THE LAW OF CONTRACT NOTES

5.1 Introduction

The law of contract is the foundation upon which the superstructure of
modern business is built. In business transactions quite often promises
are made at one time and the performance follows later. The law of
contract lay down the legal rules relating to promises, their formation,
their performance, and their enforceability. The law of contract in
Kenya was first based on the Contract Act 1872 of India. This Act does
not apply now in Kenya except to contracts made before 1st January,

1962. The law of Contract (Cap. 23) states that the English Common law
      of contract is applicable since 1st January, 1961. Section 2 (10 of this
      Act provides: “Save as may be provided by any written law for the time
      being in force, the common law of contract, as modified by the doctrines
      of equity, by the Acts of Parliament of the United Kingdom applicable by
      virtue of subsection (2) of this section and the Acts of Parliament of
      the United Kingdom specified in the Schedule to this Act to the extent
      and subject to the modifications mentioned in the said Schedule, shall
      extend and apply to Kenya”. It means that the common law of England
      relating to contract, subject to modifications, is
      applicable in Kenya. The date of reception of the common law of contract
      is 12th August 1897. English decisions after this date are only of
      persuasive authority.

5.2 The Nature of Contract

A contract is an agreement of promises which is legally binding or
enforceable by law. A contract has been defined by Sir William Anson in
the words, “A legally binding agreement between two or more parties, by
which rights are acquire by one or more to acts to forbearances on the
part of the other or others”. The law of contract imposes an obligation
on every person to honour his legally enforceable promises, failure to
do which renders him liable to compensate the injured party or otherwise
attorn for his conduct. What is intended here is to promote commercial
relations and since commerce generally entails individual or personal
interactions, the obligation imposed by a contract is, in general,
created by the parties themselves. The parties must, however, act within
the ambit of the law.

5.3 Essential of Valid Contract

The essential elements of valid contract as follows:

1. Offer and acceptance
   There must be a ‘lawful offer’ and a ‘lawful acceptance’ of the offer,
   thus resulting in an agreement. The adjective ‘lawful’ implies that the
   offer and acceptance must satisfy the requirements of the Contract Act
   in relation thereto.
2. Intention to create legal relation
   There must be an intention among the parties that the agreement should
   be attached by legal consequences and create legal obligations.
   Agreement
   of social or domestic nature do not contemplate legal relations, and as
   they do not give rise to a contract e.g. an agreement to dine at a
   friend’s house or a promise to buy a gift for wife are not contracts
   because these do not create legal relationship. In commercial agreements
   an intention to create legal relations is presumed. Thus, an agreement
   to buy and sell goods intends to create legal relationship is a contract
   provided other requisites of valid contract are present.
3. Lawful Consideration
   Consideration has been defined as the price paid by one party for the
   promise of the other. An agreement is legally enforceable only when each
   of the parties to it gives something and gets something. The something
   given or obtained is the price for the promise and called consideration.
4. Capacity of parties
   The parties to an agreement must be competent to contract, otherwise it
   cannot be enforced by a court of law. In order to competent to contract,
   the parties must be of the age of majority and of sound mind and must
   not be disqualified from contracting by any law to which they are subject.
5. Free Consent
   Free consent of all parties to an agreement is another essential element
   of a valid contract. ‘Consent’ means that the parties must have agreed
   upon the same thing in the same sense. There is absence of ‘free
   consent’, if the agreement is induced by (i) coercion, (ii) unduce
   influence, (iii) fraud, (iv) mis-representation, or (v) mistake.
6. Lawful object
   For the formation of a valid contract, it is also necessary that the
   parties to an agreement must agree for a lawful object. The object for
   which the agreement has been entered into must not be fraudulent or
   illegal or immoral or opposed to public policy or must not imply injury
   to the person or property of another.
7. Possibility of Performance
   Another essential feature of a valid contract is that it must be capable
   of performance. If the act is impossible in itself, physically or
   legally, the agreement cannot be enforced at law. All the above elements
   must be present. If one or more elements are absent then the contract
   may be void, voidable or unenforceable.

5.4 Classification of Types of Contracts

Contracts may be of various types. These may be classified as under:-

1. Express and Implied Contract
   An express contract is one in which the parties specifically agree about
   the nature and terms of their relationship. There is then said to be an
   express agreement. For example, if A agrees to sell his goods to B for
   KSH. 10,000/= and B agrees to buy the goods at that price, there is said
   to be an express contract for the sale of goods at an agreed price. On
   the other hand, there is no specific agreement in an implied contract.
   The conduct of the parties, as well as all the surrounding
   circumstances, must be taken into account in order to ascertain whether
   or not a contract exists. Thus where A hires a taxi and boards it there
   is an implied contract that the taximan shall convex A up to his
   destination and that A shall pay such fare is usually paid for that trip.
2. Unilateral and Bilateral contracts
   A Unilateral Contract is one in which only one party is bound. It is a
   rare type of contract which arises, for instance, where there is an
   offer of a reward. Thus, if ‘A’ offers a reward to anyone who will
   recover his lost property, no one is bound to recover the lost property
   but ‘A’ himself is bound to give the promised reward to any one who
   might recover the property. Most contracts are bilateral. A bilateral
   contract is one in which both parties are bound. Thus, if A agrees to
   sell his goods to B and B agrees to buy them at a stated price, both
   parties are bound. A is bound to deliver the goods to B and B is bound
   to accept them to pay the price.
3. Valid, Void and Voidable Contracts.
   A valid contract is an agreement enforceable by law. An agreement
   becomes enforceable by law when all the essentials of a valid contract
   discussed above are present. A void contract is an agreement which is
   not binding or enforceable by law. This is because it has no legal
   effect at all and is, therefore, not binding on any of parties. A
   contract is rendered void in certain cases where both parties were
   mistaken, where it is prohibited by law of where it is entered with out
   consideration e.t.c. A voidable contract is one which is enforceable by
   law of the option of one of the parties. Usually a contract becomes
   voidable when this consent of one of the parties to the contract is
   obtained by undue influence, or misrepresentation. Such a contract is
   voidable at the option of the aggrieved party of the party whose consent
   was s caused.

Where there is a voidable contract, the party entitled to avoid it must
do so within a reasonable time. This may be done by A notifying the
other party, B, that he (A) does not intend to be bound by the contract.
Where it is no feasible to give notice, e.g. where B is a rogue whose
whereabouts are not known A can still effectively terminate the contract
by doing everything possible to show that ho does not intend to be bound
by the contract. It is sufficient, for instance, to make a report to the
police.

Car and Universal Finance Co. V. Caldwell (1965)
X bought a car from the defendant and paid by cheque. X took the car
with him. The cheque bounced the next day, but X had disappeared. The
defendant reported the matter to the police and the Automobile
Association, requesting them to recover the car. Subsequently, X sold
the car to Y, who knew X’s title to be defective. Y in turn resold the
car to the plaintiffs, who bought in good faith. Held: By setting the
police and Auto mobile Association in motion, the defendant had clearly
shown that he intended to resend the contract; this meant that the
ownership of the car reverted to him and therefore Y had no title to
pass to the plaintiffs. The defendant was therefore entitled to recover
the car from the plaintiffs. The right to avoid the contract is lost if
the innocent party, upon discovering the true facts, subsequently
affirms it. It is also lost where an innocent third party had acquired
an interest in the subject matter of the contract, which is likely to be
affected by the avoidance of the contract.

Newtons of Wembley, Ltd. V. Williams (1965)
X bought a car from the plaintiff and paid by cheque. He took the car
with him. The cheque was dishonoured, but in the meantime X had
disappeared. X subsequently resold the car to the defendant, who bought
in good faith. The plaintiff sought to recover the car from the
defendant. Held: Title to the car had passed to the defendant; it could
not therefore be recovered by the plaintiff.
Notes: The facts in the above two cases are similar. In Caldwell’s Case
the car was recovered because the innocent purchaser acquired it from a
seller who had no title since the contract had already been rescinded;
the seller had bought from X in bad faith. On the other hand, in
Williams’s Case the car could not be recovered because the innocent
purchaser has acquired it, in good faith, from a person who had right to
sell it. There are many other instances of voidable contracts, e.g.
contracts entered, into under a unilateral mistake, duress or undue
influence as well as minors’ contracts.

4. Specialty Contracts and simple Contracts.
   A specialty contract is also known as a contract under seal. It is an
   instrument in writing signed and sealed by the party to be bound by it
   and delivered by him to the person for whose benefit it was made. Thus,
   writing,, signature, sealing and delivery are the four essential
   characteristics of this type of contract, of which a Deed is the best
   example (e.g. a Deed of Conveyance under which property is transferred
   by one person to another). “Delivery” is used here not in the sense of
   physical delivery; what is required is an intention to be bound; Vincent
   V. Premo Enterprises Ltd. (1969). If A executes a deed conveying his
   property to B, with an expressed intention that he is to be thereby
   bound, A will be bound even if the deed was never physical delivered to
   B. A central feature of this type of contract is that its validity is
   independent of consideration i.e. B need not have furnished anything of
   value as pre-condition for enforcing A’s promise.

A simple contract is an agreement, express or implied, which gives rise
to legal obligations. A simple agreement may be in writing or agreed
orally, or even be implied from the conduct of parties. A simple
contract may be made also made partly orally and partly in writing. In
England, conveyances of land or leases of land for periods of more than
three years, transfers of British ships and gratuitous promises must be
under seal. Section 2 (1) of the Law of Contract Act states that no
contract in writing shall be void or unenforceable merely on the ground
that it is not under deed. But such contracts, if not made under deed
must be supported by consideration.

The following contracts must be in writing:-

• Bills of Exchange and Promissory Notes.
• Representations regarding credit worthiness or character.
• Acknowledgement of Statute Barred Debts.

The following contracts must be evidenced by writing:

• Contracts of Guarantee
• Contracts for the Sale of Land
• Contracts for the Sale of Goods over Two Hundred shillings
• Employment Contracts over one month
• Hire Purchase Contracts
• Money Lending Contracts

5). Illegal Contracts and Unenforceable Contracts
An illegal contract is one which is prohibited by law or which
contravenes a provision of law or one which ids contrary to public
policy. Where both parties are guilty of the illegality they are said to
be in pari delicto and none of them can enforce the contract. But where
only one of the parties is guilty of the illegality, the contract may in
certain circumstances be enforced by the innocent party. Thus an
agreement to commit murder or assault or robbery would be illegal.

Void and illegal contracts, both cannot be enforced by law but the two
differ in some respects. All illegal agreements are void but all void
agreements are not necessarily illegal. For example, an agreement with a
minor is void as against him but not illegal. Similarly, when an
agreement is illegal, other agreements which are incidental or
collateral to it are also considered illegal, provided the third parties
have the knowledge of the illegal or immoral design of the main
transaction. For example, ‘A’ engages ‘B’ to murder ‘C’ and borrows KSH.
5000 from ‘D’ to pay ‘B’. We assume ‘D’ is aware of the purpose of the
loan. Here the agreement between A and B is illegal and the agreement
between A and D is collateral to an illegal agreement. As such the loan
transaction is illegal and void and D cannot recover the money. But the
position will change if D is not aware of the purpose of the loan. In
that case, the loan transaction is not collateral to the illegal
agreement and is valid contract. An unenforceable contract is one which
though valid, cannot be enforced because none of the parties can sue or
be sued to it. For instance, section 6 (1) of the Sale of Goods Act (Cap
31) provides.

“A contract for the sale of any goods of the value of two hundred
shillings or upwards shall not be enforceable by action unless the buyer
shall accept part of the goods sold, and actually receive the same, or
give something in earnest to bind the contract, or in part payment, or
unless some note or memorandum in writing of the contract be made and
signed by the party to be charged or his agent in that behalf” Unless
the conditions laid down in the above provision are complied with, the
contract cannot be enforced. The contract itself is valid but its
enforceability depends on whether the above provision has been complied
with.

6) Contracts Uberrimae Fidei
A contract uberrimae fidel is one in which only one of the parties has
full knowledge of all materials facts, which he is under a duty to
disclose. The best example is an insurance contract. The insured is
possessed of all facts which are material to the contract; but the
insurer has no possession of these facts and the insured is under a duty
to disclose them to him. Contracts Uberrimae Fidei are said to be
contracts of Utmost good faith, particularly on the part of the party
under a duty to disclose material fact. Any failure to exhibit good
faith, or any show of outright bad faith, amounts to a breach of the
contract entitling the other party to be relieved from his own
obligation under the contract. Other examples of contracts Uberrimae
Fidei includes:-

• Family settlements (where full disclosure is required);
• Contracts for the sale of land (where the seller must disclose
  defects relating to title);
• Contracts of partnership (where every partner must exhibit utmost
  good faith in his dealings with the other partner (s).

1. Contracts of Record
   A contract of record consists of the judgment of court. Such contracts
   are formed by an entry on the court records. The rights and obligations
   of the parties are put on court record and the resultant relationships
   between them are said to constitute a contract of record. These
   contracts includes:

Judgment of a Court:-
The previous rights under a contract are merged in the judgment of a
court. This judgment constitutes a contract of records between the
parties of the contract. We assume ‘R’ owes ‘T’ Kshs. 2,000/= on a
contract. ‘T’ sues ‘R’ and court issues a judgment that ‘T’ must be paid
by ‘R’ KSH. 1,500/= In this case, the previous rights become merged in
the judgment of the court.

Recognizances:
In the criminal cases, the court may bind the accused to be of good
behaviour and keep peace. The person so bound acknowledges that a
specified sum will be paid by him to the state if he fails to observe
the terms of recognizance. In the contracts of record, the element of
consent of both parties is absent. For this reason, these contracts are
not true contracts.

8. Executed contract
   A contract is said to be executed when both the parties to a contract
   have completely performed their share of obligation and nothing remains
   to be done by either the party under the contract. For example, when a
   bookseller sells a book on cash payment it is an executed contract
   because both the parties have done what hey were to do under the contract.
9. Executory contract
   It is one in which both the obligations are understanding, one on either
   party to the contract, either wholly or in part, at the time of the
   formation of the contract. In other words, a contract is said to be
   executory when either both the parties to a contract have still to
   perform their share of obligation or there remains something to be done
   under the contract on both sides. For example, T agrees to coach R, a
   C.P.A student, from first day of the next month and R in consideration
   promises to pay to T Kshs. 1,000 per month, the contract is executory
   because it is yet to be carried out.
10. Quasi-Contracts
    This type of contracts have little or no affinity with contract. Such a
    contract does not arise by virtue of any agreement, express or implied
    between the parties circumstances. For example, obligation of finder of
    lost goods to return them to the true owner or liability of person to
    whom money is paid under mistake to replay it back cannot be said to
    arise out of a contract even in its remotest sense, as there is neither
    offer and acceptance nor consent, but these are very much covered under
    quasi contracts. These are known as quasi contracts because these have
    certain relations resembling those created by contract. A quasi contract
    is based upon the equitable principle that person shall not be allowed
    to retain unjust benefit at the expense of another.

5.5 Formation of a Contract
A contract is formed by an offer by one person and the acceptance of
this offer by another person. The intention of both parties must be to
create a legal relationship and they must have the legal capacity to
make such a contract. There must be also some consideration against the
contract between the two parties. The formation of contract involves the
following factors:-

1. The offer
2. The Acceptance
3. Consideration
4. Contractual capacity
5. Intention To Create A Legal Relationship

5.5.1 The Offer
An offer is defined as an expression of willingness to enter into a
contract on definite terms, as soon as these terms are accepted. It is
made by a person known as the offeror and addressed to the offeree.
Thus, if A writes to B stating his desire to sell his property to B at a
specified price, A is said to have made an offer to B. A is the offeror
and B the offeree. An offer may be express (where the offeror
specifically makes his intentions known to the offeree, whether in
writing or by word of month), or it may be implied from the conduct of
the parties, particularly the offeror. An offer is valid only if its
terms are definite, but not where they are vague. Offer and “Invitation
to Treat”

An offer, as defined above, must be distinguished from an invitation to
treat, The latter is merely an invitation to make an offer and no
contract can result from it alone. The best example is afforded by the
display of goods in a shop or supermarket. According to decided cases
this amounts to an invitation to treat, not an offer; it is the customer
or prospective buyer who makes an offer to the shopkeeper or attendant,
or cashier, by picking up the goods and expressing the desire to buy them.

Pharmaceutical Society of Great Bruam V. Boots (1953)
The defendant had a self-service store in which certain listed drugs
were displayed on the shelves. It was an offence to sell such drugs
unless the sale was done under the supervision of a registered
pharmacist. A customer selected some of the drugs from the shelves. The
defendants had placed a registered pharmacist on duty at the cash desk
near the exit, but not near the shelves. The defendants were charged
with the offence of selling listed drugs without the supervision of a
registered pharmacist. If the sale took place when the customer picked
up the drugs from the shelves, the defendants would be liable; but if
the sale took place at the cash desk where the registered pharmacist was
stationed, then the defendants were not liable. The court therefore had
to determine where the sale took place. Held: The defendants were not
liable because the display of goods on the shelves was merely an
invitation to treat, not an offer; it was customer who made an offer by
selecting the article and taking it to the cashier.

Fisher V. Bell (1960)
A shopkeeper displayed a flick-knife in his shop window with a price tag
behind it. He was charged with the offence of offering a flick-knife for
sale. The court had to determine whether the shopkeeper’s act amounted
to offering the flick-knife for sale. Held (Lord Parker, CJ): “It is
clear that, according to the ordinally law of contract, the display of
an article with a price on it a shop window is merely an invitation to
treat. It is in no sense an offer for sale the acceptance of which
constitutes a contract”. Since there was no offer for sale, the
shopkeeper was not liable.

Another example of an act that amounts to an invitation to treat rather
than an offer is to be found in advertisements inviting tenders. The
advertiser merely invites tenders for a particular purpose. It is the
tenderer who, by his tender, makes an offer to the advertiser and the
latter is thereby converted into an offeree; and it is upon the offeree
to accept or reject a particular tender. (A tender is an offer for the
supply of goods or services).

5.5.2 The Acceptance
An acceptance is an assent to the terms of an offer. It must correspond
with the terms of an offer, and it is for this reason that a counter
offer, cross-offer or conditional assent is not an acceptance in the
legal sense of the word. An acceptance may be made in anyway that is
expedient, but sometimes the offer itself may dictate the mode of
acceptance. For example, the offeree may be required to notify his
acceptance in writing or to lodge it at a named place or to a named
person, or to communicate it within a specified period of time, e.t.c.
Generally, the prescribed mode of acceptance must be adhered to; it is
only in exceptional circumstances that an equally reflective mode of
acceptance may be upheld. An acceptance may be express (where the
offeree directly assents to the terms of the offer), or it may be by
conduct.

5.5.3 Consideration
The offer and acceptance are not enough to bring about a valid and
binding contract. In the case of simple contracts, these are required to
be supported by consideration, otherwise the contract is void. Specialty
contracts are an exception. Why does the law insist on consideration
before a valid contract can be made? The rationale behind this
requirement is that the law of contract generally enforces only bargains
and not bare promises for which no value is given. This follows from the
fact that, the law of contract is generally intended to promote
commercial relations. These are relations which necessarily impose an
element of bargain, an element without which there would be no commerce
at all. Indeed, it is on this element that the whole doctrine of
consideration is centered.
When we talk of bargain, what we have in mind is an exchange of
relationship within the context of a money economy. This is clear from
the fact that a party seeking to enforce a contract must prove that
consideration has moved from him and that it consists of money or
money’s worth.

Types of Consideration

• Executory of Consideration
  The word executory is used to denote that the promised act is yet to
  be done. Thus A promises to sell and deliver to B sacks to charcoal
  in return for a price to be paid by B. Before delivery of the
  charcoal, A’s promise to B is in the nature of executory
  consideration for B’s promise to pay the price. Similarly, before
  payment of the price, B’s promise to A is in the nature of executory
  consideration for A’s promise.
• Executed Consideration
  The word executed is used here to denote that the promised act has
  already been done. To take the example given above, after A has
  delivered the charcoal to B, A is said to have furnished executed
  consideration for B’s promise to pay the price. Similarly, after B
  has paid the price he is said to have furnished executed
  consideration for A’s promise to sell and deliver to him three
  sacks of charcoal.
  Under a given contract, it is possible for the consideration
  furnished by one of the party to be executory, while that furnished
  by the other party is executed. Thus, in the above example if it is
  agreed that A is to deliver the charcoal in a week’s time but that B
  is to pay the price immediately, at that stage consideration
  furnished by A is executor while that furnished by B is executed.
  The distinction between executory and executed consideration is
  particularly important while considering performance of the contract
  by the parties and the remedies available to the innocent party in
  the event of a breach of the contract by the other party. Thus where
  B has furnished executed consideration by paying the price but A has
  failed to deliver the charcoal B is said to have performed his part
  of the contract and he is entitled to recover the price from A ad
  also to damages from A for breach of contract; whereas if B’s
  consideration was merely executory but he was willing to pay the
  price, E would be said t be willing top perform the contract ad he
  would in this case be entitled to damages alone.
• Past Consideration.
  Once negotiations are over and the parties have struck a bargain,
  any subsequent or fresh promise made by either party in relation to
  that bargain is known as past consideration. The law is that for d
  promise to constitute valid consideration is must have been made
  during the negotiations. As such ,past consideration is not valid
  consideration for the bargain in respect of which it is given ; it
  is in fact no consideration at all ands the promises(promised party
  ) cannot rely on it. After selling a horse to the plaintiff, the
  defendant promised the plaintiff in the following terms :” in
  consideration that the plaintiff at the request of the defendant,
  had bought of the defendant a certain horse, at and for a certain
  price, the defendant promised the plaintiff that the said horse was
  sound and free from vice. But the horse proved not to be “sound and
  free from vice” ands the plaintiff sued on the above Held: The
  defendant’s promise was given after the d sale and without any fresh
  consideration; it therefore amounted to past consideration, which
  the plaintiff could not rely on.
• Sufficiency of Consideration
  Consideration need not be adequate. Freedom of contract demands that
  the parties must be free to make their own bargain .No court of law
  will concern itself with the question whether the price agreed upon
  is worth the goods supplied. In short, the consideration furnished
  by one party need not be equal or proportionate to that furnished by
  the other party. Thus, a creditor’s forbearance to sue (i.e. a
  promise not to sue) may be sufficient consideration for a promise
  given by the debtor relation to a particular debt.

Alliance Bank, Ltd. v Broom (1864)
The defendant owed plaintiff bankers # 22,000 by way of overdraft. The
plaintiffs pressed the defendant for payment, as result of which the
defendant promised to give security for the overdraft. The defendant
failed to provide the security and on being sued pleaded that the
plaintiffs had furnished no consideration for his promise. Held: There
was an implicit promise of forbearance for the defendant’s promise.

But since by definition consideration indicates value, it must be real
and not illusory. Thus, where a person is already legally bound (whether
by contract or as a matter of public duty) to do a particular thing, a
promise such as subsequently made by him to do that same thing is not
consideration which, could support any agreement at all. Thus, a
policeman discharging his ordinary duties furnishes no consideration for
a promise made by X to pay him for protection. Similarly, a person
contractually bound to sail a ship home furnishes no consideration for
extra pay if all that is done by him is to discharge his contractual
obligation:

5.5.4 Intention to Create a Legal Relationship
A contract apparently supported by consideration will not result in a
binding contract unless it was the intention of the parties to enter
into, or create legal relationship. It, for example, X, promises to take
out Y for lunch and Y accepts ad patiently waits for X, there is no
legally binding agreement and Y cannot sue X failure to honour his
promise. It is not always easy to determine whether there was an
intention to create legal relations. Where the circumstances expressly
or impliedly to create such intention, obviously there will be no
binding contract. Thus, where it is provided that a particular
transaction is not to give rise to any legal relationship but that is to
be “binding in honour only” there is no legally binding agreement an
none of the parties to the transaction may bring an action on it: Jones
V. Vernons Pools, Ltd. (1938). In Rose and Frank Co.V. J. R. Cromption
Brothers, Ltd. (1924) a document signed be the plaintiffs and defendants
provided (inter lia): “This arrangement is not entered into, nor is this
memorandum written, as a formal or legal agreement, and shall nor be
subject to legal jurisdiction in the law court… but it is only a define
expression and record of the purpose an intention of he three parties
concerned, to which they each honourably pledge themselves with the
fullest confidence- based on past business with each other- that it will
be carried through by each of he three parties with mutual loyalty and
friendly co-operation”. It was held that the parties intention was that
thee document should not be legally enforceable, and the plaintiff’s
action could not therefore be maintained

Complications arise where there is nothing on the face of the
transaction to negative an intention to create legal relations.
Generally there is a presumption that there was such intention, in the
case of commercial agreements. This presumption is rebutted by a
provision to the case of social or domestic agreements. Here, there is
no presumption of an intention to create legal relations; such intention
must be specifically proved, otherwise the person seeking to enforce the
agreement will fail in his action:

Balfour V. Balfour (1919)
The plaintiff and defendant were husband and wife. The husband, a civil
servant in Ceylon, was on leave and he had gone with his wife to
England. Towards the end of the leave the wife was in bad health and had
to remain in England, while the husband returned to Ceylon. The husband
promised her # 30 per month for maintenance during this time. Later,
when the husband defaulted, the wife sued him on his promise. Held: The
husband’s promise did not give rise to legal relations and so the wife’s
action could not be maintained.

Merritt V. Merritt (1970)
The plaintiff and defendant were husband and wife. Their matrimonial
home was in their joint names, and was subject to a mortgage. The
husband left the matrimonial home and went to live with another woman.
Later it was agreed that the husband would pay the wife # 40 per month
out of which she was to pay the outstanding mortgage payments. The
husband signed a document stating that “In consideration of the fact
that you will pay charges in connection with (the matrimonial home),
until such time as the mortgage repayment has been completed, when the
mortgage has been completed I will agree to transfer the property to
your sole ownership”. The wife paid off the entire amount outstanding on
the mortgage, but the husband refused to transfer the house into her
sole name. Held: The parties had intended to create legal relations;
there was therefore a binding contract which the husband had breached.
Note: Domestic agreements are not restricted to those between spouses.
They extend to agreements between parent and child (see, e.g. Jones V.
Padavation, (1969) and also those between persons who may not infact be
relatives. “Domestic” is used here are to simply to
distinguish those agreements from those which are of a commercial nature.

5.5.5 Contractual Capacity
An essential ingredient of a valid contract is that the contracting
parties must be ‘competent to contract’. Every person is competent to
contract who is of the age of majority and who is of sound mind, and is
not qualified from contracting by any law. Only a person who has
contractual capacity be a party to a contract. This includes artificial
as well as natural persons. The general rule is that any person may
enter into any kind of contract. But special rules supply to the
following persons:-

1. Minors
2. Persons of Unsound Mind and Drunken Persons
3. Married Women
4. Aliens or Non Citizens
5. Corporations
6. Co-operative Societies
7. Trade Unions

These special rules are explained below ;

Minors
Minor’s contracts are governed by common law rules as modified by the
Infants Relief Act 1874. Under the Contract Act (Cap. 23), contracts in
Kenya are governed by the common law of England relating to contracts as
modified (interalia) by “the general statutes in force in England on
12th August 1897. It may therefore, be said that the “Infant Relief Act
1874 applies in Kenya. A contract made by minors may be binding,
voidable of void.

These are discussed as under:-

1. Binding Contracts
   There are tow types of contracts which are binding on minors.

• Contract for the Supply of Necessaries
  Certain things are regarded as “necessaries”. These are things
  without which the minor could hardly live; are therefore things
  which are essential to his maintenance. Under the Sale of Goods Act
  “necessaries” are defined as “goods suitable to the condition in
  life of a particular infant or minor, and to his actual requirements
  at the time of the sale and delivery”. Included here are things like
  food, clothing, and medicine. But whether a particular commodity
  falls within the category of necessaries depends on the
  circumstances of a particular case; and in particular items of
  luxury are excluded. Thus, while a suit may be an item of
  necessaries in the case of a minor who hails from a well to do
  family it might be an item of luxury to a peasant’s son, particularly
  where there are cheaper alternatives within a peasant’s means. Once
  a particular item has been placed within the category of necessaries
  the next question is: To what extent can the other contracting party
  enforce the contract on sale against the minor? Under the above Act,
  a minor is liable to pay a “reasonable price” for goods which are
  necessaries. He is not therefore necessarily liable for the actual
  or contract price, and anyone dealing with a minor should bear this
  in mind as he is likely to lose in case the minor defaults to
  payment, particularly where the goods were supplied to minor on
  credit. It is clear from the definition above that in reckoning
  whether or no t particular goods are “necessaries” account must be
  taken of minor’s actual requirements at the time of sale and
  delivery. It must therefore be proved that the minor was not
  sufficiently provided with goods in question at the time when they
  were sold and delivered to him; otherwise the goods are not
  necessaries and the contract cannot be enforced against the minor.

Nash v. Inman (1908)
A tailor supplied an infant with 11 fancy waistcoats, but the infant
http://knecnotes.co.ke/ failed to pay. The infant was a university
undergraduate. His father gave evidence that the infant was adequately
supplied with proper clothes according to his station in life. Held: The
clothes were not necessaries and the infant was not liable to pay from
them. The fact that a minor has a sufficient allowance does no prevent
him from contracting for necessaries on credit: Burghart v. Hall (1839).
The lender is still entitled to a reasonable price for the necessaries
supplied by him. Where a minor gets a loan o buy necessaries, the lender
may recover his loan under the doctrine of subrogation, i.e. he does not
recover in his own right as lender but instead he stands in the place of
the person who supplied the necessaries and it is only in this latter
capacity that he may recover the money. However, he will only be able to
recover the money to the extent that it has been used to buy necessaries
and only to the extent of a reasonable price for the necessaries.
Besides goods, certain services and expenses are also considered to be
necessaries. Examples includes lodging, legal advice, and funeral
expenses for the infant.

• Beneficial Contracts of Service
  Besides contracts for the supply of necessaries, minor is bound by a
  contract of service whose nature is such that, considered as a
  whole, it is intended for his benefit:

Clements v. London and N.W. Railway Co. (18940
X, a minor, was employed by a railway company as a porter. He joined the
company’s insurance scheme and agreed to relinquish his statutory right
of suing for personal injury under the Employers Liability Act 1880.
Though the Scheme fixed a lower scale of compensation, its terms were
generally more favourable than those embodied in the Act; the Scheme
covered more accidents in respect of which compensation was payable.
Held: The agreement was generally for the benefit of X and it was
therefore binding on him.

De Francesco V. Barnum (1890)
X, a minor of 14 years, joined the plaintiff as an apprentice in order
that she might be taught stage dancing. The apprenticeship was to an
agreed sum per night, that she would not marry and that she would not
accept any other professional engagement without the plaintiff’s
permission. The plaintiff was not bound to engage X or to maintain her
while unemployed; the amount payable for X’s services was a trifling sum
and moreover, the plaintiff was at liberty to terminate the contract in
the event of X being found unfit for stage dancing. Held: The agreement
as a whole was unreasonable and completely put X at the mercy of the
plaintiff; it was not beneficial to X and was therefore not binding on
her. Thus, whether a particular contract is beneficial to a minor and
hence binding on him depends on the circumstances of the case. It is
binding only when, considered as a whole, it appears to be advantageous
or beneficial to the minor. But where the other party to the contract
has more to gain from the minor, the contract and his own interests
under the contract outweigh those of the minor, the contract will not be
considered as being beneficial to the minor and consequently the minor
will be bound by it. Certain contracts can never be enforced against a
minor, however beneficial they may be to him.
This is particularly so in the case of trading contract. A minor is
never by such contracts:

Cowern V. Nield (1912)
X, a minor, set himself up in business as a hay and straw dealer, Y paid
for consignment of hay, which X failed to deliver. Y sued X for the
price. Held: Being a minor, X was not bound by the contract entered into
with Y, since it was a trading; accordingly X was not liable to repay
the price to Y.
According to the above case, beneficial contact entered into with a
minor is binding on him only if it is either a contract of service or of
apprentices, or something close to this. Thus, in Doyle’s Case given
above, the contract in question was held to be very closely connected
with a contract since it was designed to develop the minor’s skill as a
boxer.

2. Voidable Contracts
   Voidable contracts, as far as minors are concerned, are those contracts
   which a minor is entitled to repudiate either during minority or within
   a reasonable time after attaining majority age. Apart from the minor’s
   option to repudiate, a voidable contract is similar to a binding one in
   that in either case the contract must be beneficial to the minor. But in
   the case of voidable contracts, the subject matter is generally of a
   permanent nature and the obligations created by the contract are of a
   continuous nature. The most outstanding examples are: leases agreements
   (by which the minor acquires an interest in land); contracts for the
   purchase of shares (by which the minor in a limited company); and
   contracts of partnership 9by which the minor becomes a partner in a
   firm). Like any other voidable contract, a minor’s viodable contract
   remains binding on him until it is duly terminated by him. He must take
   timely action to avoid the contract, otherwise he will be bound by its
   terms:-

Davies V. Beynon- Harris (1931)
X, an infant, leased a flat from the plaintiff two weeks before
attaining majority age. Three years later, his rent was in arrears and
the plaintiff sued him. Held: X had failed to avoid the lease within a
reasonable time after attaining majority age and it was now too late to
do so; consequently, he was liable to pay the arrears of rent.

3. Void Contracts
   Under section 1 of the Infants Relief Act 1874, the following contracts
   entered into with minors are declared to be absolutely void:-

• Contracts for the repayment of money lent or to be lent (i.e. loan
  contracts).
• Contracts for goods supplied or to be supplied other than necessaries;
• All accounts stated (or “settled accounts”).
  None of these three types of contract can be enforced against a minor.

Smith V. King (1892)
X, a minor was indebted to Y, who were stock brokers. After X had
attained majority age, Y sued him for the debt. Y then accepted two
bills of # 50 each in full settlement of the debt. Y later brought an
action against X based on the bills. The acceptance by Y of the two
bills amounted to a ratification of a debt contracted by him during
minority; such ratification was void under the Infant Relief Act 1874
and X was no therefore liable on the bills.

Valentini V. Canali (1889)
X, a minor leased the defendant’s house and agreed to pay #102 for the
furniture which was in the house by way of purchase. He effected a down-
payment of #68 on the furniture. He then occupied the house and used the
furniture for some months, after which he repudiated the lease. He then
sought to recover the # 68 from the defendant. Held: X was not liable to
pay the balance on the #102; but since he had used the furniture for
some months there was no total failure of consideration and accordingly
he could not recover the #68.

R. Leslie, Ltd. V. Sheill (1914)
X, a minor, fraudulently told the plaintiff that he (X) was of majority
age, thereby inducing the plaintiff to lead him @ 400. X for fraudulent
misrepresentation or, alternatively, for money. Held: The contract was
absolutely void under the Infants Relief Act 1874; X was not liable to
repay the money as the alternative claim against him was an indirect way
of enforcing the void contract. Note: Since a loan contract involving a
minor is void, a guarantee of such contract is equally void: Coutts &
Co. V. Browne- Lecky (1947).

4. Persons of Unsound Mind and Drunken Persons
   A contract made with a person of unsound mind (PUM) is binding on him
   only if it was during a lucid interval, i.e. an interval during which he
   is sane. For this purpose, it is immaterial that the other party may
   have been aware of the PUM’s mental capacity. Apart form this, a
   contract that is entered into a PUM with a person who knows him to be
   mentally incapacitated, is voidable at he instance of PUM. However,
   where the PUM has obtained necessaries under the contract, he is, like a
   minor, liable to pay a reasonable price for the Sale of Goods Act. As
   for a drunken person, his contractual capacity is generally the same as
   that of a PUM. If the drunkenness is, to the knowledge of the other
   party, such as to render him incapable of appreciating his acts, a
   contract entered into in these circumstances is voidable at the instance
   of the drunken person upon sobering up. But like a minor and PUM, he is
   liable to pay reasonable price for necessaries: Sale of Goods Act.
5. Married Women
   At common law a married woman could not enter into a contract. But under
   the Law Reform (Married Women and Tortfeasors) Act, 1935, the married
   women can sue and be sued in contract in the same way as single women.
6. Aliens or Non-Citizens
   Alien, i.e. a person who is not citizen of Kenya, can sue and be sued.
   Any enemy alien, i.e. a person resident in a country which is at war
   with Kenya, cannot sue, but if sued can defend an action.
7. Corporations
   In the case of corporation, its contractual capacity is limited by the
   provisions of is Memorandum of Association. It can only enter into those
   contracts authorized by the Memorandum; any other contract is ultra
   vires and cannot be entered into by the corporation. In case of a
   statutory corporation, it can only do those things which are expressly
   or impliedly authorized by statute. Any contracts entered into those
   which are not authorized by statute are “ultra vires” and therefore, void.
8. Co-operative Societies
   A co-operative society registered under the Co-operative Societies Act
   (Cap 490) can enter into Contracts, and be sued in accordance with the
   provisions of the Act.
9. Trade Unions
   Section 25 (1) of the Trade Unions Act (Cap. 233) provides:
   “Every trade union shall be liable on any contract entered into by it or
   by an agent acting on its behalf: provided that a trade union shall not
   be liable on any contract which is void or unenforceable at law”. A
   registered trade union may sue and be sued and be prosecuted under its
   registered name.

5.6 Terms of Contract
In the course of negotiations, a number of statements may be made by
each of parties. Some of these eventually form part of the contract,
while others are left out. Statements which form part of the contract
are known as terms of the contract. Those which are made in the course
of negotiations but are ultimately left out of the contract are called
representations. A representation is a statement that is not within the
contract. If it turns out to be a false representation, either
fraudulently or innocently made, it is called a misrepresentation. If
the statement is within the contract then there is a further problem of
deciding whether it is a classified as express and implied terms.

The terms of a contract are as follows;
The rights and obligations of the parties to a contract depend on the
terms of the contract, not on mere presentations. It is therefore always
important to determine whether a particular statement is a term or a
presentation:

Oscar Chess, Ltd. V. Williams (1957)
The defendant offered the plaintiffs a second-hand Morris as part of the
consideration for a hire purchase contract. The registration book of the
Morris stated that the car was a 1948 model, and this was confirmed by
the defendant in good faith. But it turned out later that the car was in
fact a 1939 model, which should have been valued at lower figure. The
plaintiffs who were car dealers sued the defendant for the difference in
value. The court had to determine whether his statement as to the age of
the car was a term of the contract or a mere representation.

Held: The statement as to the age of the car was not a term of the
contract but a mere representation. The plaintiffs were not therefore
entitled to recover the difference in value.

Dick Bentley Productions, Ltd. V. Harold Smith Motors Ltd. (1965)
The defendants sold a Bentley car to the plaintiffs, stating that the
car had done only 20,000 miles from the time it was fitted with a
replacement engine and gearbox. This statement turned out to be false,
the car proved unsatisfactory and the plaintiffs sued. The court had to
determine whether the defendant’s statement as to mileage was to term of
the contract or a mere representation.

Held: The statement as to mileage was a term of the contract; and the
plaintiffs were entitles to damages for breach of contract.

Looking at the above decisions together, it is clear that it is not
always easy to determine whether a particular statement is a term or a
mere representation. Generally a statement made by a person possessed of
special knowledge or skill is treated seriously, to the extent of being
considered a term of the contract; while a statement made by a person
not position and will usually be regard as a mere representation. Thus,
in Oscar Chess, Ltd. V. Williams the purchasers of the car (the
plaintiffs) were themselves car dealers and as such were in a position
to ascertain the age of the car independently of any statement made by
the defendant.

As car dealers they were possessed of some special knowledge or skill;
the defendant’s statement would not therefore mean much to them and it
was rightly held to be mere representation. On the other hand, in Dick
Bentley Case, the defendants had been in possession of the car and were
on a better position, compared to the plaintiffs, to tell the mileage
which had been done by the car;
their statement therefore had to be a term of the contract. Besides the
state of knowledge or skill of the respective parties, the question
whether a particular statement is a term or a mere representation may be
determined in another way. Where the parties make an oral agreement,
which is subsequently reduced to writing, only those statements which
are incorporated in the written agreement will be regarded as terms of
the contract, while the oral statements left out of he noted, however,
that much depends on the peculiar circumstances each case and no hard
and fast rule can be laid down.

Express and Implied Terms
Parties to a contract are free to make their own bargain under the
banner of “freedom of contract” They may therefore agree on any terms,
as long as these are covered by law. But standard form contracts are in
exception. In this type of contract, one of the parties virtually
dictates all the terms of the contract, which are contained in a special
document presented to the other party for signature- e.g. insurance
contracts.

Express terms are those which are specifically (or expressly) agreed
upon by the parties, whether orally, in writing, or partly orally and
partly in writing. In the absence of specific (or express) agreement on
my matter in a particular contract, certain terms may be treated by law
as governing the matter in question. These are known as implied terms.
Terms may be implied in a contract by statute (e.g. the Sale of Goods
Act implied certain terms in every contract of sales of goods); by
custom (e.g. trade customs); or by court (e.g. in
contracts of employment in master/servant relationship). Sometimes, an
implied term is excluded in the express terms of the contract.

Conditions and Warranties
Not all terms of a contract carry the same weight. Some are important
than the others. Those which are regarded as major terms of the contract
are known as conditions, while those which are minor or of less
consequence are called warranties. The distinction between conditions
and warranties is best illustrated by the effect which a breach of each
one of them has on the contract. In a contract of sale of goods, for
example, a breach of condition by one party entitles the other
(innocent) party to treat himself as discharged from his obligations
under the contract, while a breach of warranty by one party only
entitles the other (injured) party to damages, but not to as
right to regard himself discharge from his obligations under the
contract. Both conditions and warranties may be express or implied. But
conditions are further subdivided into condition precedent and condition
subsequent.

A condition precedent is one which must be satisfied before a contract
can become effective or operational: until such condition is satisfied
the existence or operation of the contract is suspended and none of the
parties has any enforceable right in the meantime:

Pym V. Campbell (1856)
The plaintiff and defendant entered into a written agreement under which
the defendant agreed to buy a share in the plaintiff’s invention. But it
was understood that the agreement was subject to an approval of the
invention by X, an engineer. X later disapproved the invention and the
defendant refused to proceed with the agreement. The plaintiff sued.
Held: In the absence of X’s approval there was no effective agreement
and the plaintiff’s action could not therefore be maintained.

Again, if A enters into a contract with B is to construct a number of
residential houses for A, and A is required to obtain permission from
the City Council before the construction work can commence, out the
obligation imposed on B by the contract. A condition subsequent, on the
other hand, is a condition whose occurrence may affect he rights of the
parties under a contract which is already in operation. For instance,
where there is a provision hat a contract is to remain valid until a
stated event occurs, the occurrence of the event is a condition
subsequent which terminates the contract.

5.7 Is an illiterate person protected by law?
The answer is yes, and the relevant protection is to be found in the
illiterates Protection Act. The Act defines an illiterate as “a person
who is unable to read and understand the script or language in which the
document is written or printed as the case may be”. The document must be
read over and explained to the illiterate in a language he understands;
after this the illiterate, if he is satisfied, appends his mark to it in
the presence of a witness whose true and full name and address must be
stated; and after the illiterate has appended his mark his name must be
written on the document by the witness. Similarly, any person who writes
such document must give his true and full name and address. In either
case, there is a presumption that the instructions of the illiterates
have been complied with and that the document was read over and
explained to him .The burden is on the illiterate to rebut this
presumption. He should, for instance, insist on the document being read
over to him, other wise he will be bound by it.

5.8 Vitiating Elements or Factors
A contract supported by consideration, in which there is an intention to
enter into legal effect where if is affected by a vitiating factor. A
vitiating factor (or element) is one which tends to affect the validity
of the contract. The vitiating elements consist of:-

1. Mistake
2. Misrepresentation
3. Duress (or Coercion)
4. Undue Influence
5. Illegality

These are explained below

1. Mistake
   Mistake may be defined as an erroneous belief concerning something. It
   may be of two kinds:

• Mistake of law
• Mistake of fact

Mistake of law
Mistake of law may be further classified as;

1. Mistake of general law of the country,
2. Mistake of foreign law
3. Mistake of private rights of a party relating to property and goods.

A mistake of law can never be pleaded as a defence. But mistake of
foreign law and mistake of private rights may be treated as mistake of fact.

Mistake of fact
A mistake of fact is also known as an operative mistake. Under common
law an operative mistake renders a contract void ab initio, ie. where an
operative mistake is proved the legal position is that the parties are
in the same position as if the contract was never entered into; the
contract was void, right from the beginning The traditional approach is
to divide mistakes into three distinct categories: common mistake,
mutual, and unilateral mistake.

These are explained below:-

Common Mistake
A common mistake is made where both parties assume a particular state of
affairs, whereas the reality is the other way round. Both parties
therefore make exactly the same mistake. A contract entered into as a
result of common mistake is a nullity (or null and void) at common law:

Conturier V. Hastie (1853)
A contract was entered into for the sale of goods which at the time of
the contract were supposed to be in transit aboard a certain ship.
None of the parties knew that the goods had deteriorated and that by the
time of the contract they had in fact been disposed of already by the
master of the ship. Held: Both parties had contemplated that the goods
were in existence at the time of the contract; ad since the goods were
not actually in existence at that time, the contract was void and the
buyer was not liable to
pay the price.

Mutual Mistake
Mutual to a particular matter, one party may assume a totally different
thing, so that the other party assumes a totally different thing, so
that they both misunderstand one another. They are then said to have
made a mutual mistake. The mistake is different for each party, exactly
the same mistake. A contract made under mutual mistake may not be a
nullity, depending on the circumstance of the case (compare common
mistake where the contract is automatically nullity):

Scott V. Littledole (1858)
In a contract of sale of goods by sample, the plaintiff bought from the
defendants 100 chests of tea, which were then lying in a specified
place. The plaintiff thought he was buying the tea contained in the 100
chests, but the defendants thought they were selling to the plaintiff
only tea of the same quality as the samples. The tea in the chests
turned out to be of a higher quality than the samples submitted to the
defendants and the defendant refused to deliver it to the plaintiff.

Held: There was a valid contract between the plaintiff and defendant,
and the defendant was liable to deliver the 100 chests.
Note: The above case is sometimes cited as authority for saying that
mistake as to quality is not an operative mistake.

Unilateral Mistake
If one of the parties to a contract, and the other parties aware of this
fact, there is said to e a unilateral mistake (compare mutual mistake
where one party’s mistake is not known to the party). Instances of
unilateral mistake is not common in fraud cases where one party
misrepresents his identity to the other, thereby inducing the other
party into contracting with him in the false belief that he is
contracting the person whose identity has been given.

2. Misrepresentation
   At representation means a statement of fact made by one party to the
   other, either before or at the time of contract, relating to some matter
   essential to the formation of the contract, with an intention to induce
   the other party to enter into contract, with an intention to induce the
   other party to enter into the contract. It may be expressed by spoken or
   written or implied from the acts or conducts of the parties) e.g.
   non-disclosure of a fact). A representation when wrongly made, either
   innocently or intentionally, is termed as a misrepresentation. To put in
   differently, misrepresentation may be either innocent or intentional or
   deliberate with intent to deceive the other party. In law, for the
   former kind, the term ‘Misrepresentation’ and for the latter the term
   “fraud” is used.

Types of Misrepresentation
There are three types of misrepresentation. These are:-

1. Fraudulent Misrepresentation
   A fraudulent misrepresentation is a statement made without honest belief
   in its truth or recklessly without caring whether it is true or not.
   This type of misrepresentation therefore requires proof of fraud or
   dishonest; and once proved it is actionable at common law.
2. Negligent Misrepresentation
   An innocent is one made honestly or without fault on the part of the
   representor. This type if misrepresentation is not actionable at common
   law, and the representee has no remedy at all.

Remedies for Misrepresentation

Misrepresentation renders a contract voidable at the instance of the
representee (the innocent party). Consequently, the remedy of rescission
is available to him. Besides, he is also entitled to damages for loss
that may have been suffered by him as result of the misrepresentation.

3. Duress
   Duress refers to actual violence or threats violence calculated to
   produce fear in the mind of the person threatened. The requirement of
   agreement in the establishment of a contractual relationship presupposes
   that each of the parties is free contracting agent. But the freedom of
   the party subjected to duress (or coercion) is obviously restricted.
   Duress as such, is a vitiating factor which is actionable at common law
   (and is sometimes referred to as legal duress). For a threat to amount
   to duress, it must be a threat to the person, not to goods. It must also
   relate to an unlawful thing; a threat to do a lawful thing is
   immaterial, subject only to the requirements of public policy. Also, the
   threat must have induced the threatened party to enter into the
   contract. The dominant view is that contract entered into under duress
   (or coercion) is voidable at the instance of the party coerced.
4. Undue Influence
   “A contract is said to be induced be undue influence where, (i) the
   relations subsisting between the parties are such that one of the
   parties is in a position dominate the will of the other, and ii) he uses
   the position to obtain an unfair advantage over the other”.
   Undue influence is another factor which tends to restrict the freedom of
   a party in entering into a particular contract. It is based on the
   equitable principle that no person may take an unfair advantage of the
   inequalities between him and another party so as to force an agreement
   on the other party.

A person who seeks to rely on undue influence as a defence must prove
that the other party has in fact influence over him and that he would
not otherwise have entered into the contract. But where a confidential
(or fiduciary) relationship exists between the parties, undue influence
is presumed, and the burden is shifted on to the other party to prove
hat there has been no undue influence on his part. The following are
relations in which undue influence is presumed:-

1. Parent and Child
2. Doctor and Patient
3. Trustee and Beneficiary
4. Advocate and Client
5. Guardian and Ward
6. Religious Adviser and Disciple
   It should be noted that Husband/Wife relationships do not raise the
   presumption of undue influence; undue influence must in this case be
   specifically proved by the party seeking to rely on it. Where undue
   influence is sufficiently proved to have existed at the time of the
   contract, the contract is voidable at the instance of the party unduly
   influenced and may on this ground be set aside.

Williams V. Bayley (1866)
Like any other voidable contract, a contract entered into under undue
influence cannot be set aside where its subject-matter has come into
hands of a bona fide purchaser, where it has been subsequently affirmed,
if there has been undue delay on the party entitled to avoid the contract.

5. Illegality
   An illegality contract is one which is prohibited by law e.g. making a
   contract to break into a house to steel goods is an illegal contract.
   Besides statute, there are certain contracts which are prohibited by,
   and therefore illegal at common law. These are contracts which offend
   against public policy, i.e. those which are prejudicial to public
   morality and public well-being. They are as follows:-
6. Contracts to commit a crime, tort or fraud;
7. Contracts that are prejudicial to the administration of justice;
8. Contracts liable to corrupt public life;
9. Contracts that are prejudicial to public safety;
10. Contracts to defraud the revenue;
11. Contracts that are sexually immoral;
12. Contracts that are prejudicial to the country’s foreign relations.

5.9 Discharge Of Contract

A contract is said to be discharged (or terminated) when the parties to
it are freed from their mutual obligations. In other words, when the
rights and obligations arising out of a contract are distinguished, the
contract is said to be discharged or terminated. A contract may
discharge in any of the following ways:-

1. Discharge by performance
2. Discharge by Agreement
3. Discharge by Frustration
4. Discharge by Breach
5. Discharge by Operation of Law

1. Discharge by Performance

When a contract is duly performed by both the parties, the contract
comes to happy ending and nothing more remains. The contract, such a
case, is discharged or terminated by due performance. But if one party
performs his promise, he alone is discharged. Such a party gets a right
of action against the other party who is guilty of breach. Performance
of a contract is the principal and most usual mode of discharge of a
contract. Performance may be: (1) Actual performance; or (2) Attempted
performance or Tender.

1. Actual performance
   When each party to a contract fulfils his obligation arising under the
   contract within the time and in the manner prescribed an amounts to
   actual performance of the contract and the contract comes to an end or
   stands discharged
2. Attempted performance or tender
   When the promisor offers to perform his obligation under the contract,
   but is unable to do so because the promise does not accept the
   performance, it is called “attempted performance or tender”. Thus
   “tender” is not actual performance but is only at “offer to perform” the
   obligation under the contract. A valid tender of performance is
   equivalent to performance. For performance to discharge a contract, the
   general rule is that it must be precise and exact. Circumstances do
   exist, however, n which a partial performance by one party may not
   entitle the other party to consider himself as discharged, e.g. in cases
   of substantial performance or of divisible contracts like those in which
   delivery of goods is to be done in installments: in these cases the
   performing party is entitled to payment for what has been done by him
   under the contract.

The effect of refusal to accept a properly made ‘offer of performance’
is that the contract is deemed to have been performed by the promisor
i.e. tenderer and the promise can be sued for breach contract. A valid
tender, thus, discharges contract. However, tender of money does not
discharge the contract. The money will have to be paid even after
refusal of tender.

2. Discharge by Agreement

Where a contract is still executory, i.e. where each of the parties is
yet to perform his contractual obligation, the parties may mutually
agree to release each other from their contractual obligation: each
party’s promise to release the other is consideration for the other
party’s promise to release him. Where one party has fully performed his
part of the contract, he may agree to release the other party from his
contractual obligation. In this case, however, the discharge is
effective only if made under seal or where the party being discharged
has furnished consideration for it; otherwise the party giving the
discharge will not be bound and the other party remains liable .A
unilateral discharge, supported by valuable consideration, is known as
an Accord and Satisfaction. “The accord is the agreement by which the
obligation is discharged. The satisfaction is the consideration which
makes the agreement operative’

3. Discharge by Frustration

A contract is said to be frustrated if an event occurs which brings its
further fulfillment to an abrupt end; and upon the occurrence of the
frustrating event the contract is immediately terminated and the parties
discharged. But the doctrine of frustration only relates to the future.
This means that the parties are discharged from their future obligation
under the contract but remain liable for whatever rights that may have
accrued before the frustration. Thus, goods supplied or services
rendered before the frustration must be paid for, although the parties
are both excused from further performance of the contract. Parties to a
contract are under a duty to fulfill their respective obligations
created by the contract. The fact that an event or events may
subsequently occur, introducing hardships or difficulties in the
performance of the contract is not in itself sufficient to discharge the
contract: It is difficult to determine the frustrating events. Some
examples of frustrating events are given below:-

1. Destruction of subject Matter
   “In contracts in which the performance depends on the continued
   existence of a given person or thing, a condition is implied that the
   impossibility of performance arising from the perishing of the person or
   thing excuse the performance
   This statement of law was made by Blackburn J. in the case given below:-

Taylor V. Caldwell (1862)
A let a music-hall to B in order that B might use it for holding
concerts on specified days. Before the concerts could be held the music-
hall was accidentally destroyed by fire. B sued A for breach of
contract. Held: The destruction of the music-hall had frustrated the
contract and B’s action could not be maintained.

2. Death or Incapacity
   Just as the destruction of the subject-matter of the contract terminates
   it, the death or serious indisposition of a party whose personal
   services were contemplated by the contract will similarly terminate it.
   Thus, if A, a doctor, contracts to care for all my medical needs, his
   death is a frustrating event which automatically terminates the
   contract. Again, if A contracts to stage a series of shows during the
   months of June-September but is in May sentenced to imprisonment for one
   year, or becomes insane permanently or for a substantial part of the
   period in question, the contract will similarly be discharged by
   frustration- the frustrating event being constituted by
   the imprisonment or insanity.
3. Frustration of Common Venture
   Where both parties contemplate a particular object as forming the basis
   of their contract, such object constitutes their common venture. The law
   is that if the common venture subsequently becomes incapable of
   fulfillment the contract is frustrated:

Krall V. Henry (1903)
The plaintiff agreed to let a room to the defendant for the day when
Edward VII was to be crowned. Though not spelt out in the agreement
itself, both parties understood that the purpose of the letting was to
enable the defendant view the coronation process. The King subsequently
became ill and the coronation was cancelled. Held: The cancellation of
the coronation discharged both parties from their contractual
obligation, because the process was the foundation of the contract and
its cancellation meant that the substantial purpose of the contract
could no longer be achieved.

4. Discharge by Breach

Breach of contract by a party thereto is also a method of discharge of a
contract, because “Breach” also brings to an end the obligations created
by a contract on the part of each of the parties. Of course the
aggrieved party i.e. the party not at fault can sue for damages for
breach of contract as per law; but the contract as such stands terminated.

A breach of contract may take place when a party:

1. Repudiates his liability before performance is due.
2. Disables himself from performing his promise.
3. Fails to perform his obligations.

5. Discharge by Operation Of Law
A contract may be discharged by operation of law in certain cases. Some
important instances are as under:-

• Lapse of Time
  If a contract is made for a specific period then after the expiry of
  that period the contract is discharged e.g. partnership deed,
  employment contract e.t.c.
• Death
  The death of either party to a contract discharges the contract
  where personal services are involved.
• Substitution
  If a contract is substituted with another contract then the first
  contract is discharged.
• Bankruptcy
  When a person becomes bankrupt, all his rights and obligations pass
  to his trustee in bankruptcy. But a trustee is not liable on
  contracts of personal services to be rendered by the bankrupt.

5.10 Remedies for Breach of Contract
Whenever there is a breach of contract, the injured party becomes
entitled for some remedies.
These remedies are:-

1. Damages
2. Quantums Meruit
3. Specific Performance
4. Injunction
5. Rescission

These are explained below

1. Damages
   Damages are a monetary compensation allowed to the injured party of the
   loss or injury suffered by him as a result of the breach of contract.
   The fundamental principle underlying damages is not punishment but
   compensation. By awarding damages the court aims to put the injured
   party into the position in which he would have been, had there been
   performance and not breach, and not to punish the defaulter party. As a
   general rule, “Compensation must be commensurate with the injury or loss
   sustained, arising naturally from the breach”. “If actual loss is not
   proved, no damages will be awarded”. The damages recoverable for breach
   of contract are governed by the rule in Hadley V. Baxendale (1894) which
   is as follows:-

“Where two parties have made a contract which one of them has broken,
the damages which the other party ought to receive in respect of such
breach of contract should be, either such as may fairly and reasonably
be considered arising naturally, i.e. according to the usual course of
things, from such breach of contract itself, or such as may reasonably
be supposed to have been in the contemplation of both parties at the
time they made the contract, as the possible result of the reach of it”.
This is the general rule. The plaintiff can only recover for loss
arising naturally from the defendant’s breach or for such loss as was in
the contemplation of both parties at the time when the contract was
made. In this way, it is sought to do justice to both parties. In fact
the above case goes on to explain that where a contract is made under
special circumstances it is the duty of the party seeking to rely on
those special circumstances to communicate them to the other party; and
in the absence of such communication any loss arising from the special
circumstances
is not recoverable:

Hadley V. Baxendale (1854)
A miller sent a broken crankshaft by a carrier to deliver to an engineer
for copying and to make a new one. The miller informed the carrier that
the matter was urgent and that there should be no delay. The carrier
accepted the consignment on those terms. The miller did not inform the
carrier that the mill would be idle and unable to work. The carrier had
no reason to believe that the delayed delivery of the crankshaft was an
essential mechanism of the mill. The carrier delayed delivery of the
crankshaft to the engineer; and as a consequence, the mill was idle for
longer than it need have been.

Held: that the carrier was not liable for the loss of profits during the
period of the delay.

The Heron II (1969)
The defendant’s ship, the Heron II, was chartered by the plaintiff to
carry sugar from Constanza to Basrah, and the ship was to take an agreed
route. But the defendant deviated and took a longer route and as a
result delivery of the sugar was delayed by 9 days. In the meantime the
market price of sugar had fallen and the plaintiff lost a profit of #
4,000. Held: The loss of profits was recoverable by the plaintiff,
because fluctuations in market prices are in the normal course of things
and the loss suffered by the plaintiff must have been in the
contemplation of both parties as a probable result of a breach of the
contract.

2. Quantum Meruit
   The third remedy for a breach of contract available to an injured party
   against the guilty party is to file a suit upon quantum meruit. The
   phrase quantum meruit literally means “as much as is earned” or “in
   proportion to the work done”. This remedy may be availed of either
   without claiming damages (i.e. claiming reasonable compensation only for
   the work done) or in addition to claiming damages for breach (i.e.
   claiming reasonable compensation for part performance and damages for
   the remaining unperformed part).
   The aggrieved party may file a suit upon quantum meruit and may claim
   payment in proportion to work done or goods supplied.

The court must then determine a reasonable sum to be paid for those
goods or services; and the plaintiffs is said to have brought his suit
on a quantum meruit. In the case of contracts for the sale of goods,
this remedy has been codified by the Sale of Goods Act. It provides;
“where the price is not determined, the buyer must pay a reasonable
price. What is a reasonable price is a question of fact dependent on the
circumstances of each particular case”. The plaintiff may also sue on a
quantum meruit where the original contract has been replaced by a new
one and work has been done by him under the new one. As Lord Atkin has
said: “If I order from a wine
merchant twelve bottles of whisky and two of brandy, and i accept them i
must pay a reasonable price for the brandy”: Steven V. Bromley & Son
(1919). A claim under quantum meruit sum does not apply, however, where
the contract requires complete performance as a condition of payment
e.g. a contract to do one piece of work in its entirety in consideration
for lump-sum payment.

Sumpter V. Hedges (1898)
S agreed to build a house for a certain sum on H’s land. When the house
was half finished S ran out of money and could not complete. H refused
payment, and S brought an action on a quantum meruit for the value of
materials used and the labour he had expended. Held: that the claim must
fail. The contract was to do certain work for a lump sum which was not
payable until completion. H had no choice but to accept the work.

3. Specific Performance
   This is an equitable remedy. Specific performance means the actual
   carrying out of the contract as agreed. Under certain circumstances an
   aggrieved party may file a suit for specific performance, i.e. for a
   decree by the court directing the defendant to actually perform the
   promise that he has made. A decree for specific performance is not
   granted for contracts of all types. It is only where it is just and
   equitable so to do i.e. where the legal remedy is inadequate or
   defective, that the courts issue a decree for specific performance.

Specific performance is not granted as a rule, in the following cases:-

1. Where monetary compensation is an adequate relief. Thus the courts
   refuse specific performance of a contract to lend or to borrow money
   or where the contract is for the sale of goods easily procurable
   elsewhere.
2. Where the court cannot supervise the actual execution of the
   contract, e.g. a building construction contract. Moreover, in most
   cases damages afford an adequate remedy.
3. Where the contract is for personal services, e.g. a contract to
   marry or to paint a picture. In such contracts “injunction” (i.e. an
   order which forbids the defendant to perform a like personal service
   for other persons) is granted in place of specific performance.
4. Where one of the parties to the agreement does not possess
   competency to contract and hence cannot be sued for breach of
   contract. Thus a minor cannot succeed in an action for specific
   performance.
5. Injunction
   “Injunction” is an order of a court restraining a person from doing a
   particular act. It is a mode of securing the specific performance of the
   negative terms of the contract. To put it differently, where a party is
   in breach of negative term of the contract (i.e. where he is doing
   something which he promised not to do), the court may, by issuing an
   injunction, restrains him from doing, what he promised not to do. Thus
   “injunction” is a preventive relief. It is particularly appropriate in
   cases of “anticipatory breach of contract” where damages would not be an
   adequate relief.

Illustration: A agreed to sing at B’s theatre for three months from 1st
April and to sing for no one else during that period. Subsequently, she
contracted to sing at C’s theatre and refused to sing at B’s theatre. On
a suit by B, the court refused to order specific performance of her
positive engagement to sing at the plaintiff’s theatre, but granted an
injunction restraining A from singing elsewhere and awarded damages to B
to compensate him for the loss caused by A’s refusal (Lumley vs. Wagner).

5. Rescission
   When there is a breach of contract by one party, the other party may
   rescind the contract and need not perform his part of obligations under
   the contract and may sit quietly at home if he decides not to take any
   legal action against the guilty party. But in case the aggrieved party
   intends to sue the guilty party for damages for breach of contract, he
   has to file a suit for decision of the contract. When the court grants
   rescission, the aggrieved party is freed from all his obligations under
   the contract; and becomes entitled to compensation for any damage which
   he has sustained through the non-fulfillment of the contract

Illustration: A contracts to supply 100 kg of tea leaves for sh. 1,500
to B on 15th April. If A does not supply the tea leaves on the appointed
day, B need not pay the price. B may treat the contract as rescinded and
may sit quietly at home. B may also file a “suit for rescission” and
claim damages.

Thus, applying to the court for “rescission of the contract” is
necessary for claiming damages for breach or for availing any other
remedy. In practice a “suit for rescission” is accompanied by a “suit
for damages” .

Summary for the topic

1. Essentials of a valid contract
2. Classification of various types of contracts
3. Formation of contract
4. Contractual capacity
5. Vitiating elements of contract
6. Discharge of the contract
7. Remedies for a breach of contract