THE LAW OF CONTRACT

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 lays down the legal rules relating to promises, their formation, their
performance and their enforcement.
The Law of Contract in Kenya was first based on the Contract Act 1872 of India, which doesn’t
apply in Kenya today except to contracts made before 1st January 1961. The Law of Contract as
administered in Kenya is an adaptation of the rules of English Law of Contract as modified by
sections 2 and 3 of the Law of Kenya Act (Cap 23) 1962 and is applicable since 1st January
1961.

Contract is an agreement or promise between two or more parties, which is intended by them to
create legally binding obligations.
Formation of a contract
This process observes the following steps: 1. Client goes to a consultant (architect) and
gives a brief (a client’s dream, desire or wish).
2. Architect prepares preliminary sketches (design). This is done to allow time for
brainstorming before the final design is agreed upon.
3. Architect and the quantity surveyor prepare preliminary estimates (a cost plan or budget).
4. Architect prepares design (working drawings) and sends them to the following consultants:
• Quantity surveyor to prepare bills of quantities.
• Structural engineer to design structural members.
• Electrical engineer electrical services.
• Mechanical engineer for mechanical services e.g. hot water circulation, air conditioning.
 Environmental services e.g. landscaping, flower gardens etc.
N.B The process of professionals preparing specification works in their area is referred to as
documentation of the contract.
5. Architect invites tender on behalf of the client. The tender are offers, quotations or bids.
6. On receiving the tenders, analysis is done and one of the tenders is recommended for award.
7. If the client accepts the recommended tenderer, he writes to him a letter called Notification
of Award and specifies to him whether to accept or reject the award.
8. Upon acceptance of the offer, the client then formulates a contract, thus making a legally
bidding agreement between him and the nominated contractor.

Essentials/ingredients of a Valid Contract

1. There must be offer and acceptance
2. There must be an intention to create legal relations
3. There must be consideration or the contract must be under deed.
4. There must be contractual capacity
 5. There must be genuine consent, i.e. the consent must not be obtained through mistake,
misinterpretation, duress, or undue influence 6. The object of the contract must be lawful
The formation of a contract involves the following factors:
i. The offer
ii. The acceptance
iii. Consideration iv. Contractual Capacity
v. Intention to Create a Legal Relationship.

1. INTENTION TO CREATE LEGAL RELATIONS

A contract is a result of an agreement between the parties, but in order for a contract to
enforceable, there must be an intention to create legal relations. Agreements of a purely domestic
or social nature are generally not enforceable contracts. Whether or not the parties intended to
create legal relations is a question of fact to be inferred from all the circumstances of a case.
In commercial or business agreements it is generally presumed by the courts that there is an
intention to create legal relations, unless the parties insert a clause that their agreement shall not
be binding in law but shall be binding in honour only.
2. OFFER AND ACCEPTANCE
In order to be enforceable contract, certain basic requirements must be present. There must be an
agreement based upon genuine consent of the parties, supported by consideration, and made for a
lawful object between competent parties
Offer
An offer is defined as an expression of willingness to enter into a contract of definite terms, as
soon as these are accepted. The following are the rules of offer:
i. An offer may be made to a specific person, or to any member of a group of persons, or to
the world at large, but it cannot form the basis of a contract until it has been accepted by
an ascertained person or group of persons.
ii. An offer may be made by word of mouth, in writing, or by conduct. The person making
the offer is called the offeror, and the person to whom the offer is made is called the
offeree.
iii. An offer must contemplate giving rise to legal consequences if accepted
iv. The terms of the offer must be certain and free from vagueness in expression
v. Every offer must be communicated for a contract to arise, two parties must be of the
same mind and so it can’t be accepted by a person who doesn’t know it has been made.
This applies to both specific and general offers.
vi. The offeror cannot bind the other party without his consent.
vii. The offeror may attach any conditions to his offer, but must communicate then to the
offeree, before they bind him by his acceptance of the offer. In business this rule is
chiefly important where the terms of the offer are usually of a complex nature.
An offer must be distinguished from:
i. An invitation to treat
 ii. A mere declaration of an intention
iii. A mere supply of information
Invitation to treat: Some kinds of transaction involve a preliminary stage in which one party
invites the other to make an offer. This stage is called an invitation to treat. Confusion can
sometimes arise when what would appear, in the everyday sense of the word, to be an offer is
held by the law to be only an invitation to treat. For example, marked prices, or catalogues
mentioning prices of goods, do not as a rule constitute an offer as to compel the shopkeeper to
sell those goods at the marked prices. The prospective buyer, by offering that price is himself the
offeror, and his offer, if accepted creates a binding agreement.
Declaration of Intention: Where a person declares his intention to do a thing or an act, it does
not bind him to another person who suffers damage because he fails to carry out his intention
despite the fact that someone relied on his declaration and acted on it.
Mere Supply of Information: There mere statement of the lowest price at which a person will
sell property or goods contains no implied condition to sell at that price to the person making
such enquiry.
TERMINATION OF OFFER
An offer may lapse before acceptance in any of the following ways:
i. If a stated time prescribed in the offer lapses, or if no time limit is stipulated, longer than
a reasonable time.
ii. By the death or insanity of the offeror or the offeree; death of the offeree automatically
terminates the offer. Death after acceptance has generally no effect on the validity of the
contract unless the contract is to render personal services e.g. painting a landscape. iii.
By being accepted in the manner prescribed, or if no manner is prescribed, in some usual
manner implied by the nature of offer, i.e., an offer is made by post, the acceptance is
implied by post as well.
iv. Counter offer: An offer terminates if a counter offer is made to it, and the offer cannot be
revived by the person to whom it was originally made, even if he is prepared to accept
the original offer unconditionally. Rejection of offer has the same effect as the counter
offer.
v. Revocation (withdrawal) by the offeror at any time before acceptance. A bid at an
auction is revocable until the hammer falls. Rules of revocation include:
a. Revocation of an offer must be communicated to the offeree, though not
necessary by the offeror himself, if is sufficient if the offeree comes to know of it
through any reliable source.
b. The revocation by post does not take effect until it is actually received by the
offeree. Note that acceptance of offer by post becomes effective as soon as the
acceptance is posted.
Acceptance
An acceptance is a final and unqualified assent to all the terms of the offer
An offer can only be accepted by the person to whom it is made, but an offer made to
the world at large may be accepted by anyone.
 Modes of Acceptance
i. An offer can be accepted orally, or in writing, or by conduct particularly by
the offeree.
ii. The acceptance must be communicated, and mere mental intention to accept
it is not sufficient.
iii. The acceptance of offer must be absolute and unqualified. Where the acceptor
varies the terms of offer, it amounts to counter-offer which destroys the
original offer, so that the offeror cannot, after making a counter-offer accept
the original offer.
iv. The acceptance must be communicated to the offeror in the manner
prescribed by him, otherwise the acceptance is ineffective.
v. The acceptance must also be made within the time prescribed by the offeror,
and if no such time is specified, then within such time as is reasonable having
regard to the nature of the transaction.
vi. The acceptance must be made before the offer lapses or is terminated
vii. Acceptance once made cannot be revoked but an offer may be revoked by an
express notice before it is accepted.
Acceptance by Post
Where the parties choose post as a medium of entering into a contract the following rules apply:
• An offer becomes effective when it reaches the offeree, not when the letter of offer is
posted
• The acceptance is considered complete immediately the letter of acceptance is posted,
even if it is lost or destroyed in the post so that it never arrived.
This is what is sometimes called the Posting Rule. As long as the offeree can prove that he
posted the letter of acceptance, the court will enforce the contract.
3. CONSIDERATION
Consideration is a doctrine of the English and Kenyan law, which in essence means that there
must be an element of „quid pro quo‟ in the normal contract; there must be something. Usually
one party makes a reciprocal promise, performs an act or gives goods or services in exchange for
money.

Previously a more classical definition was given in CURRIE v MISA 1875 as: “Some right,
interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or
responsibility given, suffered or undertaken by the other.”
Today, however, consideration is more commonly viewed as the price paid by one party for the
promise made by the other party. Though consideration is required in every simple contract, it
need not be adequate as long as it has some economic value. Even an act or omission of small
value can be consideration, but a mere sentimental motive for making the promise will not make
it binding.
Consideration to support a simple contract may be either (i) executed or (ii) executory, but it
must not be past.
Executed consideration is some value already given by the promisee to the promisor, e.g.
purchase of goods on credit. The seller has performed his side of the obligation in delivering the
goods to the purchaser or when a person has returned lost property to claim the advertised reward
Executory consideration is a promise to do something in the future e.g. in the above case the
consideration for the purchaser of the goods is executory, until he pays for the goods received.
Rules governing Consideration
i. Consideration must be real although it need not be adequate. This means the
consideration provided by one party need not equal in value the consideration provided
by the other party. It is for the parties themselves to make their own bargain. The
consideration need only have ‘some value in the eyes of the law’.
ii. Consideration must not be past. It means some past act or forbearance which took place
before the promise is made e.g. A voluntarily helps B to pass a certain examination. On
passing, B promises A sh 1000. A cannot enforce B‟s promise because it is founded on
past consideration.
iii. Consideration must move from the promisee, meaning that no one can enforce another’s
promise unless he has been a party to a contract, and provided consideration to the
promisor. In other words, stranger to consideration cannot sue on the contract though
made for his benefit.
iv. Consideration must be in excess of an existing obligation. An extension of the very first
rule that “consideration must be real”. It follows from this rule that a person who is
under a contractual or legal duty to perform a certain act, gives no consideration for a
promise to pay for the performance of that contract.
v. Consideration must be legal i.e. it must not be a type of consideration which is either
prohibited by law or is against the public policy. Thus a promise to smuggle coffee from
Uganda into Kenya for Ksh 10 000 must be regarded as unlawful and void.
4. CONTRACTUAL CAPACITY
Broadly speaking; all persons are equal before the law. Thus, apart from certain exceptions (due
to age, status, or mental instability), all possess the capacity to enter into contracts.
i. Infants (i.e. persons under 18) continue the most important exception, and their
contractual capacity is governed by the Infants Relief Act, 1874 of England. In essence
that Act states that some contracts, in particular loans of money, the supply of goods
other than necessaries, and contracts which could not fail to operate to the infant’s
prejudice are
“absolutely void” if entered into by an infant. As a matter of judicial interpretation
“absolutely void” means that no such contract can be enforced in a court of law against
an infant, whereas the infant might be able to bring an action for breach of contract.
ii. Necessaries are defined in Sale of Goods Act Section 4 (2) as goods suitable to the
condition in life of the infant and to his actual requirements at the time of sale and
delivery”. They may include services as well as goods e.g. food, clothing, shelter,
medical care, education, and even services as legal advice. Several other contracts
entered into by an infant, particularly those of a beneficial and continuing nature such as
partnership or the holding of shares in a company, fall into what is called the voidable
category, that is they can be avoided if an infant so wishes, but upon the infant’s
majority they become binding, unless repudiated then or within a reasonable time
 afterwards. A contract is beneficial to an infant if it enables him to earn his living, or
improve his skill or occupation or profession. iii. Contracts made by persons of unsound
mind are, on the face of it, perfectly valid. Should the other party know of the mental
incapacity, the contract is voidable at the instance of the insane person during a lucid
interval, or at the instance of a person appointed by the court to act on his behalf. The
crucial question is “Was advantage taken of this person’s mental condition?” If the
answer is in the affirmative the contract is voidable.
iv. If a person contracts under the influence of drink, and his mind cannot grasp the
significance of his act, and this fact is taken advantage of by the other party, the contract
is voidable.
v. Cooperative Societies: A cooperative society registered under the Co-operative
Societies Act (Cap 490) can enter into contracts, sue and be sued in accordance with the
provisions of the Act.
vi. Trade Unions: Section 25 (1) of the Trade Union 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 shall not be liable on any contract which is void or
unenforceable by law”. A registered trade union may sue and be sued and be prosecuted
under its registered name.
vii. Aliens or Non-citizens: An alien, i.e., a person who is not a citizen of Kenya, can sue or
be sued. An enemy alien, i.e. a person resident in a county which is at war with Kenya,
cannot sue, but if sued can defend an action.
viii. Corporations: Its contractual capacity is limited by the provisions of its Memorandum of
Association. It can only enter into those contracts authorized by the Memorandum; any
other contract is ultra-vines and cannot be entered into by the corporation.
ix. Married Women: these can sue and be sued in contract in the same as single women.

TERMS OF CONTRACT
In the course of negotiations, a number of statements may be made by each of the 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 false
representation either fraudulently or innocently made, is called a misrepresentation).
If the statement is within the contract, there is a further problem of deciding whether it is a
condition or warranty.
Conditions and Warranties
Conditions
Statements of fact or promises which form the essential terms of the contract. If the statement is
not true, or the promise is not fulfilled, the injured party may terminate (or treat as discharged)
the contract and claim damages.
In Poussard v Spiers and Pond (1876), a singer failed to take up a role in an opera until a week
after the season had started. Held—her promise to perform as from the first performance was a
condition—and its breach entitled the management to treat the contract as discharged.
Warranties
Contractual terms concerning the less important or subsidiary statements of facts or promises. If
a warranty is broken, this does not entitle the other party to terminate (or treat as discharged) the
contract, it merely entitles him to sue for damages
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 and sue for
damages, while a breach of warranty by one party only entitles the other (injured) party to
damages, but not to as right to regard himself as discharged from his obligations under the
contract. Both conditions and warranties may be express or implied. But conditions are further
subdivided into 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 enforceable right in the meantime. A condition subsequent, on the other hand, is
a condition whose occurrence may affect the rights of the parties under a contract, which is
already in operation. For instance, where there is a provision that a contract is to remain valid
until stated event occurs, the occurrence of the event is a condition subsequent which terminates
the contract. Exemption Clauses
A term may be inserted into a contract with the aim of limiting the liability of one of the parties.
Such term is known as an exemption clause. Example: “Goods Carried at Owner’s Risk”, “All
cars parked at owner’s risk”.
Conditions contained in a document issued after a contract is made are not binding on the
recipient of the document. Reasonable notice must be given to the other party before a contract is
made. Such a clause will be enforced by the court, if the document containing it was an integral
part of the contract and reasonable care was taken to bring it to the attention of the other party
before the contract was made. But where a person has failed to carry out him to rely on the
exemption clause to escape liability.
An exemption clause printed on a reverse side of the receipt is not valid unless special care was
taken to bring it to the notice of the other party.
Where a person puts his signature on a contractual document, he is bound by any exempting
clause contained in it. He cannot rely on his ignorance of the contents of the document unless he
was induced to sign by fraud or misinterpretation.
On the other hand, if the party relying on an exemption clause misrepresented the contents of the
clause, it will not be binding on the other party.
QUASI-CONTRACTS
One chief characteristic of a contract is that it is always founded on free consent of the
contracting parties. But sometimes it happens that the courts considering the circumstances and
conduct of the parties impose an obligation on one party and confer a right in favor of the other
despite the fact that no such agreement was present. Such contracts are not contracts in the strict
sense, because there is no offer and acceptance but the court accords them full status of contracts
and enforces them.
The basis of quasi-contract rests upon the equitable principle that a person shall not be allowed
to an unjust enrichment at the expense of another.
i. Claims on Quantum meruit The expression literally means, “as much as earned”. It is
used where a person claims reasonable remuneration for the services rendered by him in
the absence of any express promise to pay for the same. The general rule is that where a
person has not performed his contract completely he is not entitled to any part-payment
for the partial performance. But where one of the parties has performed part of his
obligation and his prevented from completing the rest by the other, he may claim
payment for what he has already done under the contract.
ii. Action for money had and received.
The right to recover money this heading may arise where the defendant has received
money for the use of another by fraudulent means.
iii. Action for the money paid to the use of another
Cases arise where the plaintiff has been compelled by law to pay, or the plaintiff has an
interest to protect his goods, or the defendant expressly requests him to make a payment
on his behalf. Suppose A‟s goods are wrongly attached to realize (recover) arrears of
City Council’s rates and rent due by B, and A pays the amount to save his goods from
being sold, he is entitled to recover the amount from B.
iv. Money paid on a total failure of consideration
Where the plaintiff had paid money to the defendant in pursuance of a contract the
consideration for which has completely failed, he can sue for the recovery of any money
he has paid. The right under this heading is not available to the plaintiff if the
consideration has partly failed.
v. Money paid under a mistake of fact
Where the plaintiff paid money under a contract caused by mistake of law or mistake of
fact, which is not due under the contract or otherwise, this can be recovered and the contract
will remain valid. If a person pays money to save his property, which has been wrongfully
attached by the order of the court, he is entitled to recover it. Similarly, where a creditor has
been over-paid by his debtors, the money paid in excess can be claimed. vi. Account stated
This is an acknowledgement of the money owed by one person to another, or where two
parties after a series of transactions between them have agreed on a certain balance
showing in the plaintiff’s favor. The agreed balance is known as account stated and
entitles the plaintiff to sue the defendant on it without proving all the previous
transactions, which led to the balance.
vii. Money paid to the defendant for the use of the plaintiff
This is relevant particularly in the field of agency. If an agent receives a secret
commission or fraudulent payment from a third party, the principal is entitled to recover
the same from him.
VITIATING ELEMENTS WHICH RENDER A CONTRACT VOIDABLE
Even where a contract meets the requirements of offer and acceptance, consideration and intent
to create legal relations, it may still not be binding if, at the time the contract was made, certain
factors were present which mean there was no genuine consent. These are known as vitiating
factors (because they vitiate, or invalidate, consent). The vitiating factors which the law
recognizes as undermining a contract are misrepresentation, mistake, duress, undue influence and
illegality;
i. Misrepresentation – This is an untrue statement made by one party to a contract to the
other before or at the time of contract, relating to some matter essential to the formation
of contract, which induces the other party to enter the agreement. It may be;
• innocent misrepresentation, where a mis statement of fact is made without
knowledge of its untruth and without intention to deceive, or
• fraudulent misrepresentation, which is defined as “a false representation of fact
made with a knowledge of its falseness, or recklessly without belief in its truth,
with the intention that it be acted upon by the complaining party, and actually
inducing him to act upon it”.
In both cases the party misled may normally repudiate the contract, but in the case of
fraud that party may claim damages as well.
ii. Duress – Duress is actual or threatened interference with the personal liberty of one of
the parties to a contract or to a member of his family. It also includes threat
imprisonment, or criminal prosecution, or dishonour of a member of his family. The
presence of duress enables the party affected to repudiate the contract. Thus if a person
is forced at the point of a pistol to enter into a contract, the contract can always be set
aside later. It is voidable at the instance of the party to whom the duress is applied.
iii. Undue Influence – Undue influence represents mental or moral persuasion, but here too
the party affected may repudiate the contract. One of the parties is in a position to
dominate the will of another, which prevents him from making his judgement freely or
he uses the position to obtain an unfair advantage over the other. The influence must be
proved by the party seeking to set aside the contract. Undue influence is presumed to
exist unless the contrary is proved where a contract is between parties who are within a
fairly close relationship, such as doctor and patient, parent and child or solicitor and
client, but in other cases it must of course be proved to the satisfaction of a court. Undue
influence makes the contract voidable at the option of the aggrieved party.
iv. Mistake – Mistake may be of two kinds; mistake of fact. A person may escape his
liability under an apparently complete contract by proving that he contracted under a
mistake of fact, and his mistake was so fundamental that it affected the root of the
contract: such as a mistake concerning the existence or identity of the subject matter of
the contract, or a mistake concerning the identity of the other contracting party when
such identity is important. In all these instances the contract is not voidable, as in the
above cases, but void, which means in effect that the law considers that a contract never
existed at all. A mistake of law, however, is no ground for relief from a transaction. But
mistake of foreign law and mistake of private rights are treated as mistake of fact.
v. Illegality – Certain contracts are illegal, and, as such, are void. They may be illegal by
statute, or illegal at common law. Examples of the latter include agreements to commit a
crime or a tort, to defraud shareholders or to defraud revenue. Agreements contrary to
sexual morality are also illegal at common law, as are those, which are contrary to
public policy.
vi. Incapacity
We have already seen that contracts with infants are voidable at the option of the infant
unless it is for the necessities of life. Similarly, contracts with drunks are voidable if they
can prove that they were too drunk at the time to appreciate what they were doing.
Contracts with corporations which are ‘ultra vires’ their powers are void ‘ab initio’, i.e.
they are a nullity from the beginning.

LIMITS OF CONTRACTUAL OBLIGATION

PRIVITY OF CONTRACT
A person who is a party to a contract is said to be privity to the contract. In technical
terms, there is privity of contract between him and the other contracting party.
Only a person who is a party (and not a stranger) to a contract can derive a benefit from
it of have obligations imposed on him by it; and it is only such person who may sue or
be sued on the contract. This is the general rule, commonly referred to as the doctrine of
privity of contract. Tweddle v. Atkinson (1861)
The plaintiff intended to marry the defendant’s daughter. His father and the defendant
entered into a contract in which each promised to pay a sum of money to the plaintiff;
but the plaintiff himself was not a party to the contract. The defendant failed to pay and
the plaintiff sued him. Held: The plaintiff was a stranger to the contract and could not
therefore take advantage of it, notwithstanding that is was that it has been made for his
benefit.
Exception to the Privity Doctrine
The general rule is no doubt rigid; once you are not a party to a particular contract you
cannot enforce it, nor can it be enforced against you. This general rule is however
subject to certain recognized exceptions;
i. Agency
Under the law of agency, a person who is not a party to a contract may in certain
circumstances sue or sued on it. Where A, acting for B, enters into a contract with C
without disclosing the fact that the contract is being made on behalf of B. B is known as an
undisclosed principal. Upon discovering the true facts, B has a right to intervene and
directly enforce the contract against C. Similarly, C upon discovering the existence of B,
has a right to elect whether to sue A, the agent, or B. in this way a person not a party to a
contract is allowed to enforce it or liable to have it enforced against him. ii. Statutory
Provision
A statute may confer rights or impose obligations on a person who is not a party to a
particular contract. For instance, under the Married Women’s Property Act 1882 a
married person may take out an insurance policy on his/her life for the benefit of
his/her spouse or children. In this case the beneficiary of the policy is given rights
under the contract of insurance although he/she was not a party to it.
iii. Doctrine of Constructive trust
Where a contract is made with A for the benefit of B, A can sue on the contract for
the benefit of B and recover all that B could have recovered as if the contract had
been with B himself. The basis of the principle is that A must be regarded as trustee
 for B under an implied trust. Under the doctrine, if A fails to enforce the contract, B
may sue him and the other party to the contract so as to enforce his rights under the
implied trust.
Thus, in Tweddle v. Atkinson the plaintiff’s father could have sued the defendant so
as to enforce the contract for the benefit of the plaintiff; failing this, the plaintiff
could have joined his father in an action brought against the defendant – the father
being treated as a trustee under an implied trust.
iv. Restrictive Covenants
It is a promise given by one party to another, an undertaking, and refrain from doing
a particular act. Such covenants are common in contracts relating to the disposition
of an interest in land. Thus, where A purchases land from B and promises B that, in
developing the land he will take care not to obstruct a neighbouring plot from light,
such promise by A is a restrictive covenant.
Par under the law of property, a restrictive covenant is said to „run‟ with the lane.
This means that any person who acquires land, which is subject to a restrictive
covenant, is bound by it.
If A subsequently resells the land to C, C will be bound by the covenant. C cannot
argue that he was not party to the contract between A and B, which created the
restrictive covenant.
ASSIGNMENT OF CONTRACTUAL RIGHTS AND LIABILITIES
Assignment means the transfer of rights and liabilities to a third person who is not a party to the
original contract so that the rights and remedies of the transferor (assignor) are vested in the
transferee (assignee).
In Kenya under the Transfer of Property Act 1882 the rights and benefits under a contract may be
assigned. The assignee can demand performance from the other party. Where the other party fails
to perform his obligations, the assignee can sue him in his own name.
Assignment of choices in action i.e. personal rights of property may take place in one of three
ways:
i. Legal assignment
ii. Equitable assignment
iii. Assignment by operation of law

1. Legal Assignment
By Indian Law of property Act (Section 130) all debts and other legal choices in action such as
copyrights, patents rights, etc. may be assigned to the assignee (transferee) but the assignment
must be:
a. In writing, signed by the assignor
b. Absolute and not by way of charge
c. Written notice of assignment must be given to the debtor, and assignee’s right dates from
the date of such a notice’
 After such notice has been given, any payment to the original party will not discharge the debtor
from being liable to the assignee. In other words, the debtor can assert no equity against the
assignee arising out of the transaction with the assignor after notice of assignment.
2. Equitable Assignment
In certain circumstances even where the requirements of legal assignment are not fulfilled, there
may still be an assignment in equity. In equitable assignment the assignee cannot sue the debtor
in his own name but must join the assignor in any action he takes against the debtor. In case the
assignor is not willing to lend his name to be used for this purpose, he can be compelled by the
court to do so, provided the assignee gives him a proper indemnity as to cost of the court
proceedings.
However, if an equitable assignment is not supported by consideration, the assignee cannot
compel the assignor to join him in the court action against the debtor.
3. Assignment by Operation of Law
Death of a contracting party does not discharge the contract; though he himself is not available to
sue or sued, all his rights and liabilities are vested in his personal representatives. The contracts
entered into by the deceased are enforceable by or against his personal representative’s subject to
available assets of the deceased’s estate. Contracts to render personal services are an exception to
the above rule of assignment, as they die with the death of the party responsible to such services.
PERFORMANCE AND DISCHARGE OF A CONTRACT
The termination of a contract discharges the parties from their obligations, and is achieved in the
following ways:
1. Agreement – Both parties may agree to release each other from the obligations of a
contract, while the contract itself may contain an agreed clause that, after a certain time
and upon the happening of a particular event, the contract shall be discharged. A contract
may be discharged by agreement in any of the following ways:
a. By waiver: In case of a contract still executory, mutual agreement (a deliberate
abandonment or giving up of a right which a party is entitled to under a contract)
between the parties, can release each other from their respective obligations and
rights.
b. By novation: An existing contract may be discharged when a new contract is
substituted in its place, either between the same parties or between different
parties, the consideration mutually being the discharge of the old contract.
c. Accord and Satisfaction: Where a party to a contract is actually paid on an earlier
date at the request of the payee, or something different in kind or a lesser sum
than what contracted for a lesser fulfillment of the promise made agreement and
the satisfaction is the consideration which makes the agreement operative.
2. Performance – when both the parties duly perform a contract, the contract comes to a
happy ending and nothing more remains. But if one party only performs his promise, he
alone is discharged. Such a party gets a right of action against the other party who is
guilty of breach. When a promisor offers to perform his obligation under the contract, but
is unable to do so because the promisee does not accept the performance, it is called
“attempted performance” or tender and is equivalent performance.
3. Frustration – A contract, which was capable of being performed when entered into, may
become frustrated before performance and, in such an event, it will be discharged.
Frustration applies where performance becomes illegal or impossible as the result of a
change in the law, or a change in circumstances so fundamental as to warrant discharge
because this change was entirely beyond the contemplation of the parties when they
entered into the agreement. An unexpected turn of events, which merely makes
performance more difficult or more expensive would not be regarded as “fundamental”.
Supervening impossibility of frustration will discharge the contract in the following
circumstances:
a. Destruction of Subject-matter: If premises of equipment or person form the basis
of a contract but are destroyed or die before or during the execution of contract.
The destruction of sub-matter need not be whole; it is sufficient as long as it
prevents the contract from being carried out.
b. Non-occurrence of a stated event: When a contract is entered into on the basis of
the happening of a certain stated event, the contract is discharged if such an event
does not take place.
c. Death or personal incapacity: In contract for personal services, the death or illness
of a particular person whose action is vital for the agreed performance discharges
the contract. But the personal incapacity must be serious enough, and not
selfcreated, to prevent the person from performing his obligations.
d. Change in law (Supervening Illegality): A contract legal at the time of its
formation may subsequently become illegal due to an alteration of law or the act
of some person having statutory authority. The contract is then discharged.
e. Government interference: A contract is discharged by unexpected government
interference, causing a fundamental change of circumstances from that
contemplated by the parties when the contract was made.
4. Breach – This is failure of one of the parties to perform his obligation under the contract.
If a party breaks a term of contract going to its root, known as a condition, the other party
will be released from his obligations under the contract. But if the term broken is one
collateral to the main term of the contract, known as warranty, if the innocent party will
not be released from performance and can only claim damages. Breach of contract may
occur in two ways:
a. Failure to perform: Where a person fails to perform a contract, when the
performance is due, the other party can hold him liable for the breach, provided
the time of performance was made as the essence of the contract.
b. Renunciation often referred to as anticipatory breach occurs when, prior to the
time for performance of the contract, one party renounces the contract by refusing
or rendering himself unable to perform.
5. Operation of Law: Discharge here may take place as follows:
a. Lapse of time – A contract formed for a specific time (e.g. partnership deed,
employment contract etc.) is discharged when that period of time has elapsed.
Where no specified time is laid down, the lapse of reasonable time may render the
contract unenforceable in a court of law. The limitation period for simple and
under deed contracts is 6 years.
 b. By death: The death of either party will discharge a contract for personal services
but other contractual rights and obligations are not affected and survive for the
benefit of or against the estate of the deceased.
c. By merger: This takes place when one contract is extinguished by being merged
into another e.g. when the parties embody a simple contract into a contract under
deed and in such circumstances action lies only on the deed.
d. By 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.
e. By authorized material alteration: Where a party to a contract in writing or under
deed makes any material alteration in it without the knowledge and consent of the
other, the contract can be avoided at the discretion of the other party. An
alteration is material, which varies the legal effect of contract.
REMEDIES FOR BREACH OF CONTRACT
On breach of contract, the innocent party becomes entitled to any one or more of the following
remedies:
a. Refusal of further performance
b. Action for damages
c. Action for specific performance
d. Action for injunction

1. Refusal of further performance A party who suffers by a breach of contract is entitled

to treat the contract has ended and may refuse any further performance on his own part.
But in case the victim of the breach does not take the initiative to bring an action for
rescission of contract, and the other party sues to him, he may set up the breach as a
defense.
2. Damages The normal remedy for breach of contract is damages. The aim of law is to
place the injured party as far as possible in the position he would have been if the contract
had been performed. It is not for every kind of damage that the plaintiff is entitled to
recover compensation.
In some cases, the law considers that the loss sustained from breach of contract is too
remote to merit any compensation.
CLASSIFICATION OF DAMAGES
a. Ordinary damages General or ordinary damages are restricted to the proximate
consequences of breach of contract and remote consequences are not generally regarded.
The measure of damages is the estimated loss directly and naturally resulting in the
course of events from breach of contract.
b. Special damages Those, which do not arise naturally from the breach of contract, but are
those resulting from some particular circumstances. These damages must be specially
proved if the plaintiff intends to claim.
c. Exemplary damages The purpose of awarding damages is to compensate the innocent
party for the loss he has sustained from the breach of contract. The object of exemplary
 damages, however, is to punish the promise-breaker, and to deter others from committing
similar breaches.
d. Nominal damages Awarded where the plaintiff has proved a breach of contract without
suffering any actual loss. The sum awarded is usually very nominal, but nevertheless is
awarded as an acknowledgement that the plaintiff has proved his claim.
e. Contemptuous damages Damages assessed by the courts when satisfied that the action
should not have been brought by the plaintiff. The court may award five cents to the
plaintiff as damages to express its contempt of his conduct in bringing his action.
f. Unliquidated damages Damages assessed by the courts when breach of contract takes
place and the innocent party sues the defendant. In such cases the onus lies on the
plaintiff to produce evidence of the loss he has incurred.
g. Liquidated damages Sometimes the parties may themselves in their contract fix the
damages to be paid in case either party commits the breach of contract. If the amount so
fixed reflects a genuine pre-estimate of loss likely to result by breach, the innocent party
can claim the fixed amount, and this is known as liquidated damages.
h. Penalty clause A penalty is a sum agreed in a contract to be forfeited on breach of
contract. It differs from liquidated damages in that these are an attempt to value the
financial damage suffered as a result of breach of contract, whereas penalty is used as a
deterrent or security for the performance of the contract.
3. Quantum meruit A claim on a quantum meruit in fact is a claim for the value of work
done by a party to a contract, whereas a claim for damages is for compensation in respect
of loss suffered by breach of contract. The general rule is that a contract provides for the
services to be rendered in return for payment of a lump sum, nothing can be claimed
unless the work has been precisely performed completed or goods supplied. However,
claim can be made under quantum meruit it:
• A party to an entire contract is prevented from performing the whole of the
contract by the fault of the other party, for example; if the builder of a house is
prevented by the employer from completing erection of a house; the amount
recovered will depend upon the value of the work already done, or
• A party has only partially fulfilled his obligations but the other party has
voluntarily accepted the benefit of the work or goods supplied, or  The contract
is divisible as opposed to entire.
There is no remedy for a person who has performed a contractual obligation and then
repudiated the contract. There must be either exact performance of the contractual obligation,
or a substantial performance before a claim can be made.
4. Equitable remedies Both specific performance and injunction are equitable remedies,
which may be awarded at the discretion of the court to a person who has suffered a legal
injury where damages would not be an adequate remedy.
a. Specific performance is an order requiring a person to carry out a contractual
obligation as agreed and is usually granted in the following cases:
• Where a contract is for the sale of land
• Where the contract is for taking debentures in a company
• Where the contract is for the sale of rare goods which are not easily available
in the market e.g. ships or the value of such could not be measured in money.
 Failure to obey an order of specific performance constitutes contempt of court, which
is punishable by a fine or imprisonment. Specific performance is not granted in the
following cases:
• Where damages would not provide an adequate remedy
• Where the contract is to render personal services e.g. a contract to paint a
picture
• Where one party to the contract does not possess competency to contract and
hence cannot be sued for breach of contract as remedy will never be awarded
against an infant
• Where the contract is to lend money
• Where the court cannot supervise the actual execution and the contract e.g. a
building construction contract.
b. An injunction is an order of the court restraining the doing, continuance or
repetition of a wrongful act. It may be obtained to enforce a negative contractual
term (i.e. where one party is doing something he promised to do) where an order
of specific performance would not be available, for example, where a singer
agreed to work only for a certain employer and then in breach of contract, worked
for arrival company. Although her employer would not have been able to obtain
an order for specific performance of the original contract for personal services, he
was successful in obtaining an injunction restraining the singer from singing for
anyone else.
LIMITATION OF ACTIONS
Rights of Action cannot endure forever; there must be some end to litigation. As the years roll by
so it becomes more difficult to prove transactions, the memories of witness fade with the years
and the possibility of a just result to litigation becomes more remote.
The Limitation of Actions Act (Cap 22) Kenya is designed to limit the period within which the
various actions can be brought. The period of limitation begins to run from the time the right of
action arose.
i. Actions for breach of contracts is 6 years
ii. Actions to enforce a recognizance is 6 years
iii. Actions to enforce an award is 6 years
iv. Actions founded on torts is 3 years but for actions for libel or slander, it is 1 year.
v. Actions to recover any penalty or forfeiture is 2 years
vi. Actions for an account is 6 years.
Where the plaintiff is an infant or insane, the period of limitation does no run until the disability
ceased, or the plaintiff dies, whichever occurs first. But once time has started to run, any
subsequent incapacity will not stop it.
Where an action is based on the fraud of the defendant, or where the existence of a right of action
has been fraudulently concealed by the defendant, or where the action is for relief from the
consequences of a mistake, the period of limitation does not begin to run until the plaintiff has
discovered the fraud or the mistake of could with reasonable diligence have discovered it.
Under the Limitations of Actions Act (Cap 22) where a right of action has become statute barred,
written acknowledgement by the person liable revives a fresh cause of action in favour of the
plaintiff. Similarly, a part payment of statute barred debt has the same effect. In these two cases,
the plaintiff obtains an extra 6 years to bring action in order to enforce his contractual rights
against the defendant.
CONTRACT CLAUSES (36 №) 5.
5. Final measurement and valuation is given as agreed, AAK – 3 months or – receipt of
contractors claim Bill of variation – i.e., calculated difference between contract sum and
adjusted contract sum.
6. Final certificate to be issued within one month of DLP or after make good (m.g.) defects
Stating;
i. Amount paid to contractor in interim certificates
ii. Adjusted contract sum
7. Final certificate is conclusive evidence of performance except – fraud/dishonesty
Arithmetic errors
 Omissions
 Inclusions
8. No further certificate implies work is good e.g. interim, m.g. and practical completion.
Adjustment of Contract Sum to original contract sum DDT:
i. All P.C. sums
ii. All profits on P.C. sums
iii. All provisional sums and value of provisional quantities
iv. Contingency sum ADD:
i. Total payment (actual) to N.S.C
ii. M.C. tender for P.C. items that were accepted.
iii. Percentage profit on (i) and (ii) iv. Actual
payment against provisional sums
v. Value of measured quantities (vi) Any extra to be added to the contract sum e.g.
fluctuations, variations, antiquities (valuables found underground)
CLAUSE 31 – BONDS
• Contractor to provide a guarantor
• Guarantor to be an established bank  Amount has to be agreed CLAUSE 32 –
FLUCTUATIONS

• Employer is to take care of variations in cost

• Variations are ascertained by Q.S. and contract sum is adjusted
• Basic prices of major material, components are included Delete: if the clause does not
apply the contractor bears the risk or variations in cost
CLAUSE 33 – WAR RISKS
• If war arises determination by either party
• Contractor is paid as in clause 26 except loss due to determination
CLAUSE 34 – WAR DAMAGE
• Contractor to be re-instated
• Contractor to continue completion up to completion
• Contractor will be paid for re-instatement and work done up to war
CLAUSE 35 – ANTIQUITIES
• All items of value belong to employer
• Contractor to remove them carefully and handover to Architect
• Contractor will be paid for any loss
CLAUSE 36 – ARBITRATION
• Disputes referred to Arbitrator
• Arbitrator to assess rights and obligations of each party
• Arbitrator to give an award
• Arbitrator is final and binding
• Arbitrator is after practical completion except where urgent
CLAUSE 37 – CORRUPTION AND BRIBERY
• Not to be practiced within the contract.
CLAUSE 17 – ASSIGNMENT AND SUBLETTING
• The contractor shall not without a written consent of the employer sublet the contract
CLAUSE 22 – DAMAGES FOR NON-COMPLETION
• If the contractor fails to complete the works by the date for r practical completion stated
or within any extended time fixed by the architect and is with the opinion of the architect
the work should have been completed, then the contractor shall pay the employer a sum
of money previously agreed. This sum of money is known as liquidated and ascertained
damage for the period during which the work remains incomplete.
REVISION QUESTIONS
1. (a) Briefly explain how an offer may come to an end. (7½mks)
(b) Briefly explain how a contract cane be discharged by frustration. (5mks) (c)
In the law of contract, what is meant by each of the following?

i) Privity of contract
ii) Undue influence
iii) Quantum meruit

1.a Termination of offers to execute construction works can take different forms. Outline FIVE
such forms. (7½mks) (b)
1.b Peril sold his business to Victor on condition that Victor pays a monthly sum of twenty
shillings to Peril for life and a monthly sum of the same to his widow after his death. After
Peril‟s death, Victor declined to pay the sum to the widow. The widow intends to sue Victor
for breach of contract. Advise the widow.