LAW OF CONTRACT

Introduction

The law of contact in Kenya was originally based on the Contract Act, 1872, of India,
which has now been repealed. The law of contract is now based on the English Common
Law of Contract.

The Law of Contract Act 1961 (Cap 23), Section 2 (1) provides that, ‘save as may be
provided by any written law for the time being in force; the Common Law of English
relating to contract, as modified by the doctrine of equity, by the Acts of Parliament
applicable by virtue of subsection (20 of this section and by the Acts of parliament
Specified in the schedule to this Act, to the extent of subject to the modifications
mentioned in the said schedule, shall extent and apply to Kenya, provided that no contract
in writing shall be void or unenforceable by reason only that it is not under seal.

The effect of this section is that the common law of English relating to contract, subject
to modifications, is applicable in Kenya. But this still leaves open the question on to the
date reception of the English Law of Contract. The answer is important as it affects the
binding effect of English Decisions in the Law of Contract. The effect of Section 2 (2) of
the Law of Contract Act is that the date of reception of the common law of contract is 12 th
August 1897. English decisions after this date are, of course, only of persuasive authority.
Nevertheless, Kenya Courts have shown continued willingness to cite, approve and
follow English Common Law decisions on the law of contract, irrespective of the date of
the decision.

Nature of contract
A contract establishes legal obligation between two or more parties to perform a promise.
It is a promise or group of promises for the breach of which the law gives a remedy or the
performance of which the law recognise as a duty.
In other words, a contract is an agreement between two or more persons, which is
intended to create legally binding obligations. The word ‘binding’ is used for there are
some contracts which are valid but are not enforceable.

Thus, the basis of a legally binding contract is that of agreement between the parties to
the contract. Such contracts are themselves the basis of most transactions in commerce
and industry. In addition, individuals enter into several contracts in their daily lives
without really being conscious of the fact. Not every agreement will give rise to legal
obligations; much depends on the intention of the parties.
i. For example, agreements between husband and wife of a domestic nature, such as
the amount of housekeeping are rarely intended to give rise to legal obligations.
In Balfour V. Balfour 1919, a husband on leaving the country greed to make
periodical payments to his wife for her maintenance. When he failed to make the
payments as agreed, his sued him for the arrears, but it was it was held that she
had no cause of action, as this was solely a domestic agreement not intended to
have legal consequences.
 ii. Also agreements that are based on the mere offer and acceptance of hostpitality
are not intended to give rise to legal obligations. Much really depends on the
intention of the parties. In some cases the very existence of a legally binding
contract is expressly denied and this would normally be conclusive. In Jones V.
Vernon’s Pools LTD 1938, a printed condition in a football pools coupen that the
entry should not ‘give rise to any legal relationships, rights, duties or
consequences whatsoever or be legally enforceable,’ prevented the plaintiff from
bringing an action to enforce payment or otherwise. These are sometimes
described as gentlemen’s agreement which, although its existence is recognized
by courts, it creates no legal relationships or binding obligation.
iii. A final example would be a social invitation, i.e. A invites his friends B and C to a
party at his house, and when they arrive, they find that (A) is not at home.

In all these three situations mentioned above, no cause of action arises in favour of the
parties, for there does not seem to be any intention to create a legal relationship by either
party.

Importance of the law of contract

The law of contract is the most important branch of business law. It affects everybody
more so, trade, commerce and industry. All contracts are based on agreements, which are
either express or implied. Disputes do arise, sometimes as to the existence of the
obligation and sometimes as to the nature and extent of the obligation.

In commercial or ordinary life, promises are made. Promises arise out of the acceptance
of an offer or proposal sometimes, promises are performed, and sometimes breach is
committed. The law of contract deals with such promises, which creates legal obligations.
These excludes those promises made in common life which may be morally binding but
create no legal binding. These promises are made without a view to obtain the assent of
the other. No value is given to such promises made.
The law of contract regulates the conduct of the parties to the creation, performance and
breach of the promises. It also provides for remedies to the aggrieved parties.
Law of contract also deals with particular contracts like indemnity, guarantee, bailment
and agency, which arise out of ordinary transactions of merchants and traders.

It creates obligations between the parties to the contract and not against the whole word.
It is therefore, rightly said that the law of contract creates right in personam and not
right in rem.
Right in personam means a right against a particular person or persons. Right in rem on
the other hand is available against the whole world.

Definition of a contract

The word ‘contract,’ generally, means an agreement that is legally binding. In other
words, an agreement enforceable by law is a contract. When an agreement compels
another to do something, or not to do something, it is a contract.
 An ‘agreement’ is every promise or every set of promises, forming the consideration for
each other. Offer and acceptance together constitute an agreement.
Although a contract is an agreement, an agreement is not necessarily a contract. A
contract is a combination of agreement and enforceability. The test to distinguish between
an agreement and contract is whether it is enforceable by law or not. If it is enforceable
by law, it is a contract.
A contract has been defined by Anson as:
‘an agreement enforceable by law, made between two or more persons by which rights
are acquired by one or more to the acts done or forborne on the part of the other or
others’. It is that of agreement which directly contemplates and creates an obligation.

Agreement and Contract distinguished.

BASIS OF AGREEMENT CONTRACT

DISTINCTION
1. What it constitutes Offer and acceptance
together constitute an
agreement
2. Creation of Legal May not create any legal
Obligation obligation
3. Binding Not a concluded or
binding contract
4. One in the Other All agreements are not
contracts
Agreement and
enforceability to get the
constitute a contract
Necessary create a legal
obligation
Concluded and binding on
the concerned parties
All contracts are
necessarily agreements

Kinds of Contracts – Classification of contracts

Basis Classification of Contracts

Creation Execution Enforceability

Valid Express Implied Executory Executed Void Void

Agreemen Contract
t

Voidable

1. Creation

(a) Express Contract

 When the terms of a contract are reduced in writing or agree upon by spoken words at the
time of its formation, the contract is express.

Example: X says Y, will you buy my car for I million. Y says yes, this is a valid
contract – spoken.

(b) Implied Contract

The terms of the Contract are inferred from the conduct or dealings between the
parties.

Example: X boards a bus. It is implied from his conduct that X has entered into an
implied promise to purchase a ticket.

2. Execution of contracts

(a) Executed Contract

Where both the parties have fulfilled their respective obligations under the
Contract and nothing else remains to be done.

Example: X offers to sell his house to Y for 1.5m.

Y accepts X’s offer and tenders the price, where upon Y surrenders the
house. This is an executed Contract.

(b) Executory Contract

Where either both or one of the parties to the Contract has yet to perform his/her
share of the obligation. This fact does not affect the validity of the Contract.

Example: X offers to sell his house to Y for 1.5m

X surrenders the house, but Y has yet to tender the price. This is an
executory contract.

3. Enforceability

(a) Valid Contract

It is a contract which satisfies all the essential conditions prescribed by law – i.e.
offer and acceptance, lawful consideration, contractual capacity e.t.c.

Example: X offers to marry Y. Y accepts the proposal. This is a valid contract.

 (b) Void Agreement

Any agreements not enforceable by law – i.e. are void – ib-initio which means
that they are unforceable right from the time they are made.

(c) Void Contract

A contract which ceases to be enforceable by law. It is a Contract was valid when

entered into but which subsequently becomes void due to either impossibility of
performance or a change in law.

Example: X offers to marry Y. Y accepts X’s offer. Later on Y dies. This is a void
contract – valid at the time of its formation but becomes void on the death
of Y.

(d) Voidable Contract: An agreement which is enforceable by law at the option of

one or more of the parties there to, but not at the option of the other or others, is a
voidable contract. A contract is voidable when one of the parties to the contract has not
exercised his/her free consent. All voidable contracts are thus those which are induced by
coercion, undue influence, fraud or misrepresentation. A contract therefore continues to
be valid till the party whose consent is caused by coercion, undue influence, fraud or
misrepresentation chooses to avoid the contract within a reasonable time.
Contract then is not binding on the other party.

Others:
(a). Quasi – Contract: Certain relations resemble those created by a contract certain
obligations which are not contracts in fact but are so are so in the contemplation of the
law.

Illustration
A supplies necessaries to B who is incapable of contracting. A is entitled to be reimbursed
from B’s property.

Quasi contracts arise out of the obligations enjoyed by one person from the voluntary acts
of the other which are not intended to be performed gratuitously.

(b) Contingent Contract It is a contract in which a promise is conditional and the contract
shall be performed only on the happening of some future uncertain event.

Illustration:
A promise to buy B’s land if a borehole is dug. This is a contingent contract.
 (c) Contracts of Record: A contract of record is one, which is taken on the records of
a court, for example, judgement of a court. Such judgements create a binding effect
through the authority of the court.

(d) Specialty Contract: It is a contract, which is in writing, signed and sealed and delivered
by the parties. It is also called a ‘contract under seal’.
Consideration is not necessary in a specialty contract.

(e) Simple Contract: It is a contract, which is not under seal. All simple contracts require
consideration. They may be made by written or spoken words.

The following contracts must be made in writing otherwise they are void:
 All contracts which require to be stamped, e.g. bills of exchange, promissory notes
and transfer of shares in limited companies.
 Acknowledgement of statute – barred debt. (in case of a simple contract if an action
is not maintained to recover the debt within 6 years, the claim becomes time-barred.
But if the debtor acknowledges this statute-barred debt in writing, the right of action
in favour of the creditor is revived for another six years.)
 Transfer of immovable property.
 Representation of character or credit worthiness Section 3(2) of the Law of Contract
Act provides that any representation made relating to character, credit, ability of any
other person must be in writing and signed by the party to be responsible in case the
default is made by a person for whom the representation was made.

The following contracts must be supported by written evidence otherwise they are
‘unenforceable’
 Contracts of Guarantee. ‘A special promise to answer for debt default or miscarriage
of another person’ must be in writing, if not, no action can be maintained.
 Contracts for the sale of land: All agreements for the sale of land or other disposition
of land must be supported by written evidence, signed by the party to be charged or
by his agent.
 Contracts for sale of goods of two hundred shillings or over.
 Every hire purchase agreement must be evidenced in writing and registered within 30
days of its execution.
 Contracts of Employment for over one month.
 Money lending contracts: Section II (I) of Kenya money lenders Act provides that no
action may be brought for the payment of the loan unless a note or memorandum in
writing signed by the borrower can be produced in the court.

Essentials of a valid contract

For a contract to be good it must bear certain characteristic:-
Offer and acceptance.
Intention to create legal relations.
Lawful consideration with lawful object; or the contract must be under deed
There must be genuine consent, i.e. the consent must not be obtained though mistake,
misrepresentation, duress or undue influence
 Capacity of parties to contract – competent parties
legality – Enforceable by law (object of contract must be lawful)
Possibility of performance.

Offer and acceptance

When one person signifies to another his willingness to do or abstain from doing
anything, with a view to obtaining the assent of that other to such act or abstinence, he is
said to make an offer. When the person to whom the proposal is made signifies his assent
thereto, the offer is said to be accepted. Thus, first step towards creating a contract is that
one person shall signify or make an offer to the other, with a view to obtaining the
acceptance of that other person to whom the offer is made.

 Rules Relating to Offer

1. An offer may be made by word of mouth, in writing, or by conduct. The person
making the offer is called the offeror, and the person to whom the offer is made is
called the offeree. A common example of offer by conduct may be an omnibus
plying on a particular route. It is an offer by the owner of the bus to carry
passengers at the published fares for various stages. The offer is accepted by
conduct when a passenger boards the bus with the intention of becoming a
passenger.

2. An offer must contemplate giving rise to legal consequences if acceptance.

3. The terms of the offer must be certain and free from vagueness in expression.
Guthing v Lynn, 1831.
L bought a horse from G, and offered to pay another £5 for the horse if it 'proved
lucky' to him. It was held that the term ‘lucky’ was too vague to form the basis of
a legally enforceable agreement.

4. Every offer must be communicated; for a contract to arise two parties must be of
the same mind, and so it cannot be accepted by a person who does not know that
it has been made. This applies to both specific and general offers. Thus where A,
without knowing that a reward is offered finds B’s lost dog and brings it to B, he
cannot recover the reward if he learns of the reward after returning the dog.

5. The offeror cannot bind the other party without his/her consent.
Felthouse v Bindley, 1862.
F wrote to his nephew offering to buy one of his horse adding ‘if I hear no more
about him I consider that the horse is mine at £30, 15 Shillings’. The nephew did
not reply, but told Bindley, an auctioneer to keep the horse out of the sale of his
farm stock, as it was sold to the plaintiff. Bindley sold the horse by mistake, and
F, sued him for damages. It was held that as the nephew has never communicated
his acceptance to F, there was no contract of sale, and so the auctioneer was not
liable.
6. A contract comes into existence when a definite offer has been unconditionally
accepted. An offer may be made to a specified 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. If A
makes an offer to B, it is a specific offer and B is the only person who can accept
it. But in cases it is immaterial to whom the offer is made. Offers made by
advertisement are the commonest form of offers made to the world at large, and
can be accepted by anyone just by acting on them, as illustrated by the cases of
Carlill v Carbolic Smoking Ball Co and Wood v Lectrick Ltd.

Carlill v Carbolic Smoke Ball Co.

Facts
The defendants, who were proprietors and vendors of a medical preparation called ‘the
Carbolic Smoking Ball, ’inserted in various newspapers of November 13, 1891 the
following advertisement:
‘£100 reward will be paid by the Carbolic Smoke Ball Company to any person who
contracts the increasing epidemic influenza, colds, or any disease caused by taking cold,
substances. £100 is deposited with the Alliance Bank, Regent Street, showing our
sincerity in the matter. During the last epidemic of influenza many thousand Carbolic
Smoke balls were sold as preventives against this disease, and in no ascertained case was
the disease contracted by those using the Carbolic Smoke ball.

The plaintiff, a lady, on the faith of the advertisement, bought one of the balls at a
Chemist’s shop and used it as directed, three times a day from November 20, 1891 to
January 17, 1892 when she was attacked by influenza.
She sued to recover the advertised reward but the defendants contended that there was no
binding contact because, among other things, the advertisement was:-

 Too vague to constitute an offer

 A mere puff rather than an offer
 A nudum pactum
 Not made with anybody in particular

The English Court of Appeal rejected these pleas as follows:-

a) Although the language of the advertisement was vague and uncertain in some respects
(particularly the period when the Smoke balls were to be used) it was an offer which
had been converted into a binding contract by plaintiff’s acceptance.
b) The passage in the advertisement that £100 is deposited with Alliance Bank, Regent
Street showing our sincerity in the matter was a fact which disapproved the
contention that the advertisement was a mere puff. It infact elevated the advertisement
from a mere advertiser’s puff to a serious statement which was intended to be
understood by the public as a genuine offer which they were expected by the
company to act upon.
c) A use by the public of the balls would react and produce a sale, which would be
directly beneficial to the defendants. The advertisers therefore got out of the use of
the balls an advantage, which was enough to constitute a consideration.
 Secondary, the person who acted upon the advertisement and accepted the offer put
himself to some inconvenience at the request of the defendants, and the
inconvenience, or detriment, was the consideration for the promise.
d) The advertisement was an offer made to the public (whole world), and it ripens
into a contract with anybody who comes forward and performs its conditions.
Therefore, the defendants were liable to pay the reward.

Wood v Lectrick Ltd. (The Times Newspaper, January 13th 1932

Facts
The defendants advertised an electric comb in a periodical in the following term:

‘New hair in 72 hours. Lectrick Electric Comb. Great news for hair sufferers.
What is your trouble? Is it hair? In 10 days not a grey hair left – 500 pounds
guarantee’

The plaintiff’s hair was prematurely turning grey and, after he read the
advertisement, bought one of the electric combs and used it as directed.
Unfortunately, the comb did not restore the original colour of his hair and he sued
the defendants for the 500 pounds ‘guarantee’.

Held; that the plaintiff had complied with the advertisement and was entitled to
recover the sum of 500 pounds from the defendants.

7. A mere statement of intention does not constitute a binding promise even though a
person to whom it is made acts upon it. That price lists, catalogues,
advertisements, window displays, tenders, invitations by a company to the public
to subscribe to its shares etc.
These are not normally regarded as offers but they are an invitation to others to
make offers.
A quotation of price is not an offer but an invitation to a customer to buy.
8. The person making the offer should intend to be bound by it as soon it is accepted
by the other. He should not receive to himself any further act be done on his part
before he becomes bound by it. If he does so, then it is an invitation to an offer
and not an offer.
9. The offeror may attach any conditions to his/her offer, but communicate them to
offeree, before they bind him/her by his /her acceptance of the offer. In
commercial agreement this rule is chiefly important where the terms of the offer
are usually of a complex nature. Therefore, conditions attached to an offer must
then, with reasonable notice, be communicated to the offeree.
For example, tickets are in many cases the basis of legally binding contract, one
travels on public transport, a ticket will be issued in exchange for the fare. The
ticket usually has clearly printed out in a statement in something like the
following terms, ‘Issued subject to conditions contained in the Company
Timetable’. Provided the notice is reasonable, such conditions will be binding.
 Provided that the ticket is not identified as a receipt, conditions referred to on the
ticket can be incorporated in the contract.

An offer must be distinguished from:

a) An invitation to treat
b) A mere declaration of an intention
c) A mere supply of information

a) Invitation to treat
i. Marked prices of goods displayed in shop windows, or catalogues mentioning
prices of goods, 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 the offeror, and his offer, if accepted creates a binding agreement.

Pharmaceutical Society of Britain v Boots Chemists, 1953.

Goods were sold in B’s shop under the self-service system.

Customers selected their purchases from the shelves, put the into baskets supplied by B
and took them to the cash desk where they paid the price. It was held that the customer
made the offer when he presented them to the cash desk, and not when he removed them
from the shelves.

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

Harris v Nickson, 1873

N, an auctioneer, advertised that there would be a sale of office furniture. H, a
prospective buyer, travelled from London to attend the sale, but all the office furniture
was withdrawn. H thereupon sued the auctioneer for the loss of time and travelling
expenses. Held that the auctioneer was not bound to sell the furniture as he was merely
stating his intention to sell, not making an offer, which by acceptance could be turned
into a contract.

c) Mere Supply of Information

The mere statement of the lowest price at which a person will sell property or goods
contains no implied condition to sell at that price to the person making such enquiry.

Harvey v Facey 1893

In this case H telegraphed to F: ‘will you sell us Bumper Hall pen? Telegraph lowest cash
price’. F, replied ‘Lowest cash price for Bumper Hall pen is £900’. H telegraphed back
‘We agree to buy for £900 asked by you’. F refused to sell and H sued him contending
that a telegram constituted a binding contract. It was held that H was not entitled to
damages as in replying he was merely stating the lowest cash price and not making an
offer.
 Termination of offer
When an offer is made, the offeror confers to the oferee the power to create a contract by
acceptance of the offer. The offer can, however, be terminated in one of the following
ways.

1. By lapse of the time of the offer

An offer never remains open for acceptance longer than the time, if any, prescribed in the
offer, or if no time is stipulated, longer than a reasonable time. What is reasonable time
depends on the nature of the contract and the circumstances of the case.

Ramsgate Victoria Hotel Co v Montefiore, 1866.

M applied for the purchase of shares in the plaintiff’s company on June His offer was not
accepted until November 23 when he received a letter of allotment. M refused to take the
shares, as by that time the price of the shares had fallen. Held that M was entitled to
refuse, as his offer had lapsed before November 23 and so could not be accepted.

2. Offer lapses by not being accepted in the manner prescribed, or if no manner is prescribed, in
some usual manner implied by the nature of the offer, i.e, if an offer is made by post, the
acceptance is implied by post as well.
Eliason v Henshan, 1819.
E offered to buy flour from H, asking the reply to be sent by the Wagon driver who
communicated the offer. H accepted the offer by post instead of sending it through the
wagon driver. The wagon driver arrived before the letter of acceptance reached E. Held
that there was no contract.

3. Offer lapse by the death or insanity of offeror or the offerree before acceptance.
Death after acceptance has generally no effect on the validity of the contracts. But, if
the contract is to render some personal services such as painting a landscape, the
contract will be discharged by the death of the party responsible to render such services.
Where a person accepts the offer in ignorance of the offeror’s death there can be no
contract.

4. Counter offer. An offer terminates if a counter offer is made to it, and the offer cannot be
received by the person to whom it was originally made, even if he is prepared to accept
the original offer unconditionally.

Hyde v Wrench, 1840

W offered in writing to sell his farm to H for £1000, H made a counteroffer of £950. W
refused to accept the counter offer. H then by letter agreed to pay £1000, which W
refused to accept. H sued for specific performance. Held that there was no contract, and
specific performance could not be granted.

5. By rejection of the offer.

 Rejection of offer has the same effect as the counter-offer. Thus if offeree has once
refused to accept the offer, subsequently he cannot change his/her mind and deliver his
acceptance.

6. By revocation
Offer may be terminated by revocation, i.e. an offer may be revoked (withdrawn) by the
person who has made it at any time before it has been accepted. A bid at an auction is
revocable until the hammer falls.

Rules of revocation
1. Revocation of an offer must be communicated to the offeree, though not necessary
by the offeror himself, it is sufficient if the offeree comes to know of it through any
reliable source. In Dickinson v Dodds the court held that it is sufficient if the offerree
has notice of revocation through a third party. Having received such notice, the
offeree cannot subsequent accept the offer.

2. If an offer was made by a letter sent through the post its withdrawal in a similar
manner would be inoperative if the letter of withdrawal reaches the offeree after the letter
of acceptance has been posted, unless authority has been given to notify a withdrawal by
merely positing a letter.

Household Fire Insurance co. v Grant (1879)

Fact
Grand had applied for 100 shapes in the plaintiff company by handling to an agent of the
company on 30th Sept. 1874 a written application for the shares. On 20th October 1874,
the company secretary made a letter of allotment in favour of Grant and posted to him
after entering his name on the register of shareholders. The letter of allotment never
reached Grant who contended, as a consequence, that he was not a member of the
company.
Held
That there was a binding contract between Grant and the company because, although he
had not expressly told the company to post the acceptance, the court was of the view that
the post is the ordinary mode of transmission of an allotment letter.
3. Revocation It must be done before acceptance of the offer. In other words, an offer cannot
be legally withdrawn if it has already been accepted.

Acceptance of an offer
The basis of any contract is the mutual consent of all the parties to the contract.
Acceptance of any offer must conform to that offer. An offer can only be acceptance by
the person to whose it is made, but an offer made to the world at large may be accepted
by anyone.

1. An offer can be accepted orally, or in writing or by conduct

2. The offeree must have been aware of and must have intended to accept the offer.
When he did what is alleged to be the acceptance.
 A person cannot be allowed to say in court that he had accepted an offer of whose
existence he was not aware at the time he did what he regards as the acceptance
thereof.
3. An offer made to the public in general can be accepted by anybody who fulfils the
conditions stated in the offer, i.e. case of Carlil v Carbolic Smoke Ball Co.
4. An offer made to a class of persons can only be accepted by a person who belongs to
that class.
In Wood v Lectrick Ltd it was held that an offer which had been made to a class of
people who were referred to as ‘hair sufferers’ has been properly accepted by the
plaintiff – a young man whose hair was prematurely turning grey and was therefore a
‘hair sufferer ‘ within the advertisement.
5. The acceptance of an offer must be absolute and unconditional. If, while purporting to
accept an offer, the offeree modifies or varies it, the modification or variation
constitutes a counter-offer, which destroys the offer forthwith.
6. In order to make a contract binding, the acceptance must be communicated, and mere
mental intention to accept it is not sufficient.
7. The acceptance must also be made within the time prescribe by the offeror,
and if no such time is specified then within such time as is reasonable
having regard to the nature of the transaction i.e. Household Fire Insurance co. vs
Grant (1879)
8. The acceptance must be made before the offer lapses or is terminated.
Acceptance once made cannot be revoked. An offer may be revoked by an
express notice before it is accepted. But acceptance cannot be revoked in
any circumstances. The moment a person expresses his acceptance of an
offer, that very moment the contract is concluded and it does not matter
whether it is by writing, oral or sent by post. Where parties choose the post
as a medium of entering into a contract, the following rules apply.
 An offer becomes effective, when it reaches the offeree, not when the letter of offer is
posted.
 The acceptance is considered complete immediately the letter of acceptance is posted,
even if it is lost or destroyed in the post so that it never arrived. As long as the offeree
can prove that he posted the letter of acceptance, the court will enforce the contract.

Exceptions to the Communication by Acceptance

1. The rule that acceptance made by post, telegram or cable takes effect from the moment of
posting is an exception to the general rule, that a contract is complete only when
acceptance is actually communicated to the offeror. But a contract made by telephone is
complete only when the acceptance is heard by the offeror.
2. When an offer is made to the world at large and its terms so that it requires only the
performance of an act without notification of acceptance to the offeror, there is a contract
although acceptance is not actually communicated to the offeror.

Acceptance subject to contract

The words ‘subject to contract’ usually mean that the parties do not intend to be bound
until a formal contract has been agreed. In Eccles v Bryant parties agreed to sell land
 ‘subject to contract’ where it was held that there was no contract since the parties did not
intend to be bound until a formal contract had taken place.

Eccles v bryan, 1948.

B sold a house to E ‘subject to contract’. The contract was agreed between their solicitors
(advocates) and the parties were ready to exchange the counterparts. E signed his part and
posted it to B, but B did not sign it. Held that he was not liable on the contract unless he
signed it.

Intention to create Legal Relations

A contract is a result of an agreement between the parties. But in order that a contract
should be enforceable, there must have been an intention to create legal relations. We
have already explained that agreements of a purely domestic nature are generally not
enforceable contracts. Whether or not the parties intend to create legal relations is a
question of fact to be inferred from all the circumstances of a case.

Balfour v Balfour, 1919.

The defendant was a civil servant in Ceylon 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 Ceylon. The husband promised to pay her £30 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 legally binding contract. On the other hand, if an examining
the facts of a family agreement, the court reaches the conclusion that legal relations can
be inferred, the contract will be enforced.

LABOUR LAW
The Industrial Court
The Industrial Court is established under section 14(1) of the Trade Disputes Act
(Cap234). The main objective of this court is to give judgment in trade disputes between
employers and employees. The cases like dismissal of employees, non-payment of due of
employees, etc, can be taken to the Industrial Court.

The Court consists of such number of judges, not being less than two, as may be
determined by the President. The Judge is appointed by the President for a term of not
less than five years. The judge should hold the same qualifications as that of a Judge of
the High court.
Eight other members shall be appointed for terms of not less than three years by the
Minister for Labour after consultation with the Minister of Finance, Central Organization
of Trade Unions (COTU) and the Federation of Kenya Employers (FKE). When it
appears expedient a judge may appoint two assessors, one to represent employees and the
other employers from the panel of assessors, appointed by the Minister, to assist in the
determination of any trade dispute before the court. The judge(s) and the other eight
members are eligible for reappointment.
 The Court must, upon application being made to it by the parties to a trade dispute, or
upon a dispute being referred to it by the Minister concerned, take cognizance of such
dispute and make an award thereon. Every award so made must be notified by the Court
to the parties in dispute and to the Minister. The award is published in the Gazette under
section 16(2) and takes effect on the date or publication unless expressed to have
retrospective effect. Section 16(6) provides that an award shall as from the date it has
effect became an implied term of every contract of employment between the employers
and the employees to whom the award relates.

Section 17(1) provides that the award of the industrial court shall be final. Section 17(2)
provides that the award, decision or proceedings of the industrial court shall not be
questioned or reviewed, and shall not be restrained or removed by prohibition,
injunction, certiorari or otherwise, either at the instance of the government or otherwise.
If the minister has given any decision regarding a trade dispute then as appeal can be
made against this decision in the Industrial Court. Collective agreements, i.e. any
agreement between a Trade Union and an employer (or Employers' Federation) relating
to terms and conditions of employment are registered with the Industrial Court.

In a contract of employment where an employee loses his job as a result of breach of contract of
his employment, he must not sit idle but should try to find any other alternative employment. In
the words of Russell, J in Lurbeni Lugendo v Bukedi District Administration (High court of
Uganda, 1965), a dismissed employee is not entitled to sit and twiddle his thumbs’ in
anticipation of damages equivalent to this monthly to his monthly salary. He must convince the
court that he has taken genuine and diligent effort to minimize his loss by looking other
employment.

In Brace v Calder (1895) the plaintiff had entered into a 2 years contract of employment with the
defendants, a firm consisting of four partners. Five months later, the firm was dissolved by the
retirement of two partners who offered to employ him on the same terms as before. The plaintiff
refused the offer and sued for wrongful dismissal. He sought to recover the salary that he would
have received for the remainder of the two-year period.

It was held that he was entitled to nominal damages only. He must convince the court that he
had not taken any reasonable step to mitigate his loss and his rejection of the offer of continued
employment was unreasonable.

i. Unliquidated Damages: These are the damages assessed by the courts when breach of
contract takes place and the innocent party sues the defendant. In such cases the onus lies
on the plaintiff to produce evidence of the loss he has incurred.

ii. Liquidated damages: Sometimes the parties may themselves in their contract fix the
damages to be paid in case either party commits the breach of contract. If the amount so
fixed reflect a genuine pre-estimate of loss likely to result by breach, the innocent party
can claim fixed amount.
 Penalty clause: A penalty is a sum agreed in a contract to be forfeited on breach of
contract. It differs from the liquidated damages in that these are an attempt to value the
financial damage suffered as a result of breach of contract, whereas penalty is used as a
deterrent or security for the performance of the contract.

The test of the two is that where the amount fixed is a genuine pre estimate of loss in case of
breach, it is liquidated damages that will be allowed. The court will not truly reflect the probable
loss, then it is a penalty and will not be allowed. The court will not truly reflect the probable
loss, then it is a penalty and will not be allowed. The court will not be influenced by the fact that
sum payable on breach is called liquidated damages, if it is in fact a penalty. The court will look
at the essence of the matter and not the firm. The court will not look at the essence of the matter
and not the firm. The court will not enforce a penalty, but will award damages to compensate the
plaintiff on normal principles.

In Ford Motor Co, Ltd. v Armstrong, (1915), the defendant, a retailer, in consideration of
receiving supplies from the ford company, agreed not to sell any car or parts below the listed
prices, not to sell Ford cars to other motor dealers, and not to exhibit any car supplied by the
company without their permission. He also agreed that for every breach of this agreement he
would pay £250 as being the agreed damages which the manufacturer will sustain'. It was held
by the court of Appeal that the sum of £250 was a penalty and not liquidated damages. The same
sum was payable for different kinds of breaches which were not likely to produce the same loss.
Further it's size prevented it being a reasonable pre-estimate of the probable loss.

A sum will be as a penalty if:

(i) The sum stipulated for it's extravagant and unconscionable in amount in
comparison with the greatest loss that could conceivably be proved to
have followed from the breach.
(ii) The breach consists only in not paying a sum of money, and the amount
stipulated is a sum greater than the sum, which ought to have been paid.
(iii) When a single lump sum is payable by way of compensation, on the
occurrence of one or more or all of all several events, some of which may
occasion serious and other but trifling damage.
(iv) The consequences of breach are such as to make precise pre-estimation almost
impossibility, on contrary that is just the situation when it is probable that pre-
estimated damage was the true bargain between the parties.

9.9 Equitable Remedies

The main equitable remedies for breach of contract are injunction and specific
performance.

1. Injunction

An injunction is an order of the court restraining the doing, continuance or repetition of

a wrongful act: It may be obtained to enforce a negative contractual term where an
order of specific performance would not be available. For example, where a singer
agreed to work for a certain employer and then in breach of contract, worked for a rival
 company. Although her employer would not have been able to obtain an order for
specific performance of the original contract for personal services, he was successful in
obtaining an injunction restraining the singer from singing for anyone else.

As regards time, injunctions are either interlocutory (or interim) or perpetual. A

perpetual injunction is granted only after the plaintiff has established his right and the
actual or threatened infringement of it by the defendant.
An interlocutory injunction may be granted at anytime after the filling of the suit to
maintain things in Status quo.
As injunction, once granted, is enforced by committal (i.e. being sent to jail) for
contempt of court for breach.
As was noted, an injunction may be granted to restrain the breach of an express negative
stipulation in a contract of employment. However, an injunction cannot be granted where
there is no express negative stipulation, as illustrated by Whitewood Chemical Co. v
Hardman (1891).
In that case, the defendant entered into a contract with the plaintiffs and agreed to work for
them on a full time basis.

The plaintiffs sued to restrain him for working for others as he had occasionally done.
The court refused to grant an injunction since there was no express negative stipulation
and the court could not, in the circumstances. Imply One.

An injunction, being an equitable remedy, is not automatically available but is issued at the
discretion of the court. But it will not be awarded when damages would be sufficient
compensation to the plaintiff sued for an injunction restraining the defendants from doing so.
The court o Appeal for East Africa overruled the High Court of Kenya and lifted the
injunction on the grounds that damages would sufficiently compensate the plaintiff.

2. Specific Performance

Specific performance is an order of the court which orders the defendant to perform the
contract precisely (i.e. specifically) as he had promised to do so.

Specific performance is usually granted in the following cases:

a. Where a contract is for sale of land.
b. Where the contract is for taking debentures in a company.
c. Where the contract is for the sale of rare goods which are not easily available in the
market, or the value of such could not be measured in money.

Specific performance is not granted in the following cases:

a. Where the damages would be adequate compensation for the plaintiff.
b. Where the court cannot adequately supervise performance of the contract, such as a
building contract.

However, in Posner v Scott Lewis (1986) the tenants of a block of flats successfully
applied for a decree of specific performance of a clause in the lease by which the landlord
 had undertaken to employ a resident porter to keep the communal are a clean, to be
responsible for the boilers and to collect rubbish from the flats. This was so because the
court would not be called upon to supervise the porter's day - to - day work after the
appointment was made. The other reason was that the duties of the porter to them but the
obligations of the landlord to them.
c. Where the contract is a money leading contract.
d. Where one of the parties is an infant - this is because equity requires equality as
regards its remedies and this does not exist where one party is an infant since specific
performance cannot be decreed against the infant.
e. Where the contract is one of personal services: as in the case of Eric V. J. Makokha
& Others v University of Nairobi, applied to the Registrar of Trade Unions to have their
Staff Association registered as a trade Union under the Trade Union Act. The Registrar
of trade Unions rejected the application and the applicants in protest refused to teach and
to report for duty. Faced with this situation, the Vice-chancellor of the University
convened disciplinary committee of the University Council where upon the respondents'
appointments with the University were terminated.
The applicants brought a suit in the High court to declare null and void the termination
and for an injunction to issue restraining the University for evicting them from the
University houses, which they occupied.
The High Court refused to grant the order for injunction and on appeal it was held:

1. That the University of Nairobi act, does not guarantee the employment of the
applicants.
2. That a breach of a contract of personal service cannot be redressed by the
equitable remedies of injunction and specific performance.
3. That damages are the generally accepted remedy for redressing breaches of
contract of personal services.

Limitation period
Section 4(1)(a) and 4(1)(e) of the Limitations of Actions Act of 1968 provides that
actions founded on contract, and actions claiming equitable relief for which no other
period of limitation is provided by the Act or by any other written laws, may not be
brought after the end of six years from the date on which the cause of action accrued.
However, a person claiming specific performance injunction must do so without Laches
(i.e. Unreasonable delay).

Industrial Relations / Labour Relations

The relations that exist between employers and employees in an organization are referred to as
labour relations or industrial relations. However it is argued that there is a difference between
labour relations and industrial relations. Labour relations is said to consist of all those areas of
human resource management that involve direct relationship between an employee and employer
in which there are agreements of terms and conditions of employment and other issues arising
from employment. On the other hand industrial relations are concerned with dealings between
management and trade unions representing employees and include the involvement of the
government through the industrial court. In the real sense the difference is not significant as in
both cases it’s about the relationship between employees and employers where in some cases
there is involvement of trade unions and the government in solving their disputes.
There is great need today to retain a good working industrial relationship between management
and staff. This calls for management and union representatives working together to solve
problems, implement decisions and ensure that the interest of both staff and organization are
taken care of. Branch committees for example can be used not only for committees’ purposes but
also for consultation purposes dealing with any matters from personal grievances to
improvement of work conditions. The new approach of management aims at ensuring that the
union is an essential part of management of work conditions. Where there is willingness for
cooperation from workers towards the achievement of organization goals we can say that there’s
good labour relations
The scope of industrial relations includes:
1. The relations between management and individual employees.
2. The collective relations between trade unions and management.
3. Collective relations among trade unions, employers’ associations and government.
Objectives/Functions of Industrial Relations
1. To ensure that both the formal and informal relationships and continuous interactions
between management and trade unions are handled amicably.
2. To facilitates the development and application of rules and procedures for collective
bargaining and dispute administration.
3. To ensure that the different parties e.g. Government, management, trade unions, Human
Resource managers, Shop stewards (representatives of employees at the company) and
employers play their different roles sufficiently for good Industrial Relations.
4. To promote and develop harmonious relationships between labour and management
5. To enhance workers economic status by improving wages and benefits.
6. To regulate production by minimizing industrial conflicts through state control.
7. To provide an opportunity to the workers to have a say in the management and decision
making.
8. To improve workers strength with a view to solving their problems through mutual
negotiations and consultations with the management
9. To encourage and develop trade unions in order to improve the workers strength.
10. To avoid industrial conflict and their consequences.
11. To extend and maintain industrial democracy where there is full participation of both
managements and employees.
12. To safeguard the interests of workers on one hand and the management on the other hand.
13. To avoid unhealthy and unethical atmosphere in an industry.
Importance of Harmonious Industrial Relations
1. Sound industrial relations would help in economic progress of an economy resulting in
increased productivity.
2. It gives the organization room to plan ahead for its activities and enable employees to
devote energy to activities aimed at achieving organizational goals.
3. It creates a sense of mutual trust, confidence and respect among employers and
employees.
 4. It creates an environment where organization’s output is increased hence boosting its
profit margin.
5. Good industrial relations help in establishing and maintaining true industrial democracy
6. It results in smooth collective bargaining on the part of both labour and management
7. Sound industrial relations would help the government in framing and implementing
various laws pertaining to labour, forbidding unfair practices of unions and employers.
8. Good industrial relations result in less number of disputes and grievances thus boosting
the morale and discipline of workers.

Participants in Industrial Relations.

1. Workers and their organizations- The workers through their trade unions play an
important role in industrial relations. The main purpose of trade unions is to protect the
workers economic interest through collective bargaining and by bringing pressure on
management through economic and political tactics.
2. Employers and their organizations- The employers expect the workers to follow rules and
regulations, exploit his ability to maximum. The difference between the demands of the
worker and employer results in industrial conflicts.
3. Government- It plays a balancing role as a custodian of the nation. Government exerts its
influence on industrial relations through its labour policy, industrial relation policy,
implementing labour laws and adjudicating on industrial relations conflicts.
Role of employees in industrial relations/labour relations
1. The employees through their unions should keep themselves informed on issues relating
to their work.
2. Employees must adhere to rules and regulations of the organizations.
3. Employees must respect their supervisors.
4. Employees should make reasonable demands
5. Where there is a problem, employees should channel it through the laid down procedure
or process.
Role of trade unions in industrial/ labour relations
1. They should ensure that the interest of both workers and employers are satisfied and by
doing so the organization will attain its objectives.
2. The union must present workers’ grievances in a diplomatic way trying as much as
possible to avoid confrontation.
3. Industrial unrest should be resorted to only when all avenues have been exhausted.
4. The union should see to it that employees work to the satisfaction of the organization;
thus any employee who fails to measure to the working standard shouldn’t be shielded by
the union.
Role of the government in industrial and labour relations
1. To protect the rights of both employees and employers in the organization.
2. Ensuring speedy settlement of disputes and formulation of return to work formula.
3. Providing conducive atmosphere for both employers and employees to form their trade
unions e.g. through formulation of legislations allowing participation of both parties in
the unions.
4. To act as an arbitrator for solving industrial disputes through industrial courts.
 5. Ensuring that there’s no overlap among trade unions.
6. Gets into joint consultation with COTU(central organization of trade union) and
FKE(federation of Kenyan employers) on matters pertaining to employment policy and
labour administration.

Role of employer in industrial relations

1. Use of modern management styles and strategies, which incorporate respect for authority
and experience
2. Recognize and respond to the new economic and business environments through greater
reliance on labour-management cooperation
3. Adopt a modern policy, legislative and institutional framework which ensures an
effective industrial relations system.
4. Adopt more flexible forms of work organization and management
5. Use of more workers-sensitive management strategies

Good Labour Relations

Every organization should strive to induce good labour relations and ensure industrial peace by
avoiding labour unrests such as strikes, work stoppage, boycotts and lockouts. Some of the
conditions necessary for establishing and maintaining good labour relations include:
1. Recognition by the employer that the workers are part of the team working towards a
common goal.
2. Recognition of workers’ unions by employers.
3. Fair attitude towards redressing workers grievances
4. Fair attitudes of supervisors towards workers rights
5. Willingness on the part of the worker to deliver services or goods.
6. Refusal by both workers and unions leaders to be unduly influenced by political leaders
who may unite to stage strikes for their own publicity or other political gains
7. Adopting a policy which ensures the worker get an equitable share of the gains of
increased productivity.
8. Payment of fair wages and developing adequate pay structures
9. Establishing satisfactory working conditions
10. Introduction of a suitable system of workers education at all levels
11. Provision of appropriate tools
12. Training in labour and human relations skills of workers, supervisors, managers and
union representatives
13. Establishing an adequate communication channel between management and workers in
order to keep workers informed about decisions which affect their work and interests
14. Establishing an atmosphere of participation through joint committees, consultations,
quality circles and other methods.

Indicators of good labour/industrial relations

 Absence of employees’ sanctions such as strikes, go slows.
 Absence of restrictive working practices.
 High levels of productivity.
  Acceptance of change in the interest of the organization.
 Good working relationships
NB: For the good of both the employee and employer there must exist cordial relations.
Management must understand that it isn’t the employee that will benefit from the relationship
but also management stands to benefit.
Poor Labour Relations
Poor Labour Relations often leads into inefficiency and more so into labour unrest. Management
in certain cases may not be concerned enough to find out causes of dissatisfaction until it’s faced
with serious labour unrest like strikes. Most of the common causes of poor labour relations
include the following:
1. Where trade unions do not exist. It should be noted that the cause may be attributed
solely on management.
2. Workers indiscipline.
3. Unhealthy working conditions.
4. Intolerant attitude of contempt towards workers on the part of management.
5. Inadequate payment structure i.e. lack of proper reward management systems.
6. Lack of Human relations skills on the part of supervisors, managers and shop-stewards.
7. Desire on the part of workers for higher pay and other benefits and corresponding desire
by employers to give as little as possible.
8. Inappropriate introduction of technology without prior or advance preparation and
provision of the right climate.
9. Unduly heavy workloads.
10. Unfair labour practices such as victimization and dismissals.
11. Retrenchments, dismissals and lock outs on the part of management and strikes, picketing
and boycotts on the part of workers.
12. General economic and political environment e.g. rising prices, strikes by workers in
similar firms.

Indicators of poor Industrial Relations/Signs of Potential Grievances

In order to prevent grievances from turning into dissatisfaction and open confrontation,
management should be alert to potential problems which workers may have. Such signs include;
 Lack of morale to work and decreased interest in work
 Negative statements about the job, colleagues, supervisors and organization as a
whole
 Unwillingness to cooperate
 High levels of employee absenteeism and consistent lateness
 Low production and poor job performance
 Slowing down on the job
 Being away from assigned place of work for no apparent reason.
 Frequent conflicts- regular quarrels and misunderstandings.
 Frequent strikes and boycotts.
 High labour turnover.
 Many unfinished assignments.
  Failure to meet work deadlines.
Industrial health and safety/occupation health and safety
It’s an area of human resource manager concerned with protecting the safety, health and welfare
of people engaged in work. The purpose of health and safety programmee include:-
1. Minimization of health and safety hazards and risk.
2. Helps to reduce suffering and loses caused by ill health and injuries to individuals and their
dependants.
3. Helps to reduce accidents and absenteeism caused by ill health or injuries resulting to losses
and damage for the organizations.

Separation or release from the organization

This happens when employment relationship is voluntarily or involuntarily terminated by the
employer or employee. That is, bringing to an end employment relationship through willful
initiative of either the employer or the employee i.e. the employee could resign for any reason at
will and the employer similarly could terminate the employee employment for any reason.
Release from the organization may therefore take place through any of the following ways.
1. Redundancy
2. Voluntary resignation
3. Retirement
4. Dismissal

1. Redundancy
This is the process of reducing the number of people employed by the organization. It is also
referred to as right sizing, downsizing, and sometimes its called retrenchment.
It’s one of the HR plans in which an organization deals with unacceptable employment cost
or surplus number of employees. Redundancy is one of the most challenging jobs of the
human resource manager and to be effective he/she should do the following:-
a) Plan ahead to achieve downsizing without involuntary redundancy i.e. carry out a proper
human resource planning.
b) Encourage voluntary redundancy by giving golden handshake.
c) Develop and apply as much as possible to ensure redundancy is well managed.
d) Use of out placement which is the process of helping redundant employees to find work
elsewhere or start new careers altogether.
e) Advice and implement other methods of reducing numbers other than redundancy such
methods include
(i) Encouraging early retirement and stop recruiting until the desired level of
employees is reached. However, this method most be used cautiously because if it
continues for long can create a gap in the age structure of a workforce.
(ii) Withdrawing all subcontracted work and reducing the number of part timers.
However, remember that they too have employment rights
(iii) Reduce or eliminate overtime hours
(iv) Developing work sharing where two people do a job
(v) Use temporary lay offs
Ways of dealing with redundancy
1. Make frank and early announcement to employees who you intend to send away through
redundancy. However, care has to be taken as employees may leave as soon as they are told
of their redundancy.
2. Form a joint committee to discuss who will be redundant taking into account the minority
groups, the length of service, family responsibilities.
3. Use a much more ruthless approach where you don’t inform employees about their
redundancy until the very last minute.

2. Resignation
Occurs when an employee gives the employer a notice to terminate the contract of
employment. During the period of notice the employee remain under the control of the
employer. It’s important for the human resource manager to do an exit interview with the
leaving employee to find out the reasons for leaving. Though many employees are not frank
about their reasons for leaving, they may however give critical information of what they feel
about and the attitude they have towards the organization.
NB: It’s important to note that there is no legal requirement that a resigning employee should
tell the employee why she or he is leaving.
3. Retirement
It’s a natural process of leaving the organization after attaining a certain stipulated age. This
is a major change that a human resource manager should prepare for. An organization should
have a retirement policy which should specify the following.
1. When people are due to retire
2. Circumstances under which the employee can work past retirement age
3. The provision of pre-retirement training
4. Provision of advise for people about to retire

4. Dismissal
This is involuntary and instant termination of an employee employment contract with or without
notice on account of gross misconduct or otherwise. It’s often referred to as sacking.
Dismissing an employee is an unpleasant task and it’s the most drastic form of disciplinary
action and therefore should be reserved for the most serious offences. Due to its seriousness
many managers are reluctant or avoid dismissing employees.

Fair and unfair dismissal

When dealing with dismissal cases, the law demands answer to fundamental questions.
a) Was there a sufficient reason for dismissal?
b) Did the employer act reasonably in the circumstances?
Fair dismissal
Because dismissal is such a serious matter, the employer must be careful to ensure that, not only
is it due for a good reason but the manner in which an employee is dismissed is fair.
A dismissal can be termed to be fair or justified in the following circumstances.
(i) Employee involvement in misconduct such as insubordination, fraud, dishonesty or theft,
willful damage or loss of employers property taking or giving bribes, habitual absence
without leave, habitual lateness, disorderly behavior and habitual negligence of work.
(ii) Taking part in un-official strike or inciting others to strike.
 (iii) Breach of any law related to employment.
(iv)Failure to have qualification relevant to the job.
(v) As a result of redundancy which has taken place in accordance with agreed legal
procedures.
Unfair dismissal
Dismissal carried out in unfair/unjust way may adversely affect motivation of employees,
lower company reputation and create industrial relation problems. A dismissal is termed
unfair in the following circumstances.
(i) If it does not meet the conditions of fair dismissal as highlighted above.
(ii) If the employees are not informed and made aware of the charge made against them.
(iii) If employee were not given an opportunity to defend themselves.
(iv) If the general procedure of executing a dismissal were not followed.