FORMATION OF A CONTRACT

How is a contract created?

The vast majority of contracts entered into in the cost of human relationships aren’t
formally drawn up or executed. Nevertheless they are fully binding. Section 10
subsections 2 of the contracts Act 2010 provides that a contract may be oral or
written or partly oral and partly written or may be implied from the conduct of the
parties.

Contracts can be categorized either according to their subject matter or according

to the form.

1. Simple contracts

2. Contracts which have to be in writing in order to be used for reference.

3. Contracts which must be evidenced in writing

Simple contracts are the most common, they don’t need to take any particular
form, and they may be simple, all that is important is that the essential elements of
a valid contract exist.

Contracts which must be in writing, Section 10 subsection 3 of the contracts Act

defines a contract which is a written contract states that a contract accessible in a
manner usable for subsequent reference and otherwise in words. Section 10
subsection 5 provides that a contract whose subject matter exceeds 25 currency
points (500,000/=) must be in writing. Likewise S10 Subsection 6 of that Act
requires a contract of guarantee or identity to be in writing. The Registration of
Titles Act (RTA) cap 230 this law describes the format for leases and also for land
transfers.
* The Hire Purchase Act (HPA) section 4 requires hire purchase agreements
are to be in writing, likewise the Advocates Act requires that contingency
fee agreements to be in writing and filed in the Law Council.

Contracts which must be evidenced in writing section 5 Cap 82, Sale of Goods
Act, it provides that the contract for the sale of goods of 200shs or more should be
evidenced in writing unless the goods have actually been derived unless atleast part
payment has been made.

A contract is enforceable so long as the essential elements exist, i.e. 1. There must
be an offer, 2. The offer must be accepted, 3. There must be consideration, 4. The
parties must have contractual capacity, 5. There must be intentions to enter into
contractual relations, 6. The contract must be lawful within the requirement of
legality.

- An offer
- Must be accepted
- Consideration
- Contractual capacity
- Lawful

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 offerer 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 offerer
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.

CLASSIFICATION OF OFFERS

Specific and general offers.

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.

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.

Case; Ortis Elevator Company V Singh

 DIFFERENCES BTN AN OFFER AND AN INVITATION TREAT

The basic characteristics of an offer are that the person to whom it is made accepts
it the result is consent. It is therefore important to distinguish between statements
which amount to offer and those which are invitations to the addressee to make
offers-because a response to the former creates a contract while the response to the
latter makes an offer. Hence when the goods are displayed on the Market that
doesn’t constitute an offer.

A buyer coming to the Market and asking to buy the goods will instead have made
an offer. By displaying the goods the seller is inviting the public to buy the goods
or to make offers to buy the goods.

Case; Fisher V Bell (1960) vol 3 All ER 731

The respondent in an appeal a shopkeeper displayed a flick knife in their shop

display window with the price tag attached, the respondent was then charged with
an offence under sec II under a law called Restriction of Offensive Weapons Act
1959.

Under that section, it was an offence to offer for sale certain specified weapons.
The issue therefore was whether displaying the knife with a price tag was treated
as an offer, it was held that it was a mere invitation to treat and he hadn’t
committed an offence as yet.

Case; Pharmaceutical Society of Great Britain V Boots Cash Chemists

(Southern), Ltd.

The respondent was a chemist’s shop which operated a self-service system for
dispensing drugs. The drugs and poisons Act provided that certain listed drugs
would only be sold under the supervision of chemist. The shop had a chemist but
wasn’t sitting on the counter but in an office adjacent to it. Their system was that
intending buyers would select drugs from the shelves; carry them to the counter
where the chemist would supervise the drugs. On the day in question two
customers visited the shop and purchased drugs the usual way then the Plaintiff a
Pharmaceutical Company being a National regulator for drugs commenced
proceedings against the chemist purported to supervise the sale of drugs at the
counter, the offer had already been made. It was held that displaying the drugs on
the shelves didn’t constitute an offer and picking them by the customer didn’t
complete an offer but instead the purchaser who picked the drugs to the counter
made an offer and at that stage the chemist was involved and therefore committed
no offence.

Others include advertisements, invitation for bids and auction sales. When an
auctioneer puts up an item for auction, that’s not an offer, an offer arises when the
member of the audience, shouts out the price, the auctioneer therefore isn’t bound
to sale the products instead the member of the audience who shouts out the price is
bound to pay that price at the fall of the auctioneer’s hammer.

The second requirement of a valid offer is that the offeree must have valid
knowledge of the offer i.e. it must have effectively been communicated to the
offeree for it to be a contract.

Case; Abrams Fitch & Prosser Jones v Adrastus Snedaker

A reward of 200 dollars was put up for anyone who would help in arresting a run-
away criminal, the Plaintiff was unaware of this offer but he apprehended the
criminal and afterwards he claimed the reward, it was held that he wasn’t capable
of claiming the reward since he was unaware of this offer at the time.

According to Section 3 subsection 1 of the Contracts Act the communication of an

offer is made by an act or omission by which Section 4 subsection 1 states that
communication of an offer is complete as soon as it comes to the knowledge of the
offeree.

The third requirement is that there should be certainty of expression a Court won’t
accept that there is a contract if the words used in an offer are so ambiguous when
the person accepts; it is not possible to see what they have accepted.

S. 23 of the Contracts Act states that an Agreement the meaning of which isn’t
certain or capable of being made certain is void.

Case; Sands v Mutual Benefits 1971 EA 156

In that case, the Plaintiff a tenant sued the Landlord for unlawful eviction from
premises which were being held on a 3yr lease, part of the tenancy agreement
stated that the premises were being rented at such rent initially agreed. The
Landlord argued that this Agreement was void for uncertainty the Court disagreed.

Case; Scarmel and Nephew V Ouston 1971 vol I All ER pg 14

Case; Ghulam Khadir v Br. Overseas Engineering Co. 1957 E.A pg 131.

Exceptions to the general rule about uncertainty

Mukisa Biscuits Manufacturing Co. Ltd v West End distributors. Ltd 1970 EA
pg 469

The appellant company contracted the respondents to promote the appellant’s

biscuit sales the appellant breached the agreement and when sued he argued that
the contract was void for uncertainty. The EA Court of appeal held that the
agreement was enforceable, the Court pointed out that whereas generally an
agreement is void if vague and uncertain there are exceptions under which such
agreements are enforceable. These are;

1. Where the contract is executed i.e. performed or part performed then the
Court will enforce it.

2. Where the uncertainty relates to how the agreement is to be terminated in

such a case the Court presumes that there is an implied term in that contract
that either party can terminate that contract by giving notice to the other
party.

3. Where uncertainty concerns payment then the Court can imply that
reasonable payment can be made and the amount payable will depend on the
prevailing price in the Market.

4. Where the offer is vague/uncertain but the parties have had previous
dealings then it’s assumed that the parties intended to relate in a similar way.
The rule remains however that it’s not for the Court to make terms for the
parties but enforce the terms they have made themselves.

Can letters, text messages, emails constitute an offer.

TERMINATION OF AN OFFER
There are 5 principle ways through which an offer is terminated,

1. By Revocation

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. S3 ss 3

states that the communication of revocation of an offer or acceptance is made by
any act or omission of the offerer/acceptor respectively intended to communicate
the revocation or having the effect of doing so.

Section 4 (3) provides that on the part of the offerer, 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 dealers 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 24 th
March, the car was stolen from the dealer’s premises, badly damaged and
abandoned on the highway. On 25th Mach, 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 20 th 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
withdraw 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 offerer has received the letter. It doesn’t matter whether
he has read the letter or not so long as he has received it.

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 15 th.
Meanwhile on October 8th, the Defendants wrote to Byrne revoking their offer but
this letter did not reach the Plaintiff until October, 20 th. 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 8 th 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.

2. Rejection

The 2nd 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.

3. Counter offer

The third way is by counter offer 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
sale his farm at 1000 pounds, the Plaintiffs agent called the defendant asked for a
few days to accept this offer. On 25 th June the defendant wrote to say that he
couldn’t accept this offer on 29th June the plaintiff wrote accepting the offer of 800
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.
 4. 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.

5. Failure to perform/fulfill a condition precedent

The 5th way is failure to perform the condition where an offer is conditional and the
conditions set do not arise then the offer is terminated. Roultledge v Grant

6. Death or insanity

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 offerer to the offer thereafter.

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.

ACCEPTANCE
The effect of acceptance is that it transforms an offer into a binding contract. The
acceptance may be in form of writing or oral or may be inferred from performing
the contract e.g. the conduct of parties.

The basic rule of acceptance is that the acceptance must be unequivocal. It must
exactly tally with the words of the offer. If it seeks to revive the terms of the offer,
it becomes a counter offer.

Secondly the acceptance must be effectively communicated to the offeror in

accordance with Section 4 (2) of the Contract Act.

Ordinarily, the acceptance takes effect against the acceptor/offeree when it comes
to the knowledge of the offeror but this is subject to exceptions e.g. the postal rule.

As against the offeror/acceptor the acceptance is effective if the offeree/acceptor

does something which makes it impossible for him/her to revoke the acceptance.

According to Section 7 of the Contracts Act the acceptance is sufficient if it is

communicated in any reasonable or usual manner. However if the offeror
prescribed the manner in which the acceptance is to be communicated then the
acceptance should be in that mode for it to be effective.

If it is communicated in a different manner, the offeror is entitled under S 7 (2) to

insist that the acceptance be in the prescribed mode, if he doesn’t he is presumed to
be bound by the acceptance.

Where the offer is conditional and the offeree performs the conditions of the offer,
that alone amounts to acceptance of the offer Section 9.

Case Jones v Daniel

The defendant wrote to the plaintiff offering to buy the plaintiff’s property, the
Plaintiff’s lawyers wrote back accepting on his behalf and in the letter of
acceptance he stated he encloses a formal agreement with your signature, the terms
enclosed contained more terms that weren’t in the former. It was held that this
agreement was equivocal and it brought about a counter offer and therefore there
was no offer.

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
otherwords, one has to prove that there was an offer and it was communicated to
you by the offeror.

Case Powell v Lee;

The Plaintiff applied for appointment as a H.M of a school run by the defendants,
the defendants sat in a committee and approved the appointment, one of them told
the one authorized to communicate such matters. Later the defendants changed
their mind and the plaintiff sued them for breach of contract. It was held that the
acceptance wasn’t related to the offeror by the lawful authority and so it wasn’t
binding on the defendants.

THE POSTAL RULE OF ACCEPTANCE

This differs from the general rule of an offer that it must be communicated to the
offeror.

Ethron v Fraser 1892

An offer is made esp./ A contract is made when a letter is dropped in the post
office.

Entores 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 Defendant’s
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.

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.

According to Hodgin the foundation of contract law is the notion/concept of

bargain i.e. the mutual exchange of promises. Consequently, the law generally
doesn’t enforce promises which are made by one party without a corresponding
benefit accruing from the promises to the promisor.

Consideration according to the case Currie v Misa (1875) LR 10 Ex 153; (1875-

76) LR 1 App Cas 554. Consideration means a right, interest and profit or benefit
accruing to one party or forbearance, detriment, loss or responsibilities given,
suffered or undertaken by the other party.

*This is the price for which the promise of one person is bought.

TYPES OF CONSIDERATION

Consideration may be executory, executed and past. Executed is where the offer
and the value are given at the same time. Executory is where the value is given
later.

RULES WHICH GOVERN CONSIDERATION

a. Consideration must move from the promisor that in order to enforce the
promise the promisee must demonstrate that he gave value in exchange of
the promise. A person can’t enforce a contract where he didn’t give or
 promise value in return that also means one can’t give value for another
party

Case Dunlop Pneumatic Tyre Co. v Selfridge [1915] A.C 847.

Where the defendant bought tyres from D & CO. The tyres were manufactured by
the Plaintiff and sold to D under an agreement where D undertook not to resell the
tyres below a given price. D had also undertaken to impose the similar conditions
this is because the tyres wore being sold at a discount. However the defendant with
full knowledge of that condition went on to sell the tyres below that price. The
plaintiff sued the defendant for breach of contract.

It was held that the action couldn’t be sustained because the plaintiff hadn’t
furnished any consideration to the defendant when the defendant promised not to
sell below agreed price.

b. Consideration must be sufficient but need not be adequate. An act done or

thing given will amount to consideration if it has some economic value. The
law however doesn’t require the value flowing from the promise should
correspond to the value of the promise. Courts therefore are not concerned
with the economic Value of the bargain. All that matters is that there is value
accruing; otherwise generally speaking, courts do not enforce promises not
made with some exchange in value. At the same time it’s not for the court to
inquire into the adequacy of the contract so long as it was freely entered into.

Case Lloyds Bank-v-Bundy-19 where Lord Denning stated that no bargain will
be upset if it’s the result of the ordinary inter-play of the market forces.

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.

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.

c. The third rule is that past consideration isn’t sufficient to sustain a

contract if for example person performs a duty without expecting payment
and after words the grateful beneficiary of that duty promises that amounts
to past consideration it isn’t consideration at all.

Roscorla v Thomas [1842]

The defendant sold the horse to the plaintiff, the plaintiff paid and as he was
leading the horse away, the defendant assured him that the horse was free from
vice. Infact the buyer later discovered that the horse was vicious; he then sued the
defendant for breach of warranty as to the condition of the horse. It was held that
the conclusion of the contract was when payment was made. By the time assurance
was given the contract had be recharged and no fresh consideration was given by
the buyer for assurance.

d. Finally, consideration must be lawful. Section 10 (1) defines a contract as

an agreement made with the free consent of the parties with capacity to
contract, for a lawful consideration and with a lawful object, with the
intention to be legally bound.

SITUATIONS WHICH ARE NOT REGARDED AS VALUABLE

CONSIDERATION

a. Performance of an existing duty. When a person does something which it

is his duty to do anyway and in return for his so doing the beneficiary
promises value, that promise is not enforceable, the duty may have been
 imposed by law or by relationship either marital or blood or may be imposed
by an earlier contract.

Stilk v Myrick

Two seamen deserted the ship in the middle of the voyage. Their colleagues
threatened to follow suit and the captain promised the remaining crew that held
distribute to them the wages of the two deserters if they could handle the ship to
the destination. One of the remaining seamen sued for the extra pay. It was held
that he didn’t succeed because he had an obligation to make the ship reach the
destination because it was his obligation.

It should be noted that when a person performs more than what he is obliged to do
in consideration of a promise then he can sue for additional pay.

b. The 2nd is that the performance of an obligation owed to a third party. X

promises Y that he will do something for them. The question is whether that
promise is enforceable by either Y or X or both.

Shadwell v Shadwell – Case

c. Finally, payment of a lesser sum than is owed. The question is whether a

person owes the other a sum of money and the creditor promises the debtor.

The creditor isn’t generally bound by that promise because no consideration will
have been given for that consideration.

Payment of a lesser sum does not discharge the debtor from the obligation to pay
the whole. This is known as the rule in Pinnels case [1602]

Pinnel brought an action in debt basing on a bond against COLE COLE for
payment of 8 pounds and 10shs. Cole argued that at Pinnels request he had earlier
paid him 5 pounds and 25shs and Pinnel had accepted it as full satisfaction of the
debt. Court held that payment of a lesser sum wasn’t sufficient to discharge Cole
from the obligation of Cole to pay the whole sum. The court went on to hold obiter
that if a person who owns money pays by way of horse, cloth [property] or pays in
a different made from the one envisaged by the parties then he can’t be discharged.

Pinnel’s case was considered and re-affirmed by the House of Lords in the case of
Foakes v Beer, the Plaintiff obtained judgment against the defendant for 2090
pounds and the court ordered that sum was to attract interest. The plaintiff
promised the defendant that she wouldn’t take legal action to recover the sum i.e.
that she would give the defendant time to pay and he wouldn’t charge interest for
the sum. Later the defendant paid the 2090 pounds but refused to pay the accrued
interest in the sum of 260pounds. The plaintiff now sued again for the payment of
this interest. It was held that no consideration had been made to forego the interest.

EXCEPTIONS FOR THE RULE IN PINNEL’S CASE

a. If the lesser sum is paid before the payment is due on the promise that the
payee won’t claim the balance the debtor is discharged.

b. Secondly if payment of a lesser sum is paid using another mode apart from
the agreed mode of payment.

c. If payment is made in a different currency from the one in which the debt
was incurred at the request of the creditor and on the promise that he won’t
pay the balance, the debtor is discharged.

d. If payment is in kind i.e. in form of goods, services.

e. If payment is made to the 3 rd party at the Creditors request then a lesser sum
is paid.

EXCEPTIONS TO CONSIDERATION

a. There are situations where a contract may be upheld in the absence of

consideration these are;

b. Where the contract is under seal i.e. it’s in form of a deed, executed and
sealed in the presence of witnesses, then the promise contained in that is
enforceable in the absence of consideration.

c. Where there’s promissory estoppel

Central London Property Trust v High Trees KB 1947pg 130.

Century Automobiles Ltd v Hatchings Bemer-1965 EA pg 2304

Combe v Combe 1951 vol All ER 767

Mulji v Commissioner of Income Tax 1967 EA pg 50

Executed Contracts

This refers to a contract which is wholly performed and nothing remains

unexecuted/undone in the terms of the contract.

Executory Contracts

This refers to a contract which is wholly unperformed i.e. there remains something
further to be done e.g. where A is to buy a bicycle from B. B brings the bicycle to
A on July 15 and B later makes payment on July 1. One of the parties has played
its part [performed] and the other party is to perform at a later stage.

Unilateral Contracts

Where at the conclusion of the contract is an obligation for one party to perform
i.e. one of the parties has already played its role.

Bilateral Contracts

Where it’s an obligation from part both of the parties to refrain from doing a
particular thing.

* A Contract is a contract from the time is made not from the time it is due.

Estoppel refers to a situation where a party asserts an existing legal relationship by

words or conduct leads the other party to believe that he will not insist on his rights
under contract on the basis of that promise, the promisee alters his position then the
promisor won’t be allowed to go back to his promise and try to enforce his rights
under the contract if to do so would unjustly prejudice the promisee.

In other words he is estopped from retracting the promise. This position can be
traced from an 1845 decision in the case of Jorden v Money where it was held
that a representation to that effect will operate but at that time it operated in very
narrow confines. In that case therefore, it was represented that.
This was also the position years later in Hughes v Metropolitan Rail Company
that doctrine of promissory estopped achieved full recognition in 1947 in the case
of

Central London Property Trust v High Trees KB 1947pg 130 In 1937, High Trees
House Ltd leased a block of flats in Clapham, London, for a rate £2500/year from
Central London Property Trust Ltd. Due to the conditions during the beginning
of World War II occupancy rates were drastically lower than normal.
In January 1940, to ameliorate the situation the parties made an agreement in
writing to reduce rent by half. However, neither party stipulated the period for
which this reduced rental was to apply. Over the next five years, High Trees paid
the reduced rate while the flats began to fill, and by 1945, the flats were back at
full occupancy. Central London sued for payment of the full rental costs from June
1945 onwards (i.e. for last two quarters of 1945).

Based on previous judgments as Hughes v Metropolitan Railway Co, Denning J

held that the full rent was payable from the time that the flats became fully
occupied in mid-1945. However, he continued in an obiter statement that if Central
London had tried to claim for the full rent from 1940 onwards, they would not
have been able to. This was reasoned on the basis that if a party leads another party
to believe that he will not enforce his strict legal rights, then the Courts will
prevent him from doing so at a later stage. Being obiter dicta, this remark was not
actually a binding precedent, yet it essentially created the doctrine of promissory
estoppel.

Course work

The doctrine of Promissory Estoppel in a way eliminated the requirement of

consideration to sustain contractual promises.

Discuss 4 pages handwritten.

Century Automobiles Ltd v Biomer

The doctrine of promissory estopped was mostly applied in some EA cases e.g
Century Automobiles Ltd.

The defendant leased premises to the plaintiff and the parties would either
terminate giving 3 months’ notice.

The plaintiff wanted to effect substantial modifications on the premises including

turning part of it into a supermarket which would involve substantial costs. He was
worried that he would spend such money and the landlord would terminate the
tenancy. He therefore assured the tenant that he wouldn’t be terminating the
tenancy for the next 4 years and so the tenant made the modifications, 8 months
later, the landlord gave the tenant 3 months’ notice of termination so the plaintiff
sued to retain the lease. It was held that the defendant was estopped from
terminating the contract on the basis of the defendant’s promise.

The court went on to explain that for an estopple to rise, a party must have made
unequivocal promises that he wouldn’t insist on the terms of the contract.

Nurdin Bandali v Lombank Tanganyika Ltd [1963- EA 304

Estoppel threatened to run out of control and it almost rendered the doctrine of
consideration irrelevant and so the courts began to limit its operation.

In the following ways;

Combe v Combe

Where it was held that in the divorce proceedings the man was/promised to pay his
wife 100£ alimony even though she hadn’t asked for it in the divorce petition. That
the principle in high trees doesn’t create rights where non-existed before. It can
only be used to prevent a party from insisting on his rights and therefore estoppel is
a shield not a sword (that is, it could be used as a cause of action rather than merely
providing a defence to an action).

The Uganda courts also borrowed the idea of Combe v Combe in Mulji v
Commissioner where the plaintiff sued seeking declaration preventing the
Commissioner of income tax from collecting certain taxes on the ground that the
Commissioner had promised him that he wouldn’t enforce the tax until he had re-
examined the plaintiff’s books of account. The court dismissed the claim and held
that in essence the plaintiff company was relying on estopple to establish the cause
of estoppel where none existed. Court held that the doctrine of promissory estoppel
that estopple can’t be the basis of a claim and there is exception to that rule.

Ajayi v Briscoe [Nigeria] Ltd [1964].

Where court established 3 principles that estoppel doesn’t create universal rights.
It’s not a remedy in personam but in rem.

The promissor can revoke the promise by giving reasonable notice to the promise
to adjust his affairs back to the original contract.

If it is no longer possible for the promisee to adjust back the original contract then
the promise becomes final and irrevocable.

That a promise made without consideration may none the less be enforced to
prevent injustice.

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

The following are the exceptions to privity of contract.

- Third party insurance

- Negotiable Instruments-cheques –where the convenants in settlements
- Constructive trusts
- Agency
- Assignment

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 suggest if a 3 rd 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.

2. Negotiable Instruments; 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 3 rd 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.

3. 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.

4. Restrictive Covenants i.e. the rule in Tulk v Moxhay. In leases there are
usually terms which may be expressed or implied. Terms in leases are of 2
types i.e. some are covenants and conditions. Some of the covenants which
attach to and run with the land e.g. the obligation to keep the property in a
state of repair, the obligation not to interfere with the adjoining land etc…

When covenants are inform 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. In Tulk v Moxhay, it was held that though restrictive
covenants are common in leases they can also apply to freehold estates.
5. Agency [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 3 rd parties on behalf of the
Principal. This appointment creates 3 kinds of relationships.
The Principal – Agent relationship

The Agent- 3rd party

Principal -3rd party relationship.

If the contract concluded between the agent and the 3 rd party is breached the
3rd party may sue the principal directly even if he never concluded the
contract with the principal. The principal himself can enforce a contract with
the 3rd party. This can be based on the latin maximum “Qui facit per alium
facit perse” that he who acts through another acts for himself.

a. Appointment of agent

An agent may be appointed by either express authority S (122) this may be

in oral or in writing.

b. Implied authority where an agent is expressly appointed for a given

purpose he is therefore implied appointed for a purpose which is of
express authority.

c. By estoppel or apparent authority or austensible authority. This arises

from the doctrine of holding out i.e. misleading 3 rd parties that you are
my agent. Case Hely-Hutchinson v Brayhead.

d. Agency by necessity where for example a person is put in charge of

another’s property and in order to preserve the property, it becomes
necessity for him e.g. for him to hire a container/shelter from a third
party. A third party can enforce payment to the real owner of the property
which was being guarded.

AUTHORITY OF AN AGENT
The agent has both express and implied provisions depending on the
contract entered into. But in doing so he has a duty to 1. To act personally,
to exercise care and skill, to act in good faith and the duty to account to the
principal. The principal on the other hand has the duty to remunerate the
agent, to indemnify the agent who can be sued in contracts with agents.

This depends on the extent of disclosure, where the principal is disclosed the
3rd can sue the principal, he cannot sue the agent.

Where the principal is not disclosed, then the third party might sue either of
them or both.

Where the agent acts in such a way that he rules out the role of the principal
therefore only the agent can be sued.

Assignment;

The benefits of a contract can be transferred through a process known as

assignment and a third party called an assignee. Under common law,
property was categorized into personal property also known as chattels.

INTENTION TO CREATE LEGAL RELATIONS

The parties must intend that if one of them fails to fulfill a promise
undertaken under the agreement, he/she shall be answerable for that failure
in law.

The reason why establishing intention is important is to distinguish between

legally binding contracts and those which are not intended to produce legal
consequences e.g. social contracts e.g. between a parent and a child.
Clearly, intention to create legal relations is an important element necessary
for the formation of a contract because it reinforces the element of consensus
i.e meeting of the mind. Both parties must have the intention and this can be
shown from their conduct/actions immediately after the contract.

The actions/conduct of the parties to the contract should be such that for
reasonable persons should draw conclusions that the parties want to be
legally bound.
 * Balfour v Balfour
* Spellmar v sp………………. 1961 vol I WLR 3921
* Jones v Padavaton ………. 1969 vol I WLR 328
* Snelling v John G Snelling Ltd 1973 1 QB 87

In commercial agreements, the parties will normally intend there to be a legal

relationship i.e. if one of them breaks the agreement the other still has the right to
recourse to the courts of law to enforce the agreement.

* Rose and Frank Co. Ltd v Crompton Brothers Ltd- In honor 1925 AC pg. 445
* Appleson v Littlewood Ltd Pg 464 1939 vol I ALLER
* Comfort letters – Kleinworth Ltd v Malaysia Mining Corporation 1989 vol I
WLR pg 379 Collective agreements Ford Motor Co. v Amalgamated Union of
Engineering and Foundry Workers 1969 vol II QB 303. Exgratia payments-there is
usually a burden to prove that they are intended to be legally binding but many of
them are ambigious.

Edwards v Skyways Ltd 1964 vol I WLR pg 349

Without Prejudice Negotiations

The general rule is that without prejudice negotiations are not admissible in
evidence.
Ruth and Tomkins v Greater London Council 1989 AC pg 1280 Exception; Walker
v Wisher 1889 vol 23 QB pg 335

Tomlin v Standard Telephones and Cables Ltd 1969 vol I WLR pg 1379

Previously the courts had found it difficult to incorporate this requirement as they
thought that it was a hard task to ascertain the mind of the heart man’s law cannot
judge, this requirement would appear in Carlil v Carbolic smoke ball Co. case.

The requirement is sometimes called consensus of the parties or the “will theory”
of contract. This was to emphasize that contractual liability is self-imposed.

Where ………..assume that there was no consensus/consent, if it is bad for the

existence of a valid contract. This requirement has been enforced by the courts in
the case of interpretation of contracts. In interpretation of contracts, the principle
question that the courts will be concerned with is to find out what the contracting
parties agreed upon and could reasonably said to have intended. It is that and
nothing else that the court should give effect. It’s the reason why in case of proven
mistake/duress the contract will be avoided. If a person is shown to have been
mistaken/coerced into a contract it can’t be said that that party intended to be
bound.

Bell v Liver Brothers 1932 AC pg 161

The requirement of proof of intention to create legal intentions doesn’t only apply
to the benefit of the contracting parties, but it also helps in assessment of damages.
It is deemed that by accepting to be legally bound, a contracting party is also
expected to reasonably foresee in terms of the essence of liability what he has
undertaken to do in terms of the contract.

Hadley v Baxandale 1864 vol 9 pg 341 EXCH [Exchequer]

In conclusion, the basic philosophy of the will theory of a contract restricts the
function of a court to enforcing the contract in the terms agreed upon by the
parties. If it imposes on the parties any term, this will be incompatible with the
doctrine of freedom of contract which allows contracting parties to freely
determine the nature and extent of their relationship with one another. By doing so,
the courts will be making contracts for individuals which is not their role.

* Instances when courts can depart from these positions and imply terms to the
contracts.

The will theory therefore is a reinforcement of the phenomenon of agreements in

contracts [i.e. agreements in body].

Proof of a definite offer means and includes an intention sought to make the offer.
There must be an accompanying intention to be bound once the terms of the offer
are accepted by the offeree. Similarly, once the offer has been made there must be
evidence from which it can be inferred that there is an intention by the offeree to
be bound by the terms of the offer.

CAPACITY TO CONTRACT

S 32 Employment Act, S.11 Contract Act, Article 34 (4 & 5) Constitution.

S 27 of the Contract Act
Nash v Inman
Price v Kelsal
Pearce v Brian (1929) 2 KB 310

Cases on contractual capacity

Blacks law dictionary 8th Edn. Defines Contractual Capacity.

As the role in which one performs an act; the power to create/enter into a legal
relation. From both the constitution, and contracts Act, contractual capacity relates
to the state of mind, age and other express statutory provisions relating to a
particular transaction. Reference to insolvency Act, Employment Act and the
Bankruptcy Act.

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.

1. CONTRACTS BY INFANTS

Contracts made by an infant is voidable at his option, the options available

to the infant in such a contract are two fold;

(a) To liquidate the contract within a reasonable time upon attaining a

reasonable 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.

1. 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:

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 infant to infant 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 station 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.

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 case Barnes and Co. v Toye [1884] vol 13 pg 410 and that if Nash v
Inman those two cases suggest that if at delivery of the goods in issue, it is
showed that the infant is already sufficiently provided with goods of the kind
that even that fact isn’t known by the Plaintiff the price of the goods isn’t
 recovered in the case of Ryder v Wombell (1858) 4 Exchequer pg 32. The
case observed that the question of whether articles are necessaries or not is a
question of mixed law and fact;

1. One on law; the courts first determine whether the article is a necessary in
the circumstances and the burden of proof is with the person who is asserting
that the goods are of a description reasonably suitable to a person in the
station in life of an infant.

2. If one is in the positive, then the court will proceed to consider the evidence
whether to find for the supplier of the goods in the circumstances i.e. to
establish the actual requirements of the infant and it has to be decided
whether the infant was adequately supplied with articles of the kind in
question at the time of the delivery.

The case of Roberts v Gray [1913] 1 KB pg 520 introduces another

element for validity of a contract for necessaries i.e. the terms of the
contract shouldn’t be onerous on the infant. The contract therefore will not
bind an infant if it is prejudicial to the infant’s interests. The case of Fewcett
v Smethurst [1914] 84 LJ KB pg 473 held that it must be sure that a contract
is substantially for the benefit of the infant.

3. The last element on the requirement of contracts of necessaries is that the

courts will not strictly compel the infant to pay the exact price. The law
seems to be in favour of a reasonable price i.e. where there is a dispute to the
price payable, the infant will be ordered to pay a reasonable price Ponty
Pridd Union v Drew [1927] vol 1 KB pg 214 or 220 Scutton LJ.

In summary therefore the position of the law of necessaries is that;

1. The goods or services must be one suitable to the station in life of the
infant.

2. It must be one which is actually required at the time of the contract and at
the time of delivery.

3. The goods or services must be one which is substantially for the benefit
of the infant.
 4. The terms of the contract must not be onerous to the infant.

5. The infant is only liable to paying a reasonable price considering the

financial status of the minor.

Doyle v White City Stadium, British Boxing Board of Control [1935]

vol 1 KB pg 110. The Court of Appeal held that the contract between the
Plaintiff and the Board although not one for employment was one the
effect of which was to enable the Plaintiff earn remuneration in and to
obtain protection in the exercise of his profession was closely associated
or bound up with the class of contracts of service. His action failed.

EDUCATION/BENEFICIAL CONTRACTS FOR MINORS;

An infant can bind himself by contracts for his education or of services or

apprenticeship. Since they are generally held to be for his advantage that he should
acquire his means of livelihood. Accordingly, a minor or an infant can enter into a
contract of employment so as to earn a living or enter into a contract for purposes
of obtaining services or education so as to qualify for a suitable trade/qualification.

Article 34 clause 4 of the constitution provides that children are entitled to be

protected from social/economic exploitation and shall not be employed in or
required to work in jobs that is likely to be hazardous or interfere with their
education, or interfere with their health mental and spiritual and their moral
development.

Under S. 11(2) of the Contracts Act is an exception to the general contractual

capacity which allows a person of 16 years or above to contract in a manner
provided for under article 34 (d) and articles of the constitution. Article 34(5) of
the constitution provides that for purposes of clause 4 of the article children shall
be persons under age of 16years. S. 32 (1) of the employment act a child under the
age of 12years shall not be employed in any business undertaking or work place
and under sub section (2) a child under the age of 14years shall not be employed in
any business undertaking or work place except carried out under supervision of an
adult aged 18 years and which doesn’t affect a child’s education.
Similarly under S 32 (4) of the employment Act, a child shall not be employed in
any kind of work which is injurious to his health, dangerous/hazardous or
otherwise unsuitable and an employer shall not continue to employ a child after
being notified by writing by an employment officer that the employment is
injurious to health, dangerous or otherwise unsuitable to that child.

S 32 (5) of that Act a child shall not be employed between the hours of 7pm and
7am.

From the above provisions it is possible to engage an infant in contracts of

employment but it has to be for his benefit as spelt out in article 34 (4) of the
constitution and S (32) of the employment Act and S. 11 2 of the contracts Act.
Common law position on educational/employment contracts for children is more
less the same as in necessaries contracts.

An infant may bind himself in contracts for good teaching or instruction whereby
he may profit himself afterwards in the same way as in contracts for meat, drink
and apparel (clothes) such contracts are considered in the wider sense as contracts
for necessaries.

However for educational contracts/apprenticeships, the law looks at benefit to the

infant.

In the case of Clement v London and North Western Railway Co. [1894] vol 2
QB pg 482

The court observed “It has been clearly held that contracts for apprenticeships and
with regard to labour are not contracts to an action on which the plea of infancy is
a complete defence and the question has always been both at law and equity
whether the contract, when carefully examined with all its terms is for the benefit
of the infant. If it is so, the court before which the question comes will not allow
the infant to repudiate it”.

In that case, a minor entered into a contract of employment with a railway co.
promising to accept the terms of an insurance against accidents in lieu of his rights
of his action under the employers liability act. It was held that taken as a whole, a
contract was for his benefit and he was bound by his promise.
However, where it is shown that a contract both onerous detriments and beneficial
terms to the infant, he may not repudiate the contracts but the courts will only
enforce the terms which are beneficial to the infant.

The court in such case looks at the whole contract having regard to the
circumstances of the whole case subject to any principles of law which may be
ascertained by the case of whether the contract is or is not beneficial. In the case of
Leng and Co. Ltd v Andrews [1909] 1 CH pg 763 the court adopted the same
position where they are in a contract of service with an infant onerous and
beneficial terms. The court observed that a mere fact that one or more of the
stipulations are prejudicial to the infants isn’t decisive for some are terms not
directly beneficial to the infants must expected in all service contracts.

VOIDABLE CONTRACTS AGAINST INFANTS

These usually will subsist against the minor unless he avoids them within his
infancy or within a reasonable time after attaining majority age. This category of
contracts is restricted to those in which the infant acquires an interest in some
subject matter of a permanent nature i.e. a subject matter to which continuous or
recurring obligations are incident. If an infant undertakes such a contractual
obligation, he remains liable unless he brings it to an end. The defences which are
available in contracts for necessaries or those for educational contracts are not
available in a matter of a permanent nature. These types of contracts can be
classified into 2;

1. Negative voidable contracts

These are contracts made during minority and will not bind a minor at
common law unless ratified by the minor within a reasonable time after
attaining majority age.

2. Positive Voidable Contracts

This is where a minor acquires an interest in permanent property to which

obligations attach/enters into a contract involving continuous rights and
duties, benefits and liabilities and takes some benefits under the contract, the
minor is bound unless he/she expressly disclaims the contract no matter
whether during minority/within a reasonable time of coming of age e.g.
interests in land e.g. tenancy, leases, Daris v Beynon Harris [1931] vol 47
TLR pg 424 court held that as long as the infant remains in possession of
interests he is subject to the liabilities imposed by the contracts and he may
be sued for non-payment hence infancy won’t be a defence to add for rent if
made before repudiation of the contract by the infant Cork and Bangdon
Railway Co. v Cazenobe [1847] vol 10 QB pg 935

Terms – those that go to the root of the contract and their breach leads to

Warranties – less important terms in a contract and their breach leads to

claim of damages.

CONTRACTUAL CAPACITY OF CORPORATIONS

In contract, it is important that a contracting party should be a person

recognized in law as having the necessary power to contract. S 11 (1) talks
about judicial entities such as clubs, partnerships, trade unions are also
persons in the eyes of the law and in one way or the other are capable of
contracting like natural persons. It should be noted that it is only
incorporated companies that can stand on their own.

Other entities like partnerships, unincorporated associations stand through

their members. The law is that upon incorporation, a company becomes a
person distinguished from the men and women of whom it consists. It can
own property, it exists in perpetuity [continuity], it can sue and be sued in its
own name and it can contract in its own name.

Corporations are established for specific tasks which are usually contained
in the object clause of the memorandum and articles of association.

Once registered, the memorandum and articles of association is an

announcement to members of the public that the company will only do those
activities or pursue such goals which are reasonable within the object clause.
Legally therefore, corporations have contractual capacity and can only
validly enter into contracts which are reasonably within the object clause of
the Company.

For matters within the scope of the company’s powers, the corporation has
prima facie (on the face of it) the power to deal with such matters in such a
way as an ordinary person would in the circumstances. It is therefore
important when dealing with corporations to establish
 1. The nature of that corporation.

2. What it is set out to do.

3. Who of its officers has the powers to carry out those acts on behalf of the
Co.

CONTRACTUAL CAPACITY OF PERSONS WITH MENTAL

DISORDERS

S. 11 S.12 contracts act

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.

If the question is answered in the affirmative, then the contract is voidable at the
mental patients option.

In the case of Nolton v Camroux [1848] vol II EA pg 487 it appears that

knowledge of the mental patients condition is required by the other contracting
party and that burden is on the person alleging mental disorder. Both under
common law and S (12) of the C.A, where the contract is made during lucid
intervals the contract is binding on the mental patient not withstanding his fact of
the mental disability was known to the other party.

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.

TERMS OF THE CONTRACT

Statements or assurances translated to produce in the mind of the other party a

belief that facts exist which render the proposed bargain advantageous to the
interest of the other party can be regarded as the term of the contract.

In enforcement of contracts, the courts are interested in knowing what the parties
said or wrote. They also try to distinguish statements which are terms from those
which are not. Further, they are interested in knowing which terms are fundamental
and which ones aren’t.

This distinction is important because breach of each has a different consequence to

the performance of a contract. Where it’s a breach of condition, it’s said that such a
breach goes to the root of the contract which makes it impossible to perform the
contract.
In such situations, the innocent party can repudiate the contract and sue for the
price. Where it is breach of warranty, the innocent party, may not repudiate the
contract but can sue for damages. It’s therefore important that a representation/an
assurance shouldn’t be false because it renders the contract voidable at the suit of
the innocent party/at the instance and if made negligently may give rise to damages
but may not in itself give rise to an action for breach of contract.

CONTENT OF A CONTRACT is also important for the doctrine of freedom of

contract. In contract, unless for some other vitiating factors there is always a
cardinal presumption that parties freely contract and as such a contract has to be
enforced as it is. There is no chance where the terms are clear for the court to
imply other terms or make a different contract for the parties or to go outside the
clear words used by the parties.

Under the doctrine of freedom of contract, the courts cannot invent another
contract to parties, its role being limited to giving effect to the clear intention of the
parties. In doing so, the courts have regard to the following;

1. The language used in the contract is the 1st point of call in ascertaining the
intention of the party and the language should be given its ordinary
grammatical meaning.
 2. Where there is more than one document the Court can’t say that it has
ascertained the true intention of the parties if it hasn’t considered the other
documents.

The case of Bweya explains that where the terms of the contract are ambigious, the
contract will not be enforced. In Heywood/Haibut Symons & Co. v Buckletom
[1913] AC pg 30 this case explains the importance of establishing whether in
making the statement the party so making the statement was interested in creating
contractual liability. In ascertaining that fact, the courts looked through the
circumstances under which this statement was made but the presumption is that the
person so making the statement should have taken to have warranted its accuracy
i.e. promise to make it good. If the facts of the case are such as to suggest this
intention the court may construe as a term of the contract a statement or assurance
made anterior/prior to the final agreement where the requisite intention can’t be
positively shown from the statement then it can be inferred from the circumstances
in which the statement was made, either way, the intention must be positively
shown [Ref to notes Intention to create legal relations].

Accordingly a pre-contractual statement can amount to a term of the contract

depending on circumstances.

In determining whether a statement was/wasn’t intended to create legal relations,

the courts look at the following;

1. The time elapsed between the time of making the statement and the final
manifestation of the agreement. The longer the time interval, the more likely
it is to be a mere representation.
* Raitledge v Mckay [1954] vol I WLR pg 615

2. The importance of the statement in the minds of the parties i.e. the likely
effects in relation to the contract of the statement, the more important the
likelihood that it’s the term of the contract than a mere representation.

3. If a statement was followed by execution of a formal contract in writing, it’s

more likely to be regarded as a representation than a term of the contract if
it’s not included in the original contract.

The parole evidence rule is that no evidence shall be admissible to a contract

that has been written down.
 4. Where the maker of the statement is visa-vis the other contracting party in a
better position to ascertain the accuracy of the statement or has the primary
responsibility for doing that. The courts are likely to regard it as a
contractual term. The exception is where a statement relates to the process
where the results are inherently unpredictable.

Terms of a contract are not usually confirmed to those that appear on its face. A
contract can be subject to usage and customs of trade or such terms as are implied
by statute. When considering rights and liabilities of contracting parties, all these
have to be taken into consideration.

Sometimes all the terms of the contract may appear in the contract but with some
imperfections in case of disputes arising from such contracts, the courts are duty
bound to perfect those imperfections so that they may enforce the true intentions of
the party.

INPLIED TERMS OF A CONTRACT

Ref. to Sale of Goods Act

To restrict terms of a contract to those……..expressly stated by the parties may

lead to an erroneous conclusion on the nature and extent of obligation of the
contracting parties. This is particularly so if by looking at the ordinary and plain
language which the parties employed in the contract, their intention can’t be clearly
ascertained. It’s expected that in real life, contracting parties are bound to include
imperfections into their contract. The cure to such imperfections whenever
encountered is in implied terms. This could be against a background of usage,
familiar to all who engage in similar negotiations and which may be supposed to
govern the language of a particular agreement [terms in contest] the justification
for this could be custom, statute or even where courts deem fit can imply a term
into a contract. Whatever the case therefore the reason to imply a term into a
contract is to give efficacy to the contractual intentions of the parties. A term will
be implied to carry out the presumed intention of the parties and its so obvious that
the parties must have intended it to apply to the contract but could have thought it
was unnecessary to express itin the contract. The terms implied must be necessary
to give that efficacy to the contract which the parties intended.

TERMS IMPLIED BY CUSTOM;

If a contract relates to a particular trade which has known and well established
custom or usage of the trade, the courts will always have regard to such custom or
usage of trade in interpreting that contract even if the parties didn’t mention the
application of the custom in their contract.

Courts flexibility in admitting extrinsic evidence [evidence outside a written

contract] and of custom and usage to annex incidents to written contracts in matters
with respect to which they are silent is a demonstration that custom or usage of
trade play an important role in determining the nature and liabilities of parties in
contracts.

This is done upon the principle of presumption that in such transactions the parties
didn’t mean to express in writing the whole of the contract by which they intended
to be bound. But to contract with reference to those known usages.

Case Produce Brokers Co. Ltd v Olympia Oil & Cake Co. Ltd [1916] vol I AC
pg 330

This was a case where the parties agreed that in case of a dispute, the matter should
be referred to arbitration. The arbitrators in handing down their word took into
consideration a particular custom of the trade. The house of Lords held that they
were right to do so. Lord Summer said that “the real question is the definition of
the limits as expressed in the submission to arbitration if this “contract” in the
arbitration clause means the real bargain between the parties expressed in the
written and printed terms, though, where trade customs exist and apply, not
entirely so expressed, then the jurisdiction of the arbitrators is complete. The
custom if any is part of the bargain. If the bargain is partly expressed in ink
[written] and partly implied by incorporation of trade customs the first function of
the arbitrators is to find out what is; to read a language, to ascertain a custom, to
interprete them both and to give effect to the whole. The dispute which arose in
fact and which raised the question of custom aroe out of a contract itself and so it
was within the arbitration”.

It should be noted that application of custom is limited;

If it contravenes any written law, the custom will be discarded.

TERMS IMPLIED BY STATUTE

These are specifically provided for under statute law whether they are included in
the contract or not parties to the contract are presumed to know about their
existence. A good e.g. of terms implied by statute are found in the Sale of Goods
Act. In transactions involving sale by description or sale by sample. Under the sale
of goods Act, the law imposes on the seller certain conditions which he has to
comply with and the courts are bound to enforce these terms Lee v Butter [1893]
vol II QB pg 318, Helby v Mathews [1895] AC pg 4271 Yeoman Credit Ltd v
Apps [1962] 1 ALLER pg 385/pg 398.

Under the Sale of Goods Act, the Seller is prohibited or at least limited from
excluding the implied obligations under the Act.

TERMS IMPLIED BY THE COURTS

Samuel v Davis [1943] KB pg 526 [1943] vol II ALLER pg 3

Lynch v Therne [1956] 1 ALLER 744 [1895] 2 QB

Hivac Ltd v Spark Royal Scientific Instrument 946 CH Chancery pg 169. For the
master……….

The master is expected to use due care in respect of the premises where the work is
to be done the way in which it is to be done and the plan involved. It must not
require the servant to do an unlawful act Matthew vs Becktel Corporation [1950]
vol II QB pg 57.

Gregory v Ford 1951 vol I ALLER pg 121

Courts imply terms into contracts because they seek to decide what really should
be the content of a given contract be it employment, commercial and etc. By doing
that the courts to would to some extent be imposing on the parties terms which are
reasonable in circumstance, Greaves & Co. (Contractors) Ltd v Baynom Neike and
Partners [1975] vol 3 ALLER pg 99.

The courts also imply terms into a contract in order to repair an intrinsic failure or
exclusion which the parties may not have given due attention at the time of the
contract. It could be a result of inadvertent omission or simply poor draftsmanship
to cover an incidental contingency and if not remedy may negatively impact on
what the parties designed in their contract. The position is that in some situations
the judge may supply an additional term which will give effect to the presumed
intention of the parties thereby giving business efficacy to the contract. However,
before Court can imply a term, it must satisfy itself that its necessary in the
business sense for purposes of enforcing the intention of the parties. Raingates v
Union Manufacturing Co. [Ramsbottom] [1918] 1 KB pg 592.

It must be such a term that even an ordinary by stander in the street will consider it
necessary and reasonable in the circumstance Shirlow v Southern Foundries [1926]
Ltd [1939] 2 KB pg 206. [1939]2 ALLER pg 113.

It’s not enough for the court to find that such a term would have been adopted by
the Parties. It must be a term that goes without saying that its necessary to give
business efficacy to the contract. Trollope and Colls Ltd v Northwest Metropolitan
Regional Hospital Board [1973] vol 2 ALLER pg 260.

EXCLUSION CLAUSES/EXEMPTION CLAUSES

These arise in situation where one party to the contract inserts a term(s) into a
contract in an attempt to exclude/ limit liability which would otherwise be his.

This practice is common in standard form contracts devised by the supplier and
provided with the individual who must either accept in total or theoretically go
without. In effect, the supplier would be replying the individual “if you want these
goods or services at all these are the only terms on which they are available; take it
or leave it”. There is little alternative but to accept the terms, the individual doesn’t
negotiate but merely adheres.

Inclusion of limiting terms into a contract is possible and tenable in law because of
the doctrine of freedom of contract which presupposes that contracting parties of
full age and understanding do so freely. Accordingly if by looking at the contract
as a whole it can be reasonably said that the parties intended the limiting clause to
be part of the bargain then to that extent the limiting clause will be enforced.
Limiting clauses are said to be for the following purposes;

To define the promise as obligation to the extent that it is that one should read the
contract as a whole and decide what it is that the promisor has agreed to do. GH
Retton & Co. Ltd v Palmyra Trading Corporation of Panoma [1957] AC pg 149

Sometimes limiting clauses act as defences

* Karsales [Harrow) Ltd vWallis [1956] 2 ALLER pg 566. [1956] vol 1 WLR
pg 936. 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 in
working order]. There was a fundamental breach of contract and the exclusion
clause had no application.

Whatever the case, it’s important to note that exemption clauses are rarely freely
negotiated in most if not all cases they are imposed by one party on the other, there
is no equality or bargaining power, it’s against that background that the courts have
long been hostile to such clauses because of their sympathy with the weaker party,
the courts have applied the rules concerning the formation and interpretation of
contracts with limiting clauses, strictly in their favour

Resolving any doubts, ambiguities against the strong party hence the courts have
frequently held the exclusion clauses to be inoperative.

For a court to enforce a limiting clause there must be evidence looking at the
contract as a whole that it was intended to be part of the contract and that
reasonable notice given to the other party. Limiting clauses can be invoked where
there is fundamental breach on the part strong party.

RULES ON CONSTRUCTION OF LIMITING CLAUSES

1. At the outset of its inquiry, the court must be satisfied that the particular
document relied upon as containing notice of the limiting clause is in truth
an integral part of a contract. The document must have been intended as
contractual document and not a mere acknowledgement of payment. White
v Black more [1972] 2 QB pg 651, Chapleton v Bary UDC [1940] I KB
pg
2. The other party should be aware of the allocation of the risk of non-
performance or detective performance to him and it should not be the entire
risk but some part of it. Where the party deliberately, document and share
exemption from certain liabilities and thereby deprive with other party of the
compensation which that person might reasonably expect to receive for any
loss/injury or damage arising out of the transaction then the exemption
clauses as unjustifiable, unreasonable and it will be construed as such.

3. For a document to be regarded as an integral part of a contract, it must next

be signed, if it has or has not been signed by the party against whom the
exempting/pleading party is limited.

4. Where the document isn’t signed, evidence must show that reasonable notice
of the term was given to the affected party and this is a question of fact
which is examined according to circumstances of each case. In considering
this question the courts are concerned with the time the notice was given.
The position of the law is that no excluding term will avail the party seeking
to rely on it protection unless it has been brought adequately to the attention
of the other contracting party before or at the time of the contract. A belated
notice is of no legal consequence Olley v Malborough Courts Ltd [1949]
vol I KB pg 532.

5. The notice must be contemporaneous with the contract it should be brought

to the notice of the contracting party before or at the time the contract is
made. However, the court may infer notice [constructive] from previous
dealings btn the parties;

6. If the document is signed, it will normally be impossible/difficult to deny

this contractual character and evidence of notice actual or constructive is
irrelevant.

The only exception is fraud or misrepresentation otherwise the person is

bound by a writing to which he has put his signature whether he read the
contents or not.

7. Ambiguities/absurdities are strictly construed against the party who seeks to

benefit from the limiting clause. The law is that where there is any doubt as
to the meaning and scope of the excluding term the ambiguity will be
resolved against the party who inserted the term and who is relying on it as
he seeks to protect himself against liability to which he would otherwise be
 subject, the onus of proof is on him to prove that his words precisely
describe the contingency that has in fact arisen.

8. Exclusion clauses do not extend to cover Adler v Dickinson [1955] vol 1 QB

pg 158, Scruttons Ltd v Midland Silicon Ltd [1962] Ac pg 446, Morris CW
ref. above 1st line.

NB; No excluding term may operate to protect the party who is in

fundamental reach of his contract. The question of exempting clauses isn’t
one of substance law but depends upon the interpretation of the individual
contracts before the courts.

VITIATING FACTORS

Once the necessary elements of a valid contract are established i.e. offer,
acceptance and consideration then they are ordinarily and fully enforceable.
But some situations may arise which may render the contract invalid or
unenforceable notwithstanding the existence of the above elements.

Such circumstances which render an otherwise valid contract invalid, void or

unenforceable are called vitiating factors because they vitiate/nullify/
negative the contract.

Such factors operate to render the contract invalid or unenforceable because

as a result of them either there is no consent infact or the contract becomes
one which is prohibited. They include; mistake, undue influence, duress and
illegality.

MISTAKE

During the stage of negotiations, one or both parties of the contracts may
base their decision on wrong understanding of the facts/law and
consequently they might accept terms which they wouldn’t have accepted if
they had known the truth. Depending on the nature of the mistake the
affected party may seek to get out of the contract on that ground.

Whether or not this is legally possible depends on the nature of the mistake.
A mistake may be of fact or of law. S 18 of the Contracts Act provides that a
mistake of law renders the contract void. This is different from ignorance of
 the law. *A mistake of fact on the other hand may or may not affect the
validity of the contract.

MISTAKE OF FACT AT COMMON LAW

At common law, the general rule is that mistakes of fact will not affect the
validity of the contract. Hence in the case of Solle v Butcher Lord Denning
summarized the law as following that once a contract has been made i.e.
once the parties whatever their innermost state of mind have to all outward
appearances have agreed with sufficient certainty in the same terms on the
same subject matter, then the contract is good unless and until it is set aside
for breach of some condition express or implied in it or for fraud or some
equitable ground.

Neither party can rely on his mistake to say that it was a nullity from the
beginning no matter that it was a mistake which to his mind was
fundamental.
In Tamplin v James, in that case there was a public auction of premises the
buyer assumed that the un built land at the back of the house was part of the
premises being sold. If he had bothered to check the site plan for the
property which was available he would have discovered that the property
sold didn’t include the backyard. After purchasing, he now sought to vitiate
the contract for mistake. It was held that he was bound by the contract and
had himself to blame.

The rationale for this rather strict position is that the law of contract is based
inter-alia on two things;

1. The doctrine of caveat emptor

2. The doctrine of freedom of contract

in Printing and Numerical Registering Co. v Sampson [1875] where Sir George
Jessel stated:

If there is one thing more than another which public policy requires, it is men of
full age and competent understanding shall have the utmost liberty in contracting
and that the contract when entered into freely and voluntarily shall be held sacred
and be enforced by the courts of justice.
 Because of the former, courts expect a contracting party to look out for him
to ensure that the subject matter and terms of the contract are not detrimental
to her. And also because of freedom of contract, a court will not interfere in
a contract merely because the terms of a contract look unfair to one of the
parties; therefore once the court is satisfied that the party freely entered into
the contract, the contract will be enforced however ridiculous its terms are.

The statutory position S 17 of the C.A looks at mistake of fact at 3 angles;

1. Where both parties to the agreement are under a mistake of fact in respect
to a matter that is fundamental, the agreement is void this is a case of
mutual/common mistake.

2. Where one party operates under a mistake then the contract is void

3. Where a mistake is one of opinion about the value of the subject matter
then that doesn’t affect the validity of the contract. This position deviates
from the common law position. Under common law, there were
exceptions whereby a mistake of fact to vitiate a contract depending on
the type of mistake and there are 3 types of mistakes;

a) Common mistake
b) Mutual mistake
c) Unilateral mistake

COMMON MISTAKE

A common mistake operates to vitiate the contract if it’s one of the following
types;

1. A common mistake relating to cases of res extincta where at the time of the
contract the subject matter has ceased to exist and both parties are ignorant
of that fact. The result in contract is void because there is total failure of
consideration.

Couturier v Hastie [1852] this contract concerned the sale of a lot of

maize/corn by the time of sale it was understood that the corn was on a ship
enroute from Saronica to the UK, unknown to both parties, the ship had
 suffered wreakage and the water had contaminated the corn and to cut
losses, the ship master had sold the corn at Tunis. It was held that clearly
when the parties entered into the contract, they had contemplated that there
was something to be bought and sold yet there was nothing. So there was no
contract.

The other situation where common mistakes can apply to vitiate a contract is
Res sua where at a time of the contract, the buyer already owns the subject
matter but both parties were not aware of this then there is no contract.

In Huddersfield Banking Company Limited v Henry Lister and Sons Ltd the
defendants had mortgaged their mill and fixed plant to the plaintiffs. The
defendants later wound up their business and this would have entitled the plaintiffs
to exercise their legal rights over the fixed plant. They gave their consent that
certain machinery could be sold, thinking that they had no control over it. In fact it
was part of the fixed plant but it had wrongfully been detached from its base. The
court held that plaintiff’s consent order should be set aside as they were mistaken
as to their true right in relation to that machinery.

MUTUAL MISTAKE

A mutual mistake also arises again where both parties are mistaken but it can
be a mistake in relation to one of the following types;

1. Mutual mistake relating to the identity of the subject matter

2. Mutual mistake concerning the possibility of performance

A mutual mistake arises where at the time of the contract the buyer is selling
item X but the seller is thinking what is being sold is Y. the parties must be
at cross purposes. In such a case, neither is bound by a contract.

Raffles v Wichelhaus in that case a merchant contracted to sale a cargo of

goods, the terms were that the goods being sold were those aboard a ship
called the Peerless. It so happened that they were two ships of that name.
The seller was aware that he was selling goods on peerless I the buyer
thought that he was buying goods aboard Peerless II. It was held that there
was no contract.
 The other kind of mutual mistake is where both parties are at the cross
purpose………….

There are s types of impossibilities;

1. Physical impossibility
2. Legal impossibility
3. Commercial impossibility

1. Physical impossibility occurs where it is practically impossible to perform

in the contract yet both parties believe it was then a party can’t be forced to
perform in such a contract.

Sheikh Brothers v Ochsner [1957] EA pg 86, this was the sale of a sisal estate.
The parties understood that the estate could yield 50tonnes of processed sisal a
month yet this was impossible it was held that this contract was founded on mutual
mistake.

2. Legal impossibility means that it is practically impossible to perform the

contract under the law, then the contract can’t be enforced in a court of law
because the court can’t compel a party to perform an illegality

Kulubya v Singh in that case, the Privy council held that a contract to transfer
land to a non-African without ministerial consent was void because it was contrary
to the provisions of S (2) of the land Transfer Ordinance.

3. Commercial impossibility means that the contract is physically capable of

being performed, it is permitted by law but because of situations which have
arisen before the conclusion of the contract, the contract has become
commercially sterile.

Griffiths v Brymer in that case, the defendant rented a room from the Plaintiff
both parties understand that he was renting the room to use it to view the
coronation procession of Edward III. Unknown to both parties Edward had fallen
sick and the coronation had been called off. It was held that the contract had
become commercially meaningless and the Landlord could not enforce it.

Bell v Lever Brothers [1932] Ac pg 161 Bell entered into a contract of service
with the Lever Brothers where he was to serve four years as both Chairman for the
subsidiary companies before the lapse of the period, Lever Brothers decided to
terminate the contract, they entered with him into a compensation agreement to pay
him 30,000 pounds for prematurely terminating his contract. Later, they discovered
that he had committed certain breaches of his employment contract which if they
had known of them would have entitled them to terminate the contract without
compensation. They now sought to nullify his compensation agreement for
mistake. It was held that a mutual mistake will only operate if it’s a mistake of kind
not a mistake of extent. In the instant case even if they hadn’t been mistaken, they
would still have ended in the same position i.e. terminating his contract only that
they would have done so more cheaply, it was only a mistake as to qualify so the
question of mutual mistake didn’t arise. S. 17 of the C.A.

UNILATERAL MISTAKE

This refers to a situation where one party to the contract is mistaken and there the
law is very strict i.e. a Unilateral Mistake generally doesn’t invalidate the contract.

However, even in unilateral mistakes there are situations where a unilateral

mistake can invalidate a contract;

(a) Where the mistake relates to identity of the contracting party.

(b) Where documents are mistakenly signed.

MISTAKE RELATING TO IDENTITY OF A CONTRACTING PARTY

Even in this mistake the general rule is that a mistake of one party relating to
identity of the other party will not nullify the contract. The law presumes that what
the parties are interested in are the contents of the promise i.e. the subject matter
and the consideration but not the particulars of the promisor.

However, if the contracting party convinces the court that the identity of the
contracting party was fundamental then the contract will be declared void. Since
the general rule is that identity is immaterial, then the burden is on the party
seeking to nullify the contract by relying on identity to prove the following;

(1) That she intended to deal with somebody else other than the person she
dealt with.

(2) That the party she dealt with was aware that she wasn’t the one intended
to be dealt with.
(3) In the circumstances, identity was crucial.

(4) That she took all reasonable steps to verify the identity.

a. Cundy v Lindsay [1876] a fraudster called Blenkarn ordered goods from

Lindsay and Co. and gave his address as 37 Wood Street. He signed his
name in such a way to look like Blenkiron and Co. The Plaintiff had not
dealt with that company but knew of it by reputation as having a business at
123 Wood Street. The goods were duly delivered for the rogue’s address at
37 Wood Street. The rogue resold them to Candy and did not pay Lindsay
and Co. who then sued to recover the goods from Candy.

It was held that the contract between Lindsay and the rogue was void
because the Plaintiff never intended to deal with him and being a credit sale,
identity of the rogue was crucial. Accordingly, the rogue never acquired title
to the goods and could not pass any to Candy.

Phillips v Brooks Ltd

A rogue called North visited the Plaintiffs premises and Plaintiffs were
jewelers so he inspected the jewels on display and selected a ring worth
50pounds, he offered to pay by cheque claiming that he was Sir George
Bullough a wealthy lord who was only known by the jewelers by
reputation. He gave Sir George’s address, the Plaintiff checked the
directory and confirmed that indeed Sir George lived on that address.
They allowed North to take the ring and accepted the cheque. Upon
presenting the cheque, it was dishonoured as a forgery, meanwhile, the
rogue pledged the ring to the Respondent who was a pawn broker. The
Plaintiff sought to recover the ring from the rogue claiming that their
contract with the rogue was void for mistake because they intended to
deal with Sir George not North and since they accepted the cheque
identity was crucial and they had taken steps to verify the identity from a
directory. It was held that the Defendant demanded goods that the
Plaintiff didn’t intend to deal with the person who was physically in front
of them but Sir George whom they had never dealt with.

Ingram v Little
 A swindler falsely calling himself Hutchinson went to the residence of
the Plaintiffs and offered to buy their family car which they had
advertised in the place. He offered to pay by cheque, they refused to take
a cheque, he then told them that he was PGN Hutchinson with a business
at Guilford and a residence at Stanstate House Casterham. On hearing
this one of them quietly left the room and consulted the directory which
showed that indeed a one PGN Hutchinson lived there, so they accepted
the cheque and the Swindler took the car and on presenting the cheque it
was dishonoured. In the meantime, the Swindler had resold the car to the
defendant who fully paid. It was held that transaction was intended only
for PGN Hutchinson and so the rogue was incapable of accepting it
therefore he didn’t acquire the good title and was passed on to the
defendant who was ordered to return the car.

The court seems to have considered that the jewelers in Philips case who
were professional unlike the people in the Little case who were just
selling family property.

Lewis v Avery

A fraudster obtained a car by holding himself out as a well known actor

known as Richard Greene in order to allow him to take the car, the
Plaintiffs asked for an ID. The rogue produced a gate [admission] pass to
the pine wood studios, the rogue took the car and gave the fellas a cheque
when they presented the cheque, it bounced because the cheque leaf had
been stolen meanwhile the rogue had sold the car to the defendant. It was
held that the contract wasn’t void for mistake but only voidable for
misrepresentation and such a contract couldn’t be set aside when an
innocent 3rd party had already got interest in the good.

This decision seems to be unusual because the circumstances weren’t

different from those in Ingram v Little. In cases of this nature, the courts
are at a dilemma because they are confronted with two sets of innocent
people i.e. the 1st seller and the last buyer and what decision court makes,
one innocent person loses.

The document is invalid not merely on grounds of fraud but on grounds

that the mind of the signer didn’t accompany the signature.

(a) DOCUMENTS MISTAKENLY SIGNED [NON-EST FACTUM]

 The general rule is that a person is bound by his signature in a document
whether he understands the contents of the document or not, whether he
has read the document or not, or whether he can even read or not.

However, for over 500 years an exception to this rule has been
recognized e.g. in 1584 in the case of Thoroughgoods a man called
Chicken was in arrears of rent in respect of land owned by the Plaintiff,
he wrote a document to the Plaintiff whom he asked to sign the document
misleading him about the contents, the Plaintiff was illiterate and he
signed. In fact the document not only released Chicken from paying the
rent arrears but it also gave him ownership of part of the property. Using
the document, Chicken sold the land to the defendant who now took over
the property. The landlord [illiterate] now sued for trespass. It was held
that thorough good wasn’t bound by his signature where the document
had wrongly been read to him. He could plead non est factum.
Meanwhile the document wasn’t by deed. Initially, non est factum only
applied to deeds meaning formal documents signed and sealed with wax
in the presence of witnesses either it was extended to cover other
documents including ordinary contracts.

Secondly, the doctrine only protected illiterate persons if they were

misled about the nature and content of the document.

Lewis v Clay

Lord Neville produced a document before Clay and asked him to sign on the
document. The words on the document had been covered with blotting paper
except for some small spaces which had been cut in the blotting paper
through which Clay would sign.
He told clay that the document concerned a private family matter when in
fact it was a promissory note and by signing it, Clay was promising to pay €
1,113.

Neville then used the promissory note to obtain a loan from Lewis. Lewis
gave the money but Clay could not pay. Clay pleaded non est factum. It was
held that the document to which Clay put his sign was entirely different in
 character from the one he intended to sign. He could plead non est factum to
escape liability.

For non est factum to apply, the document signed must be different in character
from the one intended to sign. This distinction was brought out in,

Saunders v Anglia Building Co. [1971] AC 1004. The executrix of the estate of
Anglia where a 78 year old lady wished to transfer her house to her nephew who
would take possession after her death. A clerk who was a friend to her nephew got
to learn of her intentions. He prepared and brought to her document for signing, the
lady’s eyesight was bad and she had lost her glasses, she asked the clerk to explain
to her the contents of the document and he assured her that it was a transfer of the
property to her nephew so she signed. In fact, the document had the effect of
transferring the house to the clerk himself. He then used the document as proof of
ownership to mortgage the house to the Anglia Building Society as security for a
loan. He defaulted in repaying the loan where upon Anglia Building Society tried
to take possession of the house. The lady denied transferring the house to the clerk
and pleaded non –est factum.

Held ……….

It was held that the document she signed wasn’t of a different character
from the one she intended to sign.

She intended to sign a transfer and that what she signed. The transfer she
signed vested the house to a different person that the one intended was a
matter of detail not character. The court explained that to benefit from
non est factum that the document she signed was radically,
fundamentally, basically, totally and essentially different from the one
she didn’t sign.

Courts tend to treat the plea of non-est-factum with much suspicion, they
think that it’s inherently improper and unjust for someone to sign a
document without being forced and then turn around and disown it.

Indeed, non –est factum tends to undermine the doctrine of pacta sunt
servanda (Sanctity of contract). Consequently, the courts have developed
strict restrictions within which the doctrine operates namely;
(1) The doctrine is only available to a limited class of persons who out
of no fault of their own are unable to read and understand the
contents of the document in question.

This would include; illiterates, visually impaired persons, the

senile, persons of unsound mind and persons who at the time of
signing are so intoxicated that they aren’t capable of knowing what
they are doing and minors.

(2) The mistake must be a serious one. It must be fundamental or

essential ref to Saunders v Anglia.

(3) Mere ignorance of the contents of the document as opposed to

inability to read and understand the contents of the document may
not assist the person.

(4) If it’s shown that the signatory would have discovered the truth if
he hadn’t been careless will deprive him of the benefit of non-est-
factum.

Kakande v Nsimbi [1984].

In that case the defendant co-owned land he sold a portion of that land to
the plaintiff. The agreement was prepared by the defendant’s lawyer. The
plaintiff and the defendant signed before the lawyer. They then
proceeded to land office and signed transfer forms. Later the plaintiff
asked the defendant to sign mutation forms to enable him sub-divide a
portion bought to rescind the agreement claiming that held never
intended to sell the land but only wanted to sign a 10years lease. He
claimed that he mistakenly signed the document because it hadn’t been
interpreted for him into Luganda the only language he understand. He
even claimed that he was partially blind and hard of hearing. The court
rejected his argument and Held; that he could not rely on his illiteracy to
avoid the contract because if held been diligent he would have asked his
lawyer who was present at signing to interpret the agreement to him
which was within his right as he was the one paying the lawyer.

ILLITERATES PROTECTION ACT CAP 78

That law was enacted in 1918 as the illiterates Protection Ordinance. As
the name suggests, it was intended to protect illiterates from liability for
documents signed or written on their behalf by others. Whether it
succeeds in doing so is questionable. To benefit from the Act, a person
must be illiterate.

S(1) of the act defines an illiterate as a person who can’t read and
understand the language or text in which the document is written or
printed. This is a subjective definition defining illiteracy in terms of the
document in question not in general terms.

S(2) of the Act that no person shall write the name of an illiterate by way
of signature.

Unless the illiterate has first affixed his mark on the document and any
person who does so ( on behalf of the illiterate) shall also write his own
true and full name in the document as ………. The sec. states further that
by doing so a person certifies;

(1) That he wrote the illiterates name on the document after the
illiterate had attached his mark.
(2) That he did so on the instructions of the illiterate
(3) That before the illiterate attached his mark, the document was read
over and explained to him.

S(3)

Provides that any person who wrties a document on behalf/ in the name
of an illiterate shall also write his own true and full name and address as
the writer [maker] of thereof of the document. By so doing; he certifies

(1) That he was instructed by the illiterate to write the document

(2) That the document correctly rep. the illiterates satisfaction.
(3) That the document was read over and explained to the illiterate.

S(2) deals with a document which is already in existence and the only bit
remaining is signing (……

S(3) deals with drafting a document on behalf of the illiterate.

S(4) provides that any person who signs or writes a document on behalf
of an illiterate without complying to the above or misrepresents the
contents of the document of an illiterate commits an offence and on
conviction is liable to an offence of 300/= and a term of imprisonment
not exceeding 3 months.

In addition, the culprit may be subjected to civil or criminal liability for

fraud, misrepresentation.

LIMITATIONS OF THE ACT

(1) The act doesn’t nullify the documents it only punishes the
offender.

(2) It doesn’t deter potential offenders given the ridiculous fine and
term of imprisonment and this therefore calls a non-compliance.

(3) According to S(3) of the Act that act doesn’t apply to receipts for
tax or for payments to government.

Finally in the case of Kakande v Nsimbi. Supra it was held that the act
isn’t even mandatory.

EFFECT OF EQUITY ON MISTAKE

Under common law, a mistake doesn’t affect the validity of a contract but
if the mistake falls within the exceptions then it has the effect of
rendering the contract void ab initio (from the start) which means that
neither party can benefit from it through the court process. However,
equity has come to cool down this drastic decision. If the Court is
convinced that a party acted in good faith and wasn’t careless then it may
give him some relief e.g. it may rescind (cancel) the contract or it may
refuse to order specific performance on the ground of mistake.

Webster v Cecil [1861]

In that case, Webster wrote to Cecil offering to buy Cecil’s land at 2000
pounds. Cecil rejected the offer, later Cecil wrote back counter-offering
to sale the land at 1250pounds. Webster immediately wrote back
accepting the counter-offer and it was only when he received the
acceptance that Cecil realized that he had made a mistake writing
1250pounds instead of 2250pounds. Cecil refused to sale where upon
Webster sued him for specific performance.

Under common law, this was a uni-lateral mistake and Cecil would be
bound by the contract. Nevertheless, court held that Webster must have
realized that when Cecil rejected 2000pounds but then offered to sell at
1250, this was a slip of a pen and Webster couldn’t be allowed to take a
windfall.

Cooper v Philips

The defendant bought a fish farm only to realize later that he owned it. In
the meantime, the plaintiff had already spent money renovating the farm
in preparation for handing it over as per the contract. While the court
found out that the contract was void, equity would intervene and
accordingly the court directed the plaintiff would have a possessory lien
(right to hold to something) on the farm for such a time that was
sufficient for him to recover the money he had already spent.

ILLEGALITY

The distinction between illegal contracts and void contracts isn’t an easy
one to identity mainly because the two terms are sometimes used
interchangeably and even jointly.

It’s much easier to explain the difference between voidable and void
contracts.

A contract is illegal if it is prohibited by law. Such a contract can’t be

enforced under the legal process. On the other hand is void if it lacks an
essential element i.e. consideration or if it vitiated by mistake or duress.

When a contract is illegal it means that neither party can sue on it. When
it’s only void it is possible though not easy for the innocent party to be
able to get some remedies.
Some illegal contracts may also give rise to criminal prosecution. Illegal
and void contracts fall in 3 categories the 1 st type are those which are
illegal by statute; the 2nd type are contracts which are illegal at common
law on grounds of public policy. 3 rd type are contracts which are void at
common law.

CONTRACTS RENDERED ILLEGAL BY STATUTE

S.10 of the C.A defines a contract as an agreement made with the free
consent of the parties with capacity to contract for a lawful consideration
and with a lawful object with the intention to be legally bound.

Consequently, where the purpose of the contract is one which is

prohibited by law or where the expected consideration is illegal then such
an agreement doesn’t amount to a contract at law.

What amounts to a lawful consideration as envisaged in S.10 (1) of the

C.A.

S. 19 of the C.A creates a presumption of legality. According to that

section the consideration/purposed object of contract is presumed to be
lawful except in the following situations;

(1) Where its forbidden by law

(2) Where if it was allowed it would defeat the purpose of the law
(3) Where its fraudulent
(4) Where it involves injury of a person/party
(5) Where it is declared immoral or against public policy by court.

Out of this provision, it therefore becomes clear that the contract

becomes illegal either if it’s declared so by a statute or by a court on the
ground that it’s against public policy.

S. 26

Where parties exchange promises to do illegal acts then the entire

transaction is a void agreement.
Some statutes contain provisions which outlaw certain dealings e.g. the
National Lotteries Act cap 191.

Pools Betting Act prohibits certain monetary contributions where the

winner of the draw takes a given reward unless licensed by authorized
institutions.

The Penal Code S (161), 162, 163 prohibit gaming practices, the keeping
of gaming houses, the operation of gaming premises and as well as illegal
unless done on licensed premises.

These are called wagering contracts

In the case of Carlil v Carbolic Smoke Ball

Judge Hodgkins defined a wagering contract as one where persons

holding different views about a future event agree that depending on the
outcome of one shall win a sum of money offered of stake from the other
party.

Such arrangements are prohibited by the Gaming Act and so if the loser
refuses to hand over the winnings to the winner he can’t be sued.

There are other statutes which render illegal certain contractual

undertakings. The employment Act No.6 of 2006 S. 43 (3) indicates that
any provision in a contract of service is to spend his wages is invalid.

The land act cap 27 prohibits land agreements which confer on non-
Africans (Ugandans) ownership that is greater than leasehold. The
Money Lenders Act cap 273 prohibits agreements btn money lenders and
borrowers where the interest payable i.e. higher than the prevailing
commercial rate.

The sale of goods Act provides/renders illegal contracts for sale of goods
of a value of more than 200shs unless the agreement (sale) is evidenced
in writing or the goods are paid for in cash or delivered on 6pot.

CONTRACTS ILLEGAL AT COMMON LAW

Some contracts though not prohibited by any statute are nevertheless
regarded as illegal if they have been so declared by the courts on the
ground that they offend public policy.
Concept of public policy

Sometime in the 18th Century an idea developed that even if there is no

law prohibiting certain transactions a court of law will not be obligated to
enforce such transactions if it feels that they are injurious to the public.

This principle came to be known as the concept of public policy; it had

its origins in the Judeo-Christian background of Anglo-American
jurisprudence. Out of this religious background of the law arose
confusion between law and morality. Judges biased by their religious
background often ended up refusing to enforce dealings they considered
immoral even when they were not prohibited by law. The origin of this is
that the 1st courts in old England were Ecclesiastical courts.

The concept of public policy is inherently problematic because there is

no list of things that are universally accepted as injurious to society.
There is no accepted formula for determining public policy. What’s
acceptable to one society may totally be repulsive to another. What is
unacceptable in one generation may be slowly tolerated and later
accepted in society.

However, whereas there is no universally accepted body of rules called

public policy, it’s now possible to categorize the various contracts which
have been held by the courts to be illegal on the grounds of public policy
and they include the following;

(1) A contract to commit a Crime

An agreement is illegal and void if its directly or indirectly aimed

at the commission of a crime e.g. a contract to assault a 3 rd party, a
contract to defame a 3rd party, to defraud a 3rd party, to rob a 3rd
party and to smuggle prohibited goods in a country are illegal. If
the parties to such transactions fall out they can’t seek court
redress because a court of law is also a court of justice and can’t
avail itself to assist in an unjust transaction. This principle even
extends to domestic relations law.
Reefiles – a wife killed her husband by hitting him on a head with a chamber pot.
At trial she was fond to be of diminished responsibility meaning she can’t be
convicted. Nevertheless she couldn’t be allowed to benefit from her husband’s
estate because to allow her would be to reward her for her criminal action.

Belsford v Royal Insurance Co.

A man took out a life assurance policy then 3 minutes before the policy was to
expire the man shot himself. It was found that the insurance policy provided that
the family would be paid even the assured had committed suicide. Nevertheless the
court refused to honour the policy because to do so would be to reward him for his
last criminal act.

This principle operates even if the law the parties have agreed to violate are the
laws of another country altogether.

Foster v Driscoll

In the early 1920’s the US constitution was amended to introduce prohibition.

According to this amendment, the importation, trading, or consumption of liquor
was absolutely prohibited. The plaintiff and the defendant agreed to form a
partnership whose business was to smuggle liquor into USA from UK through the
Canadian Frontier. The defendant breached the agreement and the plaintiff brought
a suit against him in England.

It was argued [held] that English courts couldn’t enforce this partnership
agreement even if transacting liquor was permissible in UK because the agreement
was intended to violate the laws of a friendly country and undermining it would
undermine the principle of comity of nations i.e. mutual respect btn countries.

Regazoni v K.C Sethia

In that agreement there was an agreement and sale of Indian jute to Italy with the
understanding that from Italy it would be re-exported to S.A. At that time the
Common Wealth Countries including India had imposed sanctions on S.A but Italy
wasn’t part of the sanctions.

It was held that such a contract was contrary to public policy.

(2) A contract to commit a tort……………..

 H.E Smith & Sons v Clinton

It was held that an Agreement to protect one from a tort isn’t acceptable.

(3) Contracts to promote corruption in public life

A promise to pay a bribe/a promise to perform a service in exchange for a

bride can’t be enforced. Any transaction that involves dishonoring a public
office isn’t enforceable.

Parkinson v College of Ambulance Ltd

In that case, the secretary of the defendant college which was an institution
with connections to the crown promised the plaintiff col. Parkinson that if he
made a huge donation to the college held use its influence to become a
knight. It was held that his contract with the college was insulting and
deragoratory to the crown and was therefore against public policy.

Tekele Gebraselassie v Sebhatu Wolde – Mariam

In this case, the two were candidates in an election, they agreed to cast lets
and that the loser of the lots would stand down for the other and that if he
didn’t, he would pay 5000£. Court held that every citizen has both the right
and full freedom to stand for elections. This right can’t be sold. Furthermore,
one can’t acquire the rights to become a representative of the people through
money or deceit.

(4) Contracts prejudicial to public safety

The commonest of such contracts are those which require a party to trade
with an enemy alien

Daimler v Continental Rubber Co. [1916] the plaintiff company was

incorporated in England with the object of selling tyres manufactured by a German
company. All its directors except one were all Germans. After the outbreak of
World War I, the company sued the defendant for payment of a trade debt. The
defendant argued that payment of the trade debt would amount to trading with the
enemy which was illegal. Court agreed.
(5) CONTRACT TO DEFRAUD THE REVENUE

Tax avoidance means structuring ones affairs in such a way that one pays as
little tax as possible and that is lawful.

Tax evasion on the other hand means unlawful concealment of taxable

income and that is unlawful.

Any court of law can’t enforce a transaction that is designed to enable

parties to evade tax.

Samuel Kizito Mubiru v Byensiba

In that case the defendant bought land from a court bailiff who was selling a
property of judgment debtor at a public auction. The agreement between the
buyer and the plaintiff was to state that the buyer bought the property at
300,000/= yet he had actually bought it 2m. This was to enable the buyer
pay less sum for taxes because stamp duty was 1%age of the value of the
land. Court agreed that such a transaction was void and illegal.

This was intended to enable the buyer pay less stamp duty while transferring
the land to his name since stamp duty is paid as a percentage of the value of
land. Later the judgment debtor challenged the sale on the ground that it was
tainted with fraud and court held that the process through which the plaintiff
can obtain the title of the land was tainted with fraud and public policy that
transaction was illegal.

(6) A CONTRACT TO PROMOTE SEXUAL IMMORALITY

Such a contract is referred to as a contra bones mores and it is illegal. A
prostitute can’t sue her clients to recover her fees. A landlord who rents out
premises knowing they are to be used for prostitution can’t enforce it in
court. An agreement for future illicit co-habitation cannot be enforced.

Pearce v Brooks
A taxi driver allowed his taxi to be used by a prostitute to chase down her
clients. It was held that his suit to recover higher charges was unsustainable.

CONSEQUENCES OF ILLEGAL CONTRACT

The general law is that illegality renders the contract wholly void and
unenforceable by either party. In law, where there is an illegality, the loss
lies where it falls. Over the centuries however, courts have reluctantly
allowed certain narrow exceptions which can allow a party to obtain such a
contract where both parties knowingly and deliberately enter into an illegal
contract, then the contract is irretrievably and intrinsically void ab initio
(from the start) neither party can be granted relief at all.

(a) Where the parties are not in pari-delicto (not at equal fault) then the
court can allow a party who is less at fault to rescind/cancel the
contract. This may arise when the law governing the relationship
prescribes which party has the obligation to ensure that the law is
followed e.g. the Employment Act S. 26 which requires that every
employment contract with an illiterate should be attested (i.e. signed
in the presence of a labor officer or magistrate) who is supposed to
explain the contract to the employee. S. 26 (4) provides that where a
contract isn’t attested it can still be enforced by the employee.

Such a provision clearly imposes on the employee the duty to ensure

that the law is observed. So if it’s breached, the employer is more at
fault. This kind of law was considered in
1960…………………………………….

Kiriri Cotton Estates Co. Ltd v Dewani

S.3 (1) of the Rent Restriction Ordinance provided that no owner or

lessee of the premises shall let such house or premises at a rent which
exceeds the standard rent.

S. 3 (2) made it an offence to do so. The defendant and the plaintiff

entered into a tenancy agreement which provided for rent which was
above the standard rent. The tenant now sued for a refund for the rent
paid. The landlord argued that since the tenancy was illegal refund
rent was recoverable.
 Lord Denning approached the issue in this way. That in case like this
you look at the purpose of law which was to stop tenants from
exploiting landlords you must give the law an interpretation that
serves but not to defeat that purpose. It must not be interpreted in a
way that leaves a tenant exposed to exploitation. He concealed that
even thou money paid under an illegal contract isn’t usually
recoverable, it can be recovered if its proved that the recipient of the
money had the primary responsibility for the mistake of the primary
obligation to ensure that the law is complied with.

The 3rd scenario, if one party repents and withdraws before the
contract has substantially been performed; then the court rather than to
allow…..to retain illegal possession of the gains, they allow the
plaintiff to retreat from the contract.

(4) Where the contract is initially lawful but is exploited for an illegal
purpose or the illegality arises during performance then the court
may protect the innocent party.

(5) Where you have a divisible contract i.e. a contract which consists
of several distinct units and the illegality affects certain divisible
parts of the contract but not others, then the parts which aren’t
affected can be enforced.

However, if the parts affected by the illegality are inseparable from

the rest of the contract then it won’t all be enforced.

(6) Where the contract concerns property rights and ….rights can be
enjoyed without relying on the contract then they can be enforced.

CONTRACTS WHICH ARE VOID COMMON LAW DUE TO PUBLIC

POLICY

Contracts which are void but not illegal at common law on grounds of policy fall
under 3 categories;

1. Categories to oust the jurisdiction of courts

2. Contracts which are prejudicial to the institution of marriage
3. Contracts in restraint of trade
1. Contracts in restraint of legal proceedings/contracts to oust courts;

This refers to a provision in a contract by which a party agrees not to enforce

his rights arising from a contract by legal proceedings i.e. he undertakes that
in the event of a dispute he will not refer the matter to the courts of law.

The common law position was in a state of confusion until 1952 when Lord
Denning in Lee v Showmen’s Guild of Great Britain claimed the law as
following, parties canot by contract oust the ordinary courts from their
jurisdiction. They can indeed make the arbitral tribunal the final arbiter in
questions of facts but they can’t make the tribunal the final arbiter on
questions of law. They cannot prevent its decisions from being determined
by courts. If the parties should seek by agreement to take the law out of the
hands of courts and put it into the hands of a private tribunal without
recourse at all to the courts in cases of error of law then the contrary is to
that extent contrary to public policy and void.

It should be noted that such provisions don’t usually stop at prohibiting the
party from resorting to court but they go on to provide an alternative forum
for dispute resolution e.g. an arbitrator and the question is whether a party to
such a contract can overlook this provision and go to court. From Lord
Dennings decision above it would appear that when he refers such a matter
to court a court will refuse to hear it and refer the matter for arbitration but
the decision of the arbitrator is subject to review by the courts at least on
points of law.

This position is now contained in S. 22 of the contracts Act. S. 2 however

sets out the arbitration except that this provision doesn’t render illegal an
arbitration clause in the contract or refer to arbitration under any law.

Ref Arbitration and Conciliation Act Cap 4

It should also be noted that since 1998 the courts have been encouraged to
promote alternative means of settling disputes e.g. the ideas of parties
resolving their conflicts outside court.

(2) Contracts which are prejudicial to the institution of marriage

 The family is taken to be the foundation of a civilized society and marriage
is the foundation of family life.

Accordingly a contract which undermines the institutions of marriage is

against public policy and void. Such contracts which undermine marriage
are 3 types.

(1) Contracts by which a party agrees to restrict his freedom to choose a

spouse Lowe v Peers, a man made a promise under seal stating as if “
I do hereby promise Mrs Catherine Lowe that I will not marry anyone
else if I do I agree to pay the said Catherine a sum of 1000pounds next
after I shall marry anyone else”.

Court held that this was contrary to public policy and was therefore
void.

(2) Marriage brokerage contract

This refers to an arrangement whereby a person offers for

consideration to procure a marriage partner for another for a fee. Such
a contract is void. Hamman v Charles worth – the woman was able
to obtain the money she had deposited.

(3) A promise by a married person that she will marry the promisee when
her current spouse dies or when she divorces him. Spires v Hans
Spiers v Hunt

CONTRACTS IN RESTRAINT OF TRADE

S.21 of the contracts Act refers to them as contracts in restraint of profession. A

contract in restraint of trade is one whereby a party agrees to restrict
another…….to carry out his business/to practice his trade as he chooses. Such a
contract is prima facie void.

This kind of contract refers to a provision e.g. in an employment contract whereby

the employee undertakes that upon the termination of the contract, he will work for
a rival company. or that you will not set up a competing business.

Such contracts are discouraged because it is deemed to be in the public interest to

allow competition and free most labour in the market.
Such contracts tend to fall into 3 contracts;

(a) Employer-employee agreements whereby the employee undertakes that

upon leaving the employer’s co., he won’t work for another employer.
Giella v Cassman Brown & Co. Ltd [1973].

An employee of a firm specializing in flooring and roofing signed a

contract of service containing a clause which stated that the employee
undertakes on termination of this contract not to engage on any similar
undertaking within a radius of 10miles from the centre of post offices of
Nairobi, Mombasa, Kampala, Jinja and Dare es salam until a period of 3
years from the termination of the contract had elapsed. When he
resigned, he went to work for a rival firm on the same street in Kampala.
It was held that a restraint was unreasonable and an injunction couldn’t
be issued.

(b) In contracts between buyer and seller of business’ good will as it was
seen in the case

Nordenfield v Maxim………..

(c) Sales agreements both the prohibition and restriction btn contracts and
exceptions under which they are permissible ref S21(1), 21(2) a restraint
isn’t reasonable if it exceeds what is necessary to protect the preparatory
interests of the promisee.

S21(3) the burden of proving the reasonableness of the restraint is on the

promisee, he must prove that he is reasonable as between him as the
promisee, he must also prove that the restraint isn’t injurious to the
public.

CONSEQUENCES OF A VOID CONTRACT

Where a contract is merely void not illegal; the court are more lenient
and the approach courts follow is;

The contract that is necessary to satisfy the requirements of public policy

i.e. it’s not wholly enforceable.
Where a contract is declared void money paid under it may be
recoverable. In Hamman [Herman] case it was held that the plaintiff was
entitled to recover the deposit which she paid the defendant to help her
get a suitor.

As with illegal contracts, if a contract contains distinct promises, those

which are void may be severed from the enforceable ones so that the
latter are enforced.

Subsequent transactions arising from a void contract may themselves be

enforceable.

The case of Bisset v Wilkinson is distinguishable from the case of Esso

Petroleum v Mardon [1976] QB 801. In that case, Esso represented the
defendant a prospective tenant of a filling station which was in the
process of construction that the through but at the petrol at the station
was likely to reach 2,000,000 gallons. However the local authority
refused planning permission of petrol pumps in front of the main street.
Instead the station had to be built back front with a foreheart at the back
of the station and the only access to the petrol pumps being on the side
street. Esso through their experienced officials assured the defendant that
this change wouldn’t affect the projected throughput of petrol. In fact as a
result of the change, the throughputs of the petrol only reached 78
thousand gallons per year. The defendant incurred considerable losses in
operating the station and eventually reached the position where he could
no longer pay Esso for the petrol. Esso consequently sought to repossess
the station and to recover money of them by the defendant. The
defendant counterclaimed for damages for breach of contract and
negligent misrep. Esso contended that their statement as to the true boost
of petrol was one of opinion not of action.

The court held that the statement relating to the through put of petrol was
a statement of fact that Esso had special knowledge and skill in
forecasting the throughput of petrol and they were held to represent that
they had made the forecast with reasonable care and skill. Court further
held that on the facts they hadn’t exercised reasonable care and skill and
were therefore liable in damages.

Lord Denning, distinguished the case of Bisett on grounds that on case

the Land had never been used as a sheep farm and both parties were
equally able to form an opinion as to its carrying yet in Esso, Esso had
special knowledge in skill in forecasting the throughput of petrol.

The reasonable inference drawn from the decision in Esso is that it is

possible for a statement of opinion to constitute a statement of fact in
appropriate cases. That inference is supported by the decision in L.J
Bowen in Smith v Land & House Property Corp. [1884].

Chancey Division pg 88 where he said that it is often veraciously that a

statement of opinion cannot involve a statement of fact, that in the case
where the facts are easily known what one party says to the other is
equally nothing but an expression of opinion. However, if the facts are
equally not well known to both parties then a statement of opinion by one
who knows the facts……….involves very often a statement of material
fact because he impliedly states that he knows the facts justifying his
opinion. It would therefore seem to be the opinion that whether the
statement is opinion or of fact depends on the conduct of the parties and
the circumstances surrounding the statement.

Considering the principles in Esso and in Smith, the following

propositions may be deduced;

(1) Where the representor has better knowledge than the representee,
the courts are likely to imply that the representation was made with
reasonable care and skill and the representer knows the facts
justifying his opinion. In effect the principles set out in the
foregoing cases impose upon negotiating parties vested with
special skill a duty to take reasonable skill and care in preparation
of opinions.

The statement of law is not a statement of existing fact though in

appropriate cases, a fraudulent misrepresentation of law may be to
liability in equity to restore any benefit obtained by virtue of
misrepresentation.

West London Commercial Bank Ltd v Kitson [1884] 13 QB 360.

Statement of intention is not a statement of fact for purposes of the

law of misrepresentation. It follows therefore that as a general rule
if a person fails to carry out his stated intention doesn’t ordinarily
become liable to misrepresentation.

Wales v Wadhan [1977] vol I WLR pg 199 contrast with

Edinginton v FitzMaurice [1885] 29 C D 459.

It follows therefore that where there is a statement of intention that

induces a person to enter into a contract such statement may
amount to actionable misrepresentation of fact where there is
evidence that the maker/representer knew that he wouldn’t carry
out his stated intentions.

Another pertinent question that arises is whether silence amounts

to a misrepresentation. Since there is no duty on the contracting
party to disclose or volunteer material information relating to the
subject matter of the contract ref to S 15(2) of the Contract Act.

In Bell v Lever Brother Ltd, the court noted that failure to

disclose the material fact which might influence the mind of a
prudent contractor doesn’t ordinarily give rise to a right to a party
to avoid a contract.

The general rule s fortified by the principal of caveat emptor

(buyer beware) there is therefore no obligation posed on any
contracting party to volunteer relevant information to the other
contracting party unless the nature and subject matter of the
contract warrants so.

EXCEPTIONS TO THE RULE

S.15(2)

(1) Half-truth; A party to a contract may be legally entitled to

remain silent about a material fact but if such a party makes
a representation, the law requires that such representation
must constitute a full and frank statement and not a partial
answer.

According to Cheshire and Fi-foot 9th edition pg 252 the

law requires full disclosure because a half truth may omit
 material information which could have enabled the
representee to make an informed decision as to whether to
enter into a contract or not. Where the representer makes a
false statement believing it to be true, an obligation is
imposed on such a representer upon discovery of the mistake
to disclose to the other contracting parties.

(2) Insurance Contracts

Contracts of insurance are ordinarily based on utmost good

faith which places an obligation on the insured to disclose
all material facts upon which the insurer may base a decision
to insure the risk or not. Therefore failure to disclose
material facts may entitle the insurer to avoid the policy
even if the misrepresentation may have been innocent. The
question that arises is what type of information constitutes
material facts for that purpose. In Joel v Law Union and
Crown Insurance Co. [1908] vol II KB 63 the question
was whether the incorrect answers provided by the insured
in a life insurance policy constituted a misrep of fact. Court
held that the duty to disclose requires disclosure of
information within the knowledge of the insured and the
obligation depended on the information in the possession of
the assured that the test of materiality of the qn is
determined by ref of what a reasonable insured would have
disclosed.

A misrepresentation will therefore affect a validity of a

contract of insurance if in the wisdom of court it was
material in the determination and the assessment of the risk.

(3) FIDUCIARY/SPECIAL RELATIONSHIPS

Particular relationships between parties may require full

disclosure of info between the parties and non-disclosure
may amount to a misrepresentation. Such relationships
include; partners in a partnership, principal and an agent,
advocate and client, trustee and beneficiary.
In order for a statement to found a cause of action in this
[negligence] kind, it must be addressed to the party misled
either by way of direct communication or through a third
party with the intention that it will be passed on to the
representee Commercial Banking Co. of Sydney v R.H
Brown & Co. [1972] vol II Llyods Report 360.

Statement relied on by the plaintiff must constitute a

material inducement which was intended to induce the party
into the contract and it indeed induced such a party to enter
into a contract.

Two main elements may be inferred from the requirement of

inducement.

(1) The rep must be material in the sense that it would

affect the judgment of a reasonable person in deciding
whether to enter into a contract and the specified
terms or not. The rep must actually induce the
plaintiff into entering into that contract. Geb Taseners
v Marks Bloom & Co. Ltd [1983] vol 583 ALLER
Edginton v Fitzmaurice [principle that a misrep may
not be the sole cause of inducement but it suffices if it
was operational on the minds of the contracting party
at the material time].

A misrep is therefore legally incapable of being a

basis for an action unless the plaintiff proves to court
that the misrep was within his knowledge and that it
affected his judgment. Therefore where the plaintiff
wasn’t aware of the existence of the misrep or didn’t
allow it to affect his judgment or wasn’t aware that it
was false, the plaintiff may not succeed.

Ignorance of a misrep doesn’t entitle a contracting

party to seek a remedy basing on such misrep.
Horsfall …..v Thomas [1878] vol 8 CD 469. The
court held that relief would only be granted to a
person reling on a misrep where such a person was
aware/knew of the misrep.
 Hutchwood v Small [1838] vol 6 CL & F 232

In summary, the plaintiff may be unable to show that

he was induced into the contract;

1. Where the plaintiff was unaware of the existence

of the rep. Roscorla v Thomas
2. Where the plaintiff knew that the rep was untrue
3. Where the plaintiff didn’t know of the rep or didn’t
allow it to affect his judgment. Smith v Chadwick
[1884] vol 9 App CAS pg 187

Redgrave v Hurd [1881] vol 20 CD pf 81

Smith v S.bush [1990] vol I AC [approval cases]

pg 31.

NEGLIGENT MISREPRESENTATION

………………………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………
……………………………………………………………………………………….

AC [1942] the house of lords noted that negligent misrep would be actionable at
law only where there was a pre-existing contractual relationship btn the parties or
where the parties were in a fiduciary relationship. It has been argued that the case
of Derry v Peek didn’t create an in rod in negligent misrep at common law. The
reason is that the Plaintiff in Derry v Peek founded the statement in deceit. The
H.O.L ruled that the Plaintiff couldn’t succeed in an action to ……. Fraud and
further formed no action for negligent misstatements. The court was further of the
view that any claim that didn’t constitute deceit was innocent and therefore could
not give ris4e to negligent misrep.

However, the position of the law appears to be that in appropriate circumstances

and in relevant relationships an action may lie in the tort of negligent misreo. This
was considered in the case of Hedley Byrne & Co. Ltd v Heller & Partners Ltd
[1964] AC 465 which is said to have laid a foundation for an action in negligent
misrep. In that case, plaintiffs were advertising agents who bought substantial adv
space on behalf of their clients Easi Power Ltd on terms that they would be
personal liable if Easi Power defaulted. Plaintiffs had concerns about the financial
standing of Easi Power and through their bank they sought from the defendants,
who were Easi Power’s bankers, ref on the financial standing of Easi Power. The
defendant replied that Easi Power were considered good for its ordinary business,
the plaintiff relying on the ref, placed orders which as a result of Easi Powers
default led to losses. The plaintiffs alleged that the defendants were negligent in
the prep of ref and were therefore liable in negligent misrep. It was held by court
that negligent misrep can only create liability where there is a special relationship
btn the parties.

That there must be a duty of care owed by the defendant to the Plaintiff. Court
further noted that such a professional persons carrying out their business within
their profession.

The reasonable inference from the decision in Hedley Byrne v Heller is that a
plaintiff relying on a special relationship must establish the fact that the maker of
the statement had great knowledge as opposed to the representee and was aware of
the purposes for which the representee is likely to use the info for the made the
statement knowing that the representee would act on it.

It may be argued that inorder for an action for negligent misrep to lie a rep must be
possessed of special skill in so far as the info provided is concerned in Mutual Life
and Citizens Assurance Co. v Evertt [1971] AC pg 793 the privy council noted that
the representer should be in a business of giving advice on the subject of his
misrep.

The court noted that in the facts, the defendant insurance co. had given the plaintiff
gratuitous advice on the wisdom of investing in the defendant sister co., the
defendants were therefore exonerated from liability on grounds that they were an
investment co. not insurance advisors. The minority held that the duty of case is
owed by everyone who takes it upon himself to make a representation knowing
that another would justifiably rely upon it either to their advantage or to
disadvantage. The minority view appears to be supported by the decision in Esso
Petroleum. The purpose for which the statement was made is a relevant
consideration implying that where the representer makes a statement intending that
the representee should rely upon it, liability is imposed. Smith v S.Eric Bush
[1990] AC 793. It must also be reasonable for the representee to rely on the
statement. Where a statement is made on a social occasion, it may be difficult for
the representee to persuade court to condude that it was reasonable for him/her to
rely on the statement. Chaundhry v Praphakar [1989] vol I WLR pg 29.

Where the statement is made in a commercial context, the Courts will be more
willing to……………

Hedley Byrne v Hller-voluntary assumption of rep rely on it. Smith v S.Eric Bush
[supra]

According to Chestine and Fi-foot 9 th edn, liability for negligent misrep may only
arise where the statement is one of fact in a sense that it may even form part of the
transaction their contention is fortified by the decision in Esso Petroleum v
Madden where the court held that statements may be made during pre-contractual
negotiations which may create liability for negligent misrep. The major qn that
arises is the scope of liability arising from the rule in Hedley Byrne v Heller. This
was considered in the case of Winher v Carbon Langrish [1966] Ea 292 where the
court held that apart from strict contractual obligations and notwithstanding the
absence of consideration there must exist at common law in appropriate cases what
had been called the duty of care on persons in contractual dealings with another, it
should be now regarded settled law that if a person possessed of special skill
undertakes quite irrespective of contract applies skill for the assistance of another
who relies upon such skill, the duty of skill will arise.

Long v Lloyd [1958] Vol I WLR 453

Lef v International Galleries [1958] I ALLER 613

Red……v Carwell [1964] I ALLER 290

Innocent misrep arises where the representer makes an honest and innocent
statement without realizing that its false, the statement may not be made
nefligently and without any intention of deceit only that it turns.

The statement must however be reasonable in the sense that its capable of being
believed and notwithstanding the fact that its false. Ordinarily liability doesn’t
arise out of innocent misrep since the representer is believed to have had an honest
belief that the statement was correct.

Remedies to Innocent Misrepresentation

As a general rule, misrep has a legal effect of rendering a contract voidable and not
void. This implies that the contract is deemed to be valid and subsisting until the
representee successfully sets it aside the representee may opt to complete
performance of the contract in which case no relief is available for misrep.
However, the representee may rescind the contract which ineffect brings a further
end to the performance of the contract.

Rescission isn’t available where restituo intergrum is possible meaning that the
representee in incapable of being restored in the pre-contractual relationship.

Where there is affirmation of the contract by the representee either expressly or by

necessary implication the relief of rescission is not available.

Long v Llyod [1958] I WLR pg 453.

In misrep, other than fraudulent misrep, the rule is that rescission must be effect3ed
within a reasonable time otherwise an inference will be drawn that the plaintiff has
affirmed to the contract.

Leaf v International Galleries [1958] vol I ALLER 613

Where a 3rd party acquires an interest in the subject matter of the contract of value
and in good faith, the remedy of rescission isn’t available.

Car and General Finance Co. v Cadwell [1964] vol I ALLER 290 where the
representee opts to receive the contract, the general rule is that he must notify the
representer which may be done through seeking a declaration from court for
restoring what he has obtained as a contract or by relying on a misrep as a defence
is an action for the breach of the contract.

Indemnity; The effect of rescissions to set aside contracts for all purposes meaning
that damages may not be claimed for a contract that is no longer in existence. The
concept of indemnity connotes entitlement for expenses incurred as a result of the
misrep. However, the claim of indemnity is sustainable in respect of expenses
incurred in the discharge of obligations created by the created.

Whittington v Seale 7 Hayne [1900] vol 82 LT 449

Damages;
A contractual claim for damages doesn’t lie for misrep’s unless the representation
has subsequently been incorporated into the contract as a term. In that case
damages may be claimed for breach of contract.

However, damages may be claimed in tort as arising out of negligent or fraudulent

misrep.

Deyle v Olby [1969] vol II QB 158

Archer v Brown [1985] QB 401

Damages are however assessed to the extent to which they would bestow the
aggrieved party to the position they would have been in had there been no
misrepresentation.

Liability for misrep may however be excluded save that the rules applicable are
quite strict.

Hedley Byrne v Heller & Partners

S. Pearson & Sons Ltd v Dublin Corporation [1907] AC 351

DURESS UNDUE INFLUENCE AND INEQUALITY OF BARGAINING

POWER

Salient principles underlying duress and undue influence.

The general principle relating to enforceability of the contract being that the courts
are mandated to interprete and enforce the terms of the contract are set out by the
parties.

Cases

Green Boat Entertainment v KCC

Behange Jennifer & ……….

The rationale for the general rule arises from the nortion of freedom of contract
under which the law permits parties to agree on whatsoever terms they deem fit.
Numerical Printing Co. v……..

Duress and undue influence are therefore important qualifications to the forgoing
general rule in the sense that they entitle the party to avoid the binding obligations
of a contract if such party can prove that the contract was procured by duress or
undue influence. The rationale for the qualification arises from the rule that parties
must voluntarily and willingly execute contracts it follows therefore that a contract
may be set aside on evidence that it was procured by unfair or improper pressure
exerted on the plaintiff. The principles governing duress;

(1) Duress if successfully pleaded and proved renders the contract liable to
be set aside. Duress arises where an agreement/contract is prima facie
valid but challenged on account of having been procured by improper
pressure.

Duress connotes coercion of the will of the other contracting party of

such an extent as to vitiate consent i.e. there is no conses ad idem.

Actionable duress requires proof of pressure having a practical effect of

comparison or lack of practical choice of a victim which is illegitimate
and which induses the claimant into a contract.

Universal Tankships of Monrovia v Itwf [1983] AC 3

Its prudent for the Plaintiff to prove that duress was a fundamental reason
for entering into the contract though it may not be the only reason.

CATEGORIES; Duress has 3 categories;

1. Duress to person
2. Duress to property – Maskel v Holmer
3. Economic duress

SCOPE OF DURESS

Duress has evolved overtime leading to the aforementioned categorization though

it was initially confined to actual or threatened physical violence on the other party
i.e. there was no econ duress or physical duress.

Barton v Armstrong
Subsequently duress was extended to circumstances where the threat is extended or
directed to the plaintiff’s close person or relative.

Duress has overtime been expanded to extend to circumstances where there is no

physical violence but undue and illegitimate pressure exerted on the contracting
party. Duress initially never applied to threats to goods but was expanded to cover
instances where the threat is to damage a person’s property/goods.

Duress was further expanded to recognize the concept of the doctrine of econ
duress which arises where a contracting party takes advantage of the plight of
another to re-negotiate terms advantageous to him. North Ocean Shipping Co. Ltd
v Hundai (Atlantic Baron)

It’s not enough to merely plead commercial pressure in addition there must be
evidence of coercion of the will which vitiates the party’s consent.

Consent Bao v Lauyiulong

Relevant Consideration in Det. Econ Duress

Court is required to consider a number of factors including actual or threatened

breach of contract whether the person exerting the pressure act in good or bad
faith.

Whether the victim contested or not the whether the pressure was illegitimate. The
alleged pressure must be such as deprive the contracting party of the freedom of
exercising his will in the execution of a contract.

Distinction btn Econ Duress & Unconscionable Bargains (these arise out of the
higher bargaining power at the expense of another)

LEGAL

Undue influence relates to influence exercised by one contracting party against

another which influences the will of that other contracting party. Undue influence
is defined as some unfair or improper conduct or some coercion or form of
cheating by one person talking advantage of the other.

Undue influence exists where a party is induced into a contract as a result of some
form of pressure not amounting to duress.
It’s a creature of equity & as such no remedy was available at common law for
contracts executed out of undue influence.

Undue influence is categorized into 3 forms;

1. Actual undue influence

2. Resumed undue influence arising from a pre-existing relationship
3. Resumed undue influence arising from special relations.

Actual undue influence

This requires proof of execution of a contract on the basis of undue pressure

exerted by the defendant.
In that context, the plaintiff must adduce satisfactory evidence to the effect that the
contract was executed without his will (involuntarily). Some of the acts that may
constitute undue influence may include; threats to end a relationship (commercial
& social).

Royal Bank of Scotland

The qn that arises is whether there is need for the plaintiff to ……………. Whether
he is suffered manifest disadvantages arising out of the execution of that contract.
Initially that was a requirement that has subsequently been abandoned.

Resumed undue influence

This may arise automatically once there is proof of a relationship such a nature that
as a matter of law, undue influence is resumed. The relationship is one of a
fiduciary nature that may include the parent & the child, solicitor & Client, doctor
& patient, trustee & beneficiary religious advisor & a disciple.

A qn arises as to whether undue influence may be presumed in transactions

involving family members. In appropriate cases, the court may be inclined to
presume undue influence btn husband & wife.

A presumption of undue influence may be discharged where the defendant adduces

evidence to prove that the plaintiff willingly and ……………… executed the
contract. The defendant may also adduce evidence to prove that the plaintiff sought
indep. legal advice before executing the contract.
Undue influence and 3rd parties

Undue influence may be pleaded by a 3 rd party as against any of the contracting

parties in appropriate circumstances where there is constructive notice in the
possession of a contracting party ref. S39 of Land Act.
Barclays Bank v O’Brien

Possible Remedies;

Damages may be claimed

Apply to court to severe the contract i.e. accepting part of the contract.

Remedies may not be available where 3 rd parties have in good faith contracted with
the aggrieved party & acquired an interest in the 3rd party.

DISCHARGE OF CONTRACTS

………………………………………………………………………………………
………………………………………………………………………………………

As a general rule since parties voluntarily enter into a contract, the same parties
may voluntarily agree to terminate the contract. This is expressed in the Latin
maxim eodem modo quo, orita eod ………….. which translates what has been
together by agreements may be put usunder by agreements. In otherwords parties
have a right to voluntarily agree or to terminate contracts & thereby release each
other from further obligations.

This would essentially depend on whether the contract is executed or executor.

In executed contracts, the party that is yet to perform his part in a contract seeks to
be released from further obligations (unilateral discharge) under this situation, a
party seeking the discharge may either be released by an agreement under seal or
upon consideration which is accepted in satisfaction of the existing obligation of a
contract technically ref to as accord & satisfaction. Where however the contract is
still executor i.e. each of the parties is yet to perform some obligations, each party
agrees to release his rights under the contract as consideration for a similar release
by the other party (bilateral/mutual discharge). The effect of this is that money paid
or property transferred may be returned and the parties return to previous status
quo.

2. Where the agreement is executor

- For courts under seal of which are required by law to be in writing, although
under the old common law they were required to discharge the by another
agreement or in writing by the intervention of equity they can now be
discharged by a simple contract written or oral.

- In [Berry v Berry 1929] vol 2 KB 316 by a separation deed, a husband

promised his wife to pay her 18 pounds per month 8 years later they would
another agreement not under seal by which he agreed to give her 9 pounds
per month and also 30% of his salary if it exceeded 350 pounds. Court held
that the separation deed has been validly varied by the later simple contract.

The parties may also agree to weigh their rights and duties under a contract and
thus discharge a contract btn them. The waiver involves the
renunciation/abandonment of some claim right under contract or a promise not to
insist on the mode of performance fixed by the contract ref Richards v Opentiech
[1950] 1 KB 616-selling the car & the delay. As noted where the discharge
agreement is supported by fresh consideration, it is ref to as accord & satisfaction.
Accord is the agreement by which an obligation is discharged whereas satisfaction
is consideration given which makes the agreement co-operative.

British Russian Gazette & Trade Otlook v Associated Newspapers Limited

[1933]2 KB 616

A contract may be discharged or brought to an end by the parties agreement of

parties be it oral in or in writing and the parties will be relieved of further
obligations of each other.

DISCHARGE BY PERFORMANCE

Where parties to a contract have performed their duties or fulfilled their respective
obligations in the contract, the contract is complete.

As a general rule, performance must be complete i.e. in accordance with the terms
of the contract anything short of this will amount to breach.
Problems however arise when one party has fully performed the obligations & the
other party is yet to perform or has partly performed. In such a situation, only the
party that has fully performed is discharged, the other is not and may be sued for
breach of contract. The party in breach may allege that he was prevented from
performing by the other party. Further, each party may blame his inability to
perform on the ground that the terms of the contract required the other to
perform………………..as a condition precedent to his own performance.

As to whether one party is required to perform before the other is a matter of

intention of the parties as manifested in the nature and terms of the contract is i.e.
whether there is condition precedent or the obligations are co-current or
performance is simultaneous.

Where the obligations are co-current the parties perform at the same time and no
party may sue the other unless he has performed his party, but where there is a
condition precedent the party obliged to perform that must perform 1 st before the
other performs. Besides keeping the terms of the contract, the parties are obliged to
perform their respective duties within the agreed time. If no time was agreed upon,
they are required to perform within a reasonable time. Reasonableness depends on
the circumstances of each case and the nature of the contract itself.
Whether time is of essence to the contract depends largely on the terms of the
contract. Of by the terms of the contract, time was stipulated for the performance
of the obligations then the party performing must act within the stipulated time
otherwise he would be in breach and the other party may repudiate the contract and
sue for damages.

In the case of Panesar v Popat [1968] EA if time was of the essence in a contract to
supply furniture. The seller breached the time stipulator and the buyer extended the
time by some days. The seller still failed to supply at the agreed date where upon
the buyer repudiated the contract and refused subsequent delivery. Court held that
the buyer was entitled to refuse delivery since time was made of essence in a
contract.

PARTIAL PERFORMANCE

As noted, performance of contractual obligations has to be complete. Any part

performance, the contractor can’t claim for the full value of what he is done as its
clearly in breach this in Cutter v Powell [1795] 6 YR 320 the defendant agreed to
pay Cutter 30 guine as provided he continued to act as his 2 nd mate in saving the
ship from Jamaica to Liverpool. The ship left Jamaica on 2 nd August and landed on
9th Oct.

Meanwhile Mr. Cutter died enroute on 2nd September. Cutter’s wife sued to recover
the value the husband had earned on the basis of quantern mesuit. The action failed
because the contract was to be performed completely before he [Cutter] could be
paid. This principle was following a century later in the case of [1898] 613
Sumpter v Hugdes.

Involving a contract for the erection of buildings. The plaintiff had done 3/5 th of the
work and informed the defendant that he had no money to complete the work.

The defendant thereupon finished the work using the materials left by the plaintiff.
The plaintiff re-sued to recover his fees on the basis of quantum meruit and the and
the costs of the materials left on the site. The action failed and the contract wasn’t
separable however, he was awarded the costs of the materials only.

The rule as to complete performance as enunciated in Cutter v Powell has been

qualified by certain exceptions;

1. Acceptance of partial performance, where the defendant accepts, partial

performance by the plaintiff held liable to pay for that part of the contract
that wasn’t performed on the basis of quantum meruit.
2. Prevention of performance or completion, if in the execution of the contract,
the plaintiff was prevented from completing/performing his obligations
under contract, he is entitled to give a claim of damages or for what he is
already done on the basis of quantum meruit. This was the ratio in the case
of Planche v Colbarn, where the plaintiff was engaged by the defendant to
write a book, “The Juvenile Library” after he would gone far into the book,
the defendant abandoned the project. The plaintiff was held entitled to the
value of what held written on basis of quantum meruit.
3. Severable/Divisible contracts, where the contract btn the parties is of a
severable or divisible nature i.e. it’s made up of several parts that can be
conveniently dismembered from the whole then performance of some of the
parts would entitle the party to recover the value of what had been
performed on the basis of quantum meruit. E.g. in the contract of the supply
of stationaries, if the plaintiff was able to supply notebooks, ink, pens (dup
paper) but couldn’t supply staplers and diaries because these latter items
couldn’t be found in the market as they were out of stock then he should be
able to recover the sum due for the items duly supplied.
 Whether a contract is divisible or not, will depend on the intention of the
parties and the nature of the contract itself. This principle can also be applied
where a particular part of a contract is illegal/void thus court can sever the
lawful or valid aspect of the control from the unlawful/illegal contract under
the principle of severance.

4. Substantial performance

By the doctrine of substantial performance, a contractor who is contracted

substantially though not entirely his obligations under a contract may
recover the stipulated contract sum less the value of what hasn’t been done
or not properly done. The defendant also has a right to counterclaim for
damages, for incomplete performance or loss covered thereby, this is
necessary to avoid the hardships occasioned by the strict application of the
common law principle of complete performance expounded in Cutter v
Powell more so that the strict application of Cutter v Powell would lead to
the unjust enrighment of the defendant. Accordingly in Melita & Co. Ltd v
Baron Verhegen; the applicant was allowed to claim the price of the contract
for the erection a house which had provided for payments in installments.
On completion, the respondent withheld the last installment on grounds of
structural detects but the applicant based his argument on substantial
performance of the contract which the court of appeal agreed with.

Consequently where there has been substantial performance of a contract,

the plaintiff may sue to claim for the value of what has been done under the
doctrine of substantial performance.

5. Tender of performance

This refers to an attempted performance of an obligation. If a party to a

contract offers to perform but the performance is rejected by the other
party, he is deemed to have performed and is discharged from his obligations
and may sue for breach of contract. In startad v MacDonald [1843]6 the
contract was for the supply of oil within the last 14 days of March. The
plaintiff delivered the goods by 8:30pm on the 31 st of March which was
rejected by the defendant as being too late. Court held the tender as valid
performance.

DISCHARGE BY FTRUSTRATION
Frustration is defined as a supervening or unexpected occurrence in the
contract without the fault……………of the parties which makes the
continued performance the contract practically, legally and commercially
impossible or which makes the intended results radically or fundamentally
different from what the parties originally agreed.

A contract discharged by frustration has the effect that the contract becomes
automatically determined or brought to an end and the parties relieved of
further obligations under the contract. However rights which accrued to the
parties before the frustrating event may be enforceable whereas rights which
were yet to approved before frustration were not enforceable.

To be capable of discharging a contract, the frustrating event must have

occurred outside the operation of the party. In otherwords, the doctrine of
frustration doesn’t apply where the contract expressly provides for the
contingency or where it was falsely induced or could have been reasonably
foreseen. Neither is it a defence that performance has become problematic or
onerous or the contract deems less profitable.

Where any of these circumstances is the case, the contract is still valid and
enforceable by the parties.

The following events can be considered as frustrating the performance of a

contract.

* Subsequent illegally/Statutory Intention

An otherwise legal/valid contract becomes frustrated where there is a
subsequent flow, regulation of policy prohibiting such contract. Such
prohibition renders a contract illegal unenforceable.

Outbreak of war; the outbreak of war is another element that can render an
otherwise lawful contract frustrated or illegal. Where there is an outbreak of
war any contract btn citizens of the war states becomes frustrated with the
citizens of the other state at war may be considered an alien enemy. This
situation covers not only citizens of the enemy state but also resident’s other
persons………………………….or within a territory occupied by an enemy
state Sooracht [1943]AC 203. In the Fibrosa case [1943]AC 32. A contract
for the sale and delivery of machinery was held frustrated when the port was
occupied by the enemy in the WW2.
Taylor v Caldwell

Taylor v Caldwell – Caldwell agreed to let a music hall to taylor so that for
concerts could be held there. Before the date for the 1 st concert, the hall was
destroyed by fire.

Taylor claimed damages for Caldwell’s failure to make the premises

available. Court held that the claim for breach of the contract must fail since
it had become impossible to fulfill.

Herne Bay Steamboat Co. v Hutton

Herne agreed to hire a steamboat to Hutton for a period of two days for the
purpose of taking passengers around to review the occasion/coronation of
Edward VII. The review was cancelled but the boat could have been used to
arise round the assembled fleet. It was held that the contract wasn’t
frustrated.

DAMAGES
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The remedy sought/pursued depends on the nature and character of the
breach and how the innocent party has treated the breach.

Damages is a common law remedy which may be ref to as a mandatory

compensation awarded by court to a party that has suffered loss as a result of
breach of contract. Its aimed at putting the injured party nearly to the same
position as would have been had the breach not occurred.

The rationale for award of damages can be seen in the dictum of Robinson v
Harman to the effect “the rule in common law is that where a party sustains
a loss by reason of breach of a contractors is far as money can do it be
placed in the same position with respect to damages as if the contract had
occurred. The plaintiff who has suffered loss as a result of the Defendant
breach should be identified for the losses arising from the breach provided
however that this can be achieved from monetary compensation.

Hardly or Baxendale – to be such may be reasonably be considered either as

arising from the ordinary course of things from the breach of contract itself
 or might have been reasonably contemplated that at the time the contract
was made.

Robinson v Harman – the rule applied in this case was rather wide.

- Damages sought by the plaintiff don’t reasonably and ordinarily flow the
breach of contract or the parties couldn’t have contemplated the loss then its
difficult for the plaintiff to recover.

Damages divided into 3;

- Norminal damages
- General damages
- Special damages

Norminal damages

This refers to the sum awarded to the plaintiffs by court for breach.

This is based on substantiated loss or injury suffered on actual damage.

The more fact of this breach entitles the plaintiff to this type of damages. It’s based
on the principle that “where there is a right there is a remedy” thus recover
norminal damages on the basis of legal righ. He need not prove actual loss.

GENERAL DAMAGES

- Defined as compensation awarded to the plaintiff for the loss or injury as the
law itself presumes or implies.
- Where the court has to estimate or access the damages, the figure is termed
general damages.

SPECIAL DAMAGES

- Refers to compensation of any damages which is the actual result of the

injury or loss suffered by the plaintiff.
- To be availed this kind of damage, there must be immediate and direct
consequences of the defendant’s breach of contract.
In Hutchinsons case; it was held that special damages can’t be awarded unless they
are contemplated by the parties of the contract.

- They are awarded according to the principle of restitutio entegram i.e.

restoring the parties to the position they would have been had the contract
been breached. The burden of proof is on the plaintiff who is alleging.

Refer to Kardo v Sempa where the plaintiff took the car on hire purchase but
failed to complete payment therefore it was repossessed. He claimed but
wasn’t able to prove special damages. Court refused to award special
damages for wrongful possession but returned the car.

SPECIFIC PERFORMANCE

It’s an equitable remedy and its discretional granted by Court to compel a

party to a contract to perform his cases where the remedy for damages is
either suffered or inadequate.

Ryan v Mutual Tankships it was stated that specific performance was in

order to meet the case where the ordinary remedy by an action in damages
isn’t adequate compensation for breach of contract.

The rationale for this remedy is that the compensation for damages may not
be adequate or appropriate to compensate the plaintiff.

Before granting the order for specific performance, court considers if it can
do more than award of damage whether it’s just an equitable in the
circumstances of the case and will not grant it where it will create hardship
or be impossible to perform.

Generally court will not order for special damages in the following case;

- Where damage will be an adequate and app remedy

- In contracts of personal service like-master service
- Contracts requiring continuous supervision
- Contracts under seal i.e. those don’t furnish any consideration
- Where one of the parties is a minor, this is based on the fact that mutually
isn’t possible because one can’t compel a minor so can’t himself be
compelled.
- Where performance is impossible – Taylor v Russel-Injunction
 - Defined as an order of Court refraining party to a contract from doing an act.
- Its prohibitory, mandatory or restrictive
- Warner Bros Pictures v Nelson; An order of Injunction will not be granted
- The defendant was signed to act with Warner Bros and she left to Br where
he started acting upon which an order of Injunction was instituted upon her
restraining her from
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 Quantum meruit – Planche v Colburn

- Meaning quantity merited or as much as earned

- Arises where a work to be done in a lumpsum
- A plaintiff may recover money if he has substantially performed his part of
the bargain.

 Specific Performance 0 must have come to equity with clear hands.

- The fact that other damages or remedies may not be applicable in the
circumstances.
- They may not be appropriate or adequate for compensation court won’t grant
an order of specific performance in the following instances.

(i) Where damages are available in the circumstances

(ii) Contracts involving minors –One party
(iii) Contracts for personal services
(iv) Contracts involving constant supervision
(v) Contracts where no consideration is furnished – under seal

 Rescission – means to abrogate, revoke or withdraw from a contract due to

the breach by one party.

- Operates as a refusal for further performance

- Rescission may only be allowed when the breach is of a fundamental term.
- Effect of rescission in cases of mistake and misrep is to terminate the contract
abnitio.

Tsakiroglou v Noblee

T agreed to sell Sudanese GNS-nuts to N from Sudan to Hamburg.

Suez Canal crisis the Canal was closed. T failed to deliver on grounds that
shipment around the Cape of Africa was commercially and fundamentally
different. Court held that the contract wasn’t frustrated.