The Elements of a Valid Contract: Insights from Greenboat Entertainment Ltd Vs City Council of Kampala. (HCT-00-CC-CS 580 of 2003) [2007] UGCommC 21 (26 February 2007).

Overview The plaintiff, Greenboat Entertainment Ltd, claimed breach of contract and sought special and general damages, as well as recovery of money owed under the contract. The defendant, City Council of Kampala , had contracted the plaintiff to manage street parking in Kampala for four years, which expired on June 30, 2002.

The plaintiff continued managing street parking pending completion of the tendering process, but was eventually instructed to stop activities on February 28, 2003.

This case brief analyses the judgment which highlights the fundamental principles of a valid contract in law, which are, capacity to contract, intention, consensus, valuable consideration, legality of purpose, and certainty of terms. The court's decision also sheds light on whether an oral agreement can be considered a legally binding contract.

Legal Representation.

Mr. John Mike Musisi is counsel for the plaintiff.

Mr Nelson Nerima  is counsel for the defendant.

Before: 

Hon Justice Yorokamu Bamwine

Brief Facts

The plaintiff’s claim against the defendant was for special and general damages for breach of contract, recovery of money owed under the contract and costs. From the pleadings, the defendant contracted the plaintiff to manage street parking in Kampala for four years under an agreement commencing on 1/7/98.

The contract expired on 30/6/2002. The defendant re-advertised the tender in October, 2002. The plaintiff was one of the bidders. It continued managing street parking pending completion of the tendering process. The tender was awarded to Multiplex (U) Ltd on 20/2/2003 and the plaintiff was asked to hand over to the new tenderer.

There are two issues for determination:

1. The contract between plaintiff and defendant was breached by the defendant

2. Is plaintiff is entitled to the remedies sought?

The Decision of the Court.

The court considered whether the contract between the plaintiff and defendant was breached, but first, it was essential to define what a contract is. According to Section 10(1) of the Contracts Act 2010, a contract is an agreement made with free consent of parties with capacity to contract, for a lawful consideration and with a lawful object, with the intention to be legally bound. The initial contract, dated July 17, 1998, was for a four-year period, effective from July 1, 1998, and expired on June 30, 2002. Since the contract was performed by both parties, any breach could only relate to the alleged renewed contract.

The court noted that a contract can be made in writing, orally, or partially in writing and orally. The plaintiff argued that the contract was supposed to expire on June 30, 2002, but they continued operating under the same terms until February 28, 2003, based on verbal assurances from the defendant's authorities that the contract had been renewed. However, the court found that the contract actually expired on June 30, 2002, and there was a mechanism for its renewal, which was subject to review and re-tendering.

The court held that for a contract to be valid and legally enforceable, it must have essential elements, including capacity to contract, intention to contract, consensus, valuable consideration, legality of purpose, and certainty of terms.

The learned Justice held,

In law, when we talk of a contract, we mean an agreement enforceable at law. For a contract to be valid and legally enforceable, there must be: capacity to contract; intention to contract; consensus and idem; valuable consideration; legality of purpose; and sufficient certainty of terms. If in a given transaction any of them is missing, it could as well be called something other than a contract

In this case, the alleged renewed contract lacked most of these essentials, including consensus, fresh consideration, and certainty of terms. Therefore, there was no contract, and the plaintiff's claim for breach of contract and remedies was dismissed. Validity of an Oral Contract.

This decision highlights the validity an oral contract and stating that,

An oral contract is a contract the terms of which have been agreed by spoken communication, in contrast with a written one, where the contract is a written document. In my view, whether a contract is oral or written, it must have the essentials of a valid contract, which I have already spelt above.

In my opinion, even if I were to accept that any such re-assurances were given as alleged, but I don’t, it is clear to me that they lacked sufficient certainty of terms until January 2003 when the town clerk advised them that they were to continue to pay the contract sum as agreed upon.

Are all agreements contracts?

This case reaffirms the legal principles governing agreements intended to be legally enforceable. The court observed that, as a long-standing legal principle, not all agreements constitute contracts.

The indispensable element that transforms an agreement into a legally binding contract is the parties' intention to enter into a legal relationship and thereby obligate themselves to perform the agreement. With all due respect to the plaintiff, the court was unable to discern any such intention in the disputed arrangement.

The alleged contract was plagued by a lack of consensus ad idem, and it also suffered from a lack of fresh consideration and certainty of terms. In essence, the agreement lacked the majority of the essential elements of a valid contract, and thus, there was no contract. Conclusion. In conclusion, the court ruled in favor of the defendant, City Council of Kampala, finding that there was no breach of contract with the plaintiff, Greenboat Entertainment Ltd.

The court held that the initial four-year contract expired on June 30, 2002, and any subsequent agreement lacked the essential elements of a valid contract, including capacity to contract, intention, consensus, valuable consideration, legality of purpose, and certainty of terms.

The court further stated that an oral agreement, like any contract, must have these essential elements to be legally binding. Therefore, the plaintiff's claim for special and general damages, recovery of money owed, and costs was dismissed.

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https://ulii.org/akn/ug/judgment/ugcommc/2007/21/eng@2007-02-26

PREPARED BY

AKANJUNA CLERKSON

LLB UCU