THE LAW OF CONTRACT

Nature of contract

The law of contract is that branch of the law which determines the circumstances in which promises
made by parties to a contract shall be legally binding on them. Its rules define the remedies that are
available in a court of law against a person who fails to perform his contract, and the conditions under
the remedies are available. It is the most important branch of business law. It is in particular important
to people engaged in trade, commerce and industry as bulk of their business transactions based on
contracts.

The law relating to contract is contained in the contract act, cap 23 laws of Kenya. The act deals with
the general principles of the law of contract. The act does not profess to be complete and exhaustive
code.
Some of the contracts not dealt with by the act are those relating to partnership, sale goods, negotiable
instrument, and insurance.

The law of contract differs from other branches of law in an important respect. It does not lay down a
number of rights and duties, which the law will enforce. It consists rather of a number of limiting
principles, subject to which the parties may create rights and dutie for themselves which the law will
uphold. The parties to a contract, in a sense, make the law for themselves. So long as they do not
infringe some legal prohibition, they can make what rules they like in respect of the subject matter of
their agreement and the law will give effect to their decisions.

Definition of contract

A contract is an agreement between two or more parties which is intended to create legally binding
obligations. This definition shows that a contract essentially consists of two elements;

a)An agreement: which is a promise made by one party and is accepted by another. A promise is an
assurance that one will or will not do something in future.

Obligation: for an agreement to become a contract, it must give rise to a legal obligation or duty i.e. a
legal tie which imposes upon a party the necessity of doing or abstaining from a definite act (s).

The essence of an agreement is the meeting of the minds of the parties in full and final agreement,
there must, in fact be consensus ad idem. This means that the parties to the agreement must have
agreed about
the subject matter of the agreement in the same sense and at the same time. Unless there is consensus
ad idem, there can be no contract.

An agreement which gives rise to a social obligation is not a contract because it does not give rise to
contractual obligations and hence is not enforceable in a court of law.
For example:
a) Domestic arrangements, engagements of purely domestic nature are
often not intended to be binding in law but are intended to rely on
bonds of mutual trust and affection. Case: Balfour –vs.-(1919) 2KB 571 in which a husband who was
a civil servant in Sri Lanka went to England with his wife. When his leave was nearing its end and he
hat to return to home, he promised his wife who, on the doctor’s advice had to remain in England, a
household allowance of 30 pounds a month till she joined him. Later the parties separated and the
realm of contract altogether.

b) A gentleman’s promise in which A promises to lend his bicycle to B on a weekend but

subsequently refuses to do so B cannot enforce this before a court of law
c) Social invitation: in which C invites friend D to a party at his house and when D arrives he finds C
is not at home.

The word ‘binding ‘is used in the definition of a contract for there are some contracts which are valid
(e.g. social agreements but are not enforceable

Example of a binding obligation: A agrees to sell his car to B for ksh.100000 this agreement gives rise
to an obligation on the part of A deliver the car to B and on the part of B to pay ksh.100000 to A. this
agreement is a contract.

An agreement therefore may be a social agreement or a legal agreement. However a social agreement
does not give rise to contractual obligations and is not enforceable in a court of law. It is only those
agreements which are enforceable in a court of law which are contracts

Note: a contract =Agreement +Enforceability at law. Thus “all contracts are agreements but all
agreements are not necessarily contracts

ESSENTIALS OF A VALID CONTRACT

1. Agreement: there must be an agreement between two or more parties. One party making the offer
i.e. proposal and the other accepting it. Note that nobody can agree with himself, thou he may resolve
to do an act hence essence of at least two parties. When an offer and acceptance correspond in every
respect, there is an agreement between two parties.

2. Intention to create legal relationship: when two parties enter into an agreement, their intention must
be to create legal relationship between then. if there is no such intention on the part of the parties ,
there is no contract between them. Intention to create legal relationship therefore means that the
parties must intend that if one of them fails to fulfil a promise undertaken by the agreement he shall be
answerable for that failure in law. Social agreement does not contemplate legal relationship.
3.Lawful consideration; for an agreement to be enforceable by law it must be supported by
consideration i.e. an advantage or benefit moving from one party to another or something in return or
something in value shift or promised ,such as money to convince a person to make a deal. The
agreement is enforceable only when both parties give something and get something in return a
promise to do something getting nothing in return, is usually not enforceable by law.

4. Capacity of the parties (competency): both parties entering into the contract must have the
contractual capacity to do so; the law must recognize them as possessing characteristics that qualify
them as competent parties. Every person is competent to contract if he is of the age of majority and
sound mind

5. Free and genuine consent: there must be a free and genuine consent of the parties to the agreement.
Consent is said to be free when they are of the same mind, when they agree about the subject matter
of the contact in the same sense and at the same time. There is absence of free consent if the
agreement is induced by coercion, undue influence .fraud, mistake or duress.

6.Lawful object: the object of the agreement must be lawful i.e. the object must not be illegal ,
immoral or opposed to public policy, if an agreement suffers from any legal flow, it would not be
enforceable
by law.

7. Agreement should not be declared void: the agreement should not have been expressly declared
void by any law in force in Kenya.
8. Certainty and possibility of performance: the agreement must be certain and not vague or indefinite.
if it is vague and it is not possible to ascertain its meaning it cannot be enforced .e.g. A agrees to sell
to B ‘a hundred tonnes of oil ‘. There is nothing whatsoever to show what kind of oil is intended. The
agreement is void for uncertainty.

9. Legal formalities: a contract may be made by words spoken or written. As regards legal effects
there is no difference between a contract in writing, and one made by word of mouth. However, for
the interest of parties it is important that the contract be in writing,signed, stamped and registered so
as to comply with statutory requirements .for example a contract for sale and purchase of land must be
evidenced in writing.

DISCHARGE /TERMINATION OF A CONTRACT

1. By performance: performance means the doing of that which is required by a contract.
Discharge by performance takes place when the parties to the contract fulfil their obligations
arising under the contract within the time and in the manner prescribed. In such case,the
parties are discharged and the contract comes to an end.
2. By agreement or consent: as it is the agreement of the parties which bids them, so by
their further agreement or consent the contract may be terminated i.e. the contract may be
terminated in the same manner it was created.
3. By lapse of time: a contract formed for a specified time is discharged when the period of
time has lapsed. Where no lapse of time is laid down, the lapse of reasonable time may render
the contract unenforceable in the court of law, under the limitations of actions act the
limitation period for contract claim is six months.
4. By operation of law: a contract may be discharged independently of the wishes of the
parties i.e. operation of law. This includes discharge.
a) By death :the death of either party will discharge a contract for personal service but other
contractual rights and obligations are not affected and survive for the benefit of or against the
estate of the deceased.
b) By merger: this takes place when the parties embody the simple contract into a contract
under deed and in such circumstances an action lies only to the deed
c) By bankruptcy: when a person becomes bankruptcy all his rights and obligations pass to
the official receiver who is not liable on contracts of personal services
d) By unauthorized material alteration: where a party to contract without the consent of the
other party, the other party can avoid the contract.
5. By Breach Of Contract: breach of contract means breaking of the obligation which a
contract imposes it occurs when a party to the contract without lawful excuse does not fulfil
his contractual obligation or by his own act makes it impossible, that he should perform his
obligation under it confers a right of action for damages on the injured party.
6. By impossibility or frustration: if an agreement contains an undertaking to perform a
impossibility it is void ab initio.frustration will discharge the contract in the following ways:-
a) Destruction of subject matter, e.g. where a hall is rented for performances /concerts on
certain of the subject matter, e.g. where a hall is rented for performances /concerts on days
but it is later destroyed by fire (give example of college building).
b) If the even stated does not occur: A and B contract to many each other before the time
fixed for marriage A goes mad. The contract becomes void.
c) Death or personal incapacity: especially for personal service contracts, reference
concerts.
d) Change of Law: a contract legal at the time of the formation may become illegal due to
change of law.
e) Government interference: a contract is discharged by unexpected government
interference causing a fundamental change of circumstances from that contemplated by the
parties when the contract was made.

REMEDIES FOR BREACH OF CONTRACT

A remedy is the means given by law for the enforcement of a right. When a contract is
broken the injured party has one or any of the following remedies.
1. Rescission of the contract: occurs where a party sues to treat the contract as rescinded
and refuses further performances. Where a party treats the contract as rescinded he makes
himself liable to restore any benefits ha has received under the contract to the party from
whom such benefits were received.But if a person rightfully rescinds he is entitled to
compensation for any damage, which he has sustained through non-fulfilment of the
contract. By the other party
2. Damages: this is a monitory compensation allowed to the injured party by the court for
the loss or injury suffered by him by the breach of conctact.the purpose of awarding damages
for the breach of a contract is to put the injured party in the same position, so far as money
can do it, as if he had not been injured.
3. Specific performance: this is an order of the court requiring aparty to carry out a
contractual obligation. It is usually granted in the following cases:-

i. Where a contract is for sale of land.

ii. Where the contract is for taking debentures in a country.
iii. Where the contract is for 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:-

i. Where damages could provide an adequate remedy.
ii. Where the contract is to render personal services.

iii. Where one party to the contract is an infant/minor where the

contract is to lend money.

4. Injunction; this 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. The grant of an injunction by the court is
normally discretionary.
5. Quantum meruit
A right to sue on quantum meruit (as much as earned) arises where a contract, partly
performed by one party has become discharged by the breach of the contract by the other
party. This right is founded on implied promise by the other party arising from the acceptance
of a benefit by that party. In the case Of Planche – V –Colbun 1969 the plaintiff agreed to
write an article for which he was to receive 100.The publishers then abandoned the idea when
the work was partly finished. The plaintiff was awarded 50 for his half finished work.