Almost every person has entered into a contract in their daily lives. For example, in buying groceries from a supermarket, the parties agree to swap provisions with money. It is important for the parties to a contractual relationship to understand their rights and obligations .
A contract is an agreement between parties which creates mutual obligations. It is legally binding and enforceable by law. A contract is unique in the sense that unless certain exceptions apply, parties are free to agree to whatever terms they choose. This is known as the ‘freedom of contract’.
Form of contracts
A contract can be in oral or written form. It can also be implied from the conduct of the parties. This means that parties intentional on forming a contract need not expressly state its existence and formation. It can be imputed to arise from the actions of the parties towards each other.
Some contracts are, however, required to be in writing. These include contracts of guarantee or indemnity, hire purchase and those whose subject matter exceeds Shs500,000. This notwithstanding, it is recommended that all contracts are reduced in writing since they are easy to prove this way.
Laws governing contracts
The general law governing contractual relationships in Uganda is the Contracts Act. It can be supplemented by other laws that include though not limited to the Employment Act, the Sale of Goods and Supply of Services Act and the Hire Purchase Act. Where such laws make provision for the form of a contract, they take precedence over the Contracts Act.
The law of contract is mostly self-regulatory, with the majority of contracts requiring no intervention. The Courts make no consideration for whether the contract was fair or not. If agreed, it must be enforced premised on the freedom of parties to willingly contract. On some occasions, however, the Courts can depart from the principal of contractual freedom. This is often where there has been an abuse of bargaining power by one contracting party.
Contractual terms set out the rights and obligations of the parties’ breach of which can give rise to adjudication. The protection of parties’ rights heavily leans on these terms. Some terms need not be expressly included in the contract. There are terms that can be implied in a contract and are usually set out under the law.
Prior to concluding a contract, one must be mindful of such exclusion clauses. However, with the enactment of the Sale of Goods and Supply of Services Act, the application of such clauses in Uganda was limited with regard to contracts of sale of goods and supply of services.
In the event of breach, parties look towards this clause to determine the mode of operation. Modern commercial practice relies to a growing extent on arbitration to handle disputes, especially those that arise in international transactions. There are several reasons for the growing use of arbitration. The procedure is simple and expeditious. The proceedings are private.
How it started
Capacity to contract
For a contract to exist, the parties should have the capacity to contract. Anyone who is 18 years or above, of sound mind and not disqualified from contracting by any law can contract.
Consent of parties is free where it is not caused by coercion, undue influence, fraud, misrepresentation or mistake. Undue influence manifests where one of the parties is in a position to dominate the will of the other party and uses that position to obtain an unfair advantage over the other party.