LAW OF CONTRACT

SECTION 1. General overview on Contract

The scope of the law governing contract

The article one of the new legislation governing contracts has defined the scope of the law in order to clarify the parts of the Civil Code Book III that will remain applicable after the new law becomes into force. The provisions of article one to article 248 of the Civil Code book III will be repealed. The other parts of  the Civil Code Book III are still under review and there will be new laws completing the legal framework governing Obligations in Rwanda such as Tort liability Law and special contracts

 Interpretation principle

The law governing contract refers to the Common Law and it is usual in the common Law drafting rules to have an interpretation section establishing definition of basic terms appropriate for the Law to be drafted.

Article 2 of the new law, No.  45/2011 of 25/11/2011 Governing Contracts, gives definitions for some basic terms such as contract, promise, promisor, and promise and beneficiary.

1° “contract”: a promise or a set of promises the performance of which the Law recognizes as obligation and the breach of which the Law provides a remedy; …

It is a definition from the American Restatement of Law, Second, Contracts:

A contract is an agreement entered into voluntarily by two parties or more with the intention of creating a legal obligation, which may have elements in writing, though contracts can be made orally. The remedy for breach of contract can be “damages” or compensation of money. In equity, the remedy can be specific performance of the contract or an injunction. Both of these remedies award the party at loss the “benefit of the bargain” or expectation damages, which are greater than mere reliance damages, as in promissory estoppel. The parties may be natural persons or juristic persons. A contract is a legally enforceable promise or undertaking that something will or will not occur. The word promise can be used as a legal synonym for contract. although care is required as a promise may not have the full standing of a contract, as when it is an agreement without consideration.

A promise is a manifestation by the promisor of an intention to act or to refrain from acting that thereby gives the promise reasonable grounds to believe the promisor is making a commitment to so act or refrain. All terms defined in this article refer to the American Restatement of law.

             Requirements of a contract

The four basic requirements of a valid contract are as follows: Mutual assent, capacity, legality of purpose and consideration. The new law governing contracts enumerates the basic requirements in its article 2 but without any comprehensive definition. They are developed in the chapter on formation of contracts.

 Mutual assent

The parties to a contract must manifest by words or conduct that they have agreed to enter into a contract. The usual method of showing mutual assent is by an offer followed by an acceptance

 

 Capacity

The parties to a contract must have contractual capacity. Certain persons such as adjudicated incompetents have no legal capacity to contract while others such as minors, incompetent persons, and intoxicated persons have limited capacity to contract. All others have fully contractual capacity.

 Legality of  Purpose 

The purpose of the contract must not be criminal, tortuous or otherwise against the public policy. An illegal contract is unenforceable.

 Consideration

Each party to a contract must intentionally exchange a legal benefit or incur a legal detriment as an inducement to the other party to make a return promise.

Classification of contracts

Article 3 gives the standards classifications of the Common Law contract law according to various characteristics such as method of formation, content, and legal effect.

The standard classifications are (1) express or implied contracts; (2) bilateral or unilateral contracts; (3) valid, void, voidable or unenforceable contracts, and  (4) executed or executory  contracts. The article 3 mentioned the three first categories and some additional categories from the Civil Code Book III such as gratuitous contracts or formal contracts.

The classifications are not mutually exclusive. A contract may be express, bilateral, valid, executor and informal.

 Bilateral and unilateral contracts

A bilateral contract results from the exchange of a promise for a return promise whereas a unilateral contract results from the exchange of a promise either for performing an act or for refraining from doing an act. The interpretation section gives the following definition: A bilateral contract is a   contract in which the parties have reciprocal obligations and unilateral contract as a contract in which obligees do not have obligations.

The Common Law tradition followed by the American Restatement defined an unilateral contract as one where one party promises a benefit if the other performs an act. The second party has no obligation to perform but if he does, a contract is formed.

In Common Law, where it is not clear whether a unilateral or bilateral contract has been formed, the courts presume that the parties intended a bilateral contract.

Express and implied contract

Parties to a contract may indicate their assent by conduct implying such willingness. Such a contract formed by conduct is an implied contract or more precisely, an implied in fact contract. In contrast, a contract in which the parties manifest assent in words is an express contract.

Both are contracts, equally enforceable. The difference is merely the manner in which the parties manifest their assent.

Valid, void, voidable, and unenforceable contracts

By definition a valid contract is one that meets all of the requirements of a binding contract. It is an enforceable promise or agreement.

A void contract is not a contract at all such as an agreement entered into by an incompetent person or by physical compulsion.

A voidable contract on the other hand, is not wholly lacking legal effect.  A voidable contract is a contract; however, because of the manner in which the contract was formed or lack of capacity to it, the law permits one or more of the parties to avoid the legal duties created by the contract. If the contract is voided, both parties are discharged of their legal duties under the agreement.

A party may also have power to ratify a voidable contract and thereby eliminate any power to extinguish the legal relations arising from the contract. Consequences of avoidance may differ, depending on the circumstances. The party who avoids the contract may, in the circumstance, be entitled to be restored to as good a position as that which he occupied immediately before entering the contract; or depending on the circumstances, may be left in the same condition as before the contract. If a party cannot be restored to substantially the same original position, the Court may decide there is no power of avoidance.

In some circumstances, the power of avoidance may be lost by unreasonable delay in manifesting election to avoid or in returning benefits received under a contract

Unenforceable contract

A contract that is neither void nor voidable may nonetheless be unenforceable. An enforceable contract is one for the breach of which the law provides no remedy. For example, in the application of the law of limitations or prescription, after the statutory time period has passed, a contract is referred to as an unenforceable contract, rather that void or voidable.

 Formal contracts

Some types of contracts, which may be called “Formal Contracts”, are subject in some aspects to special rules that differ from some of the rules that govern contracts in general; contracts under seal, negotiable instruments, negotiable documents, and letters of credit, those formed by electronic means.

 Gratuitous contracts

It is a type of contract from the Civil Code Book III which should be equivalent as a contract without consideration.

Quasi contracts

There are in Civil Code Book III provisions on quasi contracts. , these are at common law  implied in law contracts  which were not included in the previous classifications for the reason that   quasi contracts are not contracts at all.  There will be a specific law on quasi contracts, the draft bill is already prepared under the Ministry of Justice avoid injustice.  The term contract is used because the remedy granted for the breach of a quasi contract is similar to one of the remedies available for the breach of contract on a restitution basis.

Promissory Estoppel

 

The new law is silent on the concept of promissory estoppel but it is an important concept in Common Law.

 

As a general rule, promises are not enforceable if they do not meet all the requirements of a contract. Nevertheless, in certain circumstances at Common Law, the courts enforce noncontractual promises under the doctrine of promissory estoppel in order to avoid injustice. Promissory estoppel requires:

1. an unequivocal promise by words or conduct
2. evidence that there is a change in position of the promisee as a result of the promise (reliance but not necessarily to their detriment)
3. inequity if the promisor were to go back on the promise

In general, estoppel is ‘a shield not a sword’ . It cannot be used as the basis of an action on its own, equally, it does not extinguish rights.

 

             

SECTION 2. Contract formation

 

• Requirements regarding parties

 

For the contract formation, there must be at least two parties, a promisor and a promise, but there may be multiple promisors and promisees.

 

• Requirements relating to the capacity to contract

 

Everyone is regarded as having legal capacity to enter into contracts unless the law, for public policy reasons, holds that the individual lacks such capacity. It is the case for minors, persons under guardianship, mentally ill or ‘defective’.

 

2.2.1 Minors

 

A minor also called infant is a person who has not attained the age of legal majority. At common law, a minor was an individual who had not reached the age of twenty-one years. Today, the age of majority has been changed by statute in nearly all jurisdictions, usually to age eighteen.  In Rwanda, except otherwise provided, the age of majority is twenty-one years. In commercial matters, the majority is sixteen years while for the employment contract, the majority is eighteen.

 

A minor‘s contract whether executed or executory is voidable at his guardian’s option. Thus the minor is placed in favoured position by having the option to disaffirm the contract or to make it enforceable.

 

The exercise of the power of avoidance, called disaffirmance, releases the minor from any liability under the contract.

 

On the other hand, after the minor becomes of age, he may choose to adopt or ratify the contract, in which case he surrenders his power of avoidance and becomes bound by his ratification.

 

A minor may disaffirm a contract within a reasonable time after coming of age as long as he has not already ratified the contract. Determining reasonable time depends on circumstances such as the nature of the transaction and whether either party has caused delay. Some jurisdictions prescribe a time period within which the minor may disaffirm the contract.

 

A minor has the option of ratifying a contract after reaching the age of majority. Ratification makes the contract binding from the beginning (ab initio). Once effected, ratification is final and cannot be withdrawn; further more, it must be in total, validating the entire contract

 

Contractual incapacity does not excuse a minor from an obligation to pay for necessaries such as food, shelter, medicine and clothing that suitably and reasonably supply his personal needs.

 

             

2.2.2 Person under guardianship

 

If a person is under guardianship, his/her contract is void and of no legal effect. Nonetheless, a party dealing with an individual under guardianship may be able to recover the fair value of any necessaries provided to him/her.

 

2.2.3 Mental defect

 

The parties to a contract must have a certain level of mental capacity if a person lacks such capacity, he is mentally incompetent and the contract entered into by such a person is voidable

A person is mentally incompetent if he is unable to comprehend the subject of the contract, its nature and its foreseeable consequences. Contracts entered into may be ratified or disaffirmed during a lucid period.

 

 

2.2.4 Intoxicated persons

 

The provisional draft had a provision on intoxicated persons that had been considered as covered by the provision on mental illness or defect but in other jurisdictions, intoxicated persons are treated separately because the courts are even more strict with intoxicated persons due to its voluntary nature. The intoxicated person regaining his capacity must act promptly to disaffirm and generally must offer to restore the consideration he has received. Individual persons who are taking prescribed medicine or who are involuntarily intoxicated are treated the same as the person with mental illness or defect.

 

2.3. Mutual assent; an offer followed by an acceptance

 

Though each of the requirements for a valid contract is essential to its existence, mutual assent is so basic that frequently a contract is referred to as an agreement between parties. Mutual assent of parties consists of an offer by one party followed by acceptance by the other party.

 

The way in which parties usually show mutual assent is by offer and acceptance. One party makes a proposal (offer) by words or conduct to the other party who agrees by words or by conduct to the proposal (acceptance).

 

The important thing is what the parties indicate to one another, by spoken or written words, by conduct, electronic means, or even by failure to act in some circumstances.

 

The law applies an objective standard and is concerned only with the assent or intention of a party as it reasonably appears from his words or actions. The law of contract is not concerned with what a party may have actually thought or the meaning that he intended  to convey  even if his subjective understanding or intention differed from the meaning he objectively indicated by words or conduct.

 

2.3.1 Offer

 

Definition and essentials of an Offer

 

An offer is a manifestation of a willingness to enter into a contract made in a manner so as to justify another person in understanding that his or her assent is invited and will conclude the contract.

 

The person making an offer is the offeror and the person to whom the offer is made the offeree.

 

An offer needs not to take any particular form to have legal effect. It may propose the formation of a single contract by a single acceptance or formation of a number of contracts by separate acceptance.

 

In case of doubt, an offer is to be interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses.

To be effective however, it must be communicated, manifest intent to enter into a contract and sufficiently certain and definite. Invitation to Treat

Invitation to treat (also known as an invitation to bargain in the United States) is a contract law term. It is derived from the Latin phrase invitatio ad offerendum and means “inviting an offer”. It suggests in other words an expression of willingness to negotiate on something but it does not mean that the person making the invitation is bound to go through with the transaction as they would be if they were making an offer.

A shop owner displaying their goods for sale is generally making an invitation to treat (Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401). They are not obliged to sell the goods to anyone who is willing to pay for them, even if additional signage such as “special offer” accompanies the display of the goods.

Generally, advertisements are invitations to treat, so the person advertising is not compelled to sell to every customer. In certain circumstances however, an advertisement can be treated in legal terms as an offer, as occurred in the British case of Carlill v Carbolic Smoke Ball Company [1893].

For an offer to be capable of becoming binding on acceptance, it must be definite, unambiguous, and final. If it is rather a preliminary move as part of a negotiation process which may lead to a contract, it is not an offer but an invitation to treat. An offer may, or may not, result in such a situation. The offerer must have been initiating negotiations from which an agreement may or may not in time result. An invitation to treat cannot therefore be responded to by a legal act of acceptance as no offer in a legal sense has been made. Rather the recipient of the invitation to treat may respond and in their turn therefore makes an offer themselves to which the party initiating the invitation to treat can therefore respond to potentially create a legal contract by their acceptance.

Communication of an Offer

 

To provide his part of the mutual assent required to form a contract, the offeree must know about the offer; he cannot agree to something about which he has no knowledge. Accordingly, the offeror must communicate the offer in an intended manner.

 

Intent to enter into a contract

 

To have legal effect, an offer must manifest intent to enter into a contract. The intent of an offer is determined objectively from the words or conduct of parties. The meaning of either party’s manifestation is based on what a reasonable person in the other party’s position would have believed.

 

It is important to distinguish language that constitutes an offer from that which merely invites offers.

If a communication creates in the mind of a reasonable person in the position of the offeree an expectation that his acceptance will conclude a contract, then the communication is an offer. If it does not, then the communication is a preliminary negotiation.

 

Definiteness and certainty of an offer

 

Even though a manifestation of intention is to be understood as an offer, it cannot be accepted so as to form a contract, unless the terms of the purported contract are reasonably certain or can be made reasonably certain from the manifestation of parties in the circumstances.

 

The terms are reasonably certain if they provide a sufficient basis for determining the existence of a breach and for providing an appropriate remedy.

 

Part performance may remove the uncertainty of terms and establish an enforceable contract and action, in reliance on an agreement, may make a contractual remedy appropriate even though uncertainty is not removed.

 

Missing terms may be supplied by course of dealing, usage of trade, but in most cases, material terms would include the subject matter, price, quantity, quality, terms of payment and duration.

 

Duration of an offer

 

An offer confers upon the offeree a power of acceptance which continues until the offer terminates.

 

The ways in which an offer may be terminated, other than by acceptance are through Lapse of time, revocation, rejection, counteroffer, death or incapacity of the offeror or the offeree, destruction of the subject matter to which the offer relates and, subsequent illegality of the type of contract the offer proposes.

 

• Lapse of time: “The offeree’s power of acceptance is terminated at the time specified in the offer, or if no time is specified, at the end of a reasonable time”. The offeror may specify the time within which the offer is to be accepted. Unless otherwise terminated, the offer remains open for the specific time. Upon the expiration of that time, the offer no longer exists and cannot be accepted and any purported acceptance of an expired offer will serve only as an offer.

 

If the offer does not state the time within which the offeree may accept, the offer will terminate after a reasonable time. Determining a reasonable time is a question of fact, depending on all the circumstances existing when the offer and attempted acceptance are made.

 

The provisional draft stated that unless otherwise indicated by the language or circumstances, an offer sent by email is reasonably accepted if an acceptance is mailed at any time before midnight on the day on which the offer is received – referring to the restatement, section 41 and the Uniform Commercial Code 1-303 but this provision was removed during the legislative process as a detail that would be not really applicable in a Rwandan context. For the same reason, article 48 of the provisional draft has been removed:

“If a communication of an offer to the offeree is delayed, the period within which a contract can be created by acceptance is not thereby extended if the offeree knows or has reason to know of the offer, even though the delay  is due to the fault of the offeror ; but if the delay is due to the fault of the offeror or to the means of transmission adopted by him, and the offeree neither knows nor has reason to know that there has been delay, a contract can be created by acceptance within the period of delay which would had been permissible if the offer had been dispatched at the time that its arrival seems to indicate”.

 

• Rejection of an offer: An offeree is at liberty to accept the offer as he sees fit. If he decides not to accept it, he is not required to reject it formally but may simply wait until the offer laspses or terminates. Therefore, rejection by the offeree may consist of express language or may be implied from language or conduct.

 

A manifestation of intent not to accept an offer is a rejection unless the offeree manifests an intention not so to treat it, as by announcing he will merely take the offer under advisement.

 

A communicated rejection terminates the power of acceptance. From the effective moment of rejection which is, in common jurisdictions, the receipt of the rejection by the offeror, the offeree may no longer accept the offer.

 

(3) Revocation: The offeror generally may cancel or revoke an offer at any time prior its acceptance. An offeree’s power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the purported contract but an offeree’s power can be terminated by indirect communication as when the offeror takes definite action inconsistent with an intention to enter into the purported contract and the offeree acquires reliable information to that effect.

 

An offer made to the general public is revoked only by giving to the revocation publicity equivalent to that given to the offer if no better means of notification is available.

 

Certain limitations however restrict the offer’s power of acceptance but were removed from the final voted bill.

 

Option contracts: An option is a contract by which the offeror is bound to hold open an offer for a specified period of time. It must comply with all the requirements of a valid contract, including the offeree’s giving of consideration to the offeror.

 

Irrevocable offer of unilateral contracts: Where the offer contemplates a unilateral contract, injustice to the offeree may result if revocation is permitted after the offeree has started to perform the act requested in the offer and has substantially but not completely performed the requested act.

 

Revocation of an offer proposing multiple contracts: An offer contemplating a series of independent contracts by separate acceptances may be effectively revoked so as to terminate the power of acceptance for future contracts, though one or more of the proposed contracts have already been formed by the offeree’s acceptances.

 

(4) Counteroffer: A counteroffer is an offer made by an offeree to his offeror relating to the same matter as the original offer but on terms or conditions different from those contained in the original offer. It is not an acceptance of the original offer, but by indicating an unwillingness to agree to the terms of the offer, it generally operates as a rejection. But It may also operate as a new offer – the counteroffer.

 

An offeree’s power of acceptance is terminated by his making of a counter-offer, unless the counteroffer manifests an intention of the offeree that the original offer remains open or the offeror has manifested a contrary intention

 

A rejection or counter offer by mail or telegram does not terminate the power of acceptance until received by the offeror.

 

• Death or incompetency: The death or incompetency of either the offeror or the offeree ordinarily terminates an offer. On his death or incompetency, the offeror no longer has legal capacity to enter into a contract; thus all outstanding offers are terminated. Death or incompetency of the offeree terminates also the offer, because an ordinary offer is not assignable and may be accepted only by the person to whom it was made.

 

The death or incompetency of the offeror or the offeree however does not terminates an offer contained in an option because of the consideration given.

 

• Destruction of the subject matter: Destruction of the specific subject matter of an offer terminates the offer. A offers to sell a car to B. the Car is destroyed by fire in the night. The next morning B accepts the offer. There is no contract because the offer was terminated before the acceptance of B.

 

• Subsequent illegality: Subsequent illegality is illegality taking effect after the making of an offer but prior to acceptance. A subsequent illegality legally terminates the offer.

 

2.3.2 Acceptance of an offer

 

Acceptance of an offer is a manifestation of assent to the terms of the offer made by the offeree in a manner invited or required by the offer.

 

An offer can be accepted only by a person to whom it is intended. It must comply with the terms of the offer as to the promise to be made or the performance to be rendered.

 

Modes of acceptance

 

The offeree’s acceptance may be by performance or my return promise.

 

An offer can be accepted by rendering performance only if the offer invites such a performance. Even if the offer invite acceptance by performance, the rendering of a performance does not constitute an acceptance if within a reasonable time and before the offeree   performs relevant acts,  he exercises reasonable diligence to notify the offeror of non-acceptance.

 

Notification  of acceptance

 

Where an offer invites an offeree to accept by rendering a performance like in case of unilateral contract,   no notification to the offeror is necessary to make such an acceptance effective unless the offer requests such a notification.

 

Article 22-2 provides for an exception to the principle in respect to the requirement of good faith during the course negotiations.

 

If the offeree has reason to know that the offeror has no adequate means of learning of the performance with reasonable promptness and certainty, the offeror is not obligated,  unless the offeree exercises reasonable diligence to notify the offeror of the acceptance, the offeror learns of the performance within a reasonable time or the offer indicates that notification of acceptance is not required.

 

In case of   acceptance by promise, it is essential that the offeree exercise diligence to notify the offeror of acceptance or that the offeror receive the acceptance within a reasonable time, except where acceptance by silence is possible.  

 

Acceptance by silence

 

An offeree is generally under no legal duty to reply to an offer. Silence or inaction therefore does not indicate acceptance of the offer. However, by custom, usage, course of dealing,  the offeree’s silence or inaction by an offeree may operate as an acceptance. Thus, the silence or inaction of an offeree can operate as an acceptance  and cause a contract to be formed where by previous dealings the offeree has given the offeror reason to understand that the offeree will accept all offers unless the offeree sends notice to the contrary.

 

Silence operates as an acceptance also where the offeree takes benefits from the offer with reasonable opportunity to reject them and reason to know that they were offered with expected consideration.

 

Silence may also operate as an acceptance where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in  remaining silent and inactive intends to accept.

But care must be taken.  Simply putting into the offer a term such as “If I do not hear from you I shall assume you have accepted the offer” may not be, in common law, the same as a silent acceptance.

 

Time when acceptance takes effect

 

The new law governing contract has no specific provision specifying the issue but generally an acceptance is effective upon dispatch unless the offer specifically provides otherwise; such as the offeree uses an unauthorized means of communication or the acceptance follows a prior rejection.

 

Article 62 of the provisional draft removed was clear on the principle of acceptance upon dispatch in the following terms:

 

“Unless the offer provides otherwise: 

• An acceptance made in a manner and by medium invited by an offer is effective as put out of the offeree’s possession, without regard to whether it is ever reaches the offeror ; but
• An acceptance under an option is not effective until received by the offeror.

 

Then, it is clear that the offer is effective on receipt while the acceptance is effective on dispatch.

 

Acceptance by telephone or similar medium of substantially instantaneous two way communication is governed by the principles applicable to acceptance where the parties are in the presence of each other.

 

Reasonableness of medium of acceptance

 

Unless circumstances known to the offeree indicate otherwise, a medium of acceptance is reasonable if it is the one used by the offeror or one customary in similar transactions at the time and place the offer is received. It is also called “authorized means of communication”.

 

Historically, authorized means of communication was either the means the offeror expressly authorized in the offer or, if none was authorized, the means the offeror used in presenting the offer.

 

If in reply to an offer by mail, the offeree places in the mail a letter of acceptance properly stamped and addressed to the offeror, a contract is formed at the time and place that the offeree mails the letter. This assumes that the offer was open at that time. The reason for this rule is that the offeror by using the mail implicitly authorized the offeree to use the same means of communication. It is immaterial if the letter of acceptance goes astray in the mail and is never received.

 

             

2.4. Consideration

 

2.4.1 Consideration and cause

 

The concept of consideration is slightly different from the concept of cause used in Civil Law The doctrine of consideration ensures that promises are enforced only where the parties have exchanged something of value in the eye of the law. Gratuitous promises, those made without consideration, are not legally enforceable except under some circumstances.

 

A performance or a promise by the promisee is a consideration if it is established as such by the promisor and is given by the promise in exchange for that promise.

The consideration exchanged for the promise may be an act, forbearance to act, or a promise to do either of these.

 

The law does not regard the performance of, or the promise to perform a pre-existing legal duty, public or private, as a consideration.

 

The consideration for a promise must be either a legal detriment to the promisee or a legal benefit to the promisor. The promisee must give up something of legal value, or the promisor must receive something of legal value in return for the promise.

 

Legal benefit means the obtaining by the promisor of that which he had no prior legal right to obtain.

 

2.4.2 Adequacy of consideration or mutuality of obligation

 

The law will regard the consideration as adequate if the parties have agreed to the exchange. The requirement of legally sufficient consideration is therefore not at all concerned with whether one party received disproportionately more or less that he gave or promised to give.  Such facts however may be relevant to the availability of defence such as fraud, duress or undue influence or certain remedies such as specific performance.

 

The provisional draft was clear on the issue of adequacy of consideration contemplated in article 35 of the voted law:

“If the requirement of consideration is met, there is no additional requirement of

• a gain ,advantage, or benefit to the promisor or a loss, disadvantage or detriment to the promisee,
• equivalence in the values exchanged ; or
• mutuality of obligation.”

 

Rules governing consideration 

Consideration must not be in the past: If one party voluntarily performs an act and the other party the makes a promise, the consideration for the promise is said to be in the past. Past consideration is regarded as no consideration at all.

 

Example, John gives Susan a lift home in his car after work. On arrival Susan offers John 1,000 francs towards the petrol but, finding that she has not any change, says she will give him the money next day at work.

In this example, John cannot enforce Susan’s promise to pay 1,000 francs because the consideration for the promise (giving the lift) is in the past. John would have given Susan the lift home without expecting payment and also there was no bargain between the parties.

 

Re McArdle (1951)Ch 669 Court of Appeal (in UK)

Mr McArdle died leaving a house to his wife for her lifetime and then to his children. While Mrs. McArdle was still alive, one of the children moved into the house. The wife made improvements to the house costing £ 488. After the work had been completed, all the children signed a document in which they promised to reimburse the wife when their father’s estate was finally distributed. The court of appeal held that this was a case of past consideration. The promise to pay £ 488 to the wife was made after the improvements had been completed and was, therefore, not binding. The rule about past consideration is not strictly followed. If, for example, a person is asked to perform a service, which he duly carries out, and later a promise to pay is made, the promise will be binding.

 

Re Casey’s Patents, Stewart  v. Casey (1892)

Casey agreed to promote certain patents which had been granted to Stewart and another. (A patent gives the holder exclusive right to profit from an invention) Two years later Stewart wrote to Casey promising him a one–third share of the patents in consideration of Casey’s efforts. It was held that Stewart’s original request raised an implication that Casey’s work would be paid for the later letter merely fixed the amount of the payment.

Consideration must move from the promisee: An action for breach of contract can only be brought by someone who has himself given consideration.  A stranger to the consideration cannot take advantage of the contract, even though it may have been made for his benefit.

 

Tweddle V Atkinson (1861)

John Tweddle and William Guy agreed that they would pay a sum of money to Twaddle’s William, who had married Guy’s daughter. William Guy died without paying his share and William sued his late father – in- law’s executor (Atkinson). His claim failed because he had not provided any consideration for the promise to pay.

 

Consideration must not be illegal. The courts will not entertain an action where the consideration is contrary to a rule of law or is immoral.

 

Consideration must be sufficient but need not be adequate. It must be possible to attach some value to the consideration but there is no requirement for the bargain to be strictly commercial. If a man is prepared to sell his Jaguar car for £1, the court will not help someone who complains of making a bad bargain. The following are examples of cases where the consideration was of little value, but, nevertheless, it was held to be sufficient.

 

Thomas v Thomas (1842)

After the death of her husband Mrs. Thomas agreed to pay rent of £1 a year in order to continue living in the same house. It was held that the payment of £ 1 was valid consideration.

 

A person who promises to carry out a duty which he is already obliged to perform is in reality offering nothing of value. The consideration will be insufficient. However, if a person does more than he is bound to do, there may be sufficient consideration. The promise may involve a public duty imposed by law.

 

Hartly v Ponsonby (1857)

When almost half of the crew of a ship deserted, the captain offered those remaining £40 to complete the voyage. In this case, the ship was so seriously undermanned that the rest of the journey had become extremely hazardous. It was held that this fact discharged the sailors from their existing contract and left them free to enter into a new contract for rest of the voyage.

 

2.4.3 Contracts without consideration

 

Certain transactions are enforceable even though they are not supported by consideration.

 

Promises to perform prior unenforceable obligations

 

These situations include promises to pay debts barred by prescription, debts discharged in insolvency proceedings, voidable obligations and moral obligations.

 

Promise for benefit received

 

The article 39 of the law governing contracts has made enforceable promise without consideration for benefit received based on the concept of promissory estoppel.

 

The practice at Common Law is to make enforceable promises for benefit received based on the doctrine of promissory estoppel. The doctrine makes gratuitous promises enforceable to the extent necessary to avoid injustice. The doctrine applies when a promise that the promisor should reasonably expect to induce detrimental reliance and does induce such action or forbearance.

 

Promissory estoppel does not mean that a promise given without consideration is binding because of change of position on the part of the promisee. Such a change of position in justifiable reliance on the promise creates liability if injustice can be avoided only by the enforcement of the promise

 

Promise modifying existing contract

 

A promise modifying a duty under a contract not yet fully performed is binding;

• If the modification is fair and equitable in view of circumstances not anticipated when the contract was made;
• If it is provided by specific law;
• In case of material change which results into the change of obligations for both parties.

 

Contracts under seal

 

Under the common law, when a person desired to bind himself by deed or solemn promise, he executed his promise under seal. No consideration for his promise was necessary.  Article 41 of Itegeko No. 45/2011 Ryo Kuwa 25/11/2011 Ringengo Amasezerano

(Law No. 45/2011 of 25/11/2011 Governing Contracts refers to this practice in the followings terms:

 

 

Article 41: Validity requirements for contracts without consideration  A promise without consideration is binding if:  1° it is in a written form and signed;

 

2° the document containing the promise is delivered to the promisee;

 

3° the promisor and the promisee are named in the document or are otherwise identified.

 

 

The provisions above raised debates among Rwandan lawyers and most jurisdictions have eliminated the practice.

 

2.5. A mandatory writing form for some contracts

 

2.5.1 Contracts within the statute of frauds

 

Although most contracts do not need to be in writing to be enforceable, it is highly desirable that significant contracts be written. Written contracts avoid many problems and the process of setting down contractual terms in a written document also helps to clarify the terms and bring to light the problems the parties might not otherwise foresee.

 

But still the principle is the freedom of contracts except for some contracts said to be  “within the statute of frauds”. To be enforceable the contracts within the statute of frauds must be evidenced by a signed writing.

 

In most Common Law jurisdictions, the contracts called “within the statute of frauds” are as follows:

• Promises to answer for a duty of another;
• Promises of an executor or administrator to answer personally for a duty of the decedent whose funds he is administering;
• Agreements upon consideration of marriage;
• Agreements for transfer of an interest in land;
• Agreements not to be performed within one year;

A sixth type of contract within the original English statute of frauds applied to contracts for sale of goods.

 

Article 42 refers to the practice and enumerates contracts under risk of frauds that should be evidenced in writing:

(1) Contract the duration of which exceeds one year (2) Contract for the sale of an interest in land;

• Contract to act as a surety.
• Contract for the sale of goods for the price of 50,000Rwf or more;
• Contract for the sale of securities.

 

2.5.2 Requirement

 

Most modern jurisdictions require that the contract be evidenced in writing to be enforceable. The purpose in requiring writing is to ensure that the parties have actually entered into a contract. It is, therefore not necessary that the writing be in existence when parties initiate litigation; it is sufficient to show the memorandum existed at one time, even if the parties themselves view it as having no legal significance.

 

The provisional draft had details on compliance with the requirement removed in the final voted bill, specifying that the note or Memorandum must

(i)Specify the parties to the contract

(ii)Specify with reasonable certainty the subject matter of the contract and the essential terms of the unperformed promise and,

(iii)be signed by the party to  be  charged or by his/her agent.

 

Vitiation and illegality

 

In addition to requiring agreement through offer and acceptance, the law requires that the agreement be voluntary and knowingly. If these requirements are not met, then the agreement is either voidable or void.

 

This part deals with situations in which the consent manifested by one of the parties to the contract is not effective because it was not knowingly and voluntarily given. We consider four such situations in this part: mistake, misrepresentation, duress, undue influence and the case of   illegality for which the contract is unenforceable.

 

• Mistake

 

‘Mistake’ is a belief that is not in accord with the facts. The cases on mistake as a vitiating factor fall into two main groups: In the first, the parties make the same mistake: e.g. both think that the subject matter exists when it does not; in the second, one of the parties is mistaken.

 

3.1.1 Various kinds of mistakes

 

Mistake is of two basic types, i.e. mutual mistake and unilateral mistake.

 

Common or mutual mistake: Common mistake occurs when both parties are mistaken as to the same set of facts. “Where a common mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party, unless he/she bears the risk of the mistake”.

 

Mistake of one party or unilateral mistake: A unilateral mistake occurs when only one of the parties is mistaken. “Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake if:  

• The effect of the mistake is such that enforcement of the contract would be unconscionable; or
• the other party had reason to know of the mistake or his fault caused the mistake”.

 

3.1.2 Assumption of risk of mistake

 

A party who has undertaken to bear the risk of a mistake will not be able to avoid the contract, even though the mistake (which may either be common or unilateral) would have otherwise permitted the party to do so.

 

“A party bears the risk of a mistake when:

• the risk is allocated to him by agreement of the parties; or
• he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient”.

 

3.1.3 Effect of the mistake

 

Principle: The feature which is common to the two situations of mistake (common mistake and unilateral mistake) is that the mistake must be fundamental (where the parties are mistaken as to the existence of the subject matter) so that a party cannot rely on a ‘mistake’ which has led him merely to make a bad bargain. Then the principle is that a fundamental mistake makes the contract void.

 

Effect of fault of party seeking relief: The principle is that “[a] mistaken party’s fault in failing to know or discover the facts before making the contract does not bar him from avoidance or reformation (..), unless his fault amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing”.

 

This rule does not, however, apply to a failure to read a contract. As a general proposition, a party is held to what he signs. The signature authenticates the writing, and s/he cannot repudiate that which s/he voluntarily approved. Generally, one who assents to a written offer or contract is presumed to know its contents and cannot escape being bound by its terms merely by contending that s/he did not read them; his/her assent is deemed to cover unknown as well as known terms.

 

3.2. Misrepresentation

 

Another factor affecting the validity of consent given by a contracting party is misrepresentation, which prevents assent from being knowingly given.

 

A misrepresentation may be:

• a misleading conduct or an assertion that is not in accord with the facts;
• an action intended, or known to be likely, to prevent another from learning a fact;
• a person’s non-disclosure of a fact known to him/her, where he/she knows that disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material.

 

3.2.1 Types of misrepresentation

 

There are two distinct types of misrepresentation:  (1) fraudulent or material misrepresentation; and

(2) misrepresentation as an inducing cause.

 

Fraudulent or material misrepresentation: A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker:

• knows or believes that the assertion is not in accord with the facts; or
• does not have the confidence that he states or implies as to the truth of the assertion;    or
• Knows that he does not have the basis that he states or implies for making the assertion.

 

A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so.

 

Misrepresentation as an inducing cause: A misrepresentation induces a party’s manifestation of assent if it substantially contributes to his decision to manifest his assent. It is an intentional misrepresentation of material fact by one party to the other, who consents to enter into a contract in justifiable reliance on the misrepresentation.

 

3.2.2 Prevention from formation of a contract due to misrepresentation 

 

If a misrepresentation as to the character, or essential terms, of a proposed contract induces conduct that appears to be a manifestation of assent by one who neither knows nor has reasonable opportunity to know of the character or essential terms of the proposed contract, his conduct is not effective as a manifestation of assent.

 

3.2.3 Effect of misrepresentation

 

If a party’s manifestation of assent is induced by misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient.

 

3.3 Duress

 

A person should not be held to an agreement s/he has not entered voluntarily. Accordingly, the law will not enforce any contract induced by duress, which in general is any wrongful or unlawful act or threat that overcomes the free will of a party.

 

Ordinarily, the acts of threats constituting duress are themselves crimes or torts. But this is not true in all cases. The acts need not be criminal or tortuous in order to be wrongful; they merely need to be contrary to public policy or morally reprehensible. For example, if the threat involves a breach of a contractual duty of good faith and fair dealing, it is improper.

 

Moreover, it generally has been held that contracts induced by threats of criminal prosecution are voidable, regardless of whether the coerced party had committed an unlawful act. Similarly, threatening the criminal prosecution of a close relative is also duress. To be distinguished from such threats of prosecution are threats that resort to ordinary civil remedies to recover a debt due from another. It is not wrongful to threaten a civil suit against an individual to recover a debt. What is prohibited is threatening to bring a civil suit when bringing such a suit would be abuse of process.

 

3.3.1 Types of duress

 

Duress is two basic types, i.e. physical impulsion and improper threats.

 

Physical compulsion: The first type, physical duress, occurs when one party compels another to manifest assent to a contract through actual physical force, such as pointing a gun at a person or taking a person’s hand and compelling him to sign a written contract. “If conduct that appears to be a manifestation of assent by a party who does not intend to engage in that conduct is physically compelled by duress, the conduct is not effective as a manifestation of assent”.

 

This type of duress, while extremely rare, renders the agreement void.

 

Improper threats: The second and more common type of duress involves the use of improper threats or acts, including economic and social coercion, to compel a person to enter into a contract. “If a party’s manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim”.

 

Though the threat may be explicit or may be inferred from words or conduct, in either case it must leave the victim with no reasonable alternative.

 

This type of duress makes the contract voidable at the option of the coerced party.

 

3.3.2 Assumption of strength and intelligence

 

The fact that the act or threat would not affect a person of average strength and intelligence is not important if it places fear in the person actually affected and induces her to act against her will. The test is subjective, and the question is this: Did the threat actually induce assent on the part of the person claiming to be the victim of duress?

 

3.3.3 Effect of duress

 

If a party’s manifestation of assent is induced by duress, the contract is void in case of physical compulsion, and voidable at the option of the coerced party in case of improper threats.

 

3.4 Undue Influence

 

Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that the person will not act in a manner inconsistent with the welfare of the party being persuaded.

 

3.4.1 Cases of undue influence

 

Undue influence may be found in contracts between those in relationship of trust and confidence that is likely to permit one party to take unfair advantage of the other, such as relationships of guardian-ward, trustee-beneficiary, agent-principal, parent-child, attorneyclient, physician-patient, and clergy-parishioner. The weakness or dependence of the person persuaded is a strong indicator of whether the persuasion may have been unfair.

 

3.4.2 Effect of undue influence

 

If a party’s manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim.

 

3.5 Illegality

 

The law refuses to give full effect to contracts which are illegal (or affected by illegality) because they are contrary either to law or public policy.

 

3.5.1 Unenforceability of contracts contrary to the law

 

One of the ways in which the offer may be terminated other than acceptance is the ‘subsequent illegality of the type of contract the offer proposes’. A contract is illegal if the mere making of it amounts to a criminal offense, or if the contract has its object the commission of a crime, or if one party to the other’s knowledge intended to use the subject matter for an illegal purpose.

 

3.5.2 Unenforceability on grounds of public policy

 

Contracts are contrary to public policy if they have a clear tendency to bring about a state of affairs which the law regards as harmful. A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms.

 

Weighing a public policy against enforcement of a term: In weighing a public policy against enforcement of a term, account is taken of:

• the strength of that policy as manifested by legislation or judicial decisions;
• the seriousness of any misconduct involved and the extent to which it was deliberate; and
• the directness of the connection between that misconduct and the term.

 

Bases of public policies against enforcement: A public policy against the enforcement of promises or other terms may be derived by the court from:

• legislation relevant to such a policy; or
• the need to protect some aspect of the public welfare such as a restraint of trade; an impairment of family relations; and an interference with other protected interests;
• failure to comply with a licensing, registration or similar requirement.

 

3.5.3 Exceptions to unenforceability

 

There are two categories of exceptions to unenforceability, i.e. excusable ignorance and performance if intended use is improper.

 

Excusable ignorance:  If a promisee is excusably ignorant of facts or of legislation of a minor character, of which the promisor is not excusably ignorant and in the absence of which the promise would be enforceable, the promisee has a claim for damages, but cannot recover damages for anything that he has done after he learns of the facts or legislation.

 

Performance if intended use is improper: If the promisee has substantially performed, enforcement of a promise is not precluded on grounds of public policy because of some improper use that the promisor intends to make of what he obtains unless the promisee:

• acted for the purpose of furthering the improper use; or
• knew of the use and the use involves grave social harm.

 

 

 

SECTION 3. END OF CONTRACTUAL OBLIGATIONS

 

The subject of discharge of contract concerns the termination of contractual duties. Whatever causes a binding promise to cease to be binding is a discharge of the contract. In general there are various kinds of discharge of the contract: mainly we have performance by the parties, agreement of the parties to terminate the contractual obligation, happening of a condition and impossibility of performance.

 Condition

 

A condition is an event whose happening or non-happening affects a duty of performance under a contract. Some conditions must be satisfied before any duty to perform arises; others terminate the duty to perform; still others either limit or modify the duty to perform. A condition is inserted in a contract to protect and benefit the promisor. For example, A promised to pay 100,000Rfws provided that such amount is realized from the sale of an automobile, provided that the automobile is sold within sixty days. This condition is known as a precedent condition. That is, a contract that is subject to a future event, there cannot be a transfer of property because the future event has not yet occurred.  In this case, the risk shall always remain with the debtor of an obligation since transfer of property has not yet been done.

 

It may also be a subsequent condition when a condition will terminate the contract. Subsequent condition occurs, despite the fact that the contract will have been formed; the occurrence of the subsequent condition renders the contracts without effect. In that case, the risk shall remain with the debtor. The law says if under the terms of the contract the occurrence of an event is to terminate an obligor’s duty of immediate performance or duty to pay damages for breach, that duty is extinguished if the event occurs, unless the occurrence of the event is the result of a breach by the obligor or the occurrence does not subject the obligor to a materially increased burden.

 

A fundamental difference between the breach or non-performance of a contractual promise and the failure or non happening of condition is that, a breach of contract subjects the promisor to liability. It may or may not, depending on its materiality, excuse the nonbreaching party’s performance of his duty under the contract. The happening or nonhappening of a condition, on the other hand, either prevents a party from acquiring a right or deprives him of a right but subjects neither party to any liability.

 

Conditions may be classified by how they are imposed. They may be express or implied in fact condition and implied in law condition:

 

Express conditions: An express condition is explicitly set forth in language. No particular form of words is necessary to create an express condition, as long as the event to which the performance of the promise is made subject is clearly expressed.  An expressed condition is always preceded by words such as “provided that”, “on condition that”, “if”, “as soon as”, etc.   

 

Implied in fact condition: implied in fact conditions are similar to express conditions in that they must fully and literally occur and that they are understood by the parties to be part of the agreement. They differ in that they are not stated in express language; rather they are necessarily inferred from the terms of the contract, the nature the transaction, or the conduct of the parties.  Example: thus if A, for 100,000Rfws  contracts to paint the B’s  house any colour B desires, it is necessarily implied in fact that B will inform A of the desired colour before B begins to paint. The notification of choice of colour is an implied in fact condition, as an operative event that must occur before A is subject to the duty of painting the house.  

 

Implied in law condition or constructive condition: implied in law condition is imposed by law to accomplish a just and fair result.

 

It differs from an express condition and implied in fact in two ways:  

(1) it is not contained in the language of the contract or necessarily inferred from the contract  (2) it need only be substantially performed. For Example: A contracts to sell a certain tract of land to B for 2,000,000 Rwf, but the contract is silent as to the time of delivery of the deed and payment of the price. According to the principle, the contract implies that payment and delivery of the deed are not independent of each other. The courts will treat the promises as mutually dependent of the deed of A to B is a condition to the duty of B to pay the price. Conversely, payment of the price by B to A is a condition on the duty of A to deliver the deed to B.  

 

Concurrent conditions: concurrent conditions occur when the mutual duties of performance are to take place simultaneously. In this case, the performance under a contract is concurrent.  

 

Condition precedent: A condition precedent is an event that must occur before performance is due under a contract. In other words, immediate duty of one party to perform is subject to the condition that some event must first occur.   

Condition subsequent: A condition subsequent is an event that terminates an existing duty. For example, when goods are sold under terms of sale or return the buyer has the right to return the goods to the seller within a stated period but is under an immediate duty to pay the price unless the parties have agreed on the credit. The duty to pay the price is terminated by a return of the goods, which operates as a subsequent condition.  

 

Discharge by Performance

 

The performance signifies that the parties have dutifully carried out their respective obligations, thus freeing themselves from further liability. The basic rule is that the parties must perform their obligation in exact accordance with the agreed terms of the contract. The contract must be performed at the time and place agreed upon. If no time is agreed then is must be completed within a reasonable time and that will obviously depend upon the circumstance of the particular case.

 

• Date and time of performance

 

Contractual obligations must be performed in the time stipulated whether expressly or by implication. When a specific date or a specified time is mentioned, then it is said that “time is of the essence” of the contact and completion in accordance with the time or date becomes a condition going to the very foundation of the contact. But sometimes when there has been an extension the beneficiary of it may argue that even if time was of the essence, the creditor had abandoned that condition by allowing an extension. In this case for example, B may order furniture from S to be delivered on April 30^th 2011. The consignment was not ready by that date but B extended the date to May 10^th. It was still not available and therefore B cancelled the order. S Nevertheless proceeded to deliver on May 12^th. B refused to accept delivery. In this case the time will be considered as not being of the essence; the court may set for an extra time (a respite or days of grace) and moratorium damages may be charged after a notice.   In a case such as this, the wording of the “agreement” to the extension is very important.

 

The basis of “notice” is that time has not been made the essence of the contract is especially important. The court will not allow one party suddenly to turn to the other and say “time has gone, the contract is at an end”.  When time has not been made the essence of the contract and the circumstances are not such as to make it obvious that time is of the essence, it is clear that, a party to the contract cannot avoid it on the ground of unreasonable delay by the other party until a notice has been served after the unreasonable delay making time the essence. When no time stipulated, performance must occur within reasonable time, determined by reference to particular circumstances of the case.

 

• Substantial Performance

 

In response to the harsh consequences that may result from entire contracts, the courts developed the doctrine of substantial performance permitting recovery of contract price where the plaintiff has substantially performed their obligations under a contract.  If one party has substantially completed his side of the bargain, leaving a minor omission or fault, the court may accept such performance as discharging his obligations, subject to the innocent party’s right to deduct a sum to cover the fault.

 

This is illustrated by this example. X built a bungalow For Y the price to be paid by installments. On completion Y withheld the balance due on the basis that there were some structural defects. The Court may allow the builder’s claim that he had substantially completed the contract.  In determining whether a failure to render, or to offer, performance is material, the following circumstances are significant:

• the extent to which the injured party will be deprived of the benefit which he reasonably expected;
• the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;
• the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
• the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances;
• the extent to which the behaviour of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

 

However, a defendant may still maintain the right to claim damages for any loss suffered as a result of the plaintiff’s failure to strictly adhere to their contractual obligations.

 

• Divisible performance

 

Sometimes, it may be possible for the court to view the obligations between the two contracting parties not as one entire contract but consisting of a number of individual and separate obligations. It may be also the same when one person contracts several obligations in one contract.

The law says that where the whole of one party’s performance can be rendered at one time, it is due at one time, unless the language or the circumstances indicate the contrary. Where only part of one party’s performance is due at one time, the other party’s performance can be so apportioned that there is a comparable part that can also be rendered at that time, it is due at that time, unless the language or the circumstances indicate the contrary.

If there is failure to perform all, it does not affect the obligations to pay for what has been completed. For example, A transporter can agree to transport goods for so much per ton. If A in fact carried  less than the agreed amount,  the court can hold that A was entitled to claim for what he had carried, at the rate per ton subject to the other party’s right to sue for not carrying the overall tonnage agreed upon.

• Prevention of performance by one party

If the promisee prevents the promisor from performing his obligations under the contract, this will excuse the promisor from performance and the promisee cannot thereafter rely on nonperformance as a basis for a contractual claim or as a defence to a claim brought by the promisee. This is the principle of “exceptio non adimpleti contractus”.

It may be that one party is willing to release the other from completing the contract as originally agreed. If such can be assumed from the circumstances of the case, then the party that has performed part of his obligations is entitled to claim on a quantum merit. The other party must, however, be in a position freely to decide to accept partial performance. If it is forced upon him by the behaviour of the other party then no claim will be allowed. In some case, the innocent party can sue for damages for breach of claim on a quantum merit.

The example is the case Sumpter v. Hedges (1898 Queen’s Bench division – English contract law). The plaintiff agreed to build on the defendant’s land premises for a lump sum of £565. He completed work valued at £333 and then abandoned the contract. The buildings were completed by the defendant. The plaintiff’s claim for the work done before abandoning the contract was dismissed. The defendant had no real option but to finish the work. The plaintiff was allowe d to claim for materials delivered as part of the original contract

As the court said:  “He is not bound to keep unfinished a building which, in an incomplete state would be a nuisance on his land”.

Discharge by agreement

After the formation of contract, but prior to complete performance, parties may wish to bring their contractual rights and obligations to an end. Often this will be due to a change in circumstances of one or both parties and may also be used as part of a dispute resolution mechanism between parties.

In order to effectively terminate an existing contract, a new agreement must meet all criteria of a binding contract. In such a situation each releases the other party from performing. In that way each has given consideration to the other, namely the release, and the second agreement discharges the first. If one party has performed, or partly performed his obligations, in this case it is not sufficient for him merely to say that he releases the other person. The reason being that the other person has given no consideration to be executed as his contractual obligations, in other words the second agreement is not a contract at all.

One way round, the problem is to make the release under seal. A contract under seal or a deed does not require consideration. There are certain formalities to be followed however for the deed to be valid.  A method of obtaining the discharge in this situation where one party has performed or party performed his obligations is by accord and satisfaction, the party that has not performed his original obligation now offers new consideration to be released from the original contract. The other party can now accept the new consideration. The requirement of consideration under this kind of contract causes certain difficulties. If the discharges are under seal, only then is the consideration requirement avoided.

A related problem is that of waiver. In the present context this signifies that one party is prepared to waiver or vary the terms of the original agreement. The problem, of course, is what consideration the other party provides. The courts have been eager to enforce such alterations in the contract because they reflect normal business or commercial tendencies. In so doing however, the rules are not particularly clear or logical. Perhaps the most satisfactory way of explaining the situation is to say that the courts apply an equitable principle. If X agrees to waive certain obligations owed by Y and Y therefore alters his position accordingly, then it would be inequitable to allow X immediately to revert to the original agreement. That X should be permitted to demand compliance at some future date is also a valid requirement if the principles of equity are to be maintained.

The situation is illustrated by this decision in example.  R agreed to build a car for D within seven months, time being of the essence. The car was not ready but D agreed to extend the date of delivery. After a further three months, D explained that if it was not completed within four weeks he would cancel the order, this in fact happened. The court held that by allowing an extension of time D had waived the original terms of the contract and therefore could not go back on that. But he could reintroduce a reasonable date for completion and as R had failed to comply with that date then D was entitled to repudiate the contract.

The agreement may also take the form of a novation. Novation recognizes the possibility that one party to contract can release the other and substitute a third person who then undertakes to perform the released person’s obligations. If an obligee accepts, in satisfaction of the obligor’s duty, a performance offered by the obligor that differs from what is due, the duty is discharged. Thus by agreement of the three parties a new contract replaces the original contract. A novation is a contract that is itself accepted by the obligee in satisfaction of the obligor’s existing duty. The substituted contract discharges the original duty and breach of the substituted contract by the obligor does not give the obligee a right to enforce the original duty.

Another type of novation can occur where the parties remain the same but a new contract is substituted for the old. If an obligee accepts in satisfaction of the obligor’s duty a performance offered by a third person, the duty is discharged, but an obligor who has not previously assented to the performance for his benefit may in a reasonable time after learning of it render the discharge inoperative from the beginning by disclaimer.

Frustration or impossibility

The doctrine of frustration deals with the allocation of risks and losses which occur as result of an unanticipated change in circumstances occurring after parties have entered into a contract. Frustration generally arises when a contracting party refuses to perform or has failed to perform its obligations in whole or in part because performance of the contract has become either physically impossible, illegal or is no longer commercially viable. The law says that where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption, on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.

The principle is, once the parties had agreed to their various obligations and the contract was valid, then nothing should be recognized as permitting one part to go back on his word. The attitude, being strict, was that the parties should have provided for the happening of future difficulties in the wording of the original agreement. If not then, it was his own fault for not so providing and he must bear the consequences.

The case Paradine v. Jane ([1947] EWHC KB J5 is an English contract law case) illustrates this situation.   The defendant had leased a farm from the plaintiff. He was unable  to pay the rent because a German Prince had “ invaded  the  realm with a hostile army”, occupied the farm and thus prevented him from making any profits from which he would have paid the rent. The court allowed the plaintiff’s action arguing that the defendant had agreed to pay and as he had not provided against such eventualities in the agreement, then he should bear the loss. It is not sufficient merely to show that conditions have changed so that one party is released. That party must prove the existence of the frustration and its effects on the contract. Here the court decided that the parties did not contract one the footing that the goods were to come from Germany

In the nineteenth century in England the courts began to adopt a more lenient approach to the problem. There is a difference of opinion as to the reasoning behind what has been termed the Doctrine of Frustration. The two commonly accepted approaches are either that there is an implied term in every contract that should the performance become impossible then the parties should be relieved from their obligations ,or that the event that occurs so fundamentally alters the courts  to release the parties from the bargain. Perhaps the most useful course to adopt is to review the judgments in an effort to gauge when the courts will invoke the doctrine.

4.1 Events that may frustrate 

There are number of events that the courts have recognized which have rendered a contract radically different from that which was contemplated. When determining whether the doctrine of frustration operates in any particular case, consideration should be given to the terms of the contract, the nature of the event that has occurred and the type of contract involved; then an assessment may be made of whether or not the operation of the contract following the event is radically different from that originally contemplated.

• Destruction of something essential

If the continuing existence of a thing or a person is assumed by both parties as the foundation of the contract, the destruction of that thing or a person may invoke the doctrine of frustration. In one of the earliest cases on frustration, in Taylor v. Caldwell, the defendants let a certain music hall to the plaintiffs. Before the dates of the proposed concerts, the hall was accidentally destroyed by fire. The court held that the contract was frustrated.

• Non- occurrence of an essential event

If the occurrence of an essential event is assumed by both parties as the basis of their contract relationship, the non occurrence of that event may invoke the doctrine of frustration.

• Impossibility of performance

If, as a result of a supervising event, a contract becomes impossible to perform, either physically or commercially, the doctrine of frustration may operate to discharge the contract. An interesting question of precedent arises out of the East African Court of Appeal decision in Victoria Industries v. Ramanbhai  Bros (1961 E.A. 11). A Ugandan company had agreed to ship maize via Lake Victoria to Mwanza. While part of the shipment was being loaded E.A .Railways refused to accept the shipment. The court held that the railway’s behaviour frustrated the contract as there was no alternative or feasible route.

• Events causing delay or making performance more expensive

Events which merely delay performance or render it more expensive than contemplated will not frustrate a contract. However, where delay or increased expenses is such that the contract becomes one that is radically different from that contemplated by the parties the doctrine of frustration may operate. However, sometimes as we said earlier, courts have to assess and decide to consider or to disregard this theory.  This illustrates clearly the situation. The facts were that groundnuts were sold and were to be shipped from the Sudan to Germany. Obviously, the route would have been through the Suez Canal. Owing to the invasion of Egypt by Israel the Canal was blocked and the sellers argued that the contract was now frustrated. This argument was not accepted. The court refused to imply a term that the voyage must be via Suez. They considered that the contract could still be performed by going round the Cape of Good Hope. The extra expense was not to be regarded as a frustrating event. In this decision they seem to have forgotten that whenever the performance of the contract can be more expensive the doctrine of frustration may operate.

• Changes in the law or government intervention

A subsequent change in the law may frustrate a contract, even if it does not render performance of the contract illegal, provided it substantially affects the parties so that the contract becomes different in nature from that contemplated by the parties. This may be, for example, an interdiction from selling some kind of commodities in a given area or time.

If government rules, regulations or enactments prevent one party from fulfilling his obligations the contract is frustrated. The article 95 (of the Law 45/2011 Governing Contracts) says that if the performance of a duty is made impracticable by having to comply with a new domestic or foreign governmental regulation or order, that regulation or order is an event the non-occurrence of which was a basic assumption on which the contract was made.

 Death in contracts involving personal performance (intuitu personae)

If the contract can be regarded as one that requires the personal service of one party and that party dies or it becomes physically impossible or illegal for him to complete his obligations, then it is regarded as a frustrating event. The law says that if the existence of a particular person is necessary for the performance of a duty, his death or such incapacity as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made.

For instance, if a law graduate had signed a contract to work for a firm of advocates and the

Government then decided that all such graduates must spend one year at the Institute of Legal Practice Development before starting their carrier, then the original contract of employment would be frustrated because of the incapacity of that graduate.

4.2 Situation preventing the frustration 

There cannot be a frustration when parties have contemplated a supervening event and made provision for it in their contract. There is also no frustration when the event was caused by one of the parties to the contract. If there is an event that has destroyed the basic on which the contract was made the party seeking to rely on frustration must prove affirmatively the occurrence of that the event. Once done, it is then for the other party to show that the event was due to the neglect or negligence of the party claiming frustration.

Two East African Appeal cases illustrate the workings of the rule. In Howard and Co.(Africa) Ltd. V. Burton, the plaintiffs had agreed to supply the defendants with mid-day meals for their labourers. The labourers however objected to the meals and the fact that deductions were made from their wages to cover part of the cost. The defendants allowed the men to choose and the result was that the number of meals required dropped from 2,500 to almost nil. The plaintiff sued for breach of contract and the defendants pleaded frustration. The court allowed the plaintiffs action, arguing that it was the defendants positive act of allowing their labourers to choose that led to the decline in numbers and the subsequent failure on their part to take delivery of the agreed quantities.  

 

4.3 Consequences of frustration

 

The effect of frustration is to terminate a contract automatically. Consequently, there is no need for either party to elect to terminate. Where a contract is terminated in future that the  accrued rights and obligations remain. Thus, money paid under a frustrated contract for services to occur in the future could not be recovered, nor could recompense be obtained for services rendered where payment only fell due after the frustrating event. However, if one part has gained an advantage under the contract before the frustrating event, for instance by way of part performance of the contractual obligations, then the court may order payment to be made by the party benefited on the basis of the undue enrichment.

 

• Discharge by breach

A breach of a contract may bring it to an end; in other words, may discharge, or terminate the contract. When one party fails to perform his obligations or performs them in a way that does not correspond with the agreement, the innocent party is entitled to a remedy. What form the remedy will take depends on what type of breach the guilty party has committed. In all cases the innocent party is entitled to claim damages, but only in two situations can the contract be regarded as discharged and thus freeing him from performing his own obligations.

Fundamental breach

In deciding whether there has been a fundamental breach of the contract it is necessary to ask whether it is a condition or a warranty that has been broken. We can examine if that condition is a major term of the contract and breach of such a term allows discharge of the contract, and that a warranty is a minor term that attracts only an award of damages. If the breach goes to the root of the contract and affects its commercial viability, it is said to discharge the contract.

This can be illustrated by this Court decision in Mohamed Anwar v. Marjaria and Others. The plaintiff had purchased eleven second hand tractors and spares from the respondents. He signed a document that stated that the tractors were “seen and fully inspected on the description … no other liability is taken whatsoever by the seller.” When the plaintiff went to collect the tractors two were missing and others had been stripped of their spare parts. Nevertheless he removed the tractors on an undertaking that what was missing would be replaced. This was not done and the appellant stopped payment and when sued for the price he alleged that he had repudiated the contract and, in addition, that the consideration had totally failed.

Where there is a contract for the sale of goods to be delivered by stated instalments which are to be separately paid for, and the seller makes defective deliveries in respect of one or more instalments, or the buyer neglects or refuses to take delivery or pay for one or more instalments, it is a question in each case depending on the terms of the contract, and the circumstances of the case, whether the breach of contract is a repudiation of the whole contract or whether it is a severable breach giving rise to a claim for compensation, but not to a right to treat the whole contract as repudiated. The seller agreed to deliver milk daily for a period of one year. After eight days the buyer refused to accept more deliveries on the grounds that the milk had not passed through a refrigerator cooler. The buyer obtained the backing of the Public Health Inspector that the milk was not fit for human consumption and then sued for breach of contract.

Repudiation 

A repudiatory breach is any form of conduct by a party that evinces an intention not to be bound by the contract.  Examples include expressly refusing to perform part or all of a contract, or insisting that the other party perform the contract in a manner that it does not require or sanction. It may also take the form of a continued failure to perform the contract. This occurs when one party either expressly or impliedly intimates that he will not honour his side of the bargain. Obviously this can happen at the moment performance is due or before that time,  when prior warning is given that the obligations will not be performed it is called anticipatory breach.  The law says “Repudiation shall be made by:

• a statement by the obligor to the obligee indicating that the obligor will commit a breach.
• a voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach”.

The repudiation may be anticipatory. The anticipatory breach occurs when the guilty party repudiates the contract before the date on which they were due to perform their obligations and the innocent party elects to discharge the contract as a result. Where reasonable grounds arise to believe that the obligor will commit a breach by non-performance that would of itself give the obligee a claim for damages for total breach, the obligee may demand adequate assurance of due performance and may, if reasonable, suspend any performance for which he has not already received the agreed ex- change until he receives such assurance.

Where an obligor repudiates a duty before he has committed a breach by non-performance and before he has received all of the agreed exchange for it, his repudiation alone gives rise to a claim for damages for total breach. Where performances are to be exchanged under an exchange of promises, one party’s repudiation of a duty to render performance discharges the other party’s remaining duties to render performance. In such a situation the innocent party can sue at once, or wait until the time of performance is due and sue then. If he decides on the last course of action, it is possible for the guilty party to “reform” and complete his part of the contract. It may even be that something occurs to prevent the original innocent party from completing his own obligations.

Similarly the innocent party, if he decides not to act on the anticipatory breach but wait until the date the performance was due, must show that he was able and willing to perform his part of the agreement. If the innocent party decides to treat the other party’s behaviour as anticipatory breach, he may be allowed to ask the court for a decree of specific performance so that the court may compel the guilty party to perform. It is no defence to argue that the cause of action does not arise until the final date for performance is due. The obligor’s failure to provide within a reasonable time such assurance of due performance may be treated as a repudiation.

 Effects of breach

As was said earlier, the effects of breach of contract vary depending on the seriousness of the breach and also on how the innocent party decides to react towards the breach. The remedies available are discussed in the next Chapter.   A breach by non-performance gives rise to a claim for damages for total breach only if it discharges the injured party’s remaining duties to render such performance.

• Rescission

Parties to a contract can file an action requesting for its nullity or rescission if there was error, fraud or violence. An agreement of rescission is an agreement under which each party agrees to discharge all of the other party’s remaining duties of performance under an existing contract. An agreement of rescission discharges all remaining duties of performance of both parties. It is a question of interpretation whether the parties also agree to make restitution with respect to performance that has been rendered.

Rescission of the contract extinguishes not only the rights of the parties therein but also those of their successors in title. The rule is “resoluto jure dantis resolvitur jus accipientis”, but to a certain extent third parties are protected. When a lease has been granted by an owner whose right of ownership is afterwards rescinded in the case of the sale of an immovable object, the seller cannot get the sale rescinded against an onerous purchaser whose right is transcribed unless the seller has preserved his privilege by transcribing it.

In principle the rescission works ‘ex tunc’, i.e. it returns matters to the state of the moment of the conclusion of the contract or, sometimes, of a later date in the case of non-retrospective effect the rescission works ‘ex tunc’, i.e. the day of the issue of the writ, or, sometimes, the day of the judgment or even the day of the enforcement of the judgment.  Ex tunc is the Latin for “from the outset”

The impossibility of restitution in successive contracts,  is due to the nature of the property (e.g. the enjoyment of the premises) or the use which was made of it (e.g. a pipe-line delivers oil over several months, but the oil is stocked in huge reservoirs; or fertilizer is spread in the fields). The criterion proposed by Marcel Fontaine in order to define the exceptions to the principle of the retrospective effect of the rescission is the divisibility of the contract. The rescission has a retrospective effect to the moment of the conclusion of the contract each time that the non-performance affects the whole of the contract; the rescission will be limited up until the date of the serious no-performance which does not overturn the reciprocal utility of what was performed earlier to the common satisfaction of both parties. If this criterion is accepted, the starting point of the non-retrospective rescission will not be the same in all cases. It is the date on which a party judged that the contract ceased to fulfil its function.