UGANDA CHRISTIAN UNIVERSITY

SCHOOL OF LAW

LAW OF CONTRACT NOTES

LLB I
(SEMESTER ONE)

Prepared by
Philip Tendo Kasule (0754818486)

What is a 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.”

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TYPES OF CONTRACTS.

Contracts can be categorized into Valid, Void, Voidable, Illegal and

Unenforceable Contracts.

1. Simple contracts
This contract need not be in any form. It may be in writing or agreed orally, or
even be implied from the conduct of the parties.

2. Specialty contracts
These are contracts under seal. They must be executed in a prescribed form.
They include gratuitous promises, conveyances of leases and land etc. Usually
such contract is in writing and must be properly signed if they are to be
enforceable. Other contracts that must be supported by written evidence
include contracts of guarantee (special promise to answer for the debt)
Contracts of employment for 6 months or more, hire purchase contracts /
agreements and money lending contracts.

Contracts can also be classified in terms of their validity as valid contract, void
and voidable.

3. A valid contract is an agreement, which is binding and enforceable.

These are contracts which are enforceable in a court of law. To attain
validity, the contract should have all the elements of the contract.

4. Voidable contract
Voidable means valid, until avoided. When a contract is voidable the law will
allow one of the parties to withdraw from it if he wishes. Voidable contracts
include some agreements made by minors and contracts induced by
misrepresentation, duress, or undue influence. A voidable contract remains valid
unless and until the innocent party chooses to terminate it. 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.

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 5. Void contracts
These are not contracts at all. 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, If a contract is
void, then it is of no legal effect. Void contracts include those, which are
prohibited by the law or are against public policy.

6. Illegal Contracts.
These are contracts that involve a criminal element. 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. They cannot be enforced in a court of law e.g. contracts
to commit a crime.

7. Bilateral contract
This is a contract that creates binding obligations on both parties to the
contract.

8. Unilateral contract
This is a contract that creates binding obligations on one of the parties only e.g.
promising a reward to whoever finds your lost item. Nobody is under obligation
to look for the item but if the item is found there is a obligation to give the
promised reward.

9. Unenforceable contracts, e.g. contracts which is frustrated 'by

impossibility. Such contract is brought to an end.

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 FORMATION OF A CONTRACT

As an old maxim has it “all contracts are agreements but not all agreements are
contracts”. The rules of contract law determine whether or not an agreement is
legally enforceable.

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. When the
parties‟ minds divert then there is no contract.
A party to a contract is said to be in breach if he or she has failed to fulfill the
terms of the contract.
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, for a 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.
1. Capacity to contract;
2. Intention to contract;
3. Consensus ad idem;
4. Legality of purpose
5. 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.

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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

1. 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 offeror 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 offeror
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.
An offer is an expression of readiness to contract on terms specified by the offer
which if accepted by the offeree will give rise to binding contract.
Generally, the offeror (i.e., the person who makes the offer) makes the offer to
the offeree (i.e. the person to whom the offer is made).

Types of offer
1. Counter offer
This is a reply to an offer whose effect is to vary the terms of the original offer. It is
in fact an offer in itself, which operates as a rejection of the original offer.

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 2. Cross offer
Where A offers his property to B and B, without knowing about A‟s offer also
offers to buy the same property from A, each of these offers is a cross offer of
the other and therefore no contract can result from them alone. A must
specifically accept B‟s offer or B that of A if a valid contract is to be made.

A writes to B offering to sell certain property at a stated price, B writes to A

offering to buy the same property at the same price. The letters cross in the post.
Is there (a) an offer and acceptance, (b) a contract? This problem was
discussed, obiter, by the Court in Tinn v Hoffman (1873) 29 LT 271. Five judges
said that cross-offers do not make a binding contract. One judge said they do.

3. Conditional offer
This is an offer which is made subject to a condition e.g. to be accepted within
specific time.
An offer may be made subject to conditions. Such a condition may be stated
expressly by the offeror or implied by the courts from the circumstances. If the
condition is not satisfied the offer is not capable of being accepted.
In Financings Ltd v Stimson [1962] 3 All ER 386 where the defendant signed an
“offer to buy” a car on hire-purchase from a finance company. The document
had been given to him by the car dealer. The document had a clause which
said that the agreement would not be binding until it had been accepted by
the finance company. D paid the first instalment, insured the car and took it
away. Being unhappy with its performance, he returned the car to the dealer
and cancelled his insurance. The car was stolen from the dealers and
damaged.

Not knowing of this the finance company then accepted the written offer which
had been sent to them. D refused to pay the charges and the Co sued him for
breach of the hire purchase agreement.

HELD

D's offer was subject to an implied condition that the car should continue in its
undamaged state and that on the failure of that condition, the offer lapsed.

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Rules governing offer/Characteristics of a Valid Offer
The offer takes effect once communicated to the offeree. See S.3 of the
Contract Act. To be effective, an offer must be communicated by the offeror to
the offeree. The logic is simple, the offeree 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.

1. An offer may be made orally, in writing, or by conduct.

Contract can be made orally can be an express spoken statement or be made
in writing or implied i.e. People‟s actions in certain circumstances can be
classed as an offer.

2. The offer must be firm and final.

The offeror must not merely be initiating negotiation from which an agreement
may or may not result. He must be prepared to implement his / her promise if
such is the wish of the other party. An offer must be conclusive in nature and
must leave no room for further negotiations.

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 3. An offer can be made to an individual, a group of persons or the public at
large.
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 defendant company summarily argued that: -

It was not possible to make an offer to the whole world, or to the public at large.
That the advertisement was just a mere puff and there was no intention to
create legal relations.

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Held
i) The defendants act of depositing 1000 pounds with their
bank was to show their seriousness in the matter and as
such the advert could not be referred to as a mere puff
but is was an offer intended to be acted upon and as
such creating binding obligations on the defendant.

ii) The defendant could not deny liability because this was
a general offer. An offer can be made to the whole
world and accepted by anyone who comes forward
and performs the conditions even without prior
notification of acceptance.

4. An offer must be communicated to the offeree

An offer becomes effective when it is communicated to the offeree e.g. If B
found A‟s lost dog and not having seen the advertisement by A offering a
reward for its return, returns it out of goodness of heart, B will not be able to
claim the reward. This principle was illustrated in the case of Fitch v Snadakar; a
two hundred US Dollars reward was offered for the arrest of a criminal. The
plaintiff who was not aware of the reward apprehended the criminal and later
claimed the reward.
Court held that the claim must fail as he was not aware of the offer when he
arrested the criminal.

5. The offer must be lawful.

A person cannot offer to perform something illegal e.g., murder someone.

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.

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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.
An invitation to treat can further be defined as an invitation to make an offer.
The distinction is important in that if a firm offer is accepted, this will result in a
contract, provided the other essential elements of a contract are satisfied. But
the „acceptance‟ of an invitation to treat will not create a contract. It is an
invitation to make an offer which the person making the invitation to treat may
accept or reject. The best examples of invitations to treat include the following;

The following are examples of invitations to treat:

Ordinary advertisements on radio, television and newspapers

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. It was further held that he
could not be found guilty of offering the bird for sale as the advert amounted to
an invitation to treat not an offer.

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.

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Display of goods in a supermarket with price tags
In Pharmaceutical society of Great Britain V Boots Chemists (1953). The
defendant had a self-service store in which certain listed drugs were displayed
on the shelves. It was an offense to sell such drugs unless the sale was done
under supervision of a registered pharmacists. A customer selected some of the
drugs from the shelves. The defendants had placed the pharmacists at the cash
desk near the exit but not near the shelves. The defendants were charged with
an offence of selling such drugs without the supervision of a registered
pharmacist. The issue before the court was, if the sale took place when the
customer picked the drugs from the shelves, the defendants would be liable but
if the sale took place at the cash desk where the registered pharmacist was
stationed, then the defendants would not be liable.
Court therefore, had to determine where the sale took place. Court held that
the defendants were not liable because the display of goods on the shelves was
merely an invitation to treat and not an offer. It should be noted that
declaration of intention and mere statement of information doesn‟t constitute
an offer. 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
This position is further illustrated in Harris Vs Nickerson [1873]
An auctioneer advertised that there would be a sale of office furniture. The
plaintiff a prospective buyer traveled to London to attend to sale but all the
furniture was withdrawn. He sued for loss of time and traveling expenses. It was
held that the auctioneer was not bound to sell the furniture as he was merely
stating his intentions to sell and not making an offer which by acceptance
wound be transformed into a contract. The advertisement for bids in an action is
mere invitation to treat. The sale is complete when the hammer falls and until
that time the bid may be withdrawn.

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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.

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
offeree. The logic is simple, the offeree 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.

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TERMINATION OF AN OFFER
There are various ways through which an offer is terminated;

An offer may be terminated in the following ways;

1. 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.
An offer cannot remain open for acceptance longer than the time if any,
prescribed in the offer or if no time is indicated, it will terminate after a
reasonable time. What amounts to a reasonable time depends on the nature
of the contract and circumstances of each case for example in the case of
Ramsgate Victoria Hotel Company –Vs-Montefiore (1866).

M applied for the purchase of shares in the Plaintiff Company on June 8 th. His
offer was not accepted until Nov. 23rd. When he received a letter of allotment,
he refused to take the shared as by that time the price of the shares had fallen.
It was held that M was entitled to refuse as his offer had lapsed because of the
plaintiff‟s delay in accepting the offer.

2. Revocation
An offer may be revoked or withdrawn by the person who made it at any time
before it has been accepted.

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 offeror/acceptor
respectively intended to communicate the revocation or having the effect of
doing so.

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Section 4 (3) provides that on the part of the offeror, 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 dealer‟s 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 24h 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 20h 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 withdrew 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 offeror has received the letter. It doesn't matter
whether he has read the letter or not so long as he has received it.

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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 8th 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.

3. Death or insanity of the one of the parties.

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 offeror to the offer thereafter.
If the contract envisaged or contemplated by the offer involves personal
relationship e/g an offer to act as an agent, then death or insanity of the offeror
prevents acceptance Death after acceptance normally has no effect on the
contract for example if X sells his car to Y and before the Car is delivered, X dies,
it is possible for Y to sue the legal representatives of X for breach of contract if
they refuse to deliver the car.

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 4. Counter offer
Counter offer is 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 Sell his farm at 1000 pounds, the Plaintiff‟s 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 950 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.

5. Rejection
An offer may also be terminated when the offeree rejects it. Another 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.

6. Failure of a condition subject to which an offer was made)

Ellason Vs Henshaw (1819); the plaintiff offered to buy flour from the defendant
requesting the reply to be sent with the Wagon driver who communicated the
offer. The defendant communicated the acceptance by post office. The driver
reached before the letter was received. Court held that there was no contract
between the two parties. Read Routledge V Grant.

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 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.

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 2. 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.

a. 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.
b. 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.

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The common type 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 rumor 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 no longer 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.

Acceptance must be communicated by the offeree or by someone with his

authority.
This principle was stated in the case of Powell v Lee (1908); where the plaintiff
applied for the post of headmaster of a school, which was run by the
defendants who were the managers of the school. He was called for an
interview and the managers passed a resolution appointing him, but they did

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not make any arrangements for notifying him. However, one of them without
authority informed the plaintiff that he had been appointed. The managers
subsequently re-opened the matter and appointed another candidate. Plaintiff
sued for breach of contract.

The issue before court was whether acceptance was validly communicated to
the plaintiff. Court held that his action for breach of contract should fail because
the defendants had not properly communicated acceptance to him since the
person who communicated had no authority to do so.

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.

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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.

In Entorès 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 Defendants
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.

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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.

3. 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.

Section 1 of the Contract Act defines ‘consideration’ to mean 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;

Consideration is the price I pay to buy your promise. So, briefly, consideration is
something, which is of value to you, which I give you to buy your promise. If you
make me a promise but I do not give you consideration, your promise is
gratuitous. Generally, the Law does not impose a contractual obligation on a
person who makes a gratuitous promise.

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In the case of Currie v. Misa (1875) where Lush J. said:

“A valuable consideration, in the sense of the law, may consist

either in some right, interest, profit or benefit accruing to the
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 à 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.
Consideration is executed when the promisee does an act in return for the
promisor's promise.

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.
Consideration is said to be executory where there is an exchange of promises to
perform acts in the future

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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 to the promisor.
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. On arrival, B
promises to give A Ug. Shs. 200,000/= towards the fuel. A cannot enforce this
promise as his consideration, 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.

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Exception to the past consideration rule
If the promisor requested the promisee to carry out the act constituting the past
consideration.

In Lampleigh v. Brathwait (1615),

Brathwait had killed a man and asked Lampleigh to meet the King and get him
a pardon. Lampleigh met the King and obtained the pardon. Brathwait
promised Lampleigh that he will pay Lampleigh £100 for his services. But as
Brathwait did not honour this promise Lampleigh sued him. The court held that
Brathwait's prior request to Lampleigh contained an implied promise to pay him
a reasonable sum for his services, and that the subsequent mention of the £100
was merely fixing the sum. The court treated the prior request and the
subsequent promise as part of the same transaction.

Consideration must be sufficient but need not be adequate.

Provided consideration has some value, the courts will not investigate its
adequacy. Where consideration is recognized 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 realizes 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.

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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.

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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.

If the promisee performs a legal duty and nothing more, then this is not sufficient
consideration to buy the promisor's promise. In Collins v. Godefroy (1831) 1 B. &
Ad.950, Godefroy was a litigant in a case and had caused Collins to be served
with an order to attend court as a witness. Godefroy promised Collins to pay him
some money for his loss of time in attending court, but did not fulfill his promise.
Collins sued Godefroy to enforce his promise, but the court held that Collins had
not given any consideration to Godefroy to buy his promise.
Court stated that;
“If it be a duty imposed by law upon a party regularly
summoned to attend from time to time to give his evidence
then a promise to give him any remuneration for loss of time
incurred in such attendance is a promise without consideration.
We think that such a duty is imposed by law;"

If, however, the promisee exceeds his legal duty, he does provide 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

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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
Co Rep 117a) where it was observed that part-payment of a debt is not good
consideration for a promise to forego 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 B to accept part-payment. This is because he is already
bound to pay the full amount.

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ln Pinnels Case (1602), Cole owed Pinnel £8-10s-Od (£8.50) which was due on 11
November. At Pinnels request, Cole paid £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.

The principles in Pinnel and Foakes v. Beer are still good law. There are, however,
several exceptions, which will be examined in the next section.

The exceptions to Pinnel rule

The general rule in Pinnel and Foakes v. Beer is that if the debtor pays the
creditor part of the debt, on the due date of payment, and the creditor
promises to forget about the balance, the creditor is not bound by his promise,
as the part payment is not sufficient consideration to buy the creditor's promise.
There are, however, common law exceptions and an equitable exception to this
rule.

Common law exceptions

(a) Part payment by the debtor on an earlier date at the creditor's request.
(b) Part payment by the debtor at a different place at the creditor's request.
Let us assume that I owed you £100 to be repaid in London today. But this
morning you ring me up and say that you will be in Brighton today, and that it is
more convenient for you to be paid in Brighton. I say to you that as I will have to
spend time and money in traveling to Brighton, I will only be able to pay you
£80, if you want the money repaid in Brighton. You say to me that you will
accept £80 in full satisfaction of the debt. In accordance with this agreement I

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pay you £80 in Brighton. If you then decide to sue me for the balance £20, you
will not succeed, as I have conferred a benefit on you by paying you in Brighton.

When the debtor offers something other than money as payment and the
creditor accepts this in full satisfaction of the debt.
Now let us assume that I owe you £100 and today is the date of repayment.
When I meet you today, I inform you that I have no money, but I offer you a
copy of the entire set of my lecture notes, if you are willing to forget about the
debt. You have missed many of my lectures and you see this as an excellent
opportunity of catching up. So, you accept my offer of lecture notes and
promise to forget about the debt. Unfortunately for you, you will not be able to
sue me for the debt, as I have conferred a benefit on you by giving you my
lecture notes.

Where a third party makes a part payment to the creditor.

So, if your father, mother or partner makes a part payment of your debt to your
creditor and your creditor accepts the part payment in full satisfaction, but then
decides to sue you for the balance, you have a good defense i.e., that it would
be a fraud on the third party to sue you.
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.

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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 promisee 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, i.e., 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 should have relied on the promise
by changing his position to their detriment (i.e., 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

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 by improper pressure it will not be inequitable for the promisor to go back
on his promise.

Equitable exception – the doctrine of promissory estoppel

This doctrine was formulated “It is the first principle upon which all courts of
equity proceed, that if parties who have entered into definite and distinct terms
involving certain legal results...afterwards by their own act or with their own
consent enter upon a course of negotiation which has the effect of leading one
of the parties to suppose that the strict rights arising under the contract will not
be enforced, the person who otherwise might have enforced those rights will
not be allowed to enforce them where it would be inequitable having regard to
the dealings which have thus taken place between the parties. You have to
prove the following:

That you made a promise to me that you will forget about the balance of the
debt

I did rely on your promise and act upon it -

The circumstances are such that it would be inequitable to permit you to go

back on your promise.

Note, the doctrine of promissory estoppels is only be raised as a defense: “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 a cause of action. This means
that the doctrine only operates as a defense to a claim and cannot be used as
the basis for a case.

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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

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that there was no contract between Dunlop and Selfridge. Dunlop could not
enforce a promise made to Selfridge by Dew.

This decision of Dunlop Vs Selfridge derives its basis of an earlier case of Price Vs
Easton (1833) The defendant promised a one X that if he did some work for the
plaintiff, the defendant would pay sum of money to the plaintiff. The obligations
were performed as agreed but the defendant declined to pay the plaintiff. The
plaintiff sued for breach of contract. It was held that no consideration had
moved from the plaintiff to the defendant and as such the action would not be
maintained. It should be noted however that this is a general rule and there are
some exceptions to this rule.

The following are the exceptions to privity of contract.

1. Third party insurance
2. Negotiable Instruments-cheques -where the covenants in settlements
3. Constructive trusts
4. Agency
5. Assignment

EXCEPTIONS:

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
suggests 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.
In a life assurance and third-party insurance policies, the beneficiaries can sue
the insurance company.

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 2. Agency
A principal may sue or be sued on a contract made by his agent. This appears
more apparent because the principal is the contracting party who has merely
acted through the agent.

[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

In Scruttons Ltd v Midland Silicones Ltd [1962] AC 446, a bill of lading limited the
liability of a shipping company to $500 per package. The defendant stevedores
had contracted with the shipping company to unload the plaintiff's goods on
the basis that they were to be covered by the exclusion clause in the bill of
lading. The plaintiffs were ignorant of the contract between the shipping
company and the stevedores. Owing to the stevedores negligence, the cargo
was damaged and, when sued, they pleaded the limitation clause in the bill of
lading. The House of Lords held that the stevedores could not rely on the clause
as there was no privity of contract between the plaintiffs and defendants.

Lord Reid suggested that the stevedores could be brought into a contractual
relationship with the owner of the goods through the agency of the carrier
provided certain conditions were met:
(1) That the bill of lading makes it clear that the stevedore is
intended to be protected by the exclusion clauses therein.

(2) That the bill of lading makes it clear that the carrier is contracting
as agent for the stevedore.

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 (3) The carrier must have authority from the stevedore to act as
agent, or perhaps, later ratification by the stevedore would
suffice.

(4) Consideration must move from the stevedore.

All of the above conditions were satisfied in New Zealand Shipping v

Satterthwaite (The Eurymedon) [1975] AC 154.

3. Bill of exchange/Negotiable instruments;

A holder for values of a bill of exchange (cheque) can sue prior parties on that
cheque for example if A bought goods from B and paid by cheque which B
endorsed or negotiates in favor of C for value, C acquires a right to sue A if the
cheque is dishonored although no consideration moved from him to A.
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 3rd 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.

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 4. Collateral Contracts

A contract between two parties may be accompanied by a collateral contract

between one of them and a third person relating to the same subject-matter.
For example:

In Shanklin Pier v Detel Products [1951] 2 KB 854. The plaintiffs had employed
contractors to paint a pier. They told them to buy paint made by the
defendants. The defendants had told them that the paint would last for seven
years. It only lasted for three months. The court decided that the plaintiffs could
sue the defendants on a collateral contract. They had provided consideration
for the defendants' promise by entering into an agreement with the contractors,
which entailed the purchase of the defendants' paint.

There must, however, be an intention to create a collateral contract before that

contract can be formed

5. Assignment
A person who proves that a right under a contract was assigned to him can sue
under that contract in his own name.

6. The law of 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.

The law of trusts forms an exception in that a beneficiary (people entitled to

benefit from the trust) acquires a right to sue the trustee if he intermeddles /
interferes with the trust property for his personal benefit. Although the
arrangement is between the settlor and the trustee, the beneficiaries though
strangers to the arrangement can successfully sue on such contracts.

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The device was approved by the House of Lords in Les Affreteurs Reunis v
Leopold Walford [1919] AC 801, where a broker (C) negotiated a charterparty
by which the shipowner (A) promised the charterer (B) to pay the broker a
commission. It was held that B was trustee of this promise for C, who could thus
enforce it against A.

7. Restrictive covenants.
These are rights or conditions that passed on with land.
This is a negative term of the stopping one of the parties from doing something.
They are common in land transactions where a person buys land from another
and it is agreed that the restrictions on the use of land will run with the land.

For example, in Tulk v Moxhay (1848) 2 Ph 774, the plaintiff who owned several
houses in Leicester Square sold the garden in the center to Elms, who
covenanted that he would keep the gardens and railings in their present
condition and continue to allow individuals to use the gardens. The land was
sold to the defendants who knew of the restriction contained in the contract
between the plaintiff and Elms. The defendant announced that he was going to
build on the land, and the plaintiff, who still owned several adjacent houses,
sought an injunction to restrain him from doing so. It was held that the covenant
would be enforced in equity against all subsequent purchasers with notice.

This device was carried over into the law of contract by the Privy Council in Lord
Strathcona SS Co v Dominion Coal Co [1926] AC 108, but Diplock J refused to
follow the decision in Port Line Ltd v Ben Line Steamers [1958] 2 QB 146. Most
recently, in Law Debenture Trust Corp v Ural Caspian Oil Corp [1993] 2 All ER 355,
it was emphasized that the principle permitted no more than the grant of a
negative injunction to restrain the person acquiring the property from doing acts
which would be inconsistent with the performance of the contract by his
predecessor and had never been used to impose upon a purchaser a positive
duty to perform the covenants of his predecessor.

When covenants are in form 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.

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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 honor
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.

The law demands that the parties must intend the agreement to be legally
binding. After all if you invite a friend over for a social evening at your house,
you would not expect legal action to follow if the occasion has to be cancelled.

Intentions of a party determine the creation of a binding contract. In the case of

Broomer vs. Palmer (1942) Lord Green said,
“Law doesn‟t impute intentions to enter into legal relationship
where circumstances and the conduct of the parties negate
any intentions of the kind”

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 carbonized 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.

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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.

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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, (1970) 2ALL ER 760; Court of Appeal, the
husband left his wife. He later agreed to pay 40 pounds per month for her
maintenance. It was also agreed that she would pay off the outstanding
mortgage after which the husband had promised to transfer the house into her
name. He wrote this down and signed the paper, but later refused to transfer
the house. She sued him for breach of contract. The issue was whether the
agreement to transfer the house was intended to be legally binding. Court held
that the agreement having been made when the parties were no longer living
together was enforceable at law.

Intention to create legal relations in commercial agreements.

If it can however be shown that the transaction had a commercial element,
court may find that the intention to create legal relation was present. This was
illustrated in the case of Parker V Clarke (1960) 1 ALLER 93; Mrs. Parker was the
niece of Mrs. Clarke. An agreement was made that the Parkers would sell their
house and live with the Clarke‟s who were an elderly couple. They agreed that
they would share the bills and the Clarke‟s promised to leave the house to them.
Mrs. Clarke wrote to the Parkers giving them the details of the expenses and
confirming the agreement. The Parkers sold their house and moved in with the
Clarkes. Mr. Clarke changed his will leaving the house to the Parkers. Later the
couples fell out and the Parkers were asked to leave. They claimed damages for
breach of contract. The issue was whether there was an intention to create
legal relations between the parties.
Court held that the exchange of letters showed that the two couples were
serious and the agreement was intended to be legally binding because the
Parkers had sold their own home and secondly Mr. Clarke changed his will.
Therefore, the Parkers were entitled to the damages for breach of contract.

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:

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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.

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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.

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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.

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CONTRACTS BY MINORS
A minor is defined by the contract Act as a person who hasn‟t attained the age
of 18. Contracts entered into by a minor may be Valid (binding), void or
voidable.

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 twofold;
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 of service / beneficial contracts of service

These are contracts of a beneficial nature to the minor. They are also binding.
These include contracts for education, those enabling a minor to earn a living or
improve his skills, occupation or profession. The contract must be beneficial to
the minor. This is illustrated in Roberts Vs Grey (1913); the infant defendant had
agreed to go on a world tour with the plaintiff a professional player, competing
against each other in matches. The plaintiff made all the necessary
arrangements but the defendant refused. The plaintiff sued and court observed
that the contract was for the infant‟s benefit, as he would gain experience and
fame by his association with the outstanding player like the plaintiff. However, if
a contract as a whole is not beneficial to the minor, it will not be binding on him.
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.

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A minor is liable on these contracts of necessities of life. Therefore, minor is not
bound to pay for items that are deemed luxurious. Whether a particular
commodity falls within the category of “necessaries” depends on the
circumstances of each case. Thus, while a suit may be an item of necessaries in
the case of a minor who comes from a well to do family, it might be an item of
luxury to a peasant‟s son.
The seller must show the minor was not adequately supplied at the time of the
contract.

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 situation 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.

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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

Minors must not enter into the following contracts:

a. Trading contracts and such contract are not binding however beneficial
they may be to the infant thus is an infant receive goods on credit and
sales them in course of his business for cash he is still not bound to pay for
them. In Mechantile limited Union Vs Ball (1937), the defendant an infant
hired the plaintiff company lorry. He refused to pay a hire purchase price
in breach of contract. The defendant contended that it was for the
defendant‟s benefit. Court held that trading contracts whether beneficial
or not are not binding on the infant.

b. Loan contracts
The same position is in the case of Leslie Vs Sheil. The contract between the two
parties involved a loan. The defendant had a requested for a loan which he
failed to pay within the prescribed time. When the matter came up in court,
court was of the opinion that such contract couldn‟t be enforced against the
minor as it was prohibited by the law.

Corporations
These are artificial persons recognized by the law. Corporations can take two
basic forms. Those created by statute [Statutory corporations or parastatals].
These have only powers conferred upon them by the creating statute.
Those created under the Companies Act generally referred to as companies.
Like natural persons, corporations can enter into valid contracts. They are
recognized by the law and are capable of suing or being sued in their own
names. They can own property and dispose it off, they can enter into tenancy
arrangement and occupy the premises, they can enter into contracts of
employment etc.

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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 minimizes his or her loses. Each party tries to
persuade the other into concluding the contract on his or her favorable 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.

Terms are undertakings or promises made and agreed upon by the parties in the
process of negotiating a contract. This does not mean that all the
representations made in negotiating a contract form the terms of the contract.
It must be a statement of such a nature that if it was not made the contract
could not have been concluded.

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Terms of the contract can either be express or implied.
Express terms are those which are specifically put in a contract such that they
can be ascertained from the contract without extrinsic evidence.

In Trollope and Colis Ltd vs. North West Metropolitan Regional Hospitals Board
[1973] 2 ALL ER 268, where Lord Pearson held that

“an unexpressed term can be imposed if and only court finds

that the parties must have intended that term to form part of
their contract”

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, Synmions & 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

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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 finalizing 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.

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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

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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 i.e., 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

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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

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„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. It is a vital term of the contract that goes to the root of the
contract breach of which entitles the aggrieved party to treat the contract
repudiated (as if it was not there) and claim damages for non-performance.

In the case of Kampala General Agencies Limited Vs Moody (EA) Limited (1963)
EA 549,
Sir 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

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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. On
the other hand, this is a subsidiary obligation which is not so vital such that failure
to perform it does not go to the root of the contract. Breach of a warranty is not
repudiatory and the plaintiff is only entitled to damages for loss suffered.

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 CONTRACTS.

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

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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.

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Nature of the exclusion clause.
The principle is that the more unusual or least expected, the clause is, the higher
will be the notice required to be incorporated. In Crooks v Allen (1870) 59BD 38,
it was held that the person relying on a term least expected should make it
conspicuous or take other steps to draw attention to it.

In Olley Vs Marlborough Court Ltd (1949) Husband and wife arrived at a hotel as
guests and paid for the room in advance. They went up to the room allocated
to them and on one of the walls was a notice,
“The proprietors will not hold themselves responsible for articles
lost or stolen unless handed to the Manager for safe custody”

The wife locked the door and took the key downstairs to the reception desk. A
third party picked the key and took some of the property.
The defendant sought to rely on the exemption clause. It was held that the
contract was concluded at the reception desk and no subsequent notice
would affect the plaintiff‟s rights.

Reasonableness of the clause

In circumstances where the clause protects the party who has failed to carry
out the basic obligation of the contract, the court will not allow him to rely on
the exemption clause to escape liability.

This was illustrated in the case of Karsale s ltd Vs Wallis; W inspected a car; it was
in good condition and agreed to buy it. The agreement contained the following
clause “no condition or warranty that the car is road worthy or so to its age,
condition or fitness for any purpose is given by the owner or implied her in” When
delivery of the car was made, it was in a shocking condition and incapable of
self-starting. W refused to accept the car. K sued him relying on the exemption
clause. It was held that as the breach went to the root of the contract it was so
unreasonable and could not entitle the plaintiff to rely on it.

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Where an exemption clause is printed at the back of the receipts it is not valid
unless if brought to the attention of the other party.

In Chapelton Vs. Barry UDC (Urban Development Council) (1940)

C hired deck chairs, paid 4 pence and obtained a ticket which he put into a
pocket without reading it. It was printed at the back that the defendant will not
be liable for any accident or damage arising from the use of the chairs. When C
sat on the chair, it collapsed and he was injured. C sued the defendant. It was
held that the printed clause at the back of the receipt could not become part
of the contract as no reasonable care was taken to bring it to the attention of
the contracting party C was entitled to damages.

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 defense 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.

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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:
a. Most contracts are in English language which many people cannot read.
b. Some contracts are usually in very small print that cannot be easily read.
c. 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 in spite 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).

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The courts have developed various rules to offer some protection to weak
consumers. These are;

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.

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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:

a. 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;
b. If he knew there was writing, and knew or believed that the writing
contained conditions, then he is bound by the conditions;
c. lf 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

The decision could have been different if the parties had visited the Hotel
previously and had knowledge of such notice. Spurling vs. Bradshaw (1956)
1WLR 461

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 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 dependent 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 inworking 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.

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