THE LAW OF CONTRACT/CONTRACT LAW NOTES/

INTRODUCTION

This
chapter deals with the formalities that are involved before a contract comes
into existence. It then looks at the terms of contract, vitiating factors and
the eventual termination or discharge of a contract.

 

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Capable of being rescinded or voided.

·         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

 

CONTEXT

Whether
we know it or not we all contract at some point in time in one way or another.
This therefore is a chapter that most exam questions will be centered on to
ensure that the student clearly can explain from the formation to discharge of
a contract. It’s of high importance to understand the various concepts
brought out in this chapter.

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 a very vital chapter as most persons and companies
contract on a daily basis. Adept knowledge of this chapter will make the candidate
appreciate the machinations behind the procedures and rules of contracts and
assist in the ascertainment of a realization of their own rights and the
remedies available incase of breach of contract.

 

THE LAW OF CONTRACT

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.

TYPES OF CONTRACTS

Contracts
may be classified as:

Written / specialty contractsContracts requiring written evidenceSimple contractsContracts 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.

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.

2. CONTACTS REQUIRING WRITTEN EVIDENCE

These
are contracts which must be evidenced by some notes or 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

SOURCES OF LAW OF CONTRACT

Under
section 2 (1) of the Law of Contract Act, Cap 23, the sources of law of
contract are:

Substance of common lawDoctrines of equityCertain Statutes of General ApplicationOther 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:

An offer may be oral, written or implied from
the conduct of the offeror.An offer must be communicated to the intended
offeree or offerees. An offer remains ineffective until it is received by
the offeree.An offer must be clear and definite i.e. it
must be certain and free from vagueness and ambiguity. In Sands v.
Mutual Benefits as well as in Scammell and Nephew Ltd v. Ouston,
it was held that words used were too vague and uncertain to amount to an
offer.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.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 e.g.
in Dickinson v. Dodds, the defendant offered to sell a house
to the plaintiff on Wednesday 10/06/1874 and the offer was to remain open
up to Friday 12th at 9.00 am. However on the 11th of
June, the defendant sold the house to a 3rd party. The
plaintiff purported to accept the offer of Friday morning before 9.00 am.
It was held that there was no agreement between the parties as the
defendant had revoked his offer by selling the house to a 3rd
party on June 11th. A similar holding was made in Ruoutledge
v. Grant, where the defendant’s offer was to remain open for 6 weeks
but he revoked or withdrew it after 4 weeks. It was held that there was no
agreement between the parties.The offeror may prescribe the method of
communication of acceptance by the offeree. If he insists on a particular
method, it becomes a condition.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. In Carlill v. Carbolic Smoke Ball Co, the defendant
company manufactured and owned a drug name the “Carbolic Smoke Ball” which
the company thought was the best cure for influenza, cold and other
diseases associated with taking cold water. The company put an
advertisement in a newspaper to the effect that a £100 reward would be
given to any person who contracted influenza or related diseases after
taking the smoke ball as prescribed i.e. 2 tablets, 3 times a day for 2
weeks. The advertisement further stated that the company had deposited
£1000 with the Alliance Bank on Reagent Street as a sign of their
sincerity in the matter. Mrs. Carlill who had read the advertisement
bought and took the Smoke balls as prescribed but contracted influenza.
The company rejected her claim and she sued. The company argued that the
advertisement;

a.        Was nothing but mere
salestalk

b.       Was not an offer to the whole
world

c.        Was not intended to create
legal relations

The
Court of Appeal held that though the wording of the advertisement was unclear,
it amounted to an offer to the whole world and the person who fulfilled its
conditions, contracted with the company hence Mrs. Carlill was entitled to the
£100 reward.

EXAMPLES OF OFFERS

1.       Public transport: as was the case in Wilkie v. London Passenger
Transport Board.

2.       Bidding at an auction as was the
case in Harris v. Nickerson.

3.       Submission of a tender

4.       Application for employment

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.

It was
so held in Harris v. Nickerson where a commission agent
had sued as auctioneer for failure to display furniture he had advertised for
sale by auction. It was held that there was no contractual relationship between
the parties as the advertisement was merely an invitation to treat and as such,
the auctioneer was not liable.

2.       Sale by display: At
common law, the display of goods with cash price tags is an invitation to
treat. The prospective buyer makes the offer to buy the items at the stated or
other price which the shop owner may accept or reject. In Fisher-v-Bell,
the defendant was sued for ‘offering for sale’ a flick knife contrary to the
provision of the Offensive Weapons Act. The defendant had displayed the knife
in a shop with a cash price tag. Question was whether he had offered the knife
for sale. It was held that he had not violated the Act as the display of the
knife was an invitation to prospective buyers to make offers.

3.       Sale by self-service:
At common law, a sale by self service is an invitation to treat. Prospective
buyers make offers by conduct by picking the goods from the shelves and the
offer may be accepted or rejected at the cashier’s desk. The offeror is free to
revoke his offer to buy the goods at any time before reaching the cashiers
desk. In Pharmaceutical Society of Great Britain v. Boots Cash Chemists
(Southern) Ltd (1952).  The defendant owned and operated
a self service store which stocked among other things, drugs which under the
provisions of the Pharmacy and Poisons Act (1933) could only be sold with the
supervision of the registered pharmacist. The defendant’s pharmacist was
stationed next to the cashier’s desk. The plaintiff society argued that the
defendant had violated the Act as the pharmacist was not stationed next to the
shelves where the drugs were displayed. Question was at what point a sale took
place. It was held that the defendant had not violated the provisions of the
Act as its pharmacist was stationed next to the cashier’s desk where the actual
sale took place.

This
case is authority for the proposition that in a sale by self-service, a sale
takes place at the cashier’s desk.  A similar holding was made in Lasky
v. Economy Grocers Ltd.

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.

Its
legal effect is to terminate the original offer as in Hyde v. Wrench (1840),
the defendant made an offer on June 6th to sell a farm to the
plaintiff for £1,000. On 8th June, the plaintiff wrote to the
defendant accepting to pay £950 for the farm. On 27th June, the
defendant wrote rejecting the £950. On 29th June the plaintiff wrote
to the defendant accepting to pay £1,000 for the farm.

The
defendant declined and the plaintiff sued for specific performance of the
contract. It was held that the defendant was not liable as the plaintiff’s
counter offer of £950 terminated the original offer which was therefore not
available for acceptance by the plaintiff on 29th June as the
defendant had not revived it. 

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 as was the case in Stevenson-v-Mc
Lean, where the defendant had offered to sell 3,800 tonnes of iron to the
plaintiff at £ 40 per tonne and the offer was to remain open from Saturday to
Monday. On Monday morning, the plaintiff telegraphed the defendant inquiring on
the duration of delivery. The defendant treated the inquiry as a counter offer
and sold the iron to a third party. The plaintiff subsequently accepted the
offer but thereafter received the defendant’s notice of the sale to the 3rd
party. The plaintiff sued in damages fro breach of contract. It was held that
the defendant was liable.

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.

As was
the case in Great Northern Railway Co Ltd v. Witham. The
plaintiff company invited tenders for the supply of stores for 12 months and
Witham’s tender was accepted. The company made a requisition but Witham did not
supply the goods and was sued. It was held that he was liable in damages for
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 an offeror and the offeree by which an offeree agrees to keep his offer
open for a specified duration. In this case, the offeror c annot 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:

1. 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. It was so held in Paybe v. Cave.
In Dickinson v. Dodds, the sale of the house by the
defendant to a 3rd party revoked his offer to the plaintiff.

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
as was the case in Dickinson v. Dodds.

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, as
was the case in Dickinson v. Dodds.

4.       Revocation becomes legally
effective when notice is received by the offeree.

5.       An offer is irrevocable after
acceptance. It was so held in Byrne v. Van Tienhoven.

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.

2. REJECTION:

An offer
terminates if the offeree refuses to accept the same, the refusal may be express
or implied from the conduct of the offeree e.g. silence by the offeree amounts
to a rejection as was the case in Felthouse v Bindley.

 

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 as was the case in Hyde v. Wrench.

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.

In Ramagate
Victoria Hotel Ltd v. Montefiore in early 6/1864, the defendant made
an offer to purchase 40 shares of the plaintiff company, the offer was not
accepted until November by which time the defendant had given up. The company
sued for the value of the shares, the defendant pleaded that the offer had not
been accepted within a reasonable time. It was held that the defendant was not
liable as the offer had lapsed fro non-acceptance within a reasonable time.

A
similar holding was made in Virji Khimji v Chatterbuck The defendant
ordered timber from the plaintiff and indicated that it be supplied as soon as
possible. The plaintiff did not respond but delivered the timber. 4 ½ months
later, the defendant refused to take delivery and was sued. It was held that he
was not bound to take delivery as his offer had lapsed for non- acceptance
within a reasonable time.

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. In Financings Ltd v. Stimson,
the defendant opted to take up a vehicle on hire purchase terms. He completed
the hire purchase application form and paid a deposit. This form constituted
his offer. He took delivery of the vehicle but returned it to the showroom
after 2 days for some minor rectification. The vehicle was stolen from the
showroom and when recovered it was badly damaged by reason of an accident. The
defendant refused to take delivery or pay installments and was sued. He pleaded
the state of the vehicle. It was held that he was not liable as his offer had
lapsed. This offer was conditional upon the motor vehicle remaining in substantially
the same condition as it was before and since its condition had changed, his
offer had lapsed.

 

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. In Carlill
v. Carbolic Smoke Ball Co, acceptance by Mrs. Carlill took the form
of her conduct by purchasing and consuming the smoke balls.In Brogden v.
Metropolitan Railway Co, where it was held that the 1st load of
coal supplied by Brogden constituted acceptance of the defendants offer to
supply the coal and hence there was an agreement between the parties.

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. In Crown-v-Clarke, the Australian
government offered £1,000 to any person who volunteered information leading to
the arrest and conviction of the killers of 2 police officers. Any accomplice
who gave information would be pardoned. Clarke, who was aware of the murder
gave the information and the killers were arrested and convicted. However, he
made it clear that he had given the information to clear his name. It was held
that he was not entitled  to the reward as he had given the information
for a different purpose and therefore had not accepted the offer.

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 as was the case in Hyde v. Wrench
where the plaintiff modified the defendant’s offer of £1,000 to £ 950.

4.       An offer must be accepted
within the stipulated time if any or within a reasonable time failing which it
lapses. As was the case in Ramsgate Victoria Hotel v.
Montefoire, where the defendant’s offer made in June was not accepted until
November by which time had elapsed. A similar holding was made in E.A
Industries Ltd v. Powyslands.

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, it was so held in Felthouse
v. Bindley. The plaintiff intended to buy a house owned by a nephew named
John who had no objection. The plaintiff intended to buy it or £30 15p. He
wrote to Jon stating ‘if I hear no more about him, I consider the horse mine at
that price.’

John did
not respond but 6 weeks later he gave the horse to the defendant for sale but
instructed him not to sell the particular horse. It was sold by mistake. The
plaintiff sued the auctioneer in damages for conversion. Question was whether
there was a contract of sale between the plaintiff and John. It was held that
there was no contract as John had not communicated his acceptance of the offer.

7.       Where parties negotiate by
word of mouth in each others presence, acceptance is deemed complete when the
offeror hears the offeree’s words of acceptance. It was so held in Entores
Ltd v. Miles Far East Corporation , where Lord Denning observed that there
was no contract between the parties until the offeror hears  the words.

8.       Where parties negotiate by telephone, acceptance is deemed
complete when the offeror hears the offeree’s words of acceptance. It was so
held in Entores Ltd v.  Miles Far East Corporation.

9.       Where parties negotiate by telex acceptance is deemed complete
when the offeree’s words of acceptance are received by the offeror. It was so
held in Entores v. Miles Far East Corporation.

10.    In unilateral offers, commencement and
continuation of performance constricts acceptance. During performance, the
offeror cannot revoke the offer but to do so if performance is discontinued as
was the case in Errington v. Errington and Woods.

A father
bought a house where the son and daughter in-law lived by paying a deposit of
£250 and raising the balance by a loan from a Building society. He promised to
transfer the house to them if they paid all installments as and when they fall
due. The £250 would be a gift to them.

They
commenced payment of the installments but stopped before the entire sum had
been paid. The father was compelled to pay the remaining installments. He
declined the transfer of the house to them. It was held that he was not bound
to do so as they had discontinued paym ents’ of the installments.

11.    In standing offers, a specific order or
requisition by the offeree constitutes acceptance and the offerer is bound as
was the case in Great Northern Railway Co. v. Witham.

12.    An offer to a particular/specific person
can only be accepted by that person for an agreement to arise. It was so held
in Boulton v. James.

13.    An offer to a class of persons can only be
accepted by a member of that class for an agreement to arise. It was so held in
Wood v. Lecktrick.

14.    An offer to the general public may be
accepted by any person who fulfills its conditions. As was the case in Carlill
v. Carbolic Smoke Ball Co.

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. It was so held in Byrne v. Van
Tienhoven and Co Ltd.

a) Express authorization:

These
are circumstances in which the offeror expressly permits the offeree to
communicate acceptance by post. As was the case in Adams v. Lindsell,
on 2/9/1817, the defendant offered to sell to eth plaintiff a quantity
of wood on certain terms and required a response ‘in the course of post.’ The
plaintiff received the letter on 5/9/1817 and posted an acceptance. On 8/9/1817
the defendant posted a letter revoking the offer. The plaintiff’s letter of
acceptance was received on 9/9/1817. It was held that there was a
contract between the parties as the plaintiff had posted the letter of
acceptance by the time the defendant purported to revoke the offer. Hence, the
revocation was ineffective.

b) Implied authorization:

There
are circumstances in which the offeror by implication authorized the offeree to
communicate acceptance by post.

In Household
Fire Insurance Co.-v-Grant, the defendant offered to buy 100 shares to the
plaintiff company. The offer was communicated by post. The Company allotted the
shares to him and the company secretary made out the letter of allotment which
was posted but never reached the defendant who was subsequently sued for the
amount due on the shares. He denied liability on the ground that the company
had not communicated its acceptance. However, it was held that since the
company had posted the letter of acceptance, there was a contract and the
defendant was liable. In Henthorn v. Fraser, X made an offer to Y to
take up a lease. On the following day between noon and1 pm, X posted a letter
withdrawing the offer which was received by Y at 5pm. At 3.50pm on the same
day, Y had posted a letter accepting the offer. The letter was read by X on the
f ollowing day. It was held that there was a contract between parties which
came into existence at 3.50pm when Y posted the letter of acceptance.

The
purported revocation at 5pm had no effect.

In Byrne
v. Van Tienhoven and Co Ltd on 1/10 the defendant made an
offer to sell to eth plaintiff 1000 boxes of tin plates but on 8/10 the
defendant posted letter revoking the offer. The same was received on 15/10. On
11/10 the plaintiff telegraphed the defendant an acceptance which he confirmed
by a letter posted on 15/10. It was held that there was a contract between the
parties which come into existence on 15/10 when the letter of acceptance was
posted.

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. This was the
case in Carlill v. Carbolic Smoke Balls Co, where Mrs. Carlill
was not required to communicate the fact of purchase and consumption of the
Smoke balls.

18.    Acceptance need not be
communicated to the offeror where it makes the form of conduct. This was the
case in Brogden v. Metropolitan Railway co Ltd.

 

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;

Nature or type of agreement i.e. whether
commercial or business and domestic or social.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.  They have a commercial
objective. In Carlill v. Carbolic Smoke Ball Co. Ltd, the company had
manifested an intention to create legal; relations by stating that it had
deposited £1,000 with Alliance Bank Regent Street. Hence Mrs Carlill was
entitled to the £100 as she had contracted with the company.

2. Employment agreements.

 These
are commercial agreements intended to impose legal obligations on the parties
thereto.

In Edwards
v. Skyways Ltd, the plaintiff was a former employee of the defendant
company as a pilot and was declared redundant but promised on ex-gratia
sum. He provided consideration for the promise.

By
reason of many other redundancies, the company was unable to make good the
promise to Edwards who sued. It was held that he was entitled to the sum as
this was a business agreement intended to create legal relations.

The
court was emphatic that this was not a domestic agreement.

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. 

Such an
agreement is unenforceable in law as was the case in Rose & Frank v.
Crompton Brothers where the agreement between the two companies contained
an honour clause, but one of them purported to enforce the agreement.

The
court of Appeal held that it was unenforceable as the honour clause had denied
it legal intention.

A
similar holding was made in Jones-v-Vernon Pools Ltd where the agreement
had an honour clause.

It was
observed that whenever an agreement contained an honour clause, the plaintiff
was obliged to trust the defendant as the agreement cannot be enforced by court
of law.

b) Domestic or social agreements

Courts
proceed on the presumption that the parties did not intend to create legal
relations.

1. Agreement between husband and wife

Such
agreements are generally not intended to impose upon the parties any rigid
obligations.

In Balfour
v Balfour, the defendant was a civil servant in Sri Lanka. At the time, he
and his wife were in Britain on holiday.

His wife
fell ill and it became clear that she was not in a position to accompany him
back to Sri Lanka.

He
promised to send her 30 pounds per month for the duration they would remain
apart. He did not and the wife sued.

It was
held that her action was not sustainable as the parties had not intended to
create a legal relationship. A similar holding was made in Gould v Gould.

 

2. Agreements between Parent and Child

Such an
agreement is ordinarily not intended to be a contract but a working
relationship.

In Jones
v. Pandervatton, the plaintiff persuaded her daughter to leave a well
paying job to study Law in Britain, she was promised a maintenance allowance as
she studied. She reluctantly agreed. In the meantime, the plaintiff bought a
house where the defendant lived as part of the maintenance. Before the daughter
completed her studies, the 2 quarreled and the mother sought to evict her from
the house. She argued that there was a contract between them.

However
it was held that the parties had not intended to create legal relations and the
mother was entitled to evict her.

 

However
the circumstances in which a domestic or social agreement is entered into may
show that the parties intended to create legal relations.

Such
intentions may be collected from the words used by the parties, their conduct
and the circumstances of the agreement;

1. Agreement between husband and wife

Such an
agreement may be forced if the parties have manifested an intention to
contract. E.g. in McGregor v McGregor, a husband and wife sued each
other for assault but later resolved to withdraw the cases but live
apart.  The husband promised to pay a weekly sum as maintenance while the
wife promised to maintain the children.

The
husband was in arrears for 6 weeks and the wife sued. It was held that her
action was sustainable as the parties had manifested an intention to contract.
A similar holding was made in Merrit v Merrit.

2. Other Social Agreements

Such
agreements may be enforced if the parties if the parties have manifested an
intention to contract. In Simpkins v. Pays, the defendant owned a house
where she lived with a grand daughter; the plaintiff was a paying boarder (a
lodger).

The
three took part in a Sunday newspaper competition. All entries were made in the
defendant’s name. However, there were no rules on payment of postage.One week’s
entry won £750.

The
plaintiff claimed 1/3of the sum. The defendant argued that this was a pastime
activity not intended to create legal relations.

However
the court held that the plaintiff was entitled to 1/3of the sum as the parties
had manifested an intention to contract.

A
similar holding was made in Parker v. Clark.

Case law
demonstrates that an agreement is legally unenforceable unless the parties to
it intend such a consequence.

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;

Infants or minors.Drunken persons.Persons of unsound mind.Corporations.Undischarged bankrupts.

1. CONTRACTUAL CAPACITY OF INFANTS OR MINORS

Under
Section 2 of the Age of Majority Act[1], an infant or minor is any person who
has not attained the age of 18.

Contracts
entered into by an infant are binding, voidable or void depending on their
nature and purpose..BIDING CONTRACTS

These
are legally enforceable contracts; the infant can sue or be sued on them. Both
parties are bound to honour their obligations.

These
contracts fall into 4 categories;

1. Contracts for the Supply of “Necessaries”

Under
section 4 (2) of the Sale of Goods Act necessaries mean goods suitable to the
condition in life of such an infant or minor and to his actual requirement at
the time of sale and delivery.

In Nash
v. Inman, the defendant was an infant college student. Before proceeding to
college, his father bought him all the necessary clothing material. ;/

However,
while in college, he bought additional clothing material from the plaintiff but
did not pay for them and was sued.

His father
gave evidence that he had bought him all the necessary clothing material. It
was held that he was not liable as the goods were not necessaries when
supplied.

 

2. Contracts for the Supply of “Other Necessaries”

These
are necessaries other than those covered by Section 4 (2) of the Sale of Goods
Act. E.g. Legal services, transport to and from work, lodging facilities etc.

An
infant is bound by any contract for the supply of such necessaries. Under the
Sale of Goods Act, whenever an infant is supplied with necessaries, he is
liable to pay not the agreed price but what the court considers as reasonable.

3. Educational Contracts

An
infant is bound by a contract whose purpose is to promote his education or
instruction.

4. Contracts for Beneficial Service

These
are beneficial contracts of service. Case law demonstrates that an infant can
sue or be sued and is bound by contracts whose object is to benefit him as a
person.

In Doyle
v. White City Stadium, the plaintiff was a qualified infant boxer. He
applied to join the British Boxing Board and was granted a license.

One of
the rules of the body empowered it to withhold payment of any price money won
if a boxer was disqualified I  n a competition.

The
plaintiff was disqualified on one occasion and the Board withheld payment. The
plaintiff sued. Question was whether the plaintiff was bound by the contract
between him and the Board. It was held that he was as in substance it was
intended to benefit him hence the money was irrecoverable.

A
similar holding was made in Chaplin V. Leslie Fremin (Publishers) Ltd.
Where the plaintiff, an infant had engaged the defendant to write a book
for him. He subsequently discontinued the transaction. It was held that the
contract was binding as it was intended to benefit him.

A similar
holding was made in Clements v. London and North Western Railway Co.

2. VOIDABLE CONTRACTS

Certain
contracts entered into by an infant are voidable i.e. the infant is entitled to
repudiate the contract during infancy or within a reasonable time after attaining
the age of majority.

By
avoiding the contract, the infant escapes liability on it. The infant cannot be
sued on the contract during infancy. These contracts confer upon the infant a
long term benefit. Examples include: Partnership agreements, lease or tenancy
agreement and contract for the purchase of shares.

Under
Section 12 of the Partnership Act, an infant partner is not liable for debts
and other liabilities of the partnership during infancy since the contract is
voidable at his option.

However
under Section 13 of the Act, if the infant does not avoid the contract during
infancy, or within a reasonable time after attaining the age of majority, he is
liable for debts and other obligations of the firm from the debt he became
partner.

In Davis
v. Beynon-Harris where an infant had taken up a lease but failed to
repudiate the contract during infancy or within a reasonable time thereafter,
it was held that he was liable under the contract.

3. VOID CONTRACTS

Under
the provisions of the Infants Relief Act (1874) which applies in Kenya as a
statute of general application, certain contracts entered into by infants are
void. These are contracts which the law treats as nonexistent. They confer no
rights and impose no obligations on the parties.

Theses contracts
are;

1.       All accounts stated with infants:
These are debts admitted by an infant. The infant cannot be sued on such
admission.

2.       Contracts for the supply of goods
other than necessaries.

3.       Money lending contracts:An infant
is not bound to repay any monies borrowed from a 3rd party as the
contract is void. However if the infant repays, the amount is irrecoverable.

In Leslie
Ltd. V. Sheil, the defendant, an infant borrowed £400 from the plaintiff, a
money lending firm in 2 lots of £200 each and was liable to pay £475 inclusive
of the interest but failed to do so and was sued.

The
plaintiff argued that it was entitled to damages for misrepresentation as the defendant
had fraudulently misrepresented his age.

It
further argued that the defendant had received the money on its behalf. It was
held that the amount was irreco  verable as the contract was void by
reason of the Infants Relief Act 1874.

Since a
money lending contract was void, any security given by the infant is also void
and therefore unenforceable by the lending party. It was so held in Valentini
v. Canali.

If an
infant uses monies borrowed under a void contract to purchase necessaries, the
lending party is in Equity put into the shoes of the party supplying the
necessaries and can sue the infant for the recovery of the amount borrowed as
was used to purchase the necessaries.

This is
the principle of subrogation as was explained in In re: National Permanent
Benefits Building Society Ltd.

Question
has arisen as to whether an infant can ratify contracts made during infancy
after he has attained the age of majority. Any such purported ratification or
adoption has no legal effect.

2. CONTRACTUAL CAPACITY OF DRUNKEN PERSONS

A
contract entered by a drunken person is voidable at his option by establishing
that:

1. He
was too drunk to understand his acts.

2. The
other party was aware of his condition.

By
avoiding the contract, the person escapes liability on it. In Gore v.
Gibson, the defendant was sued on a bill of exchange he had signed and
endorsed. He pleaded that when he did so he was too drunk to understand what he
was doing and that the plaintiff was aware of his condition.

It was
held that he was not liable as the contract was voidable at his option by
reason of the drunkenness.

If a
contract entered into by a person when drunk is ratified by him when sober it
is no longer voidable as was the case in Mathews v Baxter where the
defendant had contracted to sell a house to the plaintiff. When sued he pleaded
drunkenness.

However
it was held that he was liable as the plaintiff proved that he had subsequently
ratified the transaction while sober.

Under
Section 4 (2) of the Sale of Goods Act, if a drunken person is supplied with
necessaries he is liable to pay a reasonable price.

3. CONTRACTUAL CAPACITY OF PERSONS OF UNSOUND MIND

A
contract entered into by a person of unsound mind is voidable at his option by
establishing that:

1. He
was too insane to understand his acts.

2. The
other party was aware of his mental condition.

By
avoiding the contract the party escapes liability on it. In Imperial Loan
Co. Ltd v Stone, the defendant was sued on a promissory note he had signed.
He argued that at the time, he was insane and therefore incapable of
comprehending the nature or effects of his acts and that he was not liable on
the promissory note as the contract was voidable by reason of insanity.

In the
words of Lopes L.J. “In order to avoid a fair contract on the ground of
insanity, the mental capacity of the one contracting must be known to the other
contracting party. The defendant must plead and prove not merely his insanity but
the plaintiff’s knowledge of that fact and unless he proves these 2 things he
cannot succeed.”

 

If a
contract entered into by a person of unsound mind is ratified by him when he is
of sound mind it ceases to be voidable.

Under
Section 4 (2) of the Sale of Goods Act, if a person of unsound mind is supplied
with necessaries, he is liable to pay a reasonable amount.

4. CONTRACTUAL CAPACITY OF UNDISCHARGED BANKRUPTS

These are
persons wh o have been declared bankrupt by a court of competent jurisdiction.
There capacity to contract is restricted by the provisions of the Bankruptcy
Act[2].

5. CONTRACTUAL CAPACITY OF CORPORATIONS

These
are artificial persons created by law, either by the process of registration or
by statute. The capacity of the corporations to contract is defined by law e.g.
a statutory corporation has capacity to enter in transactions set out in the
statute as well as those reasonably incidental thereto.

Other
transactions are ultra vires and therefore null and void. The
contractual capacity of a registered company is defined by the object clause of
the memorandum. At common law a registered company has capacity to enter into
transactions set forth in the objects and those that are reasonably incidental
to the attainment or pursuit of such objects.

It was
so held in Ashbury Railway Carriage and Iron Co. v. Riche as well as in Attorney
General v. Great Eastern Railway Co

Other
transactions are ultra vires (beyond the powers of) the company
and void. Transactions within the powers of a company are said to be intra
vires a company.

An ultra
vires transaction cannot be ratified and any purported ratification
has no legal effect. It was so held in Ashbury’s Case.

Re Jon
Beuforte(1953)

5. CONSIDERATION

In
addition to consensus, capacity and intention, an agreement must be
characterized by consideration to be enforceable as a contract. At Common Law,
a simple contract is unenforceable unless supported by some consideration.
Consideration is the bargain element of a contract.

It is
nothing but mutuality. 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.”

Judicial Definitions

In the
words of Lush J. in Currie v. Misa, “a variable consideration may
consist of some right, interest, profit or benefit accruing to the one party or
some loss, forbearance, detriment or responsibility given, suffered or borne by
the other.”

 

In the
words of Patterson J in Thomas v. Thomas “consideration means something
which is of some value in the eye of the law moving from the plaintiff. It may
be some benefit to the defendant or detriment to the plaintiff but at all
events it must be moving from the plaintiff.”

Consideration
is whatever the promisee gives or provides to buy the promisors promises. By so
doing the promisee becomes party to the contract. Consideration takes various
forms. In Carllil v. Carbolic Smoke Ball Co, it took the form of
detriment i.e. swallowing of the smoke balls by Mrs. Carllil. In Patel v.
Hasmani, it took the form of forebearance to sue.

TYPES OF CONSIDERATIONS

Consideration
may be executory or executed but must not be past. However
in certain circumstance past consideration may support a contractual claim.

1. Executory Consideration

Consideration
is executory where the parties exchange mutual promises. Neither of the parties
has performed its part of the contract. The whole transaction is in future.

Executory
consideration is good to support a contractual claim. E.g. purchase of goods on
credit for future delivery.

2. Executed Consideration

Consideration
is executed where a party does an act to purchase the others promise. The act
may be partial or total performance of the party’s contractual obligation. It
is good consideration to support a contractual claim.

3. Past Consideration

Consideration
is past where a promise is made after services have been rendered. There is no
mutuality between the parties. Past consideration is generally not good to
support a contractual claim.

In Roscorla
v. Thomas, the plaintiff had just bought a horse from the defendant and as
he was leading it away, the defendant assured him that it was a good horse free
from any vice.

The
statement turned out to be untrue and the plaintiff sued for damages. It was
held that the defendants promise was unenforceable by the plaintiff as
consideration was wholly past.

A
similar holding was held in In re McArdles Case where Mrs.
McArdles spent £488 improving and decorating the house they lived in at no ones
request. The house belonged to Mrs. McArdles husband’s father and was to be
sold after her mother-in-law’s death. The beneficiaries of the estate signed a
document promising Mrs. McArdle £488 when the estate was distributed.

However
no payment was made and Mrs. McArdle sued. It was held that the promise was
unenforceable as consideration was past.

In certain
circumstances, past consideration is sufficient to support a contractual claim.

These
are exceptions to the general rule:

1. Acknowledgement of a statute barred debt

Under
the Limitation of Actions Act, Cap 32 Laws of Kenya, a debt becomes statute barred
after 6 years. In such a case, the debtor is not bound to repay. However, a
written acknowledgement of the debt by the debtor is enforceable by the
creditor though consideration is past. It was so held in Ball v. Hasketh
and Heyling v. Hasting.

2. Negotiable Instruments

One of
the characteristics of negotiable instruments e.g. cheques, bills of exchange,
promissory notes, share warrants e.t.c. is that past consideration is good to
support any action on the instrument.

A holder
of a negotiable instrument can sue on it even though he has not given
consideration provided a previous holder gave some consideration.

This
exception is contained in Sec 27(1) of the Bills of Exchange Act[3], and was
relied upon to enforce an action in Lombard Banking Co. Ltd v. Gandhi and
Patel.

3. Rendering of Services on request

Where
services are rendered by a party, at the express or implied request of another
in circumstances that give rise to an implied promise to pay, a subsequent
promise to pay for the services is enforceable.

The law
takes the view that the rendering of the services and the promise to pay are an
integral part of the same transaction.

In Lampleigh
v. Brathwait the defendant had killed a man named Patrick. He requested the
plaintiff to secure pardon for him from the king. The plaintiff exerted himself
and made a number of trips to see the king and ultimately secured the pardon.
The defendant promised to pay him £100 for the trouble, a promise he did not
honour and was sued.

He
argued that the plaintiff had not provided consideration for his promise to
pay. However it was held that the promise was enforceable as it was inseparable
from the request for the services. A similar holding was made in Re Casey
Patents Ltd.

 

RULES OF CONSIDERATION

1. Mutual love and affection is not sufficient consideration:

It was
so held in Thomas v. Thomas. Mr. Thomas had expressly stated that if he
died before his wife, she was free to use his house as long as she remains
unmarried. His brothers who later became executors of his estate knew of this
wish.

After
his death, Mrs. Thomas remained in his house and unmarried. After the death of
one of the executors, the other sought to evict Mrs. Thomas from the house. She
sued the late husband’s estate. It was held that the husbands promise was
enforceable as she had provided consideration by way of the £1 she paid for
every year she lived in the house.

The love
she had for the late husband was not sufficient consideration but the £1 she
paid every year was..

2. Consideration must be legal

The act
or promise offered by the promise must be lawful as illegal consideration
invalidates the contract.

3. Consideration must not be past

As a
general rule, past consideration is not good to support a contractual claim as
exemplified by the decisions in Re McArdles case and Roscorla v.
Thomas.

However,
in certain circumstances, past consideration is sufficient to support a
contractual claim, as indicated above.

4. Consideration must be real.

This
rule means that consideration must be something of value in the eyes of the
law. It means that consideration must be sufficient though it need not be
adequate.

This
rule means that as long as something valuable in law passes, the promise is
enforceable. It means that the law does not concern itself with the economics
of a transaction.

It means
that the courts of law do not exist to correct bad bargains. In Thomas v.
Thomas, the £1 Mrs. Thomas paid per year was sufficient consideration.

However
if the consideration is too low in comparison and there is evidence of a
mistake, misrepresentation, duress or undue influence, the courts may
intervene.

5. Consideration must flow from the plaintiff/ promise.

This
rule means that the person to whom the promise is made provides consideration
and by so doing there is a bargain between the parties or mutuality.

By
providing consideration, the promise becomes party to the transaction. In Thomas
v. Thomas, Patterson J was emphatic that “consideration must at all times
flow from the plaintiff.”

The rule
that consideration must flow from the plaintiff is referred to as The
Doctrine of Privity of Contracts.

THE DOCTRINE OF PRIVITY OF CONTRACTS

This
doctrine is to the effect that only a person who is party to a contract can sue
or be sued on it. It means that only a person who has provided consideration to
a promise can sue or be sued on it.

It means
that a stranger to consideration cannot sue or be sued even if the contract was
intended to benefit him. It was so held in Scruttons Ltd v. Midland
Sillicones Ltd. In Price v Easton, X agreed to pay the plaintiff a
sum of money if Y did some work for him. Y rendered the services to X but X did
not honour the promise to pay.

The
plaintiff sued to enforce the promise. It was held that the promise was
unenforceable as the plaintiff was not a party to the transaction. He had
provided no consideration.

A
similar holding was made in Dunlop v. Selfridge as well as in Tweddle
v. Atkinson.

However
in certain circumstances, persons who are not party to a contract or who have
not provided consideration may sue or be sued on it.

These
are exceptions to the Doctrine of Privity of Contracts:

i). Agency

In an
agency relationship, the agent contracts on behalf of the principal. The
principal is not directly involved in the transaction. However the principal
may sue or be sued on a contract entered into by the agent. This exception is
more apparent than real as in law the agent represents the principal.

 ii)Legal Assignment

Under
the provisions of the ITPA[4] if a creditor assigns his debt to another person
in a legal assignment the assignee becomes entitled to sue the debtor as if he
were the original creditor.

 iii)Negotiable Instruments

A holder
of a negotiable instrument can sue on it in its own name not withstanding the
absence of consideration provided a previous holder of the instrument gave some
consideration.

 iv)Trust

This is
an equitable relationship whereby a party expressly impliedly or constructively
holds property on behalf of another known as the beneficiary. In certain
circumstances, the beneficiary can sue or be sued under a trust.

Rabi v
ajune

v) Third Party Insurance

Under
the provisions of the Insurance (Motor Vehicles Third Party Risks) Act[5], ,
victims of motor vehicle accidents are entitled to compensation by Insurance
companies for injuries sustained from the use of motor vehicles on the road.

However
the insurer is only liable if the motor vehicle was in the hands of the insured
or some authorized driver.

If the
authorized driver pays the amount due to the victim for the injury, such amount
is recoverable from the insurer but through the insured as was the case in Kayanja
v. New India Insurance Co. Ltd.

vi) Restrictive Covenants (Contracts +-unning with land)

In
certain circumstances, certain rights and liabilities attached to land are
enforceable by or against subsequent holders of the land. This is particularly
the case in the law of leases.

6. Consideration must be something in excess of a public duty owed by
the plaintiff

This
rule means that performance by the plaintiff of a public duty owed by him is
not sufficient consideration for a promise to pay.

In Collins
v. Godefroy, the defendant was involved in a civil case and the plaintiff
had given evidence in the matter but was reluctant to do so in future. The
defendant promised him 6 pounds if he continued giving evidence which he did.

The
defendant did not honour his promise and was sued. Question was whether the
plaintiff had provided consideration for the defendants promise to pay.

It was
held that the promise was unenforceable as the plaintiff had not provided
consideration but had merely performed a public duty.

However
anything in excess of a public duty amounts to consideration. In Glassbrook
Brothers v. Glamorgan County Council, the defendant owned a
mine and at the material time the workers were on strike. The defendant
requested the plaintiff to provide a stationary guard to protect the mine and
promised to pay for the services. The plaintiffs who are not bound to provide a
stationary guard provided the service but were not paid.

In an
action to enforce the promise, it was held that the plaintiffs were entitled to
payment as they had done more than the duty required and had therefore provided
consideration.

7. Consideration must be something in excess of an existing contractual
obligation

This
rule means that performance by the plaintiff of an existing contractual
obligation is not sufficient consideration for a promise. In Stilk v. Myrik,
the defendant who was a ship captain entered into a contract with his crew
members to assist him on a journey from Britain to the Baltic Sea and back. In
the course of the journey, 2 sailors deserted.

The
captain promised to share their wages between the remaining crew members a
promise he did not honour and was sued. It was held that the crew members were
not entitled to the extra pay as they had not provided consideration.

They had
merely performed an existing contractual obligation. However, doing something
in excess of a contractual obligation constitutes consideration.

In Hartley
v. Ponsonby where in the course of a journey, a substantial number of crew
members deserted and a promise for extra pay was made, it was held that they
were entitled to the pay as they had done more than a contractual obligation.

The
willingness to expose themselves to danger for longer hours constituted
consideration for the promise.

8. Payment of a lesser sum on the day in satisfaction of a larger sum is
not sufficient consideration for the creditors promise to accept such sum in
full settlement for the debt.

This is
referred as the “Rule in Pinnels Case (1602)”. Cole owed Pinnel 8
pounds payable on 11th November 1600. However on 1st
October 1600, Pinnel requested Cole to pay 5 pounds which he agreed to accept
in full settlement of the debt. Subsequently, Pinnel sued Cole for the balance.
The case was decided on a technical point of pleading and Cole was held liable
for the balance.

This
rule was applied in Foakes v. Beer (1884). However in certain
circumstances, payment of a smaller sum extinguishes the entire debt.

These
are exceptions to the rule in Pinnel’s Case:

If the lesser sum is paid in advance and the
creditor accepts the same in full settlement of the debt.If the lesser sum is paid in the form of an
object which the creditor accepts in settlement thereof. In Pinnel’s
Case, Brian C.J. observed, “but the gift of a horse, hawk or robe, is
sufficient consideration.If the lesser sum is paid in addition to an
object which the creditor accepts.If the lesser sum is at the creditor’s request
paid at a different place.Where the lesser sum is paid in a different
currency and the creditor accepts the same in full settlement thereof.Where the lesser sum is paid by a third
party.  In Welby v. Drake, the defendant owed the plaintiff 18
pounds and was unable to pay. The defendant’s father paid the plaintiff 9
pounds which he accepted in full settlement of the debt but subsequently
sued for the balance. It was held that the promise was enforceable as it
was made to a 3rd party.If a debtor enters into an arrangement with
his creditors to compound his debts, whereby he promises to pay part of the
amount due to each of the creditors who in turn promise mot to sue the
debtor or insist on full payment, the lesser sum paid by the debtor
extinguishes the entire debt.

The
mutual promises by the parties constitute consideration.

DOCTRINE OF PROMISSORY OR EQUITABLE ESTOPPEL

This
doctrine was developed by equity to mitigate the harshness of the common law
rule of consideration. It is an equitable intervention which modifies the rule
of consideration.

The
Doctrine was explained by Lord Denning in Combe v. Combe. It 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. The party is estopped from denying its promise.

For the
doctrine of estoppel to apply the following conditions are necessary:

A legal relationship between the parties.A new promise or representation in intended to
be relied upon.Reliance upon the representation.Change in legal position as a result of the
reliance.It would be unfair not to estop the maker of
the representation.

The
Doctrine of Promissory Estoppel is often referred to as “The Rule in the
High Trees Case.”

In Central
London Property Trust v. High Trees House Ltd, the plaintiff owned a block
of flats which it leased to the defendant for 99 years at 2500 pounds per year.
After the outbreak of the 2nd world war, it became clear that the
defendant was not in a position to pay the agreed rent as most of the flats
were unoccupied. The plaintiff promised to accept half of the rent as long as
the war continued.

By the
end of 1945, all the flats were occupied. The plaintiff sued for the defendant
to be compelled to pay:

The full rent.The arrears.

The
defendant argued that it was inequitable (unfair) for the plaintiff to claim
the arrears. It was held that whereas it was fair for the defendant to pay the
full rent, it was unfair to claim the arrears as the plaintiff had made a
promise which the defendant had relied upon and changed its legal position.

The
plaintiff was estopped from insisting on the arrears.

 

The
doctrine of equitable estoppel applies in East Africa.

In Century
Automobile v. Hutchings Biemer Ltd, the defendant took a
lease of the plaintiff’s premises which was terminable by a 3 month notice of
either party. The defendant intended to make alterations to the building but
feared doing so only for the lease to be terminated. The plaintiff promised not
to terminate the lease in 4 years time.

As a
consequence, the defendant spent 800 pounds on the alterations but 8 months
later the defendant received the plaintiff’s notice of termination but refused
to honour it and was sued.

The
defendant pleaded estoppel. The plaintiff was estopped from evicting the defendant
as it had made a promise which the defendant had relied upon and changed its
legal position.

A
similar holding was made in Commissioner of Lands v. Hussein.

EFFECTS OF ESTOPPEL

The
Doctrine of Promissory estoppelestoppel is a modification of the Common Law
rule of consideration in that it enables a person who has not provided
consideration to a promise to enforce it if he has relied upon it and changed
his legal position.

It is
argued that the principal weakness of the Doctrine of Promissory Estoppel is
that it is defensive and not offensive. It can only be relied upon by the
defendant as a defence. However, the so called Doctrine of Proprietary Estoppel
which is based on ownership can be used both as a shield and as a sword. Courts
however have observed that there is no distinction between promissory and
proprietary estoppel.

TERMS / CONTENTS OF A CONTRACT

Parties
negotiating a contract make many statements some of which are intended to be
terms while the others are mere representations. Whereas terms form the content
of the contract, representations are mere inducements and if false they are
referred to as misrepresentations and may affect the contract.

Whether
a statement was intended to be a term or representation is a question of fact
and courts are guided by the following rules or presumptions in so
ascertaining:

Time Gap:
If the duration between making the statement and the conclusion of the
contract is long, it is presumed to be a representation and if short it is
deemed to be a term.Guarantee:
If a party to the negotiations appears to guarantee its statements, they
are  presumed to be terms.Special Knowledge: If either of the parties has special
knowledge in relation to the subject matter of the contract, its
statements are presumed to be terms. In Oscar Chess Ltd v. Williams,
Williams sold a 2nd hand car to the plaintiff. The registration
book showed that it was a 1948 model while in fact it was a 1939 car.
Williams had no means of ascertaining the truth. The plaintiff sued in
damages for the untrue statement. However it was held that since the
statement was innocently misrepresented, the plaintiff had no action in
damages.

However
in Dick Bently Productions Ltd v. Harold Smith motors Ltd, the plaintiff
intended to buy a motor vehicle from the defendant and was informed that the
vehicle in question had had a replacement engine and gearbox and had only done
20,000 miles. In fact nothing had been replaced and it had done over 100,000
miles.

The
plaintiff sued in damages for the untrue statement. It was held that the untrue
statement was a term of the contract as the defendant was a motor dealer and
was therefore liable in damages for the misrepresentation.

Terms of
a contract may be:

Express orImplied

  1. EXPRESS TERMS

These
are the oral and written terms agreed upon by the parties. Written terms
prevail over oral terms. If contractual terms are written, oral evidence is
generally not admissible to vary or explain the written terms.

However,
such evidence is admissible to prove that:

The contract was subject to a particular trade
usage or custom.The parties had not incorporated all the terms
into the document.The parties had agreed to suspend the
agreement until some event occurred

If
handwritten, printed and typed terms contradict, the handwritten terms prevail
as they are a better manifestation of the parties’ intentions. It was so held
in Glynn v. Margetson.

2. IMPLIED TERMS

These are
terms which though not agreed to by the parties, are an integral part of the
contract. Theses terms may be implied by statutes or by a court of law.

 

A. Terms implied By Statutes.

Certain
statutes imply terms in contracts entered into pursuant to their provisions.
These terms become part of the contract.

1. Terms implied in Sale of Goods contracts by the Sale of Goods Act.

The Sale
of Goods Act implies both conditions and warranties in contracts of Sale of
goods unless a different intention appears.

CONDITIONS

a)      Right to sell.

Under
Section 4 (a) of the Act there is an implied condition that the seller of goods
shall have the right to sell when property in the goods is to pass.

b)      Correspond to description.

Under
Section 5 of the Act, in a sale by description there is an implied condition
that the goods shall correspond to the description.

c)      Fitness for purpose.

Under
Section 16(a) of the Act, where the buyer expressly or by implication makes
known to the seller the particular purpose for which the goods are required so
as to rely on the sellers skill and judgement, there is an implied condition
that the goods shall be reasonably fit for that purpose.

d)      Merchantable Quality.

Under
Section 16 (b) of the Act, where goods are bought by description from a person
who deals in such goods in the ordinary course of business whether a seller or
manufacturer, there is an implied condition that the goods will be of
merchantable quality.

e)      Sale by Sample.

Under
Section 17(1) of the Act, in a sale by sample, the following conditions are
implied:

1) The
bulk shall correspond with the sample in quality.

2) The
buyer shall be afforded a reasonable opportunity to compare the bulk with the
sample.

3) That
the goods shall be free from any defects rendering them unmerchantable.

 

WARRANTIES

1) Quiet Possession

Under
Section 14 (b) of the Act there is an implied warranty that the buyer shall
have and enjoy quiet possession of the goods.

2) Free from Charge or encumbrance

Under
Section 14 (c) of the Act there is an implied warranty that the goods shall be
free from any charge or encumbrance not made known to the buyer when the
contract was made.

2. Terms Implied By Courts of Law

Courts
of law reluctantly imply terms in contracts as it is the duty of the parties to
agree as to what the contractual terms shall be.

However
in certain circumstances, courts are called upon to imply terms in contracts
and do so for 2 reasons:

a) To
give effect to the intentions of the parties.

b) To
facilitate commercial transactions or give business efficiency.

Courts
of law imply terms in contracts on the basis of:

The reasonable by stander test.Trade usages and customs.

1. Reasonable By-Stander Test

Under
this test a court will imply into a contract any term which a reasonable person
overhearing the contract being made would have implied.

In Hassan
Ali Issa v. Jeraj Produce Shop, the plaintiff repaired the defendant’s
motor cycle. However, the defendant did not collect the repaired item until
after 1 year. The plaintiff demanded repair and storage charges.

The
defendant refused to pay storage charges on the ground that it had not been
agreed. The plaintiff threatened to sue the defendant. As a consequence, the
defendant wrote a cheque for both amounts but it was dishonoured. The plaintiff
sued.

It was
held that the defendant was liable tom pay storage charges. The court implied
into the contract a term that if a repaired item is not collected within a
reasonable time, The party undertaking storage is entitled to reasonable
storage charges.

In the Moorcock
Case, the parties had agreed that the plaintiffs ship could unload at the
defendant’s jetty situated upstream the River Thames. During low tide as the
ship sailed towards the jetty it grounded and was damaged. The jetty owner was
held liable for damage.

The
court implied the term that the passage to the jetty was reasonably safe for
the ship.

2. Trade Usages & Customs.

A court
of law may imply a trade usage or custom into a contract if it is proved that
the transaction was subject to it. The party relying on the trade custom must
prove that:

The custom exists.Is certain.Is reasonable.Is known to the parties.The parties had not exempted the custom from
their transaction. It was so held in Halilal Shah and Champion Shah v.
Standard Bank Co. Ltd.

In Fluery
and King v. Mohamed Wali & Another, the plaintiff bought 1000
handkerchiefs from the defendants and the same were delivered in batches of 30.
The plaintiff took delivery but sued the defendant for a reduction in the purchase
price. It was proved that in Zanzibar there was a trade usage that
handkerchiefs bought in bulk were supplied in dozens.

The
court implied the custom into the contract and held that the plaintiff was
entitled to the reduction in the price as he had to unpack and repack the
pieces in dozens.

Contractual
terms may be conditions, warranties or innominate terms.

1. CONDITIONS

This is
a term of major stipulation in a contract. It runs to the root of the contract.
It is part of the central theme of the contract. If a condition is breached, it
entitles the innocent party to treat the contract as repudiated and to sue
in damagesAs was the case in Poussard v. Spiers and Pond. A singer
was engaged to play the leading role in a French Opera from the beginning of
the season but owing to illness she was unable to take up her role during the
first 1 week forcing the organizers to engage a substitute and consequently
rejected the singer’s services who sued.

It was
held that the organizers were entitled to treat the contract as repudiated as
the singer had broken a major term of the contract.

A
condition may be express or implied in a contract.

2. WARRANTIES

This is
a minor term of a contract or a term of minor stipulation. It is a peripheral
or collateral term that does not run into the root of the contract. 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.

In Bettini
v. Gye, an actress was engaged to perform in concerts and theatres from the
beginning of performances. However she additionally agreed to appear for 6 days
in advance for rehearsal but appeared for only 3 days.

The
organizers purported to treat the contract as repudiated. It was held that the
contract was subsisting as the agreement to appear for rehearsals was a
collateral term.

A
similar holding was made in Kampala General agency Ltd. V. Modys (EA) Ltd
where the parties had agreed to buy a large quantity of cotton deliverable at
Saroti.

However
the seller took the cotton to another town named Aloi where the buyer had a
cotton ginnery. The buyer refused to take delivery on the ground that the
misdelivery was a breach of a condition. However, it was held that it was a
breach of a warranty and the buyer was only entitled to damages.

3. INNOMINATE TERMS

These
are terms of a contract categorized as neither conditions nor warranties. The
breach of such terms may be attended by trivial or grave consequences.

The
remedy available depends on the nature, effect and consequence of the breach.

It was
so held in Hong Kong Fur Shipping Co. v Kawasaki Kisen Kaisha where a
ship was chartered for 24 months but was unavailable for use during the 1st
20 weeks. The charterer sued alleging that the unavailability of the vessel was
breach of a condition. However it was held not to be.

EXEMPTION OR EXCLUSION CLAUSES (Limiting or Excluding clauses)

The
theory of freedom of contract assumes that parties are free to contract with
one another and can protect their own interests.

It
assumes parity in contractual bargains which is not necessarily the case. The
stronger party may insert terms favourable to it. This is the genesis of
exemption clauses.

An
exemption clause is a clause inserted in a contract by the stronger party
exempting, itself from liability or limiting the extent of any liability
arising under the contract.

these
clauses are common in standard form contracts e.g. conveyance of goods, hire
purchase agreements contracts of insurance etc.

These
clauses are justified on the theory of freedom of contract.

From an
example clause to be given effect, the court must be satisfied that it was an
integral part of the contract.

 

It must
have been incorporated into the contract. In L’estrange V. Graucob (1934)
the plaintiff bought an automatic cigarette vending machine from the defendant.

The
terms of the agreement were written in a document entitled sale agreement.

Some of
the clauses were in a very small print and the plaintiff signed the document
without reading.

One
clause exempted the defendant from liability if the machine turned out to be
defective.

It
worked for only a few days. The plaintiff sued and the defendant relied on the
exemption clause in the agreement.

It was
held that the defendant was not liable as the document contained the terms of
the contract and the plaintiff had signed the same and was therefore bound.

INCORPORATION OF EXEMPTION CLAUSES IN CONTRACTS

An
exemption clause may be made part of a contract: –

a.        By signature

b.       By notice

 

1. INCORPORATION BY SIGNATURE.

If a
document signed by the parties to a contract contains an exemption clause, the
court must be satisfied that: –

a.        The document contained the
terms of the contract between the parties

b.       It was signed by the party
affected voluntarily

Signature
prima facie means acceptance. A party cannot after signing a document
argue that it did not read, understand or that the print was too small. It was
so held in L’Estrange V. Graucob.

However
if there is evidence that the signature was procured by fraud or
misrepresentation of the contents of the document the signature is voidable at
the option of the innocent party.

As was
the case of Curtis v. Chemical Cleaning & Dyeing Co. the plaintiff
took a wedding dress to the defendant shop for cleaning and was given a
document to sign. She requested the shop assistant to explain to her the
contents and was informed that the document exempted the company from liability
for any damage caused to the decorations of the dress.

She signed
the document without reading. Her dress was damaged and stained. She sued the
company which relied on the exemption clause which excluded it from liability
for any damage.

The
plaintiff pleaded that the contents of the document had been misrepresented to
her and hence the signature, it was held that the signature was voidable at her
option and the company was liable. 

 

2. INCORPORATION BY NOTICE.

What the
exemption clause is not contained in a document requiring any signature, the
court must be satisfied that the party affected by the clause was aware of its
existence when the contract was entered into.

As was
the case in Parker v. South Eastern Railway Co. The plaintiff had left
in luggage at a railway station luggage office and was given a ticket
containing the words “see back”.

At the
back was a clause exempting the company from liability for lost luggage.

The
plaintiff’s luggage was lost and he sued. The company relied on the exemption
clause.

It was
held that the company was not liable as it had brought the exemption clause to
the plaintiff’s notice who was therefore bound.

However,
a belated notice of an exemption clause has no effect on the contract as it is
not part of it. In Olley v. Malborough Court the plaintiff had booked in
a hotel and paid for a weeks board, she was given a key to her room where there
was a notice exempting the hotel from liability for lost items. The notice was
behind the door.

Guests
were requested to deposit valuable with the manageress of the hotel. During her
absence a stranger opened the room and stole her expensive clothing. She sued.
The hotel relied on the exemption clause in the room.

It was
held that the hotel was liable as the exemption clause was brought to the
plaintiffs notice after the contract had been concluded.

A
similar holding was made in Lougher v. Kenya Safari Lodges and Hotels Ltd.
Where the plaintiff who was a guest in a hotel was injured near the swimming pool
next to which was a notice exempting the hotel from liability for injuries
sustained by persons near the swimming pool.

It was
held that the hotel was liable as the exemption clause was not part of the
contract.

It
should be noted that at common law exemption clauses contained in tickets or
receipts issued offer payment of a sum of money are not deemed to be part of
the contract as the ticket or receipts is evidence of payment and not the basis
of the contract.

In Thomton
v. Shoehane Parking Co. Ltd. The defendant operated an automated parking
lot. Motorists had to insert coins to obtain a receipt so as to access the
parking lot.

Behind
the receipt was a notice exempting the defendant from liability for injuries
sustained within the parking lot.

The plaintiff
who had accessed the parking lot in the ordinary manner was injured and sued.

The
defendant relied on the exemption clause on the ticket. However it was held
that the defendant was liable as the clause had not been incorporated into the
contract.

A
similar holding was made in the case of Chappletton v. Barry UDC

RULES RELATING TO ENFORCEMENT OF EXCLUSION/EXEMPTION CLAUSES

For a
court of law to give effect or consider the effect of an exemption clause it
must be satisfied that the exemption clause was an integral part of the
contract. Since exemption clauses are generally unfair to the weaker party,
Courts have evolved rules which to some extent ensure that the unfairness is
mitigated.

An exemption clause must have been
incorporated into the contract either by notice or signature. The party
affected must have been aware of the exemption clause when the contract
was entered into.If contractual terms are contained in a
document, it must be evidence that the document was the basis of the
contract and was signed by the parties voluntarily as was the case of L’Estrange
v. Graucob.For an exemption clause to be given effect it
must be clear and definition free from vagueness or ambiguity.  In
the event of any ambiguity the clause is interpreted contra
proferentes. This is the Contra Proferentem Rule of
interpretation under which clauses are interpreted restrictively against
the party relying on them. As was the case in Omar Sale v. Besse and
Co. Ltd. Where in a contract of sales of goods, the seller exempted
itself from liability for breach of ‘war ranties’. It breached an implied
condition in the Sale of Goods Act.

A
question was whether the term warranties included conditions. It was held that
since the term warranties were vague. It had to be interpreted restrictively
against the seller and therefore did not include conditions. Hence the seller
was liable.

As a general rule, only person’s privy to a contract
can take advantage of an exemption clause in the contract. It was so held
in Scruttons Ltd. v. Midland Silicones ltd.

In Halaz’
Shipping Co. v. SBA and Another, a contract of carriage of goods by sea
exempted the carrier from liability for any damage to the good in the course of
transit. The good were damaged in the course of unloading from the ship and the
plaintiff sued. The carrier relied on the exemption clause and escaped
liability. The unloading company purported to rely on the same clause. It was
held that it could not do so as it was not party to that contract and was
therefore liable.

A court of law would generally not give an
exemption clause effect if doing so enable the party evade what amounts to
be the fundamental obligation of the contract or a fundamental breach.
This rule is based on the premise that every contract has a fundamental
obligation to be discharged and a party must not use an exemption clause
to evade such obligation.

 In
Karsales (Harrow) Ltd v. Wallis the defendant inspected a vehicle and
decided to take it on Hire Purchase terms. To facilitate the transaction, the
vehicle was sold to the plaintiff for hiring to the defendant. The defendant
completed the Hire purchase application form and paid a deposit. The form
contained a clause to the effect that “no condition or warranty that the
vehicle is roadworthy or fit for any purpose is implied herein”.

One day,
the defendant saw a vehicle outside his house which resembled the vehicle in
question. However on scrutiny he discovered it was a mere shell in that the
cylinder head was broken, all valves were burnt and 2 pistons were broken. The
vehicle could not move. The defendant refused to take delivery or pay installments
and was sued. He pleaded the condition of the vehicle. The plaintiff relied on
the clause exempting it from liability. It was held that though the exemption
clause was part of the contract. It could not be given effect as to do so would
have enabled the plaintiff evade a fundamental obligation of the contract, as
it had contracted to sell a vehicle. But exempted itself from liability if the
subject matter turned out not to be a vehicle at all.

The
party arguing that a fundamental breach has been committed must prove it and
must seek judicial redress within a reasonable time.

VITIATING ELEMENTS (FACTORS AFFECTING CONTRACTS)

These
are circumstances which interfere with the enforceability of a contract. They
have a negative effect on contracts.

They may
render a contract void or avoidable. A void contract is unenforceable while
avoidable contract is enforceable unless avoided.

These
factors include: –

Misrepresentation MistakeDuressUndue influence

 

1. MISREPRESENTATION.

This is
a false representation. It is a false statement made by a party to induce
another to enter into a contractual relationship.

It
renders the contract avoidable at the option of the innocent party.

However
for the innocent party to avoid the contract, it must be proved that: –

The statement in question was false in a
natural particular i.e. it was untrue in whatever it referred to.The statement was more than a mere puff or
sales talk. Whether a statement is a puff or a misrepresentation depends
on what a reasonable person could deem it to be. The statement was one of fact not opinion. As
a general rule opinion does not amount to misrepresentation. It was so
held in Edington v. Fitzmaurice. However an opinion may amount to
misrepresentation if: –

a.        The maker does not honestly
hold that opinion

b.       The opinion purport is to be
based on certain facts within the maker’s knowledge but whose truthfulness he
does not verify.

The false statement was intended to be relied
upon by the representer (recipient).The false statement was infact made by the
other party to the contract. As a general rule, omission, silence or
non-disclosure does not amount to misrepresentation. However it may: –

a.        In contracts of utmost good
faith e.g. insurance

b.       In confidential relationships

c.        Where disclosure is a
statutory requirement

d.       Where the statement made is half
true

e.        If the statement was true
when made but turns false due to changes in circumstances before the contract
is concluded but the maker does not disclose its falsity as was the case in With
v. O’flanagan.

The false statement influenced the party’s
decision to enter into the contract. The party must show that the false
statement was made before or when the contract was concluded. However the
false statement need not have been the only factor the party is
considered.

In Andrews
v. Mockford; where the plaintiff had relied on untrue statement in a
company’s prospectus, issued by the defendants it was held that the defendants
were liable in damages for the statements as the plaintiff had relied on them.

The false statement was innocently,
fraudulently or negligently made.

A) INNOCENT MISREPRESENTATION

A
statement is deemed to be innocently misrepresented if the maker honestly
believed in its truth though it was false and had no means of ascertaining that
it was false as was the case in Oscar Chess v. Williams where the
defendant had no means of ascertaining that the year of registration of the
vehicle was incorrect.

It Alkerhielm
v. De Mare where the defendants who were directors of a company issued a
prospectus stating that 1/3 of the company shares had been taken up in Denmark
which was not true at the time.

It was
held that the shares would be taken up in Denmark. A similar holding was made
in Derry v. Peek. 

If
innocent misrepresentation is proved, the innocent party may either: –

1.       Apply for rescission of the
contract

Sue for indemnity for any direct financial
loss occasioned by the representation as was the case in Whittington v.
Seale-Hayne where the defendant had innocently misrepresented the
sanitary condition and habitation of his premises to the plaintiff who as
a consequence took a lease to carry on the business of poultry breeding.
The premises were not in a sanitary condition and mere unfit for human habitation.
Some of the defendant’s poultry died while others lost value this farm
manager was taken ill and the premises were declared unfit for habitation.
The defendant spent money putting it in a habitable condition, and paid
outstanding rates. It was held that we could only recover the direct
financial loss suffered.

 

B) FRAUDULENT MISREPRESENTATION.

A
statement is deemed to be fraudulently misrepresented if the maker: –

a)       Has knowledge that it is false

b)      Makes it carelessly and recklessly

c)       Does not believe in its truth

This
test of fraud was formulated in Derry v. Peek. In Andrew v. Mockford
where the defendants had issued a prospectus containing untrue statements and
the plaintiff applied for 50 shares and was allowed the same but subsequently
sued the defendants in damages for fraudulent misrepresentation. It was held
that the defendants were liable as they were aware of the falsity of the
statements

.

A
similar holding was made in Bartholomew v. Petronilla.

Remedies
for fraudulent misrepresentation are either: –

Action for rescission of contract.Damages for the fort of deceit.

C) NEGLIGENT MISREPRESENTATION.

A
statement is deemed to be negligently misrepresented if the maker has both
means of capacity of ascertaining its falsity but fails to do so.

The
maker is deemed negligent as a reasonable person in such circumstances would
have so ascertained.

However,
for negligent misrepresentation to be relied upon, it must be proved that: –

1. There
was a special relationship between the maker and recipient of the statements
hence the maker owed the recipient a legal duty of care.

It was
so held in Hedley Byrene and Co. ltd. V. Heller and Partners Ltd. A
customer of the defendant bank approached the plaintiff bank for some
guarantees. The plaintiff bank wrote to the defendant seeking to show the
credit worthiness of the defendant customers.

The
defendant bank in 2 letters written on a ‘without responsibility basis’
confirmed that their customer was credit worthy.

The
plaintiff extended the guarantee but due to the customer’s uncreditworthiness,
the plaintiff suffered loss of £19,000.

The
plaintiff sued. It was held that though the defendant bank was negligent it was
not liable as the information had been given on a ‘without prejudice /
responsibility basis”.

2. That the party suffered loss of a financial
nature.

In Kirimu
Estate (UG) Ltd. v. K.G. Korde the plaintiff company instructed the
defendant a lawyer to value a piece of land for it.

The
defendant gave a figure without the assistance of a proper valuation of the
estate. The figure was far above the market value and the company sued in
damages for negligent misrepresentation.

It was
held that the defendant was liable to pay the difference in value by reason of
negligence.

 

MISTAKE

There
are two types of mistakes viz: -Mistake of law

                                                        
-Mistake of fact

As a
general rule a mistake of law does not affect a contract however, a mistake of
foreign law may affect a contract.  Mistakes of facts affected contractual
relationships. 

A
mistake is said to be misapprehension of a fact or factual situation.  It
is an erroneous assumption.

Mistake
of fact that effect contracts are generally referred to as operative mistakes
and the law recognizes various types of operative mistakes:

a)       Common

b)      Mutual

c)       Unilateral

d)      Mistakenly signed documents

e)       Mistake as to quality of subject
matter

 

1. COMMON MISTAKE.

This is
a mistake as to the existence or ownership of the subject matter.  Both
parties make the same mistakes.  Each party understands the others
intention but both are mistaken about some underlying fundamental fact. 
Common mistake rendered void in two circumstances:

Cases of
Res Exinta:  These are
circumstances in which parties about the subject
matter.               
This circumstance is contained in sec 8 of the sale of goods Act which provides
where there is a contract for the sale of specific goods which without the
seller’s knowledge have perished the contract is void.

In Couturier
V. Hastle the parties entered into a contract for the sale of a large
quantity of corn which at the time was supposed to be on transit to Britain
from Greece but unknown to the  parties the ship captain had sold the corn
in Tunisia due to overheating and fermentation. 

It was
held that the buyer was not liable to pay the price as the contract was void
for common mistake as the subject matter did not exist. 

A
similar holding was made in Lessie Anderson V. Vallabdos Khalidas Company
where parties had contracted to buy and sell a quality of gunny bags but
unknown to them the bags had been destroyed by fir. 

It was
held that the contract was void for common mistake.

Case of
Res Sua: These are circumstances in which parties are
mistaken about the ownership of the subject matter.  The party purporting
to buy is the legal owner but both are unaware of the fact.  The purported
seller has no title to pass hence the purported contract is void.  It was
so held in Bingham V. Bingham.

 

2. MUTUAL MISTAKE.

This is
a mistake to the subject matter of contract.  It arises when parties
misunderstand each other or at cross purposes.  No agreement arises
between them for lack of consensus ad idem. 

However,
not very misunderstanding constitutes a mutual mistake; it depends on what a
reasonable person would deem the circumstances to be. 

In Raffle
V. Wichelhause the parties enter in into a contract for the sell of cotton
to be shipped to the U.K. on board the peerless from the port of Bombay. 
Unknown to the parties there were two ships by the name peerless at the port of
Bombay.  One sailed in October and the other in December. 

While
the buyer meant the October ship the seller referred to the December one. 
The cotton was shipped by the December vessel and the buyer refused to take
delivery.

It was
held that he was not bound as the contract was void for mutual mistake.

 

3. 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.

Unilateral
mistake arises where a fraudulent person misrepresent his identity to another
so as to obtain goods on credit or other favourable terms which he then sells
to a bona fide 3rd party who takes without notice of the fraud.

The
dispute is usually between the original owner of the goods and the bonafide
purchaser.

The
original owner is entitled to the goods or their value by establishing that the
contract between him and the fraudulent person was void for unilateral mistake.

The
party must prove that: –

It dealt with a person other than the one it
intended to deal with.The person it dealt with was aware of that
fact.The identity of the person, the party intended
to deal with was fundamental to the contract.

By
proving these facts the party establishes that the contract was void.

In Cundy
v. Lindsay and Co. Ltd. A fraudulent person known as Blenkarn
ordered goods from Lindsay and Co. Ltd his signature resembled that of a
company named Blenkiron and Co. Lindsay and Co. had heard of Blenkinron and Co
but had not dealt with them. Blenkarn had quoted an address on the same street
as Blenkiron and Co. Thinking that they were dealing with Blenkiron and Co.
Lindsay and Co. dispatched the goods to the address. Blenkarn took delivery and
sold them to cundy. Lindsay and Co. sued Cundy in damagers of conversion. It
was held that they were entitled to damages as Cundy had no title to the goods
like Blenkarn before him as the contract was void.

A
similar holding was made in Ingram and other v. Little where three
sisters advertised the sale of a vehicle.

A
fraudulent person introducing himself as Mr. Hutchinson for offered to take it
for £717 but paid by cheque which the sisters initially refused.

He
introduced himself to P.G.M Hutchinson and gave an address which one of the
sisters confirmed with a local post office.

They
accepted the cheque which was subsequently dishonoured by which time the car
had been sold to the defendant.

The
plaintiffs sued the defendant for the car. It was held that they were entitled
to it as the contract between them and the fraudulent person was void for
unilateral mistake.

This
decision contrasts with that in Phillips v. Brooks Ltd. Where a
fraudulent person known as North entered Phillips shop and selected goods
valued at ₤3,000 including a ring.

He
offered to pay by cheque which Phillips refused. He then introduced himself as
Sir George Bullough and gave a London address which Phillip confirmed with the
directory.

Having
satisfied himself, Phillips let Mr. North have the ring in return for the
cheque which was dishonoured by which time the ring had been pledged with
Brooks Ltd for a loan. Phillips sued for the return of the ring. It was held
that he was not entitled to it as there was no mistake.

The
court was of the view that he had dealt with the person he intended to deal
with.

4. DOCUMENTS MISTAKENLY SIGNED

This is
a mistake as to the nature of the contract; it arises when a party to a
contract signs the wrong document.

Such a
mistake does not render the contract void but avoidable at the option of the
party.

To avoid
the contract, the party must prove that: –

The document signed was fundamentally
different from the one the party thought it was signing.The party was neither careless nor negligent
when it signed the document.

By
proving these facts, the party establishes the plea of non-est factum
which literally means this is not my deed. Unless these facts are proved, the
contract cannot be avoided as was the case in Gallie V.Lee and Anor..

5. MISTAKE AS TO QUALITY OF SUBJECT MATTER

This
mistake arises when one of the parties to the contract is mistaken about the
quality of the subject matter of the contract.

Such a
mistake renders the contract voidable at the option of the innocent party.

 

 

3. DURESS

At
common law duress means actual violence or threats thereof.

It
exists where a contractual relationship is procured by actual violence on the
person or threats thereof.

The
party is compelled or coerced to contract. For the most part, duress consists
of threats.

Duress
was developed by the common law with a very narrow scope. It renders a contract
voidable at the option of the innocent party.

For the
contract to be avoided, the innocent party must prove that: –

The threat was intended to cause fear, injury
or loss of lifeThe threat was directed to his person or body
as opposed to his property. It was so held in Altee v. Backhouse. A
threat directed at the body of a member of the party’s household amounts
to duressThe threat was illegal e.g. a threat to sue,
prosecute or cause imprisonment for no reasonable cause. A threat to
enforce once legal rights does not amount to duress. It was so held in Hassan
Ali Issa v. Jeraj Produce Shop where the defendant had alleged that
the cheque had been written under duress in that the plaintiff had
threatened to sue if repair and storage charges were not paid. It was held
that the threat did not amount to duress.

In Friedberg
Seelay v. Klass the defendants gained access to the plaintiff’s house and
threatened not to leave unless she sold her jewels to them.

4. UNDUE INFLUENCE

It is
said to exist where a party dominates the others will thereby inhibiting its
exercise of an independent judgement on the contract.

One
party thus exercises overwhelming influence over the other. Undue influence was
developed by equity with a fairly wide scope.

It
renders a contract voidable at the option of the innocent party. Undue
influence renders a contract voidable in the following circumstances;

1. Where
parties have a special relationship.

E.g.
parent-child, advocate-client, doctor-patient, trustee-beneficiary, religious
leader-disciple; undue influence is presumed in favour of the weaker
party. It is the duty of the stronger party to show that the weaker party made
an independent decision on the contract. e.g. he had an advocate of his own.

In Ottoman
Bank Co. Ltd. v. Mawani, the plaintiff bank extended a loan to a business
owned by the defendant’s father and the defendant guaranteed the amount. The
fathers business was unable to pay the loan and the bank sued so to enforce the
guarantee.  Evidence that the defendant was still under the control of the
father. He worked in the fathers firm and had no independent source of income.
It was held that he wasn’t liable on the guarantee as it was voidable at his
option for the father’s undue influence.

 

2. When
parties have no special relationship.

The
party pleading undue influence must prove it by evidence. The
circumstances must be such that the party did not make an independent judgement
on the transaction, as was the case in Williams v. Bayley, where the
defendant entered into a contract promising to pay monies withdrawn from a bank
by the son. The banker had made it clear that if no arrangement was arrived at,
the defendant’s son would be prosecuted for the offence. When sued the
defendant pleaded the banker’s undue influence. It was held that he was not
liable as the contract was voibale at his option.

3.
Unconscionable bargains.

These
are unfair bargains. They are transactions entered into in circumstances in
which one party takes advantage of its position to procure the deal. Such
transactions are voidable at the option of the innocent party. The concept of
unconscionable bargains was developed by equity courts as an extension of the
doctrine of undue influence and was explained by Lord Dening in David C.
Builder ltd. v. Rees.

In Lloyds
Bank Co. Ltd v. Bundy, the plaintiff bank extended a loan to a business
owned by the defendant’s son. The defendant guaranteed the loan to the tune of
₤1,000 but the bank required further guarantee. He extended it to ₤6,000. His
lawyer informed him that it would be unwise to extend the guarantee further.
The defendant owned a house with ₤10,000. An official of the plaintiff bank
visited the defendant and procured a further guarantee of up to ₤11,000. The
sons business collapsed and the bank sought to enforce the guarantee against the
father who pleaded that it was unconscionable. It was held that the guarantee
was voidable at the option of the defendant as it was unfair.

 

RESCISSION

The
essence of this remedy is to restore the parties to the position they were
before the contract.

It is an
equitable remedy whose award is discretional.

The
remedy may be availed whenever a contract is vitiated by misrepresentation.

However
the right to rescind a contract is lost in various ways: –

Delay:
A contract cannot be rescinded if a party has slept on its right for too
long as “delay defeats equity”. In Leaf v. International Galleries Ltd.,
where the plaintiff purported to rescind a contract after 5 years. It was
held that the remedy was not available on account of delay.

Affirmation: A party loses the right to rescind a contract if it expressly or by
implication accepts the contract.

Third party rights: A contract cannot be rescinded after 3rd
party rights have arisen under it, as this would interfere with the rights
of a person who was not privy to the original contract.Restitutio in integrum not possible:  Rescission is not available if the
parties cannot be restored to the position they were before the contract.
E.g. if one of the parties is a company and it has gone into liquidation.

 

ILLEGALITY

The term
illegality does not necessarily mean that a criminal offence is involved.

It means
that the contract in question is unenforceable as it is injurious to the public
or is inconsistent with the public good.

An
illegal contract is un-enforceable. This is because for an agreement to be
enforceable, it must have been entered into for a lawful purpose.

A
contract may be declared, illegal by statutes or a court of law.

a) Contracts declared illegal by Statutes.

Under
the employment act, wages or salaries are payable in money or moneys worth. A
contact to pay wages or salary in kind is illegal and void. Such a contract is
said to be illegal as formed and is unenforceable.

b) Contracts declared illegal by courts of law (contracts illegal at
common law)

Long before statutory intervention, courts had declared money contracts
illegal for being contrary to public policy e.g.

i) A contract to commit a crime, tort or fraud.

Such a
contract is illegal and unenforceable as it is a contrary to public policy to
commit crimes, torts or fraud in Bigos v. Boustead where the object of
the contract was to violate the English Exchange control regulations; it was
held that the contract was illegal and unenforceable.

ii) Contracts prejudicial to public safety.

These
are contracts which promote harmful activities in a country or its neighbours.
E.g. a contract to finance rebels in a country or coup plotters, assisting
alien enemies.

iii) Contracts prejudicial to the administration of justice.

These
are contracts which interfere with the judicial process e.g.

A contract to stifle prosecution of an alleged
crime.Champerty agreements: This is a contract whereby a party provides
financial assistance to another involved in a civil case so as to share
the amount awarded by the court. Such a contract is illegal and
unenforceable.Maintenance:
this is a contract whereby a party provides financial assistance to
another to enable him sue a 3rd party for no reasonable course.
Such a contract facilitates the harassment of a party by another through
the courts. It is illegal and unenforceable.

iv) Contracts to defraud state revenue.

A contract whose object is to deny the state whether central government
or local government revenue by way of evading tax is illegal and unenforceable.

In Miller
v. Karlnski the plaintiff who was an employee of the defendant a ₤10 per
week had agreed that the amount deducted from the salary as tax was refundable
as an allowance. In an action to recover the refund, it was held that it was
irrecoverable as the object of the contract was to defraud the state revenue.

v) Contracts liable to promote corruption in public.

Such a
contract is unenforceable as corruption is contrary to public policy. In Parkinson
v. College of Ambulance and Another, the secretary of a charitable
organization informed that plaintiff that it was on to it. The plaintiff gave ₤
3,000 but was not knighted as only the King could bestow the title. In an
action to recover the sum, it was held that it was irrecoverable as the
contract was illegal.

vi) Contracts liable to promote sexual immorality

These
are contracts contra bonos mores (contrary to good morals). Such
a contract is unenforceable on account of illegality. The contract may be
illegal as performed. In Pearce v. Brooks the plaintiff owned a
beautiful horse drawn carriage which he tent to the defendant for 12months at
stated charges. The plaintiff knew that the defendant was a prostitute and
intended to use the carriage to solicit influential customers. In an action to
enforce payment of the hiring charges, it was held that that contract was
unenforceable as it was illegal as performed as its purpose was to promote
sexual immorality.

 

vii) A
contract based on an illegal contract is also an illegality of the other
contract.

EFFECTS OF ILLEGALITY

An
illegal contract is said to be ‘beyond the pale of law’. Such a contract is
unenforceable it creates no rights and imposes no obligations on the parties.
Neither party is bound to perform. Money or assets changing hands under an
illegal contract is irrecoverable as gains and losses remain where they have fallen.

However
such money or assets may be recovered in certain circumstances;

Where either party repents/ regrets the
illegality before the contract is substantially performed.Where the parties are not in pari
delicto (not equally to blame for the illegality), the less
blameworthy party may recover.If the owner of the money or asset establishes
title thereto without relying upon the illegal contract. As was the case
in Amar Singh v. Kulubya,    where a
piece of land had changed hands under an illegal; contract but the
plaintiff established his title.

VOID CONTRACTS

These
are contracts which the law treats as non existent, they are generally
unenforceable. However, if a contract is only void but not illegal some rights
may be enforced by exception. A contract may be declared void by statute or a
court of law.

 1. Contracts void by Statute.

Under
the Employment Act, a contract to pay wages or salary in kind is null and void.
Under the Gaming Act, 1845, wagering contracts are void. A wager is a
contract whereby 2 persons or groups of persons with different views on the
outcome of some uncertain event agree that some consideration is to p[ass
between them depending on the outcome. Such a contract is void.

2. Contracts void at Common Law (Courts of Law).

These
are contracts declared void by courts of law for being contrary to public
policy e.g.

a)
Contract to oust the jurisdiction of the court.

This is
a contract which purports to deny the parties the right to seek judicial
redress.

b)
Contracts prejudicial to the status of marriage.

This is
a contract which interferes with the marriage institution. E.g.

Marriage brokerage contracts.Contracts whose tendency is to encourage
separation.

c) C
ONTRACTS IN RESTRAINT OF TRADE.

This is
a contract by which a persons future liberty to engage in a profession or trade
in a particular manner or with particular persons is voluntarily or
involuntarily restricted e.g. An employee covenant not to work for a business
rival or set up a similar business after leaving employment. At Common Law, a
contract in restraint of trade is prima facie void for being contrary to
public policy.

However,
such a contract may be enforced if it is proved that;

The restraint was reasonably necessary to
protect the interests of the restraining party.The restraint was reasonable to the party
being restrained.The restraint was not injurious to the public.

Contracts
in restraint of trade may be voluntary or involuntary.

a) Voluntary Restraints.

These
are restraints agreed to by the parties to the contract e.g.

Restraints accepted by employee.Restraints accepted by the seller of business.Restraints accepted by a seller or distributor
of goods.

1. RESTRAINTS ACCEPTED BY EMPLOYEE.

The
employee covenants not to work for a business rival after leaving employment or
not to setup a similar business next door. Such a restraint is prima facie
void. In Putsman v. Taylor, the defendant who was an employee in a
tailoring business, covenanted not to work for the plaintiffs business rival in
some 3 defined areas of the city of Birmingham within 3 years of leaving
employment.

He
worked in one of them within the 3 years and the plaintiff applied for an
injunction to retrain him from doing so and the court granted the same on the
ground that the restraint was reasonable to the parties.

In Attwood
V. Lamont, the defendant was employed in a tailoring business
as head of the cutting department; he covenanted not to set up a tailoring
business within a radius of 10 miles from the employers business. 

He
established a business outside the 10 miles but all his customers were from
within the 10 miles. 

The
former employers sued for an injunction to restrain him from doing so.  It
was held that the restraint was unenforceable as it was too worded and hence
unreasonable to the defendant.

A world
wide restraint to an employed may be enforced it reasonable to the parties and
can only be effective if enforced on a world-wide basis. 

As was
the case in Nordenfelt v. Maxim Nordenfelt Guns and Ammunition (1984)
Mr. Nordenfelt was the only manufacturer of a special gun and ammunition. 
He sold the business to company for £287.500.

2 years
later the company merged with another to from the defendant company which
employed Mr. Nordefelt at a salary of £2,000 per year. 

The
contract of employment provided that Mr. Nordenfelt was not to engage in gun or
ammunition business anywhere in the world for 25 years and would not compete
with the company in any may for 25 years.

The
House of Lords held that whereas the restraint not to engage in the in the Gun
business was reasonable and therefore enforceable; the restraints not compete
with the company for 25 years was unreasonable and could not be enforced.

In Kores
Manufacturing Co. v. Kolok Manufacturing Co. two companies dealing in
similar products covenanted not to employ former defendant engaged a former
employee of the plaintiff within the 5 hours. 

The plaintiff
sued for an injunction to restraint the defendant.  It was held that the
restraint in enforceable as it was unreasonable to the parties.

2. RESTRAINT ACCEPTED BY VENDORS OF BUSINESS

The
seller of a business may covenant not to set up a similar business next door,
this may be necessary to protect the buyer’s business. 

Such a
restraint is void common law.

However,
it may be enforced if the cost  is satisfied  that having regard to
the type or nature of  business, duration of the restraint , area covered
and other circumstances, the restraint is reasonable to the parties.

In Dias
v. Souto, the defendant sold a business situate on the Island of Zanzibar,
it specialized in merchandise for the expatriate community. 

He
covenanted not to set up similar business within the Zanzibar
protectorate.  He established a similar business on the Island of
Pemba. 

The
plaintiff applied for an injunction to restrain him from doing so.  The
court enforced the restraint on the ground that it was reasonable.

This
decision was based on the specialized nature of the plaintiff business.

 

3. RESTRAINT ACCEPTED BY THE SELLERS OR DISTRIBUTORS OF GOODS (SOLUS
AGREEMENT)

A seller
or distributor may enter in to a contract with a wholesaler or manufacturer
which restricts his acquisition of goods, trading hours etc.  The
restraint is often referred to as Solus Agreements ans they include:.

1. Tying
Covenant.

The
seller undertakes to purchase all his products from a particular wholesaler or
manufacturer; this is in return for certain discounts.

2.
Compulsory Trading Covenant.

The
seller covenants to keep his business open for reasonable hours everyday.

3.
Continuity Covenants.

The
seller takes to extract similar covenants form the person who purchases the
business from him.

Such
restraints are Prima Facie void but may be enforced by a court of law if
reasonable to the parties and not injurious to the public.

b) Involuntary restraints.

These
are restraints imposed by trade associations and professional bodies on their
members.  They are involuntary in character. 

Such
restraints are Prima Facie void but may be enforced if reasonable
to the parties and are not injurious to the public.

KENYAN POSITION

In Kenya
contracts in restraint of trade are governed by the Contracts In Restraint of
Trade Act[6], Under sec. 2 of the Act, a contract in restraint of trade is
binding and enforceable in law.

However,
the High Court may on application by the affected party declare the contract
void if it is satisfied that having regard to:-

Nature or type of businessDuration of the restraintArea covered by the restraint  All the circumstances of the case, the
restraint is unreasonable in that it affords more protection than is
necessary to protect the party’s interests or is injurious to the public.

 

CONTRACTS UBERRIMA FIDEI

These
are contracts of the “utmost good faith”. In the contract of sale of goods, the
seller is not bound to disclose anything to the buyer in relation to the
subject matter. The operative principle is caveat emptor which literally
means “Buyer beware”. 

A buyer
takes the goods as they are, however,  in contracts of the utmost 
good faith, both parties are bound  to disclose material facts 
within its  actual and presumed knowledge failing  which the
contract  is voidable  at  the option of the innocent 
party.  E.g.

1) 
Insurance Contracts

2) 
Partnership Agreements

FORMALITIES

In
addition to the basic elements of a contract certain contracts are subject to
certain formalities which must be complied with for the agreement to be legally
enforceable.  The formalities includes:-

1. REQUIREMENT OF WRITING

Some
contracts must be embodied in a formal document e.g. Hire Purchase Agreement,
contract of Marine Insurance

2. REQUIREMENT FOR WRITTEN EVIDENCE

Some
contracts must be evidenced by some note or memorandum which must contain:-

Description of the partiesDescription of the parties The Consideration Signature of the parties

E.g. 
Contracts of Guarantee, Contracts of Insurance other than Marine.

3. REQUIREMENT OF CONSENT.

Under
sec. 6 of the Land Control Act[7], a contract for the sale of agricultural land
must be consented to by the Land Control Board of the district in which the
land is located failing which the contract is unenforceable. 

The
consent must be applied for within 6 months of the agreement failing which the
contract is void. 

However,
the president is empowered to exempt a transaction from the requirement of
consent on application by the parties.

4. REQUIREMENT OF SIGNATURE.

A
contract entered into with the government must be signed by the Revenue Officer
of the ministry or some other duty authorized person failing which the contract
is enforceable.

These
statutory formalities may be justified on various policy grounds;

They promote certainly  in transactionsOthers enhance genuiness and acceptability of
contracts.Some formalities perform educative functions
E.g.  Contents of a Hire Purchase Agreement.Other formalities facilities state
intervention private transactions e.g. requirement of consent of the Land
Control Board.

The
formalities of writing and requirement of written evidence are intended to
prevent found, however, it is possible for a party to perpetrate fraud by
insistingthat the requisite formalities have not been complied with.. 

To
prevent such injustice, equity developed the doctrine of Part Performance.

THE DOCTRINE OF PART PERFORMANCE

The
doctrine is to the effect that where  parties have entered  into
an  oral agreement  and before  the formalities  of
writing  are complied with one of the parties does something  in
furtherance of the  agreement , the other  party  cannot 
be heard to say that there was no agreement between  them. 

This
doctrine was developed by equity and is now contained in the proviso to
sec. 3 of the Law of Contract Act.Under the proviso, Part performance
may consist of:-

a)                  
Entry into a party’s premises before the formalities is complied with.

b)                 
Continuation of possession before the formalities is complied with.

In Credit
Finance Corporation v. Ali Mwakasanga, the defendant opted to take a truck
on Hire Purchase terms; he completed the application form, paid a deposit and
took delivery of the truck.  Subsequently, the plaintiff alleged that
there was no contract between them as it had not signed its part of the
contract.  However, it was held that the defendant’s conduct amounted to
part performance and hence there was a contract between them. 

 

DISCHARGE OF CONTRACT

A
contract is said to be discharged, when the obligation created by it ceases to
bind the parties who are now freed from performance.

However,
whether a party is liable or not after discharge, depends on the method of
discharge. 

A
contract may be discharged in the following ways:-

Express agreementPerformanceBreachImpossibility or Doctrine of FrustrationOperation of Law.

1. DISCHARGE BY EXPRESS AGREEMENT

A
contract may be discharged by agreement if the parties thereto expressly agree
to discharge the contract.  The mutual promises constitute consideration
to support the discharge. 

Discharge
by agreement justified on the premise that whatever is created by agreement may
be extinguished by agreement.

Discharge
by agreement may be bilateral or unilateral

a) Bilateral Discharge

If
neither performs its part of the contract, the obligation are said to be
executory and the discharge is bilateral as both parties agree not to perform.
The mutual promises constitute consideration.

b) Unilateral Discharge

If
either of the parties has wholly or partially performed its part of the
contract, the obligations are said to be executed and the discharge is
unilateral. 

The
party that has performed discharges the other from performance. 

Unilateral
discharge may take any of the following 3 forms:-

Contract under Seal; Such a contract binds the parties and does
notg require consideration.Novation;
This is the substitution of the old contract with a new one.  The old
contract is thereby discharged.Accord and satisfaction; This is the purchase of a release from an
obligation whether contractual or otherwise not by performance but the
provision of new or extra consideration which is consideration which is
accepted by the other party to discharge the contract. The party that has
not performed provides the new consideration which is accepted by the
other party.  The new consideration is the satisfaction and its
acceptance by the other party is accord.

 

2. DISCHARGE BY PERFORMANCE.

A
contract is discharged by performance if both parties perform their mutual
obligations as agreed.  Each party must have performed its party.

Medieval
common law insisted that discharge by performance was only possible if parties
had performed their obligations precisely and exactly. 

This is
the common law Doctrine of Precise and  Exact which is to the
effect  that parties must however  their  contractual
obligations to the letter. 

Every
aspect of the contract must be performed.  It has been to observed that it
is a fundamental principle of law that contractual obligations be performed
precisely and exactly. 

The
Doctrine of precisely and exact is exemplified by the decision in Cutter V.
Powell.

Mr.
Cutter agreed to assist  Powell, a ship captain  as a second matter
on a journey from Jamaica to Liverpool, the ship  sailed on August 2nd,
and Cutter died  on September 20th, 19 days  before 
the ship was due at Liverpool.  Mrs. Cutter sued for compensation for the
work done by Mr. Cutter, it was held that nothing was payable by the defendant
as Mr. Cutter had not performed the contract precisely and exactly.This case
demonstrates that strict application of the doctrine of precise and exact
occasion’s unjust enrichment. 

Common
Law admitted exceptions to the doctrine of precise and exact to mitigate its
harshness.  These are circumstances in which parties will be compensated
for work done (quantum meruit) or discharged even though they have not
performed precisely and exactly.

EXCEPTIONS:

These
are the cases for granting quantum meruit which are the exceptions to
the doctrine of precise and exact

1. Divisible contracts.

Although
there is a presumption that the contract ought to be viewed in its entirety,
some contracts are by their mature divisible and performance of part thereof
entitles the party to payment for work done.  E.g.  Contract of
carriage of goods payable per tonne. The carrier is entitled to payment for the
quantity carried but may be sued for not carrying the entire quantity as was
the case in Ritchie v. Atkinson where a contract of carriage of goods,
the shipper carried less than the agreed quantity. It was held that the shipper
was entitled to payment on Quantum Meruit (for work done).

2. Substantial performance.

If a
party has substantially performed its part of the contract, it is entitled to
payment for work done.  Whether a contract is substantially performed is a
question is a question of fact. 

In Mershides
Mehta and Co. v. Baron Verhegen, the defendant engaged the
plaintiff to construct a house for him and the contractual price was payable by
installments. 

After
completion of the house, the defendant refused to pay the last instalment on
the ground that the house has some structural defects. 

The
plaintiff sued.  It was held that the plaintiff was entitled to the
installment less the amount due defendant may likely to spend to correct the
defect. 

This
decision was based on the fact the plaintiff had substantially performed its
part of the contract

3. Partial Performance If Accepted

If a
party to a contract has expressly or by implication agreement to pay for
partial performance, the party performing is entitled to payment for work
done. 

In Sumpter
v. Hedges, defendant engaged the plaintiff to construct 2 houses and
stables at cost of £565. 

The
plaintiff abandoned the house after putting up structures valued at £333, the
defendant was compelled to complete the houses, subsequently, the plaintiff
sued for compensation work done. 

It was
held that he was not entitled to payment as the defendant had not expressly or
by implication agreed to pay for partial performance.

4. Prevented Performance.

If a
party is ready and willing to perform its part of the contract is prevented
from doing so or by the other or the others fault, such party is entitled to
payment on quantum meruit. 

In Planche
v. Colburn, the defendant engaged the plaintiff to write a book for him
about himself for £100.

After
the plaintiff had done the initial research and written part of the book, the
defendant discontinued the writing, the plaintiff sued. 

It was
held that he was entitled to£50 for work done.

5. Frustration of Contracts

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.

Frustration
of contract terminates it and discharges the parties from performance.

6.Time Of Performance

Contractual
obligations must be performed within the prescribed time if any or within a
reasonable time. 

If the
contract specifies the date of performance, time is said to be of the essence
of the contract and non-performance thereof damages the contract. 

This was
the case in Panesar v. Popat the defendant ordered furniture to be
delivered on April 30th.  However, it was not ready by this
date, the defendant extended the delivery date to May 10th but the
furniture was not ready where upon he cancelled the transaction.  The furniture
was not ready where upon he cancelled the transaction.  The furniture was
delivered on May 12th; the defendant effused to take delivery and
was sued.  It was held that he was not bound to do so as time was of the
essence of the contract and the plaintiff had failed to perform.

 

3. DISCHARGE BY IMPOSSIBILITY OR DOCTRINE OF FRUSTRATION

Medieval
common law was based on the principle of absolute contractual
obligations.  Under this principle, parties to a contract must perform
their obligations failing which damages are payable by the party in the
default. 

In Paradine
v. Jane the plaintiff leased a piece of land to the defendant for purposes
of farming, however, after the contract, a hostile German army invaded the
country and occupied the region in which the land was situate. 

The
defendant could not across the land or put it into any economic use.  When
sued for the lease charges, the defendant pleaded his inability to use the
land. 

However,
he was held liable since the contract had not provided that he would be
discharged if it became impossible to use the land. 

This
case demonstrates that the Common Law did not originally recognize the doctrine
of frustration.

The
Doctrine is an exception to the principle of absolute contractual obligations.

FRUSTRATION OF CONTRACT

A
contract is said to be frustrated if performance of the obligation is rendered
impossible, illegal or commercially useless by unforeseen or extraneous
circumstances for which neither party is to blame. When a contract is
frustrated, it terminates and the parties are discharged

The
Doctrine of Frustration may be justified on various grounds:-

Implied Term Theory.

It is
argued that in every contract, there is an implied term that should such an
event occur the parties will be discharged

Just and Reasonable solution Theory.

It is
only fair that the parties will be discharged.

Disappearance of Foundation Theory

It is
argued that when a contract is frustrated, its foundation disappears.

Change of Obligation Theory

It’s
argued that when a contract is frustrated, the obligations of the parties
change hence the need to discharge the contract.

CIRCUMSTANCES IN WHICH A CONTRACT MAY BE FRUSTRATED

1. Destruction of Subject Matter.

If the
subject matter of the contract is destroyed before performance and neither of
the parties is to blame, the contract is frustrated. 

If must
be evident that the subject matter was the foundation of the contract. 

The destruction
need not be total but must affect the commercial characteristics of the subject
matter. 

In Taylor
v. Caldwell, the defendant had hired the plaintiff’s hall to conduct a
musical concert at specified charges, before the day of the first concert, the
hall was destroyed by fire and neither of the parties was to blame. 

In an
action by the plaintiff to recover hiring charges, it was held that they were
irrecoverable as the destruction of the hall frustrated the contract and
thereby discharged the parties.

2. Non-occurrence of an event.

If a
contract is based on a particular event or state of affairs to obtain at a
particular time, its non-occurrence frustrating the contract and discharges the
parties. 

However,
for the contract to be frustrated, it must be evident that the event or state
of affairs was the only foundation of the contract. 

In Krell
v. Henry (1903), the defendant had hired a room in the plaintiff house to
enable him view Royal Procession of the coronation of King Edward VII. 
However, the king was taken ill before the coronation and the ceremony was
cancelled.

It was
held that the hiring charges were irrecoverable as the cancellation of the
ceremony frustrated the contract and discharged the parties.

However,
if a contract has more than one foundation the disappearance of one does not
frustrate it as the other is capable of performance. As was the case in Herne
Bay Steamboat Co. v. Hutton

3. Illegality.

If
performance  of contractual obligations  becomes  illegal by
reason of change of  law or otherwise the parties are discharged  as
there is no obligation to perform  that which has become  illegal.

4. Death or Permanent Incapacitation.

In
contracts of personal service or performance e.g.  employment, the death
or permanent incapacitation of a party frustrates the contract and discharges
the parties as the obligations are not generally transferable.

5. Government  Intervention.

If a
policy act or regulation make it impossible for a party to complete its
contractual undertaking the contract is frustrated and the parties discharged
e.g. refusal to grant a licence as was the case in Karachi Gas Company v.
Isaaq where the government refused to grant an export licence in respect
 of certain pipes to be exported to Karachi. When sued, the defendant
relied on the government refusal to grant the licence.  However, it was
held that the contract had not been made to obtain the licence

A
contract would be frustrated   if a government takes possession of
the subject matter or stops the transaction, as was the case in Metropolitan
Water Board V. Dick Kerr and Co.  In July 1914, the respondent entered
into a contract to construct a dam for the appellant within 6 years subject to
an extension.  However, sometimes in early 1916, a government minister ordered
the respondent to stop the contract and dispose of its equipment and the
respondent complied.  It was held that the minister’s act
frustrated the contract and thereby discharged the respondent.

6. Superveving Events.

 These
are events that delay performance and thereby change the commercial
characteristics of the contract.  The change must be fundamental.  As
a general rule, additional expenses do not frustrate a contract; however, they
may if they render the transaction commercially useless. 

In Tsakiroqlou
and Co. Ltd v. Noble Thorl GMBH, the parties entered into a contract
for  the  purchase of a large quantity of Groundnuts to be
shipped  from Port Sudan to Humburg, the supplier contemplated using
the  Suez Canal  but which  by the time  of performance had
been closed as a consequence the groundnuts were not supplied.  When sued,
the supplier argued that the alternative route was too expensive and hence the
contract had been frustrated. It was held the contract had not been frustrated
as ;-

The additional expenses were recoverable from
the buyer The contract had no time limit.The longer route could not damaged the
commercial characterizes of the groundnuts

The
supplier was liable in damagesIn Victoria Industries Ltd V. Lamanbhai
Brothers, the parties contracted to buy and sell a quantity of corn
maize to be shipped from Jinja to Mwanza  and transported  by rail to
Dar-es-salam for export. 

The East
Africa Railways and Harbours Corporation had agreed to ship and rail the maize
to Dar. 

However,
subsequently, the corporation decline to do so and the seller was unable to
supplier the maize. 

When
sued, the seller pleaded that the contract had been frustrated by the change of
heart of the corporation as there was no alternative route to the coast.

It was
held that the supplier was not liable as the contract had been frustrated.

However,
a contract is not frustrated if:-

Either of the parties is to blame for the
occurrence or non-occurrence of an eventThe event is expressly provided for in the
contract.

EFFECTS/CONSEQUENCES OF FRUSTRATION (ADJUSTMENMT OF THE RIGHTS OF
PARTIES ON FRUSTRATION)

Frustrated
contracts in Kenya ae governed by the Law Reform (Frustrated Contracts) Act,
1943 which applies in Kenya as a statute of  general application by reason
of the schedule to the Law  of Contract Act. 

Under
this Act, when a contract is frustrated:-

It is terminatedMoney pad is recoverableMoney payable ceases to be payableIf a party has suffered loss by reason of
performance, the court may order  the other  to pay to 
such party a sum of moneyIf a party has derived benefit other than
financial, the court may order such party to pay to the order a sum of
money which must be less than the benefit it so derived.

4. DISCHARGE BY BREACH OF CONTRACT.

Breach
of a contract does not discharge it; it gives the innocent party an opportunity
to treat the contract as repudiated or as existing. 

If it
treats the contract as existing, it is bound to honour its part however, if
treats it as repudiated it is not bound to do so.

Breach
of contract may be:- 

a)                  
Anticipatory

b)                 
Actual

1) ANTICIPATORY BREACH OF CONTRACT.

This is
a situation where a party to a contract expressly or by implication intimates
to the other in advance its intention not to perform on the date of
performance.  Evidence must clearly suggest breach of contract. 

The
innocent parties take any of the following steps:-

a)      Sue in Damages.

The
party must prove the anticipatory breach of the contracts well as its
willingness to perform its part of the contract. 

In Frost
V. Knight where the defendant  had contracted to marry the
plaintiff  after his father’s death but married another person during the
lifetime of the plaintiff ‘s father, it was held that the defendant was liable
in damages for anticipatory breach of the contract.

b)      Wait for the party to perform by the
due date.

The
innocent party may opt to afford the other party a chance to perform its part
of the contract, however, if the contract is in the meantime frustrated, the
innocent party loses all remedies as was the case in Avery  V. Bowden.

c)      Sue for the Decree of Specific
Performance.

The
innocent  party may apply for the  equitable remedy of specific
performance to compel the other party to for the  equitable remedy of
specific performance to compel the other party to perform its part of the
contract and the same may be granted if circumstances justify as was the case
in Hasham Jiwa V. Zenab where parties entred into a contract for
the sale of a piece of  land but the defendant repudiated the same before
the date  of completion and the plaintiff applied for specific
performance.  The court granted the order and the defendant were compelled
to perform.

Where a
contract is breach in anticipation, the innocent person is not bound to
mitigate its loss.

2. ACTUAL BREACH OF CONTRACT.

This
entails the non-performance of a party’s obligation on the due date or
tendering defective performance. 

The
innocent party may treat the contract as repudiated if the breach is
fundamental to the contract as was the case in Poussard V. Spiers and Pond
where the plaintiff’s non-appearance from the beginning of the season entitled
the defendant to treat the contact as having come to an end.

 

5. DISCHARGE BY OPERATION OF LAW.

Discharge
of the operation of law entails the discharge of parties form their contractual
obligations at the instance of the law.  The parties are freed by
law. 

Such a
discharge may take place in the event of:-

Merger

This is
the incorporation of the items of a simple contract into a subsequent written
agreement between the parties.  The simple contract is discharged by the
operation o the law.

Death

In
contract of personal service or performance, the death of a party discharges
the contract.

Lapse of Time

If time
is of the essence of the contract and a party fails to perform within the
prescribed time, the contract is terminated as was the case in Panesar V.
Popat

REMEDIES FOR BREACH OF CONTRACT

When a
contract is breached, the innocent party is contractual rights are violated and
the party has a cause of action known as breach of contract which entitles it
to a remedy.

Remedies
for breach of contracts are:-

·         Common Law and

·         Equitable

Whereas
Common Law remedies comprise damages only, Equitable remedies include;

·         Injunction

·         Rescission

·         Specific performance

·         Account

·         Tracing

·         Quantum Mernit

·         Winding Up

·         Appointment of
Receiver

Before
1873, Common Law remedies could only be availed by the Common Law Courts while
equitable remedies were only available in the Lord Chancellors Courts. 
The 2 categories of remedies differ in that whereas common law remedies are
awarded “as right” equitable remedies are awarded as discretional.

It is
for the Court to decide whether the circumstances justify the remedy.

DAMAGES (monetary compensation)

This is
the basic Common Law remedy; it is a monetary award by the court to compensate
the plaintiff for the loss occasioned by the breach. 

Its
objective is to place the plaintiff to the position he would have been had the
contract been performed.

Damages
for breach of contract may nominal or substantial.

1.
Nominal Damages

This is
an amount awarded by the court to show that a party’s rights have been violated
but no loss was occasioned or the party was unable to prove loss.

2.
Substantial Damages

This is
an amount by the court as the actual loss suffered or as the amount the court
is willing to recognize as direct consequences of the breach f the contract.

RULES ON THE ASSESSMENT AND PAYMENT OF DAMAGES

The purpose of a monetary award in damages is
to compensate the plaintiff for the loss suffered.  Damages as a
remedy are compensatory in nature.The loss or damage suffered by the
plaintiff must be proved, the plaintiff must show that but for the
defendant’s breach the loss would not have been occasioned.  There
must be a nexus or link between the breach of contract and the
plaintiff’s loss failing which the damages are said to be too remote and
therefore irrecoverable. 

In Hadley
V. Baxendale, the plaintiff owned a mill whose crankshaft was broken and
required replacement the following day, however there was undue delay by the
defendant during which time the mill remained closed.  The plaintiff sued
for loss of profit.  It was held that the defendant was not liable for the
lost profit as the same could not be traced to the delay in the delivery of the
crankshaft.  .The plaintiff’s loss was too remote and irrecoverable.

This
case is authority to the proposition that the defendant is only liable for such
loss or damage as is reasonably foreseeable in the ordinary course of events.

If a party has special knowledge in
relation to the contract but fails to act on it and the other party
suffers loss, the party is liable for the loss, as was the case in Victoria 
Laundry (Windsor)Ltd. V. Newman Industries Ltd, where the
plaintiff  Company wanted to expand it’s business as well as take
advantage of certain lucrative.  To do so it required a large boiler
which the defendant company agreed to deliver in June.  The plaintiff
had by letter notified the defendant the urgency with which the boiler was
required.  The boiler was not delivered until November by which time
the plaintiff company lost money from the contract.  In an action
against the defendant for the loss, it was held that the defendant was
liable.   

A
similar holding was made in The Heron II.  The
appellant, a ship owner agreed to ship the respondent‘s sugar from Constanza to
Basra. The appellate knew that respondent was a sugar merchant and that there
was a sugar market at Basra. By reason of a detour, the ship arrived 9 days
later at Basra, by which time the price of sugar had dropped and the respondent
made a loss of £4,011. In an action to recover the same, it was held that the
appellant was liable.

Mitigation of Loss: This principle is to the effect that when a
breach of a contract occurs, it is the duty of the innocent party to take
reasonable steps to reduce the loss it is likely to suffer from the breach
.This duty is imposed upon the innocent party by law.

If the
party fails to mitigate its loss the amount by which loss ought to have been
reduced is irrecoverable. In Harris V.Edmonds, it was held that
where the charterer of a ship failed to provide cargo in breach of contract,
the ship captain was bound to accept cargo from other person’s at competitive
rates.

Whether
or not the innocent party has acted reasonably in mitigating its loss is a
question of fact. In Musa Hassan V. Hunt and Another, the appellant had
contracted to buy all the milk produced by the respondent for one year. On one
occasion, the appellate refused to take delivery of the milk on the ground that
it was unfit for human consumption; the respondent proved that it was fit for
human consumption.

After
the refusal the respondent converted the milk to ghee and casein which fetched
a lower price than milk. The appellant argued that the respondent had not acted
reasonably in mitigating the loss .It was held that the respondent had
reasonably.

 

Liquidated damages and penalties: Parties to a contract may beforehand specify
the amount payable to the innocent party in the event of a breach .The sum
specified may be: Liquidated damages or a Penalty

If the
sum is a genuine pre –estimate of the loss likely to be suffered by the
innocent party, it is awarded by the court without proof of the actual loss and
it is referred to as liquidated damages 

In Wallis
v. Smith, it was held that liquidated damages are an amount which represents
almost the actual loss occasioned and is awarded irrespective of the actual
loss.

If the
sum has no relation to the actual loss, but is intented to compel performance
or it is a sum to be forfeited by the party in default it is regarded as a penalty
.A penalty is generally extravagant it covers but does not access loss.

Penalties
cannot be awarded by the court, the court assess the amount payable by applying
the rules of assessment of damages.

Whether
the sum is liquidated damages or penalties depends on the intention of the
parties .In making the determination, court are guided by certain presumptions
and rules.

Presumptions
or rules for distinguishing liquidated damages and penalties

According
to Lord Dunedin in Dunlop Pneumatic Tyre Co.Ltd v. New Garage and Motor Co.
The following presumptions assist in the determination:

If the sum specified by the parties is
extravagant and unconscionable it is deemed to be a penalty.If the sum payable for the non-payment of
another is greater it is deemed to be a penalty.If a single lumpsum is payable on the
occurrence of one or several or all events, some of which occasion serious
or minor loss it is deemed to be a penalty.If the sum is payable on the occurrence of
only one event it is deemed to be liquidated damages.The categorization of the sum by the parties
as “liquidated damages” or “Penalty” ‘is not binding the court.The fact that a precise pre-estimation of loss
is problematic does not necessarily mean that the sum specified is a
penaltyAs a general rule, exemplary or punitive
damages are not awarded for breach of contracts.

EQUITABLE REMEDIES (DISCRETIONAL)

1. SPECIFIC PERFORMANCE

The
decree of specific performance is a court order which compels a party to
perform its contractual obligations as previously agreed. 

It
compels a party to discharge its contractual obligation.  

It
orders performance without an option to pay damages.  It is an equitable
remedy manifesting the equitable maxim that equity acts in personam[8].

Specific
performance may be granted in circumstance in which

1.       Monetary compensation inadequate

2.       The subject matter is unique or
has rare characteristics e.g. land

The
award of specific performance is discretional on the basis of established
principles of equity:-

a) Delay

The
innocent party must seek judicial redress at the earliest possible instance as
delay defects equity.  The remedy is not available if the innocent party
has slept on its rights for too long.

b) Clean
Hands

The
innocent Party must approach the court free from blame as he who comes to
equity must do so with clan hands.  Evidence of mistake misrepresentation
or duress disentitles the party the remedy

c)
Hardship to the dependent

Specific
performance will not be decreed if it is likely to subject the defendant to
undue hardship as he who seeks equity must do equity and equality is equity.

d) Performance
and Supervision

Specific
performance cannot be decreed if is impossible for the defendant to perform or
where performance requires contract supervision.  This is because court of
law are reluctant to make ineffectual orders and do not have the mechanism to
supervise performance.

e)
Mutuality.

As a
general rule, specific performance will not be grantedif it would not have been
granted were the positions of the parties interchanged.  This is because
equality is equality

f)
Nature of Contract.

Specific
performance will not be granted in contracts of personal service or performance
e.g. employment as this is likely to perpetrate injustice.  However, the
remedy may be granted where a contract is breached in anticipation as was the
case in Jiwa V. Zenab.

A court
of law may decline to decree Specific Performance if;

1.       The contract is one of personal
service e.g. employment.

2.       The contract is revocable by the
party against whom an order of specific performance is sought.

3.       The contract is specifically
enforceable in part only. Where the court cannot grant specific performance of
the contract as a whole, it will not interfere.

4.       The contract is incapable of
being performed i.e. impossibility. Courts are reluctant to make ineffectual
orders.

5.       Performance of the contract
requires constant supervision.

6.       The decree is likely to subject
the defendant to severe or undue hardship.

7.       The contract in question was
obtained by unfair means.

2. INJUCTION

This is
a court order which either restrains a party from doing or continuing to do a
particular thing or compels it to undo what it has wrongfully done.  It is
an equitable remedy whose award is discretional and may be granted in
circumstance in which:-

1.                  
Monetary compensation is inadequate

2.                  
It is necessary to maintain  the status  quo

TYPES OF INJUNCTION

They may
be classified as:-

Prohibitory and MandatoryInterim or temporary and permanent

1. 
Prohibitory injunction.

This is
a court order which restrains a party from doing or continuing to do a
particular thing.

 2.
Mandatory injunction.

It is a
court order which compels a party to put right what it has wrongly done. 
It is restorative in character.

3. Temporal
or Interim Injunction

It is
court order whose legal effect is restricted to a specified durationon the
expiration of which it lapses.  However, it may be extended by the court
on application by the plaintiff but can also be lifted on application of the
defendant.

4.
Permanent or Perpetual Injunction

This is
a court order whose legal effect is permanent.

 

Whether
or not an injunction is awarded is the court’s discretion, in light of which
the court takes into consideration certain principles e.g. delay, clean hands,
hardship to defendant etc.

However
for the order to be granted, the plaintiff must prove that:-

It has a Prima Facie case with a high
probability of successIf the order is not granted the plaintiff is
likely to suffer irreparable injury.

If the
court is in doubt it must decide the case on “a balance of convenience.” It was
so held in Annielo Giella V. Casman Brown Co. Ltd.

3. RESCISSION.

The
essence of this remedy is to restore the parties to the position they were
before the contract.

It is an
equitable remedy whose award is discretional.

The
remedy may be availed whenever a contract is vitiated by misrepresentation.

However
the right to rescind a contract is lost in various ways: –

Delay:
A contract cannot be rescinded if a party has slept on its right for too
long as “delay defeats equity”. In Leaf V. International Galleries Ltd.,
where the plaintiff purported to rescind a contract after 5 years, It was
held that the remedy was not available on account of delay.Affirmation:
A party loses the right to rescind a contract if it expressly or by
implication accepts the contract.Third party rights: A contract cannot be rescinded after 3rs
party rights have arisen under it, as this would interferes with the
rights of a person who was not privy to the original contract.Restitution in integrum not possible:  Rescission is not available if the
parties cannot be restored to the position they were before the contract.
E.g. if one of the parties is a company and it has gone into liquidation.

4. 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. 

The
remedy has its origins in equity and its award is discretional.  It may be
granted where:-

The contract does not specify the amount
payable.The contract is divisible The contract is substantially performedPartial performance is accepted A party is prevented from completing it
undertaking.

 

LOSS OF REMEDY (LIMITATION OF ACTION)

When a
person’s legal or equitable rights are violated, he is said to make a cause of
action e.g. breach of contract, negligence, nuisance etc. 

Causes
of actions are not enforceable in perpetuity. 

The law
prescribes the duration within which causes of action must be enforced. 

The Limitation
of Action Act prescribes the duration within which causes of action must be
enforced.  If not enforced within the prescribed time the action becomes
statute barred and is unenforceable.

E.g. a
breach of contract must be enforced within 6 years.

Negligence       
         3
years                            
Assault 
            3 years

Nuisance
         
         3 years                            
Battery             
3 years

Defamation      
         1
year                              
False Imprisonment    3 years

Recovery  
of rent     6 years

Recovery
of land      12 years 

Enforcing
an arbitral award or court order   6 years

The
prescription of the duration within which a cause of action must be enforced
may be the duration within which a cause of action must be enforced may be
justified on policy grounds. 

It
ensures that justice is administered on the basic of the best available
evidence.  It ensures that disputes are settled as and when they occur.

 

WHEN DOES TIME STARTING RUNNING.

As a
general rule, time starts running on the date the cause of action accrues or
arises.

However
the running of time may be postponed in certain circumstances e.g

If the prospective plaintiff is an infant
or minor, time starts running when it attains the age of the majority
or dies whichever occurs first.If the prospective plaintiff is of unsound
mind, time starts running when he becomes of unsound mind or dies
whichever comes first.If the prospective plaintiff is labouring
under ignorance, fraud or mistake time starts running when he
ascertains the fact or when a reasonable person would have ascertained.If the prospective defendant is the president,
time starts running when he leaves office or dies whichever occurs first.

When
time starts running, it generally runs through and the action becomes statute
barred. However, a statute barred action may be enforced with leave of the
court if it is proved that the failure to sue was justified.

 

CHAPTER SUMMARY

Contract
may be defined as a legally binding agreement made between two or more parties.

The
English common law classifies contracts into:

             
I.      Written contracts / specialty contracts

            II.     
Contracts requiring written evidence

         III.     
Simple contract

There
are certain procedures put in place for a contract to be formed.  These
procedures enable enforceability of the contract.

These
elements are:-

OfferAcceptanceCapacityIntentionConsiderationLegalityFormalities if any

Implied
terms:-These are terms that though not agreed to by the parties are an integral
part of the contract. These terms may be implied by statute or by a court of
law.

A void
contract is unenforceable while a voidable contract is enforceable unless
avoided.

These
factors include:

MisrepresentationMistakeDuressUndue influence

Misrepresentation

A contract may be discharged on the following ways:

a)       Express
agreement          

b)      Performance

c)       Breach                                           

d)      Impossibility or doctrine of
frustration

e)       Operation of law

Remedies
for breach of contract are common law and equitable whereas common law remedies
comprise damages only, equitable remedies include:

a)       Injunction                                            

b)      Tracing                        

c)       Account

d)      Specific Performance    

e)       Rescission                    

f)        Winding up for Cos 

g)       Quantum Merit                        

h)      Appointment of receiver
e.t.c.         

 

[1] Cap 33 Laws of Kenya

[2] Cap 53 Laws of Kenya

[3] Cap 27 Laws of Kenya

[4] The Indian Transfer of Property Act (1882)

[5] Cap 405 Laws of Kenya

[6] Cap 24 Laws of Kenya

[7] Cap 302 Laws of Kenya

[8] Against the person. This is as compared to an action in rem
which is as against a thing or property

 

Knowledge Tree Law Notes