THE LAW OF CONTRACT

Introduction
A contract may be defined as a legally binding agreement made by 2 or more parties. It has
also been defined as a promise or set of promises a breach of which the law provides a
remedy and the performance of which the law recognizes as an obligation. The most
important characteristic of a contract is that it is enforceable. The genesis of a contract is an
agreement between the parties hence a contract is an enforceable agreement. However,
whereas all contracts are agreements, all agreements are not contracts.

Contracts are made at some point in time in one way or another. We all contract whether
consciously or sub consciously. The bulk of the day to day contracts we make do not have all
the formalities and are merely agreements. Contract law is therefore vital as most persons and
companies contract on a daily basis.
There is need to have an understanding of the following concepts pertaining to the
Law of contract:
 The nature of a contract.
 Formation of a contract.
 Classification of contracts.
 Terms of contract; Exemption clauses, conditions and warranties.
 Vitiating factors; mistake, misrepresentation, duress and undue influence.
 Privity of contract.
 Termination and discharge of a contract.
 Remedies for breach of contract.
 Limitations of actions.
Key Definitions:
 Offer: an unequivocal and clear manifestation by one party of its intention to contract with
another.
 Unequivocal: clear, definite and without doubt
 Invitation to treat: This is a mere invitation by a party to another or others to make
offers or bargains. The invitee becomes the offeror and the invitor becomes the
offeree. A positive response to an invitation to treat is an offer.

 Acceptance: This is the external manifestation of assent by the offeree.

 Revocation: This is the withdrawal of the offer by the offeror.
 Consideration: It has been defined as “an act or promise offered by the one party and
accepted by the other party as price for that others promise.”
 Estoppel: It a doctrine that is to the effect that where parties have a legal relationship
and one of them makes a new promise or representation intended to affect their
legal relations and to be relied upon by the other, once the other has relied upon it and
changed his legal position, the other party cannot be heard to say that their legal relationship
was different.
 Conditions: This is a term of major stipulation in a contract. If a condition is breached, it
entitles the innocent party to treat the contract as repudiated and to sue in damages.
 Warranties: This is a minor term of a contract or a term of minor stipulation. If breached,
it entitles the innocent party to sue in damages only as the contract remains
enforceable and both parties are bound to honour their part of the bargain.
 Merchantable quality: Fit to be offered for sale. Reasonably fit for the buyer’s purposes
 Privity of contract: This doctrine is to the effect that only a person who is
party to a contract can sue or be sued on it.
 Void: Lacking legal force.
 Voidable: Capable of being rescinded or voided.
 Acceptance: This is the external manifestation of assent by the offeree.
 Revocation: This is the withdrawal of the offer by the offeror.
 Consideration: It has been defined as “an act or promise offered by the one party and
accepted by the other party as price for that others promise.”
 Estoppel: It a doctrine that is to the effect that where parties have
a legal relationship and one of them makes a new promise or representation
intended to affect their legal relations and to be relied upon by the other, once the other has
relied upon it and changed his legal position, the other party cannot be heard to say that their
legal relationship was different.
 Conditions: This is a term of major stipulation in a contract. If a
condition is breached, it entitles the innocent party to treat the contract as repudiated and to
sue in damages.
 Warranties: This is a minor term of a contract or a term of minor stipulation. If breached,
it entitles the innocent party to sue in damages only as the contract remains
enforceable and both parties are bound to honour their part of the bargain.
 Merchantable quality: Fit to be offered for sale. Reasonably fit for the buyer’s purposes
 Void: Lacking legal force.
 Voidable: Capable of being rescinded or voided.
 Caveat emptor: It literally means “buyer beware” This is a Common Law principle
to the effect that in the absence of fraud or misinterpretation, the seller is not liable if the
goods sold do not have the qualities the buyer expected them to have.
 Quantum meruit: This literally means “as much as is earned or deserved”. This is
compensation for work done. The plaintiff is paid for the proportion of the task completed.
 Breach of contract: A failure to perform some promised act or obligation
 Frustration of contract: A contract is said to be frustrated when performance of the
obligations becomes impossible, illegal or commercially useless by reason of extraneous
circumstances for which neither party is to blame.
 Damages: it is a monetary award by court to compensate the plaintiff for the
loss occasioned by the breach of contract.
 Ex-gratia Sum: - a free-sum, one not required to be made by a legal duty
 In futuro: - in future:
 Unilateral Mistake: This is a mistake as to the identity of one of the parties to the contract.
Only one party is mistaken and the mistake is induced by the other party.
 Misrepresentation: This is a false representation. It is a false statement made by a
party to induce another to enter a contractual relationship.
 Duress: - actual violence or threats thereof
TYPES OF CONTRACTS
Contracts may be classified as:
1. Written / specialty contracts
2. Contracts requiring written evidence
3. Simple contracts
4. Contracts under seal

1. Written Contracts
These are contracts which under the law must be written, that is embodied in a formal
document e.g. hire purchase agreement, contract of marine insurance, contract of sale
of land.
2.Contracts under seal:
This is a contract drawn by one party, sealed and sent to the party/ parties for
signature. Such a contract requires no consideration e.g. a lease agreement, mortgage,
charge.

3.Contracts requiring written evidence

memorandum.
Contents of the note / memorandum:
1) A description of the parties sufficient to identify them.
2) A description of the subject matter of the contract
3) The consideration (value)
4) Signature of the parties
Examples include; contracts of insurance other than marine, contract of
guarantee.
3. SIMPLE CONTRACTS
These are contracts whose formation is not subject to any legal formalities.
The contract may be:
 Oral
 Written
 Partly oral and written
 Implied form conduct of the parties
Examples include; contract of sale of goods, partnership agreement, and
construction contracts.
ELEMENTS OF A CONTRACT
These are the constituents or ingredients of a contract. They make an
agreement legally enforceable. These elements are:
a. Offer
b. Acceptance
c. Capacity
d. Intention
e. Consideration
f. Legality
g. Formalities, if any
These are contracts which must be evidenced by some notes or memorandum.
Contents of the note / memorandum:
i. A description of the parties sufficient to identify them.
ii. A description of the subject matter of the contract
iii. The consideration (value)
iv. Signature of the parties
Examples include; contracts of insurance other than marine, contract of
guarantee.
4. Simple Contracts
These are contracts whose formation is not subject to any legal formalities.
The contract may be:
Oral
Written
Partly oral and written
Implied form conduct of the parties
Examples include; contract of sale of goods, partnership agreement, and construction
contracts.
ELEMENTS OF A CONTRACT
These are the constituents or ingredients of a contract. They make an agreement
legally enforceable. These elements are:
a. Offer
b. Acceptance
c. Capacity
d. Intention
e. Consideration
f. Legality
g. Formalities, if any

SOURCES OF LAW OF CONTRACT

Under section 2 (1) of the Law of Contract Act, Cap 23, the sources of law of
contract is:
i. Substance of common law
ii. Doctrines of equity
iii. Certain Statutes of General Application
iv. Other Acts of the Kenyan Parliament
CREATION / FORMATION OF CONTRACTS
A contract comes into existence when an offer by one party is unequivocally accepted by
another and both parties have the requisite capacity. Some consideration must pass and the
parties must have intended their dealings to give rise to a legally binding agreement. The
purpose of the agreement must be legal and any necessary formalities must have been
complied with.

THE OFFER
An offer has been defined as: an unequivocal manifestation by one party of its intention to
contract with another. The party manifesting the intention is the offeror and the party to
whom it is manifested is the offeree.
RULES / CHARACTERISTICS OF AN OFFER:
1. An offer may be oral, written or implied from the conduct of the offeror.
2. An offer must be communicated to the intended offeree or offerees. An offer remains
ineffective until it is received by the offeree.
3. An offer must be clear and definite i.e. it must be certain and free from vagueness and
ambiguity. Eg in Richard v. Mutua, Benefits to be shared, it was held that words used were
too vague and uncertain to amount to an offer.
4. An offer may be conditional or absolute. The offeror may prescribe conditions to be
fulfilled by the offerer for an agreement to arise between them.

5. The offeror may prescribe the duration the offer is to remain open for acceptance.
However, the offeror is free to revoke or withdraw his offer at any time before such
duration lapses.
6. The offeror may prescribe the method of communication of acceptance by the
offeree. If he insists on a particular method, it becomes a condition.
7. 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.
Examples of Offers
1. Public transport:
2. Bidding at an auction
3. Submission of a tender
4. Application for employment
However, an offer must be distinguished from an Invitation to treat.
Invitation to Treat
This is a mere invitation by a party to another or others to make offer or bargain. The invitee
becomes the offeror and the invitor becomes the offeree. A positive response to an
invitation to treat is an offer.
Examples of invitation to treat
1. Advertisement of sale by auction: At common law, an advertisement to sell goods
or other property by public auction is an invitation to treat. The prospective buyer makes the
offer by bidding at the auction and the auctioneer may accept or reject the offer.
Types of Offers
1. Cross offers
This is a situation where a party dispatches an offer to another who has sent a similar offer
and the two offers cross in the course of communication. No agreement arises from cross
offers for lack of consensus between the parties. The parties are not at ad idem.
2. Counter offer
This is a change, variation or modification of the terms of the offer by the offeree. It is a
conditional acceptance. A counter offer is an offer in its own right and if accepted an
agreement arises between the parties. A counter offer must however be distinguished
from a request for information or inquiry.
Request for information:
An inquiry which does not change terms of the offer. The offeree may accept the offer
before or after inquiry is responded to.
3. Standing offer.
A standing offer arises when a person’s tender to supply goods and service to another is
accepted. Such acceptance is not an acceptance in the legal sense. It merely converts the
tender to a standing offer for the duration specified if any. The offer is promising to supply
the goods or services on request and is bound to do so where a requisition is made.
Any requisition of goods or services by the offeree amounts to acceptance and failure to
supply by the offerer amounts to a breach of contract.
In standing offer, the offeror is free to revoke the offer at any time before any requisition is
made, unless the offeror has provided some consideration for the offeror to keep the standing
offer open.
This consideration is referred to as ‘an option’. This is an agreement between a
offeror and the offeree by which an offeree agrees to keep his offer open for a specified
duration. In this case, the offeror cannot revoke the offer. In a standing offer, if no order to
requisition is made by the offeree within a reasonable time, the standing offer lapses.

Termination of Offers
A contractual offer may come to an end or terminated in any of the following ways:
a. Revocation:
This is the withdrawal of the offer by the offeror. At common law, an offer is revocable at
any time before acceptance.
Rules of revocation of offers:
1. An offer is revocable at any time before it becomes effectively accepted.
2. Notice of revocation must be communicated to the offeree. However, such
communications need not to be effected by the offeror. It suffices, if
communicated by a 3rd party.
3. An offer is revocable even in circumstances in which the offeror has promised to keep it
open to a specified duration, unless an option exists.
4. Revocation becomes legally effective when notice is received by the offeree.
5. An offer is irrevocable after acceptance.
6. In unilateral contracts, an offer is irrevocable if the offeree has commenced
and continues to perform the act which constitutes acceptance.
7. A bid at an auction is revocable until the hammer falls.

b. Rejection:
An offer terminates if the offeree refuses to accept the same, the refusal maybe express or
implied from the conduct of the offeree e.g. silence by the offeree amounts to a rejection.
4. Counter Offer:
This is a change or variation of the terms of the offer by the offeree. It is a form of
rejection. The legal effect of a counter offer is to terminate the original offer.5.
Lapse of Time:
If an offer is not accepted within the stipulated time and not revoked earlier, it lapses on
expiration of such duration. Where no duration is specified, the offer lapses on expiration of
reasonable time. What is reasonable time is a question of fact and varies from case to case.
5. Death:
The death of the offeror or offeree before acceptance terminates an offer. However, the offer
only lapses when notice of death of the one is communicated to the other.
6. Insanity:
The unsoundness of mind of either party terminates an offer. However, the
offer only lapses when notice of the insanity of the one is communicated to the other.

7. Failure of A Condition Subject to Which the Offer Was Made:

These are conditional offers. If a condition or state of affairs upon which an offer is made
fails, the offer lapses.

ACCEPTANCE
This is the external manifestation of assent by the offeree. It gives rise to an agreement
between parties. In legal theory, an agreement comes into existence at the subjective
moment when the minds of the parties meet. This moment is referred to as Consensus ad
idem (meeting of minds).
However, this subjectivity must be externally manifested by the offeree for the agreement to
arise. Acceptance may be oral, written or implied from the conduct of the offeree.
RULES OF ACCEPTANCE
1. Acceptance may be oral, written or implied from the conduct of the offeree.
2. The offeree must have been aware of and intended to accept the offer: A person cannot
accept an offer whose existence he is unaware of.
3. Acceptance must be unconditional and unqualified: The offeree must accept the offer in its
terms, any variation or modification of the offer amounts to a conditional acceptance which is
not an acceptance.
However, this subjectivity must be externally manifested by the offeree for the agreement to
arise. Acceptance may be oral, written or implied from the conduct of the offeree.
4. An offer must be accepted within the stipulated time if any or within a reasonable time
failing which it lapses.
5. Acceptance must be communicated to the offeror in the prescribed method if
any or an equally expeditions method. Where no method of communication is
prescribed, the method to apply depends on the type of offer and the circumstances in
which the offer is made.
6. As a general rule, silence by the offered does not amount to Acceptance.
7. Where parties negotiate by word of mouth in each other’s presence, acceptance
is deemed complete when the offeror hears the offeree’s words of acceptance.
8. Where parties negotiate by telephone, acceptance is deemed complete when the
offeror hears the offeree’s words of acceptance.
9. Where parties negotiate by telex acceptance is deemed complete when the offeree’s
words of acceptance are received by the offeror.
10. In unilateral offers, commencement and continuation of performance constricts
acceptance. During performance, the offero cannot revoke the offer but to do so if
performance is discontinued.
11. In standing offers, a specific order or requisition by the offeree constitutes
acceptance and the offerer is bound.
12. An offer to a particular/specific person can only be accepted by that person for an
agreement to arise.
13. An offer to a class of persons can only be accepted by a member of that class
for an agreement to arise.
14. An offer to the general public may be accepted by any person who fulfills its conditions.
15. The postal rule of acceptance:
Where the offeror expressly or impliedly authorizes the offeree to communicate
acceptance by post, acceptance is deemed complete when the letter is posted whether it
reaches its destination or not.
a) Express authorization:
These are circumstances in which the offeror expressly permits the offeree to communicate
acceptance by post.
b) Implied authorization:
There are circumstances in which the offeror by implication authorized the offeree
to communicate acceptance by post.
c) No authorozation:
If the offeror does not expressly or implied authorizes the offeree to use the post but the
offeror uses the post, acceptance is deemed complete when the letter of acceptance is
received by the offeror.
16. If the offeror instructs his messenger to deliver to him the letter of acceptance in any
from the offeree, acceptance is deemed complete when the letter is handed over to the
messenger.
17. Acceptance need not be communicated to the offeror where such communication is
expressly or impliedly waived.
18. Acceptance need not be communicated to the offeror where it makes the form of
conduct.
Once an offer is accepted, an agreement arises between the parties as there is consensus
between them. Offer and acceptance constitutes the foundation of a contractual relationship.
They do not constitute a contract as a contract must be characterized by other elements.

Intention to Create Legal Relations

In addition to offer and acceptance, an agreement must be characterized by intention. The
parties must have intended to create legal relations. Intention is one of the basic elements of a
contract as common law. An agreement is unenforceable unless the parties thereto intended
such a consequence.
Ascertainment of intention:
To determine whether parties intended to create legal relations, courts consider;
1. Nature or type of agreement i.e. whether commercial or business and domestic or social.

2. The circumstances in which the agreement was entered into. These two factors
demonstrate whether the parties intended to contract.
a) Business or commercial agreements;
In considering such agreements, courts proceed from the presumption that the parties
intended to create legal relations.
1. Advertisements
These are intended to promote sales of the advertiser.
2. Employment agreements.
These are commercial agreements intended to impose legal obligations on the parties thereto.
However, the circumstances in which a commercial or business agreement is entered into
may show that the parties did not intend to create legal relations and this would
be the case where honour clauses or honourable pledge clauses are used.
This is a clause in agreement to the effect that the parties do not intend to create legal
relations.
It denies the agreement legal intention thereby converting it to a gentleman’s
agreement binding in honour only.
CAPACITY
In addition to consensus and intention, a contract must be characterized by capacity. This is
the legal ability of a party to enter into a contractual relationship. For an
agreement to be enforceable as a contract the parties must have had the requisite capacity.
As a general rule, every person has a capacity to enter into any contractual relationship.
However, in practice, the law of contract restricts or limits the contractual capacity of certain
classes of persons namely;
1. Infants or minors.
2. Drunken persons.
3. Persons of unsound mind.
4. Corporations.
5. Undischarged bankrupts.