LAW OF CONTRACT

The Law of Contract is a branch of civil law that determines the circumstances in which
promises made by parties to a contract shall be legally binding on them. The law of contract lay
down the legal rules relating to promises, their formation, their performance, and their
enforceability. Its rules define the elements of a contract, vitiating factors, eventual termination
or discharge of a contract, and the remedies that are available in a court of law against a person
who fails to perform his part of the contract.

The law of contract is the most important branch of business law. We all contract whether
consciously or sub consciously on a daily basis. Practically every personal or business activity
involves a contract; the purchase of a colour TV, the renting of an apartment, buying a property.
In each transaction relating to the acquisition of raw materials, their manufacture, and the
distribution of the finished product by business, there are contracts that define the relationships
and the rights and obligations of the parties. As pervasive as contracts are in our daily lives, the
legal language of contracts is not very familiar to most of us. A detailed knowledge of this
chapter will enable us to appreciate the technique behind the procedures and rules of contracts
and assist in the realization of our own rights and the remedies available in case of breach of
contract.

Sources of Law of Contract

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

1. Substance of common law

2. Doctrines of equity

3. Certain English Statutes of General Application

4. Other Acts of the Kenyan Parliament

The law of contract differs from other branches of law in an important respect. It does not lay
down a number of rights and duties, which the law will enforce. It consists rather of a number of
limiting principles, subject to which the parties may create rights and duties for themselves
which the law will uphold. The parties to a contract, in a sense, make the law for themselves. So
long as they do not infringe some legal prohibition, they can make what rules they like in respect
of the subject matter of their agreement and the law will give effect to their decisions.

Nature of Contract
A contract may be defined as an agreement made by 2 or more parties that is enforceable by law.
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.

DIFFERENCE BETWEEN AGREEMENT AND CONTRACT

Basis of Difference Agreement Contract

1. Creation Offer and acceptance Agreement and

together constitute an enforceability together
agreement constitute a contract

2. Legal Obligation May not create any legal Necessarily creates a legal
obligation obligation

3. Binding Not binding to the parties Binding to the parties to it

to it

4. Relationship All agreements are not All contracts are

necessarily contracts necessarily agreements
Classification of Contracts
Contracts may be classified into different categories on the basis of enforceability, performance
and formation.

ENFORCEABILIT PERFORMANCE FORMATION

Y

● Valid ● Executed ● Express

● Void Agreement ● Executory ● Implied

● Voidable ● Quasi

● Void

Contracts on the basis of Enforceability:

a) Valid contract: A contract which satisfies all the conditions prescribed by law is a valid
contract. E.g. X offers to marry Y. Y accepts X’s offer. This is a valid contract.

b) Void Contract: A contract which ceases to be enforceable by law becomes void. In other
words, a void contract is a contract which is valid when entered into but which subsequently
became void due to subsequent impossibility of performance or subsequent change of law. E.g.
X offers to marry Y, Y accepts X offer. Later on Y dies this contract was valid at the time of its
formation but became void at the death of Y.
c) Void Agreement: According to Section 2(g), an agreement not enforceable by law is said to
be void. Such agreements are void- ab- initio which means that they are unenforceable right from
the time they are made due to absence of the conditions prescribed by law. E.g. in agreement
with a minor or a person of unsound mind is void –ab-initio because a minor or a person of
unsound mind is incompetent to contract.

d) Voidable contract: A voidable contract is one which can be set aside or avoided at the option
of the aggrieved party. Until the contract is set aside by the aggrieved party, it remains a valid
contract. Example, a contract is treated as voidable at the option of the party whose consent has
been obtained under influence, coercion or misinterpretation. E.g. X threatens to kill Y, if the
does not sell his house for Kshs. 1 million to X. Y sells his house to X and receives payment.
Here, Y’s consent has been obtained by coercion and hence this contract is void able at the
option of Y the aggrieved party. If Y decides to avoid the contract he will have to return Kshs. 1
million which he had received from X. If Y does not exercise his option to repudiate (reject) the
contract within a reasonable time and in the meantime Z purchases that house from X. Y cannot
repudiate the contract.

Contracts on the basis of Performance:

a) Executed contract: It is a contract where both the parties to the contract have fulfilled their
respective obligations under the contract. Example: X offer to sell his car to Y for Kshs. 2
million, Y accepts X’s offer. X delivers the car to Y and Y pays Kshs.2 million to X. it is an
executed contract.

b) Executory contract: It is a contract where both the parties to the contract have still to
perform their respective obligations. Example: X offers to sell his car to y for Kshs.2 million. Y
accepts X offer. It the car has not yet been delivered by X and the price has not yet been paid by
Y, it is an Executory contract.

Contracts on the basis of Formation:

a) Express contract: Express contract is one which is made by words; spoken or written.
Example No. 1: X says to Y, buy my car for Kshs.2 million? Y says to X, I am ready to buy your
car for Kshs.2 million. It is an express contract made orally.
Example No. 2: X writes a letter to Y, I offer to sell my car for Kshs.2 million to you. Y sends a
letter to Y, I am ready to buy your car for Kshs.2 million. It is an express contract made in
writing.

b) Implied contract: An implied contract is one which is made other than by words; spoken or
written. It is inferred from the conduct of a person or course of dealing. Example: You go to the
doctor for the treatment of an illness; you and the doctor do not negotiate the terms of the
treatment, how much you will pay or how the doctor will conduct the examination. You
appreciate that he will do whatever appropriate examinations to establish the cause of your
illness; and that you will pay fees for the doctor’s effort.

c) Quasi or implied in law contract: It is a contract in which there is no intention either side to
make a contract, but the law imposes such contracts. In such a contract rights and obligations
arise not by any agreement between the parties but by operation of law. E.g. where certain books
are delivered to a wrong address the addresses is under an obligation to either pay for them or
return them.

d) E-Com Contracts: These contracts are also known as e- commerce contracts, EDI contracts,
cyber contracts, mouse click contracts, online contracts or e- contracts. These contracts are
created by parties using electronic means such as email. Example: purchase of mobile phone
online.

Kindly go through the provided link below for an article on the challenges facing online
contracts in Kenya

https://sangchambers.co.ke/online-contracts

Other Categories of Contracts

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 where one of the party (offeror) demands performance (action) from the other party
(offeree), instead of a promise. Since the offeree makes no promise, he cannot be sued for
abandoning or failing to carry out his act; only the offeror is bound by the law and, therefore, this
is a single-sided contract.

Example: Ann (offeror) offers a reward of 200 for the safe return of his lost cat. The offeree has
made no promise, so he is not obliged to return Richards lost cat, but if he does, then Richard
will have to pay 200 to the offeree.

Most contracts are bilateral. A bilateral contract is one in which both parties are bound.

In a bilateral contract both of the parties involved promise to carry out certain things.

Example: If you sign a contract to buy a used car, for example, a Black Audi, for Kshs.1 million,
then you have entered into a bi-lateral contract, with the person who is selling the car. The seller
promised that he will not sell the car to anyone other than you; and you have promised to buy the
Black Audi and will hand in the 1 million to the seller. Two promises were made here; the sellers
promise to sell and your promise to buy, hence Bi-lateral.

Formal and Informal Contracts

Formal Contract:

A Formal contract is also known as a Special contract. Formal contracts are contracts that are
required to be written, signed, witnessed and sealed by the participating parties. Formal contracts
are not considered legal contracts unless they are written with certain language as required by
law. Examples are contracts for disposition of interests in land and contracts of guarantee, which
must be made in writing and signed by the parties.

Informal Contract:

An informal contract is also known as a Simple contract. It is any written or oral contract which
is not required to be witnessed, signed or sealed. Contracts law consider most contracts currently
in effect to be informal contracts. An informal contract has the full weight of law so long as the
normal requirements of a contract have been met. One drawback to an informal contract is that it
can be difficult to hold a party in breach of the contract to the terms to which both parties have
agreed.
Any contract that the law does not require to take a particular format are considered an informal
contract e.g. sales contracts. Although these contracts may have specific forms on which they are
printed on, they are not formal contracts because there is no contracts law which mandates that
these contracts be placed in a particular manner. A preprinted form does not change the status of
an informal contract.