Rules governing form of Contract.

RULES GOVERNING FORM OF CONTRACT

INTRODUCTION

During the previous lectures you have been taught that a contract is a legally binding agreement made between two or more parties.  You have also been taught about the essential elements which are necessary in order to make an agreement legally binding.

In this lecture you will learn about the form that a contract may take.  That is, the manner in which the conclusion of the contract is to be recorded.

1. THE GENERAL RULE

The general rule is that no formality is needed in making contract.   This is the rule as stated in the case of Beckham vs Drake (1841) 9 M.&.W. 79,92.  However, there are situations where the law requires that parties meet certain formalities before an agreement will be enforced by the courts.   Such situations are exceptions to the general rule such that distinctive forms of contract have emerged as discussed below.

2. THE TYPES OF FORM OF CONTRACT

There are three types of form that a contract may take.  A contract may either be written, or must be evidenced in writing, or unwritten (i.e. simple contract).  Let us now look at each of these forms in detail.

2.1    A Written Contract

This is a contract which must be in writing in order to be enforceable.  The requirement of a written contract is an exception to the general rule that a contract can be made informally.  Some specific statutes may require that a particular kind of contract must be in writing.

For example, in East Africa, the Uganda Registration of Title Act 1922 prescribes the form that transfers of land and leases must take.  The Tanzanian Land Registration Ordinance Cap. 334 contains a similar prescription.  As well as a similar legislation in Kenya.

The Hire Purchase Acts in Kenya and Tanzania also require that hire purchase agreements must be in writing.

A question which may come to your mind now is, probably, what consequences follow where the law prescribes that a particular contract must be in writing and the parties to such contract have defaulted to put their agreement in a written form.

Effects Of Non-Compliance

Non-compliance with the requirement of writing will render the contract unenforceable by the courts.  The case of Pandit vs Sekatawa (1964) (2) A.L.R. COMM 25 illustrates this consequence.  The Plaintiff in that case was an advocate who sued the defendant to recover professional fees for representing him in a court action.  The Defendant argued that the contract was not in writing as demanded by the Advocates' Rules 1950.  The court allowed this defence. Udo Udoma C.J. explained thus:

"It is patently obvious that in terms of the ... provision (r.10) there is no valid agreement before this court capable of creating any legally enforceable right in favour of the plaintiff, the agreement testified to not having been made in writing nor signed by the first defendant or any of the defendants sought to be charged with liability".

This decision would have been the same if the relevant statute would be the Advocates Acts in Kenya (Cap. 16) and Tanzania (Cap. 341 as amended) because they contain similar provisions with regard to writing.

Perhaps it is important for you to know that although the requirement of writing is prescribed by law in certain cases, it does not mean that in other cases one should not bother to reduce agreements to writing.  Written agreements save a lot of time in litigation.  Hodgin, R.W. in his book Law of Contract in East Africa (Nairobi: EALB, 1975) correctly emphasizes that a contract reduced to writing, in clear and certain terms, would avoid misunderstandings at a later date and would provide the Lawyer and the court with the evidence they require (p.12).

2.2 A Contract which Requires Written Evidence

This form of contract has probably provoked your mind to search for the distinction between a written contract and a contract requiring written evidence.

The distinction is simple.  The requirement in respect of this form of contract is not that the contract itself be in writing.  Rather, that there should be some note or memorandum in writing signed by the party to be charged or any person whom such party lawfully authorizes to sign.

For example, in Kenya and Uganda (see the Contact Act (Uganda) S.4; and the Law of Contract Act (Kenya) S.3 contracts of guarantee and contracts whereby a person gives an assurance to another person relating to a third party's character, conduct, credit, ability, trade or dealings, must be evidenced in writing.  In Tanzania, such contracts can be oral or in writing.  However, in all the East African States, contracts for the sale of goods where the purchase price exceeds Shs.200 must be evidenced in writing (see, the sale of Goods Act, Kenya Cap. 31; Tanzania, Cap. 214; and Uganda,Cap. 79).

The above discussion has enlightened you that this form of contract need not be in writing.  It can be oral.  Now you need to know two things:

(i) The Objective of the Requirement of "evidence in writing":

The evidence in writing required is only evidence which attests to the existence of a contract.  For example, if A purchases goods worth over Shs 200 from B then there should be some written evidence that such sale transaction in fact took place between them.  For instance a receipt.  Absence of such evidentiary receipt shall make it difficult to prove that the transaction took place, and as explained earlier, under the sale of Goods Ordinance such a contract will be rendered unenforceable.

(ii) What Constitutes "evidence in writing"?

This can be illustrated by the above example of the sale transaction between A and B.  The receipt evidencing the transaction:

(a) must contain the names of the parties to the contract;

(b) must make clear the subject matter of the agreement; and

(c) must be signed by the party to be charged.

The following case can illustrate further this point.

In the case of Leslie and Anderson (Nairobi) Ltd. vs Kassam Jivraj and Co. Ltd. 17 E.A.C.A. 84 a contract for sale of goods worth over Shs 200 was purportedly evidenced by some writing signed by an agent.   However, the writing did not disclose who the principal was.  Sir Graham, Paul C.J. said:

"Exhibit I was a letter, not a "broker's note".  It certainly does not contain the name or any description of the "sellers" and it cannot be disputed that in a contract the identification of the parties to the contract is one of the most essential points.  There is no written note or memorandum in evidence showing who are the "sellers".

We have been referred to a considerable number of decisions on this question but before dealing with any of them I think it well to quote the following extract from Vol. 29, of Halsbury's Laws of England (Hailsham Edition) at p.35: "The writing must therefore either expressly or by necessary implication, contain - (1) the names of or descriptions fit to identify the parties in their respective characters".

It is manifest that Exhibit I in this case does not comply with this requirement, and as a mere matter of logic and plain English I am satisfied that Exhibit I did not comply with section 6(1) of the Sale of Goods Ordinance or with the requirement of the law as quoted from the Laws of England".

Note that, the rules governing what constitutes "evidence in writing" should be applied to the particular circumstances and facts of any given case.  Hence, at times the writing may disclose the parties and make clear the subject matter but not signed by the party to be charged, but still such writing may be sufficient evidence.

For example, in the case of Credit Finance Corporation Ltd. vs Ali Mwakasanga [1959] E.A. 79 X took a lorry on hire purchase, signed his part of the contract and paid a deposit.  Later the finance company denied that there was a valid contract on the grounds that they had not signed.  The court of Appeal held that X's behaviour was a sufficient act of part performance and the contract was enforceable.  This case illustrates that where the parties have acted upon the writing and treated it as binding they will be bound by it.  The omission by a party to sign the writing notwithstanding.

You also need to note that, according to the decision in Kanti Printing Works vs Tanga District Council (Civil Appeal 18 of 1970 (Tanzania) the writing evidencing the contract need not be contemporaneous with the contract.  It may have been prepared well after the conclusion of the contract.  But, it must have been in existence before a suit is filed.

2.3 A Simple Contract

The bulk of contracts are simple contracts.  They are called simple contracts not because there are no rules governing them, but because there is no requirement that they should be in writing or that they should be evidenced by some writing.  In essence, in the course of your learning of the law of contract, the lectures on formation of contract, contents of contract, defaults in contract, discharges of contract and remedies for breach of contract shall basically address this form of contract.

3. ESSENTIAL POINTS FOR YOUR EMPHASIS

(i) Always remember that the general rule on which form a contract can take is that a contract can be made informally.

(ii) Before you choose any particular form for your contract, ask yourself whether there is any statutory requirement for the particular contract to be either in writing or to be evidenced in writing.