Law of contract I

LESSON ONE
BY DR. FANCY TOO
Introduction

 Contract law is concerned with the regulation of agreements, and in particular agreements
to exchange goods and services for money or other goods or services (or both).
 Its obligations are generally voluntarily assumed, and on that basis it is distinguishable
from the law of tort, which is concerned with obligations that are imposed by the law (e.g.
to drive carefully).
Introduction

 Law of contract is a logical subject based on the principle of Freedom to contract

 Parties are free to contract with whomever and over whatever they wish
 Courts aim not to interfere with this freedom unless its absolutely necessary
 Contract law is predominantly a case law based subject-though there are statutes you must
refer
Definition

 A binding agreement between two or more persons or parties ; especially one legally
enforceable
 a business arrangement for the supply of goods or services at a fixed price
 Generates rights and obligations that may be enforced by courts
 Agreement arises as a result of offer and acceptance
 It can be oral or written
Have you agreed to a contract?

 How many people think they are party to a contract?

EXAMPLES

 Credit Card Agreement

 Signed agreement related to a job
 Online agreement when starting a Facebook or email
account
 An agreement to buy something from a friend
 Buying something from a store
Nature of contract

 What is a contract? A promise or a bargain?

 A contract is a legally enforceable agreement
 2 key elements parties and form of enforcement thereof
 NB-not all agreements are contracts, all contracts require at least an apparent agreement.
 Enforceability means parties are required to honor their promises(obligations)
Enforceability

 It is “enforceability” which distinguishes contracts from other forms of agreement.

 The agreement on which a contract is made is also subject to the rules of contractual
capacity, consideration, or and, exceptionally, to any special requirements as to form.
 Besides, there are agreements that are purely social agreements and not intended to be
binding
 However, even where a contractual agreement contains all the necessary requirements for
its formation there may be some “vitiating” element, such as misrepresentation or
mistake, which precludes, in whole or in part, the enforcement of the agreement.
Nature cont..

 It should also be pointed out that “agreement” is judged objectively, thus:

‘ If, whatever a man’s real intention may be, he so conducts himself that a reasonable man
would believe that he was assenting to the terms proposed by the other party, and that other
party upon that belief enters into the contract with him, the man thus conducting himself
would be equally bound as if he had intended to agree to the other party’s terms’ [1983] Com
LR 158. See also Tamplin v James discussed at 10.3.
Example

 If A advertises an item on the internet and seeks bids. B offers to buy for Kshs10,000 and
A immediately accepts. There is the objective appearance of agreement and a court would
generally ignore a subsequent claim by B that he was “mistaken” and meant to offer only
Kshs1,000.
 It would have been different, of course, if it could have been clearly shown that, in the
circumstances of the case, the defendants must have known that the plaintiffs were
making a mistake and took advantage of the situation.
 Agreement is generally viewed as comprising two elements; an offer by one party and an
acceptance of that offer by the other.
Tort and contract

Tort contract

Who has a duty Groups of people generally The specific individual who
everyone willfully entered into a
contract

What binds the individual Law of society binds Specific agreements in which
everyone parties mutually binds
themselves
Crime and Contract

 A crime is a wrong against the state

 Such a wrong harms not just the victim of that crime but the whole society.
Hence it is a public wrong
 Crime is a public law while contract is a private law issue
 In a contract, it is an individual/party who will come to the court for seeking remedy for
breach. A crime affect society at large hence the state approaches the court
What does it mean contract?

Contracts are about:

 Bargaining
 Coming to an agreement
 Being willing to be legally bound to your side of that agreement, as long as the other party
is bound to theirs
When does an agreement come into existence?
Elements of contracting

 Offer

 Acceptance

 Consideration

 These are the basic elements, but contract law can get a lot more complicated
Offer

 An offer is an invitation to make a contract

 Examples?
 Displaying a take it or leave it contract online
 Bidding on ebay
 Putting a price tag on an item in a store
Acceptance

 The point at which one party agrees to the other parties offer

 Examples
 Clicking that you accept the online contract
 Winning an ebay auction
 Buying the item from the store
Consideration

 Generally, courts will only enforce a contract if both sides are getting something.

 What each side gives the other is called consideration.

Is this a contract?

 You order a book of Amazon.com. Your credit card is charged, but no book ever shows
up

 Was there a legally enforceable contract?

.
Answer

 Yes, you agreed to pay Amazon.com money and they agreed to send you a book
Is this a contract?

 Last year, your uncle promised you an iPhone for your 18th birthday. When you turned
18, he gave you his old broken basic cell phone.

 Was there a legally enforceable contract

Answer

 No, while your uncle made a promise, he did not receive any consideration in return.
Consideration has to be more than good feelings.
Is this a contract?

 You signed up for a week long football camp which cost Kshs10,000. You paid and went
to the camp. When you got to the camp, they just had you watch cricket movies all day.

 Was there a legally enforceable contract?

Answer

 Yes. You agreed to pay money to the camp and they were supposed to give you
basketball training
What does the law of contract do

 It allows people to contract with minimal interference then insists on performance

 Key principles-Freedom and sanctity of contract
 Freedom-denotes that it is for the parties to make their own contracts without the
intervention of government, legislation or the courts
 Sanctity of contract- once agreements are made they should be honoured; where a
contracting party does not honour the agreement, the other party will be entitled to a legal
remedy.
Cont..

 Contract law is therefore to facilitate exchanges. An important part of this is the allocation
of ‘risk’.
 One of the reasons why the parties will put their transaction into the form of a contract is
that it provides a mechanism for enforcement of the way in which they have agreed to
allocate the risks. In a sale of goods contract, for example, the risk that the goods will be
unsatisfactory is placed on the seller.
Types of contracts

 Bilateral and Unilateral Contracts

 Bilateral
 Exchange a promise for a promise-both parties agreeing to exchange items or services of value
 Unilateral
 Exchange a promise for an act-involve only one party promising to take action or provide
something of value. Example when a reward is offered for something being found: the party to whom the reward is
offered is under no obligation to find the lost item, but if they do find it, the offering party is under contract to provide
the reward.

 Both types of contracts are valid

 Most contracts are bilateral
Express and Implied Contracts

 An express contract has terms that are stated expressly, or openly, in either writing or
orally, at the time of contract formation. These are the kinds of contracts that most people
think of when they think of contracts.
 Implied contracts, on the other hand, have terms that must be inferred by actions, facts,
and circumstances that would indicate a mutual intent to form a contract
Formal vs. Informal contacts

 Formal contracts are legally worded document prepared between the parties that contain
all the terms and condition of the contract with the signatures of at least two witnesses
which can stand as an evidence in the court to prove the matter of the contract. It is
enforceable with the assistance of the court..
 Informal contract is typical understandability between two parties involving in the project.
It may be written or oral but it does not contain the essential requirements such as seal
and signature of the witness of the respective parties.
 The major difference in formal and informal contract based on its enforceability in the
court
Unconscionable Contracts

 Contracts that are considered unjust by being unfairly weighted to give advantage to one
side over the other.
 Examples:
 A limit on the damages a party may receive for breach of contract.
 A limit on the rights of a party to seek satisfaction in court.
 An inability to have a warranty honored.
Doctrine of privity to contract

 You get the rights or have to fulfill the obligations of a contract only if you are a party to
the contract
 If you are not a party, you can neither sue nor be sued because of the contract
Case

 Alva vs. Cloninger, Vahle v. Barwick and Citizens State Bank vs. Timm, Schmidt & Co.
 Privity of contract is a doctrine that states that an entity that is not a party to the contract
should not get benefits or be subjected to penalties arising from the contract.
 The privity principle intends to protect third parties from prosecution over contracts they
are not parties to.
Exception: third party

 Example: you have entered into a contract with an insurance company; the aim – that
your partner can benefit from the contract; it would be pointless if the company later
refused to pay anything to your partner because she was not a party to the contract
 English law allowes a third party who is to benefit from the contract to enforce it
Circumstances where it can be permited

 A beneficiary of the contract who is not a party to the contract, in some instances, can sue
the parties to the contract.
 Third parties can sue contracting parties if it is proven that the contracting parties were
negligent.
 Contracts in which an agent signs on behalf of the principal. In this case, the principal can
be sued.
 When a contract is assigned to another party. The assignee can generally sue the parties
to the contract
Questions

 Next week
 Sources of contract law
 Theories of contract law
 Economics and contract law
 Doctrine of sanctity of contract