FORMATION OF A

CONTRACT
INTRODUCTION
CONTEXT

Whether we know it or not we all contract at some point in time in one way
or another. It is therefore important that the student clearly can explain
from the formation to discharge of a contract. We all contract whether
consciously or sub consciously. The bulk of the day to day contracts we
make do not have all the formalities and are merely agreements. Contract
law is therefore very vital as most persons and companies contract on a
daily basis. Adept knowledge of the law of contract will make the student
appreciate the machinations behind the procedures and rules of contracts
and assist in the ascertainment of a realization of their own rights and the
remedies available in case of breach of contract.
• 
Meaning of a ‘Contract’
• Definition of contract: ‘an agreement enforceable by law’, which is ‘made with the free
consent of parties with capacity to contract, for a lawful consideration and with a lawful
object, with the intention to be legally bound’. (Sections 2 and 10 Contracts Act, 2010)
• There should be an agreement before a contract is established.
• The concept of agreement is traced from the doctrine of freedom of contract, which
treats contracting parties as free and equal agents with capacity to enter into contracts.
• Read: Printing and Numerical Registering Co v Simpson (1875) LR 19 Eq 462. Sir George
Jesel stated:
“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 the 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”.
Criticisms of freedom of contract
i) It does not take into account the fact that big business persons e.g.
banks, corporations e.t.c may deal with those who have weaker
bargaining power and oppress them in the process
ii) It ignores the social and economic pressures that could enforce a
person to enter into a contract.
Study Question:
What do you understand by the concept of ‘freedom of contract’ and
what is the effect of this concept on the validity of contract?
 THE FORM OF A CONTRACT
• The genesis of a contract is an agreement between the parties hence a contract is
an enforceable agreement.
• However, whereas all contracts are agreements, all agreements are not contracts.
• A contract is a specific form of agreement. It may be defined as an agreement
between two or more parties that is binding in law, in other words, it is a legally
enforceable agreement. This means that the agreement generates rights and
obligations that may be enforced in the courts. A non-contractual agreement
may still be honored by the parties out of a sense of moral or social obligations,
but no legal sanctions are available.
• The law in general allows freedom with respect to the form in which a contract
may be made.
Classification of Contracts
- According to section 10 (2) of the Contracts Act, a contract may take four forms:
(i) it may be oral,
(ii) written,
(iii) partly oral and partly written,
(iv) or may be implied from the conduct of the parties.

- Section 10 (5) provides that any contract, whose subject matter exceeds 25
currency points (equivalent to Uganda Shillings (UGX) 500,000) shall be in writing. In
John Kaggwa v. Kolin Insaat Turizm & Others HCT-00-CC-0318, where the plaintiff
sued the defendants for breach of an oral contract for payment of a commission of
USD 500,000, the court held that the contract was unenforceable.
Classification cont’d
• Section 10 (3) (a)-(c) provides that a contract must be in writing where it
is: - in the form of a data message, accessible in a manner usable for
subsequent reference and otherwise in words.
• According to section 10 (6) and (7), contracts of guarantee and indemnity
shall be in writing. In Karangwa v. Kulanju CA No. 3 of 2016 Court held
that any contract of guarantee which exceeds 25 currency points shall be
in writing while that which is less than 25 currency points may be oral.
• In addition to being oral or written, contracts may be express, implied,
executed or executory, contingent, unilateral or bilateral, void or
voidable.
Express contracts
• For these, terms are expressly agreed upon by the parties, either
orally or in writing, at the time of formation of the contract.
• Parties make promises to each other.
• According to section 9(2) of the Contracts Act, ‘[a] promise is express,
where an offer or an acceptance of a promise is made either verbally
or in writing’.
• For example, Amina offers to sell to David 50Kgs of maize meal at UGX
One million, and David accepts to purchase it at the indicated price.
Both parties sign an agreement to that effect thus concluding their
contract.
Implies contracts
• This is implied from the promises of the parties or the circumstances of the
case and or the conduct of the parties.
• According to section 9(3) of the Contracts Act, ‘[a] promise is implied, where
an offer or an acceptance is not made either verbally or in writing’.
• For example, where John walks into a bar and takes a bottle of soda, a
contract may be implied from his conduct and he must pay for the drink.
• A contract may also be implied from correspondence between the parties.
Read: Karmali Tarmohamed and Another v. I. H. Lakhani & Co [1958] E.A. 567
Executed and Executory contracts
• An executed contract is a contract in which the promises are made
and completed immediately. The transaction is completed at the
moment the agreement is made.

• With an executory contract, the promises are not fully performed and
they are to be executed in future.
Contingent contracts
• Section 2 of the Contracts Act defines a ‘contingent contract’ as ‘a contract to do something or not to do something where an
event collateral to the contract does or does not happen’.
• The essential requirements of a contingent are that:
i) there should be an uncertain event;
ii) this event must be collateral to the contract; and
iii) the performance of the contract depends upon the contingency.

• Examples of contingency contracts include contracts of insurance, indemnity and guarantee.

• Section 28 of the Act provides that, ‘[a] contract to do something or not to do a particular thing where an uncertain future event
on which the contract is contingent, happens, shall not be enforced except where and until that happens, and where the event
becomes impossible, the contract shall become void’.
• Section 29 of the Act provides that, ‘[a] contract to do something or not to do a particular thing where an uncertain future event
on which the contract is contingent does not happen, may be enforced after the happening of that event becomes impossible,
but not before’.
• Section 30 provides that, ‘[w]here a future event on which a contract is contingent is the way in which a person is to act at an
unspecified time, the event shall become unattainable where that person does anything which renders it impossible for him or
her to act within a definite time or under further contingencies’.36
Unilateral and Bilateral contracts
• A unilateral contract is a contract where only one party to the contract makes a
promise to the other party. It involves only one party making a promise, which
the other party will accept or reject. It is an agreement with one promise. One
party promises a future action if the other party performs whatever is requested
of him.
• A bilateral contract is an exchange of promises. All the parties make a promise to
the other to do or not to do something. One makes a promise to do or not to do
something for the other’s promise to do or not to do something.
For example, X offers his Motorcycle for sale, and Y agrees to pay UGX 3 million to
purchase the motorcycle. In other words, each party promises to perform an act in
exchange for something else. It is a reciprocal agreement where each party agrees
to offer something in return.
Valid and Void contract
• A valid contract is one which is enforceable by law. it must have all the
essential elements of a contract.
• Section 2 of the Contracts Act defines a void contract as ‘an
agreement that is not enforceable by law’. A good example is an
agreement to commit an unlawful act.
For example, X entering into an agreement with Y to murder Z on the
understanding that after completing the mission, he would be paid UGX
10 million. Such a contract is void ab initio (from the beginning) and is
unenforceable.
Voidable contracts
• According to section 2 of the Contracts Act, a voidable contract means ‘an
agreement which is enforceable by law at the option of a party to a contract
but not at the option of the other party and a contract which ceases to be
enforceable by law and which becomes void when it ceases to be enforceable’.
• Thus, a voidable contract is a contract which may appear to be valid and has
all the necessary elements to be enforceable but has some type of flaw that
could cause one or both of the parties to avoid the contract.
• The contract is legally binding but could become void. Examples include
agreements procured without consent of a party through duress or coercion,
undue influence, fraud or misrepresentation. (section 16(1) of the Contracts
Act).
Simple and Specialty contracts
• Simple contracts:
These contracts 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 conveyances of leases and land. Usually such
contracts are in writing and must be properly signed if they are to be
enforceable.
• 
Study Questions
1. Compare and contrast formal and simple contracts.
2. Explain, with practical examples and case law, unilateral and bilateral
contracts.
3. What is the effect of the following agreements in terms of enforceability?
a) ‘A’ promises to supply ‘B’ with 10 tons of Indian hemp.
b) ‘C’, a 45 year old man agrees to sell his 3 bedroom bungalow to ‘D’ an
eight year old boy.
c) ‘E’ orally agrees with ‘F’ for the sale of ‘E’s’ 2 plots of land.