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Organizational issues

INTRODUCTION

A contract is an agreement made between two or more persons intended to be
legally binding. It is an agreement that courts can recognize and enforce. A contract
creates rights and obligations. The doctrine of privity of contract applies meaning
that only parties to the contract are bound by the obligations and the rights thereto
are enjoyed by the parties. The Law of Contract Act cap. 23 govern contracts in
Kenya. Section 2(1) of the Act makes provisions for the application of common law
relating to contract as modified by equity and statutes of England to be applicable
in Kenya. Contracts are made for many purposes e.g. sale of goods and land,
insurance, hire purchase and many others. Under the common law, there is no
requirement for contracts to be in any form. However, statute has to some extent
made provisions for this with intent to give protection to one of the parties.
TYPES OF CONTRACTS

1. Contracts under seal and simple contracts

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A contract under seal is a formal agreement which must be in writing, signed,
witnessed, sealed and delivered. Delivery can be actual (mere handing over) or
constructive (formal). Such contract is also referred to as a specialty contract or a
deed. Where delivery takes place at a future date, the deed is known as escrow.
Examples of contracts under seal include conveyances of land, leases of over 3 years,
conditional bills of sale among others. Section 2(1) of the Law of Contract Act
provides that no contract in writing shall be void or unenforceable by reason only
that it is not under seal. Such contracts will still be binding in the absence of
consideration.

Simple contracts are informal contracts in that there is no requirement that they be
in form. They can be made orally, in writing, partly oral and partly written or it can
be implied by conduct.

3. Unilateral and bilateral contracts

This is where the contract only binds one party to the contract e.g. where one
promises a reward for whoever finds their lost property. In bilateral contracts, each
party makes promises and both are legally bound by their promises e.g. insurance
contracts

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4. Contracts of record: These include court judgments in civil matters and
personal cognizances in criminal matters. They are not true contracts since
the obligations are imposed by the courts.
5. Void contracts:
-They have no binding effect on either party
-A void contract is no contract at all since neither party can fully enforce
-This may arise where:
A basic ingredient is lacking e.g. offer, acceptance
Those contracts made under mistake
Those made with minors and are disallowed under the Infant’s Relief Act
Where the consideration or the object is unlawful

7. Voidable contracts
-They are binding and enforceable on either one party or both parties. A contract
may be voidable because of misrepresentation, insanity etc It may be set aside at the
option of the aggrieved party. The aggrieved party must however do this within a
reasonable time.

8. Unenforceable contracts
-These are valid contracts
-They cannot be enforced if one party refuses to keep the agreement
-Can be used as a defence to a claim

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9. Valid contracts:
-Have all the ingredients of a contract and are therefore binding and enforceable

CONTRACTS THAT MUST BE IN WRITING OTHERWISE VOID

1. Those that require to be stamped e.g. bills of exchange, promissory notes
2. Acknowledgment of statute barred debts
3. Transfer of immovable property
4. Representation of character of creditworthiness

THOSE

THAT

MUST

BE

SUPPORTED

BY

WRITTEN

EVIDENCE

OTHERWISE UNENFORCEABLE

1. Contracts of guarantee
2. Contracts for sale of land
3. Contacts for sale of goods
4. Hire purchase agreements
5. Contracts of employment
6. money lending contracts

Details required in a written contract

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1. Details of the parties and their description
2. Description of the subject matter
3. Signature of the party to be charged
4. Consideration except in a contract of guarantee

ESSENTIALS OF A VALID CONTRACT

1. Offer and acceptance
2. Intention to create legal relations
3. Consideration
4. Contractual capacity
5. The object of the contract must be lawful
6. The contract must be in the form required by the law if any
7. Genuine consent

OFFER & ACCEPTANCE

Offer

A contract comes into existence when a definite offer has been unconditionally
accepted. An offer is a proposal made by one party known as the offeror to another

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party known as the offeree. It can be made orally, in writing or implied by conduct.
An offer can be made to one person, a group of persons or to the public as a whole.

An offer must be distinguished from an invitation to treat. An invitation to treat is
an invitation to one to make an offer e.g. advertisements, price-marked good goods
in a shop or circulars. Acceptance of an invitation to treat does not amount to a
contract. In the case: Carlill vs. Carbolic Smoke Ball,
the defendants were manufactures of smoke balls, a medicine which they claimed
would prevent all sorts of illnesses. They promised in an advert to pay 100 pounds to
anyone who caught influenza after using the smoke ball. The plaintiff relied on the
advert, bought the smoke ball, and used it as prescribed but caught influenza. The
defendants argued that they did not make an offer to anyone specifically and
secondly that their advert amounted to an invitation to treat. It was held that the
advertisement amounted to an offer made to the whole world and the defendants
were therefore liable.

The case of Fisher v. Bell, a shopkeeper was charged with offering for sale a flick
Knife contrary to the Restriction of Offensive Weapons Act (criminal offence). It
was held that displaying the knife in his shop window was not an offer but a mere
invitation to treat. He was not found not liable.

In Pharmaceutical Society of Great Britain v. Boots Cash Chemists, it was held that a
customer did not accept an offer when he took items from the shelves of a self-

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service store. Taking the goods to the cashier was the offer to buy, which the cashier
accepted when money was taken in for payment.

Tenders

A tender is an offer for the supply of goods or services.

1. Where a corporation invites tenders for the supply of certain items within a
certain specified period of time, this constitutes a standing offer. Each
requisition within the specified time is a separate contract and the offeror is
free to revoke.
2. Where the corporation advertises that they require a given number of items
at a given date and the offeree’s tender is accepted, the contract is formed.
3. A tender for the supply of goods/services as may be required from time to
time is a continuing or standing offer. Such contract is violated if the offeror
gets goods from another source.

In auction sales, invitations are made by the auctioneer, the bidders make the offer
and acceptance is at the fall of the hammer.

Essentials of a valid offer

(a)

The terms of the offer must be certain

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(b)

The offer must be communicated so as to make the other party aware

(c) The offer must contemplate to give rise to legal relations
(d)

The offeror can not bind the offeree without his consent

(e)

The offeror may attach any conditions to the offer but must
communicate them to the offeree before they bind him by his acceptance of
the offer

TERMINATION OF OFFER

An offer does not remain open indefinitely and once it comes to an end, it can no
longer be accepted. An offer can come to an end in the following ways:

1. A time limit or a reasonable time

Where the offeror imposes a time limit for acceptance and the offeree does not
accept within that time, the offer terminates. An offer to buy shares in a stock
exchange market is open for a stipulated period of time. Where the offer is silent
about time, it lapses after a reasonable time and this will depend on the nature of
the contract and the circumstances of each case.
2. Death: The death of either party before acceptance will terminate the offer.
Death after acceptance will not affect most contracts except contracts for
personal services

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3. Acceptance: Acceptance of an offer will complete the contract and bring the
offer to an end. A n offer lapse by not being accepted in the manner
prescribed
4. Revocation:
An offer may be revoked (withdrawn) by the offeror at any time before acceptance.
This can be done even where the offeror has promised to keep the offer open for a
definite period of time. However, where the offeree has paid money or given
something of value in return for the promise to keep the offer open (known as the
buying option), the offeror will be liable to pay damages.

Rules that guide revocation
1. Revocation of an offer must be communicated to the offeree either by words or
conduct. It can be made to the offeree directly or through a reliable source.

Case: Dickson vs. Dodds
Facts: The defendant offered to sell his house to the plaintiff but sold it to another
person before acceptance. It was held that the offer had been duly revoked since
revocation had been communicated to a friend to the plaintiff whom the court stated
was a reliable source.

2.

Revocation by post does not take effect until it is received by the offeree

3.

Where the offeror promises to keep the offer open for a specified time
(option) either orally or in writing, he is not bound unless

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-There was acceptance
-The promise is supported by consideration
-The promise was made under seal

5. Counter offer or rejection

If an offeree rejects the offer, it automatically terminates. If he changes his mind
later, he is the one to make an offer. An offer must be accepted unconditionally. If
acceptance is subject to conditions, this amounts to a counter offer which has the
effect of destroying the original offer. A counter offer operates as a rejection as well
as a fresh offer. In Hyde v. Wrench the defendant offered to sell his farm to the
plaintiff at 1000 pounds. The plaintiff made a counter offer of 950 pounds which the
defendant refused. The plaintiff tried to accept the original offer which the
defendant rejected. The defendant was held not liable as his counter offer had
terminated the original offer.

ACCEPTANCE

A contract will come into existence if the offer has been accepted unconditionally
provided all the essential terms of the contract have been agreed on.

Manner of acceptance

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Acceptance can either be through words either spoken or written or can be implied
by conduct. For a contract to be formed, acceptance must be unqualified meaning
that

it

must

exactly

match

the

terms

of

the

offer.

If the offeree tries to vary or add conditions of their own, it is ineffective as
acceptance. A qualified acceptance of this nature operates as a rejection of the
original offer or takes the effect of a counter offer. Trivial variations from the
original terms of the offer will not affect the validity of acceptance. There must be
some positive act of acceptance. It cannot be by silence or doing nothing. Acceptance
must be made in the manner prescribed and the time stipulated by the offeror.
Acceptance is not effective until it is communicated by the offeree or their
authorized agent. There are two exceptions to this:

(i)

Where the offer dispenses with communication i.e. the terms of the offer
indicates that the other party can accept by carrying out their part of the
agreement

(ii)

Where the offer is made through the post

The posting rule

A letter of acceptance is effective the moment it is posted since a binding agreement
is entered into the moment the letter is posted . A contract can be made even where
the letter of acceptance never arrives. For the posting rule to apply, the letter must

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be properly addressed, stamped and posted. It must also be reasonable to use the
post unless the offeror has stated that it be by other means.

Exceptions to the posting rules

1. The offeror may make it clear that the acceptance be actually communicated
to them i.e. acceptance heard
2. Offers made to the world at large, acceptance is by some act without
notification of acceptance. In the case of Carlill v. Carbolic Smoke Balls,
acceptance was said to have taken place once the plaintiff bought and used
the smoke ball as instructed.

2.

Acceptance once made cannot be revoked.

Acceptance subject to the contract

This is where parties do not intend to be bound until a formal contract has been
agreed

Agreement to agree in future

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It is not open for parties to reach an agreement on most of the main terms and leave
others to agree in future. This will amount to a contract to make another contract.

Provisional agreements
This is where parties intend the document to be an agreement binding from the
outset but to be replaced by a fully legalized document.

INTENTION TO CREATE LEGAL RELATIONS

There may be no contract if the parties did not intend their arrangements to be
legally...