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THE LAW OF CONTRACT

Nature of a Contract

A contract is a legally binding agreement made between two or more parties and which
agreement is intended to create legally binding obligations. The word ‘binding’ is used as
there are some contracts that are valid but not enforceable in a court of law.

A contract is an exchange of promises between two or more parties to do or refrain from
doing an act which is enforceable in a court of law.

Contract law is based on the Latin phrase pacta sunt servanda (pacts must be kept).

Breach of contract is recognised by the law and remedies can be provided.

Contracts which are not intended to create a legally binding relationship are treated as:-
1. A domestic arrangement – e.g. a husband promises to pay house-keeping
allowance to his wife or to offer her a gift on her birthday but does not do so.

2. Gentleman’s agreement – e.g. A promises to lend B his car at some time but
refuses to do so.

3. Social invitation – e.g. C invites his friends D and E to a party at his house, but
when they arrive, they don’t find C.

Essentials of a Valid Contract

1. There must be an offer and acceptance
2. There must be an intention to create legal relationships
3. There must be consideration or the contract must be under deed
4. There must be contractual capacity
5. There must be genuine consent i.e. the consent must not be obtained through
mistake, misrepresentation, duress and/or undue influence
6. The object of the contract must be lawful.

Types of Contracts
They are dividend into the following
1. Contracts of record
2. Contracts under deed/specialty contracts
3. Simple contracts

1. Contracts of Record
 These include court judgments and recognisances.
 They are not true contracts, since the obligations under them are imposed on the
parties by the courts and do not result through mutual agreements


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Court judgments – the previous rights and obligations under a contract are merged in the
judgment. When this judgment is entered into a court record, constitutes a contract of
record between the parties to the dispute e.g. A claims Ksh. 1000 from B for goods
delivered but B thinks that the true value cannot be more that Ksh. 600. After hearing
both sides, the court delivers a judgment that B should pay Ksh. 800 to A. whether B
likes it or not, he is under obligation to pay A Ksh. 800.

Recognisances – in criminal cases the accused may on his conviction be bound over to
be of good behaviour and to keep peace. A person so bound acknowledges in writing that
a specified sum will be paid to the state if he makes the breach of terms of the bond.

2. Specialty Contracts
It is also called contract under deed or under seal. This is the only formal contract and
must be:
i. in writing, and
ii. signed, sealed and delivered

Sealing and delivering, however are mere formalities. The delivery of such a contract
may be actual or constructive. Actual delivery is a mere handing over of the sealed
contract, while constructive delivery is more formal. If the delivery is to take place at a
future date, it is called ‘Escrow’.

Contracts that must be in writing
a. All contracts that require to be stamped e.g. bill of exchange, promissory notes,
transfer of shares in a limited company.

b. Acknowledgement of a statute-barred debt. In simple contracts, an action to
recover a debt must be within 6 years, otherwise time-barred but debtor statute
barred debt in writing it can be revived for another 6 years.

c. Transfer of immovable property. The law requires that transfer of immovable
property must be by registered instrument.

d. Representation of character or credit worthiness. The law requires that
representation made relating to character, credit, ability of any other person must
be in writing and signed by the other party to be responsible in case of the default
is made by a person for whom the representation was made.

Contracts that must not be in writing but must be supported by written evidence
a. Contracts of guarantee – a special promise to answer for the debt, default or
miscarriage of another person is required to be evidenced in writing otherwise the
contract is unenforceable.
b. Contracts for the sale of land – all agreements for the sale of land or other
disposition must be supported by written evidence, signed by the party to be
charged or by his agent.
c. Contracts for the sale of goods of Ksh. 200 or over (requirement of the Sale of
Goods Act)

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d. Every hire purchase agreement must be evidenced in writing and registered
within 30 days.
e. Contract of employment for over one month (requirement of Kenya Employment
Act).
f. Money-lending contracts (requirement by Kenya Money-Lenders Act)


3. Simple Contracts
Any contract that doesn’t satisfy the requirements of a contract under seal is a simple
contract. It does not have to be in any special form as it may be oral, written, or partly
oral and partly written or merely implied by conduct.

Evidence in writing
Good evidence must satisfy the courts that it contained all the material terms of the
contract alleged in court. It thus, must contain the following information:
1. The names of the parties or sufficient description of them
2. The subject matter of the contract with sufficient clarity.
3. The signature of the party to be charged or his agent
4. The consideration must be shown except in contract of guarantee
5. The memorandum in writing may consist of more than one document, provided
they could be inter-related expressly or by implication.

The Doctrine of Part-Performance
Non-compliance with statutory requirements does not render a contract void or illegal but
renders “the kind of evidence required indispensable when it is sought to be enforced”. In
certain cases the court will allow a contract to be proved by verbal evidence,
notwithstanding that a particular kind of evidence required by the statute is missing. The
doctrine of part-performance is thus invoked as follows:

1. The acts of part-performance must be capable of referring solely to the contract
sought to be enforced

2. The acts of part-performance relied on is such that it should be fraudulent to allow
the defendant to take advantage of the lack of the written evidence.
Case law
Rawlinson Vs Ames 1925
A agreed to take lease of a flat, and required the plaintiff to carryout substantial
alterations, which the defendant frequently inspected when the work was in
progress. On completion of all the suggested alterations, A refused to take the flat,
and pleaded the lack of written evidence. It was held that A’s visits to the flat
when the work was in progress were solely referable to the contract, that he had
agreed to take the flat and so he was liable to take the flat on lease as originally
was agreed.
3. The contract to which the alleged act of part-performance refers must itself be
capable of specific performance by the court and damages are not adequate
remedy. In other words the doctrine generally applies only to contracts of leases
and sale of land.
4. There is proper oral evidence of the terms of the contract available.

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Valid, Voidable and Void Contracts
A valid contract is an agreement that is binding and enforceable in a court of law. It has
all the essential elements of a contract.
Avoidable contract is an agreement that is binding and enforceable, but because of lack
of one or more of the essentials of a valid contract, it may be set aside at the option of the
aggrieved party.

If the party entitled to such right does not exercise the right within a reasonable time, the
contract is binding.

The right to void a contract is given in the following circumstances:
a. Where one of the parties has been fraudulently induced to enter into such a
contract.
b. Where the other party has used duress or undue influence
c. Certain contracts entered by infants and insane persons

A void contract is really not a contract at all. It has no effect. It is an agreement which is
completely destitute of any legal effect. E.g.:
a. Where one of the basic ingredients such as offer and acceptance, consideration
and the intention to create legal relations is missing.
b. Contracts made under mistake of fact material to the terms of the contract.
c. An agreement of which the consideration or object is unlawful
d. Under infants Relief Act, certain contracts such as money lent to the infant or
goods supplied other than necessaries are absolutely void.

Intention to Create Legal Relations
In order for a contract to be enforced there has to be an intention to create a legal
relationship. This is however inferred from all the circumstances of the case.

Case law
Balfour Vs Balfour 1919
The defendant was a civil servant in Cylon. While he and his wife were on leave in
England, it became apparent that because of ill-health, the wife would not be able to
return to Cylon. The husband promised to pay her thirty pounds a month whilst forced to
live apart. He failed to pay, and his wife sued on the contract. Held, that the husband was
not liable because there was no necessary implication from the circumstances of the
parties that they intended to make a legally binding contract. It was more like a domestic
arrangement between husband and wife rather than a contract.

In some cases the courts can, on examining the facts of the agreement, decide to conclude
that there was intention to create a legal relation

Case law
Parker Vs Clark 1960
The defendant, an aged couple, arranged by correspondence with her niece and husband
to share a house and promised to make a will of it. The couple subsequently quarreled
and the plaintiffs were ordered to leave the house. Held that the contract was no more

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than a family agreement, there was an intention to create legal relations, and damages
were awarded to the plaintiffs.

Commercial Agreements
In commercial or business agreements it is generally presumed that there is an intention
to create legal relations, unless the parties insert a clause that their agreement shall not be
binding in law but shall be binding on honour.
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A. OFFER AND ACCEPTANCE

OFFER
An offer is an expression of willingness to enter into a contract with a determinate
person. The person making the offer is called the offeror while the person to whom the
offer is made is called the offeree. An offer thus has the following rules;
1. An offer may be made to a specific person, or to any member of a group of
persons, or to the world at large but it cannot form the basis of a contract until it
has been accepted by an ascertained person or group of persons.
2. An offer may be made by word of mouth, in writing or by conduct. (e.g. a
passenger entering a passenger service vehicle plying through a certain route
assumes the owner has made an offer by conduct and he is bound to pay the
advertised fares)
3. An offer must contemplate giving rise to a legal consequence if accepted.
4. The terms of the offer must be certain and free from vagueness (ambiguity) in
expression.
5. Every offer must be communicated; for a contract to arise, two parties must of the
same mind, and so it cannot be accepted by a person who does not know that it
has been made.
6. The offeror cannot bind the other party without his consent.
7. The offeror may attach any conditions to his offer, but must communicate them to
the offeree, before they bind him by his acceptance of the offer.

An offer is different from:
a. Invitation to treat
b. A mere declaration of an intention
c. A mere supply of information

Invitation to treat
This is essentially an invitation to make an offer. Marked prices of goods displayed in
shop windows, or catalogues mentioning prices, do not as a rule constitute an offer as to
compel the shopkeeper to sell those goods at the marked prices. The prospective buyer by
offering that price is himself an offeror, and his offer, if accepted creates a binding
agreement.

Case law
Pharmaceutical society of Britain Vs Boots chemists 1953

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Goods were sold in B’s shop under the self-service system. Customers selected their
purchases from the shelves, put them into baskets supplied by B, and took them to the
cash desk where they paid the price. Held the customer made the offer when he presented
them at the cash desk and not when he removed them from the shelves.

Declaration of intention
When a person declares or expresses his intention to do a thing or an act, it does not bind
him to another person who offers damage because he fails to carry out his intention
despite the fact that someone relied on his declaration.

Mere supply of information
The mere statement of the lowest price, at which a person will sell property or goods,
contain no implied condition to sell at that price to the person making such inquiry.
Termination of an offer
1. If the offer remains un-accepted beyond the time allowed (if any) or if no time is
stipulated, longer than a reasonable time. Reasonable time depends on the nature
of the contract.
2. An offer lapses if not accepted in the manner prescribed, or if no manner is
prescribed, in some usual manner implied by the nature of offer e.g. offer made
by post, the acceptance is implied by post as well.
3. By death or insanity of either the offeror or offeree before acceptance. However,
death after acceptance has generally no effect on the validity of contracts but has
no effect if the contract is of personal service.
4. Counter offer – A second offer terminates the initial offer and the initial offer
cannot be revived by the person to whom it was originally made.
5. Revocation – i.e. withdrawal by the person who made it anytime before it is
accepted. However;
a. The revocation must be communicated to the offeree, though not necessarily
by the offeror himself.
b. Revocation by post does not take effect until it is actually received by the
offeree.
NB: It must be noted that acceptance by post takes effect when the acceptance
is posted and not when received.
c. Where offeror promises orally or in writing (not under deed) to keep his offer
open for a specified time, he is not bound by it i.e. he can still revoke it at any
time before the expiry of the time given unless:
i. The offer has already been accepted
ii. The promise to keep offer is supported by consideration i.e. the offeree
has paid some money
iii. The promise to keep offer open was made under seal.

ACCEPTANCE
An offer can only be accepted by the person to whom it is made, but an offer made to the
world at large can be accepted by anyone.

Modes of acceptance
1. It can be accepted orally, or in writing, or by conduct

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2. Acceptance must be communicated and mere intention to accept it is not
sufficient.
3. Acceptance must be absolute and unqualified. Where the terms to the offer are
varied, it constitutes a counter offer and nullifies the initial offer.
4. Acceptance must be communicated to the offeror in the manner prescribed by
him, otherwise the acceptance is ineffective.
5. Acceptance must be made within the time specified, or within a reasonable time.
6. Acceptance must be made before the offer lapses.
7. Acceptance once made cannot be revoked as in an offer.

Exceptions to the communication of acceptance
1. Acceptance by post is made when it is posted and constitutes a valid acceptance
even if the acceptance has not been received by the offeror.
2. When offer is made to world at large and requires performance of a certain act,
acceptance is made by performing the act and no need for communication to the
offeror.
Acceptance subject to contract
The words ‘subject to contract’ usually mean that the parties don not intend to be bound
until a formal contract has been agreed upon and signed.


B. CONSIDERATION
A consideration is some right, interest, profit or benefit accruing to one party, or some
forbearance, detriment, loss or responsibility given, suffered or undertaken by the other
party.

It can also be an act or forbearance of one party or a promise thereof, is the price for
which the promise of the other is bought, and the promise thus given for value is
enforceable.

Although consideration is required in every simple contract, it need not be adequate as
long as it has some economic value.

Consideration may either be Executed or Executory
Executed consideration is some value already given by the promise to the promisor e.g.
purchase of goods on credit. The seller has performed his side of the obligation in
delivering the goods to the purchaser.

Executory consideration is a promise to do something in the future e.g. in the example
above, the consideration for the purchaser is executor, until he pays for the goods.

Rules of consideration
1. Consideration must be real although need not be adequate i.e. it must have some
value in the eyes of the law.
2. Consideration must not be past i.e. if an act took place before the promise is
made, it cannot be a consideration e.g. A voluntarily helps B to pass an exam. On
passing the exam B promises A Ksh. 1000. A cannot enforce B’s promise because
it is founded on past consideration. (exceptions available)

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3. Consideration must move from the promisee i.e. no one can enforce another’s
promise even if it is made for is benefit unless he is party to the
contract.(exceptions available)
4. Consideration must be in excess of an already existing obligation i.e. a person
who in contractual or legal obligation to do an act cannot give consideration for
doing that act. (exceptions available)
5. Consideration must be legal i.e. should not be prohibited by the law or against
public policy.

Read on equitable Estoppel
Although, every simple contract is required to have a consideration, in some cases, the
courts may enforce a contract without a consideration by applying the principle of
equitable estoppel. (exceptions available).

CONTRACTUAL CAPACITY
Generally, every person is presumed by law to be competent to enter into contracts, but
certain categories of persons due to age, status, or mental instability have disabilities in
this connection. Lack of capacity on either party may render the contract void, voidable
or unenforceable.

Special rules, however, apply to the following classes of people.

1. Infants and Minors
Age of majority in Kenya is 18 years. Infants can make binding, void, voidable or
unenforceable contracts.

Void Contracts
The following contracts by minors and infants are void.
a. Any agreement for the repayment of money lent or to be lent (but can be binding
if the money is used to buy necessaries and it can be proved so).
b. Any agreement for the goods supplied or to be supplied other than necessaries.
c. All accounts stated with infants e.g. statements of acknowledgement of debts.

NB: no one should upon attaining the age of majority be allowed to ratify contracts
entered during infancy.

Binding Contracts
Binding contracts by infants are twofold:
a. Contracts for supply of necessaries, and
b. Contracts for the infants’ benefit

NECESSARIES are defined in the Sale of Goods Act as “goods suitable to the condition
in life of the infant and to his actual requirements at the time of sale and delivery”.

An infant is liable on his contracts but the responsibility is on the plaintiff of proving, not
only that the goods supplied were suitable to the condition in life of the infant, but also
that he was not sufficiently supplied with them at the time of sale and delivery.


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Necessaries may include services as well e.g. education, legal services etc.

Case law
Nash Vs Inman 1908
The plaintiff a tailor, in the course of three months sold eleven fancy waistcoats of £145
to the defendant who was an infant and undergraduate at Cambridge. The infant failed to
pay and the plaintiff sued for the price. The defendant’s father proved that his son was an
infant and stated that going up to the university he was sufficiently supplied with proper
clothes according to his position. It was held that the defendant was not liable on the
contract, as there was no evidence that the goods which are necessary to the defendants
requirements.

CONTRACTS OF INFANTS BENEFIT include contracts for education, and training of
the infant. An infant is liable on such contracts, but only if the contract, considered as a
whole, is beneficial to him.

A contract is beneficial to him, if it enables him to earn a living or improve his skill or
occupation or his profession.

NB: trading (commercial) contracts are not binding to the infant even if they are for his
benefit.

Voidable Contracts
These are contracts of a continuing nature under which an infant derives some benefit or
acquires some rights e.g. a lease of premises, a partnership agreement, or holding of
shares of a limited company. These contracts are binding to the infant unless he avoids
them during his infancy or after a reasonable time after attaining the age of majority.

Unenforceable Contracts
All other contracts other than those for necessaries, infants benefit and voidable contracts
are unenforceable contracts against the infant during his infancy or after.

The Infants Relief Act stipulates that the infant cannot ratify a void contract made during
infancy even though there is a fresh consideration given to him by the promisee.

The infant can however be liable if he makes a fresh promise after attaining age of
majority.

2. Insane or Drunken Persons
Contracts entered by an insane person other than for the supply of necessaries are
voidable, but he is bound by a contract of necessaries and must pay a reasonable price for
them. For an insane person to escape liability, he must prove that:
a. At the time of entering into the contract he was suffering from mental disability
b. The other party was well aware of this fact.
Drunkenness is on the same footing as insanity.

3. Corporations
The contractual capacity of corporations is determined in two folds;

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a. Registered companies – a company registered in the Companies Act (Cap 386,
Laws of Kenya) derives it powers from its Memorandum of Association. Any act
outside the MA is ultra vires and thus void.
b. Statutory Corporation – this is created by a Special Act of Parliament and derives
its powers from the Act and not from the MA. Any act done outside the Act is
ultra vires and thus void.

4. Married Women
If contracts are entered into on behalf of the husband by the wife or at his request, the
husband is liable. Otherwise the wife is liable for her acts. However, where the wife and
husband are living together, it is presumed that the wife is authorized by her husband to
pledge his credit for necessaries. Similarly, a deserted wife can act as an agent for
necessity, but no such arises where she has voluntarily left her husband.

TERMS OF CONTRACT/CONTENTS OF A CONTRACT
Generally, the parties in a contract should negotiate the terms of their contract and the
courts not to interfere. It is thus assumed that the parties have clearly negotiated the rights
and obligations in their contract.

However in some exceptional cases the courts may imply the terms;
a. To implement their presumed intention to give business efficacy to the contract
existing between the parties.
b. The terms may also be implied by local custom e.g. in hire-purchase agreement,
the terms are implied unless made express.

In an ordinary contractual transaction, the terms of two kinds:
a. Conditions
b. Warranties

Conditions are terms of major importance and they are said to be the basis of the
contract. Breach of a condition entitles the aggrieved party to avoid the contract and
claim damages.

Warranty is a term of lesser importance, as it does not form the basis of the contract.
Breach of a warranty entitles the innocent party to claim damages but has no right to
repudiate the contract.

HOWEVER, whether a term in a contract is a condition or warranty is questions to be
determined by the court taking into account the circumstances in which such a term was
agreed.

A condition may be a condition precedent or subsequent
A condition precedent is an express term that must be fulfilled for the contract to be
binding e.g. A agrees to buy B’s house provided the Surveyor’s report is satisfactory.

A condition subsequent is an express term that the contract cease to be binding on the
happening of a certain specified event e.g. A sells his car to B, subject to a stipulation
that if he marries C within two months of the sale of the car, he has to return the car to A.

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Exemption Clauses
These are aimed at limiting the liability of one of the parties to which he would otherwise
be liable in law.

The clause will only be enforced in law if the document containing it was an integral part
of the contract and reasonable care was taken to bring it to the attention of the other party.

An exemption clause printed on the reverse side of a receipt, is not valid unless special
care was taken to bring it to the notice of the other party.

Where a person puts his signature on a contractual document, he is bound by any
exemption clauses contained in it, unless he was induced by fraud or misrepresentation to
sign it.

ILLEGAL CONTRACTS

The law relating to illegal contracts is found in the maxim “ex turpi causa non oritur
action” meaning that no cause of action arises from an illegal transaction.

All illegal contracts are void but not all void contracts are illegal.

An agreement may e unlawful because it is:
a. Contrary to positive law.
b. Contrary to the rules of morality as recognized by law
c. Contrary to welfare of the state i.e. interfering with administration or leading to
corruption.

Public policy
An act which violates the recognised limits of morality in which the everyday business of
the state is conducted is considered to be against the public policy.

A contract to commit a crime or tort or fraud is illegal ab initio (right from the
beginning).

Contracts prohibited by the law
Certain statutes declare some kinds of contracts illegal and void eg wagering and
gamming contracts

Wagering contracts
A wager is a promise to pay money or transfer property upon the happening of an
uncertain event in which neither party has interest except to win or lose eg the result of a
match in Nairobi.

Essentials of a wagering contract
a. There must be a promise to pay money or money’s worth
b. The promise must e conditional on an event happening

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c. The event must be an uncertain, either because it has to happen in future, or it has
taken place and the result is not known to the contracting parties.

Contracts opposed to public policy
1. Contracts containing sexually immoral elements e.g. a person who lets his house
for prostitution cannot recover the rent.
2. Contracts interfering with the sanctity of marriage e.g. an agreement between
husband and wife for future separation
3. Contracts in restraint of marriage e.g. an agreement imposing an absolute restraint
of marriage is void, but partial restraint is acceptable.
4. Marriage brokage contracts, contracts to introduce persons to others of opposite
sex for marriage are void.
5. Contracts to commit crime or fraud
6. Contracts leading to corruption in public life
7. Contracts to commit fraud in public revenue
8. Contracts to break the laws of a friendly country
9. Contracts oust the jurisdiction of the courts
10. Contracts tending to abuse of legal process

Contracts in restraint of trade
This is whereby one person is restricted from exercising a lawful profession, trade or
business of any kind in the manner he wishes.

This undermines the freedom of choice and/or freedom to compete.

Any contract in restraint of trade is void by reasonable restraint will be enforceable. But
whether a contract is reasonable or not, it is the courts to decide.

This is provided for in the Contracts in Restraint of Trade Act (Cap 24)

Effects of Illegality
All illegal contracts are void and parties can neither sue for their breach nor can they
recover money paid or goods delivered.

Exceptions
i. Where both the parties to a contract are not in pari delicto (not equally guilty),
the innocent party may be able to recover any sum paid e.g. where a party is
induced fraudulently induced into entering an insurance contract, he may
recover the premiums.
ii. Where the illegal part of the contract is yet to be carried out and one of the
parties honestly repents entering into it, the courts will assist him recover the
money or goods delivered.
iii. Goods or money paid in pursuance of an illegal contract may also be
recovered where a statute has been intended to protect a class of people and
the person seeking to recover it is a member of that class.

REALITY OF CONTRACT/VITIATING FACTORS OF A CONTRACT

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This is setting aside of a contract. A contract entered into by mistake of fact is void while
those by duress, misrepresentation and undue influence are voidable.

1. Mistake
A mistake is an erroneous belief of a fact in a contract where as the reality is the opposite.

Mistakes are of two different kinds
a. Mistake of fact – one can escape liability under an apparently complete contract
by proving that he contracted under a mistake of fact, and his mistake was so
fundamental that it affected the root of the contract.
b. Mistake of the law – ignorance of the law is not a defence. However, mistake of
foreign law and mistake of private rights are treated as mistake of fact.

Types of mistakes
i. Common mistake – both parties make exactly the same mistake e.g. A sells his
car to B which both of them believe to be parked at A’s house, but in actual
fact is stolen before the contract is entered into.
ii. Mutual mistake – where both parties makes different mistakes as pertaining
the subject matter e.g. A has two houses X and Y and sells X to B but B
believes that it was house Y that he bought.
iii. Unilateral mistake – only one of the parties is mistaken and the other party is
aware of that fact but keeps quiet.

The general rule is that a person is bound by the terms of any document which he signs.
Illiteracy or ignorance of the terms does not release the party of the consequences of
signing such document.

However, a person can plea of non est factum (this is not my act) where he signed a
document induced by fraudulent misrepresentation as to the mature of the document.

Plea non est factum does not apply to negotiable instruments.

Money paid or goods transferred under mistake of fact are recoverable from the person
who received them.

2. Misrepresentation
Preliminary negotiations before formal contracts are made include statements of two
kinds;
a. Those which become part of the contract (the terms of the contract), and
b. Those which do not become part of the contract but play an important role in
inducing the parties to enter into a contract. Such terms are called mere
representation. There is misrepresentation if the representation is untrue.
Misrepresentation does not render a contract void, but the party misled will be able to
avoid the contract by proving that the misrepresentation was of fundamental fact, and not
of law.


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The false representation is not restricted to words, and may be made by the conduct of the
parties e.g. where a person wears the gowns of clergymen and obtains goods from
another by inducing him to believe that he is a clergyman.

Elements of Misrepresentation
One who wishes avoid a contract on misrepresentation grounds must prove that;
a. That the representation was a statement of material fact, and not a statement of
law or a mere opinion.
b. That it was made before or at the time of making the contract.
c. That it was intended to induce him to contract.
d. That he relied on this statement, and in fact entered into contract.
e. That the statement was untrue.
Misrepresentation can either be fraudulent or innocent

A statement is assumed fraudulent if it is made knowing that it is untrue, or without
having belief in its truth, or recklessly without caring whether it is true or false.

Innocent representation is a false statement made by one of the parties, but honestly
thought to be true, does not give rise to an action of damages.

If a party makes a true statement at the time of making the contract but afterwards the
statement becomes untrue in the course of negotiations, he is under legal duty to disclose
the change of material facts. If he does not make the changes known to the other party,
the contract is voidable at his discretion

Remedies of Misrepresentation
1. Rescission of the contract – voidable at the discretion of the aggrieved party.
2. The misled party may refuse to perform the contract if he has not done so.
3. Can obtain damages, where he has suffered financial loss.


Disclosure of material facts
While a person should not misrepresent information, there is no duty upon him to
disclose all material facts. This is based on the maxim of caveat emptor (buyer beware)

Contracts Uberrmae Fidei
These are contracts of utmost good faith. They not only require a party not to
misrepresent but also to disclose all material facts, suppressing nothing when making the
contract.
The following contracts are contracts of utmost good faith
a. Insurance
b. Family arrangements
c. Contracts for sale of land (disclosure in defects in title)
d. Prospectus
e. Partnership agreements
f. Contracts of guarantee.

3. Duress

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This is actual or threatened violence to one of the parties to a contract or to a member of
his family. It also includes threatened imprisonment, or criminal prosecution or dishonor
of a member of the family.

4. Undue influence
A contract is induced by undue influence where one of the parties is in a position to
dominate the will of another which prevents him from making his judgment freely.

Thus a person may avoid the contract, if h can prove:
a. That the party has dominated his will, and
b. That the transaction is substantially unfair

The party obtaining the consent may, however, rebut this presumption by proving that the
other party had independent source of legal advice and no undue advantage had been
taken of his inferior position.

Undue influence makes the contract voidable at the option of the aggrieved party, but his
right to avoid the contract is lost if a third party has obtained rights under such contract.

Presumption of undue influence: undue influence is ordinarily presumed in relationships
such as:
a. Trustee and beneficiary
b. Advocate and client
c. Doctor and his patient
d. Spiritual leader and his disciple
e. Teacher and his pupil
f. Parent and child
g. Guardian and ward

ASSIGNMENT OF CONTRACTUAL OBLIGATIONS
Rights and benefits under a contract may be assigned and the assignee can demand
performance from the other party. Where the party fails to perform his obligations, the
assignee can sue him in his own name.
Assignment may take place in one of the three ways:
a. Legal assignment
b. Equitable assignment
c. Assignment by operation of law

Legal assignment
Section of 130 of the Indian Law of Property Act all debts and other legal choses in
action such as copyrights, patents etc may be assigned to the assignee (transferee) but the
assignment must be:

a. In writing, signed by the assignor,
b. Absolute and not by way of charge
c. Written notice of assignment must be given to the debtor and the assignee right
dates from the date of such a notice.


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Legal assignments do not need consideration to support them for the right is transferred
by virtue of the statute. A statutory or equitable assignment properly made binds the
debtor and his consent therefore is not relevant.

Equitable Assignment
It should be noted that in certain circumstances even where the requirements of a legal
assignment are not fulfilled, there may still be an assignment in equity.

In equitable assignment, the assignee cannot sue the debtor in his own name but must join
the assignor in any action he takes against the debtor.

In case the assignor is not willing to lend his name to be used for this purpose, he can be
compelled by the court to do so, provided the assignee gives him a proper indemnity as to
cost of the court proceedings.

Assignment by operation of the law
Death of a contracting party does not discharge the contract; though he himself is not
available to sue or to be sued, all his rights and liabilities are vested in his personal
representatives.

Contracts to render personal service are an exception to the above assignment’s
execution.

TRANSFER OF LIABILITIES
Generally, an obligation under a contract cannot be assigned without the consent of the
other contracting party.

Transfer of liabilities may occur in the following two ways:
a. By Novation – this is the rescission of the original contract and the substitution of
a new one in which the obligations under the original contract are undertaken by
the new parties voluntarily.
b. By vicarious performance – it is open to the parties to have their contract
performed vicariously by another person, provided the contract does not expressly
or implicitly insist on the performance of the contract by the promisor himself.

QUASI CONTRACTS
These contracts rest on the equitable principle that a person shall not be allowed to an
unjust enrichment at the expense of another.
In truth, it is not a contract at all and it is an obligation which the law creates in any of the
following circumstances.

1. Claims on quantum merruit – generally where a person has done part of the
contract and not finished, he should not receive anything for part-performance.

But where he is prevented from completing the contract, he can receive money for the
part already done. The court will value the work already done which is called quantum
merruit.

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2. Action for money paid to the use of another – A pays money to prevent a city
council from confiscating B’s goods, B must pay A the money paid for that
purpose.
3. Action for money had and received – this is where the defendant has received
money for the use of another by fraudulent means.
4. Money paid for a total failure of consideration – if money is already paid and the
contract is not enforced, the money can e recovered.
5. Money paid under a mistake of fact
6. Money paid to the defendant for the use of the plaintiff – this usually happens in
the case of agency.

DISCHARGE OF CONTRACT
A Contract may be discharged or terminated in any of the following ways;
a. Performance
b. Agreement
c. Breach
d. Impossibility
e. Lapse of time
f. Operation of the law.

1. PERFORMANCE
A contract is discharged by performance when both parties fulfill their obligations and
nothing remains to be completed.

Exceptions to precise performance
a. Substantial performance – The general rule is that if a contractor gives up work
when only part of it is done, he is not entitled to any sum of the work completed.
But if the contractor substantially completes his contract and his workmanship fall
below the contractual specifications in minor details, he can recover the
contractual price less the cost of rectifying the defects.
b. Partial performance – if one of the parties in a contract voluntarily accepts the
benefit of partial performance, the court may infer an implied promise to pay for
the work done or goods supplied on a quantum merruit basis.

NB: this does not apply to partial payment of debt.

c. Divisible contract – where a contract is divisible or by installment, the contractor
is entitled to claim money for the part or installment completed unless there is an
express stipulation that the money can only be paid upon completion of all the
installments or all the work.
d. Prevention of performance – if a party is prevented from completing a whole
contract, he can claim the money on the part already done on quantum merruit
basis or damages for breach of contract.
e. Tender of performance – if one party is willing to perform the contract under the
terms specified in the contract and the other party refuses his performance, the
contract is discharged and the aggrieved party can sue for damages for breach of
contract.

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f. Tender of payment – if a valid tender is made and refused, the obligation to pay
the debt still remains as long as it is made in the currency acceptable in that
country.

2. AGREEMENT
This is where a contract is terminated by mutual agreement by the parties. This can be
done orally even if the original contract was in writing or under seal. Thus a contract is
discharged in the following ways:

a. By waiver – when a contract is still executor and both parties agree to release each
other of the obligations in the contract, it is called waiver.

If one of the parties has done his part and the other party agrees to release him of his
obligations, it still amounts to a waiver, but he can still demand for the performance of
the contract if he so wishes later.

b. By novation – the old contract is discharged when a new one substitutes it.
c. Accord and satisfaction – if a lesser is actually paid on an earlier date at the
request of the payee, or something different in kind has been accepted, there is a
good discharge and thus the contract is discharged by accord and satisfaction.

3. BREACH
This is failure of one of the parties to perform his obligations in a contract. Breach
however discharges the contract if a condition is breached and not a warranty. Breach
occurs in three ways:
a. Failure to perform – where one of the parties in a contract fails to perform his
obligations in a contract
b. Renunciation – if before the time of performance arrives, one of the parties may
repudiate his liabilities. This is called anticipatory breach and it discharges a
contract and the other party may wait and sue for damages.
c. Self-disablement – this occurs when a party disables himself from performing his
contractual obligation or does an act which makes the performance of a contract
impossible.

4. IMPOSSIBILITY OR FRUSTRATION
This is where a supervening event beyond the contemplation of the parties occurs and
destroys the very foundation of the contract e.g. bombing of the world trade center.

This may occur in the following ways:
a. Destruction of the subject matter
b. Non-occurrence of a stated event – if a contract is made on the basis of the
happening of a certain event and the event does not happen, it is discharged.
c. Death or personal incapacity
d. Change in law
e. Government interference e.g. Mau evictions

NB: Read on the effects of frustration and exceptions to frustration


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5. LAPSE OF TIME
A contract for a specified period of time is discharged at the elapse of that period and if
no time is specified, after a reasonable time.

The limitation of action is six years from the time a breach is done

6. OPERATION OF THE LAW
Can take place as follows:
a. Merger – a simple contract merged with a contract under deed. Action can only
be brought in a contract under deed thus the simple contract is discharged by law.
b. By bankruptcy – a bankrupt person’s obligations pass to the trustee but trustees
cannot be liable in contracts of personal service.
c. By death – this only discharges contracts of personal service but the others remain
and the obligations pass to the trustees to enforce.
d. Unauthorized material alteration – if a party in a contract under seal makes any
material alteration without the knowledge and consent of the other party, it is
voidable at the discretion of the innocent party.

REMEDIES FOR THE BREACH OF CONTRACT
Some of the remedies include:
a. Refusal of further performance
b. Action for damages
c. Action for specific performance
d. Action for injunction

1. REFUSAL OF PERFORMANCE
A party who suffers breach of contract is entitled to treat the contract as ended and may
refuse any further performance on his part but if he does not rescind the contract, the
other party may sue for recovery of any sums paid citing breach of contract.

2. DAMAGES
The aim in law is to put the person aggrieved as far as possible in the position he would
have been if the contract had been performed.

Damages can only be paid if the loss is mitigated i.e. the party suffering from breach
must take all reasonable efforts to minimize his loss and he is not entitled to recover those
damages which he could easily have eliminated had he tried

Classification of damages
a. Ordinary damages – these are restricted to proximate consequences of the breach
of contract i.e. the measure of damages is the estimated loss directly and naturally
resulting in the ordinary course of events from breach of contract.
b. Special damages – they do not arise naturally from the breach of contract but
from peculiar circumstances. They must be specially proved for a claim to hold
and originate from the contemplation of the likely result of breach of contract.
c. Exemplary damages – the aim in this is to punish the promise-breaker and to deter
other from committing similar breaches.

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d. Nominal damages – those awarded to the plaintiff after proving breach but not
suffering any actual loss.
e. Contemptuous damages – they are awarded by the court when satisfied that the
action should not have been brought by the plaintiff e.g. awarding five cents to the
plaintiff to express its contempt of his conduct in bringing the action.
f. Un-liquidated damages – these are those that the court assess and awards when
the original contract had not specified how much to be paid in case of breach.
g. Liquidated damages – the amount fixed by the parties at the time of contracting to
be as damages in case of breach.

3. SPECIFIC PERFORMANCE
This is an equitable remedy which is awarded at the discretion of the court to a person
who has suffered a legal injury where damages would not be an adequate remedy. This is
an order requiring a person to carry out a contractual obligation

It is granted in the following cases:
a. Where a contract is for sale of land
b. Where contract is for taking debentures in a company
c. Where contract is for sale of rare goods not easily available in market or the value
cannot be measure in terms of money.

It cannot be granted in the following instances
a. Where damages would provide an adequate remedy
b. Where contract is to render personal service
c. Where one of the parties in a contract is a minor/infant
d. Where the contract is to lend money.

4. INJUNCTION
This is an order by the court restraining the doing, continuance or repetition of a wrongful
act. It may be obtained to enforce a negative term where an order for specific
performance is not possible e.g. a singer from singing for a rival company after
contracting to sing for a particular company.

Assignment
Read on privity of contract and limitation of actions