THE BRIEF ANALYSIS OF THE LAW OF
FORMATION OF CONTRACT.
Read disclaimer at the end of the last
page.
Prepared by;
Kamarabe John,2013/2017
Student,
Uganda Christian University Law
School.
Contact:
kamarabejohn@gmail.com
THE
ANALYSIS OF THE LAW ON FORMATION OF A CONTRACT
EDITORIAL NOTE
CHAPTER ONE
1.
INTRODUCTION
2.
BACKGROUND
CHAPTER TWO
1.
INTRODUCTION
2.
CONTRACT
3.
OFFER
4.
ACCEPTANCE
5.
CONSIDERATION
6.
CONCLUSION
EDITORIAL
NOTE
Omitted
CHAPTER
ONE
INTRODUCTION
This
literature, geared towards examining the law on the formation of a contract, will
give a brief history of contracts. It will describe the meaning of a contract
and examine the elements required by law to make a contract binding on all parties
to it.
BACKGORUND
Brief examination of contracts in
the ancient societies
In
the primitive societies, an individual did not have such rights to create for
himself rights[1].
Where such a right existed, then he created a few rights. This therefore meant that
an individual would not enter into a contract by himself.
The
rational for this conclusion was because an individual was subject to the rules
of the place he was born and to the commands of the chiefs of the area he was
situated. This therefore left him with no room for contracting[2].
Accordingly,
it is notable that Maine[3]
refers to a contract as a legal institution in the primitive society and not an
agreement as a social institution. This means that individuals in the ancient
period would come into agreements but would not enter into contracts.
Agreements were prevalent but contracts were not[4].
Consequently, the only enforceable agreement was a “contract under seal”
Before
the development of assumpsit (which
will be looked at afterwards), there were two recognized forms of action for
enforcing rights: (1) Action of debt and (2) Action by writ of covenant
1. Action
of debt
This was an action available to a
plaintiff who claimed that the defendant had promised him a sum of money or a
quantity of goods and chattels[5]. However
in the fourteenth century, debt action was for recovery of money and a new
action called detinue was developed for recovery of chattel.
2. Action
on covenant.
This was an action available to a
plaintiff against a defendant based on an undertaking charged had been given or
performed by in the manner recognized in law by the defendant. This action led
to the development of the action of
assumpsit. this was an action available for enforcement of informal
promise.
The
reception of the Law of contract in Uganda
Before
the enactment of the current Contract
Act, 2010, the Law of contract was largely based on English principles of
the law of contract. Thus Section 3
of the then Contract Act Cap 75 Laws of
Uganda Vol.11 provided that “subject to any written law for the time being
in force,…the common law of England relating to contracts as modified by:
a. the
doctrines of equity
b. the
public general statutes in force in England on 11 August 1902
c. the
Acts of Parliament of United Kingdom mentioned in the schedule in the Act shall
extend and apply to Uganda.
To
that end, it was necessary while examining the law of contract in Uganda to
examine the rules of contract and the effects, if any, of modifications of such
rules by native law, custom or statute[6].
However,
upon the enactment of the Contracts Act,
2010 by the Parliament of Uganda, the entire Law of contract was codified
in the Act. Indeed, the long title of Act provides “an act to codify the law relating to contracts and to provide for other
related matters”
The
codification of the law of contract in the act does not I my opinion mean that
the entire common law was codified in the Act. The courts can still apply
principles of common law not provided in the Act. Indeed, Section 14(2) of the Judicature
Act cap 13 provides “Subject to the
Constitution and this Act, the jurisdiction of the High Court shall be
exercised subject to any written law and insofar as the written law does not
extend or apply, in conformity with,
(i) the common law and the
doctrines of equity;” this therefore means that courts can still
enforce the common law principles of the law of contract amidst the
codification of the entire law of contract by the Contracts Act 2010. However,
the application of such common law in Uganda is subject to the circumstances
existing in Uganda and the permission of the people of Uganda. This is
because Section 14(3) of the Judicature
Act cap 13 provides “The applied
law, the common law and the doctrines of equity shall be in force only insofar
as the circumstances of Uganda and of its peoples permit, and subject to such
qualifications as circumstances may render necessary.” See also. Uganda Motors V Wavah Holdings Limited
Civil Appeal No.19/92.
CHAPTER TWO
1. INTRODUCTION
Quite
often, we make undertakings, promises, agree to act for others and indeed we
act for others. Little do we know the legality of what we are doing. Are we
bound by what we promise to do? Are we bound by our undertakings? Here, I will
examine the meaning of a contract, give types of contracts and explain the
requirements of a valid contract.
2. CONTRACT
The
meaning of a contract
A
contract is an agreement between two or more people with the capacity to contract
with a lawful consideration and with a lawful object and with an intention to
be legally bound[7].
From the general reading of the definition of what amounts to a contract, it
must be deduced that for there to be a valid contract, it must be between two
or more people. The people must have the capacity to contract; they must
contract for a lawful consideration, with a lawful object and must have
intended to be legally bound by the contract.
Types
of contracts.
Generally,
people make contracts. They will all lead to the same event and are all
governed by the law relation to the validity of a contract. But the question to
he answered is what type of contracts have you made with your colleague. Here,
I will show the types of contracts that people make day after day.
Contingent
contract.
This
is a contract to do something or not to do something where an event collateral
to the contract does or does not happen[8].
Bilateral
contract.
This
is a contract for exchange of promises. In other words, all the parties make a
promise to the other to do or not to do something. One makes a promise to do or
not to do something for the other’s promise to do or not to do something. For
example, Bridget promises to wash John’s clothes and John promises to do
Bridget’s course work. This is a bilateral contract. The word “bi” stands for
two parties. In other words, two parties make promises to each other.
Unilateral
Contract.
This
is a contract where only one party to the contract makes a promise to the other
party. Unlike a bilateral contract, a unilateral contract involves only one
party making a promise, which the other party will accept or reject. It is only
one party having an obligation to act and the other party does not have. For example,
all advertisements are said to be unilateral contracts because, the advertiser
only makes a promise and any person is called on to willingly act upon the
advertisement. One of the classical illustration of this type of contract is
that in the case of Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, CA This is a case that involved a company, the
one Carbolic Smoke Ball Company making a promise to anyone who would use their
smoke ball vaccine and catches influenza. This was a unilateral contract in
that it is only the company that made a promise for any person to perform. You
will come across this case during your contract law 1 lectures. You are advised
to read this case exhaustively for it is a landmark case on offer and
acceptance. A landmark case is a case that stands out from other less
remarkable cases[9]. It is a case that marks
the end or the beginning of the course of a legal development
Collateral contract
This is a subsidiary contract that induces a party
to enter into the main or principle contract.
Simple agreement.
This is an agreement for which the law requires for
its enforcement except the parties’ consent.
Contract of guarantee: this is a contract to perform a promise or discharge the liability of a
third party in case of the default of the third party
Contract of indemnity: this is a contract by which
one party promises to save the other party from the loss caused by the conduct
of the person making the promise or by the conduct of any other person.
Solus agreement
This is an agreement whereby a gagrage owner binds
himself to buy petrol from one oil company.
Honour clause.
This is a statement or statements in an agreement
that limit the intention to be bound by the terms of the agreement.
Ex gratia compromise. This is a payment made by a
person to another person where there exists no legal obligation to make such
payment.
Comendatio non obligat. This is a simple recommendation that does not bind.
CONSENT:
For a contract to be valid and bind the parties to
it, it must be shown that they all consented to the contract. Consent is an
agreement between two or more persons obtained freely, upon the same thing in
the same sense[10]. The parties must freely
consent to the contract to be bound. Accordingly, consent is deemed freely
obtained if it is not caused by coercion, undue influence, fraud,
misrepresentation, and mistake[11].
The parties must have been at the meeting of the mind while contracting. ie,
they must be ad idem. One of the
classic examples of luck of consent was illustrated in the case of Cundy v
Lindsay (1878) 3 App Cas c.f. in this case, the plaintiffs received an order for handkerchiefs from a
dishonest person, a one Blenkarn, who gave his address as 37,wood street, cheap
side. He signed his name to make it look like Blenkiron &co, a reasonable
firm known by reputation to the plaintiffs and carrying on business at 123 wood
street. The plaintiff sent the goods to “Blenkiron & co.” where Blenkarn took
possession of them. He did not pay for the goods. He sold them to the
defendants. It was held that there was no contract between blenkarn and the
plaintiffs on grounds that there was no meeting of the mind between the
parties. The plaintiffs were not at the meeting of the mind with blenkarn and
so blenkarn did not transfer title to the defendants.
OFFER
One of the ingredients of a valid contract is an offer. An offer is the
willingness to do or abstain from doing anything signified by a person to
another, with a view to obtaining the assent of that other person o the act or
abstinence[12]. An offer is an expression
of readiness to contract on the terms set by the offeror which ounce accepted
will give rise to a binding contract. An offer may be made in writing or expressed
by conduct or words.
What amounts to an offer and what
does not amount to an offer
Not
everything offered for acceptance amounts to an offer as recognized by law. It
is therefore prudent to examine herein what may and may not amount to an offer.
Whatever does not amount to an offer is an invitation to treat.
Invitation
to treat
This
is an undertaking made by one party to the other made without the intention of
being legally bound and does not give rise to a valid contract. An offer is
made with the intention of creating contractual obligations and with an
intention of being legally bound. However, with an invitation to treat, there
is no intention to be legally bound and not contractual obligations due arise.
In Grainger V Gough [1896] A.C.325 it
was held that the issue of a catalogue containing the description of goods to
be sold was not an offer but an invitation to treat.
Goods
displayed on shelves.
Where
a person displays goods in shop shelves, this does not automatically mean that
he has made an offer. In Pharmaceutical
Society of Great Britain v Boots Cash Chemists (southern) Ltd. [1952] 2 ALL
E.R.459. The defendants, a chemist shop had displayed dangerous chemicals
in its shelves. The type of service was that of self-service. The plaintiffs accused
it of offering to sell chemicals without the presence of a chemist contrary to
the law. Court held that a display of such articles was not an offer but an
invitation to treat.
Goods
displayed in shop window.
A
display of goods in shop windows is not an offer but rather an invitation to
treat. In Fisher v Bell [1960] 3 ALL
E.R.731 The defendant was accused of offering a knife for sell by
displaying it in a shop window. Court held that the display of a knife was not
an offer but rather an invitation to treat. Whether or not this case is
applicable in Uganda is a question you are advised to ask your lecturers. This
is because Section 2 of the
Interpretation Act defines a sell as, a sell includes barter, exchange,
offer for sale and expose for sale. This section therefore means that any
person who exposes to sell any illegal item will be deemed to have sold that
item.
Advertisements
Advertisements
to sell goods do not amount to offers but invitation to treat. In Partridge –v- Crittenden [1968] the
defendants made an advert to sell hens as follows “Bramblefinch cocks and hens
25s each” it was held that this did not amount to an offer but rather an
invitation to treat.
Lack of objectivity
Where a party does not show
interest is selling his item, there is no offer made. His happens when for example
a friend of yours says, “I might sell
this phone anytime, I need to buy a new model”. Then you reply, “Just sell it to me” and then he replies.
“mmmhh, I think so, let me see”
sincerely speaking, he has not accepted to sell the phone to you. You cannot
sue him for selling the phone to any other person under breach of contract. For
example in Gibson –v- Manchester City
Council [1979] G invited to buy house. M invited application on “may be
prepared to sell” basis. It was held that it was not an offer.
Mere statement of price.
A mere statement of price is not an
offer but an invitation to treat. In Harvey
v Facey (1893) the plaintiff wanted to buy an item from the defendant. The
defendant replied, “lowest price acceptable is 900” it was held that this was
not an offer but an invitation to treat.
Commnunication of an offer
For an offer to be valid, it must
be communicated by the offeror or his agent to the offeree. S.3 of the Contract Act states “the communication of an offer is made by an
act or omission of a party who proposes the offer, by which that party intends
to communicate the offer or which has an effect of communicating the offer.”
The communication of an offer is deemed complete ounce it has come to the
knowledge of the person to whom it is made[13]. The
general rule is that an offer becomes effective ounce it has been communicated
to the offeree and a person cannot claim to have accepted an offer if it was
not communicated to him and was not aware that it was an offer. Thus, in Fitch
v Snedakar [1838] 38 NY248. The defendants offered a reward for
apprehending a criminal, the plaintiff not aware of the reward apprehended him.
He claimed for the reward. Court held that a person can only act on an offer if
he was aware of the same. His action had to fail.
Termination of an offer
Termination of an offer is the
process by which the period of which an offer is to remain effective is brought
to an end. An offer can be terminated in the following ways;
Revocation:
This is the process by which an
offer is withdrawn by the offeror[14]. It
is an act or omission by the offerer which has an effect of withdrawing an
offer. The general rule is that an offer can be revoked anytime before the
communication of its acceptance is complete[15]. see
Routledge
v Grant (1828) 4 Bing.653. and that a promise to keep an offer open is
not binding unless there has been provided consideration to the offeror. See Routledge[supra]
The communication of revocation is
complete as against the person who makes it when it is put in course of
transmission to the person to whom it is made, so as to be out of the power of
the person who made it[16].
This means that any person who revokes an offer, the revocation becomes
effective against him ounce he puts the revocation in the means of transmission
to the person to whom he intends to make it. The revocation of an offer against
the offeree becomes effective when it comes to his knowledge.
An offer becomes irrevocable as
soon as the offeree starts performing the offer.
When the revocation is given
orally, it becomes effective as soon as the offoree hears it.
Where it is given by letter, it
becomes effective when the offeree receives the letter. It is immaterial
whether he reads it or not as long as he receives it and you can prove he
received it. see Bryne V Van Tienhoven (1880) C.P.D
Rejection.
This is the person’s unwillingness
to do or abstain from doing anything signified by another. It is the refusal to
accept an offer. The general rule is that rejection of an offer becomes
effective ounce it has been communicated to the offeror by the offeree.[17]
Rejection takes form in two ways. Rejection by a counter offer and express
rejection. A counter offer is the variation of the terms of an offer set by the
offeror by the offeree, which will terminate and offer. It simply means that
when a person is willing to sell his item at 2000, then you who is willing to
buy insist that you will pay 1500, unless the seller accepts the 1500, you are
deemed to have rejected to buy the item. The general rule is that a counter offer will
terminate an offer. see Hyde v
hyde(1840) 3Beave.334; However, when the offeror accepts the counter offer,
there is a valid contract. see Khaled V
Athanas Bros(Aden) Ltd [1968] E.A.31
Lapse
of time.
This is the expiration of the
period an offer remains effective. It is the termination of an offer due to
failure to accept it within a prescribed period or a reasonable period[18].
Where the period by which an offer remains effective is prescribed, the offer
will terminate at the expiration of the period. But where the period by which
an offer is not prescribed, it will terminate at an expiration of a reasonable
period depending on the circumstances of the case. See Ramsgate Victoria hotel co v Montefiore (1866) L.R.1 Exch.109.
Death
of the offeror.
Section
6(d) of the Contract Act provides, the death or insanity of
the offeror terminates the offer where the death or insanity of the offeror
comes to the knowledge of the acceptor before acceptance. The death of the
offeree terminates an offer. See Reynolds
v Atheston (1921) 125 L.T.690. In addition, the death of the offeror terminates
the offer if the offeree is aware of it.
ACCEPTANCE
Acceptance is the assent to an
offer by a person to whom an offer is made[19].
This means it is only a person to whom an offer is made that can accept an
offer. For acceptance of an offer to be effective, it must be communicated by
the offeree to the offeror. Communication of acceptance is made by an act or
omission of a party who accepts an offer, by which that party intends to
communicate the acceptance or which has an effect of communicating the
acceptance[20].
When communication of acceptance is
deemed complete.
The communication of acceptance of
an offer becomes complete against the offeror when it is put in a course of
transmission to him or her so as to be out of the power of the acceptor[21].
This means that when you make an offer, its acceptance by the acceptor is
deemed complete against you immediately the acceptor puts its acceptance in a
course of transmission so as the acceptance to be out of his power.
The acceptance of the offer must be expressed
in the usual and reasonable manner, except where the offer prescribes the
manner in which it is to be accepted[22].
This means that the means by which the offeree accepts an offer must be usual
means and reasonable if the means are not prescribed in the offer.
However, when an offer is accepted
through means which are not as prescribed by the offer, then, the offeror must
within a reasonable time send notice to the acceptor to accept the offer in the
means prescribed in the offer. see Section
7(2) Contract Act. If the offeror does not send the notice within a
reasonable time as required by the section, then he shall be deemed to have
accepted the means used by the acceptor to accept the offer. See Section 7(3) Contract Act. It therefore
means that prescribing means by which an offer is to be accepted will only bind
the acceptor if the offeror demands that the acceptance be made in the means
prescribed in the offer. Otherwise, pursuant to section 7(1) (b), the acceptor must use any reasonable means not
delaying the acceptance in the circumstances.
Under the postal rule, acceptance
of an offer becomes effective immediately the letter of acceptance is posted.
see Adams v Lindsell (1818)
.This means that when a person sends a letter accepting your offer, that
acceptance becomes effective immediately the letter is put in the post office
box or in any form of transaction as long as it goes out of the hands of the
person who wrote it. Whether its lost or not is immaterial in this case. see Entores
Ltd v Miles Far East Corporation [1955] EWCA
Civ 3. But this rule does not apply to contracts made by
telex or mobile phones. In these types of contract, the contract is complete
only if the acceptance has been received by the Offeror. See Entores Ltd
v Miles Far East Corporation [1955] EWCA
Civ 3. This means, when you offer to sell your item on
whatsapp, and a person sends a message accepting to buy your item; the contract
will be completed immediately you receive the message. As long as the acceptor
sees the two ticks, the contract is complete whether you read it or not.
The justification for the postal
rule is that when parties make post as the means of acceptance, it becomes
difficult for the parties to contemplate the precise time at which the
communication of acceptance was made. This is because also, acceptance by post
is subject to delay[23].
Another justification for the rule
is that, if the defendants are not bound by the letter of acceptance posted by
the plaintiffs immediately its posted, then the plaintiffs would not also be
bound until they receive a notification from the defendants that they have
received the letter of acceptance. This would go on and on and no contract
would be reached.
Challenges of the postal rule.
The postal rule tends to create
post offices as agents of the offeror, however, we all know that post offices
are governmental agents for public service.
Another justification for the rule
is that when an offer is made by post, the offeror is deemed to have made his
offer thought the whole time his offer remains in the post, and therefore the
communication of acceptance is deemed complete immediately the letter of
acceptance is posted[24].
The communication of acceptance of
an offer becomes effective as against the offeree immediately it comes to the
knowledge of the offeror.
Revocation
of acceptance.
Communication of revocation of
acceptance of an offer is made by an act or omission of a person who revokes
the acceptance of the offer by which that party intends to communicate the
revocation of the acceptance or which has an effect of communicating the
revocation of the acceptance of an offer[25]. The general rule is that an acceptance can be
revoked anytime before the communication of acceptance is complete[26].
When it comes to postal acceptance, it is to be recalled that acceptance by
post becomes effective immediately the letter of acceptance is posted. However,
the same is not true with revocation of acceptance by post. Under the postal
rule, revocation of an offer becomes effective only if the letter of revocation
has been communicated to the offeree. See
Bayern V Van Tienhoven (1888)
Acceptance of an offer can be expressed
by conduct[27].see
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256.
Acceptance
must be absolute and unqualified[28].
To this end, acceptance subject to conditions is not valid acceptance but a
counter offer, which will terminate the offer. See Hyde Case [supr
CONSIDERATION
Consideration is a right, interest,
profit or benefit accruing to one party or forbearance, detriment, loss or
responsibility given, suffered or undertaken by the other party[29].
Consideration is therefore a benefit or profit accruing to one party or
detriment, loss suffered by the other party. see Currie V Misa (1875) L.R.10 Ex.153, 162. Consideration for a
promise means where at the desire of the promisor, a promisee or any other
person does or abstains from doing or promises to do or abstain from doing
something[30].
An example of a consideration for a promise in ‘you sell me your car but we
agree I pay your money tomorrow. Much as I have not furnished consideration, there
is a valid contract on consideration. Your consideration is “selling” your car and
my consideration is receiving your car.
Executory consideration. This is an
exchange of promises to perform an act in the future.
Executed consideration. This
consideration has been wholly given at the time of making the contract
Fair Consideration. Consideration
that is roughly equal in value to the thing being exchanged;
Rules governing consideration
The common law an statutes have
developed certain rules that are to govern consideration. Unless the rules are
conformed to, there will in most case be no consideration and hence no
promises.
1)
.Consideration
need not be adequate.
Courts throughout the world are not willing to enforce a contract
unless there is a valuable consideration. Section
20(3) of The Contracts Act
states “an agreement to which consent of
the promisor has been given freely is not void merely because the consideration
is inadequate”. The courts will in most cases not inquire into the adequacy
of such value. It was held in G M
Combined V AK Detergents And Ors Uganda Supreme Court Civil Appeal No.7 Of 1998
“It is well established that the courts will not inquire into the
sufficiency or adequacy of the consideration as long as there is some
consideration”. Whether it is harsh, cruel or in adequate will
not affect the fact that it is a valid consideration. As long as the parties
agreed that, it forms part of consideration. Indeed, in the Pinnel’s Case (1602) 5 Co Rep.117a ,it
was held that chattel, such as a horse, hawk or robe instead of money may be
good consideration provided that the promisor considered it beneficial to him
and agreed it forms part of consideration for his promise. Lord Somervell of Harrow in Chappell and Company v. Nestle Company Ltd.
1960 AC 87, said:
“A peppercorn does not cease to be good
consideration if it is established that the promisee does not like pepper and will throw
away the corn” it therefore means that courts will not inquire into the adequacy of
consideration.
However, where it
appears that the consent of the promisor was not obtained freely and the
consideration was not adequate, courts will inquire into the adequacy of the
consideration. see S.20(4) Contracts
Act.
For more cases, see Thomas v Thomas [1842) 2 Q.B.851, Lloyd’s
Bank V Bundy [1975] Q.B.326. Bainbridge v Firmstone (1839)
2)
Consideration must not be past
Consideration
for a promise must be given in return for that promise. If a party makes a
promise subsequent to some act carried out by another party, then that is past
consideration and does not amount to valid consideration. It does not bind the
party that made the promise. It may be considered as gratitude or a gift. This
simply means that you cannot perform an act for someone who did not ask you of
it. Ounce you do that, you cannot claim a reward from the person. Even if the
person later promises to pay you, he is not bound to do so and you cannot sue
him if he refuses.
An
example of past consideration may be seen where A paints the outside of B’s
house as a voluntary act while B is on holiday. When B returns
from holiday B is pleasantly surprised by A’s kindness and
promises to pay A £50. If B refuses to pay, can A claim
his £50? The answer here must be that A’s action will fail since A’s
consideration of painting the house is past in relation to the promise to pay
made by B and, of course, past consideration is no consideration.
Past consideration is past in relation to the
promise that the promisee wishes to enforce and not in relation to the time the
plaintif is wishing to enforce the defendant’s promise. Roscorla v Thomas (1842) 3 QB 234 In this case the plaintiff had negotiated
the purchase of a particular horse from the defendant for a certain price.
Subsequent to the agreement the defendant promised the plaintiff that ‘the said
horse was sound and free from vice’. In fact the horse proved to be
particularly vicious and the plaintiff sued for breach of the promise. It was
held that his action would fail since the consideration provided by the
plaintiff was already past when the promise of the defendant that the horse was
sound and free from vice was made. In truth, the warranty as regards the horse
was not induced by the payment made for the horse and was, as such, purely
gratuitous. Also see Re McArdle [1951]
Ch 669
Exceptions to the rule.
1)
The act done which would have amounted
to past consideration must have been done at the request of the promisor.
2)
It must have been understood at the time
of making the promise that payment would be made
3)
Payment if it had been promised, it must
have been legally recoverable.
4)
Past consideration for a bill of
exchange. see S26(b) of the Bill Of Exchange Act Cap 68
See
Pao On v Lau Yiu Long [1979] 3
All ER 65, Lampleigh v Braithwait
(1615) Hob 105, Re Casey’s Patents [1892]1
Ch 104,
3)
Consideration
must move from the promisee
This
simply means that a person can only enforce a promise if it was he that
provided consideration for it or through his agent. Consideration must have
moved from him or through his agents and not from a third party. See Dunlop v Selfridge 1915 AC 847.
4)
Consideration
must be of some value.
the
courts will only enforce a contract if the consideration given for it is of
value. This is irrespective of whether the value can be ascertained or not as
long as the law recognizes that the act, omission, detriment etc is of some
value. Natural affection of itself is not consideration, sentiment motives for
promising do not in law amount to valuable consideration.
What
amounts to valuable consideration?
a. Promise
to pay less than the amount owed is sufficient consideration.
Generally,
payment of a lesser sum than owed is not satisfaction of the whole and the
creditor is still entitled to the whole sum amidst the less sum paid. This is
because there is not consideration made by the debtor for the promise of the
creditor to accept a lesser sum. However, in Pinnel’s case [supra] it was stated, “payment of a lesser sum on an earlier day than the day on which the
debt was due, if accepted by the plaintiff in full satisfaction of a greater
amount would be sufficient to relieve the defendant from liability”. This
is because the benefit to the creditor is, “payment at the earlier date than
the date the debt was due” this is subject to his acceptance. see also Sibre v Tripp (1846) 15 M & W 23.
b. Whether
performance of existing contractual duty amounts to consideration
Where
a party performs an act that it was contractually bound to perform, then that
does not amount to consideration. However, where the act exceeds what he was
bound to perform in the contract, then that might amount to valid
consideration. See Stilk v Myrick (1809)
1 Camp 317
c. Promise
to perform existing contractual duty to a third party
Performing
an existing contractual duty to a third party is consideration if the promisor
benefits and the promise suffers a detriment. See Shadwell v Shadwell (1860) 3 L.T.628.
d. Promise
to perform existing public duty amounting to consideration
Persons
employed by the government to perform public duty are to do those duties for
free at the remuneration by the government. To this end, police officers are
generally not supposed to ask for payment for rendering services to the public.
The general rule is that performance of an existing public duty does not amount
to consideration. However, where a public officer performs a duty for a private
person exceeding what he is bound to perform under his duties as a public
officer, then, he will be entitled to payment. See Glassbrook Bros.LTD v Glamorgan CC [1925] A.C. 270.
e.
Payment of a lesser sum than amount
due by a third party.
Payment
of a lesser sum than amount due by a third party will amount to consideration
as satisfaction for the amount due provided the creditor accepted that it
extinguishes the debt. see Welby V Drake
(1825) 1 C & P 227
ESTOPPEL
This
is a representation by either conduct or word made by one party to the other
intending that the other party acts upon it and infact the other party acts
upon it at his detriment hence barring the representor from denying the
existence of the act. It is bar which prevents a party from asserting a claim
or right that contradicts what one asserted or did before or what has been
legally established as true[31].
It is a doctrine under common law which bar a party from denying an earlier
fact it represented as true to the other party who acted upon it. So if a party
does not provide consideration to the either party but never the less the party
represents himself in such a way that he foregoes consideration to the other
party, the representor shall in law be stopped from asking for consideration.
in Central London Property Trust Ltd V
High Trees House [1947] K.B.130 Denning stated “.The logical consequence, no doubt, is that a promise to accept a
smaller sum in discharge of a larger sum, if acted on, is binding,
Notwithstanding the absence of consideration, and if the fusion of law and
equity leads to that result, so much the better. At this time of day it is not
helpful to try to draw a distinction between law and equity”
The
Evidence Act Cap 6 states under
section 114.
“When one person has, by his or her
declaration, act or omission, intentionally caused or permitted another person
to believe a thing to be true and to act upon that belief, neither he or she
nor his or her representative shall be allowed, in any suit or proceeding
between himself or herself and that person or his or her representative, to
deny the truth of that thing”.
From this section, for estoppels to
arise, the following must be proved,
1.
There was a representation of an act,
declaration or omission to act.
2.
The representation must be made by the
party on whom the estoppel is raised against.
3.
The representation must have been made
intentionally for the other party to rely of it.
4.
The party raising the representation
must have acted on it.
5.
The representation must be of fact and
not of future. See High Trees case
[supra]
Lord
Denning put it in this way in the case of Combe
V Combe [1951] ALL ER
The
principle, as I understand it, is that where one party has, by his words or
conduct, made to the other a promise or assurance which was intended to affect
the legal relations between them and to be acted on accordingly, then, once the
other party has taken him at his word and acted on it, the one who gave the
promise or assurance cannot afterwards be allowed to revert to the previous
legal relations as if no such promise or assurance had been made by him, but he
must accept their legal relations subject to the qualification which he himself
has so introduced, even though it is not supported in point of law by any
consideration, but only by his word.
1.
It should be noted that estoppel is
a rule of evidence and does not arising from contract as waiver. Under waiver,
a party foregoes a right stipulated in a contract. This foregoing is not to be
regarded as estoppel but rather waiver. See Nurdin Bandali V Lombark Tanganyika Limited [1963] EA 305.
2.
It should be noted to that estoppel
can only be used as a shield and not as a sword. This means that estoppel will
only be raised by a party to protect itself and not to found a cause of action.
One cannot raise a cause of action founded on estoppel. See Combe case [supra],
3. Estoppel
cannot act against the law. This simply means that where a statute imposes a
duty upon a person or body, where the person or body fails to comply with such
a duty, the person or body cannot raise estoppel against those accusing it of
defaulting. This will amount to estoppel operating against the law. See Marine
Electric Company Limited v General Diaries Limited [1937] A.C. 610 at 620.
The
definition of a contract as par Section
10 of the Contracts Act is, a
contract is an agreement made with free consent of the parties with capacity to
contract, for a lawful consideration and with a lawful object, with intention
to be legally bound. From this definition, it should be noted that to amount to
consideration, the thing amounting to consideration must be lawful.
What
amounts to unlawful consideration?
Section 19
of the Contacts Act states that an
object or consideration is lawful unless if consideration is forbidden by law, e.g
sale of public offices. See The Sale of
Offices Act. is of such a nature that if permitted would defeat the
provision of any law, is fraudulent, involves or implies to a person or
property of another person or is declared immoral or against public policy by a
court. For example, a contract to restrain a person from serving in military
service is unlawful as against public policy. See Re Beard [1908] 1 Ch.383. Parkinson v College of Ambulance LTD [1925] 2
K.B.1.
The
effect of an unlawful consideration in an agreement is that such agreement is
void and no claim can be brought to recover any property delivered, money paid,
or compensation for anything done under such. See. s19
(2) Contracts Act. However, a person can recover such thing, be compensated
for such thing, or bring an action under such agreement if at the time he
delivered the thing or paid such money,
1. He
can satisfy court the he was ignorant of the illegality of the consideration or
of the object.
2. If
he can satisfy court that the illegal consideration or object had not been
effected at the time the plaintiff became aware of the illegality and
repudiated the contract. See s19
Contract Act.
3. If
the court is satisfied that the consent of the plaintiff to the agreement was
induced by fraud, misrepresentation, coercion or undue influence.
4. Where
the agreement is declared illegal by any written law, with the object of
protecting a particular class of persons to which the plaintiff is one.
What
will happen to any agreement that lacks consideration?
Generally,
any agreement lacking in consideration is void. See s.20 Contract Act. The
importance of consideration was stressed in the case of Combe [supra] by Lord Denning when he said
“The doctrine of consideration is too firmly fixed to be overthrown by a
side-wind. Its ill effects have been largely mitigated of late, but it still remains
a cardinal necessity of the formation of a contract, although not of its
modification or discharge.”
However,
other than estoppel, a court can nevertheless enforce an agreement lacking
consideration under the following circumstance,
1. Where
the agreement is expressed in writing and registered under the registration of
documents act and is mad out of natural love of affection.
2. Where
the promise is to compensate wholly or in part a person who has already
voluntarily done work for the promisor or any work the promisor was compellable
to do. This means that when you do work for another person without his request,
then he later on promises to pay you, he will have to pay you.
3. Where
the agreement is made in writing and signed by a person responsible for it to
pay a debt to a creditor which debt would be legally enforceable but is
restricted by the Limitation Act. See Section
20 Contract Act, 2010.
4. Where
it is a gift given by a donor to a done.
Conclusion.
The
ingredients of a valid contract as you have learnt from the definition of the
contract have not been exhausted by my analysis. You realise that I have not analyzed
the law in respect to consent and capacity to contract.
Disclaimer:
Take note that the information I have given
is not the absolute truth of the law on formation of contract. It is simply my
own understanding and does not exhaustively examine my understanding of that
law. I therefore inform those that may read this work not to cite my name as
authority but to cite the cases I have cited. You should also read the
authorities I have consulted in addition to your own personal authorities and
compare. I am welcome to criticisms if any in good faith. My contact email has
been given on the first page of this document. Thank you, and may GOD BLESS
YOU;
[1] Cheshire
Fifoot and Furmston’s law of contract
(Butterworth’s’ 12th Ed 1991), Chapter 1
[2]
David J. Bakibinga law of contract in Uganda
(2001),p.1
[3]
Maine, H. Ancient Law
[4]
Bakibinga, supra n. 2
[5]
ibid
[6]
Bakibinga, supra p.3
[7] Section 10 of the Contracts
Act,2010
[8]
Ibid section 2
[10]
The Contract Act,2010.s.2
[11]
Ibid s.13
[12]
Contract act supra s.2
[13] The contract act s.4
[14] The Black’s Law
Dictionary, 8th Edition p.4116
[15]
Contract act s.5
[16]
Ibid. S.4(3)(a)
[17] Bakibinga,
p9
[18]
Contract Act s6(b)
[19]
Contract act s.2
[20]
Ibid.s.3
[21]
Ibid. s.4(2)(a)
[22]
S.7(1)b
[23]
Yamaguchi,
Mikio, (2004)‘The Problem of Delay in the Contract Formation Process: A
Comparative
Study
of Contract Law’ 37 Cornell International Law Journal.357
[25] Contract act s3ss3
[26] Ibid. S5(2)
[27] Ibid.
s8
[28]
Ibid. s7(1)b
[29]
S.2 Contract act
[30]
ibid
[31] The Black’s Law Dictionary,8th
edition, P1662
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