Group 16 Contracts II

1.Maureen Kemunto 1051315

2. Sandra Chepkorir 1049114
3. Rose Nduta 1051353
4. Godfrey Kipkemei 1049718
5. Judeh Ngugi 1048750
6. Daniel Gichure 1051333
7. Maya Melanie 1051316
8. Faith Muthoni 1048829
9. James Macharia 1051287
10. Terry Sandimu 1050401
Question
XYZ ltd are manufacturers of agricultural fertilisers. They advertised their call for bulk
purchases especially to retailers and indicated that the supposed retailers were to express
interest within 2 weeks after the after the advertisement. UDA ltd sent an email expressing
interest in buying 1000 bags in the first week and a letter through post for 1 million bags two
weeks after the ad. XYZ Ltd did not receive the email and the letter arrived 1 month later. In
that time they had sold 5 million bags to Azimio Ltd. However, production was still ongoing
and XYZ Ltd promised to sell 1,001,000 bags on UDA Ltd paying ksh. 5 million and other
requisite fees. UDA paid the 5 million but could not pay the fees and sought to recover their
money from XYZ Ltd. XYZ Ltd has come to approached you to advise them accordingly.
Discuss.

Issues
The main issue at hand from the question is the fact that despite UDA ltd not completing its
obligations under the contract between them and XYZ ltd, they want to their money back, an
action that XYZ ltd is not willing to undertake and therefore has approached us to seek our
legal opinion on the issue, henceforth addressed as a singular legal entity.
In advising the client, we would first of all explain to them the circumstances of the case from
a legal perspective.
The contract would be a good place to begin. In fact there seems to be two contracts in this
case.
The First Contract
The contents of a valid contract are the offer, consideration and acceptance.
An offer has been described as an expression of willingness to contract on certain terms
made with the intention that a binding agreement will exist once the offer is accepted 1. XYZ
ltd made an offer by advertising their fertilisers and stating that acceptance was to be made
known in two weeks after the advertisement. UDA ltd accepted the offer by sending a letter
via email showing interest in purchasing 1000 bags in the first week and another via poster
showing interest in purchasing a million bags after two weeks. The email never reached the
servers of XYZ ltd, while the postal letter came one month late. In that time, XYZ ltd sold
their bags to Azimio ltd. This however was a breach of contract. According to the mail box
1
Paul Richards, Law of Contracts (13th edn, Pearson Education ltd Edinbourgh Gate, UK 2017) 18

0
 rule (the postal rule) from the case of Adams v. Lindsell2, acceptance is made immediately
the letter containing the message is posted, regardless of whether or not the communication
was received.
When it comes to the email, two theories have been postulated:
1. The postal rule takes effect. XYZ ltd is liable since despite them not receiving the email,
UDA ltd still sent the email to their servers.
2. That acceptance is only effective if XYZ ltd had received the email, according to Entores Ltd
v. Miles Far East Corporation3.
The second contract
Luckily, XYZ made another offer to UDA ltd. Since production was still ongoing, if UDA ltd
paid Ksh. 5 million as commitment fees and paid off the other requisite fees, they would
manufacture 1.1million bags of fertiliser for UDA ltd. This is a counter offer. It is the law that
when a counter offer is made in place of an offer, the original offer ceases to exist4 and the
contract dies with it. Though counter offers are normally made by the offerees, it is the
offerer in this case that made the counter offer.
UDA once more accepted the counter offer through their actions by loaning Ksh. 5 million
and depositing it into XYZ ltd’s account. This is agreement that has been inferred from
conduct5.
However, UDA was unable to pay the requisite fees as per the terms of the offer. We
speculate that they ran into some financial difficulty which would render payment of these
fees an impossibility. This phenomenon is referred to as frustration, a situation where
unforeseen events render the performance of a contract impossible or radically different from
the original plans of the parties6. Such a situation would call for the discharge of the contract,
meaning that the obligations of parties under the contract have been terminated7. In essence
therefore, there is no contract. This case would fall under discharge by frustration.
Discharge by Frustration
For one to rely on frustration so as to discharge a contract, he must prove that the frustration
was not a direct result of their actions or volition but must have been due to unavoidable
external events as prescribed by Bingham LJ8. It might be argued that UDA ltd’s financial
situation was dire, unforeseeable and unintentional. They were not anticipating the difficulty
and thus committed to the contract by paying the Ksh. 5 million. They could not pay the
remaining requisite fees and thus could only complete part of their obligations. This however
begs the question; can a party that does not perform their obligations under the terms of their
contract perfectly make acclaim?
Defendant’s claim

2
Adams v. Lindsell (1818) 106 ER 250 https://ipsaloquitur.com/contract-law/cases/adams-v-lindsell/
3
Entores Ltd v. Miles Far East Corporation [1955] 2 QB 327
https://ipsaloquitur.com/contract-law/cases/entores-v-miles-far-east/
4
Hyde v. Wrench (1840) 49 ER 132 https://ipsaloquitur.com/contract-law/cases/hyde-v-wrench/
5
Michael Furmston, Law of Contract (16th edn, Oxford University Press Great Clarendon Street, UK 2012) 50
6
Spencer Wright, ‘Frustration of contracts: what causes a contract to break?’ (2023) Gibbs Wright
https://gibbswrightlawyers.com.au/publications/frustration-contract-law#:~:text=The%20doctrine%20of
%20frustration%20states,frustrated%2C%20it%20is%20automatically%20terminated. Accessed 4/5/2023
7
Lucy Jones, ‘Discharge of Contract and Contractual Remedies’ (2019) Law Trove
https://www.oxfordlawtrove.com/view/10.1093/he/9780198824886.001.0001/he-9780198824886-chapter-
8#:~:text=The%20discharge%20of%20a%20contract,under%20the%20contract%20are%20terminated.
Accessed 4/6/2023
8
J Lauritzen AS v Wijsmuller BV (The Super Servant II) [1990] 1 Lloyd’s Rep 1
https://lawprof.co/contract/frustration-cases/j-lauritzen-as-v-wijsmuller-bv-the-super-servant-ii-1990-1-lloyds-
rep-1/ Accessed 4/6/2023

1
 It goes without saying that a party that does not perform perfectly its obligations is not
entitled to any claim whatsoever9. In this case the would-be defendants had only performed
half of their obligations under the terms of their contract. They therefore could not reclaim
their Ksh. 50 million. This would be an injustice to XYZ ltd; since they had promised one
million and one thousand bags of fertiliser to UDA ltd, they had probably turned down other
potential customers. They therefore would lose their earnings if they were to give UDA ltd
their Ksh. 50 million.

Remedies
So, what remedies can we advise XYZ ltd to pursue? In our research we have stumbled upon
the following remedies;
 Damages.
 Specific performance.
 Injunctions.
Let us delve a bit deeper into these remedies.
a) Damages
Damages in contracts refer to monetary compensation for injury caused by breach of the
terms of contract. Damages in contracts are meant to place the claimant in the position they
would have been in had the terms of the contract been actualized. There are different types of
contracts but due to the circumstances we shall dwell on one; compensatory/ actual damages.
Actual damages are meant to cover the loss incurred by the innocent party in a contract 10.
There is the issue of expectation loss- loss of that which you would have gained if the
contract was properly executed. XYZ ltd would have lost their chance to sell the bags to
another customer and the Ksh. 1 million UDA ltd is seeking to retrieve. However, we would
advise XYZ ltd not to ask for damages. If they have already produced the goods, let them
keep the money as payment for both time consumed and potential customers lost.
We argue that if the courts were to force UDA ltd to pay damages, they might run the risk of
going bankrupt, since the clearly have no money to pay the remaining fees.
b) Specific performance
This is where the courts order the violating party to perform their obligations under their
contract. This is a remedy suitable for situations where no other would suffice11. However
with the circumstances of this case we would still not advise this remedy to be sought as it
would still amount to paying the client money, money which UDA ltd is in short supply off.
c) Injunction
These are court orders that would require the defendant to act in a particular manner.
We would advise the client to seek an injunction to force UDA ltd to stop claiming the Ksh. 1
million. This way, the client’s efforts will be compensated by the money while allowing the
potential defendant to not suffer bankruptcy in paying damages or the required fees under
special performance. We and the client would thus be giving the defendant time to make
amends and recover financially. If the business relationship between the two will not have
been severed, the defendant might later pay off the remaining requisite fees and get the bags
of fertiliser he so much needed. A win-win situation for all in the long-run.
9
Cutter v Powell (1795) 6 Term Reports 320 https://ipsaloquitur.com/contract-law/cases/cutter-v-powell/
4/6/2023
10
University of New Mexico, ‘Remedies For Breach of Contract’ http://jec.unm.edu/education/online-
training/contract-law-tutorial/remedies-for-breach-of-contract#:~:text=Compensatory%20Damages.,loss
%20caused%20by%20the%20breach. Accessed 4/6/2023
11
Michael Furmston, Law of Contract (16th edn, Oxford University Press Great Clarendon Street, UK 2012) 796-
797

2
Conclusion
We have therefore come to the conclusion that the best action for the client to take would be
to seek for an injunction against UDA ltd. It is our belief that in applying equity and mercy,
we would be giving the best options to both parties to prosper and not be so cutthroat as to
potentially sentence one party to financial damnation. We acknowledge that most
practitioners would not take this approach, but in a bid to promote a more hospitable society,
such cases as these are opportunities to not only pursue justice but also demolish the negative
hostilities that are rife in the business world due to hard line stances taken by other lawyers.
Equitable judgment in the private law context and mercy in the criminal law context are
compatible with the rule of law and necessary complements to law. Equity seeks to correct
law in order to achieve particularized justice; it is internal to the ambition of law and works
together with it to achieve that ambition12.

12
Gerald J. Postema, ‘Dilemmas of Discretion: Equity and Mercy’ Oxford Academic
https://academic.oup.com/book/44615/chapter/378603203 Accessed 4/6/2023

3
 BIBLIOGRAPHY
Books
Richards P, Law of Contracts (13th edn, Pearson Education ltd Edinbourgh Gate, UK
2017Furmston M, Law of Contract (16th edn, Oxford University Press Great Clarendon
Street, UK 2012)
Cases
Adams v. Lindsell (1818) 106 ER 250 https://ipsaloquitur.com/contract-law/cases/adams-v-lindsell/
Entores Ltd v. Miles Far East Corporation [1955] 2 QB 327
https://ipsaloquitur.com/contract-law/cases/entores-v-miles-far-east/
Hyde v. Wrench (1840) 49 ER 132 https://ipsaloquitur.com/contract-law/cases/hyde-v-wrench/
J Lauritzen AS v Wijsmuller BV (The Super Servant II) [1990] 1 Lloyd’s Rep 1
https://lawprof.co/contract/frustration-cases/j-lauritzen-as-v-wijsmuller-bv-the-super-servant-
ii-1990-1-lloyds-rep-1/
Cutter v Powell (1795) 6 Term Reports 320 https://ipsaloquitur.com/contract-law/cases/cutter-v-
powell/
Articles
Spencer Wright, ‘Frustration of contracts: what causes a contract to break?’ (2023) Gibbs Wright
https://gibbswrightlawyers.com.au/publications/frustration-contract-law#:~:text=The
%20doctrine%20of%20frustration%20states,frustrated%2C%20it%20is%20automatically
%20terminated.
Lucy Jones, ‘Discharge of Contract and Contractual Remedies’ (2019) Law Trove
https://www.oxfordlawtrove.com/view/10.1093/he/9780198824886.001.0001/he-
9780198824886-chapter-8#:~:text=The%20discharge%20of%20a%20contract,under%20the
%20contract%20are%20terminated.
University of New Mexico, ‘Remedies For Breach Of Contract’ http://jec.unm.edu/education/online-
training/contract-law-tutorial/remedies-for-breach-of-contract#:~:text=Compensatory
%20Damages.,loss%20caused%20by%20the%20breach
Gerald J. Postema, ‘Dilemmas of Discretion: Equity and Mercy’ Oxford Academic
https://academic.oup.com/book/44615/chapter/378603203