KEITH BUSINGYE LAW GUIDE;Contract law common Questions And Answers.

Keith Busingye Law Guide: CONTRACT

1.     What is a contract?

·         A legally binding agreement between two or more people

2.     How is a contract formed?

·         It is formed by an offer by one person and acceptance by the other

3.     If x is talking to y and offers to sell him something; but the conversation is overheard by z, can z accept the offer and why?

·         Z will not be deemed to accept the offer because the offer is to a specific person and it automatically excludes other would be acceptors

4.     What was the major principle in CARILL V CARBOLIC SMOKE BALL CO?

·         An offer could be made to a greater number of people

5.     If the Uganda Police gave a reward for the apprehension of a thief, and x catches the thief without knowing about the reward, will the police be obligated to hand over the reward and why?

·         No, because x does not know about the offer

6.     What is a conditional offer?

·         This is an offer where s person promises to do something upon fulfillment or happening of some event.

7.     Write small notes about the Contra Preferentum rule

·         Court will interpret an exclusion clause against the maker, especially where there is ambiguity in the clause

8.         X wrote a letter to y offering him a sum of money for his horse saying “if I here no more from you, I consider the horse mine”. Y did not reply and x decided to keep the horse. Can y enforce his rights? Give a reason.

·         He can because silence does not amount to acceptance

9.         Differentiate between common and unilateral mistake.

·         Common mistake is where both the parties are mistaken about the subject matter while unilateral mistake is where only one party is mistaken about the subject matter

 10.  What is needed for a contract to be regarded as valid?

·         For a contract to be valid, the following should exist; Consideration, meeting of minds, capacity to contract

11.  What is a counter offer?

·         This is an offer made that will extinguish an earlier contract because new terms have been proposed

12.  Write short notes on promissory estoppels.

·         Where a person causes another to believe that he has changed his position and upon that belief the party changes his position; the maker of the statement is stopped form denying that statement

13.  Many times makers of contracts have tended to exclude themselves from liability. How have the courts tried to protect the interests of the weaker parties to such contracts?

·         In case of ambiguity, the court interprets the clause against the maker of the statement.

·         A defendant shall also not exclude him/herself from liability if they fail to perform a fundamental term of the contract

14.  Differentiate between a condition and a warranty.

·         A condition is a fundamental term of the contract while a warranty is a term incidental to the formation of the contract.

15.  The doctrine of consideration is an essential part of the contract yet there are contracts that can still go on without consideration. Name the exceptional circumstances.

·         Promissory estoppel

·         ·       Assignment

16.  Name two situations where intention to be legally bound may be negatived

●     Where there are agreements that are subject to contract

●     Where the parties clearly state in their contract that they are not be legally bound

17.  What is meant by the term revocation of an offer?

• Revocation is when a party before there is any acceptance decides to withdraw his/her offer

18.  Distinguish between void and voidable contracts

• Void contracts are those that are unenforceable from the start while voidable contracts are still enforceable after the formation of the contract but their existence depends on the option of the injured party

19.  Name any two exceptions to the parole evidence rule

●     Additional evidence will be admitted to show that contract is valid. The evidence will normally be admitted to show that there is an irregularity

●     Evidence may be adduced to show the additional terms attached to the contract

●     It may also be adduced to show that the contract is subject to custom or usage

20.  Name any three types of mistake which nullify a contract

●     Mistake as to the existence of the subject matter of the contract

●     Mistake as to the identity of the subject matter

●     Mistake as to the possibility of performance of the contract

●     Mistake as to the quality of the contracted for

21.  Can a person who has signed a document be bound by it?

• The general rule is that such people are bound by such contracts except where the person cannot read the wrong information is read to that party

22.  Differentiate between substantial and partial performance

• Substantial performance is when a person has performed almost the whole contract while partial performance means performance of only small part of the contract

23.  Mention any two relationships where agency may exist

●     Agent and trustees

●     Agent and bailee

24.  What is the general rule with regard to the law of agency?

• The general rule is that an agent is neither liable nor entitled to enforce a contract he makes on behalf of his principle

25.  Mention any two exceptions to the above rule

●     Agents are liable for contracts they enter into personally

●     An agent is liable if he purports to act for another principle that is in fact himself

26.  Name any three duties of an agent to his principle

●     Obedience in carrying out the principal’s instructions

●     Duty of care and skill not negligently cause damage to his/her principal’s business

●     The duty to perform his/her obligations personally and delegate his/her duty

●     Accounting to the principal

27.  On the other hand; what are the duties of the principal

●     Payment of remuneration

●     Payment of a commission if any which totally depends on the construction of the contact

●     Duty to indemnify the agent in case the agent incurs costs while working for the principal

28.  What are the different ways in which a contract can be discharged?

●     By agreement

●     By performance

●     By breach

29.  When can a party to a contract claim quantum meruit?

●     Where the contract is divided and part of the divided contract is concluded

●     Where the other party accepts partial performance

●     In cases of substantial performance

●     Where there is non- completion of the contract due to the fault of the defendant

30.  Give any five examples of illegal contracts

●     Contracts tending to impede the administration of justice, for example, contracts of maintenance

●     Contracts tending to injure the public service, for example the sale of public offices

●     Contracts that tend oust the jurisdiction of court

●     Contracts of trading with an enemy

●     Contracts to commit offences or civil wrongs                     

31.  What are the legal effects of illegality on a contract?

• It renders the contract void or voidable

32.  What remedies are available to a part who claim that a contract has been breached

●     Damages

●     Specific performance

●     Injunction

●     Claim for the amount of money agreed

33.  Differentiate between breach of a condition and a warranty in a contract

• A condition is a major term of the contract breach of which discharges the contract while a warranty is a minor term that results only to an award of damages but contract can still continue.

34.   What do you understand by the term ‘Non est Factum’?

• It means, not my deed.

35.  What do you understand by the term anticipatory breach?

• It refers to a situation where a party to the contract declares his/her intention not to perform the contract before the performance is due

36.  Name any three examples of equitable remedies

●     Quantum meruit

●     Specific performance

●     Injunction

37.  What is the major essence of the doctrine of frustration?

• Parties to a contract are excused from performance of their obligations if some unexpected event occurs without the fault of either party

38.  Under what circumstances can frustration to a contract be denied?

●     Where the parties have expressly provided for the contingency which has accrued

●     Where the event was easily foreseeable

●     Where performance has simply become onerous or hard

39.  List three situations that amount to frustration

●     Destruction of the subject matter

●     Death

●     Government intervention, for example, seizure of property by the government

40.  What is an injunction?

• This is an order from court restraining a person from continuing to do an infringing act

41.  Under what circumstances may court refuse to grant an injunction?

●     When the plaintiff is also partly responsible for the breach by the defendant

●     Where the award would cause undue hardship to the defendant

●     Where the plaintiff delays to seek the remedy

42.  What is waiver?

●     It is where the parties agree to forfeit their duties and obligations under the contract. It can either be implied or express

43.  What do you understand by accord and satisfaction?

●     This is the situation where a contract is supported by fresh consideration

44.  What do you understand by the term novation?

●     Novation is a contract between a debtor, creditor and a third party, that the debt owed by the shall from that point be owed to a third party

45.  What is discharge of a contract?

●     It refers to a situation where a contract ceases to exist between two or more parties

46.  When does discharge by agreement happen?

●     Discharge by agreement occurs where the parties agree to end the contract

47.   Give three types of common law doctrines which amount to assignment

●     Novation

●     Acknowledgment

●     Power of attorney

48.  What is a legal chose in action?

●     This is an action that could only be remedied in common law courts

49.  List any three requirements for a valid assignment

●     There should be an intention to assign

●     There should be a communication to the assignee

●     There should also be a notice to the debtor

50.  List three ways in which assignment by operation of the law comes about

●     By death-here the rights are transferred to the administrator or executor

●     By bankruptcy-here the rights are transferred to the liquidator or receiver

51.  What rights in a contract cannot be assigned?

●     Contracts that state expressly that they shall not be assigned

●     Personal contracts that need to be performed by the exact party

●     Mere rights of action cannot be assigned

●     Mere expectancies, that is to say, rights that do not belong to the party purporting to assign are not assignable

52.  Define the term agency

●     It is a relationship which exists whenever one person acts on behalf of another and has power to effect the principal’s legal position with regard to a third party

53. How is the equity doctrine of “clean hands” applicable in contract law?

●     This doctrine requires that before a plaintiff can ask court for an order sanctioning the other party,the plaintiff must show that he did not do anything wrong.

54. What is quantum meruit

• This is a latin term meaning as much as merited

       It is basically a legal doctrine that creates a presumption that a person who performs a      

       service for another deserves to be paid.

56. List down five ways in which consent be invalidated in a contract?

●     Duress

●     Undue influence

●     Unconscionable bargain

●     Mistake

●     Misrepresentation

57. When does duress occur?

• Duress occurs where consent is forced from a party to a contract by improper pressure.

58. What are the elements of economic duress?

●     the pressure applied should be so overwhelming to the party subject to it that their consent was not genuine

●     the pressure applied was improper in the nature of the pressure itself or in relation to the demand for which consent was sought.

59. What was the basis for the formation of the doctrine of undue influence under common law?

●     This was developed by the courts of equity which could not allow someone to take unfair advantage of another who was in some form of dependant relationship where the dependant party would likely trust the other party’s judgment rather than their own.e.g in a lawyer client or parent child relationship.

60. Give three examples of acceptable duress/pressure in law

●     Where offer cannot be repeated

●     Where a creditor threatens to take legal proceedings for an overdue debt

●     Where a bank threatens to cancel a credit facility or exercise its powers under mortgage

●     Where goods are about to be  all sold

●     Where prices are about to increase

61. List down examples of duress

• ·       Threats of physical violence
• ·       Threats of prosecution
• ·       Threat of detention

62.   What elements need to be proved to establish undue influence

●     that the contract was entered into by A as a result of the undue influence of B

·      That B used that influence improperly to gain an unfair advantage at the expense   

                  Of A.

63.   What happens in an instance where undue influence is exercised by a third party?

●     For instance in a scenario of a contract of guarantee between a bank and A’s parents where the bank giving a loan to A and A exerts undue influence on his parents ;the parents would have to prove the following;

●     ·       That they were subject to undue influence by A

●     ·       The bank was aware of the relationship

●     ·       The undue influence meant the parents’ consent was not genuine

64.   When does an unconscionable bargain occur?

●      that the bargain contains a significant element of inequality;

●      that the party seeking relief was, by reason of age, education, experience or circumstances, at a serious disadvantage in comparison with the other party;

●      that the other party took improper advantage of the situation of the party seeking relief, and that this improper advantage amounted to ‘equitable fraud’.

65.   What is the parole evidence rule?

●     This is when a written contract purports to embody the entire agreement between the parties, no oral testimony will be permitted that seeks to modify or change the interpretation of the written contract provision.

66.   What does the notation ‘time is of the essence’ mean in contract law?

●     When a contract contains a “time is of the essence” provision it means that the date set for the action contemplated in the contract is fixed

67.   What are trade/business secrets?

●     Employers wish to safeguard their secrets from their competitors.

●     Trade/business secret clauses are conditions that forbid employees from revealing business secrets

68.   What are the consequences of breach of a contract?

●     When one party to a contract breaches it, that breach relieves the other party of the duty to perform.

●     for the non breaching party he or she has to file suit against the other party and show how that party failed to perform as promised

69. What is specific performance?

●      Specific performance is a court order that requires a party to do that which he has already agreed to do in the contract

70.   What is recession of a contract?

●     Rescission is an action that cancels or voids the contract and places the parties back in the positions they were in prior to the creation of the contract.

71.   What does this Latin term mean Quantum valebant?

●     This term means, “as much as it is worth.”

●     It arises in situations where goods are sold and the parties have not specified the               sale price of the goods

72.   In contract law how does court assess monetary damages?

●     The court creates an award for the non breaching party that is the financial equivalent of what the party would have received if the contract had been fulfilled as promised

73. What are the general rules used by court to assess damages?

●     Damages Must Be Foreseeable

●     Damages Follow a Breach

●     Damages Are Specific

●     Mitigation

●     Damages Should Not Exceed the Total of the Contract

73.   Does a contract still apply when one party has filed bankruptcy?

●     No, Bankruptcy relieves the debtor/party from all obligations made part of the bankruptcy petition.

74.   When is a contract terminated for ‘good cause’?

●     When a contract contains a clause stating that it may only be terminated for good cause it is usually construed to be terminable at will by the parties

75.   What are the elements of rescission of a contract?

●     In order to demonstrate a valid rescission, there must be a demand or tender of full performance.

●     There must also be an unambiguous, affirmative act by a party showing the intention to rescind the contract

76.   What is consideration?

●     Consideration is often defined as “some right, interest, profit or benefit accruing to one party” or the loss, detriment or responsibility assumed by another party to the contract

77.   What is the doctrine of privity of contract?

●     The doctrine of privity of contract determines who may enforce the contract and provides that only the parties to a contract may enjoy the benefits of that contract or suffer burdens under it.

78.   What are the two difficulties in establishing an argument that the contracting party in fact contracted as agent for the third party?

●     Establishing that the third party (principal) gave authority to the agent to act in that capacity.

●     Establishing that the principal provided consideration to support the promisor's promise.Example is Dunlop Pneumatic Tyre v Selfridge.

79. Briefly explain the types of consideration?

●     EXECUTORY CONSIDERATION

Consideration is called "executory" where there is an exchange of promises to perform acts in the future, eg a bilateral contract for the supply of goods whereby A promises to deliver goods to B at a future date and B promises to pay on delivery. If A does not deliver them, this is a breach of contract and B can sue. If A delivers the goods his consideration then becomes executed.

●     EXECUTED CONSIDERATION

If one party makes a promise in exchange for an act by the other party, when that act is completed, it is executed consideration, eg in a unilateral contract where A offers £50 reward for the return of her lost handbag, if B finds the bag and returns it, B's consideration is executed

80.What is an estoppel in pais?

●     An estoppel in pais means that a party is prevented by his or her own conduct from obtaining the enforcement of a right which would operate to the detriment of another who justifiably relied on such conduct.

81.  What is an estoppel?

●     A legal principle that bars a party from denying or alleging a certain fact owing to that party's previous conduct, allegation, or denial.

82. What is Valuable Consideration?

●     In the formation of a valid and binding contract something of worth or value that is either a detriment incurred by the person making the promise or a benefit received by the other person.

83. What is required in Contract law for valuable consideration?

●     In contract law consideration is required as an inducement to enter into a contract that is enforceable in the courts. It is an essential element for the formation of a contract. What constitutes sufficient consideration however has been the subject of continuing legal debate. Contracts and courts generally use the term valuable consideration to signify consideration sufficient to sustain an enforceable agreement.

84. One of the rules governing consideration is part payment of a debt. Briefly explain what it entails giving also its exceptions

●     If one person owes a sum of money to another and agrees to pay part of this in full settlement, the rule at common law (the rule in Pinnel's Case  1602) 5 CoRep 117a) is that part-payment of a debt is not good consideration for a promise to forgo the balance.

85. Briefly explain the rule in Pinnel’s case?

●     if A owes B £50 and B accepts £25 in full satisfaction on the due date, there is nothing to prevent B from claiming the balance at a later date, since there is no consideration proceeding from A to enforce the promise of B to accept part-payment. This is because he is already bound to pay the full amount, an agreement based on the same principle as Stilk v Myrick (1809). It also protects a creditor from the economic duress of his debtor. In Pinnel's Case (1602), Cole owed Pinnel £8-10s-0d (£8.50) which was due on 11 November. At Pinnel's request, Cole payed £5-2s-2d (£5.11) on 1 October, which Pinnel accepted in full settlement of the debt. Pinnel sued Cole for the amount owed. It was held that part-payment in itself was not consideration.

●     However, it was held that the agreement to accept part-payment would be binding if the debtor, at the creditor's request, provided there’s some fresh consideration. Consideration might be provided if the creditor agrees to accept:

86. What is Estoppel by Convention?

●     When parties have acted in a transaction upon a common assumption (either of fact or law, whether due to mistake or misrepresentation) that a given state of facts is to be accepted between them as true, then as regards that transaction each will be estopped against the other from questioning the truth of the statement of the facts so assumed wher it would be unjust and unconscionable to retile from that common assumption. There must be some mutually manifest conduct by the parties, which is based on a common but mistaken assumption which the parties have agreed on, and such agreement may be inferred from conduct or even silence.

87. What is the postal acceptance rule?

●     As a rule of convenience, if the offer is accepted by post, the contract comes into existence at the moment that the acceptance was posted (Adams v. Lindsell (1818) 106 ER 250). This rule only applies when, impliedly or explicitly, the parties have in contemplation post as a means of acceptance. It excludes contracts involving land, letters incorrectly addressed and instantaneous modes of communication.

 88. What is the rule in smith v hughes?

●     Court emphasised that the important thing is not a party's real intentions but how a reasonable person would view the situation. This is due mainly to common sense as each party would not wish to breach his side of the contract if it would make him or her culpable to damages, it would especially be contrary to the principle of certainty and clarity in commercial contract and the topic of mistake and how it affects the contract.

89. What is the Mirror Image rule in Offer and Acceptance?

●     the "mirror image rule" states that if you are to accept an offer, you must accept an offer exactly, without modifications; if you change the offer in any way, this is a counter-offer that kills the original offer

90. Briefly explain the Contra Proferentem rule?

●     The rule of contract interpretation that where a provision's meaning is ambiguous, it should be read against the party who wrote it. That is, the preferred interpretation will be the on that helps the party who drafted it the least. The reasoning behind this rule is to encourage the drafter of a contract to be as clear and explicit as possible and to take into account as many foreseeable situations as he can.

91. When does Quantum Meruit apply?

●     When a person employs (impliedly or expressly) another to do work for him, without any agreement as to his compensation, the law implies a promise from the employer to the workman that he will pay him for his services, as much as he may deserve or merit.

●     When there is an express contract for a stipulated amount and mode of compensation for services, the plaintiff cannot abandon the contract and resort to an action for a quantum meruit on an implied assumpsit.

92. What are Liquidated Damages?

●     Term used in the law of contracts to describe a contractual term which establishes damages to be paid to one party if the other party should breach the contract. Under the common law, a liquidated damages clause will not be enforced if the purpose of the term is solely to punish a breach of contract (in this case it is a penal clause). This is because such a clause does not allow the court to determine actual damages, and its enforcement would therefore require an equitable order of specific performance. However, courts sitting in equity will seek to achieve a fair result, and will not enforce a term that will lead to the unjust enrichment of the enforcing party. In order for a liquidated damages clause to be upheld, two conditions must be met. First, the amount of the damages identified must roughly approximate the damages likely to fall upon the party seeking the benefit of the term. Second, the damages must be sufficiently uncertain at the time the contract is made that such a clause will likely save both parties the future difficulty of estimating damages.

93. What is Rectification

●     This is a remedy whereby a court orders a change in a written document to reflect what it ought to have been or said in the first place. It is an equitable remedy, which means the circumstances where it can be applied are limited.

94. What are the two approaches to the question of the nature of exemption clauses?

●     Defense - i.e. construe all the contract terms, except the exemption clause, to determine the breach and then determine if the exemption clause actually operates as a defence to that breach. This is the generally accepted view of the nature of exemption clauses;

●     Construe as any other term of the contract in order to establish the initial contractual obligations.

95. When, if ever, will an exemption clause be construed to cover negligence liability?

Negligence must firstly be at least ONE form of liability arising on the particular facts. (Negligence means breach of a qualified contractual obligation and/or breach of a duty of care in tort).

96. What approach should the court adopt to an exemption clause when a very serious or deliberate breach of contract has occurred?

Where there has been a very serious or deliberate breach of contract it is a matter of construction whether the exemption clause covers the breach. There is no rule of substantive law to prevent reliance on the clause. If the clause is clearly worded, it should be taken to cover the breach that has occurred, even if it is very serious or deliberate

97. What is a Collateral Contract?

●     A collateral contract is a contract where the consideration is the entry into another contract, and co-exists side by side with the main contract. For example, a collateral contract is formed when one party pays the other party a certain sum for entry into another contract. A collateral contract may be between one of the parties and a third party. A party to an existing contract may attempt to show that a collateral contract exists if their claim for a breach of contract fails because the statement they relied upon was not held to be a term of the main contract. It has been held that for this to be successful, the statement must have been promissory in nature

98. What is Rescission in law of Contract?

●     In contract law, rescission (to rescind or set aside a contract) refers to the cancellation of the contract between the parties. This is done to bring the parties as far as possible to the position they were before they entered into a contract. This an equitable remedy and is discretionary. The court may decline to rescind a contract if one party has affirmed the contract by his action or a third party has acquired some rights or there has been substantial performance in implementing the contract.

99. What is Specific Performance?

●     In the law of remedies, an order of specific performance is an order of the court which requires a party to perform a specific act. While specific performance can be in the form of any type of forced action, it is usually used to complete a previously established transaction, thus being the most effective remedy in protecting the expectation interest of the innocent party to a contract. It is the opposite of an injunction.

●     Orders of specific performance are granted when damages are not an adequate remedy, and in some specific cases such as land sale. Such orders are discretionary, as with all equitable remedies, so the availability of this remedy will depend on whether it is appropriate in the circumstances of the case.

100. Briefly explain the mail-box rule in offer and acceptance?

●     The mailbox rule or the postal acceptance rule is a term of common law contracts which determines the timing of acceptance of an offer when mail is contemplated as the medium of acceptance.

●     The general principle is that a contract is formed when acceptance is actually communicated to the offeror.

●     The mailbox rule is an exception to the general principle.

●     The mailbox rule provides that the contract is formed when the letter of acceptance is placed in the mailbox.

●     The mailbox rule only applies to acceptance; other letters do not take effect until the letter is delivered as in Stevenson v McLean (1880) 5 QBD 346.

●     The implication of this is that it is possible for a letter of acceptance to be posted after a letter of revocation of the offer has been posted, but before it is delivered, and acceptance will be complete at the time that the letter of acceptance was posted