FEATURES OF A CONTRACT

A contract comes into existence with the presence of certain qualifiers stated in its definition according to Section 10(1) of
the Contracts Act 2010. Therefore to explain the definition of a contract, one has to explain its qualifiers as done below:

AGREEMENT:

Section 2 of the Contracts Act 2010 defines an agreement as “a promise or a set of promises forming the consideration
for each other.”

A promise is an offer that is accepted hence traditionally, an agreement comprises of an offer and acceptance.

The principle is that a contract must be entered in freely and voluntarily. There must be ‘consensus ad idem’ a meeting of
the minds.There should be an agreement before a contract is established.

OFFER

Section 2 of the Contracts Act goes defines an offer as ‘the willingness to do or to 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.’

It is an expression of willingness to contract on certain terms with the intention that a legally binding contract will exist
once the offer is accepted.

In the case Carlill v Carbolic Smoke Ball Co [1892] 2 QB 484, the plaintiff bought a medical preparation called ‘Carbolic Smoke
Ball’ in response to an advertisement by the defendants that they would pay 100 pounds to any person that contracted
influenza after using the medicine in the prescribed manner and for a specified period. They further said they had deposited
1000 pounds in the bank, out of which payments would be made.

The plaintiff bought the medicine, used it in the prescribed manner but still contracted the disease. She sued for 100 pounds.
The defendants argued that there was no agreement.

o First, they argued there was no offer: that the advertisement was mere trade puff; exaggerated statements of mere
sales talk.
o Secondly, that even if there was an offer, it was not capable of being accepted because it was not addressed to
anyone in specific and an offer could not be made to the whole world.
o Finally, that even if there was an offer, the plaintiff never communicated her acceptance thereof to the defendants.

The court rejected all the arguments on the grounds that a public advertisement may or may not constitute of odder and
acceptance depending on the wording. If it is categorical enough, it can amount to an offer. An offer can be made to the whole
world and only become valid in relation to members of the public who take it up. Finally, that by performing the conditions of
the offer, the defendants accepted the offer.

“Although the offer is made to the world, the contract is made with that limited portion of the public who come forward and
perform the condition on the faith of the advertisement.” – Bowen LJ.

Flomera Nalongo v Luwero Town Council [HCCS No. 303 of 1993]

Section 2 of the Contracts Act 2010 also defines acceptance as ‘an assent to an offer made by a person to whom the offer is
made.’ It is also defined as “an unequivocal expression of consent to the proposal contained in the offer and has the effect
of immediately binding both parties to the contract”.

The existence of an agreement can be looked at in two ways:

 The traditional approach: This objectively looks to find the parties’ intention to enter an agreement by reducing it
to offer, counter offer, acceptance, revocation and rejection.
 The laissez-faire approach: This is more subjective. Potentially anything can be used to examine the existence of
an agreement based on the conduct and correspondence between the parties. Using the conduct and
correspondence between parties, it can be established whether these parties have reached an agreement on all
material points. This approach found favor with Lord Denning in the case Gibson v Manchester City Council where
he stated that one ought to:

Conclusion: In case one of the above is missing, there is no contract before the Law.
“…look at the correspondence as a whole and at the conduct of the parties and see therefrom whether the parties have
come to an agreement on everything that was material.”
This method was applied in G Percy Trentham v Archital Luxfer (Trentham v Archital)

The plaintiff, P built industrial units and subcontracted the windows to L, the defendant. The work was done and paid for. P then
claimed damages from L because of defects in the windows. L argued that even though there had been letters, phone calls and
meetings between the parties, there was no matching offer and acceptance and so no contract.

The Court of Appeal held that the fact that there was no written, formal contract was irrelevant; a contract could be concluded
by conduct. Plainly the parties intended to enter into a contract, the exchanges between them and the carrying out of
instructions in those exchanges, all supported T's argument that there was a course of dealing between the parties which
amounted to a valid, working contract. Steyn LJ pointed out that:

(a) The courts take an objective approach to deciding if a contract has been made.
(b) In the vast majority of cases a matching offer and acceptance will create a contract, but this is not necessary for a contract
based on performance.

The question as to whether there existed a contract between the plaintiff and the defendant was decided by the judge and
Steyn LJ, who by looking at the overall effect of what had been said and done by the parties, decided that the contract indeed
existed.

The second approach is used in cases where circumstances do not fit into the normal analysis of offer and acceptance.

FREE CONSENT:

The idea of free consent is based on the idea of freedom and sanctity of contract, that men have an inalienable right to
own property and enter into contracts as freely as they choose.

Sir George Jessel stated in Printing and Numerical Registering Co. v Sampson that:

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

Section 13 of the Contracts Act, 2010 states that: “Consent of parties to a contract shall be taken to be free where it is not
caused by: coercion, undue influence [section 14(1)], fraud [section 15}, misrepresentation, fraud and mistak[section 17 &
18].”

Section 14(1) defines a contract induced by undue influence as ‘one where the relationship subsisting between the parties to
a contract is such that one of the parties is in a position to dominate the will of the other party and uses that position to
obtain an unfair advantage over the other party.’

Section 15 of the Act defines acts by which a party to a contract induces consent by fraud.

Section 16 of the Act spells out the rules on voidability of agreements without consent.

*Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd* [1983] 2 AC 803.

The Claimant (George Mitchell) and the Defendant (Finney Lock Seeds Ltd) entered into an agreement where the Defendant
would supply the Claimant with 30lb of Dutch winter cabbage seed. The invoice for the seeds, which was considered to be a part
of the contract, stipulated that liability of the defendant was limited to replacing the seeds or the plants which were sold, where
such were found to be defective. The clause however excluded liability for loss or damage, including consequential loss or
damage which arose from the seed being used. The Claimant planted the seed on 63 Acres of his land. The seeds were a failure,
producing a plant which was too small and which could not be eaten by humans. The losses of the Claimant as a result came out
to £60,000 in addition to interest.

The issues in this case were two, namely whether the exclusion clause could extend to the seeds used by the Claimant, bearing
in mind that they were unfit to do the job they were sold to do and secondly, whether extending the effect of the exclusion
clause in this way would be reasonable under s.2(2) of the Unfair Contract Terms Act 1977.

Held

Conclusion: In case one of the above is missing, there is no contract before the Law.
 It was held that the exclusion did extend to the seeds sold to and used by the claimant, and that to claim otherwise would
torture the language of the contract. However, it was also observed that on the facts this was an unfair term which could be
struck down under the Unfair Contract Terms Act 1977. The court concurred with Lord Denning MR’s dissent in the Court of
Appeal (in what was his Lordship’s final judgement), that the Act had now liberated the courts from needing to twist the words
of contracts in this way in order to achieve justice.

“the passing of… the Unfair Contract Terms Act 1977, had removed from judges the temptation to resort to the device of ascribing
to words appearing in exemption clauses a tortured meaning so as to avoid giving effect to an exclusion or limitation of liability
when the judge thought that in the circumstances to do so would be unfair.” (Lord Bridge)

CAPACITY TO CONTRACT:

Section 11 of the Contracts Act defines a person with the capacity to contract as one that is eighteen years of age and
above, of sound mind that is not disqualified from contracting by any law to which he or she is subject.

It makes a provision [Section 11(2)] that a person of 16 years and above has the capacity to contract as provided for by
article 34(4) and (5) of the Constitution.

*The Employment Act, 2006 prohibits the engagement of a child ‘in employment or work which is injurious to his or her
health, dangerous or hazardous or otherwise unsuitable.’*

 Contracts made by minors:

The general rule at common law was that a contract made by a minor or infant was voidable at his or her option.
This has two implications:
 A contract entered into by an infant was binding and valid unless and until he repudiated it before,
or within a reasonable time after, the attainment of majority age.
 Other contracts were not binding on the infant unless ratified by him or her when she became an
adult.

 Exceptions to the general rule:

1) Contracts for necessaries.
Minors are obliged to pay for goods and services necessary to maintain them in their particular station
of life.

Ryder v Wombwell

Roberts v Gray
2) Beneficial contracts of service:
A minor may be bound by a contract of apprenticeship of service, as it is to his or her benefit or
advantage that he or she should acquire the means of earning his livelihood.
 In order for a plaintiff to succeed in a claim against the minor, the latter ‘should have
had an opportunity of accepting and rejecting the benefit.’

De Francesco v Barnum.

Clements v Northwestern Rail Co.

 Section 12(1), (2) and (3) of the Contracts Act prescribe the rules on sound mind for purposes of contracting.

Section 12(1) states: “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 forming a rational judgment as to its effect upon his or her
interests.”

(1) 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.

(2) 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.

Conclusion: In case one of the above is missing, there is no contract before the Law.
 (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.

Any attempt by a person of unsound mind to dispose of his or her property does bind him or her.

In other contracts, the mental incapacity must be such that the affected person did not fully understand the
transaction in question and that the other contracting person must be aware of that incapacity. A contract made
under these circumstances is voidable at the option of the incapacitated party. The burden to prove these two
conditions lies on the mentally incapacitated person.

Lawful Consideration with a lawful object:

In Curie v Misa, consideration is defined as: ‘a right, interest, profit or benefit accruing to one party, or forbearance,
detriment, loss or responsibility suffered given, suffered or undertaken by the other party.’

The Act goes on to define consideration for a promise as ‘where at the desire of a promisor, a promise or any other person
does or abstains from doing or promises to do or to abstain from doing something.’

There exist 3 types of consideration:

i) Executed consideration; this occurs when the parties or one of the parties does what they are required to do
under the contract.
ii) Executory consideration; this is where one or both parties to the contract promise to do an act or acts in the
future.
iii) Past consideration: the general rule governing past consideration is:

 “Past consideration is no consideration.”

o Roscorla v Thomas:
o *McArdle:*

Exceptions:

Where a service is performed at the request of a beneficiary, who subsequently promises to compensate
the person responsible, the promise, thought supported by past consideration, is enforceable.

 Lampleigh v Braithwaite.
 Re Casey’s Patents.
 Pao On v Lau Yiu Long.

An antecedent debt, according to the Bills of Exchange Act, will be good consideration for a bill of
exchange.

 “Consideration must move from the promisee though not necessarily to the promisor.” - the Privity Doctrine:

This means that a party can only enforce a promise if he or she proves that they provided consideration in support
of that promise. This is derived from the doctrine of privity of contract which states that ‘ only parties to a
contract can sue on it.’

 Price v Easton*
 Tweddle v Atkinson
 Dunlop Pneumatic Tyre Co. v Selfridge
 Dr. Vincent Karuhanga v NIC and URA

Exceptions to the Privity Doctrine:

Conclusion: In case one of the above is missing, there is no contract before the Law.
  Position of the Act (Section 65)
 Trusts
 Third Party Insurance
 Bills of Exchange
 Agency: vicarious liability.
 Assignment
 Negligence

 “Consideration must be sufficient though not necessarily adequate.”

Section 20 of the Act:

This principle simply means that consideration should have some economic value. The courts will not look into whether the
consideration provided is adequate, which is to say, they will not inquire into whether the bargain is fair. They simply look
into whether the consideration is of enough economic value (sufficient) to support a good contract. They are not
concerned with bad bargains provided there is no fraud or other vitiating factors in the agreement such as coercion, duress
etc. In this way, an agreement for the sale of a Rolls Royce for a hairpin is seen as a good contract because both have
economic value despite the difference in that value.

Situations where the law may find consideration to be insufficient to support a contract:

 Performance of a duty imposed by the law of a particular country does not amount to sufficient
consideration.
 A plaintiff provides insufficient consideration to support a promise made by the defendant if he or she merely
performs an obligation already owed to the defendant by virtue of a previous contract between them.
Stilck v Myrick.

 Part payment of a debt: the general rule at common law is that all debts must be paid in full and that any
creditor is not bound to accept part payment of a debt in satisfaction of the whole amount owed.

 “Consideration must be for a lawful purpose.”

Consideration is unlawful if it fits the provisions of Section 19(1) of the Contracts Act 2010, according to which:
‘consideration is unlawful where it is forbidden by law; or is of such nature that, if permitted would defeat the provisions of
any law; or is fraudulent; or involves or implies injury to a person or the property of another person; or is declared immoral or
against public morality by a court.’
Section 19(2) makes provisions for agreements that will be enforceable even if their consideration is unlawful.

 Intention to be legally bound:

The intention to be legally bound is also a key component of a contract. It means that the parties to an agreement intend to
be legally bound by their agreement and that any failure to fulfill their bargain can result into legal action. Simply put, the
intention to be legally bound gives the agreement the ability to be enforceable by the law.

An agreement may constitute of offer, acceptance as well as consideration but where the parties do not intend to create a
legally binding relationship, no legally enforceable contract can emanate from their relationship.

Pal Agencies v Soroti Municipal Council and Another:

Brooker v Palmer:

Conclusion: In case one of the above is missing, there is no contract before the Law.
There are certain assumptions made by the courts under common law concerning the intention to be legally bound
depending on the nature of the agreement(s):

Social and domestic agreements:

For most domestic and social agreements it is presumed that there is no intention to create a legally binding relationship
and that they are bound by their relationship such as husband and wife, hospitality, mutual trust etc to fulfill their promises.

Balfour v Balfour: supports the rule that there cannot be a legally enforceable contract where the parties do not intend to
create a legally binding relationship out of an agreement.

However, where it is explicitly stated that there is an intention to be legally bound, then the agreement will amount to a
legally enforceable contract as seen in Merritt v Merritt. It shows the circumstances under which the parties to an
agreement can be legally bound despite their agreement being a domestic/social arrangement.

Commercial agreements:
In commercial agreements, on the other hand, it is presumed that there is an intention to be legally bound. This can be
rebutted with strong evidence as seen in Jones v Vernom’s Pools Ltd.
If and when there is no such intention, it should be unequivocally stated in the terms of the agreement otherwise the
position of the courts is that the parties intend to be legally bound.

In conclusion, the above components are fundamental to the formation of a contract and where any of them is missing, it
cannot be treated by the courts as binding on the parties or legally enforceable, subject to the provisions of the Contracts
Act, 2010 and the exceptions to the various principles governing them.

Conclusion: In case one of the above is missing, there is no contract before the Law.