LAW OF CONTRACT

INTRODUCTION

The law of contract is the branch of civil law which determines how promises made by the
parties are to be binding and enforceable on them. It deals with rules defining the remedies
available in a court of law in case the contract is breached or violated.

A contract means an agreement made between two or more parties that is legally binding
or enforceable by the law. According to Salmond, a contract means an agreement creating
and defining obligations between the parties.

CLASSIFICATIONS OR KINDS OF CONTRACT

Express and Implied Contract:

An express contract is a contract whose terms and conditions are stated or agreed upon
by the parties orally or in writing. For example, A agrees to sell his car to B for Ksh.500,000
and B agrees to buy it at that price and this is done orally or in written words.

An implied contract is one which is presumed from the conduct of the parties or from the
surrounding circumstances. An example is where A enters into a bus, there is an implied
contract by A’s conduct that A will pay the fare and that the bus driver will convey A to his
destination.

Valid, Void and Voidable Contracts:

A valid contract is one which has all the essential elements required of a contract.

A void contract is one which is not binding or enforceable by law e.g. a contract missing
any one essential ingredient.

A voidable contract is one which is enforceable only at the option of one of the parties e.g.
where consent to an agreement is obtained by fraud, the agreement is voidable at the option
of the party defrauded.

Illegal and Unenforceable Contracts:

An illegal contract is one which is prohibited by law or which violates the provisions of law.
Such a contract cannot be enforced by any of the parties to it.

An unenforceable contract is one which cannot be enforced by the courts or one that is
incapable of performance.

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Unilateral and Bilateral Contracts:

A unilateral contract is one which binds only one party and therefore one party is under a
duty to perform his obligations under it e.g. A offers a reward of Ksh.5,000 to anyone who
recovers his lost property. In this case, no one is bound to return the lost property but A,
alone, is bound to pay the promised reward to whosoever returns the lost property.

Bilateral contract is one in which both or all parties in it are bound to perform their
obligations e.g. A agrees to sell his car to B for Ksh.500,000 and B agrees to buy it at that
price. In this case, both the parties are bound to perform their obligations under the
contract i.e. A is bound to deliver the car to B and B is bound to pay the agreed price.

Executed and Executory Contracts:

An executed contract is one in which the parties have completely performed their
obligations and nothing remains to be done by either party e.g. where A sells his car to B
for cash, the contract is executed.

Executory contract is one in which some obligations are still outstanding or the parties are
yet to perform their obligations arising under it e.g. where A agrees to sell his car to B and
B agrees to buy the car and pay the price upon delivery, the contract is executory because
it is yet to be carried out (fulfilled).

Specialty and Simple Contracts:

A specialty contract is one with special features. It must be in writing, signed, sealed and
delivered to the person for whose benefit it was made e.g. A executes a deed of transfer of
his land to B and it is signed, sealed and delivered to B.

A simple contract is one which may be express or implied between the parties i.e. it may
be made either orally or in writing or it may be determined from the conduct or relation of
the parties.

Contracts of Uberrimae fidei:

This are contracts of utmost good faith. In these contracts, only one party has full
knowledge of the material facts relating to the contract. That party is under a duty to
disclose those facts to the other party who has non e.g. in a contract of insurance, the
assured must disclose all the relevant material facts to the insurer in order to effect the
contract of insurance, otherwise the contract will be rendered as null and void.

Quasi Contracts:
These are contracts which are recognized by law under certain special circumstances. They
are based on the principles of equity i.e. justice or fairness e.g. a finder of lost goods is
required to return the goods to the true owner.

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Contracts of Record:

A contract of record is judgment of the court. The rights and obligations of the parties are
entered to the court records. These contracts derive their binding force from the authority
of the court.

ESSENTIAL ELEMENTS OF A VALID CONTRACT

An offer

Parties must first reach an agreement in order to form a contract.1 The agreement is
reached when one party (offeror) gives an offer that is accepted by the party receiving the
offer (offeree). An Offer is an expression of willingness to contract on certain and definite
terms as soon as those terms are accepted. Offer is distinguishable from invitation to treat.
Invitation to treat is commonly a communication by which a party is invited to make an
offer.2 This is because an invitation to treat is not made with the intention that it is to
become binding as the person to whom it is addressed simply communicates his assent to
its terms. A common example is the display of goods in a shop or a supermarket, which
amounts to invitation to treat. It is the customer or buyer who makes an offer by picking
up the goods and proceeds to the counter to make an offer, which is accepted by the
shopkeeper, by receiving the payment in exchange for the goods.

There are different types of offers including; counter offers, cross offers, conditional offers,
single and standing offers. A counter offer is a reply to the original offer whose effect is to
vary the terms of the original offer. It operates as a rejection of the original offer. It
extinguishes the original offer. Cross offers are offers made simultaneously in respect to
the same subject matter.

The cross offers are made by same parties to each other. Conditional offers are offers made
subject to the fulfillment of certain conditions. The conditions may be imposed by the
offeror or implied by law itself. Both single offer and standing offer arises in the case of
tenders. Where the supplier is required to supply a definite quantity of goods within a
specified time, it is a single offer. Whether delivery is to be effected at once or in
instalments, it makes no difference. Where it is stated that the supplier may be
required to supply within a specified period goods in a quantity not exceeding a
specified limit, it constitutes a standing offer. In a contract of definite terms, a

1
HG Beale, „Chitty on Contracts, General Principles’ (13thedn, Vol. 1, Sweet & Maxwell) 143.
2
Supra note 4, pg 148.

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single offer entails a definite obligation and acceptance results while no definite
obligation is entailed in a standing offer.

Rules of offer

The offer must be made with the intention (actual or apparent) that it is to become binding
as soon as it is accepted by the person to whom it is addressed. An offer must be
communicated to the other party in order for it to be valid, so that he may accept or reject
it; the communication may be in any manner, that is, in writing, word, or by conduct; must
be clear and definite i.e. it must be certain and free from vagueness and ambiguity; and
must be distinguished from an „invitation to treat‟.3 An offer may be general or specific i.e.
it may be directed to a particular person, a class of persons or the public at large. The
leading case of Carlil v Carbolic Smoke Ball Co. 4set the precedent that indeed offers can
be made to the whole world. In that case, the defendants, who were manufacturers of
„smokeballs‟ published an advertisement stating that if anyone used their smokeballs for
a specified time and still caught flu, they would pay that person £ 100 in that case. Mr.
Carlil bought and used a smokeball from the defendants, but nevertheless succumbed to
flu, and therefore claimed the £ 100 from the defendants. The defendants argued that it
was not possible to make an offer to the whole world, an argument that was rejected by
the court.

An offer can be terminated in several ways before the offer is accepted.

 The first is rejection, which terminates the power of acceptance. The making of counter-
offer is an example of rejection. It counts as rejection and terminates the offer, whether
a counter offer is express or implied.5
 The second is revocation. When the offeror manifests an intention not to enter into the
proposed agreement revocation occurs.6 At any time before acceptance, the offeror
retains control over the offer. This includes the right to modify or terminate the offer.
 The third is lapse – an offer will lapse within the time stated in the offer, or – at the end
of a reasonable time– in the event that no time for expiration is specified.7

3
M Suff„ Essential Contract Law’ (2ndedn, Cavendish Publishing Limited 1997) 3.

4
[1893] 1QB.

5
Restatement (Second) of Contract § 38.
6
Restatement (Second) of Contract § 42
7
Restatement (Second) of Contract § 41.

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 Finally, death terminates an offer. Death deprives a person of the legal capacity to enter
into a proposed contract.8
 By the failure to fulfill conditions precedent to acceptance.

Acceptance

Until the offer is accepted by the offeree indicating his unequivocal assent to its terms and
therefore his willingness to be bound by the terms of the offer, a contract is not complete.9
Acceptance is an unconditional agreement to all the terms of the offer. Acceptance is a final
and unqualified expression of assent to the terms of an offer, in other words.10 It means
that the offer must set out clear terms in order for the offeree to clearly accept them. The
same will then not amount to acceptance, should there be variation of the terms of the
offer. The acceptance will often be oral or in writing, but in some other cases it may be by
conduct such as delivering goods in response to an offer to buy usually.11 Unless the need
for communication is waived by the offeror, the general rule is that for acceptance to be
valid, it must be communicated to the offeror.12 It is only logical that the offeror should
only be bound by an acceptance that was communicated.

Rules of acceptance

• Acceptance should be communicated;

• Acceptance should be absolute and unqualified;

• Acceptance should be made in the prescribed manner or in some usual and reasonable
manner; and

• Acceptance should be made while the offer is still subsisting.

Communication of Acceptance: As a general rule, acceptance must be communicated.
Acceptance should be made (communicated) by doing some overt act, either by words or
conduct. Communication is not absolutely indispensable, yet it is a matter of common
sense. It is not necessary in the case of unilateral promises. If the offeree remains silent
and does nothing to demonstrate that he has accepted the offer no contract is concluded.

8
Restatement (Second) of Contracts § 48.

9
Grubb A, „The Law of Contract’ (2ndedn, Lexis Nexis Butterworths, 2003) pg 415. 68Beale (n 60)24.
10
ibid158.

11
ibid 24.

12
McKendrick, ‘Contract Law, Text Cases and Materials’ (4thedn, OUP 2010) 99.

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Mental acceptance or uncommunicated assent does not give rise to any contract. The
general rule is communication of acceptance. However, this general rule, can be overcome
by proving that the person who makes the offer may expressly or impliedly dispense with
the need for notification of acceptance. In the case of a reward-type offer, it is
understandable that it is not necessary for all those people who intend to respond to notify
that they are responding.
Acceptance should be absolute and unqualified: In all the terms of the offer, acceptance
should be ‘absolute and unqualified’. There will be no contract, if there is any discrepancy
between the terms of the offer and the terms of the acceptance. For example, where X
offered to sell a plot of land to Y at Kshs 1,00,000 to be payable at the time of sale. Y replied
accepting and enclosing a cheque for Kshs 90,000, and promising to pay the balance by
monthly instalments of Kshs 2,000 after the contract of sale. Since there was no
unqualified acceptance, there would be no contract.

Acceptance should be made in the prescribed manner or in some usual and reasonable
manner: The person attempting to accept should do whatever is required, if there is a
prescribed means of acceptance. The proposer may, within a reasonable time after the
acceptance is communicated to him, insist that his proposal shall be accepted in the
prescribed manner, and not otherwise; if the proposal prescribes a manner in which it is
to be accepted, and the acceptance is not made in such manner, but if he fails to do so, he
accepts the acceptance.

Acceptance should be made while the offer is still subsisting: The offer is revoked under
diverse circumstances or the offeror is at liberty to withdraw his offer. There is nothing
which can be accepted, subsequent to the withdrawal or lapse of the offer. Consequently,
it is necessary that the acceptance should be made while the offer is still alive and
subsisting. After an offer has been withdrawn or lapsed, it’s acceptance cannot result in
any contract. An offer similarly, is deemed to have ended by its rejection or by making of a
counter-offer (in response to the original offer). An attempt to accept the same would not
result in any contract in such situations also.

Consideration

It is the price paid by one party for the promise of the other. According to Patterson J in
Thomas v. Thomas “consideration means something which is of some value in the eye of
the law moving from the plaintiff. It may be some benefit to the defendant or detriment to
the plaintiff but at all events it must be moving from the plaintiff.” Consideration is provided
by the promisee „paying for‟ the promise, by doing, or promising to do, or forbearing, or
promising to forbear from doing, something in return for it, according to Grubb. 13 It has

13
McKendrick (n61) 214.

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also been defined to mean the signifying of some benefit or advantage going to one party
or some loss or detriment suffered by the other party.14 In a motor vehicle sale contract for
instance, the consideration would be the vehicle on one hand and the money or price paid,
on the other.
Types of Consideration
Consideration may be executory or executed.
1. Executory Consideration: Consideration is executory where the parties exchange mutual
promises. It is where the obligations of the parties are still outstanding or yet to be done.
Neither of the parties has performed its part of the contract or one of the parties is yet to
perform his part. E.g. purchase of goods on credit.
2. Executed Consideration: Consideration is executed where there is total/complete
performance of the party’s contractual obligation. All the parties have carried out their
contractual obligations. For example, the purchase of goods on cash payment.
Rules that govern consideration

Firstly, consideration must not be past.15 Or past consideration is no consideration.

In Re McArdle16, a son lived in his mother’s house with his wife. The house was to pass to
the son and three other children on her death. The son’s wife paid for both repairs and
improvements to the property. To pay her daughter-in-law back from the proceeds of her
estate, the mother then made her four children sign an agreement. The mother died and
the children refused to pay. The daughter-in-law’s claim failed and as such her
consideration was past and the promise to pay unenforceable, because she had already
performed the act before the promise to pay had been made. If the promise to make
reimbursements for the repairs was made before the repairs were done, then the same
would have been binding.
Secondly, the consideration must be sufficient but need not be adequate.17 As long as it
has some value in the eyes of the law sufficient to render the promise enforceable the court
will not concern itself with the adequacy of consideration.18 This means that if the parties

14
Hodgin (n73) 40.

15
85Fafinski& Finch (n83) 34.

16
[1951] Ch 669.

17
Fafinski& Finch (n83) 34.

18
ibid 38.

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agree on a figure of Kshs 5 Million but the value of a piece of land is Kshs 20 Million, the
courts would not interfere with the same on account of inadequacy of consideration.
Thirdly, Consideration must move from the promisee.
This rule means that the person to whom the promise is made provides consideration and
by so doing there is a bargain between the parties or mutuality.
The promisee becomes party to the transaction by providing consideration. In Thomas v.
Thomas, Patterson J was emphatic that “consideration must at all times flow from the
plaintiff.” The Doctrine of Privity of Contracts originates from the rule that consideration
must flow from the plaintiff.
THE DOCTRINE OF PRIVITY OF CONTRACTS
It means that only a person who has provided consideration to a promise can sue or be
sued on it and therefore the doctrine is to the effect that only a person who is party to a
contract can sue or be sued on it. A stranger to consideration cannot sue or be sued even
if the contract was intended to benefit him. In certain circumstances however, persons who
are not party to a contract or who have not provided consideration may sue or be sued on
it. These are exceptions to the Doctrine of Privity of Contracts.
Exceptions to the Doctrine of Privity of Contracts:
i). Agency
The agent contracts on behalf of the principal in an agency relationship. The principal is
not directly involved in the transaction. The principal may sue or be sued on a contract
entered into by the agent, however.
ii)Legal Assignment
Under the provisions of the ITPA19 if a creditor assigns his debt to another person in a legal
assignment the assignee becomes entitled to sue the debtor as if he were the original
creditor.
iv)Trust
This is an equitable relationship whereby a party holds property on behalf of another
known as the beneficiary. In certain circumstances, the beneficiary can sue or be sued
under a trust.
v) Third Party Insurance
Victims of motor vehicle accidents are entitled to compensation by Insurance companies
for injuries sustained from the use of motor vehicles on the road, under the provisions of
the Insurance (Motor Vehicles Third Party Risks) Act.20 The insurer is only liable if the
motor vehicle was in the hands of the insured or some authorized driver. Such amount is
recoverable from the insurer but through the insured, if the authorized driver pays the

19
The Indian Transfer of Property Act (1882)
20
Cap 405 Laws of Kenya
8
amount due to the victim for the injury as was the case in Kayanja v. New India Insurance
Co. Ltd.
vi) Restrictive Covenants (Contracts running with land)
Certain rights and liabilities attached to land are enforceable by or against subsequent
holders of the land in certain circumstances. This is particularly the case in the law of
leases.
Intention to Create Legal Relations

If there is no intention on the part of the parties to create a contract, an agreement may
not be recognized by court as legally binding.21 There is a presumption that there was
such intention, in the case of commercial agreements generally. This presumption is
rebutted by a provision to the case of social or domestic agreements. There is no
presumption of an intention to create legal relations here; such intention must be
specifically proved, otherwise the person seeking to enforce the agreement will fail in his
action: Agreements between husband and wife; as well as parent and child do not
normally amount to binding contracts thus. For example, if a husband makes
arrangements to make monthly allowance to his wife for her personal enjoyment, it is
not taken to give rise to legal relations.22 In Balfour v Balfour23 The plaintiff and
defendant were husband and wife. The husband agreed to pay £30 to his wife every
month while he was abroad. His wife sued him for the recovery of the amount, since he
failed to pay the promised amount. However, parties did not intend to create any legal
relations and it was held that she could not recover as it was a social agreement. This
does not mean that in family or social matters there cannot be contracts. The general
presumption may be rebutted by adducing evidence to the contrary, i.e., by showing
that the intention of the parties was to create legal obligations.

Contractual Capacity

Every person who is of the age of majority, is of sound mind, and not disqualified from
contracting by any law to which he is subject is competent to contract according to the law
to which he is subject. However, there are certain categories of persons whose power to

21
RW Hodgin, ‘Law of Contract in East Africa’ (Kenya Literature Bureau 2007) 62.
22
Furmston (n74) 144

23
[1919] 2 KB 571

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make contracts is limited by law, namely minors, insane or drunk persons, and
corporations.24
Contractual Capacity of Infants or Minors
An infant or minor is any person who has not attained the age of 18, under Section 2 of
the Age of Majority Act25
Contracts entered into by an infant are binding/valid, voidable or void depending on their
nature and purpose.
1. Binding/Valid contracts
The infant can sue or be sued on these contracts that are legally enforceable. Both parties
are bound to honour their obligations.
These contracts fall into the following categories;
 Contracts for the Supply of “Necessaries”
Under section 4 (2) of the Sale of Goods Act necessaries mean goods suitable to the
condition in life of such an infant or minor and to his actual requirement at the time
of sale and delivery.
In Nash v. Inman, the defendant was an infant college student. Before proceeding to
college, his father bought him all the necessary clothing material.
While in college, he however, bought additional clothing material from the plaintiff
but did not pay for them and was sued.
His father gave evidence that he had bought him all the necessary clothing material.
It was held that he was not liable as the goods were not necessaries when supplied.
 Contracts for the Supply of “Other Necessaries”
These are necessaries other than those covered by Section 4 (2) of the Sale of Goods
Act. E.g. Legal services, transport to and from work, lodging facilities etc.
An infant is bound by any contract for the supply of such necessaries. Under the
Sale of Goods Act, whenever an infant is supplied with necessaries, he is liable to
pay not the agreed price but what the court considers as reasonable.
 Educational Contracts
An infant is bound by a contract whose purpose is to promote his education or
instruction.
 Contracts of Beneficial Service
A contract will be of beneficial service to the minor if, it will enable the minor to earn
a living, improve skill, occupation and profession. Case law demonstrates that an
infant can sue or be sued and is bound by contracts whose object is to benefit him
as a person. In Doyle v. White City Stadium, the plaintiff a minor was licensed to do
boxing subject to rules laid down by the British Boxing Board. One of the rules of

24
ibid 69.

25
Cap 33 Laws of Kenya
10
 the body empowered it to withhold payment of any price money won if a boxer was
disqualified in a competition. The plaintiff was disqualified on one occasion and the
Board withheld payment. The plaintiff sued. Question was whether the plaintiff was
bound by the contract between him and the Board. It was held that he was as in
substance it was intended to benefit him hence the money was irrecoverable.
2. Voidable Contracts
Certain contracts entered into by an infant are voidable i.e. the infant is entitled to
repudiate/avoid the contract during infancy or within a reasonable time after attaining the
age of majority. The infant escapes liability on it by avoiding the contract. The infant cannot
be sued on the contract during infancy. Examples include: Partnership agreements and
lease or tenancy agreement. An infant partner is not liable for debts and other liabilities of
the partnership during infancy since the contract is voidable at his option, under Section
12 of the Partnership Act.
If the infant does not avoid the contract during infancy, or within a reasonable time after
attaining the age of majority, he is liable for debts and other obligations of the firm from
the date he became partner according to Section 13 of the Act. In Davis v. Beynon-Harris
where an infant had taken up a lease but failed to repudiate the contract during infancy
or within a reasonable time thereafter, it was held that he was liable under the contract.
3. Void Contracts
Under the provisions of the Infants Relief Act (1874) which applies in Kenya as a statute of
general application, certain contracts entered into by infants are void. These are contracts
which have no legal effect at all. They confer no rights and impose no obligations on the
parties. Such contracts include;
 All accounts stated with infants: These are debts admitted by an infant. The infant
cannot be sued on such admission.
 Contracts for the supply of goods other than necessaries.
 Money lending contracts: An infant is not bound to repay any monies borrowed from
a 3rd party as the contract is void.
Contractual Capacity of Persons of Unsound Mind
A contract entered into by a person of unsound mind is voidable at his option by
establishing that:
 The other party was aware of his mental condition.
 He was too insane to understand his acts.
According to Lopes L.J. “In order to avoid a fair contract on the ground of insanity, the
mental capacity of the one contracting must be known to the other contracting party. The
defendant must plead and prove not merely his insanity but the plaintiff’s knowledge of
that fact and unless he proves these 2 things he cannot succeed.” A contract entered into
by a person of unsound mind ceases to be voidable if ratified by him when he is of sound
mind.
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Under Section 4 (2) of the Sale of Goods Act, a person of unsound mind is liable to pay a
reasonable amount, if supplied with necessaries.
Contractual Capacity of Corporations
The capacity of the corporations to contract is defined by law e.g. a statutory corporation
has capacity to enter in transactions laid down in the statute. The contractual capacity of
a registered company is defined by the object clause of the memorandum. 26 A registered
company has capacity to enter into transactions set out in the objects. Its actions will be
ultra vires and void, if it acts beyond the limits.27

Free Consent
In a valid contract, parties must be willing to contract with each other without force and
without influence. When they contract willingly, they are said to be at consensus ad idem
(meeting of minds). A court of law will declare that people have agreed to contract willingly
where minds meet. In some cases, parties will be induced into contracting through vitiating
factors and therefore will not have given their free consent.

VITIATING ELEMENTS (FACTORS AFFECTING CONTRACTS)

These are circumstances which interfere with the enforceability of a contract. They may
render a contract void or avoidable. A void contract is unenforceable while avoidable
contract is enforceable unless avoided.
These factors include: -
1. Duress/Coercion
2. Undue influence
3. Misrepresentation
4. Mistake

26
G Applebey, „Contract Law’(Sweet & Maxwell 2001)184.

27
ibid.

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 DURESS/COERCION
This refers to actual violence or threats violence calculated to produce fear in the mind of
the person threatened. The party is compelled or coerced to contract. In the establishment
of a contractual relationship the requirement of agreement is that it presupposes that each
of the parties is a free contracting agent. But the freedom of the party subjected to duress
(or coercion) is obviously restricted. As such, duress is a vitiating factor which is actionable
at common law.
It must be a threat to the person, not to goods, for a threat to amount to duress. A
threat to do a lawful thing is immaterial. It must also relate to an unlawful thing;
subject only to the requirements of public policy. The threat must have also induced
the threatened party to enter into the contract. A contract entered into under duress
(or coercion) is voidable at the instance of the party coerced.
UNDUE INFLUENCE
A contract is said to be induced by undue influence where, (i) the relations
subsisting between the parties are such that one of the parties is in a position to
dominate the will of the other, and ii) he uses that position to obtain an unfair
advantage over the weaker party. It is based on the equitable principle that no
person may take an unfair advantage of the inequalities between him and another
party so as to force an agreement on the other party.

A person who seeks to rely on undue influence as a defense must prove that the other
party has in fact influence over him and that he would not otherwise have entered into
the contract. Undue influence is presumed, where a confidential (or fiduciary)
relationship exists between the parties and the burden is shifted on to the other party
to prove that there has been no undue influence on his part. The following are relations
in which undue influence is presumed: -

1. Parent and Child

2. Doctor and Patient
3. Trustee and Beneficiary
4. Advocate and Client
The contract is voidable at the instance of the party unduly influenced and may on this
ground be set aside, where undue influence is sufficiently proved to have existed at the
time of the contract.

MISREPRESENTATION

A misrepresentation means a statement of fact made by one party to the other, either
before or at the time of contract, relating to some matter essential to the formation of
the contract, with an intention to induce the other party to enter into contract. It may
be expressed by spoken or written or implied from the acts or conducts of the parties.

13
A representation when wrongly made, either innocently or intentionally, is termed as
a misrepresentation. To put in differently, misrepresentation may be either innocent
or intentional or deliberate with intent to deceive the other party. For the former kind,
the term ‘Misrepresentation’ and for the latter the term “fraud” is used in law.

Types of Misrepresentation

There are three types of misrepresentation. These are: -

a) Fraudulent Misrepresentation
A fraudulent misrepresentation is a statement made without honest belief in its truth
or recklessly without caring whether it is true or not. This type of misrepresentation
therefore requires proof of fraud or dishonesty, once proved it is actionable at
common law.

b) Innocent Misrepresentation. A statement is deemed to be innocently misrepresented

if the maker honestly believed in its truth though it was false and had no means of
ascertaining that it was false as was the case in Oscar Chess v. Williams where the
defendant had no means of ascertaining that the year of registration of the vehicle
was incorrect. An innocent misrepresentation is one made honestly or without fault
on the part of the representee. If innocent misrepresentation is proved, the innocent
party may either: -
Apply for rescission of the contract or Sue for indemnity for any direct financial loss
occasioned by the representation as was the case in Whittington v. Seale-Hayne.

c) Negligent misrepresentation
This misrepresentation is also referred to as negligent mis statement.

Remedies for Misrepresentation

Misrepresentation renders a contract voidable at the instance of the representee (the

innocent party). The remedy of rescission is available to him consequently. He is also
entitled to damages for loss that may have been suffered by him as result of the
misrepresentation besides.

MISTAKE
Mistake may be defined as an erroneous belief concerning something. There are two types
of mistakes viz:
-Mistake of law
-Mistake of fact

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As a general rule, a mistake of law does not affect a contract but mistake of fact affects
contractual relationships. Mistake of fact that affect contracts are generally referred to as
operative mistakes. The law recognizes various types of operative mistakes:

These are explained below: -

i) Common Mistake

A common mistake is made where both parties assume a particular state of affairs,
whereas the reality is the other way round. Both parties therefore make exactly the
same mistake. At common law, a contract entered into as a result of common mistake
is a nullity (or null and void).

Counturier V. Hastie (1853) A contract was entered into for the sale of goods which at the
time of the contract were supposed to be in transit aboard a certain ship. None of the
parties knew that the goods had deteriorated and that by the time of the contract, they had
in fact been disposed of already by the master of the ship.

Held: Both parties had contemplated that the goods were in existence at the time of the
contract; and since the goods were not actually in existence at that time, the contract
was void and the buyer was not liable to pay the price.

ii) Mutual Mistake

Mutual to a particular matter, both parties misunderstand one another. One party may
assume one thing and that the other party assumes a totally different thing. They are
then said to have made a mutual mistake. The mistake is different for each party.
In Raffle V. Wichelhause the parties enter in into a contract for the sale of cotton to be
shipped to the U.K. on board the peerless from the port of Bombay. Unknown to the parties
there were two ships by the name peerless at the port of Bombay. One sailed in October
and the other in December. While the buyer meant the October ship the seller referred to
the December one. The cotton was shipped by the December vessel and the buyer refused
to take delivery.
It was held that he was not bound as the contract was void for mutual mistake.

iii) Unilateral Mistake

When one of the parties to a contract commits a mistake and the other party is aware of
this fact, there is said to be a unilateral mistake. Instances of unilateral mistake is
common in fraud cases where one party misrepresents his identity to the other, thereby
inducing the other party into contracting with him in the false belief that he is
contracting the person whose identity has been given.

15
Legality of Object

If the objects of an agreement are unlawful it will not be enforceable. The object of an
agreement are lawful, unless it is forbidden by law; or is of such a nature that, if
permitted, it would defeat the provisions of any law; or is fraudulent; or involves or
implies injury to the person or property of another; or the Court regards it as immoral,
or opposed to public policy, according to S. 23 of the Contract Act.

Illegality
An illegal contract is one which is prohibited by law or which contravenes a provision of
law or one which is contrary to public policy. An illegal contract is un-enforceable. This is
because for an agreement to be enforceable, it must have been entered into for a lawful
purpose.

A contract may be declared illegal by statutes or a court of law.

a) Contracts declared illegal by Statutes.
Under the employment act, wages or salaries are payable in money or money’s worth. A
contact to pay wages or salary in kind is illegal and void.
b) Contracts declared illegal by courts of law (contracts illegal at common law)
 A contract to commit a crime, tort or fraud.
Such a contract is illegal and unenforceable as it is a contrary to public policy. In
Bigos v. Boustead where the object of the contract was to violate the English
Exchange control regulations; it was held that the contract was illegal and
unenforceable.
 Contracts prejudicial to public safety.
These are contracts which promote harmful activities in a country or its neighbours.
E.g. a contract to finance rebels in a country or coup plotters, assisting alien
enemies.
 Contracts to defraud state revenue.
A contract whose object is to deny the state whether national government or county
government revenue by way of evading tax is illegal and unenforceable. In Miller v.
Karlnski the plaintiff who was an employee of the defendant had agreed that (₤10
per week) the amount deducted from the salary as tax was refundable as an
allowance. In an action to recover the refund, it was held that it was irrecoverable as
the object of the contract was to defraud the state revenue.
 Contracts to promote corruption in public. Such a contract is unenforceable as
corruption is contrary to public policy. In Parkinson v. College of Ambulance and
Another.

16
 Formalities of Contracts
No formality is required to contract as a general rule.28 Hence, no writing or other form is
required, contracts can be made informally.29 There are statutory exceptions that however
require that certain contracts must be made or evidenced in writing and even signed, for
the same to be valid.30 The reasons why formalities exist include: to create evidence of the
transaction; to caution and deter parties from making hasty and premature contracts; to
create a standardized form of transactions given that the transactions are stored in written
form; and they may be used to protect the weaker parties in a transaction. 31 Examples of
contracts which must be made in writing and signed by the parties are contracts for
disposition of interests in land and contracts of guarantee.32 The Land Registration Act
further,33 prescribes that every instrument effecting any disposition of land shall be
executed by each party consenting to it.34 The execution is by way of appending a person’s
signature or affixing the thumbprint or other mark as evidence of personal acceptance of
that instrument.35

TERMS / CONTENTS OF A CONTRACT

Terms of a contract may be:
1. CONDITIONS
This is a term of major stipulation in a contract. It runs to the root of the contract. It is
part of the central theme of the contract. If a condition is breached, it entitles the innocent
party to treat the contract as repudiated and to sue in damages.
A condition may be express or implied in a contract.
2. WARRANTIES
This is a minor term of a contract or a term of minor stipulation. It is a peripheral or
collateral term that does not run into the root of the contract. If breached, it entitles the

28
McKendrick (n61) 27.

29
Beale (n60) 379
30
McKendrick (n61) 27.

31
Beale (n60) 379.

32
Law of Contracts Act (Cap 23, Laws of Kenya), Section 3.
33
Act No. 3 of 2012, Laws of Kenya.
34
ibid, Section 44(1).

35
ibid, Section 44(2).

17
innocent party to sue in damages only as the contract remains enforceable and both parties
are bound to honour their part of the bargain.
3. INNOMINATE TERMS
These are terms of a contract categorized as neither conditions nor warranties. The breach
of such terms may be attended by trivial or grave consequences.
The remedy available depends on the nature, effect and consequence of the breach.
The conditions, warranties, innominate terms may be express or implied.
1. EXPRESS TERMS
These are the oral and written terms agreed upon by the parties. Written terms prevail over
oral terms. If contractual terms are written, oral evidence is generally not admissible to
vary or explain the written terms.
If handwritten, printed and typed terms contradict, the handwritten terms prevail as they
are a better manifestation of the parties’ intentions.
2. IMPLIED TERMS
These are terms which though not agreed to by the parties, are an integral part of the
contract. The terms may be implied by statutes or by a court of law.
A. Terms implied by Statutes.
Certain statutes imply terms in contracts entered into pursuant to their provisions. These
terms become part of the contract. An example are terms implied in the Sale of Goods
contracts by the Sale of Goods Act.
The Sale of Goods Act implies both conditions and warranties in contracts of Sale of goods
unless a different intention appears.
B. Terms Implied by Courts of Law
Courts of law reluctantly imply terms in contracts as it is the duty of the parties to agree
as to what the contractual terms shall be. However, in certain circumstances, courts are
called upon to imply terms in contracts and do so for 2 reasons:
 To give effect to the intentions of the parties.
 To facilitate commercial transactions or give business efficiency.

EXEMPTION OR EXCLUSION CLAUSES (Limiting or Excluding clauses)

An exemption clause is a clause inserted in a contract by the stronger party exempting,
itself from liability or limiting the extent of any liability arising under the contract. These
clauses are common in standard form contracts e.g. conveyance of goods, hire purchase
agreements contracts of insurance etc. These clauses are justified on the theory of freedom
of contract.

18
For a clause to be given effect, the court must be satisfied that it was an integral part of
the contract. It must have been incorporated into the contract.
In L’estrange V. Graucob (1934) the plaintiff bought an automatic cigarette vending
machine from the defendant. The terms of the agreement were written in a document
entitled sale agreement. Some of the clauses were in a very small print and the plaintiff
signed the document without reading. One clause exempted the defendant from liability if
the machine turned out to be defective. It worked for only a few days. The plaintiff sued
and the defendant relied on the exemption clause in the agreement.
It was held that the defendant was not liable as the document contained the terms of the
contract and the plaintiff had signed the same and was therefore bound.

INCORPORATION OF EXEMPTION CLAUSES IN CONTRACTS

An exemption clause may be made part of a contract: -
a. By signature
b. By notice

1. Incorporation by signature.
If a document signed by the parties to a contract contains an exemption clause, the court
must be satisfied that: -
a. The document contained the terms of the contract between the parties
b. It was signed by the party affected voluntarily
Signature prima facie means acceptance. A party cannot after signing a document argue
that he did not read, understand or that the print was too small. It was so held in
L’Estrange V. Graucob.
However, if there is evidence that the signature was procured by fraud or misrepresentation
of the contents of the document the signature is voidable at the option of the innocent
party.
As was the case of Curtis v. Chemical Cleaning & Dyeing Co. the plaintiff took a wedding
dress to the defendant shop for cleaning and was given a document to sign. She requested
the shop assistant to explain to her the contents and was informed that the document
exempted the company from liability for any damage caused to the decorations of the dress.
She signed the document without reading. Her dress was damaged and stained. She sued
the company which relied on the exemption clause which excluded it from liability for any
damage.
The plaintiff pleaded that the contents of the document had been misrepresented to her
and hence the signature, it was held that the signature was voidable at her option and the
company was liable.

2. Incorporation by notice.

19
What the exemption clause is not contained in a document requiring any signature, the
court must be satisfied that the party affected by the clause was aware of its existence
when the contract was entered into.
As was the case in Parker v. South Eastern Railway Co. The plaintiff had left in luggage aa
railway station luggage office and was given a ticket containing the words “see back”.
At the back was a clause exempting the company from liability for lost luggage.
The plaintiff’s luggage was lost and he sued. The company relied on the exemption clause.
It was held that the company was not liable as it had brought the exemption clause to the
plaintiff’s notice who was therefore bound.
However, a belated notice of an exemption clause has no effect on the contract as it is not
part of it. In Olley v. Malborough Court the plaintiff had booked in a hotel and paid for a
week’s board, she was given a key to her room where there was a notice exempting the
hotel from liability for lost items. The notice was behind the door.
Guests were requested to deposit valuable with the manageress of the hotel. During her
absence a stranger opened the room and stole her expensive clothing. She sued. The hotel
relied on the exemption clause in the room.
It was held that the hotel was liable as the exemption clause was brought to the plaintiffs
notice after the contract had been concluded.

DISCHARGE OF CONTRACTS

This means termination of the contractual relationship between the parties. When rights
and obligations created by a contract come to an end, it is said to be discharged i.e. it
ceases to operate.

Modes by which a contract is discharged:

 By Performance
 Consensual Discharge (by Agreement and consent)
 By frustration
 By Breach
 By Operation of Law.

1. Discharge by Performance of a Contract

Performance means doing that which is required by the contract. When the parties to the
contract fulfill their obligations arising under the contract within the stipulated/
reasonable time and in the manner prescribed by the contract, discharge by performance
takes place. If only one party performs his obligations however, he alone is discharged and
not the other party. The party so discharged can bring an action against the other, who is
guilty of breach. Performance can be either: (i) actual or (ii) attempted. However, it may
20
happen that the promisor offers performance of his obligation under the contract at the
proper time and place but the promisee refuses to accept the performance. This is known
as ‘tender’ or ‘attempted performance.

2. Discharge by Agreement and Consent (Consensual Discharge)

Therefore, the contract may be terminated by their further agreement or consent, since it
is the agreement of the parties that binds them. Discharge by agreement and consent may
be ‘either expressed or implied’. Consensual discharge may take place further, in following
manner:

 Novation (substituting a new contract for the old): Novation takes place when: 1. A
new contract is substituted for an existing one between the same parties, or 2. When
a contract between two parties is rescinded in consideration of a new contract being
entered into on the same terms between one of the parties and a third party. The
consideration for the new contract may be the discharge of the old contract.
 Rescission (cancelling or annulling the entire contract): Rescission may be taken to
mean cancellation of all or some of the terms of the contract. The obligations of the
parties thereunder come to an end where parties mutually decide to cancel the terms
of the contract. The agreement to mutually rescind a contract may take place either
before its breach by a party or after its breach. When the parties to a contract decide
that they will forget the contract and will not bring a new contract into existence to
replace the old one, rescission of a contract takes place.
 Accord and Satisfaction: Under the English law, remission must be supported by a
fresh consideration. The agreement to accept less than what is outstanding under
the contract is the ‘accord’. The consideration which makes the agreement effective
is the ‘satisfaction’. Thus, satisfaction means the payment or fulfilment of the lesser
obligation. An accord accompanied by satisfaction is valid and thus discharges the
obligation.
For example, X owes Y Kshs. 5,000. X pays to Y who accepts in satisfaction of the
whole debt Kshs. 2,000 paid at the time and place at which the Kshs. 5,000 was
payable. This discharges the whole debt.
 Waiver: This is where one-sided concession is given by a unilateral declaration of
renunciation. Waiver is not a mode of discharge by way of consensual/ mutual
agreement strictly speaking. It may be taken to mean relinquishment or
abandonment of a right. The other party is released of his obligations, when a party
waives his rights under the contract. For example, X promises to paint a picture for
Y. Y afterwards forbids him to do so. X is no longer bound to perform the promise.
 Merger: When an inferior right accruing to a party under a contract gets merged into
a superior right accruing to the same party under the same or some other contract,
it takes place. Where a person who is holding certain property under a lease, buys it
for example; his rights as a lessee disappears. His rights are merged into the rights

21
 of ownership which he has now acquired—the rights associated with lease being
inferior to the rights associated with the ownership.

3. Discharge by Frustration

A contract is said to be frustrated when an event occurs bringing the contract to an abrupt
ending. When a contract is frustrated, it terminates and the parties are discharged. Under
the following situations, a contract is deemed to have become impossible of performance
and thus, void:36
 Destruction of subject-matter 37
If the subject matter of the contract is destroyed before performance and neither of
the parties is to blame, the contract is frustrated. It must be evident that the subject
matter was the foundation of the contract.
In Taylor v. Caldwell, the defendant had hired the plaintiff’s hall to conduct a musical
concert at specified charges, before the day of the concert, the hall was destroyed by
fire and neither of the parties was to blame. In an action by the plaintiff to recover
hiring charges, it was held that they were irrecoverable as the destruction of the hall
frustrated the contract and thereby discharged the parties.

 Non-occurrence/ non-existence of contemplated event (or particular state of

things)38
If a contract is based on a particular event or state of affairs to obtain at a particular
time, its non-occurrence frustrating the contract and discharges the parties.
However, for the contract to be frustrated, it must be evident that the event or state
of affairs was the only foundation of the contract.
In Krell v. Henry (1903), the defendant had hired a room in the plaintiff house to
enable him view Royal Procession of the coronation of King Edward VII. However,
the king was taken ill before the coronation and the ceremony was cancelled.
It was held that the hiring charges were irrecoverable as the cancellation of the
ceremony frustrated the contract and discharged the parties.
However, if a contract has more than one foundation the disappearance of one does
not frustrate it as the other is capable of performance. As was the case in Herne Bay
Steamboat Co. v. Hutton.

36
The list of such situations is not exhaustive, and therefore, there may be other circumstances as well where a contract may well
be said to have become void on account of impossibility.
37
See, Taylor v Caldwell Queen’s Bench (1863) 3 B&S 826: 122 ER 309.

38
See, Krell v Henry (1903) 2 KB 740 CA.

22
  Death or incapacity of a party39
In contracts of personal service e.g. employment contracts, the death or permanent
incapacitation of a party frustrates the contract and discharges the parties as the
obligations are not generally transferable.

 Intervention by government (legislative or administrative intervention)40

If performance of contractual obligations becomes illegal by reason of change of law
or otherwise the parties are discharged as there is no obligation to perform that
which has become illegal.

 Outbreak/ intervention of war41

 Act of God (Vis Major), like natural calamities, etc.

4. Discharge by Operation of Law

A contract may as well discharge independently of the wishes of the parties, i.e. by
operation of law. Instances that fall in this category include discharge by:

• Death (in case of contracts of personal service)

• Insolvency

• Lapse of time

5. Discharge by Breach of Contract

This occurs in any of the following situations:

• When a party thereto renounces his liability under the contract, or

• When a party, without lawful excuse, does not fulfill his obligation, or

• When a party thereto makes it impossible that he should perform his obligations under
the contract.

39
See, Robinson v Davison (1871) LR 6 Exch 269
40
84 See, Man Singh v Khazan Singh AIR 1961 Raj 277; Metropolitan Water Board v Dick Kerr & Co Ltd (1918) AC 119;
Satyabrata Ghose v Mugneeram Bangur

41
85 Tsakiorglou & Co Ltd v Noblee & Thorl (1961) 2 All ER 179.

23
Kinds of Breach: Breach is of two kinds:

1. Anticipatory Breach or Constructive Breach

2. Actual (Present) Breach Anticipatory Breach:42

Anticipatory breach of contract takes place when a party repudiates it before the time fixed
for performance has arrived or when a party by his own act disables himself from
performing the contract. Anticipatory breach occurs when a party to a contract has either
refused to perform his promise in its entirety, or has disabled himself from performing his
promise in its entirety.

Either at the time when the performance is due and one party fails or refuses to perform
his part, or during the performance when one party fails or refuses to perform his part,
actual breach takes place. The refusal to perform may be by: express repudiation (by word
or act), or implied repudiation (impossibility created by the act of the party himself

REMEDIES FOR BREACH OF CONTRACTS

The other party becomes entitled to the following reliefs, once a party commits a breach of
the contract: Common Law and Equitable Remedies.

Common law remedies include:

 Action for damages

 Repudiation of the contract

Damages: This is monetary compensation allowed to the injured party for the loss or
injury suffered by him as a result of the breach of contract. The fundamental principle
underlying damages is not punishment but compensation. The court aims to put the
injured party into the position in which he would have been, had there been performance
and not breach, and not to punish the defaulter party by awarding damages.
“Compensation must be commensurate with the injury or loss sustained, arising
naturally from the breach” as a general rule. “No damages will be awarded, if actual loss
is not proved”.

Repudiation of the contract: The other party can treat the contract as ended, where a
party has breached a contract. The innocent party is not required to return what it had
obtained from the other party. Thus, this discharges the parties from their obligations.
For instance, where a buyer B, breaches a contract for the purchase of land from a seller,

42
87 See, West Bengal Financial Corporation v Glurco Series Pvt Ltd AIR 1973 Cal 268; Sooltan Chand v Schiller (1878)
4 Cal 252

24
S, having paid S, a deposit, S can treat the contract as repudiated and keep the deposit
and sell the land to someone else.

The Court may grant equitable Remedies where Common Law remedies will not be
sufficient. The Equitable remedies include;

 Specific performance

 Injunction

 Quantum Meruit

 Rescission of contract
Specific performance: This means the actual carrying out of the contract as agreed. An
aggrieved party may file a suit for specific performance under certain circumstances, i.e.
for a decree by the court directing the defendant to actually perform the promise that he
has made. A decree for specific performance is not granted for contracts of all types. It is
only where it is just and equitable to do so i.e. the courts issue a decree for specific
performance, where the legal remedy is inadequate or defective. Examples are;

i. Where damages would not be an adequate remedy

ii. Contracts for the Sale of Land
iii. Where the subject matter of the contract is Specialized goods such as paintings
by famous artist x

Specific performance is not granted as a rule, in the following cases: -

(i) Where monetary compensation is an adequate relief.

(ii) Where the contract is to lend money.
(iii) Where the contract is for personal services, e.g. a contract to marry or to paint
a picture.
(iv) Where one of the parties to the agreement does not possess competency to
contract and hence cannot be sued for breach of contract. Thus, a minor
cannot succeed in an action for specific performance.

Injunction: This is an order issued by the court to restrain a person from doing a
particular act or to prevent the doing of an unlawful act until the case has been heard
and determined. It is a mode of securing the specific performance of the negative terms
of the contract. Where a party is in breach of the terms of the contract (i.e. where he is
doing something which he promised not to do), the court may, by issuing an injunction,
restrains him from doing, what he promised not to do, to put it differently. Thus
“injunction” is a preventive relief. It is particularly appropriate in cases of “anticipatory
breach of contract” where damages would not be an adequate relief.

25
Rescission of contract: The other party may rescind the contract and need not perform
his part of obligations under the contract if he decides not to take any legal action
against the guilty party. When there is a breach of contract by one party, the aggrieved
party has to file a suit for rescission of the contract, in case he intends to sue the guilty
party for damages for breach of contract. When the court grants rescission, the
aggrieved party is freed from all his obligations under the contract and becomes entitled
to compensation for any damage which he has sustained through the non-fulfillment of
the contract.

Quantum Meruit: This literally means “Pay for what has been done”. It is to order
compensation for work done. The plaintiff is paid for the proportion of the task
completed. The remedy has its origins in equity and its award is discretional.

CLAIMS FOR BREACH OF CONTRACT43

The time limit for a claim for breach of contract is six years from the date on which the
breach occurs.44 If the contract is made by deed the limitation period is twelve years
however.45 Difficulties have been noted pertaining to contracts of loan.46 Unless
provision is made for the date of repayment or repayment is made conditional upon an
event, the borrower is instantly liable to repay the debt at common law. The creditor’s
cause of action thus accrues immediately the loan is made.47 Section 6 of the 1980 Act
which provides that in such a situation the six year limitation period runs from the date
on which the creditor makes a written demand for repayment but not from the date of
the accrual of the cause of action.

43
See Limitation of Actions, Consultation Paper No 151 (1998), paras 3.1 - 3.11.

44
Limitation Act 1980, s
45
; Gibbs v Guild (1881) 8 QBD 296, 302, per Field J; Gulf Oil (Great Britain) Ltd v Phillis [1998] PNLR 166, 168, per Harman J. 5
Limitation Act 1980, s 8. See also paras 2.71 - 2.75, below.
46
Limitation of Actions, Consultation Paper No 151 (1998), para 3.8.

47
Re Brown’s Estate [1893] 2 Ch 300, 304, per Chitty J.
26
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