Partial but substantial performance)
4. Suit for Specific Performance.
5. Suit for Injunction.

1) RESCISSION -

Rescission is a remedy which sets the contract aside and puts the parties back in the
position they were in before the contract was made. Where there is a breach of
contract the aggrieved party may choose to treat the contract as rescinded and refuse
further performance. In such case, him and the other party are absolved of all their
obligations under the contract. (Refer to section 53(1) of the Contracts Act).

Where a party who rescinds avoidable contract received any benefit from it, they
shall restore the benefit to person from whom it is received. (Refer to section 53(2) of
the Contracts Act).

In Joseph Muluuta v. Katama Silvano, SCCA No. 11 of 1999, court stated that if a
party receives consideration and does not receive anything in return, then he is
entitled to a refund of the money
Example - A agrees to buy 200 bags of beans to B to supply 5 bags of sugar on a
certain Day. B agrees to pay the price after the receipt of the goods. A does not
supply the goods. B is discharged from liability to pay the price.

The principles governing rescission were articulated in Buckland Vs Farmer &

Moody (19780 3 ALLER 929 at 938. Halsbury’s laws of England, Vol. 9 (1). Re-issue,
paragraph 989 cited in Sihira Singh Santoh Vs Falulu Uganda Ltd HCCs No. 517 of
2004 as follows:

“where one party (A) to a contract has committed a serious breach of contract by defective
performance or by repudiating his obligation under the contract, the innocent party (B) will
have a right to rescind the contract de futuro, that is, to sue for damages for any loss he must
have suffered as a result of breach. Such a breach by A does not automatically terminate
the contract. B has a right to elect to treat the contract as continuing or to terminate the
contract by rescission. In case where it is alleged that B has a right to rescind for breach, it
must be determined (1) whether there has been a breach by A of the term of the contract or a
mere representation: (2) Whether the breach is sufficiently serious to justify rescission de
futoro of the contract by B as well as claim for damages, and (3) Whether B has instead
elected to affirm the contract”

The Court may also refuse to rescind the Contract -

a) Where the plaintiff has expressed or impliedly ratified the contract;

b) Where owing to the change of circumstances (not being due to any act of the
dependent himself), the parties cannot be restored to their original position; or
c) Where third parties have, during the subsistence of the contract, acquired
rights in good faith and for value; or Where only part of the contract is sought
to be rescinded and such part is not a severable from the rest of the contract.

2) CLAIM FOR DAMAGES

Damage means injury and damages means monetary compensation for the loss
suffered by the aggrieved party in a breach of contract. The object of awarding
damages for the breach of a contract is to put the injured party in the same financial
position as if the contract had been performed. For example - in the position in
which he would have been had there been performance and not breach. (Refer to
section 61 of the Contracts Act)

Damages are the direct probable consequence off the act complained of. Refer to
section 61(2) of the Contracts Act and the case of Assist (U) Ltd. versus Italian Asphalt
and Haulage & Anor, HCCS No. 1291 of 1999 at 35 where it was held that;

‘the consequences could be loss of profit, physical, inconvenience, mental distress,

pain and suffering’.

In Kampala District Land Board & George Mitala Vs Venansio Babweyana, Civil
Appeal No. 2 of 2007 is well settled law on award of damages by a trial court. It was
held that damages are the direct probable consequences of the act complained of.
Such consequences may be loss of use, loss of profit, physical inconvenience, mental
distress, pain and suffering

Types of Damages –
Damages may be classified under the following heads namely -

General Damages.
It is also known as General damages or substantial damages. Ordinary damages are
damages which actually arise in the usual course of things from the breach of a
contract. General damages are those which will be presumed natural or probable
consequence of the wrong complained of Ordinary damages depend "on the
knowledge which the parties are presumed to possess".

Special Damages.
Special damages are awarded to the plaintiff in special circumstances for sustaining
loss as a breach of the contract. Special damages may be successfully claimed only
when they "may reasonably be supposed to have been in the contemplation of both
parties, at the time they made the contract, as the probable result of the breach of it."
Nominal Damages,
Nominal damages simply mean, ‘very small’. Where the injured party has not
suffered any loss by reason of the breach of contract, the court may award very
nominal sum as damages. See Njareketa Vs. Director of Medical services. (1950) EA 60.

Exemplary Damages.
Exemplary damages are also known as punitive or vindicated damages.

In the case of El Termewy vs. Awdi & 3 Ors (High Court Civil Suit No. 95 OF 2012),
court held that punitive or exemplary damages are an exception to the rule that
damages generally are to compensate the injured person. These are awardable to
punish, deter, express outrage of court at the defendant’s egregious, highhanded,
malicious, vindictive, oppressive and/or malicious conduct. They are also
awardable for the improper interference by public officials with the rights of
ordinary subjects.

Unlike general and aggravated damages, punitive damages focus on the defendant’s
misconduct and not the injury or loss suffered by the plaintiff. They are in the
nature of a fine to appease the victim and discourage revenge and to warn society
that similar conduct will always be an affront to society and also the court’s sense
of decency. They may also be awarded to prevent unjust enrichment. They are
awardable with restraint and in exceptional cases, because punishment, ought, as
much as possible, to be confined to criminal law and not the civil law of tort and
contract.

In the case of El Termewy v Awdi & 3 Ors (High Court Civil Suit No. 95 OF 2012)
[2015]. The plaintiff instituted this suit against the defendants jointly and severally
seeking to recover special damages, general damages, aggravated damages, punitive
damages, interest and costs of the suit for breach of his service contract. Court
awarded;
1. Special damages to a tune of Ug.Shs. 2,999,000= and USD 2,666.
 2. General damages to a tune of Ug. Shs. 20,000,000=
3. Punitive damages to a tune of Ug. Shs. 20,000,000

In the case of Obongo Vs. Municipal council of Kisumu [1971] EA 91, court held
that;
“It is well established that when damages are at large and a court is making a general award,
it may take into account factors such as malice or arrogance on the part of the
defendant and this is regarded as increasing the injury suffered by the plaintiff, as,
for example, by causing him humiliation or distress. Damages enhanced on account of
such aggravation are regarded as still being essentially compensatory in nature. On the other
hand, exemplary damages are completely outside the field of compensation and although the
benefit goes to the person who was wronged, their object is entirely punitive”.

Liquidated Damages.
If the amount of damages, in the event of the breach is determined by parties at the
time of entering into the contract, they are called "liquidated damages" for example
non-payment, against promissory note.

Liquidated damages represent a sum, fixed or ascertained by the parties in the

contract, which is a fair and genuine pre-estimate of the probable loss that might
ensue as a result of the breach. A penalty is a sum named in the contract at the time
of its formation, which is disproportionate to the damages likely to accrue as a result
of the breach. (Refer to section 61 of the Contracts Act)

Uganda Baati vs. Patrick Kalema High Court, Commercial Division, Civil Suit
Number 126 of 2010 and adopting the definition in Stroud’s Judicial Dictionary
that: “liquidated demand” inter alia means and includes, the amount on a bill of exchange,
definite interest on a contract or under a statute, a sum certain in money and a statutory
demand for the payment of a total debt”.
In Transtel Ltd & Diamond Stars Ltd V. Mahi Computers & Appliances Ltd
Property Services (U) Ltd Commercial Divisisom Civil Suit No 397 Of 2015 while
quoting Halsbury's laws of England fourth edition reissue volume 12 (1)
paragraph 1065 at page 486 stated that:

"The parties to a contract may agree at the time of contracting that, in the
event of a breach, the party in default shall pay a stipulated sum of money to
the other. If this sum is a genuine pre-estimate of the loss which is likely to
flow from the breach, then it represents the agreed damages, called liquidated
damages, and it is recoverable without the necessity of proving the actual loss
suffered."

3) SUIT UPON QUANTUM MERUIT.

The phrase 'Quantum Meruit' means "as much as earned". A right to sue on a
quantum meruit arise where a contract partly performed by one party, has become
discharged by the breach of the contract by the other party. The right is founded on
an implied promise by the other party arising from the acceptance of a benefit by
that party.

4) SPECIFIC PERFORMANCE

Specific performance means that when one of the parties had breach the contract, the
another parties can request the court related to force the parties that had breach the
contract to perform the term and condition that is stated in the contract. (Refer to
section 64(1) of the Contracts Act).

The courts grant the relief of specific performance in the following situations-
(Refer to section 64(2) of the Contracts Act and Ewadra Emmanuel V. Spencon Services
Limited Civil Suit No. 0022 of 2015)
1. If the compensation to be awarded cannot be determined. Remedy of specific
performance is awarded in cases where it is impossible to fix compensation.
In this case, the court directs the defendant to perform his promise as
agreement as agreed at the time of making the contract.
 2. Remedy of specific performance is awarded when there is no substitute or
alternate for the subject matter of the contract.
3. Remedy of specific performance is awarded in case of goods, the value of
which cannot be easily ascertained and the goods have a unique character.
For example, buildings, land or goods having special value for the claimant.
4. Remedy of specific performance is awarded at the sole discretion of the
court.
5. The claimant must have come to court with clean hands.
6. The claimant must have brought the suit without unnecessary delay.

5) INJUNCTION.
In this option, injunction can be said as a remedy that is equitable that the court
requires the party to do something or the other way, to stop him or her from doing
something.

Types of injunctions.
There are three types of injunction which is
a) Permanent injunction.
b) interlocutory injunction,

c) mandatory injunction and also prohibitory injunction.

Permanent injunction is granted by court after the determination of the main suit
and last for as long as the contractual relationship exists.

Temporary/ Interlocutory injunction.

The meaning of interlocutory injunction can be say as to maintain the status quo of
something in a pending suit. In the other word, interlocutory injunction means to
stop the action from being done. Interlocutory injunction is applied in before the
starting of something or stops something for being continued.
For example, when there is a contract for tenancy. The land lord threatens to e4vict
the tenant. The tenant will file a suit for breach of contract and seeks interlocutory
injunction to restrain the landlord from evicting him until when his suit is heard.

Mandatory injunction.

With mandatory injunction, the court enforces something or some action to be done.
In other word, when one of the parties refuse to do the promises that had stated in
the contract, the other parties can request the court to apply the mandatory
injunction on the parties to finish the action.

Injunction an equitable remedy.

Like specific performance, an injunction is an equitable remedy and therefore only
granted at the discretion of the court where;

1. where damages would not be inadequate remedy to compensate the claimant

because the claimant needs to restrain the defendant from starting or
continuing breach of a negative contractual undertaking or needs to compel
performance of a positive contractual obligation (mandatory injunction).
2. The balance of convenience must be in favour of the claimant.
3. The claimant must have come to court with clean hands.
The claimant must have brought the suit without unnecessary

REFERENCES/FURTHER READING
➢ The Constitution of the Republic of Uganda, 1995.
➢ The Judicature Act Cap. 13, Laws of Uganda.
➢ The Contracts Act, No. 7 of 2010
➢ Evidence Act, Cap 6
➢ Illiterates Protection Act Cap 78
➢ Sale of Goods and Supply of Services Act, 2017