law of contracts notes in uganda, Study notes of Contract Law

Download law of contracts notes in uganda and more Study notes Contract Law in PDF only on Docsity! DIPLOMA IN LAW LAW OF CONTRACT Definition of a contract According to section 2 of the Contract Act a contract is an agreement enforceable by law. Section 10 of the Contract Act further elaborates on the definition of a contract. It states that a contract is an agreement made with the free consent of the parties with capacity to contract, for lawful consideration and with a lawful object, with the intention to be legally bound. In other words, a contract is a legally binding agreement or relationship that exists between two or more parties to do or abstain from performing certain acts. The parties can be natural persons or artificial persons e.g. a company. According to section 10, a contract may be oral or written or partly oral and partly written or may be implied from the conduct of the parties. A contract whose subject matter exceeds 500,000 UGX shall be in writing. The parties to the agreement must have a final agreement i.e. their minds must meet. This is what is called consensus ad idem. 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. Formation of a Contract As an old maxim has it ‘all contracts are agreements but not all agreements are contracts’. The rules of contract law determine whether or not an agreement is legally enforceable. There are certain necessary legal formalities in the formation of a binding contract. These include: -  That the agreement is made as a result of an offer and acceptance.  The agreement contains an element of value known as consideration.  The parties must intend to create legal relations.  The parties must have legal capacity to enter into the contract.  The subject matter of the contract must be lawful.  There are certain contracts, which require certain formalities before they are entertained by courts of law, and such formalities must be followed.  It should be possible to perform  It must be entered into freely [Genuine consent].  The consent of the parties must be genuine and not induced by fraud, duress, mistake or misrepresentation. Types of Contract  Simple contracts Law of Contract Lecture Notes, 1 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.  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.  A valid contract is an agreement, which is binding and enforceable. Such contract must have the following essential elements of a contact.  Voidable contract Voidable means valid, until avoided. When a contract is voidable the law will allow one of the parties to withdraw from it if he wishes. Voidable contracts include some agreements made by minors and contracts induced by misrepresentation, duress, or undue influence. A voidable contract remains valid unless and until the innocent party chooses to terminate it.  Void contracts These are not contracts at all. If a contract is void, then it is of no legal effect. Void contracts include those, which are prohibited by the law or are against public policy.  Illegal Contracts. These are contracts that involve a criminal element. They cannot be enforced in a court of law e.g. contracts to commit a crime.  Bilateral contract This is a contract that creates binding obligations on both parties to the contract.  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. No body is under obligation to look for the item but if the item is found there is a obligation to give the promised reward. QUESTIONS  Explain the role of law of contract in a modern economy  Define a contract  Discuss the different types of contract THE ESSENTIALS OF A VALID CONTRACT Offer Definition of an offer Law of Contract Lecture Notes, 2 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. This position is 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.  Ordinary advertisements on radio, television and newspapers This was illustrated in the case of Partridge V Crittenden where a person was charged with ‘offering’ a wild bird for sale contrary to the law after he had placed an advert relating to the sale of such birds in a magazine. It was held that he could not be found guilty of offering the bird for sale as the advert amounted to an invitation to treat not an offer.  Invitation for tenders They occur where someone wishes particular work to be done and issues a statement asking those interested to submit the terms on which they are willing to work. The person who invites the tender makes an invitation to treat and that one who submits his tender is the offeror.  A company prospectus Termination of offer An offer may be terminated in the following ways; 1. S. 6 (b) Contract Act: Lapse of time 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. S. 6 (a) Contract Act: Revocation Law of Contract Lecture Notes, 5 An offer may be revoked or withdrawn by the person who made it at anytime before it has been accepted. 3. S. 6 (c of the Contract Act: An offer comes to an end if not accepted in a manner prescribed (failure of a condition subject to which an offer was made) Ellason Vs Henshaw (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. 4. S. 6 (d) Death or insanity of the offeror, where the fact of the death or insanity comes to the knowledge of the acceptor before acceptance. 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. 5. Counter offer An offer is terminated by a counter offer. This position is illustrated in Hyde Vs Wrench (1840); the defendant offered in writing to sell his farm to the plaintiff for 1000 pounds. The plaintiff wrote saying he would give 950 Pounds for it. The defendant refused to accept this. Later, the plaintiff agreed to pay 1000 pounds, which the defendant refused to accept. The plaintiff sued for an order of Specific Performance. His action failed because his offer of 950 pounds was a counter offer, which terminated the defendant’s offer of 1000 pounds. Thus when the plaintiff later accepted the 1000 pounds, there was no offer in existence, and so no contract was formed. 6. Rejection An offer may also be terminated when the offeree rejects it. QUESTIONS 7. Discuss the rules that govern an offer 8. Under what circumstances may an offer be terminated 9. Distinguish between an offer and an invitation to treat Acceptance Definition of acceptance This is an indication to enter into and be bound by the contract. It is a positive response to an offer. Rules governing acceptance  Acceptance can be:  In writing  Oral form Law of Contract Lecture Notes, 6  By conduct.  Communication of acceptance The general rule is that acceptance must be communicated to and received by the offeror. Thus if acceptance is not received because of interference on a telephone line or the offeree’s words are too indistinct to be heard by the offeror, no there is no contract. It is a condition that therefore silence cannot amount to acceptance. This rule was stated in the case of Felthouse V Bindley (1863); The plaintiff wrote to his nephew offering to buy one of his horses adding “ if I hear no more about him I will consider that horse is mine at 30 pounds and 15 pence’. The nephew did not reply but told the defendant who was an auctioneer not to sell the horse to any body else. The defendant sold the horse by mistake and the plaintiff sued him for damages. The issue was whether silence by the nephew amounted to acceptance. Court held that since the nephew had not communicated his acceptance to the plaintiff, there was no contract of sale and the auctioneer was not liable. Court therefore concluded that silence does not amount to acceptance  Acceptance of the offer must be absolute and an unqualified. (S.7 (1)(a) The offeree must accept the terms of the offer as made to him. He must not change them. Any change of the terms creates a counter offer hence no contract as was illustrated in the case of Hyde V Wrench.  Acceptance should be expressed in a usual and reasonable manner, except where the offer states the manner in which it should be accepted. (S. 7(1)(b) The offeror may expressly state the method of communicating acceptance. If they do not do so, then a usual and reasonable manner shall be used. Acceptance must therefore be communicated to the offeror in the manner stated by him.  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 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.  Acceptance is not effective if communicated in ignorance of the offer Exceptions to the communication of acceptance rule There are certain exceptions to the rule that an acceptance must be communicated to and actually received by the offeror. These include the following; Unilateral contracts Law of Contract Lecture Notes, 7 Circumstances that do not amount to sufficient consideration (consideration must be in excess of an existing duty)  Where a person performs a public duty imposed upon him 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.  where the claimant is bound by an existing contractual duty to the defendant If the promisee merely fulfils an existing contractual duty to the promisor, and nothing more, she does not provide consideration to buy the promisor's promise.  In cases of part payment of debts Let us assume that I (the debtor) have borrowed £100 from you (the creditor) and the due date of payment is today. I inform you that I can only afford to pay you £75. You feel sorry for me and promise to forget about the balance £25 and to accept the £75 in full settlement of the debt. Are you bound by your promise to forget about the balance? What if you decide to sue me for the balance? In Pinnel's case [1558 - 1774] All ER Rep 612, Common Pleas, it was held that "payment of a lesser sum on the day in satisfaction of a greater, cannot be any satisfaction for the whole, because it appears to the Judges that by no possibility, can a lesser sum be a satisfaction to the plaintiff for a greater sum:...". The 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  Part payment by the debtor on an earlier date at the creditor's request.  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 Law of Contract Lecture Notes, 10 accordance with this agreement I 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 defence i.e. that it would be a fraud on the third party to sue you.  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. QUESTIONS  Define consideration  Discuss the rules that govern consideration  State the rule in Pinnel’s case and the exceptions to it Privity of Contract Doctrine The Privity of Contract Doctrine/rule The concept is based on the fundamental assumption of English law that a contract is a bargain such that he who takes no part in the bargain takes no part in the contract. In effect this means that no one can enforce another person’s promise unless he has been a party to the contract and that a stranger to consideration or to the contract cannot sue on Law of Contract Lecture Notes, 11 that contract even if it is made for his own benefit. This expression is further illustrated in Dunlop Vs Selfridge [1915] The Plaintiff sold tyres to Dew Company where by Dew and company agreed not to sell the tyres below the price list provided and it was also agreed that Dew and company would obtain similar arrangements with other dealers. Dew and company sold the tyres to Selfridge and it was agreed that they would not sell the goods below the price provided. Selfridge breached this arrangement and Dunlop sued for breach of contract. Court observed that the plaintiff had no right of action because no consideration moved from Selfridges to them. This decision of Dunlop Vs Selfridges 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.  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.  Bill of exchange 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 favour of C for value, C acquires a right to sue A if the cheque is dishonored although no consideration moved from him to A .  Assignment A person who proves that a right under a contract was assigned to him can sue under that contract in his own name.  The law of trusts. 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.  Statutory exceptions e.g. Insurance contracts. In a life assurance and third party insurance policies, the beneficiaries can sue the insurance company.  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. QUESTIONS  Explain the doctrine of privity of contract and the exceptions to the rule Law of Contract Lecture Notes, 12  Contracts for necessaries Necessities of life are defined under the Sale of Goods Act as goods suitable to the condition in life of an infant and to his actual requirements at the time of sale and delivery. Necessities of life include services and goods, shelter, medical care education and other services like legal advice N.B:  The minor is only liable to pay a reasonable price.  If the necessaries are sold but not delivered, the minor is not bound. 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. This position of the law was stated in the case of Nash vs. Inman (1908); The plaintiff who was a tailor, in the course of 3 months sold 11fancy Waist coats to the value of the 145 pounds to the defendant who was an infant and under graduate of Cambridge. The infant failed to pay and the plaintiff sued for the price. The defendant’s father proved that minor was an infant and was sufficiently supplied with proper clothing’s according to his position. It was held that the defendant wasn’t liable on contracts as there was no evidence to prove that the goods supplied were necessaries of life, which had not been sufficiently supplied to the minor. Therefore, a minor is not liable if he has an adequate supply, even if the supplier did not know this.  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. Voidable contracts Contracts entered into by minors can also be classified as voidable. Voidable means the contract is binding on the minor until he decides to repudiate (reject) it. Therefore voidable contracts are those contracts, which a minor is entitled to repudiate during minority or within a reasonable time after attaining majority age. Apart from the minor’s option to repudiate, a voidable contract is similar to a binding one in that in either case the contract must be beneficial to the minor. But in case of a voidable contract, the subject matter is generally of a permanent or continuing nature. The most outstanding examples of voidable contract are: Law of Contract Lecture Notes, 15  Lease agreements (here a minor acquires an interest in land)  Contracts for the purchase of shares (minor acquires an interest in a company)  Contracts of partnerships (minor becomes a partner in a firm) Void Contracts Minors must not enter into the following contracts:  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 then. 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 defendants benefit. Court held that trading contracts whether beneficial or not are not binding on the infant.  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.  Contracts to buy luxuries Corporations These are artificial persons recognized by the law. Corporations can take two basic forms. Those created by statute [Statutory corporations or parastetals].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. Insane/persons of unsound mind A Contract entered into by an insane persons is not binding unless if at the time of the contracts such person was capable of understanding and appreciating the nature of the contract and the obligations imposed. Drunkards also fall under this category. A contract entered into by a drunkard is voidable but ordinary drunkardness is not sufficient to avoid a contract. It must be proved that at the time of entering into the contracts the party pleading drunkard ness was incapable of understanding the full implications of the transaction. QUESTIONS  Explain the concept of contractual capacity of a minor  ‘Contracts entered into by drunkards are void’ do you agree? Law of Contract Lecture Notes, 16 Legality This section deals with legality as an element of a contract, contracts that are illegal and effect of illegality on a contract. Objectives At the end of this section you will be able to:  Understand the element of legality of contract  Explain the different contracts that are classified as illegal  Understand rule the effect of illegality on a contract Definition of legality To support a contract consideration must be lawful. For a contract to be binding on both parties, the subject matter of the contract must be lawful. The law will not give effect to a contract if it involves the commission of a legal wrong or is invalidated by a statute and those contrary to public policy. This position of the law derives it basis from the case of Foster Vs Driscoll (1929) A Contract was entered into for the shipment of Whisky from England to the U.S.A during the time when a prohibition was in force. The plaintiff sued when the contract was breached. It was held that the contract couldn’t be enforced owing its illegal nature. Illegal contracts involve some degree of moral wrong and an element of crime or fraud. Such contracts include the following:-  Contracts to commit a crime, a tort or fraud on a third party. This is explained in the case of Dann Vs Curson (1911) an agreement was entered into to cause a disruption at a theatre. The plaintiff who agreed to create the disturbance and infact did so and sued for the remuneration due to him under the agreement. Supreme Court held that the action could not succeed as it was an agreement to commit a crime and against Public Policy  An agreement to defraud or deceive is also illegal. This is explained in the case of Waldo v Martin (1825). In this case an agreement was concluded to the effect that the plaintiff would secure a job for the defendant who agreed to pay part of the emoluments as a secret commission. The defendant failed to pay. Court held that the agreement was illegal and couldn’t be enforced. Court further observed that the fruits of a crime are irrevocable.  Contracts involving sexual immorality. if a man promises to pay money to a woman as recompense for sexual pleasure , such illicit intercourse is illegal and the contract is unenforceable . The law in Uganda makes prostitution and living on earnings of prostitution as an offence. This explanation was made in the case of Pearce vs. Brooks (1866). The plaintiff owned a carriage which was of an attractive design intended to assist her to obtain clients. The defendant hired the carriage and defaulted in payment. The evidence produced in court indicated that the carriage was basically intended and actually used for purpose of soliciting clients. Court held that the plaintiff claim of the sum due couldn’t be enforced due to its illegal nature.  Contracts prejudicial to public safety. This was illustrated in the case of Furtado Vs Rogers (1802); In this case Lord Alvanley observed “ we are all of the opinion that it is not competent for any subject to enter into any arrangement which may be detrimental to the interests of his own country and such a contract is as much prohibited as if it had been expressly prohibited by the Acts of parliament. The detrimental Law of Contract Lecture Notes, 17 QUESTIONS  ‘Illegal contracts are not valid contracts’ Discuss  Define an illegal contract Genuine Consent (Vitiating Factors) Meaning of genuine consent A contract must have been entered into voluntarily and involved a genuine meeting of minds. The agreement may therefore be invalidated by a number of factors e.g. misrepresentation, mistake, duress, undue influence. These factors are known as vitiating factors or elements of a contract. Misrepresentation A misrepresentation is an untrue statement of fact, which induces a party to enter a contract, but which is not itself part of the contract. There must therefore be a statement. Mere silence cannot constitute misrepresentation even when it is obvious that the other party is mistaken as to the facts, subject to some exceptions. Types of misrepresentation  Fraudulent misrepresentation occurs when a party makes a statement, which he knows to be false, or has no belief in its truth. In such a case the innocent party may rescind the contract and claim damages for the tort of deceit. This was stated in the case of  Negligent misrepresentation may occur where the person making the false statement has no reasonable ground for believing the statement to be true. A person having a duty of care makes the false statement.  Innocent misrepresentation occurs when a person who has reasonable ground to believe that the statement is true makes a false statement. In general, a misrepresentation makes a contract voidable rather than void. On discovering the misrepresentation, no matter whether fraudulent, negligent or innocent, the other party may affirm or rescind the contract. Mistake It may be defined as an erroneous belief concerning some thing. Mistake can divided into three types forms.  Common mistake A common mistake is made when or where both parties assume some particular state of affairs where as the reality is the other way round. Infact, both parties make exactly the same mistake. Contracts affected by common mistake are void at common law e.g. where parties make a contract believing that there are goods and yet the goods have already perished. This was illustrated in the case of Counturier Vs Hastie; A contact was concluded between the two parties for the sale of corn, which at the time of the contract was believed to be the cargo on the ship. Unknown to both parties the goods had deteriorated in condition and sold on the way to mitigate the loss. Court held that there was no Law of Contract Lecture Notes, 20 contract concluded because the contract contemplated the existence of the subject matter of something to be sold and bought, but at the time of the contract no such goods existed.  Mutual mistake This occurs where in relation to a particular matter one party assumes one thing while the other party assumes a totally different thing, so that they both misunderstands one another. Where each party is mistaken as to the intentions of the other, there is no consensus ad idem and hence no contract. Raffles Vs Wichlaus The parties entered into a contract for he sale of goods to arrive Ex-perless from Bombay, Infact there were two ships called Ex-perless which sailed from Bombay one in October, the other in December. The buyer thought the contract related to the ship sailing in December while the seller thought it was the October ship and therefore the buyer did not take delivery when the October ship arrived. Court held that the buyer was not liable as there was no contract due to mutual mistake.  Unilateral mistake A unilateral mistake occurs when just one party is mistaken as to some aspect of the contract, and the other is or is presumed to be aware of this mistake. Examples of unilateral mistake are common in fraud cases where one misrepresents his identity to the other thereby inducing the other party into contracting with him in the false belief that he is contracting with the person whose identity has been given. Duress and undue influence Duress Duress is an illegal threat applied to induce a party to enter a contract, and makes the contract voidable. It is limited to illegal violence or threats of violence to the person of the contracting party. This was illustrated in the case of Cumming v Ince; an old lady was threatened with unlawful confinement in a mental home if she did not transfer certain property rights to one of her relatives. The transfer was set aside because the threat of unlawful imprisonment amounted to duress. In the case of Barton v Armstrong; the defendant threatened to kill the plaintiff if he did not buy his shares. Court set aside the sale because of duress. Undue influence A contract is said to be affected by un due influence if the relationship existing between the parties is such that one of the parties is in position to influence the will of the other and he uses the position to obtain an unfair advantage over the other. Where there is a confidential relationship existing between the parties undue influence is presumed. For example Parent/ Child, Doctor and Patient, Trustee and Beneficially etc. Undue influence renders a contract voidable. QUESTIONS  Discuss the various vitiating factors of a contract and their effect on the validity of a contract  Discuss the different types of mistake Law of Contract Lecture Notes, 21 Terms of the Contract Definition of terms These 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. 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.  On the other hand implied terms are those which are so obvious that they need not be included in the contract. Such terms are derived from custom or statute and in addition a term may be implied by the court where it is necessary in order to achieve the result which in court’s view the parties obviously intended the contract to have. The Sale of Goods Act Cap 79 laws of Uganda provides for the a number of implied terms in a contract of Sale of Goods unless if expressly excluded by the parties. Terms of the contract can be divided into conditions and warranties.  Condition 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.  A warranty on the other hand 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. Whether a term is a condition or a warranty is basically a matter of the court which will be decided on the basis of the commercial importance of the term. Exclusion/Exemption Clauses These are terms or clauses excluding or limiting the liability of one of the parties to a contract in respect of which he would otherwise be held liable in law. Not all exemption clauses are valid. Some are void by legislation for example those which exclude strict liability for death or personal injury from negligence. The application and enforceability of exclusion clauses depends on a number of reasons.  Reasonableness of the clause In circumstances where the clause protects the party who has failed to carryout 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. Law of Contract Lecture Notes, 22  Discharge by frustration. A contract is said to be frustrated if an event occurs which brings its further fulfilment to an abrupt end, and upon the occurance the parties are discharged. But the doctrine of frustration only relates to the future.This mean that the parties are discharged from their future obligation under the contract but remain liable for whatever rights that may have accrued before the frustration , although the parties are both excused from further performance of the contract. It is difficult to determine the frustrating events but some examples are given below:-  Destruction of Subject Matter Taylor v. Caldwell (1862) The defendant let a building to the plaintiff for holding concerts on specified days. Before the concerts could be held the music hall was accidentally destroyed by fire. A suit was filed for breach of contract and court held that the action could not be maintained.  Death or Incapacity Just as the destruction of the subject matter of the contract terminates it, the death or serious indisposition of a party whose personal services were contemplated by the contract will similarly terminate it. Thus, if A contracts to stage a series of shows during the month of June- September but is in May sentences to imprisonment for one year, or becomes insane permanently or for a substantial part of the period in question, the contract will similarly be discharged by frustration- the frustrating event being constituted by the imprisonment or insanity.  Supervening illegality A contract is also frustrated if, after its formation, a circumstance arises which renders its further performance illegal. There is said to be supervening illegality, which operates as a frustrating event e.g. change in the law of the country.  Discharge by breach Breach of contract by a party thereto is also a method of discharge of a contract, because “breach” also brings to an end the obligations created by by a contract on the part of each of the parties. Of course the aggrieved party i.e the party not at fault can sue for damanges for breach of contract as per law but the contract as such stands terminated. Acontract is said to be breached when its terms are broken. Failure to honour ones contractual obligation is what constitutes a breach of contract. buyer has two options; he may choose to wait for the date of performance to come before taking any action against the seller.  Discharge by operation of law Acontract may be discharged by operation of law in certain cases . Some important intances are as under .  lapse of time If a contract is made for a specific period then after the expiry of that period the contract is discharged e.g. partnership deed employment contact etc.  Death The death of either party to a contract discharges the contract where personal services are involved. Law of Contract Lecture Notes, 25  Substitution. If a contract is substituted with another contract then the first contract is discharged.  Bankruptcy When a person becomes bankrupt, all his rights and obligations pass to his trustees in bankruptcy.But a stustee is not liable on contracts of personal services to be rendered by the bankrupt. Remedies for breach of contract Whenever there is a breach of contract,the injured party becomes entitled for some remedies. These remedies are:  Damages  Quantum meruit  Specific performance  Injunction  Rescission  Damages Damages are monitary compasation allowed to the injured party of the loss or Injury suffered by him as a result of the breach of contract. The fundermantal principle underlying damages is not punishment but compensation. By awarding damages the court aims to put the injured party into the position in which he would have been ,had there been performance and not breach , and not punish the defaulter. As a general rule compesation must be commensurate with the injury or loss sustained, arising naturally from the breach. If actual loss is not proved , no damages will be awarded to the other party. The plaintiff cannot claim damages for loss which is attributable to his failure to mitigate.  Quantum Meruit The third remedy for a breach of contract available of an inured party against the guilty party is to file a suit upon quantum meruit. The phrase quantum merit literally means, “as much as is earned” or “ in proportion to the work done. The aggrieved party may file a suit upon quantum merit and may claim payment in proportion to work done or goods supplied.  Specific Performance This is an equitable remedy. Specific performance means the actual carrying out of the contract as agreed. Under certain circumstances an aggrieved party may file a suit for specific performance, i.e. for a decree by the court directing the defendant to actually perform the promise that he has made.  Injunction Injunction is an order of a court restraining a person from doing a particular act. It is a mode of securing the specific performance of the negative terms of the contract. To put it differently, where a party is in breach of a negative term of the contract (i.e. where he is doing something which he promised not to do), the court may by issuing an injunction, restrain him from doing , what he promised not to do. Thus “injunction” is a preventive relief. It is particularly appropriate in cases of “anticipatory breach of contract” where damages would not be an adequate relief. Law of Contract Lecture Notes, 26  Rescission When there is a breach of contract by one party, the other may rescind the contract and need not perform his part of obligation. Such innocent party may sit quietly at home if he decides not to take any legal action against the guilty party. But in case the aggrieved party intends to sue the guilty party for damages for breach of contract, he has to file a suit for rescission of the contract. When the court grants rescission, the aggrieved party is freed from all his obligations under the contract; and becomes entitled to compensation for any damage, which he has sustained through the non-fulfillment of the contract. QUESTION  ‘Once a valid contract is made, it cannot be terminated under any circumstances’ Discuss Law of Contract Lecture Notes, 27