Mwika Musakuzi

Law of Contract: Introduction to Law of Contract

1. Introduction

Contracts are an integral part of everyday life, e.g. insuring a car, buying some groceries, clothes,
are governed by the law of contract. A contract a manifestation of wills between parties
intending to be legally bound, a failure of which would lead to legal action or repercussions. A
contract can also be defined as a promise or a set of promises for the breach of which the law
gives a remedy. A contract is an agreement which is legally binding on the parties. It gives rise to
obligations for the parties involved. The law of contract determines which agreements are
enforceable and regulates those agreements, providing remedies if contractual obligations, that
is, undertakings or promises are broken.

2. Essential Elements for a Contract

For a contract to be valid the following essential elements must be present:

(i) Agreement - Made of Offer and Acceptance

An agreement is made up of an offer and acceptance. One party must offer another party to enter
into a contract and the other party must accept the terms of the offer.

(ii) Consideration

The agreement must be supported by lawful consideration. Consideration is that which is of

value to the contracting parties. Consideration means value or benefit given by the other party.
Consideration is the essence of a bargain between the contracting parties.

(iii) Intention to Create Legal Relations

This refers to the legal competence for one to contract. Both parties making the agreement must
have the legal capacity to enter into contract. They must be recognized by law as possessing the
characteristics that qualify them as parties competent to contract.
 (iv) Capacity of Parties

For any agreement to be considered as a contract, the parties must make the agreement with the
intention to create legal relations between them, that is to be legally bound. In other words, the
parties must contemplate legal consequences. For instance, minors, mentally unsound persons
and intoxicated persons may not create a valid contract. With regard to minors there are some
exceptions to the general preposition.

(v) Free Consent

A contract must be made with the free consent of the parties. The validity of a contract may be
affected if it is induced by the following factors: Misrepresentation, Undue influence, Coercion,
Fraud, and Mistake

(vi) Legality

A contract must be made to accomplish something that is legal and not against public policy.
Thus courts of law will not enforce a contract whose objective or consideration is found to be:
Illegal Immoral, or contrary to public policy. Such as contract to purchase Marijuana or Cocaine

(vii) Form

Some contracts are required to be in a particular form in order for them to be valid. For instance,
certain transactions involving land such as conveyances, legal mortgages and leases must be in
writing and require the execution of a deed.

3. Formation of Contract

A contract may be formed in three ways: by writing, orally and by implication/impliedly. In

writing contracting parties sit down and draft terms of the agreement and sign it. Orally basically
entails the word of mouth. Oral contracts are valid contracts; the only problem may persist when
it comes to a dispute where it is another parties word against the other as there is no
documentation of the agreement.

A contract formed by implication/imliedly merely entails formation through conduct. For

instance, a bus driver and his conductor merely park at a bus station and chant the route whilst
the passenger merely enters the bus and sits, when the bus moves the passenger pays the bus fare
and is expected to be dropped at their destination. In that sort of scenario there is no writing or
oral exchange of promises, merely the conduct of the driver, conductor and passenger formed the
contract. The conduct of the bus driver parking at the station and the conductor chanting the bus
route, the passenger entering and paying the bus fare is what forms the contract.

4. Classifications of Contracts
There are two classes of contracts, namely:

(i) Express Contract

An express contract is a contract whereby the parties specifically and expressly agree on the
nature and terms that will govern their relationship. The term express coming from expression.
Parties may express themselves in writing or orally.

(ii) Implied Contract

An implied contract is a contract whereby there is no specific agreement between the parties. The
agreement is not as a result of any express promise by the parties but it is merely interpreted or
inferred from the acts or conduct of the parties and all the surrounding circumstances.

5. Types of Contracts
(i) Standard Form Contracts

Standard form contracts are contracts where the terms and conditions are not subject to
negotiation between the parties but are predetermined. A large number of business organizations
use their own standard form contracts so that they can trade on terms they want. Examples of
standard form contracts include laundry service contracts, insurance policies, hotel
accommodation contracts, and bank guarantee forms. The standard form contracts ensure that the
terms that are included in the contract are advantageous to one who has prepared or designed on
the standard form contracts. Besides standard form contracts enable procedures to be
standardized and less time is used in making a contract. Standard form contracts are also known
as contracts of adhesion, which means you either accept it as it is or leave it.
 (ii) Contracts by Deed

A deed is a formal document, which must be signed, witnessed and delivered. The law requires
that certain contracts be made in writing. The reasons for demanding a written contract include:
To provide the consumer with a measure of protection which can be achieved by requiring a
clear statement of rights and responsibilities to be contained in the written agreement. To oblige
parties involved in technical transactions to record their respective obligations. Examples of
contracts that must be in writing include: Contracts for the sale or transfer of land or when a legal
mortgage of land is created. (Lands & Deeds Registry Act) The transfer of shares in a registered
company. This is required under section 64 of the Companies Act, Cap 388, which states that “a
proper instrument of transfer” must be delivered to the company. The company cannot register
the transfer until this is done. Cheques, Bills of Exchange and Promissory notes, under the Bills
of Exchange Act 1882. Assignment of Life Policies (Insurance Act) Hire Purchase and
conditional sale.

Failure to comply with the statutory requirements stated above renders the contract
invalid.

(iii) Simple Contract

This is a contract that is not made under a deed. It is a contract which is informal and can be in
writing, made orally or can be implied from the conduct of parties.

(iv) Void Contract

A void contract has no binding effect at all. A void contract does not create any rights or
obligations and the parties will be treated to have never entered into an agreement in such a
contract. An example of a void contract is one whose purpose is illegal, such an agreement to
commit a criminal act, or to trade with an enemy alien during the time of war.

(v) Voidable contract

Sometimes the contract will not be void but merely voidable. Where this is the case, one of the
parties has the option of avoiding the contract, but until the option is exercised the contract still
stands or valid. In short a voidable contract is a contract, which is binding, but one party has the
right at his own volition to set it aside.

For example, if consent of a party to a contract is caused by undue influence or induced by fraud
that party may avoid or terminate the contract if he so wishes. Alternatively, he may choose to
have it carried out. A voidable contract continues to be binding till the party who is entitled to
avoid it does so.

(vi) Illegal Contract

An illegal contract is a contract which is forbidden by law or is contrary to some rule of public or
is immoral or is criminal in nature. All illegal agreements are void but not every void contract is
illegal.

(vii) Executed Contract

An executed contract is a contract in which the objective of the contract is at once performed,
that is, both parties perform their obligations under the contract. For example, when a food
vender agrees to sell food and the purchaser consumes or takes the food away on payment to the
vendor.

(viii) Executory Contract

An executory contract is a contract in which one of the parties is bound to do a given thing at
some future date. An example is an agreement whereby the seller promises to deliver a car in a
week’s time, and the buyer agrees to pay for it on delivery. The contract is executory only as
regards the obligation of the party who is yet to perform his part of the contract and hence may
also be described as partly executed. A contract in which both parties have not performed their
obligations is also an executory contract.

(ix) Unilateral Contract

A unilateral contract binds only one party. It is a contract in which only one party to the contract
has to fulfil his obligation, the other party having fulfilled his obligation at the time of the
contract. Unilateral contracts are also known as executed consideration.

(x) Bilateral Contract

A bilateral contract binds both parties in that the obligations of both parties to the contract are
outstanding at the time of the formation of the contract. It is the most common type of contract.
Bilateral contracts are similar to executory contracts.