Law of Contract For Acbm

LAW OF CONTRACT
INTRODUCTION.
A contract is an agreement between two parties which is enforceable by law.

An agreement is made when a person signifies his willingness to do or to abstain
from doing anything with a view of obtaining the assent of the other party.
Such act or abstinence is said to make a proposal.
The person making the proposal is called the promisor and the person accepting
the proposal is called the promisee.
Every promise and every set of promise forming consideration for each other is
known as agreement.
Promises which form the consideration or part of the consideration for each
other are called reciprocal promises.
An agreement not enforceable by law is called void agreement.
An agreement enforceable by law at the option of one party and not at the
option of the other party results into a voidable contract. Hence to make an
agreement into a contract, the following has to happen.
- Agreement between the parties.
- Creation of responsibilities between the parties.
- Enforceability by law.
Anson, a famous jurist thus defines a contact as An agreement enforceable by
law made between two or more persons by which rights are acquired by one or
more to act or forbearance on the part of the other or others.
TYPES OF CONTRACTS:
Contracts may be classified into:
-Written (Specialty Contracts)
- Contracts requiring written evidence
- Simple contracts.
Written Contracts.
These are contracts which the law insists must be written.
The must be embodied in a formal document e.g.
- Under Sec. 6(2) of the Hire Purchase Act; Cap 507, a hire purchase
agreement must be written.
- Under Sec. 2(1) of Marine Insurance Act, a contract of Marine
Insurance must be written.
- Contracts of sale of land are equally required to be written.
Contracts Requiring Written Evidence.

These are contacts which must be evidenced by some note or memorandum.
Such note or memorandum must:
- Describe the parties sufficiently to identify them
- Describe the subject matter
Odiwuor Kelly B.Com (Acc. & Aud. Option), L.L.B (Crim., Ban. & Ins. Option), Dip-Law (KSL)
Advocate/Lecturer 0721 438511 / 0736 504008
Such
-
State the consideration (what is payable)

Contain the signatures of the parties.
contracts include:
Contract of guarantee
Contract of insurance etc.
Simple Contracts.
These are contracts whose formation is not subject to any legal formalities.
The contract may be oral, written or implied from the conduct of the parties
e.g.
- Contract of sale of goods
- Partnership agreements etc.
SOURCES OF LAW OF CONTRACT.
Under Section 2(1) of the Law of Contract Act, Cap. 21 Laws of Kenya, the
sources of the law in Kenya are:
- Substance of Common law
- Doctrines of Equity
- Other statutes.
ELEMENTS OF A CONTRACT.
All agreements are contract when made out of free consent of parties
competent to contract, with lawful consideration, lawful object and which are
not thereby declared void.
The following are elements of a contract.
I.
Offer
II.
Acceptance
III. Intention to create a legal relationship.
IV.
Lawful consideration.
V.
Capacity to contract.
VI.
Free consent.
VII. Lawful object.
VIII. Legal formalities.
IX.
Possibility of performance.
X.
Not expressly declared void.
OFFER
A contact comes into existence when a definite offer has been unconditionally
accepted.
Mode: The offer can be made orally, in writing, or impliedly provided that the
mode of offer or acceptance is in tandem with any statutory requirements as to
form e.g. Contract for sale of Land need to be in writing.
Definition: When a person signifies his willingness to do or to abstain from

doing anything with the view of obtaining the assent of the other to such act or
abstinence, he is said to make a proposal.
The person proposing is also called an offeror or a promissor.
The existence or otherwise of an offer may some times be the source of an
acute dispute between parties.
These has often occurred in cases where a person did or said something which
another understood to be an offer and consequently proceeded to accept
In the course of settling such disputes, the courts have explained that such
offer are apparent rather than real and that the thing done or statement
made amounted to no more than an invitation to treat or a declaration of
intention.
Following are examples of invitation to treat:
a. A registered company issues a prospectus pursuant to provisions of the
companies Act, asking the public to subscribe for the companys shares.
If a person applies for any shares in response to the prospectus, the
application will be the offer. The issue of the prospectus was legally an
invitation to treat, although it appeared to be an offer of the specified
shares to the public for acceptance.
b. A government ministry puts an advertisement in the newspaper for
tenders for the supply of a specified quantity of goods during a certain
period of time the advertisement constitutes an invitation to treat. A
traders response to the invitation will be the offer.
c. A trader displays goods in his shop window with a price label on each of
them. The display is another species of invitation to treat.
Characteristics / Requirements / Legal rules regarding offer.

-
May be express or implied.

Offer must give rise to a legal obligation.
Terms of offer must be definite and certain i.e. should not be vague,
uncertain or ambiguous
An offer must be distinguished from an invitation to offer, or
declaration of intention e.g. an advertisement.
The offer must be communicated.
An offer may prescribe the method of communication of acceptance
thus becomes a conditional offer.
An Offer must be made with a view of obtaining the consent of the
other party to do so or abstain from doing the particular act.
Offer should not impose an unnecessary obligation to communicate nonacceptance e.g. If acceptance is not communicated by next Sunday, I
shall presume that you have accepted.
May be specified or general i.e. can be made to a particular person hence
no other person regardless of his merit can be tolerated, or can even be
general in that any person who meets the conditions can signify his
assent.
Illustration:
In Carlill Vs. Carbolic Smoke Ball Co. Ltd, the defendant company manufactured
and owned a drug named the carbolic smoke ball. The company was confident
that it was the best cure for fever, influenza, and colds and other diseases
associate with taking cold water. It put an advertisement in a newspaper to the
effect that a $ 1,000/- reward was available to any person who contracted
influenza, fever, cold or other diseases after taking the carbolic smoke ball as
prescribed.
The advertisement stated further that the company had deposited $ 1,000/with Alliance Bank. Mrs. Carlill who had read the advertisement bought and took
the smoke balls as prescribed but contracted influenza. The company denied
paying her and she sued. The company argued that:
- The advertisement was mere sales talk.
- There was no intention to create legal relations with any person.
- The company couldnt make and offer to the whole world.
However, it was held that though the advertisement was unclear in certain
respects, it amounted to a general offer and any person who fulfilled its
conditions contracted with the company hence Mrs. Carlill was entitled to the $
1,000/-
SPECIES OF OFFER:
Following are other manner in which offer exists.
CROSS OFFER.
Occasionally two parties make similar offer to each other without knowing that
same offer has been made by the other party. In such a case no binding
contract will have been created since none has specified has acceptance to
another.
COUNTER OFFER.
This is a change, variation or modification of the terms of the offer by the
offeree. It is a conditional acceptance and therefore not an acceptance in law.
It is an offer in its own right and if accepted, an agreement arises between the
parties.
The legal effect of making a counter-offer is that it terminates the original
offer which thereby becomes incapable of acceptance unless revived.
In Hyde Vs. Wrench (1840) on June 8th 1840 the defendant made a written
offer to sell to the plaintiff a firm for $1,000/-. On June 15th the plaintiff
wrote back accepting to pay $ 950 for the firm. On June 27th the defendant
wrote to the plaintiff rejecting the $ 950.
On June 29th the plaintiff wrote to the defendant accepting to pay $ 1,000/for the firm. The defendant refused and the plaintiff sued for specific
performance. It was held that there was no acceptance as a counter offer does
not amount to acceptance neither was the offer revived in this case.
A counter offer differs from a request for information or an inquiry.
An inquiry does not change the terms of the offer and the offeree is free to
accept the offer before or after the inquiry is responded to.
TENDER.
A continuous offer is called a standing offer or a tender.
When a tender is for supply of goods for example; is accepted, it still does not
become a contract. It simply means that as to and when goods are required, an
order will be placed. Placing of such order becomes acceptance.
Thus a standing offer does not become a contract until when an order according
to terms of the tender is placed with the party which accepted the tender.
Sometimes tenders are invited to the supply of a specific quantity of goods or
services. When the tenders are accepted, it becomes a contract as a specific
tender.
AUCTION.
At auction sale, the auctioneer invites offers. The offer is made by the bidder
and the auctioneer accepts the offer on the fall of the hammer.
ACCEPTANCE.
When a person to whom an offer is made signifies his assent thereto, the offer
is said to be accepted. An offer when accepted becomes a promise.
Essentials of a legal acceptance.

-
Acceptance should be by the person to whom the offer is made.

Acceptance may be express or implied i.e. express by word spoken or
written or implied by an act in line or in compliance.
Must be absolute or unqualified. I.e. acceptance in full. It would
otherwise be a counter offer.
Must be in the mode prescribed. If reply is required by a telegram and
offeree accepts replies by fax, it amounts to non-compliance.
Acceptance must be for an offer communicated.
Must be accepted within the time fixed.
Acceptance must be made before the offer lapses or is revoked.
Acceptance must be made with the intention to fulfill the terms.
Acceptance subject to a specialty contract would be valid only on the
formal contract being signed by all the parties.
REVOCATION OF OFFER AND ACCEPTANCE.

Revocation means withdrawal or taking back the offer or acceptance.
An acceptance can be revoked at anytime before the communication of
acceptance is complete as against the acceptor and not afterwards.
An offer may be revoked at any time before the communication of its
acceptance is complete as against the proposer and not afterwards.
When is communication of revocation complete?
- As against the person who makes it when it is put into the course of
transmission to the person to whom it is made so as to be out of the power
or the person who make it.

As against the person to whom it is made when it comes to his knowledge.
How does an offer come to an end ?

An offer comes to an end by revocation which may happen in various ways
briefly explained below:
a. By notice. This is by sending a revocation message before acceptance is
complete as against the offeror.
b. By lapse of time. This is if time was prescribed as an essential aspect
of the contract. If time was not of essence, then reasonable time lapse
will give it expiry.
c. By the failure of the acceptor to fulfill a condition precedent to
acceptance e.g. be a Kenyan.
d. By death of the propossor if it comes to the knowledge of the acceptor
before acceptance or before the offer is revoked.
d. By insanity of the propossor and if this comes to the knowledge of the
acceptor before the offer is revoked or before acceptance is complete.
e. By counter offer: This is accepting the offer but suggesting an
otherwise or new condition.
f. By not accepting the offer in the mode prescribed e.g. If it was to be
communicated by telegram but instead the acceptor chooses to
communicate his acceptance by ordinary mail. It remains at the option of
the propossor to welcome the acceptance otherwise he may revoke it by
sending message to that effect in reasonable time.
CONSIDERATION.
The existence of consideration in promise signifies the commitment of parties
to create a legal relationship. Further more; the law does not recognize an
agreement to do something without anything in return.
According to Pollock Consideration is the price for which the promised of the
other is bought Hence no consideration no contract.
Worth to note that consideration is something in return. It can take the form
of loss, or responsibility given, suffered or undertaken by the other.
Definition: When at the desire of a promissor, the promisee or any other
person has done or abstained from doing, does or abstain from doing something,
such an act or an abstinence or promise is called consideration for the promise.
Thus goes the maxim Ex nudo pacto non-oritur actio i.e. Agreement made
without consideration is void.
Currie Vs. Musa (1975) was a landmark case that also gave birth to an
acceptable description to considerations. It explained that consideration is
some right, interest, profit or benefit from one party for which forbearance,
detriment, loss or responsibility given, suffered or is undertaken by the other.
To exemplify detriment forming consideration, another useful landmark case is
of Carlil Vs. Carlill Smoke ball Co. Mrs. Carlill acted upon an advertisement by
buying and using Carbolic smoke ball to prevent influenza. She however still
contracted.
Held by court that she was entitled to damages as her consideration to
contract was the inconvenience in swallowing the balls while the consideration
for the company was increase of sales of the smoke ball.
CLASSIFICATION OF CONSIDERATION
Consideration may be executory or executed.
a. Executory Consideration.
This consists of a promise made by one party and promise made by the other
party to the contract.
Examples:
i.
An unmarried man and a lady agree to be married in the near future.

Although nothing has been done yet, there is a contract to marry
between them. For the moment, they exchange their promise.
ii. Mss. A goes to Mr. Bs shop on the tenth day of the month and asks Mr.
B- a tailor to make a suit for her as she promises to pay at the end of the
month. He takes her measurements and promises to have the suit ready on
the last day of the month. Here Mss As promise is the consideration for
Mr. B and vise versa, the price for each others promise.
b. Executed Consideration.
Executed consideration is constituted by something done by the plaintiff
because of a promise made by the defendant.
Examples:
(i) If in example a. (ii) above Mss. A had paid for the suit in advance, the
payment would be the executed consideration for Mr. Bs promise.
(ii) Mutiso puts an advertisement in the local newspaper that he has lost his
goat of a certain description, and promises to pay Kshs. 200/= to anybody
who returns it. Munene reads the advertisement, goes to look for the goat,
finds it in the bushes nearby and returns it to Mutiso.
Here what Munene has done is what constitutes the executed consideration
required to make Mutisos promise (executory consideration) binding on him.
Legal rules regarding consideration.

a. Consideration must be at the desire of the promissor i.e. it is at the
request of the promissor otherwise its common sense that nobody would
be held liable for what he did not tell you to do.
b. Consideration may be past, present or future so long as it is co-extensive
and basis upon which the other partys promise is obtained. I.e. it should
consist in a single transaction with the promise to the other. In Roscarla
Vs. Thomas, Roscarla bought a horse and paid for the price. After which,
Thomas made statements to her to the effect that the horse was sound in
wind and limb, perfect in vision and free from vice. Whereas the horse was
vicious. This stipulation was unenforceable as it was after sale, i.e. after
consideration made.
c. Consideration must not be ambiguous impossible uncertain, fraudulent,
immoral, illegal, or opposed to public policy i.e. it must be lawful.

d. Consideration need not be adequate. It need not be full return for the
promise provided it is something rather than nothing in the eye of the
law. So long as consideration is real and sufficient to the bargain, it need
not be adequate. The court will not allow anyone to plead that he made a
bad bargain.
e. Consideration must move from promisee. This means that only the person
who has personally given consideration for a promise can sue for breach
of performance. A person who has not given consideration for a promise
is a stranger to consideration. It is a canon principle of law that one
cannot claim something for nothing.
Therefore only a party to contract can sue. This introduces the
principle of privity of contract.
PRIVITY OF CONTRACT.
A stranger to contract cannot sue because it is a cardinal principle of law that
only a party to contract can sue.
To crate a legal relationship, privity of contract (contractual relationship) is
necessary. However, if this were strict position of law some considerable havoc
would result. The law therefore recognizes a few exceptions, some of which are
identified below:
a). Beneficiary to a trust: A beneficiary can file a suit to enforce his benefits
even though he is not a party to the contract. This is because the contract was
for his benefit.
b). Estoppel and acknowledgement: When a party by his consent admits or
acknowledges liability, that party is deemed to be an agent of the third party
and shall be stopped from denying his liability to be incurred by the third party.
He can therefore enforce the contract.
c). Assignment of a contract: Where the contract is assigned, the assignee can
enforce the contract e.g. a wife can enforce recovery of an insurance policy
assigned by her husband.
e). A holder in due course of a bill of exchange can sue prior parties thereto
although there is no privity of contract between him and them. This is a
statutory exception under Bill of Exchange Act.
f). Promise made for voluntary service: Though the service was not prompted by
any formal agreement to consideration, law would in certain cases impute quasi
contract and thus enabling the volunteer to claim reasonable payment.
g). Gift: Gifts communicated to the beneficiary are recognized benefits and the
law would enforce transfer of these gifts and presents.
h). Agency: Consideration made so as to create agency relations is also
enforceable.
Difference between stranger to consideration and stranger to contract.
From the foregoing, it will be observed that a third party on behalf of the
promisee may perform consideration. This third party (a stranger) is allowed at
law to call for enforcement of the promise to such a contract. This is contrary
to the general rule of privity of contract meaning; a contract can only be

enforced by the parties directly related by the contract i.e. promissor and
acceptor. Every other person lacks the regal relationship (locus standi) to the
contract.
INTENTION TO CREATE LEGAL RELATIONSHIP.

For an agreement to constitute a contract, the parties thereto must have
intended it to have legal consequences.
Even though the agreement may have all other agreements of valid contract it
would not be a contract until the intention to create a legal relationship is
established.
In practice, however, parties to a contract do not direct their attention to this
point when negotiating with each other, with the consequence that the courts
have as it were, been called upon to fill the gaps.
This, the court have proceeded to do by formulating certain principles or
presumptions that will apply in absence of an express declaration to the
contrary. These presumptions are as follows:
a. Business agreements.
Unless specifically stated or implied otherwise, all business agreements are
made with intention to crate legal relationship.
b. Domestic or family agreements-These include:
i. Agreements between husband and wife;
1. Where a husband and wife are living together amicably, there is a legal
presumption that any agreement they enter into is not legally binding
(Balfour Vs. Balfour) This is founded on the necessary caution to prevent
ill advised litigation from destroying love and affection between couples.
2. Where the husband and wife have separated or are about to separate so
that the marriage is practically over any agreement entered into by the
spouses is presumed to have been intended to be legally binding- Meritt
Vs. Meritt.
ii. Agreement between parent and child: These are made on goodwill of the
parties and are not legally binding.
iii. Agreements between close relatives based on love and affection in their
said relationship are also non enforceable.
c. Social agreements.
These would not be enforceable unless it is agreement under seal.
CAPACITY.
The general rule is that any person may enter into any kind of contract.
However, there are certain classes of persons to whom specific rules applies,
with regard to their capacity to contract.
These are as follows:
- A minor or an infant.
- A person of unsound mind.
- Married women.
Alien or non-citizens.
Corporations.
Trade unions.
Foreign sovereign.
An insolvent or bankrupt.
A MINOR
The capacity of parties emphasizes that parties entering the contract must be
capable of understanding it and forming a rational judgment as to its effect
upon their interests. For this purpose, the law stresses that the person has to
be a major, thus assuming that he is mature. Age of Majority Act (Laws of
Kenya Cap. 33), in the 5th Amendment in 1974 made the age of majority to be 18
years Section 2.
Every person therefore is competent to contract who is sound mind and has
attained the age of majority according to the law to which he is subject and is
not disqualified from contacting by any law to which he is subject. A contract
with a minor is binding, voidable, or void depending on their nature or type.
Binding Contracts:
An infant may only be bound by agreement the object of which is to enable him
obtain necessities. They can sue and be sued on them.
Necessities: The Sale of Goods Act, Sec. 4(2) defines necessities as goods
suitable to the condition in life of such infant or minor and to his actual
requirements at the time of sale or delivery
Thus the statutory requirements of necessaries for a minor are:
1. That the goods were suitable to the condition in life and;
2. That they were suitable to the infants actual requirements at the
time of sale or delivery in the sense that he had not at the time, an
adequate supply from other services.
In the case of Nash Vs. Inman, the defendant was an infant college student.
Before proceeding to college, his father bought him the necessary clothing
material he required. However, while in college, he contracted and was supplied
with additional clothing material by the plaintiff but did not pay and was sued.
His father gave evidence to the effect that he had purchased for him all the
clothing material he required. It was held that the contract was unenforceable,
as the plaintiff had failed to prove that the goods were necessaries.
Other necessaries: The definition above limits necessaries to goods as defined
in Sale of Goods Act.
However, infants/minors may of necessity need legal advice, lodging facilities,
provision of transport and even education by formal or informal instruction.
Contracts for Beneficial Services: Case law demonstrates that a contract
whose object is to benefit an infant is enforceable by or against him.
In the case of Doyle Vs. White City Stadium, the plaintiff was an infant but
qualified city boxer. He applied to join the British boxing board and was given a
license thereby becoming a member.
10
One of the rules of the association was that the board was empowered to
withhold payment of any price money won if a boxer was disqualified in a
competition. Doyle was disqualified in a completion and the board withheld
payment. He sued to enforce the agreement. It was held that much as he was a
minor, the contract was for his beneficial service and so enforceable.
In all these cases of necessaries to a minor, the court will recognize a
reasonable price and not always the agreed price Section 4(2).
Voidable contracts:
Infants cannot be held liable against these contracts. Further more, the infant
is entitled to avoid such contracts or repudiate such contracts during infancy or
within a reasonable time after attaining the age of majority.
Such contracts includes:
- Lease agreements.
- Purchase of company shares.
- Partnership agreements.
Under Section 12 of the Partnership Act, an infant partner is entitled to avoid
the partnership agreement during infancy or within a reasonable time after
attaining the age of majority. Under Section 13, if he does not avoid the
contract after attaining the age of majority, he becomes liable for debts and
other liabilities of the partnership from the date he becomes a major.
Void Contracts:
Under the Infants Relief Act 1874, which is a Statute of General Application in
Kenya, certain contracts entered into by infant are deemed void.
Position of a Minor at Law.

-
Agreement with a minor, subject to certain exceptions is absolutely

inoperative and void.
A minor can be a promisee or beneficiary. This is intended to protect the
interests of a minor.
An agreement with a minor being void cannot therefore be ratified by
him on his attaining majority otherwise it will also be held liable for
services rendered at his request during his minority.
Since the amount borrowed by an infant is irrecoverable by reason of
the contract being void, any security given by the infant or any other
person to secure the amount is also unenforceable. It was so held in
Valentine Vs. Canaille.
A minor can always plead infancy. However, the court can direct him on
equitable grounds to restore the property to the aggrieved party.
A minor can be agents thus connect the first to the third party without
being liable for any consequential liability.
A minors estate is liable for necessaries supplied to him or to any person
whom the minor is bound to support. This is to ensure that he makes due
payment in respect of service rendered to him at his demand.
A minor cannot be declared insolvent since he is incapable of binding
11
himself and to contract debts.

- A minor cannot become a partner but may be admitted for business
benefits if partners so desires. This is because partnerships are
contractual relationships and likewise to a company.
- No liability of guardian for a minors act. However, where the minor is
acting as an agent of a guardian major, the guardian would be held
responsible.
- A minor may be bound by an agreement entered by guardian for his
benefits.
- Specific performance would be granted against a minor. This is as per
the order of the court since contracts with a minor is void.
Considering at length the legal position of a minor, Jurisprudence philosopher
Salmond said The law protects their persons (minors), preserves their rights
and estates, executes their larches and assist them in their pleadings. The
judges are their counsels, the juries are their servants and the law is their
guardian.
PERSONS OF UNSOUND MIND

A person is said to be of sound mind for the purpose of contract if at the time
when he makes it, he is capable of understanding it and of forming a rational
judgment as to its effect upon his interests.
Two things are therefore necessary:
1. Capacity to understand the contract.
2. Ability to make rational judgments as to its effect upon his personal
interests.
Contracts entered into by such persons of unsound mind are voidable at his
option if it is proved that:
- He was too insane to understand what he was doing.
- The other party was aware of his mental condition. In Imperial Loan Co.
Ltd. Vs. Stone, the defendant had signed a promissory note and when
sued on it, he pleaded that he was at the time, of unsound mind and that
the other party was aware of his mental condition. It was held that he
was not liable by reason of insanity. In the words of Lopes L. J In order
to avoid a fair contract on the ground of insanity, the mental incapacity
of the one must be known to the other contracting party.
The defendant must plead and prove not merely his insanity but the plaintiffs
knowledge of that fact and unless he proves these two things he cannot
succeed
Being voidable contacts, they may be ratified by him (person of unsound mind)
when he becomes of sound mind.
Such persons of unsound mind are also held liable for all necessaries supplied to
them at their point of need. However they are only liable to pay reasonable
prices for the necessaries under Section 4 of Sale of Good Act and not
necessarily the contract price.
12
OTHER PERSONS DISQUALIFIED BY LAW FROM CONTRACTING.

An alien enemy: This is a person whose sovereign state is at war with
Kenya. He is barred form contacting to the interest of the country. He cannot
either file a suit against a native without prior permission of the government.
Foreign sovereign: These are representatives of foreign states. They
cannot be sued unless they voluntarily submit to the jurisdiction of the local
courts. They can else enter into a contract through agents. To file a suit against
such sovereign is only with the permission of the government.
- An insolvent: These persons properties vest with an appointee of the court
of law, who takes the responsibility of discharging the liabilities over the
estates of the insolvent. The contractual capacity of such persons is restricted
by the provisions of the Bankruptcy Acts.
- Corporations: These can only contract when authorized by statute by which
it was created or by the memorandum of association respectively.
All such contracts not within the objects and those that are reasonably
incidental thereto are ultra vires and therefore null and void. The ultra vires
acts cannot be ratified even be majority of the members at the annual general
meeting Asbury Railway Carriage & Iron Co. Vs Riche 1875.
- Married women: At common law, a married woman and her husband were
taken to be one, that one being the husband. Thus its the husband who was to
be responsible for her liabilities. However, this concept has since been revised
by the Law Reforms Act of Married Women and Tort Feasors Act of England
(1882) that is a statute of General Application in Kenya.
LEGALITY OF CONSENT
If contract is not on free will the contract becomes violable at the option of
the person whose consent was not free.
Two or more people are said to consent when they agree on same thing in the
same sense. Consent is not free when it is created by:
- Coercion,
- Undue influence.
- Misrepresentation.
- Fraud.
- Mistake etc.
A contract made due any of the elements listed above avoidable at the option
of the party whose consent was not free.
COERCION.
Coercion is committing or threatening to commit any act forbidden by the penal
code, detaining or threatening to detain any property to the prejudice of any
person whether directly or by using another person so that the contract may be
made.
Elements of coercion may be identified as below:
13
Committing or threatening to commit any act forbidden by the penal

code.
- Unlawful detaining or threatening to detain any property.
- Done with the object of inducing or compelling any person into
agreement.
The act of coercion must be directed to any person not necessarily the other
party to the agreement.
A threat to enforce ones legal rights does not amount to coercion.
Whatever threat to commit suicide amounts to coercion. A similar term Duress
is used under English law.
-
UNDUE INFLUENCE.
A contract is said to be induced by undue influence where the relations
subsisting between the two parties is such that one of them is in a position to
determine the will of the other party and uses the position to obtain an unfair
advantage over the other.
It implies unfair and improper conduct or pressure on the mind of the other
person as against physical fear created by coercion. Consequently the person
whom undue influence is exercised is indirectly compelled to enter into the
transaction.
Elements of undue influence:
- One person is in a position to dominate the will of the other.
- The party domination the will uses the position to dominate the will of
the other.
One is deemed to be in a position to dominate the will of another in the
following circumstances:
- He holds a real or apparent authority over the other.
- He stands in a fiduciary relation to the other e.g. a doctor and a patient.
- The contract is made with a person whose mental capacity (temporary or
permanent) is affected by reason of age, illness, alcohol etc.
When person who is in a position to dominate the will of the other entering into
an unconscionable bargain with the other, the burden of proof that this was not
the intention shall be upon him, incase of evidence to the effect that the
contract was unconscionable. Unconscionable bargains are unfair bargains and
equity deems them voidable at the option of the innocent party.
Presumption of undue influence:

In the following relations, contracts undue influence is presumed:
- A parent and a child.
- A doctor and a patient.
- Religious guru and a faithful.
- Trustee and a beneficiary.
- A guardian and a ward.
A lawyer and his client.
In the case of Allcard Vs. Skinner (1887) Miss Allcard took vow of Chastity,
14
Poverty and Obedience so as to become a nun. She accordingly had to gift away
all her bounties.
She was not allowed to seek any external advice. As a result, she gifted all the
properties to the Mother Superior. After several years, she sought for legal
advice. However, some more years passed before she brought legal action to
recover her properties. Court held that the transfer of her properties was
voidable since it was under undue influence. However, she had taken too long to
come to court and as a mater of legal principle, delay defeats equity. The court
could therefore not order return of her properties.
Distinguish between coercion and undue influence.

a. Coercion is a physical threat to a person or property while undue
influence is mental or moral threat.
b. Coercion involves doing or threatening to do an illegal act while in undue
influence the act may not be illegal but be unfair or unconscionable.
c. Coercion will imply penal action besides the agreement being void while
undue influence only makes the agreement voidable.
d. For coercion no specific relations between the parties is necessary while
specific relations e.g. between a doctor and patient is necessary in undue
influence.
e. Coercion is against an illegal act while undue influence maybe against a
legal act.
MISREPRESENTATION.
A representation is not a term, but a statement of fact made by one party to
the other during their preliminary negotiations, which was intended to induce
the other party to enter into that contract. It must be a statement of fact and
not an opinion. Misrepresentation is therefore an incorrect statement made
innocently.
This can be through the two following ways:
- By positive statement: This involves making a positive representation
stipulation without any reasonable base or ground, honestly believing it
to be true though it is not true.
- Breach of duty: This is when a person commits a breach of duty to
disclose information, which gives him an advantage by misleading the
other to his advantage.
When a person induces another person even innocently to make a mistake
regarding a subject matter of the agreement. He is making a misrepresentation.
Essentials of misrepresentation:
1. Representation or omission of a material fact.
2. The representation is of a fact not an opinion.
3. The representation must have been made during negotiation.
4. That the statement was not a mere puff or sales talk.
5. The statement must have been intended to be relied upon by the
representee.
15
6. The misrepresentation is wrongful information but the party making it

does not know that to be wrong.
Silence or non-disclosure does not as a general rule amount to
misrepresentation. However omission or non-disclosure may amount to
misrepresentation in certain circumstances as bellow:
- Where the information made is half truth.
- Where the contract is on confidential relationship.
- Where the contract is one of the utmost good faith.
- Where disclosure is a statutory requirement e.g. contents of a
companys prospectus.
- Where a statement is true when made but turns false due too changes in
circumstances before the contact is concluded and the maker does not
disclose its falsity.
FRAUD.
This is misrepresentation made with an intention to deceive or cheat.
Fraud means and includes any of the following acts committed by the party to
contract (or his connivance or by his agent) with an intention to deceive another
party thereto, (or his agent) inducing him to enter into the contract:
1. The suggestion that a material fact is true when it is not, by a person
who does not believe it to be true.
2. Active concealment of a material fact by a person having knowledge of it.
3. A promise made without any intention to perform it.
4. And any other act fitted to deceive.
5. Any such acts or omission as the law specifically declares to be
fraudulent.
Elements of fraud are as follows:
1. False representation of a fact and not an opinion.
2. The representation must have been made by the party himself or on his
knowledge.
3. The representation must have been made knowingly or carelessly without
ascertaining its truth.
4. The intention of misrepresentation must have been to deceive.
5. The party filling a suit must have suffered harm, loss or damage due to
the misrepresentation. Thus, no damage, no fraud.
Silence is fraud if there is a duty to speak i.e. when silence is equivalent to
speech. This duty to speak is necessary when the material fact to be disclosed
may affect the willingness of the other party to enter into the transaction.
Such fact is called a material fact.
Disclosure of every material fact is particularly required in the following
circumstances:
- Contract of insurance.
- Contract of immovable property.
- Contract of suretyship.
- Allotment of shares in companies.
16
- Contract of marriage.
- Contract of family settlement.
Distinction between fraud and misrepresentation:
Whereas fraud is made intentionally, misrepresentation is made innocently.
Misrepresentation makes a contract voidable with right to claim damages, while
fraud attracts rescission of the contract without damages.
LEGALITY OF OBECT
A contract must be entered for lawful consideration and lawful object. Lawful
object is with regard to the purpose or design i.e. the object for entering in to
the contract must be legal.
If the plaintiff gives evidence that manifests any form of illegality in the
nature of the contract he wishes to enforce, his action will fail. This explains
the maxim- Ex turpi causa non-oritur action i.e. There can be no action upon a
wrongful ground. In same cases, object and consideration may be the same.
State and explain when consideration and object are unlawful

-
If it is forbidden by law: An object is said to be forbidden if it is

punishable by any law or order made in exercise of power or authority
conferred by legislation.
If it is of a nature that if permitted would defeat the provisions of any
law in place.
If it implies or involves injury to a person or property of another person.
It is the object of the law to protect its persons and their properties.
If it is fraudulent i.e. it aims at cheating other people.
If the court regards it to be immoral or opposed to public policy.
Agreements opposed to public policy
Public policy means the endeavors of the law or government for public good,
welfare or interest. Act asserting the contrary to public policy is void. The
term public policy is so widely interpreted that is seen as an unruly horse. It is
vague and often misused. For this reason the court had to clarify the meaning
of public policy and categorize kinds of contracts opposed to public policy.
The following agreements have been identified to be opposed to public policy:
- Agreement for trading with an enemy of the state: This is because it
may give unforeseen strategic advantage to the enemy state.
- Agreement interfering with administration of justice: These can take
any of the following forms:
a. Agreements stifling prosecution: These are agreements, which
encourages making money through crimes and in abuse of law.
b. Maintenance and Champerty: Maintenance means financing a suit
by a third party who has no legal interest or locus standi.
Champerty implies a bargain by which one party is to assist the
other party to recover property and is to share the proceeds of
the action
c. An agreement which interferes with direct administration of
justice e.g. bribery.
17
Agreement to vary period or limitation: It is unlawful to agree to

defeat the object of any law.
Agreement creating interest opposed to duty: Duty must be done any
agreement to abscond duty promotes inefficiency and corrupts, hence
deemed void.
Agreement restraining personal freedom: Personal freedom is a
constitutional right and fundamental right of natural justice.
Agreement to interfere with personal right and duties: For instance,
guardianship right cannot be infringed or transferred merely for public
interest.
Agreement in restraining marriage: This is void if the restraint is of a
major's marriage.
Agreement interfering with marital status: This becomes immoral and
duty avoiding and so void.
Agreement of marriage breakage or brokerage: Every one has a
liberty to marry according to his free choice. This should not be
disturbed by monetary considerations or engaging paid broker to procure
matters.
Agreement of trafficking in public offices and titles: e.g. Sale or
transfer of public offices and titles.
Agreement to defeat creditors or revenue authorities: This is an
agreement to dishonor legal responsibility.
Agreement in restraint of trade: Every agreement by which anyone is
restrained from performing lawful profession or trade or business of any
kind is to that extent void.
An agreement in restraint of trade is void' Explain this statement

giving exceptions to this rule.
Public policy provides liberty to legal trade, vocation, profession or business of
any kind. Following exceptions however are generally recognized.
1. Sale of goodwill:
One who sells the goodwill of a business may agree with the buyer to refrain
from carrying out a similar business within specific geographical limits, so long
as the buyer or any other person deriving benefits from the title carries on a
like business therein.
2. Agreement under the Partnership Act:
- A person would not be allowed to carry out any business other than that
of the firm while he is partner.
- Any person before ceasing to be a partner i.e. an outgoing partner may
agree with his partners not to carryon a similar business to that of the
firm within a specified period of time or specified locality.
- Partners upon or in anticipation or dissolution of the firm may make an
agreement that some or all or them will not carry on business similar to
that of the firm from a specified time or specified local limits.
Sale of goodwill within partnership firm: Where after dissolution or
firm, goodwill is sold, a partner may carryon a business competing with
18
that of the buyer and may advertise such business, but not using the
firms name.
3. Trade combinations:
Created with the object to provide standardized goods to eliminate cut-throat
competition to regulate opening and closing of shops though in a way trade
limitation, it is not void as it is for the good and warfare of the public.
4. Service contracts:
It is valid to an employer to prevent their employee in engaging themselves in
similar transactions during the course of their engagement.
5. Control of distribution:
A manufacturing industry is at liberty to sell a product to a particular seller or
distributor.
QUASI CONTRACTS.
These are contracts that are presumed to exist in law, without any formal
agreement between the parties. They are based on the principle of justice and
fairness that a person must not obtain unfair advantage over another person
due to lack of contract.
Examples or quasi contracts are found in the following cases:
- Supply of necessaries: If a person without capacity to contract is
supplied with necessary goods and services that are suitable to his
status in life, quasi contract comes into existence and constructively
creates a contract between the parties. This is the case with minors and
infants who are disqualified from entering into oral or written contracts.
- Responsibility of finder or goods: A person who finds goods belonging
to another person is under no obligation to take them into his custody.
However if he takes them into his custody, he is under a duty placed by
law (quasi contract) to look for the true owner and take proper care of
the goods.
- Payment made by mistake: A person to whom money has been paid by
mistake or anything delivered by mistake must repay or return it to the
person who paid it by mistake e.g. A pays money to B by mistake, the
money is actually due to C. In this case B must refund the money to A.
-
However, C can't recover the money from B because he is a stranger to

contract. Even if there was no valid contract between parties above,
their relations are created by quasi contract.
DISCHARGE OF CONTRACT
Discharge of contract means termination of rights and obligations arising out of
contacts. This may be by two ways:
- Act of the parties. This is also called breach of contract.
- By operation of law.
19
Discharge by breach:
Breach means failure/ refusal for performance by one party.
This discharges the contract unless the aggrieved party waves his right by
words or conduct. Breach of contract may be actual or anticipatory.
Actual breach is when one party fails to perform the contract on the appointed
date.
Anticipatory breach takes place before the actual date of contract
performance.
This may be express or implied. Express when the promissor informs the
promisee of his inability or intention not to perform the contract, or Implied
when the promissor does an act, which renders the performance impossible.
In breach of contract, the promisee can sue the promissor for loss or damages
incurred or choose to keep the contract open until the day of intended
performance.
If the promisee treats the breach as actual, he will be entitled to the loss by
the difference in market price i.e. the difference in price between the contract
date and the date of communicating breach of contract.
If the promisee keeps the contract open and subsequently such a contract
becomes illegal or impossible, the promissor shall be discharged by the illegality
or impossibility of performance. So goes the maxim- Lex non-cogit ad
impossibilia - Law does not recognize impossibilities, since an impossibility does
not create an obligation - Impossibilium nulla obligato est.
Consequently the promisee shall not be entitled to damages or loss
compensation.
Discharge by operation of Law:

-
By performance.
By impossibility.
By death.
By insolvency.
By agreement or consent or waiver.
By merger.
By lapse of time.
By frustration.
FRUSTRATION
-
A contract is said to be frustrated when performance of the obligations

is rendered impossible, illegal or commercially useless, by unforeseen or
extraneous circumstances for which neither party is to blame.
It is important in frustration that neither of the parties is to blame and
the frustrating event must be external to the contract. The doctrine of
frustration as a method of discharging a contract is an exception to the
common law doctrine of absolute contractual obligations, under which
parties must perform their obligations failing which they are liable in
20
damages.
Additional expenses do not as a general rule frustrates a contact unless
it becomes commercially useless to perform. A contract is not
frustrated if:
- The event in questing is provided for by the contract.
- One of the parties is to blame.
A contract may be frustrated in the following circumstances:

1. Destruction of subject matter If the subject matter, the basis of the
2.
3.
4.
5.
contract is destroyed, the contract is frustrated and the parties

discharged. The destruction need not be total but must change the
commercial characteristics of the contract. It must be evident that the
subject matter was the sole foundation of the contract. In Taylor Vs.
Cardwell, the defendant hired the plaintiffs hall on May 27th 1861, to
conduct a musical concert for 4 days at 100 pounds per day. The hall was
accidentally destroyed by fire before the date of the concert rendering
it unusable for the purpose. It was held that the defendant was not
liable to pay the hiring charges as destruction of the hall, frustrated the
contract and thereby discharged the parties from performance.
Non-occurrence of events or state of affaires If a contract is based
on a particular event of state of affairs existing at a particular time, its
non- occurrence may frustrate the contact, however for the contract to
be frustrated, it must be proved that the event or state of affairs was
the sole foundation of the contract. In Krell vs. Henry (1903), the
defendant hired a room in the plaintiffs house for purposes of viewing
the royal procession of the coronation of King Edmund VII. However, the
King was taken ill before the date of the coronation and the ceremony
was cancelled. It was held that the defendant was not liable to pay the
hiring charges as cancellation of the ceremony frustrated the contract
and discharged the parties.
However, if
a contract was based on more than one foundation, the disappearance of
one does not frustrate it, as the other part is still capable of
performance.
Government intervention or interference If Governmental Acts or
policies render performance of a contract impossible, the same is
frustrated and the parties discharged e.g. refusal to grant a license.
However, it must be proved that reasonable attempts to obtain the
same were made.
Illegality If performance of the contract becomes illegal due to change
of law or otherwise, it is frustrated and the parties discharged. This is
because theres not obligation to perform that which becomes illegal.
Death or permanent incapacitation In contracts of personal service or
performance e.g. employment, the death or permanent incapacitation of
the person frustrates the contract there by discharging the parties.
This is because no other person can discharge a personal obligation.
21
6. Supervening events These are circumstances which intervene and

thereby render performance of a contract impossible, or delay the same
thereby changing the commercial characteristic of the contract. e.g. the
outbreak of a war after a contract has been concluded before
performance may render it impossible to perform and thereby frustrate
it as was in the case of Victoria Industries Ltd Vs. Lamanbhai Brothers
where the parties had entered into a contract for the purchase of a
large quantity of corn to be shipped from Jinja to Mwanza and
transported by rail to Dares-salaam for. The East African Railways and
Harbors Corporation had previously agreed to ship and transport the
corn but subsequently changed its mind and declined to handle the corn.
It was held that the refusal to handle the corn by the Corporation
frustrated the contract, as there was no alternative route.
Effects or consequences of frustration

Frustrated contracts in Kenya are governed by the law reform (Frustrated
Contract) Act 1943. It applies in Kenya as a statute of general application by
virtue of the schedule to the law of contract Acts. Under this Act, when a
contract is frustrated or becomes impossible to perform, the rights of the
parties are adjusted as follows:
1. The contract is terminated.
2. Money paid is recoverable.
3. Money payable ceases to be payable
4. If a party suffers loss, the court may order the other party to pay to
such party a sum of money.
5. If at party derives a benefit other than financial, the court may order
such party to pay to the other a sum of money which must be less than
the benefit the party has so derived.
REMEDIES / CONSEQUENCE FOR BREACH OF

CONTRACT.
Contract is entered into so as to enable its performance. In case of default of
one party the aggrieved party has a right to move the court of law for
enforcing the contract.
He becomes entitled to one or more or the following remedies:
1. Right to claim compensation and damages:

When a contract is broken, the party that suffers breach is entitled to receive
from the other party who has broken the contract compensation for any loss or
damages.
These may be of two categories below:
- Damages which naturally arise in usual cause of things from such breach.
- Damages anticipated for the breach of contract.
Such compensation should not be given for any remote or indirect loss or
damage.
22
In the landmark case of Hadley Vs Baxandle (1854) a miller -Hadley, in

Gloucester left his faulty crankshaft to the defendant - Baxandle, to take to
Greenwich for repair. The defendant promised to deliver it on the following day
but infact took nearly a week. In the meantime, Hadley lost a big contract,
which came unexpectedly. The court held that he could not claim compensation
for loss of profit of the unexpected contract, as it was speculatory and too
remote to have been foreseen.
For breach of contract or quasi contract, compensation is treated at par.
Damages are classified as follows:

Ordinary or General Damages: These are damages arising directly and
naturally from breach. Measure or damages in case of beach of contract
for sale of goods is the difference between the price during contracting
and during the breach day. Measure of damages where same types of
goods are not available being out of difficulties to obtain them; the best
substitute available may be taken into account. No compensation for
remote or indirect loss.
- Special or particular damages: These are contemplated or expected
remote damage arising from the breach or contract.
It can be recovered only if it was a provision or subject at contracting.
- Vindictive or Exemplary damages: This is compensation specially laid to
punish the breach of contract so as to set an example before others so
that they would not commit similar breach in future.
Vindictive damages are often considered in the following cases:
a. In case of breach of promise to marry.
b. In case of wrongful dishonor of a Cheque by a bank, with respect to
liability arising out of the customers trade or business.
- Nominal damages: This is when the party does not suffer any loss due to
breach or contract. However, he is entitled to a little sum e.g. Kshs.
200/= in recognition of his contractual right.
Damages for breach of warranty: In case of breach of warranty, the buyer
is entitled to claim all damages directly caused by such breach.
.
It must be bone in mind that the aggrieved party is under duty to mitigate loss
or damage arising out of breach. However, difficulty in ascertaining or assessing
the value of damage cannot prevent the aggrieved party from claiming
compensation.
Sometimes, to avoid difficulty in assessing and ascertaining damages arising
from breach, parties fix in advance the amount that would be paid in the event
of breach. This may either be in penalty or liquidated damages.
Liquidated damages are the fair and reasonable estimate charge for the loss
while penalty is an excess compensation fixed for the purpose of compelling or
coercing performance. It is a terrorem charge implanted into promisor's mind
so as not to breach.
-
23
2. Right of rescission:
This is the yielding or giving of any secret profit or benefit enjoyed by a person
in breach of his duty of trust e.g. Agents, Directors, and Trustees etc. Any
benefit accruing to such persons by virtue of their positions in equity belongs to
the other party and must be given up.
3. Quantum Merut: This is when one party performed his work as per the
contract and then the contract repudiates e.g. by impossibility or illegality. He
thereby becomes entitled to remuneration portion or work he has performed.
4. Specific performance: Usually damages are granted by way or monetary
compensation. When this, however, is not possible, the court may compel the
actual performance. Since this is as per discretion of the court, it has gone
ahead to lay down cases where Specific or special performance shall not be
granted as follows:
i. Where monetary compensation is adequate remedy.
ii. Where contract is of personal nature.
iii. Where the court cannot effectively supervise the execution of the
contract e.g. building contract.
iv. Where it will be inequitable e.g. against a minor.
v. Where the contract made be the company is ultra-vies the company.
vi. Where the contract is revocable.
vii. Made by trustee in breach or trustship.
5. Injunction order: Since contract of personal nature cannot be enforced by
special performance due to impossibility of effective supervision by the court,
injunctive orders are therefore made where breach is strictly forbidden. The
promisee is by this order, compelled and has no alternative but to abide by the
contractual obligations.
6. Restitution: This literally means restoration. When a contract becomes void,
the party who received benefits at the expense of the other ought to restore
them.
7. Cancellation or rectification: When through fraud or mutual mistake of
parties, title to property has passed registration records may be revisited at
the order of a court of law for the purposes of reversing, correcting, rectifying
or canceling such records in the register of titles. Either party may also apply
for such rectification of the register.
24

Law of Contract For Acbm

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Law of Contract For Acbm

Uploaded by

Copyright:

Available Formats

LAW OF CONTRACT

A contract is an agreement between two parties which is enforceable by law.

Contracts Requiring Written Evidence.

State the consideration (what is payable)

SOURCES OF LAW OF CONTRACT.

Definition: When a person signifies his willingness to do or to abstain from

Characteristics / Requirements / Legal rules regarding offer.

May be express or implied.

Essentials of a legal acceptance.

Acceptance should be by the person to whom the offer is made.

REVOCATION OF OFFER AND ACCEPTANCE.

or the person who make it.

How does an offer come to an end ?

An unmarried man and a lady agree to be married in the near future.

Legal rules regarding consideration.

immoral, illegal, or opposed to public policy i.e. it must be lawful.

to the general rule of privity of contract meaning; a contract can only be

INTENTION TO CREATE LEGAL RELATIONSHIP.

Position of a Minor at Law.

Agreement with a minor, subject to certain exceptions is absolutely

himself and to contract debts.

PERSONS OF UNSOUND MIND

OTHER PERSONS DISQUALIFIED BY LAW FROM CONTRACTING.

Committing or threatening to commit any act forbidden by the penal

Presumption of undue influence:

Distinguish between coercion and undue influence.

6. The misrepresentation is wrongful information but the party making it

State and explain when consideration and object are unlawful

If it is forbidden by law: An object is said to be forbidden if it is

Agreements opposed to public policy

Agreement to vary period or limitation: It is unlawful to agree to

An agreement in restraint of trade is void' Explain this statement

However, C can't recover the money from B because he is a stranger to

Discharge by operation of Law:

A contract is said to be frustrated when performance of the obligations

A contract may be frustrated in the following circumstances:

contract is destroyed, the contract is frustrated and the parties

6. Supervening events These are circumstances which intervene and

Effects or consequences of frustration

REMEDIES / CONSEQUENCE FOR BREACH OF

1. Right to claim compensation and damages:

In the landmark case of Hadley Vs Baxandle (1854) a miller -Hadley, in

Damages are classified as follows:

You might also like