HBT 2203: LAW OF CONTRACT

BBIT 2:2, JUNE-SEPTEMBER 2021

LECTURE 3
BY: DR. STEPHEN AMING’A
 HISTORY OF CONTRACT AND LAW OF CONTRACT

Ref: Furmston Michael.; Cheshire, Fifoot, and Furmston’s Law of Contract, 17 th Edition,
Chapter 1, Oxford University Press 2017

• Modern English contract law developed around a cause of action known as assumpsit.
• The above action became prominent in the early 16th Century and started as a remedy for the breach of
informal agreements reached by word of mouth or by “parol” or oral contracts.
• During the medieval age, there was English Medieval Law of contract which recognised and regulated two
types of contracts namely; informal contracts and formal contracts.
• Formal contracts were the first ones to be absorbed by common. Under that system, important contracts
were made in writing and authenticated by sealing.
• All important documents were authenticated by sealing them.
• Contracts made under the earliest form of common law were actionable either under the action of
covenant that came into force in the 13th century or action on penal bonds.
• The action of covenant started as an action for the specific performance of agreements to do something.
• The above action developed into an action for damages or monetary compensation, assessed by a jury, for
breaking a covenant.
• In 1300 , this action was limited to agreements under seal or covenants.
• Incase of a formal agreement under seal to pay a definite sum of money (debt), the appropriate action
was debt “on an obligation. In that context, the term “obligation” or “bond’ meant the sealed documents
which gave rise to the duty or obligation to pay.

•
 HISTORY OF CONTRACTS AND LAW OF CONTRACTS

• Effective mid 14 century , the action of covenant became redundant or rare. This is
because important agreements were made in writing whereby the parties entered
into bonds to pay penal sums of money if they failed to carry out their part of the
bargain. E.g. failure to pay a debt on due date, failure or refusal to transfer or
convey land sold or , failure to pay the agreed price [ on due date]for land or goods
sold to a party.
• Once a party performed his part of the bargain, the other party handed back the
bond as evidence of discharge of contract. In the alternative, the bond instrument
could be defaced or torn as evidence of discharge.
• Penal bonds were usually conditional, hence they became void if the obligation
was carried out earlier than the scheduled date e.g. if a debtor paid the amount
lent prior to the due date.
• The advantage of penal bonds with conditional defeasance lay in their flexibility:
they could be adapted to cater for any transaction. Such bonds were also widely
used as contractual instruments.
 HISTORY OF CONTRACTS AND CONTRACT LAW

• Disputes arising from or relating to the rights and obligations of the parties were
triable and determined by jury.
• The use of penal bonds reduced drastically in the late 17 th century because of the
several reasons including the following:
a) Though flexible, the law of penal bonds was still harsh and was highly developed in a complex case law. For
example, a creditor who lost the bond or permitted the seal to come off had no legal remedy or relief.
Similarly, a debtor who paid but failed to have the bod defaced or to obtain a release under seal risked
paying again and had no remedy.
b) The debtor who defaulted was at the mercy of the creditor because the latter could even have the debtor
imprisoned for an indefinite period for default
c) For informal or parol contracts, medieval law was more restrictive with financial limitations: In common
law courts, no claims could be brought unless they involved at least shillings forty (40). Also, the cause of
action of covenant could not apply to oral contracts.In the 17th century, the law of quasi-contracts came
into being as an extension of assumpsit
 ORIGIN OF CLASSICAL OR MODERN CONTRACT LAW

• The 19th century is considered the classical age of English contract law for
two reasons:
a) The century witnessed the extensive development of the principles and
structure of contract law
b) A change in the attitude of thinking lawyers to contract; this led to the
birth of voluntary social cooperation through contracts law especially
under the concept of “freedom of contract”: This policy was
authoritatively stated by Sir George Jessel in Printing and Numerical
Registering company v. Sampson (1875) L.R 19 Eq 462 as follows;
If there is one thing more than another which public policy requires; it is
that men of full age and competent understanding shall have the
utmost liberty in contracting; and that their contracts, when entered
into freely and voluntarily, shall be held sacred and shall be enforced by
Courts of Justice.
 HISTORY OF MODERN CONTRACT AND LAW OF CONTRACT

• The above judicial statement of the freedom of contract brings

out two essential elements for a court to uphold a contract:
a) The parties to the contract must be adults of
sound mind, hence the term men of full age
and competent understanding
b) Such contracts must have been freely and voluntarily
made
• The increase in the moral dignity of contract encouraged
thinking lawyers to feel that contract law was significant in
civilised legal regulation.
• .
• The 1st systematic treatise or exposition on the English law of
contract came into being in 1790 in the form of John Powell’s
Essay upon the Law of Contracts and Agreements . This
focused on the general principles of natural and civil equity
on which the law of contract was anchored. Since then several
contract treatises have been published with ideas from
English common law and civil law of continental Europe
• The 19th century and after have witnessed a proliferation of
statutory principles of the law of contract which often tend to
regulate the freedom of contract
 THE NEED FOR CONTRACTS
• Contracts are essential features and drivers of commercial, professional,
political and other areas of life.
• Contracts drive modern commercial.
• Contracts are necessary because trust alone is insufficient to drive
transactions.
• Contracts in writing are necessary and important because;
a) They provide a higher degree of clarity in terms of a contract,
b) provide a permanent record of agreements and transactions,
c) They protect the honest parties from fraud by cunning and malicious parties, to
determine validity of certain contracts and protect or safeguard interests of
parties.
d) They protect weaker parties to the contract e.g. buyer in a contract for sale of
goods; borrower in money lending contracts, hirer in a hire purchase agreement;
client in an advocate-client contract or patient in a doctor-patient contract.
 SOURCES AND NATURE OF THE LAW OF
CONTRACT IN KENYA
The following are the sources of Kenya’s law of contract:
a)The Constitution of Kenya: several Articles including Articles 25 on family and marriage, 36 on freedom of
association; 41 on Fair Labour Practices , 46 on Consumer Rights and 232 on Principles of Public Service apply to
contracts
b)Legislation: Several Acts of parliament articulate substantive and procedural
rules governing contracts. Examples include The Law of Limitations Act, Chapter
22, Laws of Kenya; The Law of Contract Act, Chapter 23, The Sale of Goods Act,
Chapter 31, Laws of Kenya; The Government Contracts Act, Chapter 39, Laws of
Kenya, The Public Procurement and Asset Disposal Act No. 33 of 2015, The
Companies Act No. 17 of 2015, The Insurance Act, Chapter 488, The
Consumer Protection Act No. 46 of 2012, The Competition Act No 10 of 2011,
The Employment Contract , 2007, The Labour Relations Act, 2007, The Labour
Institutions Act, 2007, The Occupational Safety and Health Act 2007, The
Arbitration Act, 1995; The Marriage Act, 2014 and The Judicature Act, Chapter
8, Laws of Kenya.
English Common law and doctrines of equity: In force in England as at 12th
August 1897. ( As defined in section 3 of The Judicature Act)
 Sources and Nature of Kenya’s Law of Contract

c) International arbitration, commercial and labour laws: Made

by such bodies as The World Trade Organization, and The
International Labour Organization (ILO). These apply
particularly to international trade.
d) Judicial Precedent: Principles made by Superior Courts of
Law when determining disputes arising from alleged or
breached contracts:
e) Contracts or agreements: Under the principle of privity of
contract
 NATURE OF THE LAW OF CONTRACT
• The law of contract is part of the law of civil
voluntary obligations.
• It has both oral and written substantive and
procedural rules governing formation, enforcement
and discharge of contracts.
• It has international and domestic sources
• There are transnational laws of contract:
International trade laws
 BBIT 2:2, COMMERCIAL LAW
LECTURE 3, 28.7.2020
MEANING AND ESSENTIALS OF A VALID CONTRACT
• A contract is a legally enforceable agreement between to or more competent parties.
• In Mozley & Whitele’s Law Dictionary, 12th edition, Butterworths, 2001; Penner provides a
collection of definitions of a contract which include the following:
a) An agreement between competent persons, upon a legal consideration, to do or abstain
from doing some act;
b) An agreement enforceable at law;
c) An agreement that the law can enforce
In Principles of Commercial Law, 2nd edition, Lawafrica, 2016, at p.50, Laibuta defines a contract as
follows:
“ …an agreement enforceable at Law, made between two or more persons, under which rights
are acquired by one or more, to act , or forbearance on the part of the other, or others.”
Whereas all contracts are agreements, not all agreements are contracts.
The law can only recognise an agreement as a contract if the essential elements of a valid
contract exist in the particular agreement. The elements are analysed below:
 ESSENTIAL ELEMENTS OF A VALID CONTRACT

• The following are essential elements of a valid contract under

English Law an the laws of Kenya:
1. Offer: Disclosure of terms upon which a party
known as the offeror, is willing to enter into a
contract with a second party known as the
offeree, if the latter unconditionally accepts those
terms or to enter into a contract on terms that may be
negotiated and agreed upon.
• It is a proposition by one party to another to make a contract by
accepting certain terms or upon terms that may eventually be
agreed upon.
• An offer must be firm and definite to a
particular person, whether natural or juristic:
this is known as a bilateral offer.
• An offer may be addressed to members of the
public in general: this is a unilateral offer.
• An offer must consist of a clear promise by one
party, the offeror, to be bound, as long as
certain terms are accepted, by the other party
known as the offeree.
• The offeror must have declared his willingness, readiness and ability
to undertake certain obligations upon certain conditions.
Options to an offeree
The party or parties to whom an offer or offers are extended may do
the following to the offer:
• accept the offer in which case it creates a legally binding agreement
or a contract; or
• may make a counter-offer which irrevocably terminates the original
offer and makes a new offer and changes the respective positions of
the parties so that the initial offeror becomes offeree while the
initial offeree becomes offeror, or
• may reject the offer in which case the offer terminates irrevocably.
 TERMINATION OF AN OFFER
• An offer may terminate in the following manner:
i) By acceptance: This is the common manner
ii) By counter-offer
iii) By rejection,
iv) By withdrawal or revocation by the offeror
v) By lapse of time, if any was set, for its acceptance
or upon expiry of reasonable time regard being
had to the nature of the subject matter of the
contract
 OFFER vs INVITATION FOR OFFERS
• An offer is different from an invitation for offers in the
following respects:
a) An offer is a definite commitment to be contractually
bound if the terms set out in the offer are accepted by
the offeree. On the other hand, an invitation for offers
is a request for offers, an invitation to negotiate terms
of an offer, an expression of an intention to make an
offer.
b) If an offer is accepted, a contract results. On the other
hand, an invitation for offers may result in an offer
• Legally, the following are NOT Offers:
a) An invitation for offers or invitation to treat e.g. tender
advertisements
b) Display of goods on shop windows or shelves;
c) Invitations of expression of interest,
d) An invitation to negotiate
e) An enquiry in response to an advertisement or other
expression of intention to sell goods or employ workers,
f) A request for clarification of terms of an advertisement or
procedure for submission of offers or tender bids or
applications
 Elements of a valid contract
2. Acceptance: This is the unequivocal or
unconditional expression of assent to the
offer by the offeree.
• The acceptance may be in writing, oral, partially
in writing and partially oral, or it may be by
conduct as in the case of Carlill v. Carbolic Smoke
Ball Company[1893] 1 QB 256
• It must be communicated to the offeror as per
the terms of the offer.
• An acceptance must be in response to an
existing valid offer.
• A counter-offer does not amount to an
acceptance.
3. Intention to be legally bound/to contract:
• Parties seeking to make a contract must have
an intention to create a legal relation; meaning
one that will give rise to legal rights and
obligations.
• Intention may be express or implied from the conduct or circumstances as in the case of Carlill v.
carbolic Smoke Ball Co. [ 1893] where the respondent’s action of depositing some money with a
financial institution as a sign of good faith or commitment, to cater for any claims that may arise,
was construed as an intention to be legally bound.
• In law, as a general rule, domestic arrangements e.g. between husband and wife or parent and
child do not amount to contract due to lack of an intention to be legally bound. This was held in
Bafour v.Balfour [1919]. In this case, an arrangement between a husband and wife under which the
wife who was sick, agreed to remain in England while the husband proceeded to Ceylon on
military duties , on condition that the husband periodically sent her some money for maintenance,
was held to be a non-contractual or domestic arrangement , hence the wife’s claim for arrears of
maintenance was not legally tenable.
4. Consensus ad idem: This is also known as a meeting of the minds or the
“consensus “ or “will” theory. This theory contends that contractual obligations are by nature
or definition self-imposed; thus any factor showing lack of consent is fatal to the existence of a
contract. On the converse, the theory postulates that the rules governing the formation of
contract are designed to differentiate cases of true consensus. Therefore, under this theory,
the exclusive role or function of the court in contract cases is certain what the parties have
agreed and enforce or give it effect.
• In Pothier’s Treatise on the Law of Obligations, at
p.35 (1806), Evans contends that
As every contract derives its effect from the intention of the parties, that intention, as
expressed, or inferred, must be the ground of every decision respecting its
operation and extent, and the grand object of consideration in every question
with regard to its construction.
• The will or intention must be freely and voluntarily given, hence duress or mistake will
negate the intention and vitiate the contract.
4. Consideration:
• This is a requirement in all simple contracts.
• It is simply the ‘price’ for the promise.
• The price need not be monetary or pecuniary; but must be something of value.
• The price is paid or given by one party, in return for the promise or undertaking by the
other party, to discharge the obligations imposed upon him by the contract.
 Meaning of consideration
• In Currie v. Misa [1875] LR 10 Exch 153, Justice Lush gave a classic definition of
consideration in terms of anything of value including mutual promises. In the
words of Lush,
A valuable consideration, in the sense of the law, may consist
either in some right, interest, profit, or benefit accruing to the one
party, or some forbearance, detriment, loss or responsibility,
given, suffered, or undertaken by the other.
In the light of the above definition, consideration, a valuable consideration is either of the
following:
a) some right, interest, profit or benefit accruing to one party [known as the promisee], or
b) some forbearance, detriment, loss or responsibility, given, suffered, or undertaken by
the other party[known as the promisor]
 Types of consideration
• There are two types:
a) Executory: consideration is executory when or
where the defendant’s promise is given in
return for another promise from the plaintiff;
where the transaction is to be carried out in
the future.
b) Executed: This is consideration made in return
for the performance of an act e.g agreed salary
or fees for services rendered.
 RULES GOVERNING CONSIDERATION
• It must be something of value, real and sufficient, though not adequate
• It must not be past: the price given must be in return to a corresponding promise
forming part of the same transaction. That is why in Roscorla v. Thomas[1842], Roscorla
bought a horse from Thomas and paid the price. After the transaction, Thomas told or
promised Roscorla that the horse was sound and free from vice. Later, the plaintiff
discovered that the statement was false as the horse was sick. The plaintiff sued for
breach of the promise. However, the claim failed. The Court held that the contract of
sale did not itself imply a warranty that the horse was sound and free from vice; and the
express promise was made after the sale was completed and was not supported by
fresh consideration.
• It must move from the promisee to the promisor, hence it is only a person who has given
consideration or paid the price for the promise, who can sue on it [ as held in Tweddle v.
Atkinson 1861]. Thus, there must be privity of contract between the promisee and the
promissor; strangers to the contract cannot enforce it except under a legal exception.
• It must be lawful, any promises or monies paid under an unlawful agreement or for an
illegal purpose cannot be legally enforced or recovered.
• Natural love or affection is not sufficient consideration, hence can not
found a cause of action as held in Tweddle v. Atkinson [1861]
• It must be in excess of an existing contractual or other legal obligation:
This principle was applied in Rajabali Nasser Rattansi v. Albert Israel
(1953), where the appellant sold some goods to the respondent. After partial
payment, the respondent claimed that he had been overcharged for the goods
and refused to pay the balance of the agreed purchase price. To induce him to
pay, the plaintiff promised to secure an export market for e respondent’s soap.
The plaintiff was unable to find the market. In return, the respondent refused to
pay the balance of KES5000/=. When sued, the Court dismissed the
Respondent’s defence and held that the respondent’s refusal to pay the money
he owed the plaintiff was frivolous and vexatious and was not a bona fide since
it was owing under an existing valid contract and the respondent did not provide
any consideration for the appellant’s promise to facilitate the export of the soap.
5. Contractual Capacity:
• As a general rule, parties seeking to make a contract must have
contractual capacity; must be competent to make legally binding
relations.
• As a matter of law, every person is presumed to be competent to contract
except for minors, people of unsound mind; un-discharged bankrupts,
enemy aliens and those under the influence of alcohol or other
intoxicants .
• Contracts made by persons without legal contractual capacity are either
void or voidable unless the contract is for necessaries.
• Under the laws of Kenya, the minimum contracatual age or age of
majority is eighteen years: Refer to The Age of Majority(Amendment Act)
1974.
• Under The Infants Relief Act, 1874, the following contracts with minors r persons the age of
eighteen are void and therefore unenforceable: contracts for loan and credit and contracts for
goods other than necessaries. So, any commercial contracts or contracts for luxuries with a minor
are invalid.
• Under section 4 of The Sale of Goods Act, necessaries are goods suitable to the condition in life of
an infant or minor or other person and to his actual requirement at the time of the sale and
delivery.
• For necessaries e.g. food, medical services/care, education, shelter, clothing or instruction in
culture or religion; the minor or a person of unsound mind must pay reasonable price. In Chapple v
Cooper [1844]. An English Court defined necessaries as things without which an individual cannot
reasonably exist. They include food, raiment or clothing, loddging or shelter, instruction in art or
trade, intellectual, moral and religious information, the assistance and attendance of others.
In that regard, the Court held that funeral services provided by the Plaintiff for the Defendant’s
husband , necessaries. Accordingly, though the Defendant was an infant ( below 21years) when she
sought and obtained the services, she was bound to pay for them since a decent burial for one’s
spouse or child was part of a person’s own rights and may be classed as a personal advantage, and
reasonably necessary to him. The defendant was ordered to pay the funeral expenses for her
husband.
• Goods or services for commercial purposes do
not fall under necessaries as demonstrated in
Mercantile Union Guarantee Corporation Ltd v.
Ball [1973] where it was that an infant was not
liable for instalments due under a hire
purchase agreement under which he had
hired a lorry for use in haulage business or
transport of goods.
• 6. Privity of Contract:
• For parties to enforce a contract or be held liable under it, there must be
privity of contract between them. That is the legal relationship that exists
between them due to provision of consideration. Thus, a stranger to a
contract cannot sue or be sued on it, meaning a person who has not given
consideration cannot sue to enforce a contract. This was held in
Agricultural Finance Corporation v. Lengetia Ltd [1985] where the first
respondent rendered services to the second respondent and sought
payment for the services from the appellant on the basis that the services
had been provided on the condition that the appellant would pay for them
out of monies to be advanced by the appellant to the second respondent.
There was no agreement to that effect between the appellant and the first
respondent.
 EXCEPTIONS TO THE PRINCIPLE OR
REQUIREMENT OF PRIVITY
a) An undisclosed principal may enforce rights and benefits accruing to him and sue under a
contract made on his behalf by his agent.
b) Third parties may enforce benefits under a contract of insurance e.g. Third party Motor
Vehicle Risks
c) Third party payee or endorsee may sue on a negotiable instrument though he is not the
original payee named in the instrument.
d) A beneficiary may sue under a trust to which he is not a party: Can sue the trustees to
enforce it.
e) Executors of a will or administrators of an estate of a deceased can sue or be sued on a
contract made by the deceased as representatives of the estate.
f) An assignee may enforce contractual obligations as he were a party to the contract: Only
benefits are assignable.
g) An agent can make a binding contract on behalf and enforceable by or against his principal
7. Legality of the Contract
• The object of the contract and the means of carrying out the contractual
obligations must be lawful. Illegality invalidates a contract as shown in Nathalal
Raghvanji Lakhani v HJ Vaitha and Another [1964]. In this case, a party was
excused from legal liability for cheques he endorsed to settle gambling debts.
So, agreements to commit crime or tort or to defraud a third party, to defraud
the revenue, to prejudice public safety, to corrupt public morals, to prejudice the
administration of justice, for a sexually immoral and reprehensible purpose; to
lend money to an enemy alien, for commercial or luxurious purposes of an
infant, or an agreement in restraint of trade are all illegal and void. Similarly, any
agreement which does not follow the applicable statutory form is also illegal. For
example, contracts for sale of land or disposition of an interest in land must be in
writing or evidenced in writing while contracts for hire purchase and contracts of
employment for least three months must be in writing.
8. Consensus ad Idem: Meeting of the mind
• To be legally bound, parties must have freely entered into the contract, without undue influence or duress.
This is because every contract derives its effect from the intention of the parties and contractual obligation
are self-imposed.
• There must be genuine consent of both or all parties to the contract.
• Consensus presupposes the absence of unilateral mistake, coercion or undue influence. The three factors
vitiate a valid.
• Undue influence may be exerted directly or indirectly as long as one party enjoys some dominance over the
other(s).
• Undue influence may be claimed where one party dominates the will of the other party. Therefore, in
Ottoman Bank v. K.S Mawan &Others [1965], EA 464, where a son [who was unmarried and lived with his
parents] signed a loan guarantee under the instructions of his father, who was also his employer, the son
successfully pleaded the defence of undue influence, hence defeating a claim by the bank on the basis of the
guarantee. The Court found that though the son was an adult, he was so much subject to his father’s
authority and had no property or income of his own. He was entirely dependent on his parents and was so
much under the control of his father so much so that he signed the guarantee because his father told him to
do so.
CONTENTS OF A CONTRACT: Sources, types, effects of breach of the various types of terms, Exclusion clauses,
justification, conditions for their validity. These aspects were covered in Lecture No. 3 and Students instructed to
make own notes on the same.
 LECTURE 3
CONTENTS/TERMS OF A CONTRACT
• The terms may be derived from one or more of the following sources:
1. Express agreement of the parties; Oral or in writing; partly oral and partly in
writing. This is the primary source.
2. Terms implied from trade custom, commercial or local usage or professional practice:
Contextual source: Hutton v. Warren(1836) 1 M & W 466: In this case, it was proved
that, by a local custom, a tenant was bound to farm according to a certain course of land
husbandry and that at the expiry of the tenancy, the tenant was entitled to a fair
allowance for seed and labour on the arable land. In this case at 475, Parke B, observed
that “it has long been settled, that, in commercial transactions, extrinsic evidence of
custom and usage is admissible to annex incidents to written contracts, in matters
with respect to which they are silent.”
Similarly, usages and practices of merchants and traders are adopted as
settled law in the public interest and for commercial efficacy. That is why in
Brandoo v Barrnett, Lord Campbell stated that when a general usage has been
judicially ascertained and established, it becomes a part of the law merchant, which
Courts of justice are bound to know and recognise.”
 Implied Terms of a contract
• Therefore, under English law and the laws of Kenya, any
alleged custom is governed by the law of evidence: A
custom has to be judicially ascertained and if established, it is
judicially recognised ( Under section 134 of The Evidence Act,
Chapter 80, Laws of Kenya. )
• No custom can be upheld by a Court of law if it is contrary to
the Constitution of Kenya and/or any other written law in
force in Kenya and/or if repugnant to justice and
morality( Refer to Article 2(4) of the Constitution of Kenya
and section 3(3) of the Judicature Act, Chapter 8, Laws of
Kenya
 Implied Terms of a Contract
• Under section 15, incase of a contract under which goods are sold by
description, there is an implied condition that the goods shall correspond
with the description. If the sale is both by description and sample, there is
an implied condition that the bulk when delivered shall correspond both
with the sample and description.
• In section 16, (a)there is no implied warranty or condition as to the quality
or fitness for any particular purpose of goods supplied unless any Act of
parliament so requires. However, where the buyer expressly or by
implication discloses to the seller the particular purpose for which the
goods are required, there is an implied condition that goods shall be
reasonably fit for that purpose; provided there is evidence that the buyer
relies on the seller’s skill or judgment and the goods are of the description
which is in the course of the seller’s business to supply: whether as
manufacturer or otherwise;
 Implied terms of a contract
3) Terms implied by Statute or Legislation .

This applies to certain contracts e.g. contracts for sale of goods. Under the Sale
of Goods Act, chapter 31, laws of Kenya, some conditions and warranties are
implied into every contract for sale of goods. Some of the implied terms cannot
be excluded by agreement of the parties. Examples are as follows:
•Under section 14 of the Sale of Goods Act, it is provided that in a contract of
sale, unless the circumstances of the contract show a contrary intention, there is
an implied condition on the part of the seller that in the case of a sale, the seller
has a right to sell the goods, and incase of an agreement to sell, the seller will
have such right when the property in the goods is to pass to the buyer; there is
an implied warranty that the buyer shall have and enjoy quiet possession of the
goods; and there is an implied warranty that the goods shall be free from any
charge or encumbrance in favour of any thirdy party.
 Implied Terms of a contract
Similarly, where goods are bought by description from a seller
b)

who deals in goods of that description (Whether as manufacturer

or otherwise), there is an implied condition that the goods shall be
of merchantable quality; the implied condition shall not apply in
relation if the buyer was accorded a chance to examine the goods
before hand and the defects in question ought to have been
revealed by the examination; (c) An implied warranty or condition
as to quality or fitness for a particular purpose may be annexed by
the usage of trade; and (d) an express arranty or condition does
not negative a warranty or condition implied by the Act save
where it is inconsistent with the Act.
 Implied term of a contract
• In section 17, it is provided that a contract of sale by
sample is one with a term, express or implied, to the
effect that incase of a contract of sale by sample,
there are three implied conditions: that the bulk shall
correspond with the sample in quality; that the buyer
shall have a reasonable opportunity of comparing the
bulk with the sample; and that the goods shall be
free from any defect rendering them merchantable
which defect would not be apparent on reasonable
examination of the sample.
 Implied Terms of a Contract
4. Terms implied from the Conduct of the parties
5. Terms inferred or presumed by the Courts in the interest of
business efficacy. Such terms are implied to cure a curable defect
or failure in expression. Normally, such terms are implied to give
effect to the presumed intention of the parties and to give
efficacy to the contract. [ Reigate v Union Manufacturing Co.
(Ramsbottom) [1918] 1 KB 592.
• Such a term can be implied if it is obvious to an officious
bystander that the parties intended to have it as part of the
terms of the contract save that it may have been left out due
to an oversight or innocent omission.
 CLASSIFICATION OF TERMS OF A CONTRACT

Terms of a contract fall into the following classes

1. Conditions: Major terms whose breach entitle the innocent to treat
the contract as repudiated.
2. Warranties: Minor terms whose breach do not lead to repudiation of a
contract, but entitle the innocent party to a claim for damages or
monetary compensation against the party at fault.
3. Innominate Terms: They are hybrid; They are neither conditions nor
warranties; the effect of their breach will depend on the choice of the
parties. For example, in section 13 of The Sale of Goods Act, it is
provided that where a contract of sale is subject to any condition to be
fulfilled by the seller, the buyer may waive the condition, or may opt to
treat the breach of condition as a breach of warranty and not as
aground for treating the contract as repudiated.
4. Exclusion clauses: Apply to standard form contracts and to contracts subject to consumer protection rules e.g.
Insurance contracts, Hire Purchase Contracts, Credit or money-lending contracts.
• They are clauses that purport or tend to exclude or limit the liability of one of the parties in certain circumstances.
• Such clauses define the extent of liability of a party or scope of obligations of a party to a contract.
• They also provide defences to a party; the one who inserts and seeks to rely on the clauses.
• Must be in writing and included in the contract document or if in another document, the latter should be an
integral part of the contract.
• The parties must have intended that the document bearing the clause be a contractual document.
• The exclusion clause must be brought to the knowledge of the other party at the time of making the contract; not
after. That is why conditions in a ticket purporting to exclude or limit liability of the issuer or the defendant e.g. the
management of a hotel or of a parking bay, for personal injuries or loss or damage of client’s property are
generally invalid[ See Chapelton v Barry UDC [1940] 1 ALL ER 356. So such terms as park your car at your own risk
are rarely upheld by courts.
• Mere notices at the rear of receipts acknowledging payment do not amount to terms of a contract. The same
applies to notices posted in hotel or guest house bedroooms: This principle was applied in Olley v Malborough
Court Limited [1949], where the claimant, a guest at the Defendant’s Hotel, left her room for four hours, having
locked her room and left the key on the rack in the reception office. On returning, she found the key missing and
various article stolen from her room. Her claim for compensation was successful despite a notice displayed in the
reception office , limiting liability of the Defendant for articles lost or stolen unless handed to the manageress for
safe custody
 Exclusion Clauses
• Exclusion clauses are subject to the following judicial rules
of interpretation:
a) They must be clear: in case of any doubt as to the
meaning and scope, the ambiguity will be resolved
against the party who inserted the clause and is now
seeking to rely on it.
b) The clause should be an integral term of the contract but
cannot be invoked or relied upon to protect a person who
is a stranger to the contract: It is subject to principle of
privity of contract: Read Lummus Co. ltd v. East African
Harbours Corporation [1977] KLR 69
 Exclusion Clauses
c) The clause or term cannot operate to excuse from
liability, a party who is at fault; fails to perform his or
her part of the bargain; It is not a “sword but a shield”.
Thus any party in breach of contract cannot rely on
such a clause to escape legal liability for the breach or
to deny an aggrieved party a remedy available in law.
This is the principle of reciprocity: the right to sue and
liability to be sued upon a contract are reciprocal;
there is a chance of gain or risk of responsibility.[ see
Elbinger Act len-Gessellshaft v Claye law Redp]
d) The intended protection should be
reasonable: No more than necessary in the
circumstances.
 LECTURE 4
04.8.2020
COMPUTER CONTRACTS
• Refers to contracts concerning computer hardware, software or maintenance.
• Governed by the same rules as other contracts with respect to essential elements, formation, enforcement, discharge and
remedies.
• Have a mix of applicable laws: Computer hardware and accessories are goods, hence governed by laws for sale of goods;
Computer software falls under intellectual property protectable under Copyright, trade secrets and patents. For software,
including bespoke ones, customers do not buy; they only obtain a user license for which they pay a fee. Provision of post-
delivery maintenance services and supplies falls under technical services.
• The contract may be complex; concerning the development, delivery and installation of a computer system in response to
specifications of the customer.
• Owing to its complex nature, there is need for pre-contractual identification of the customer’s information technology
requirements and this responsibility should be shared between the customer and the supplier for the contract to be
responsive.
• Due to the dynamic nature of the Information and Communication technologies, there are very few standard contracts relating
to computer hardware, software and services.
• For technical reasons, most computer contracts are generated by the computer industry and not the legal professionals. Those
contracts do not necessarily provide adequate protection for customers as there is conflict of interest.
•

•
 COMPUTER CONTRACTS
CONTENTS OF COMPUTER CONTRACTS
For supply of computer hardware, software and accessories the contract should
have, among others, the following terms:
a) Technical specifications of the computer hardware and software
b) Purpose for which the Computer hardware and system is sought: Is it for
accounting, e-commerce, e-gaming etc.
c) Current computer system in use by the Customer and possibility of integration
d) Unit Prices and mode of payment
e) Modalities of supply: Is it on order under a framework agreement or other.
f) Assignment clause: Whether the contract is personal to the supplier or both
parties or assignable and if assignable, what are the prerequisites, procedures
and scope of assignment
g) Third party rights: If there are any, nature of those rights and manner of
enforcing them: Privity of contract principle applies.
 CONTENTS OF A COMPUTER CONTRACT FOR HARDWARE

h) Intellectual Property Rights: Whether the buyer shall acquire any

right, title or interest in the supplier’s pre-existing intellectual
property rights. That has to be clarified in the contract. In this respect,
the contract must have an indemnity clause in favour of the buyer:
During and after the period, the supplier shall indemnify and hold the
buyer or customer harmless from and against all actions, suits, claims,
demands, losses, charges, damages, costs, expenses and other
liabilities which the buyer/customer may suffer or incur due to any
claim that the supply of goods and/or services or the provision of
services by the supplier infringes or allegedly infringes a third party’s
Intellectual property rights e.g. Trade mark, copyright. If any user
licenses or copyright fees is required, the amount and the party to
whom it is payable.
 Terms of a computer contract
i) There should be a clause on performance
security or guarantee to be furnished by
or on behalf of the supplier by an approved
issuer e.g. an insurance company or a bank
to cover the performance of the supplier’s
obligations under the contract. In Kenya, the
value of the performance bond or security is
usually 10% of the tender value or estimated
purchase orders.
j) Inspection/examination and testing of the
goods (Hardware) and systems (software): This
clause permits the buyer or its duly authorised
agent or representative to inspect or test the
goods at the supplier’s warehouse, shop or
manufacturing plant and the supplier is
obligated to facilitate access to the goods,
premises and provide any reasonable assistance
in relation to the inspection or test at no charge
 Contents of a Computer contract
k) Defects and remedies: Liability for manufacturer’s defects in goods: If the goods do not meet
technical specifications and customer’s specifications/needs
l) Force majeure: There should be a clause exonerating the parties from liability for any delay in
performing or failure to perform contractual obligations as long as the delay or failure is due to
force majeure or a supervening event or act of God.
The grace period for delay should be specified. In practice, a delay of up to six months is allowable.
Thereafter, either party can terminate the contract by notice in writing
m) Payment modes, schedules and recovery of any monies
paid or due to the supplier.
n) Provision of relevant information: Exchange of comprehensive and
necessary information for the due performance of the agreement.
These include user and maintenance manuals for systems supplied.
o) Delivery Schedules, installation, commissioning and post-delivery maintenance:
Responsibility, duration and cost.
p) Buy back options, terms: Whether available and when.
q) Upgrades and cost: Whether available, frequency, cost and other applicable terms.
 TERMS OF A COMPUTER CONTRACT
r) Protection of confidential information: reciprocal duty; Confidential information shared is
limited to the purpose of the agreement. Otherwise, applicable non-disclosure clause applies
and there are consequences for breach of this clause
s) Corrupt conduct, gifts and payments: Clause prohibiting such on the part of the
supplier in favour of buyer’s agent, employee or other person as inducement or reward for
doing or refraining from doing any act in relation to the contract/agreement.
t) Dispute Resolution Clause: Mode of resolution, authority, procedures and effects; Binding
Alternative Dispute Resolution mechanisms especially arbitration as the preferred 1 st option
u) Termination clause: Grounds, procedures and consequences must be stated.
v) Notices: If any, e.g. on delay and termination,; form and duration of notice, addresses, delivery
and place of delivery .
w) Applicable law , interpretation and Jurisdiction: Laws of Kenya and Courts of Kenya etc.
x) Severability of the provisions of the agreement: Invalidity of one clause does not necessarily
invalidate other clauses or the whole contract .
y) Effective date and duration for performance: Must be specified and applied; consequences for non-
adherence should also be specified in the Contract.