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Title: BUSINESS LAW 1
Description: Its entails the required laws to pertake a business
Description: Its entails the required laws to pertake a business
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Summary
BUSINESS LAW 1
1
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1
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For them law means a
collection of rules that must be obeyed otherwise they might face certain
consequences
...
In its wider meaning "law" means a body of rules
designed to regulate human conduct within a particular state which must be
obeyed by everybody subject to it and enforced by the machinery of state
...
It may be used to refer to
laws of nature such as Newton's Law of Gravitation or Newton's laws of motions
...
They are immutable rules, but are not
man made or state laws; they do not regulate human conduct
...
These laws are not laws for our purpose because they
are neither binding nor enforceable in the courts of law
...
These laws, though important in their
specific spheres are not the kind of laws with which we are concerned with
...
It should be noted,
however, that members of those institutions themselves may have agreed to abide by
those rules and such agreements may be enforced by courts as contracts
...
We also come across what is termed as "rules of morality", such as "thou shall not kill"
or "thou shall not steal"
...
Take Note
The law of state differs from other kinds of law such as laws of
nature, in that it is made by institutions such as Parliament or
courts and is of binding nature and enforced by the authority of
the state
...
3
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It is
practically difficult if not impossible to bring all such behaviours into one single
definition
...
Some definitions are so wide that they cover matters that are not law while certain
other definitions are so narrow that they will not cover what is law
...
For instance, John Austin, an English jurist defined law as the command of the
sovereign body in a society
...
The command may be issued to an inferior (an individual), and enforced
by punishment (or sanction as Austin called them)
...
Law commands that you must drive a motor
vehicle on the left hand side of the road, or that you must not cause bodily harm to
another person or should not damage another person's property
...
This definition by Austin applies in many instances but it cannot be said
that it is a perfect definition
...
For example, the law does not command us to make a contract,
but rather lays down the conditions under which an agreement will have the force of
a legally binding agreement: Similarly, the law concerning wills never commands us to
make a will but sets out conditions under which a person may make a will
...
Also, Austin's definition does not account satisfactorily for laws made by
judges
...
According to G
...
Paton, law consists of
the body of rules which are seen to operate as binding rules in that community
backed by some mechanism accepted by the community by means of which
sufficient compliance with the rules may be secured to enable the system or set
of rules to be seen as binding in nature
...
Vinogradoff
saw law as a set of rules imposed and enforced by a society with regard to the
attribution and exercise of power over persons and things
...
This
definition is based on the premises that law is what the courts will pronounce as law
...
On this premise, body of rules as made by Parliament or customs is not law
...
This definition is controversial because it emphasizes that
judges make law
...
However, it is true that certain
rules are entirely creation of judges
...
But in case of
statutory law and African Customary law they merely declare law which already exist
...
Marxists and other radicals define law as a body of rules which reflects the will of
the dominant class in society
...
Activity 1
...
Thus there is no universally agreed definition of law
...
This definition requires further explanation
...
For instance
when we say law of contract, we mean that it consist of a number of rules which are
collectively called the law of contract
...
Broadly speaking there are
the following types of rule:
1
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g
...
2
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g
...
3
...
g
...
4
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g
...
Third, law is made and altered by certain institutions
...
Generally law is made by Parliament or the National Assembly, but that is not always
true
...
African Customary Law is
not enacted by the National Assembly but is based on customs of different tribes in
Kenya and is being followed by the members of that tribe from time immemorial
...
The requirement is that law made by such
institutions should be recognized by the state
...
Generally, Parliament is empowered to change or amend the law: Parliament can
amend any law including African Customary Law and the judge made laws, including
common law, rules of the equity and judicial precedent
...
If a law has
been made but is not biding it has no meaning
...
Finally, law must be enforced by the machinery of the state
...
Law is generally enforced by police, courts of
law and prison systems
...
1
...
Moralities are not fixed and vary from one
group or society to another
...
Moral values may also change over time
...
Most of the crimes are also
moral wrongs
...
However, even
on this major issue there are people who believe that euthanasia should be allowed
...
So is true of abortion
...
For instance, a
person is not legally liable for disrespect to his parents but failure to respect parents
is a moral wrong
...
Thus, law and morality coincide in many respects but diverge on many issues
...
LECTURE TWO: CLASSIFICATIONS OF LAW
Lecture Outline
2
...
2 Objectives
Summary
2
...
3
...
3
...
3
...
3
...
3
...
4 Distinction between Common Law System and Civil Law System
2
...
6 References
2
...
The most common way to classify law is by the type of law, that is, the matters that
the law is regulating
...
However, in this lecture we
shall discuss classification by the type of law, the other classification we shall discuss
in the next lecture as sources of law
...
2
...
2 Objective
At the end of this lecture you should be able to:
1
...
2
...
3
...
4
...
5
...
2
...
3
...
3
...
3
...
3
...
3
...
3
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It is concerned with the organizations of
the state, the relationship between the state and the people who compose it and
between various state organs, the responsibilities of public officers to the state and
to private persons
...
(ii) Administrative law
This law regulates the functions of governmental and administrative agencies
...
(iii) Criminal law
It is concerned with suppression of wrongs which the state is concerned to prevent
and punish
...
(b) Private Law
Private law, on the other hand, is primarily concerned with rights and
obligations of private persons, that is, individuals, associations and
corporations, towards each other
...
Private law covers a wider field than public law
...
The following are more important:
(i) The law of contract - It is this branch of law which specify the conditions on which
agreements made between two or more persons are to be treated as legally binding
and the legal consequences for breach of contract
...
(ii) The law of tort - This lays down the rules regarding civil wrongs which give rise to
a claim for damages assessed and awarded by the court to the person wronged
...
There are various types
of torts
...
(iii) Family law - This is concerned with family relationship such as marriage, divorce,
maintenance, status of women, widows and children, including custody, guardianship,
legitimacy and adoptation
...
Testate succession means passing of property or right by a will
...
(iv) Law of succession - This lays down the rules concerning inheritance of property
which determines how the property passes on the death of a persons to his successor,
or to person under will
...
(vi) The law of trusts - A trust is any arrangement whereby the property is entrusted
to the trustee with the intention that it be administered by the trustee for another's
benefit called the beneficiary
...
(vii) The company law - This law deals with the rules relating to the most successful
form of business organization, the registered companies
...
(viii) The business law - It is a part of private law
...
(ix) Labour law
This involves contractual relationship between employer and employee; rights and
duties of the employer and employee
...
It also covers rules relating to industrial relations and
trade unions
...
Private law actions are commenced by private persons and the procedure that has to
be followed is governed by the rules of civil procedure under Civil Procedure Act
...
2
...
2 Criminal Law and Civil Law
This mode of classification overlaps with the above classification
(a) The Criminal Law
It is that branch of law which for the purpose of preventing harm to the society,
(a) declares what conduct is criminal and (b) prescribes the punishment to be
imposed for such conduct
...
A crime is considered as a wrong against society and therefore
the state as a custodian of the society takes an action
...
The purpose of this law is to protect society, punish the offender, and deter him and
others from committing an offence
...
This section provides
that, ‘'No person shall be convicted of a criminal offence unless that offence is
defined and penalty therefor is prescribed, in a written law
...
Crime therefore, is an act or omission in violation of penal laws created by a
statute
Most of the offences are defined and punished by the Penal Code of Kenya
...
Summary
Criminal law actions are commenced in accordance with the rules of the Criminal
Procedure Code
...
If the accused person is found guilty, he is liable to punishment which
may be a fine and/or imprisonment, death penalty, probation or community service
...
The party instituting a
criminal action is called the prosecutor while the party against whom the charges are
brought is the accused
...
Criminal cases are called
The prosecutions involving offences are brought in the name of the state
...
(b) The Civil Law
Civil law concerns, itself with regulating the relationship between individuals,
associations and corporations
...
Civil law is basically private law and
covers almost all areas covered by latter
...
The purpose of civil or private law is to resolve disputes between individuals and to
remedy wrong done by one individual against another
...
Take Note:
Private law and civil law are almost, if not entirely, synonymous because
both are concerned with right and obligations of individuals, associations
and corporations towards each other
...
Unlike criminal cases but like private law actions, civil law actions are generally
initiated by private persons
...
The remedies available in civil actions are
damages, injunction and declaration
...
Whereas in tort the remedy of
specific restitution of property is also available
...
The party bringing or
filing a case or plaint is called the plaintiff (in England now he is called a claimant)
...
The person who defends himself in an action is called the
defendant, but a person responding to a petition is called the respondent
...
The plaintiff's names being placed
first, for example, Mbugua s/o Gakua v Mwangi Mugure
...
When the loser party appeals he is called the appellant and the other party who
responds is called the respondent
...
The person who defends himself in a case is called the
defendant, but the person who responds to a petition is called the
respondent
...
The remedies that may be provided by the courts under private or civil law are as
follows:
(i) Damages
...
Damages are often
provided for breach of contract, in a tort action and for breach of trust
...
It is an order of the court prohibiting someone from doing some
specified act, or compelling someone to undo some wrong
...
(iii) Declaration
...
For example, a declaration may be made in relation to a marriage
whereby the marriage is declared null and void
...
(i) Specific performance
...
(ii) Restitution
...
For
example, in contractual situation, (1) money paid under a void contract can generally
be recovered back, or (2) money paid under a contract where there is a total failure
of consideration can be recovered back
...
Summary
(vi) Rescission
...
The purpose of this remedy is to
restore
the parties to a contract to their pre-contractual position
...
For example, for misrepresentation
a contract maybe rescinded
...
It is a remedy in contract
...
(viii) Quantum meruit
...
A quantum meruit action is a claim for a percentage of the
contract price in direct proportion to the percentage of work done
...
The remedies of injunction, specific performance, restitution, rescission, rectification
and quantum meruit are equitable remedies provided by the equity
...
The court may
grant them or refuse to grant them
...
It must be noted that the difference between civil law and criminal law does not lie in
the nature of the act but in the types of remedies provided
...
Consider the following example:
Ouma by his negligent driving hits a pedestrian Katwa, as a result Katwa is seriously
injured
...
Katwa may also bring a civil action
in tort against Ouma for injuring him and will be able to recover damages
...
Activity 2
...
When a criminal offence is committed whom the offence is against?
2
...
What procedure is to be followed in :
a) A criminal case?
b) A civil case?
2
...
3 Written Law and Unwritten Law
The law is traditionally divided into two main categories according to the form in
which it s made
...
(a) Written Law
Written law signifies any law that is formally enacted by the National Assembly
or Parliament
...
All Acts of Parliament that is statutes and delegated legislation such as
rules, regulations, orders, and notifications and by- laws are written laws
...
Reference to the written law is to be found in section 77(8) of the
Constitution of Kenya mentioned above
...
That means all that portion of law,
observed and administered in the courts, which has not been enacted or promulgated
in the form of a statute, is unwritten law
...
Take Note
Written laws supercede unwritten laws because they superior to the
unwritten law
...
The term unwritten law is misleading
...
For example, judicial precedent can be found in judicial decisions
which are often reduced to writing in the form of law reports
...
These laws are
often in written form, but because they are not formal enactments, they are
unwritten laws
...
Where provisions of the unwritten law are in conflict with the provisions of the
written law, the later shall prevail
...
2
Give three examples each of written and unwritten law
...
3
...
It is that part of law which
creates, defines and regulates rights and duties among and for persons, natural
or otherwise
...
For
example, in law of contract, the rules which lay down the conditions under which an
agreement will have force of legally binding contract, in the criminal law, defining
what conduct shall amount to an offence, in the family law, rules prescribing the
requirements of a valid marriage, and in the law of succession, rules providing who
Summary
will inherit an intested deceased property, are all rules of substantive law
...
(b) Procedural Law
Procedural law or adjective law on the other hand, is that branch of law which
prescribes method of enforcing or maintaining rights and duties recognized by
the substantive law and obtaining redress for their invasion in a court of law
...
This simply means that procedural law involves the rules by which an action may be
brought and disposed of
...
Procedural law includes the Criminal Procedure Code,
the Civil Procedure Act, the Evidence Act, and rules of the courts
...
The Civil Procedure Act is concerned with methods, procedures and practices used in
civil litigation
...
2
...
5 International Law and National or Municipal Law
(a) International Law
International law is that law which contains foreign elements
...
(i) Public International Law
...
It is composed for its greater part of the principles and
rules of conduct which states feel themselves bound to observe and therefore do
commonly observe in their relations with each other
...
The sources of international law include international
customary practices, treaties, bilateral agreements, conventions, general principals
of law recognized by states and the resolution and Declarations of the General
Assembly of United Nations
...
The International Criminal Courts tries offences
such as war crimes and genocide
...
Private International Law therefore consists of rules which are primarily concerned
with determining what system of law should properly be applied by the Kenyan courts
in cases which contain foreign elements
...
If the seller breaks the
contract and the buyer sues him in Kenya, Kenyan law is not necessarily the correct
law to be applied in that situation
...
(b) National or Domestic or Municipal Law
National law otherwise called municipal law or domestic law means all laws
operating within the territory of a particular state, that is, law emanating from a
particular country and having the force of law within its boundaries
...
It should be borne in mind that above classifications are, to some extent, arbitrary,
each classification of law tends to overlap with the other and no one classification
can be fully understood in isolation from the rest
...
Apart from providing civil
remedies, it contains many offences under which the company itself and its officers
may be punished; Similarly, constitution law and administrative law are branches of
public law but they are civil in nature
...
4 Distinction between Common Law System and Civil Law System
This is not classification of law but of legal system
...
a set of rules of substance and procedural;
ii
...
a body whose responsibility is to make and alter the rules
...
(a) Common Law System
Summary
Common law system is that system of law in which principles of law are derived
mainly from the decisions of judges in actual cases, that, is, the case law
...
It relies heavily on judicial precedents in
formal adjudication
...
e
...
(b) Civil Law System
Civil law system relies less on judicial precedent and more on codes, which explicitly
provide rules of decisions for many specific disputes
...
This system of law is based on the ancient Roman law and is the system of law in
many jurisdictions in continental Europe and many other countries, including French
speaking African countries
...
6 References
2
...
Ashiq Huisen, (1978, Reprint)
...
(Nairobi: East African Educational Publishers Ltd
...
2
...
Business Law (London: Blackstone Press 2nd
Edition), ) Chapters 1 and 2
...
John O
...
LECTURE THREE: SOURCES OF LAW AND THE STRUCTURE OF COURTS IN KENYA
Lecture Outline
3
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2 Objectives
3
...
4 Sources of Law in Kenya
3
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1 The Constitution of Kenya
3
...
2 Legislation
3
...
2
...
4
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1
...
4
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1
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4
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1
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4
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2 Delegated or Subsidiary Legislation
3
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2
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1 Reasons for Delegated Legislation
3
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2
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2 Criticism of Delegated Legislation
3
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2
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3 Control of Delegated Legislation
3
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3 Received English Law
3
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3
...
4
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2 The Development of English Common Law
3
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3
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4
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4
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1 Doctrine of Judicial Precedent
3
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4
...
4
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3 Avoiding Precedent
3
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4
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4
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5 Disadvantages of Judicial Precedent
3
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5 African Customary Law
3
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6 Islamic and Hindu Law
3
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7 Foreign Statutes
3
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5
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5
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5
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5
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5
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6 Summary
3
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1 Introduction
In this lecture we are going to discuss the various sources of Kenyan Law
...
The law of Kenya is derived from several sources, namely Constitution, legislation,
English common law, and rules of equity, judicial precedent, and African customary
law
...
These sources however, are
Summary
not of the same importance, the Constitutional Law is the most important source and
the next is the legislation
...
3
...
2 Objectives
At the end of this lecture you should be able to:
1
...
Discuss how the law is made or come into existence
3
...
Describe the characteristic of each source of law
5
...
Discuss the scope and limitations of each source of law
7
...
Explain jurisdiction of courts in Kenya
3
...
In this sense law reports, which publish decisions of the
superior courts in actual cases, Acts of Parliament, and books of authority by writers
such as Blackstone, Coke, and others are literal sources
...
In this sense,
received English law and African customary law are historical sources of the Kenyan
law
...
3
...
Thus, this
section contains the sources of law of Kenya
...
(b) Subject thereto, all other written laws, including the Acts of Parliament of the
United Kingdom
...
Provided that the said common law, doctrines of equity and statutes of general of
application shall apply so far only as the circumstances of Kenya and its inhabitants
permit and subject to such qualifications as those circumstances may render
necessary
...
Additional but limited sources are Islamic and Hindu law
...
4
...
It
outlines the government structure, allocation of the authority and duties of the
government and places limitations on the governmental authorities
...
However, the present Constitution was enacted in 1969, which has been amended
substantial number of times
...
e
...
Section 3 of the constitution establishes the supremacy of the
constitution by providing:
This Constitution is the Constitution of the Republic of Kenya and shall have the force
of the law throughout Kenya and, subject to section 47, if any other law is
inconsistence with the Constitution, this Constitution shall prevail and the other law
shall, to the extent of the inconsistency, be void
...
Take Note
Summary
The Constitution is the supreme law of the land and therefore any
law, including the legislation if inconsistent with the provisions of
the Constitution, the Constitution shall prevail and that law shall
be invalid and void to the extent of inconsistency
...
The areas covered by the Constitution briefly are:
1
...
2
...
The appointment of Ministers, Assistant Ministers and Permanent Secretaries
...
The composition of Parliament, election of Members of Parliament and their
qualifications for election
...
Election of the Speaker and Deputy Speaker of the National Assembly
...
Constitution of Electoral Commission
...
Establishment of the High Court, the Court of Appeal and other courts
...
8
...
9
...
10
...
11
...
12
...
3
...
2 Legislation
Legislation is a collection of rules passed by Parliament or made by a person or body
other than Parliament, but with Parliament's authority
...
It must be noted that legislation is superior to all other laws in
Kenya except the Constitution
...
However, where an Act of
Parliament is in conflict with the Constitution then Constitution shall prevail and
those provisions of the Act inconsistent with the Constitution shall be declared
unconstitutional and void to the extent of inconsistency
...
3
...
2
...
It is a major source of the Kenyan law
...
4
...
1
...
This is done where it is felt that there is a need for a law to deal with certain
problems faced by the community as a whole or by a particular section of the
community
...
(c) Repeal: An Act of Parliament cannot be repealed by anybody other than
Parliament itself
...
(d) Consolidation: Where existing legislation is gathered into one statute this is
known as
consolidation
...
(e) Codification: This takes place when all the law on a topic, that is, the statutory
law, case law
and customary law are gathered together to form a single entity, or included in one
statute
...
4
...
2 Delegated or Subsidiary Legislation
Parliament usually delegates its legislative power to some subordinate bodies or
persons such as ministers, local authorities, and statutory corporation
...
This is done through an Act of Parliament
...
A vast amount of legislation is created by delegated legislation
...
e
...
The
most common form of delegated legislation is called statutory instruments, when
Summary
made by a minister in the form of rules and regulations
...
3
...
2
...
1 Reasons for Delegated Legislation
There are a number of reasons for the use of delegated legislation
...
Parliament scarcely has time to give proper consideration to the material which
now finds its way into statutory instruments or other forms of delegated legislation
...
Delegated legislation may also cover areas which involve quite specialized
technical knowledge and members of Parliament generally do not have the knowledge
required to deal with the details of technical nature which is accordingly left to
experts in government departments or public authorities
...
Delegated legislation allows broad and general laws to be passed by Parliament and
more detailed provisions to be supplied by the relevant persons or bodies in the form
of statutory instruments, by-laws, etc
...
Delegated legislation can be quickly and easily updated to cope with the changing
economic and social conditions
...
Delegated legislation allows the delegate to cope with the emergency or urgent
problems that may arise since the procedure in Parliament is slow, and in addition
Parliament is not always in session
...
4
...
2
...
The main criticism is that it is undemocratic to delegate the power to make law to
persons
or bodies who are not-elected
...
2
...
Although in theory all delegated
legislation
may be vetted by Parliament but in practice they are so numerous and complex that
Parliament cannot do any such thing effectively
...
Delegated powers are so wide that they may be misused
...
Delegated legislation is even more complex than the legislation itself which makes
the
problem of understanding the law more difficult
...
4
...
2
...
Many Parent Acts contain provisions requiring delegated
legislation made under them to be laid before Parliament, but they are in practice so
numerous and complex that Parliament cannot effectively scrutinize them
...
Despite such
controls Parliament cannot effectively supervise the use of delegated legislation
...
Any scrutiny by the courts is after the event
...
First, that it is
inconsistent with the provisions of the Constitution
...
Secondly, if it does not conform to the Parent Act that
conferred power to make the delegated legislation then the courts can declare it
ultra vires (beyond the powers) and therefore void
...
It can be declared procedurally ultra vires in that it does not conform
with the procedure laid down in the Parent Act
...
On appeal the conviction was quashed
on the ground that the order had not been published in the Kenya Gazette as required
by the law
...
2
Explain how far control of delegated legislation is effective in
practice?
Take Note
Statutory law overrides any other source of law except the Constitution,
especially the case law, common law, equity and African customary law,
while only Parliament itself by further legislation can override a statute
...
3
...
2
...
2 The Legislative Process or Procedure for Passing an Act of Parliament
The legislative powers of Parliament are contained in section 46 of the Constitution
which empowers the National Assembly to pass statutes
...
Bills are usually drafted in the office of the
Attorney General by specialists
...
Bills are of the following categories:
Summary
Public Bills, which affect the general public as whole, Private Bills, which concern a
specific section of community or private persons such as a company and Private
Member's Bill which are introduced by individual members of Parliament
...
First Reading
The first reading consists of no more than reading the title of the Bill and a brief
summary of contents of Bill in order to notify members that the Bill has been
proposed,
...
Second Reading
The second reading is the most important stage because at this reading debate takes
place on the general principles of the Bill
...
Every member is allowed to participate in the debate
...
If the Bill sails through the second reading it goes the next stage,
the Committee Stage
...
Detailed analysis of the Bill takes place at the Committee Stage where the provisions
of the Bill are minutely examined and if necessary amended
...
At
the report stage amendments made in committee are drawn to the attention of the
House
...
Third Reading
In the third reading details or principles of the Bill are not debated only minor
drafting changes are permitted
...
The President's Assent
If the President assents it becomes law
...
If Parliament approves the recommendations by the
President, the Bill will be resubmitted to the President for assent
...
In that case the President shall assent the Bill
...
Also, it shall not be operative until published in
Kenya Gazette
...
4
...
1
...
1
...
2
...
If there are no statutory provisions covering a
particular legal point, the parties may not know what their rights are until the
court has decided the dispute between them
...
Statutory provisions are expressed more clearly and comprehensively than case
law
...
Statute law can cover wide range of points
...
Law can be passed to avoid future problems
...
Statute law overrides judge-made law, but it can be challenged as being
unconstitutional
...
1
Discuss advantages of statutory law
3
...
3 Received English Law
When the British came to Kenya they introduced English law into Kenya which is also
an important source of law
...
It should be noted that what is received is English law and not British law
because in Great Britain there are two systems of law
...
The
Scottish law is based on the principles of law contained in elaborate codes
...
By virtue of section 3(1)(c) of the Judicature Act the English statutes of general
application, the substance of the common law and the doctrines of equity are
applicable in Kenya
...
First, only
the English law that was in force in England on 12th August 1897 is applicable in Kenya
and secondly, it applies only so far as the circumstances of Kenya and its inhabitants
permit
...
It is concerned only with the law in effect in
Summary
1897
...
Nevertheless we find that the Kenyan courts still consider the recent developments in
English law and try to adopt them if they find it suitable to the local circumstances
3
...
3
...
If an Act of
Parliament is limited in its application to specific persons or to specific areas in
England it is not a statute of general application and therefore is not part of the
received law in Kenya
...
In Karanja v
...
of England was a statute of general application
and therefore applicable in Kenya by virtue of section 3 (1) (c) of the
Similarly, in Uganda case, Lakhani v
...
Certain points concerning statutes of general application may be noted:
1) The statute must have been in force in England on or before the reception date
...
3) Repeal or amendment of statutes of general application after the date reception is
of no
significance to Kenyan law
...
4) Interpretation of statutes of general application made by the English before 1897 is
binding
on the Kenyan courts unless overruled
...
3
...
3
...
It has nothing to do with any law created or
passed by Parliament
...
Originally the term ‘'common law'' was used to denote the law in England which was
enforced in the Kings' courts
...
The effect of the Norman conquest was to
set in motion the unification of local customs into one system of law
...
This national law
comes to be known as the common law
...
Not long after the conquest, the Normans adopted the system of sending out royal
justices to different parts of the country to deal with civil and criminal matters in the
locality in which they arose
...
At first they administered local customs ascertained with the help of a
local jury
...
Some of the customs would be rejected,
whereas others gained general acceptance and gradually applied throughout the
whole country
...
Problem of the writ system
The early common law was rigid and often harsh
...
Civil proceedings could only be
commenced through the issue of a writ
...
There was a specific writ and form of action or procedural rules for each
particular type of legal wrong, and it was vital that the plaintiff chose the right writ
to fit his cause of action
...
Also,
if there was no recognized form of writ available to cover his grievances, he might be
left with no remedy at all
...
In many cases damages might not be an
adequate remedy
...
There was no remedy to compel the
party in breach to perform his part of the contract, especially where the subjectmatter of the contract is unique, one of its own kind
...
4
...
3 The Development of Equity
As a result of these and other imperfections in the common law, dissatisfaction grew
and the dissatisfied persons began to petition the king to provide them with a
remedy
...
There were no fixed
rules which the Chancellor had to apply, hence the Chancellor would decide the case
as he thought fair
...
The Court of Chancery was guided by the equity and fairness
...
In due course of time, the Courts of Chancery evolved a body of rules, the principles
of which were as firm as those of the common law
...
In practice both Common law and Equity operated as parallel systems, with each set
of courts regarding itself as bound by its own judicial precedent
...
Although the courts were combined, the two still remain distinct systems each with
its own different principles
...
Equity created certain new rights
...
Under the law of
trusts obligations of a trustee to a beneficiary were recognized and enforced
...
It accepted the use of the
mortgage as a method of borrowing money against the security of real property
...
In common law the only remedy provided is damages
...
(c) New procedures
...
It ordered a witness by ‘'subpoena'' to attend a trial, to have examined and
cross examined orally, for discovery of documents and to insist on relevant question
being answered
...
Take Note
Common law and equity are unwritten laws and therefore can be
superseded by the statutory law
...
3
...
4 Judicial Precedent or Stare Decisis
3
...
4
...
Stare decisis means "Let it (the previous decision) stand''
...
The doctrine of judicial precedent requires
that all courts are bound to follow the precedent set by the superior courts above
them in the hierarchy
...
Rather, they consider whether such a case has previously been ruled upon by the
courts, and if it has been then they may choose to decide the case before them in the
same way
...
Where there is no previous
decision on a point of law that has to be decided by a court, then the decision made
in that case on that point of law is an original precedent
...
It is not that every part of a judgement given by a court will be binding
...
This
is known as ratio decidendi (usually abbreviated to ratio), which literally means the
reason for the decision
...
Thus, only the
principles of law that are essential to the decision are ratio decidendi and therefore
are binding
...
e
...
Obiter dictum is a judicial
statement of law without any precedent value
...
Although obiter dictum is not
binding, it may have persuasive authority, especially when made by judges or courts
of high standing
...
Persuasive precedent comes from a variety of
different sources such as obiter dicta by a higher ranking court; ratio decidendi and
obiter statements by courts outside the Kenyan legal system, e
...
the House of
Lords, the Judicial Committee of Privy Council, courts in New Commonwealth
countries and courts in countries following a common law system, and the dissenting
judgment in a case by an eminent judge
...
First, there must be a reliable system for the full and
Summary
accurate law reporting
...
e
...
L
...
A
...
R)
...
3
...
4
...
Decisions of the
inferior courts do not bind any court, including other inferior courts even if the
decision is by the inferior court of the highest rank
...
The Judicature Act established a relatively clear hierarchy of courts, as discussed
below
...
1 below)
The Court of Appeal
The Court of Appeal is the highest Court in the land and its decisions are binding on
all lower courts, including the High Court
...
For example, in Dodhia v National and
Grindlays Bank Ltd (1997), the Court of Appeal stated that it was at liberty to
depart from its previous decisions where it appears right to do so
...
Their decisions however, have a persuasive
authority
...
The decisions of the High Court are binding on all lower
courts
...
Other Courts
Other courts that is, inferior courts do not set any precedent and therefore their
decisions are not binding on any courts
...
3
...
4
...
However, a court may avoid following
a precedent in two ways
...
Secondly, where the previous decision was reached
per incurium, that is, the earlier decision failed to consider some relevant statute or
principle of law
...
4
...
4 Advantages of Precedent or Case Law
(i) Certainty
...
Legal certainty is achieved in that, if the legal problem raised has a precedent
before, the judge is bound to adopt it
...
(ii) Development
...
(iii) Practicality
...
(iv) Time-saving device
...
(v) Flexibility
...
(vi) Justice and Fairness
...
3
...
4
...
The obvious disadvantage of the doctrine of binding precedent is its
inherent rigidity which may cause hardship
...
The
doctrine can lead to perpetuation of bad decisions for long period of time
...
However, flexibility may be achieved by the possibility of the bad
decision being overruled or by distinguishing the case before the court from the bad
precedent
...
The vast and ever increasing bulk of reported cases to
which the courts and lawyers must refer to determine what the law is can obscure the
basic principles
...
(iii) Artificial distinctions
...
(iv) Slow developments
...
Even where it is clear that there
is need of law reform, changes cannot be made unless a case on the particular point
of law comes before the court
...
It is not always easy to ascertain what the ratio
decidendi of a particular case may have been, as the judges do not always make this
clear
...
Take Note
Summary
The common law, rules of equity and judicial precedents are unwritten laws
and therefore superseded by the written law, i
...
the statutory law
...
4
...
All tribes in Kenya
had certain rules and customs for redressing personal wrongs
...
African customary law is not a single uniform set of customs prevailing throughout
Kenya
...
When British came to Kenya they did not abolish customary law but permitted it to
exist side by side with the new law introduced by them
...
African customary law is still applicable in Kenya subject to four conditions
...
This is because African
customary law is an unwritten law and therefore by virtue of section 77 of the
Constitution quoted earlier it cannot be applied to criminal matters
...
Secondly, it will apply only in cases when one or more of
the parties is subject to it or affected by it
...
In Maria Gisese Angoi v Marcella Nyomenda (1982), the High Court of Kenya had an
opportunity to consider when customary law may be repugnant to justice
...
A Kisii custom
allowed a widow who had no male child of her own to marry a girl by entering into an
arrangement with the girl's parents
...
This custom was held to be repugnant to justice and the marriage between the widow
and the girl and was, therefore, declared as null and void
...
Section 2 of this Act
empowers District Magistrates Courts to deal with a claim under customary law
...
It was held in Kamanza Chiway v Tsuma by the High Court that the list of claims
under customary law provided by section 2 of the Magistrates' Courts Act was
exhaustive and therefore claims in tort and contract could not be entertained under
the African customary law
...
4
...
They are limited in scope in
that Islamic law applies only to persons professing Islamic faith and Hindu law applies
only to Hindus
...
Islamic law
applies only to personal matters such as marriage, divorce, personal status and
inheritance
...
Take Note
Islamic law and Hindu law are considered as unwritten law like African
customary law and therefore inferior to the statutory law
...
4
...
For
example, The Indian Transfer of Property Act, 1882, the English Law Reform
(Frustrated Contracts) Act, 1943, the Law Reform (Married Women and Tortfeesors)
Act, 1935, etc are incorporated into the Kenya Law
...
3
...
The Court of Appeal, the High Court and the
Summary
Industrial Court constitute the superior courts and the magistrates' courts make up
inferior (subordinate) courts
...
(See figure 3
...
3
...
1 The Court of Appeal
This is the highest court in the country
...
It consists of the Chief Justice and not less than two other
judges referred, to as Judges of Appeal, as may be prescribed by Parliament
...
However, the number of
Judges of Appeal may be increased
...
The qualifications, tenure of office, remuneration, etc for the Judges of Appeal are
the same as those of the puisne judges
...
The Court of Appeal has only appellate
jurisdiction
...
It does not
have original jurisdiction
...
5
...
The Judges of the
High Court consist of the Chief Justice and such number, not being less than eleven,
of other judges, referred also Puisne Judges as may be prescribed by Parliament
...
However, the number may be
increased
...
The judges of the High Court are also
appointed by the President but in accordance with the advice of the Judicial Service
Commission
...
A judge may be removed from the office only after a
special tribunal appointed to investigate him has so recommended
...
The judges retire at the age of seventy four
...
The
High Court has unlimited original jurisdiction in civil and criminal matters and such
other jurisdiction and powers conferred on it by the Constitution or any other law
...
The High Court has supervisory jurisdiction under section 65 (2) of the Constitution in
any civil or criminal proceeding before any subordinate court or court martial and
may make such orders, issue writs and give such directions as it may consider
appropriate for the purpose of ensuring that justice is duly administered by such
courts
...
Section 67 (1) of the Constitution provides that where any question as to
the interpretation of the Constitution arises in proceedings in a subordinate court and
the court is of the opinion that the question involves a substantial question of law,
the court may or shall if a party to the proceedings so requests, refer the question to
the High Court
...
By section 67 (4) of the Constitution there is right to appeal where a subordinate
court has given a final decision in civil or criminal proceedings on a question as to the
interpretation of the Constitution
...
5
...
It is duly constituted when held by a Chief Magistrate, a Senior Principal
Magistrate, a Principal Magistrate, a Senior Resident Magistrate or a Resident
Magistrate
...
The Resident Magistrates Court
has jurisdiction to hear cases arising any where in Kenya
...
(See Table 3
...
Under section 5 (2) of the Magistrates Courts Act, the Resident
Magistrates' Court has same jurisdiction and powers in proceedings concerning claims
under the African customary law as is conferred on District Magistrates' under section
9 (a) of the Act
...
In criminal cases, a court held by a Chief Magistrate down to a Resident Magistrate
can give any sentence provided by law in cases which can be heard by them, that is in
cases not heard by the High Court or could not be heard by the District Magistrates'
Courts
...
5
...
District Magistrates' Courts are of three categories, District Magistrate
First class, District Magistrate Second Class and District Magistrate Third Class
...
A District Magistrates' Court is
duly constituted when held by a District Magistrate who has been assigned to the
district in question by the Judicial Service Commission
...
However, the Chief Justice may extend the area of jurisdiction of a District
Magistrates' Court
...
With regard other civil matters the powers of a District
Magistrate Court depends upon the value of the matter in dispute
...
All cases are normally filed in the lowest courts competent to try them
...
Also, where the suit concerns an immovable property, the
case is filed within the local limits of the jurisdiction where the property is situated
...
For details of civil and criminal jurisdiction of courts in Kenya see charts below
...
5
...
It is established under section 64 (1) of the
Constitution of Kenya
...
The
number of judges of Appeal shall not exceed fourteen
...
The Judges of Appeal are appointed by the
President acting in accordance with the advice of the Judicial Service Commission
...
The Court of Appeal has it's headquarter in Nairobi but it sits in several other places
including Mombasa, Nakuru, Kisumu and Nyeri
...
It hears appeals from the High Court and the Industrial Court
...
3
...
2 The High Court
The High Court is established by Section 60 (1) of the Constitution
...
The
number of Puisne Judges shall not exceed seventy
...
The Chief Justice is appointed by the President
...
To qualify for appointment as a judge of the High Court a person must be
an advocate of the High Court of Kenya for not less than seven years standing, or has
been previously a judge in a commonwealth country's court of unlimited jurisdiction
or has held for at least seven years a position such as that of a state counsel in the
office of the Attorney General
...
He can be
removed on the grounds of misbehavior or inability to perform the functions of his
office
...
The headquarter of the High Court is in Nairobi but it sits in several places, including
Mombasa, Machakos, Meru, Nyeri, Nakuru, Eldoret, Kisumu, Kakamega and Kisii
...
Although the High Court has unlimited jurisdiction, in practice it hears those criminal
cases which cannot be tried by the subordinate courts such as murder and only civil
cases which cannot be heard by any Residential Magistrate's Court because of the lack
of jurisdiction
...
The High Court has an exclusive jurisdiction in the interpretation of the
Constitution
...
After the decision of the High Court on the substantial constitutional
issue, the subordinate court must dispose of the case in accordance with that
decision
...
3
...
3 The Resident Magistrates' Court
The Resident Magistrates' Court is constituted by section 3 (1) of the Magistrate's
Courts Act
...
It is a court subordinate to the High court
...
The civil jurisdiction the
Resident Magistrates' Court is based on the value of the subject matter in dispute
...
1)
...
This means that they can hear any case involving African customary
law irrespective of the value of the subject matter
...
3
...
4 District Magistrates' Courts
The District Magistrates' Courts are established by section 7 (1) of the Magistrates'
Courts Act
...
Each of
these courts is a court subordinate to the High Court
...
A District Magistrate Court
exercises jurisdiction only within the district for which the court is established
...
District Magistrates' Court like the Resident Magistrates' Courts have jurisdiction to
listen to civil cases regarding claims under African customary law irrespective of the
value of the subject-matter
...
The criminal
jurisdiction of a District Magistrates' court is limited by the maximum sentence it can
impose
...
Where the
suit is for compensation or damages for a civil wrong done to a person or moveable
property and, if the wrong was done within the local limits of the jurisdiction of one
court and the defendant resides or carries on business or personally works within the
local limits of the jurisdiction of another court, the case may be filed by the plaintiff
in either of these courts
...
Most of the cases start in the District Magistrates' Courts and for this reason these
courts are called courts of first instance
...
Take Note
Resident Magistrates' Court and District Magistrates' Courts have
unlimited jurisdiction in proceedings concerning a claim under African
customary law
...
Criminal Jurisdiction of the Courts in Kenya
The Court of Appeal has the jurisdiction and powers to hear appeals on criminal
matters from the High Court in cases in which appeals lie to it under any law
...
Generally it
tries cases for which capital punishment or death sentence is permitted except
robbery with violence
...
The Chief Magistrate, Senior Principal Magistrate,
Principal Magistrate, Senior Resident Magistrate and Resident Magistrate have
jurisdiction to try offences and punish those offences in accordance with the powers
given to each of them under the First Schedule to the Criminal Procedure Code
...
The District Magistrate's Court First Class has criminal jurisdiction
to try and punish offences for which the sentence of imprisonment upto 7 years
and/or a fine is upto Shs
...
The District Magistrates' Court Second Class has
jurisdiction and powers to try and punish offences for which the sentence of
imprisonment is two years and/or fine is upto Shs
...
The District Magistrates' Court Third Class has jurisdiction and powers to try and
punish offences for which the sentence of imprisonment is one year and/or a fine is
upto Shs
...
Note: The criminal jurisdiction of any magistrate may be increased by the Judicial
Service Commission
...
5
...
Such bodies include:
(i) The Industrial Court
...
it consist of a Principal Judge
and as many judges as the President on the advice of the Judicial Service Commission
may consider necessary and other members appointment by the Minister for Labour
...
The Industrial Court has exclusive jurisdiction in respect of matters relating
to labour law and industrial relations
...
However, appeals from a judgement
of the Industrial Court shall lie only in matters of law
...
They are courts
subordinate to the High Court
...
(iii) Tribunals:
These are quasi-judicial bodies which consist of both judges and non-lawyers
...
For
example, the Restrictive Trade Practices Tribunal is established to hear appeals from
the orders of the Minister for Finance on restrictive trade practices, concentration of
economic power, and mergers and takeovers
...
Also, there are Rent Tribunals
...
First Dwelling
Houses Tribunal established by the Rent Restriction Act and second, the Business
Premises Tribunal created by the Landlord and Tenant (Shops, Hotels and Catering
Establishment) Act
...
The Tribunal has also
powers to order landlord to repair his premises, to permit the landlord to levy distress
for unpaid rent and to reduce the standard rent where the landlord has been unable
to carry out necessary repairs
...
Business Premises Tribunal's primary
function is to determine whether or not any tenancy of business premises is a
"controlled tenancy"
...
A controlled tenancy can only be
terminated or altered in accordance with the provisions of the Act
...
If the other party does not
wish to comply with the notice it must refer the matter to the Tribunal
...
Any party aggrieved by the order of the Tribunal may
appeal to the High Court whose decision shall be final
...
A Court Martial is a
military court which is not a permanent court but it is convened from time to time to
try persons accused of offences under military law
...
The offences which are triable by courts martial include aiding the
enemy, mutiny, insubordination, cowardice, desertion, absence without leave,
neglect of duty, drunkenness etc
...
The decision of the High Court shall be final
...
3
1
...
Discuss the importance of Constitution and legislation in Kenyan legal
system
...
Describe the procedure to pass an Act of Parliament
...
Explain the importance of judicial precedent
...
5
...
6
...
3
...
The sources of law are the
Constitution, legislation, received English law, that is, common law, equity
and statutes of general application, judicial precedent, African customary
law, Islamic law, Hindu law and foreign statutes
...
Also,
these sources are all not of the same importance
...
All other written laws applicable in Kenya,
namely Acts of Kenyan Parliament, those of the United Kingdom and India are
superior to all other unwritten laws, that is the common law and equity,
judicial precedent, African customary law, Islamic law and Hindu law and in
case of conflict the written law shall prevail
...
We have also briefly discussed the structure of courts
...
It has no original
jurisdiction
...
Next is the High Court, which has unlimited original jurisdiction in both civil
and criminal matters
...
It also has
supervisory jurisdiction and powers for interpretation of the Constitution
...
Several magistrates' courts are established to resolve disputes between
parties which are run by magistrates of varying seniority
...
We also briefly touched on other judicial and quasi-judicial bodies which are
created for specific matter
...
3
...
7 References
1
...
(Nairobi: Focus
Books), Chapters 1 &2
...
William Mbaya (1991), Commercial Law of Kenya (Nairobi: Petrans Ltd),
Chapters 2 and 3
...
Keith Abbot, Norman Pendlebury & Kevin Wardman, (2007) Business Law
(London: Thomson, 8th Ed
...
1
...
2
...
3
...
4
...
5
...
6
...
7
...
8
...
8
...
Form
4
...
2
...
8
...
1
...
8
...
2
...
8
...
3
...
8
...
4
...
8
...
5
...
8
...
6
...
8
...
Making an Offer
4
...
4
...
8
...
Termination of Offer
4
...
5
...
Revocation
4
...
5
...
Rejection
4
...
5
...
Lapse of Offer
4
...
5
...
9
...
10
...
1 Introduction
Contract is an important vehicle to carry on business in modern times
...
In this and the following lectures, therefore we shall deal
with the law of contract
...
23) is basically the common law of England, subject to
the modifications specified in the above Act
...
One of the essentials of a valid contract is the phenomena of agreement which
consists of an offer and acceptance
...
But before that, we shall briefly discuss the form of contracts so that you
acquaint yourself with various classification of contract
...
In the side notes we have
guided you on what is required while discussing a case and how to answer the problem
questions
...
2 Objectives
4
...
Explain the importance of a contract and contract law for business
...
Discuss the concept of a contract
...
Describe the essential ingredients for enforceability of a contract
...
Explain that negotiations between the parties need not always lead to a
contract
...
Describe various kinds of contract
...
Discuss the rules governing making of an offer
...
3 The Concept of Contract
Summary
A contract may be defined as agreement or bargain between two or more persons
which is legally binding on the parties
...
To say that an agreement is ‘' legally binding'' is merely a short way of saying that it is
one to which the law gives its sanction
...
This means that not all agreements are legally
binding
...
For example H, a husband makes a promise
to his wife W, that on her next birthday he will give her a present of a car and the
wife gladly accepts it
...
Thus we can say that all contracts are agreements but not all agreements are
contracts
...
4
...
There must be an agreement between two or more parties
...
When an acceptance
completely corresponds to the terms of the offer there is an agreement
...
There must be an intention on the part of the part of the parties to create
legal relationship
...
3
...
The above three elements namely, agreement, intention to create legal relations and
consideration must always be present for the formation of a contract, or before a
contract can be said to have been concluded
...
The parties to the contract must have capacity to contract
...
Generally most contracts do not require a particular form
...
6
...
The parties will usually agree expressly on
terms in their contract which they consider material
...
In addition, certain terms may be implied into a contract,
7
...
Vitiating factors, such as mistake, misrepresentation, duress and
undue influence may make a contract invalid because in these cases there is no
genuine consent of the parties
...
The agreement must be legal and possible
...
Also, an agreement is not valid if it is impossible to perform at the time
of making it
...
If, on the other hand, all these essentials are present the
agreement is legally binding
...
4
...
It may be in writing, or oral, or can be
inferred from the conduct of the parties, or a combination of any of these
...
Where parties make a contract by express words either oral or written, it is an
express contract
...
Example 1
A enters a shop and asks for a loaf of bread
...
35 for
the loaf
...
35 and collects the loaf
...
Example 2
X enters a bus and pays the conductor the fare to his destination
...
The conductor accepts the fare
...
Generally no formalities are required to make a contract
...
(b) Contracts which must be in writing:
The following contracts are only valid if in writing:
1
...
2
...
3
...
4
...
5
...
6
...
Intext Question
Summary
Name three contracts which must be in writing?
(c) Contracts which must be evidenced in writing
Certain contracts are only legally binding if they can be proved by evidence in
writing
...
A contract of guarantee
2
...
3
...
4
...
200
...
6 Classification of Contract
Contracts may be classified in the following different ways:
(a) Simple contracts and contracts under seal
Contracts may be classified according to their forms
...
A simple contract can be made in any form
...
It may be oral or in writing or it may even be inferred from the conduct of the
parties
...
ii
...
Sealing and delivering are mere formalities
Section 2(1) of the Law of Contract Act in Kenya provides that no contract in writing
shall be void or unenforceable merely on the ground that it is not under seal
...
A contract
under seal or a deed need not be supported by consideration
...
(b) Void, Voidable, unenforceable and illegal contracts
Contracts may be classified according to their legal effects
...
i) A void contract is one which has no legal effect
...
The
contract fails from the very beginning and no consequences can ensue from it
...
When a contract is void, the title or ownership of the property which is subject
matter of the contract will not pass from the seller to the buyer
...
e
...
Examples of void contract includes
simple contracts without consideration, contracts entered under a genuine mistake
and contracts by a minor to buy goods which are not necessaries
...
Until avoided it remains valid
...
The other party, however, has no option to avoid it
...
Examples of voidable contracts are those by which the minor acquires
an interest in subject matter of a permanent or continuing nature such as land, share
in a company or contracts of partnership, and where one of the parties has been
induced by the other by misrepresentation or duress or undue influence to enter into
the contract
...
Under an unenforceable contract any goods or money
transferred cannot be recovered even from the other party to the contract
...
Consequently, where a hire purchase contract is
not in writing the owner of the goods cannot enforce the agreement as against the
hirer and therefore cannot recover the goods from the hirer
...
Intext Question
Distinguish between a void, voidable and unenforceable contract?
iv) Illegal contract is a contract made illegal by a statute or the common law
...
Illegal
contracts include contracts to commit a crime, a tort or a civil wrong, contracts
contrary to morality, contracts prejudicial to the public safety, contracts that tend to
promote corruption in public life, contracts tending to pervert the course of justice
and contracts to defraud public revenue
...
It has been defined as ‘'a contract
where one party (the promisor) binds himself to perform a stated promise upon
Summary
performance of a stated condition by the promisee, but under which the promisee
gives no commitment to perform the condition but rather is left free to choose
whether to perform or not' In other words a unilateral contract is a contract where
only one party has an obligation and the other party as such has no objection to
perform ‘For example, consider the following:
A advertises in a newspaper offering Kshs
...
B brings the passport to A
...
1000, B has no obligation to find and bring the passport but if he has done it
he is entitled to the reward
...
For example if S sells some goods to B for Kshs
...
A multilateral Contract is a contract involving more than two parties and obligations
are on all the parties to the contract
...
Executed contract is a contract where nothing remains to be done by either party,
and where the transaction is completed at the moment that the arrangement is
made
...
S delivers the car to B and B pays
Shs
...
Such a contract is an executed contract
...
For example S
sells his house to B for Shs5m
...
Such a contract
is executory because it is to be executed sometime in future
...
The agreement is normally reached where one party has made an offer
and the other party has accepted it in its entirety
...
7 Offer
An offer is a definite promise made with the intention that it shall become binding
on the person making it as soon as it is accepted by the person to whom it is made
...
8 Rules on Offer
The person who makes an offer is known as the offeror and the person to whom the
offer is made is known as the offeree
...
4
...
1 Form
The offer may be made orally or in writing or it may be inferred from the conduct of
the parties
...
Such negotiation need not always lead to a contract
...
It is, therefore, necessary to
determine at what precise moment an offer is made and the moment at which it is
accepted
...
600,
000/
...
Facey (1893) P telegraphed D: "Will you sell us Bumper Hall Pen?
Telegraph lowest cash price''
...
D
refused to sell and P sued contending that D's reply had been an offer which he had
accepted by his second telegram
...
However, sometimes the intention may not be present in which case the statement or
correspondence or declaration may only mean that an offer is to be made or invited in
future
...
The expression ‘invitation to treat' is commonly used to describe any
negotiating statement falling short of an offer which furthers the bargaining process
...
8
...
The distinction can be further explained by the following examples:
4
...
2
...
Advertisements
An advertisement in a newspaper or magazine or even a price-list is only intended to
be an invitation to treat, that is, to invite offers
...
Gough (1896), a wine merchant's catalogue and price-list was held to
be an invitation to treat
...
Crittenden (1968) is also to the same effect
...
Held, P was not guilty because the advertisement did not amount to an offer, but was
merely an invitation to treat
...
To sell, offer for sale or have in possession for sale
of these birds was an offence under a statute
...
However, advertisements for a promise to pay money in return for the performance of
an act amount to offers since they clearly show that there is an intention to be
bound
...
(1892), the defendants, who were the
manufacturers of a medical preparation called ‘The Carbolic Smoke Ball', issued an
Summary
advertisement in which they offered by way of reward ₤100 to any person who
contracted influenza after using their smoke ball in a specified manner
...
The plaintiff, Mrs
...
She sued the defendant
company for ₤100 reward money
...
The company contended that:
(i) The advertisement was merely a puff and a gimmick and not an offer
...
(ii) There could be no contract because there would otherwise have been a unilateral
contract with the whole world
...
(iii) No obligation to pay the reward money had a risen because there had been no
communication of acceptance of the offer by the plaintiff
...
(iv) The promise was no more that gimmick or puff and hence there was no intention
to create legal relations
...
(v) The promise to pay ₤100 was not supported by consideration
...
4
...
4
...
If the offeree accepts the offer he is called
the acceptor
...
8
...
However, before making a contract the parties may negotiate with each other for
some time
...
Inquiries may be
made or offers invited but no offer may be made or, if one is made, the other party
may make a counter offer or may not accept it
...
The essence of an offer is that of an" intention to be bound" and this is usually
gathered from the wording, for example, "I shall sell you my only car for Kshs
...
"
In Harvey v
...
D replied, ‘‘Lowest price for Bumper Hall Pen ₤900", P
then telegraphed, "We agree to buy Bumper Hall Pen for ₤900 asked by you"
...
It was held that D's reply was not an offer because
D had only supplied information requested, but there had been no unequivocal
indication of a willingness to be bound by the mere acceptance of that information
...
However, sometimes the intention may not be present in which case the statement or
correspondence or declaration may only mean that an offer is to be made or invited in
future
...
The expression ‘invitation to treat' is commonly used to describe any
negotiating statement falling short of an offer which furthers the bargaining process
...
8
...
The distinction can be further explained by the following examples:
4
...
2
...
Advertisements
An advertisement in a newspaper or magazine or even a price-list is only intended to
be an invitation to treat, that is, to invite offers
...
Gough (1896), a wine merchant's catalogue and price-list was held to
be an invitation to treat
...
Crittenden (1968) is also to the same effect
...
Held, P was not guilty because the advertisement did not amount to an offer, but was
merely an invitation to treat
...
To sell, offer for sale or have in possession for sale
of these birds was an offence under a statute
...
However, advertisements for a promise to pay money in return for the performance of
an act amount to offers since they clearly show that there is an intention to be
bound
...
(1892), the defendants, who were the
manufacturers of a medical preparation called ‘The Carbolic Smoke Ball', issued an
advertisement in which they offered by way of reward ₤100 to any person who
contracted influenza after using their smoke ball in a specified manner
...
The plaintiff, Mrs
...
She sued the defendant
company for ₤100 reward money
...
The company contended that:
(i) The advertisement was merely a puff and a gimmick and not an offer
...
(ii) There could be no contract because there would otherwise have been a unilateral
contract with the whole world
...
(iii) No obligation to pay the reward money had a risen because there had been no
communication of acceptance of the offer by the plaintiff
...
(iv) The promise was no more that gimmick or puff and hence there was no intention
to create legal relations
...
(v) The promise to pay ₤100 was not supported by consideration
...
Activity 4
...
The second typical situation where there is no offer but an invitation to treat is
display of goods in a shop or on supermarket shelves
...
Held, the
shopkeeper was not guilty of the offence because he had not offered the knives for
sale since goods on display were not an offer for sale, but an invitation to treat
...
Boots Cash Chemists (1953)
where a statute required that certain drugs and medicines only be sold under the
supervision of a qualified
pharmacist
...
A customer
selected his purchases of medicines from the shelves and put them into a basket
supplied by Boots
...
The crucial question before the
Court was whether the sale took place or the contract was formed at the time when
goods were taken from the shelf or at the time when the goods were presented at the
cash desk
...
4
...
2
...
The acceptance takes place when the customer puts his money
into the slot
...
Also, plying of bus itself is an offer and
when a passenger boards the bus there is an acceptance
...
8
...
4 Auction Sale
In auction sales, a declaration of intention to hold an auction amounts merely to an
invitation to treat
...
Accordingly, a person who traveled to the place only to find that it
had been cancelled could not sue to recover damages for his expense and loss of
time
...
Until such announcement is made any
bid may be retracted
...
There will be no contract even if the auctioneer mistakenly accepts
the bid which is lower than the reserve price
...
8
...
5 Company Prospectus
Summary
A company prospectus or advertisement to subscribe shares or debentures in a
company is an invitation to treat, i
...
an invitation to make an offer
...
It is for
the company to accept or reject the application
...
If the company accepts the offer in whole or in part
there is a binding contract
...
4
...
2
...
In normal circumstances the
request or invitation for tenders does not amount to an offer
...
However, in certain
circumstances an invitation to tender could give rise to binding contractual
obligations in the part of the inviter to consider tenders which conformed with the
conditions of the tender
...
Invitation to treat is invitation to negotiate or
receive offers
...
Acceptance of an invitation to treat, on the other
hand, does not result in a binding contract
...
8
...
If the offer is made to a definite person it can only be
accepted by that person and by no one else
...
If an
offer is to the world at large or to the general public, anyone can accept it
...
Carbolic Smoke Ball Co
...
Rejecting this contention it was
held that an offer could be made to the entire world which results in a contract with
anybody who comes forward and performs the condition of the offer
...
8
...
Communication means when the offer actually reached the offeree
...
No contract can arise where
a person fulfils the terms of the offer in ignorance of the fact that the offer exists at
all
...
v
...
Held, C could not claim the reward because he could not
be deemed to ‘accept' an offer of which he was not aware at the relevant time
...
8
...
8
...
1 Revocation or Withdrawal of the offer
The general rule is that an offer may be revoked any time before acceptance
...
In Khale v Athamas Bros
(Aden) Ltd (1968)
...
After negotiations for sometime B accepted an offer of
₤40,000 for his shareholding
...
The alterations were finally made and BA then
purported to revoke the offer
...
signed the
contract
...
In Routledge v Grant (1828), D offered to take a lease of premises belonging to P and
told P that the offer would remain open for six weeks
...
P purported to accept it within the six week period
...
However, if there is a consideration for keeping the offer open for a certain period,
(that is, option), the offer cannot be revoked before the expiration of that time,
otherwise there would be breach of contract
...
Communication of revocation does not always have to be made by the offeror himself,
but can be made by any reliable source
...
m
...
D, however, sold the property to another
person
...
He then purported to
accept the offer at 7 a
...
June 12
...
In case of unilateral contracts the rule is that once the offeree has started to perform
the requested act, the offer can no longer be withdrawn and the offeree must be
allowed to complete
...
8
...
2 Rejection - An offer is rejected:
a) if the offeree communicates his rejection to the offeror
...
Summary
b) where the acceptance is qualified or conditional
...
Counter-offer is a final rejection of the original offer
...
P subsequently said that he was prepared to pay ₤1,000
but D decided not to sell the farm to P
...
P by counter
offer of ₤950 had rejected the original offer as a result the original offer had been
terminated
...
4
...
5
...
(b) If no time period is stipulated, by non-acceptance within a reasonable time
...
In Ramsgate Victoria Hotel Co
...
Montefiare (1866) D had applied for shares in the
company in early June and had paid deposit into the company's bank
...
Held, D was
entitled to refuse because the company's response to D's offer has not been within the
reasonable time
...
A did not
hear anything from B but after about four and half months B purported to supply
timber to A
...
offer was revoked
...
The death
of the offeree may terminate an offer since the offer is peculiar to the offeree
...
4
...
5
...
4
...
4 Communication of Offer
An offer must be communicated to the offeree before it can be accepted
...
The offeree
cannot accept an offer unless he knows of its existence
...
In R
...
Clarke (1927) C, supplied information to the police on certain murderers
but at the time of doing so he was unaware of the fact that there was a reward of
₤1,000 for such information
...
4
...
5 Termination of Offer
An offer may be terminated in the following ways:
4
...
5
...
Once
an acceptance has taken place the offer is irrevocable
...
A, a majority shareholder in a company offered to buy B's minority
shares in the company
...
A final contract was prepared but B refused to sign
demanding some alterations
...
Held, A's revocation of offer was not valid because it
came after B's acceptance when B had already signed the contract
...
The rule that an offer may be revoked anytime before acceptance applies even where
it was originally promised that the offer would remain open for a specific period of
time
...
After three weeks D withdrew
his offer
...
Held, D had been under
no obligation to keep the offer open and was free to withdraw it anytime provided it
had not already been accepted
...
Revocation, however, is not effective until it is communicated to the offeree
...
In Dicknson v Dodd (1876), P was invited to buy property from D, who promised to
keep the offer open until 9 a
...
June, 12
...
P learnt of this sale from a third party on June 11
...
m
...
Held, this was not a valid acceptance since an
offer could be withdrawn at any time before expiry of the duration promised and that
P learnt from a reliable source that D had sold the property to another person thereby
revoked his offer
...
Summary
4
...
5
...
Once the offer is
rejected, it is terminated and the offeree cannot subsequently accept it
...
In such a case the offeree makes
a counter-offer, that is a new offer of his own in the hope that it will be accepted by
the offeror
...
In Hyde v Wrench (1840), D offered to sell his farm to P for ₤1,000, P in reply offered
₤950 which was refused by D
...
Held, there was no contract
...
There was, therefore, no offer in existence when P purported to accept
for ₤1,000
...
8
...
3 Lapse of an Offer
An offer may lapse in the following ways:
(a) Non-acceptance within the time period stipulated by the offeror
...
What
amounts to a reasonable time depends upon the facts and circumstances of the case
...
v
...
He heard
nothing until the end of November, when AD refused to take the shares
...
In Virji Kimji v Clutterbuck, A ordered timber from B
...
Held, the delay amounted to lapse of time whereby A's received a letter
of allotment of shares, that is, the acceptance of his offer and was asked to pay the
balance due upon them
...
(c) Death - the effect of death upon the continuity of an offer is not clear
...
In the
case of the death of the offeror the offer lapses if the offeree has the knowledge of
the death of the offeror or where the contract requires performance of a personal
service by the offeror
...
8
...
4 Conditional Offer - where an offer is conditional and if the condition fails to
be
satisfied, the offer will come to an end
...
9 Summary
Summary
This lecture has introduced you to the concept and formation of a contract
...
Contracts are classified in various ways such as simple
contracts and contracts under seal or deeds, or void, voidable, unenforceable,
illegal contracts, or unilateral, bilateral and multilateral contracts, and
executory and executed contracts
...
It any of these requirements are not present
the contract may not be a valid contract
...
This lecture considered
the question what amounts to an offer? We have distinguished an offer from an
invitation to treat
...
We have also
examined rules on offer, including those for the termination of an offer
...
Activity
Activity 4
...
2) Discuss various classifications of contract
...
4) Explain with the help of decided cases rules on offer
...
1,000 to any one who
participate in a hunger walk on Sunday
...
2 million
...
b) D by letter dated July 13 offers to sale his farm to P for Kshs
...
The letter reaches P on July 20, which he immediately accepted
...
There was no reply from Ouma
...
Advise Ouma
...
The problem question are important for you as law students since they test your
understanding of law and your ability to apply the principles of law to a set of given
facts
...
While answering problems questions you may proceed as follows:
1
...
For instance, if the problem question is on display of
goods in a shop or on the shelves of a supermarket say it is not an offer but an
invitation to treat
...
2
...
Your statement of relevant
principles must be supported by reference to authority, i
...
, cases or statutes
...
iv) Decision of the court
v) Principles of law on which the case was decided
...
discussed earlier)
...
Reference to the statute should include the relevant provision of the statute referred
...
Apply the principles, rules or statutory provision to the facts of the problem
question
...
(c) Compare the facts of the cases referred to with the facts of the problem showing
that facts of the cases are of sufficient similarities with the facts of the problem
questions
...
Draw conclusion
...
If there are
conflicting opinions of the courts, select the opinions which are better in your view
giving reasons for your selection
...
You should take into account of the requirement of the question, e
...
, advise, legal
position, etc you advise must be based on the true and honest position of law not the
one favorable to the person you are advising
...
1 Introduction
5
...
3 Acceptance
5
...
1 Rules on Acceptance
5
...
1
...
3
...
2 Acceptance only Possible if the Offer is Still in Force
5
...
1
...
3
...
4 Condition Assent is no Assent
5
...
1
...
3
...
5
...
3
...
5
...
3
...
4 Intention to Create Legal Relations
5
...
1 Social and Domestic Arrangements
5
...
2 Commercial Agreements
5
...
6 References
5
...
In the last lecture we discussed the concept of
offer and various rules on making of an offer
...
Even where an agreement is made, it is not a contract in the strict sense unless two
more essentials are present
...
In this lecture, therefore, we shall also discuss the test adopted by the courts in
deciding whether or not there is an intention of the parties to create legal relations
...
5
...
2 Objectives
As a result of this lecture you will be able to:
1
...
2
...
3
...
4
...
5
...
5
...
Acceptance is thus the offeree's communication to the offeror that he
agrees to be bound by the terms of the offer
...
5
...
1 Rules on Acceptance
May be oral or writing or may be from the conduct of then parties
...
The offer is said to be not in existence where it has
already lapsed or has been revoked or rejected by the offeree
...
In that
case D offered his farm to P for £1,000
...
Clearly that was not an acceptance but a counter-offer which terminated the original
offer
...
According his acceptance was not
valid and therefore no contract was made
...
There must be
no alterations or modification of the offer
...
A counter offer is an offer made
by the offeree, varying the terms of an offer which the offerer may accept or reject
...
In Neale v Merrett (1930) D offered to sell his land to P for ₤ 280
...
Held, there was no contract because P's acceptance was not
absolute and unqualified
...
3
...
3 Conditional Assent is no Assent
A conditional assent to an offer does not constitute acceptance
...
It is merely a proposal to enter into a contract, which may be disregarded
by either party
...
In Malina de Elis v Stotzky, A agreed to sale a house to B
...
In Eccles v Byrant and Pollock (1948), B and E made an agreement for the sale of B's
house to E, ‘' subject to contract
...
Held, there was no contract because the agreement was conditional and
neither party was under any obligation to enter into the agreement
...
Activity 5
...
3
...
5 Communication of Acceptance
An acceptance must be communicated to the offeror
...
Different rules apply to the communication of acceptance in instantaneous contracts
and in contracts by post
...
3
...
5
...
Summary
In Entore Ltd v Miles Far East Corporation (1955), P were London-based company
and D were an American corporation having agents in Holland
...
P
alleged that D were in breach of contract they have so made
...
The House of Lords approved this decision in Brinkingbon Ltd v Stahe (1983)
...
It is however, not clear from the
opinion of these judges what rule is to apply in that situation
...
Also the problems arising out of
communications between computer system, electronic mail and other products of the
information technology are yet to be addressed by the courts
...
In Powell v Lee (1908), P was applicant for the post of headmaster of a school
...
Nevertheless, X, a member of the board of managers without any authority did
inform P that he had been appointed
...
Held, the communication to P by a board member was unauthorised and
therefore there was no binding contract
...
c) Silence
There must be a positive act of acceptance on the part of the acceptor
...
In Felthouse v Bindly (1863), P by letter to N, his nephew offered to buy his horse for
₤30, and adding, "if I hear no more about him, I consider the horse is mine at that
price
...
The nephew did
not communicated to P but instructed D not to sell the horse as it was sold to P
...
Held, there had been no acceptance of
P's offer because N had not communicated his acceptance to P and that P had no
right to impose upon N sale of his horse for ₤30
...
Activity 5
...
Discuss the legal position
d) Mode of Acceptance - If the offeror prescribes the mode or method of acceptance
and the acceptor accepts in that way, there will be a binding contract
...
If for example, the
offeror stipulates that the offeree must sent his reply by fax, acceptance sent by post
will not result in a binding contract
...
Here it seems the offeror prescribes only acceptance within a
stated time and not by particular method
...
e) Ignorance of Offer
...
(Recall
R
...
5
...
1
...
2 The Communication of Acceptance - Exceptions to the General Rules
(i) Waiver of Communication
Although the general rule is that an acceptance must be communicated, the offeror
may waive it if he so desire
...
For example, in unilateral contracts,
the offer consists of a promise to pay money in return for the performance of an act
...
(Carlill v Carbolic Smoke Ball Co
...
This is known as the postal
rule
...
The letter was misdirected and took extra two days to reach P
...
Before the
letter of acceptance received by D but after the posting of the letter of acceptance
by P, D sold goods to a third party
...
The postal rule does not apply if the letter misdirected as a result of the mistake of
the offeree himself, e
...
where the letter is not properly addressed or stamped
...
v Grant (1879), D applied for shares in a company, a
letter of allotment was posted but never reached D
...
Held,
contract between D and the company was concluded as soon as the letter of
allotment was posted and that it was immaterial that the letter never reached D
...
Postal rule also applies to telegrams but in case of instantaneous communications
such as telephone, telex and fax general rule applies
...
In Holwell Securities Ltd v Hughes (1974)
...
P posted a letter of acceptance but it never reached D
...
Held, since the
offer had stipulated that the acceptance had to be notified to D mere posting was
insufficient
...
Take Note
Under the postal rule a contract is concluded as soon as the letter of
acceptance is posted
...
3
...
This is a very commonly used device by which one party indicates
to another that he is very likely to enter into a contract with him
...
However, if a letter of intent invites a party to commence preliminary work then
there is an obligation to pay for that work
...
Where a person submits a tender it is an offer
...
There are at least three possible cases:
(i) The buyer undertakes to buy a specified quantity of goods no more and no less in
the tender from the tenderer
...
Example - X
advertises for 1,000 tons scrap iron to be supplied during a particular year
...
YX is bound to accept
...
The acceptance of such a tender is very different
...
In G
...
Railway v Witham (1823) the plaintiffs, a railway company advertised for
supply of some articles as they might required for a year
...
The plaintiffs subsequently gave various orders which
were executed by the defendant
...
The
defendant was therefore in breach of the contract to supply the required articles
...
In that case the buyer is not under any obligation to buy goods if he
does not
need them
...
c) Battle of forms
More often than not major companies employ what is known as standard form
contracts, where they set out terms on which they do business
...
They are
dictated by the party having stronger bargaining power
...
Problems
may arise where two such parties try to impose their own standard terms on each
other
...
However, once performance by the
other party has started there is an acceptance of the counter-offer, but still the
courts will have to decide whose terms should prevail
...
Under this rule the party who gets in his terms last,
without the other party objecting, makes the contract on his own standard terms
...
v Ex-cell- O Corporation (1979)
...
the offer was made in a document containing certain terms, including
their standard price variation clause, which would entitle them to raise the price in
certain circumstances
...
This was
effectively a counter-offer
...
the slip was accompanied by a letter stating that B's order had been
entered into in accordance with the original offer
...
Held, S had contracted on B's terms since the return of
the acknowledgement of slip amounted an acceptance of B's counter-offer
...
3
Explain the ‘last shot rule' in relation to the battle of forms
...
4 Intention to Create Legal Relations
Even where the parties have made an agreement, there is no formation of the
contract unless there is an intention to create legal relations and the consideration
has moved from each party
...
On the other hand, there are
many business agreements where the parties mean business and therefore they
contemplate legal relations
...
For each type of agreements there is a
corresponding presumption
...
4
...
Parents agree to give gifts to
their children on their passing examinations with good grades
...
Friends promise each other to
help in case of need
...
Such
arrangements are not regarded as contracts in the sense that they are not supposed
to be subject of litigation
...
In Balfour v Balfour (1919), D worked as a civil servant overseas and came home with
his wife on holidays
...
Before leaving
D promised P an allowance of ₤30 per month until she joined him
...
Held, the promise was not legally
binding because there had been no intention to created legal relations
...
PD to reside
their during her studies
...
Held, the arrangement in relation to the house did not contemplate legal
relations and therefore P was entitled to the possession of the house
...
Accordingly, the courts have
been willing in some cases to find social or family arrangements enforceable
...
In Merritt v Merritt (1970), H and W, the husband and wife intended to separate
because H had developed attachment to another woman
...
H on insistence of W gave her a written statement
according to which in consideration of her paying the mortgage on the family home,
(which they jointly owned), H would transfer that house into W's sole ownership
...
Held, W was entitled to
the house because W's insistence on a written agreement was the strongest possible
evidence of her specific intent to make it legally enforceable
...
Also, in Simpkins v Pays (1955), D lived with her granddaughter X and a paying guest
P
...
Entries were made
in D's name
...
P claimed her share
but D refused
...
Accordingly, P was entitled to one-third of the prize money
...
4
In family arrangement the presumption of law is that the parties do
not contemplate legal consequences
...
5
...
2 Commercial Agreements
In commercial agreements the intention is presumed and must be rebutted by the
party seeking to deny it
...
The Customs and Excise Commissioner sought to recover
purchase tax on the coins
...
Held, there was an intention because Esso expected to
derive large commercial advantage from the scheme and that the offer to supply
coins to customers in return for the purchases of petrol was legally enforceable under
the law of contract
...
D gave him a notice to terminate his employment
...
D agreed with the officials of a pilot association of which P
was a member that if P would opt to withdraw his own total contribution to the fund
they would make him ‘ex-gratia' payment
...
P
opted accordingly
...
P sued D for breach of contract
...
Held, this was a business agreement where there was a presumption that
the parties intended to create legal relations and this presumption was not rebutted
by D
...
Advertisements are of commercial nature but there is no general presumption that
they intend to create legal relations
...
In Carlill v Carbolic Smoke Ball Co
...
For that
purpose the company deposit £1,000with a bank
...
In commercial agreements intention is presumed, but the parties may expressly
declare that they are not binding in law by the use of the device of clauses such as
"agreement is binding in honour only'', "this is a "gentlemen's agreement" or "this is
subject to contract''
...
v Crompton Bros Ltd (1924), D appointed P as their agents to
sell a certain kind of paper overseas
...
Held, no legally binding
agreement between parties because there was no intention to create legal relations
...
He claimed
dividend from D, who denied having received the entry
...
but
...
As discussed earlier in this lecture sometimes contracts are made with stipulation that
they are "subject to contract''
...
(Recall Malina de Elis v Stotzky and Eccles v Byrant and Pollock)
...
5
...
Acceptance is what turns an
offer into an agreement
...
If acceptance is qualified and
conditional it is a counter-offer by which the original offer is
rejected
...
If no
offer is in the existence there can be no acceptance
...
Communication of acceptance must be by
the offerree or his authorized agent
...
Silence or total disregard of the offer does not
mount to acceptance
...
Although need for agreement lies at the heart of a contract, there is
also a need for an intention to create legal relations
...
In commercial agreement there is a rebuttable
presumption that the parties intend to create legal relations but in
domestic or social arrangement there no such presumption
...
5
...
What do you understand by an acceptance? With the help of decided
cases discuss various rules in respect of acceptance
...
Before there can be a legally binding contract there must be an
intention to create legal relationship
...
3
...
, a leading publisher of books wrote a letter to Ken books
Ltd offering to buy all their title at Kshs
...
Kenbooks Ltd accepted the offer in its entirity
...
4
...
Mberia accepted the offer by sending a letter by the
post
...
Ali's tender was
accepted
...
Ali's sued the Ken Autopart Ltd for breach of
contract
...
3million stating that the offer to remain open until 30th Novemeber
...
On 28th November Albert
Ole Muya delivered Ole Kamwaro acceptance of his offer
...
5million to be paid in cash
in advance
...
LECTURE SIX: FORMATION OF CONTRACT: CONSIDERATION
Lecture Outline
6
...
2 Objectives
6
...
4 Classification of Consideration
6
...
1 Executory Consideration
6
...
2 Executed Consideration
6
...
3 Past Consideration
6
...
5
...
5
...
5
...
5
...
5
...
1 Performance of a Public Duty
6
...
4
...
5
...
3 Performance of an Existing Duty to an already owed to a Third Party
6
...
4
...
5
...
5The Concept of Promissory Estoppel
6
...
5 Past Consideration is no Consideration
6
...
6
...
7 Summary
6
...
The other two requirements, agreement and intention to created legal
relations have already been considered in the preceding lectures
...
Contract is
primarily concerned with bargains and the concept of consideration is central to that
of any bargain
...
It involves reciprocal obligations upon each party
to the contract
...
The doctrine of privity of
contract will also be discussed
...
2 Objectives
6
...
Explain the meaning of consideration
...
Discuss various types of consideration
...
Describe various rules on consideration
...
Differentiate between adequacy and sufficiency of
consideration
...
Explain the doctrine of promissory estoppel
...
Explain the doctrine of privity of contract
...
3 Definition of Consideration
Many attempts have been made to define consideration but few if any have been
entirely satisfactory
...
Consideration is a part of bargain whereby something of value must be
given or promised by each party
...
In Currie v Misa (1875),
consideration was defined 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
...
Sir Fredrick Polluck defined
consideration not in the terminology of benefit and detriment but in terms of the
price paid by one party for the other party's promise
...
The typical modern contract is the bargain struck by the exchange of promises
...
It is, therefore, preferable to that
of benefit and detriment
...
For example, in Chappel and Co Ltd
...
(1960), the requirement of exchange demonstrated the existence of
consideration
...
Co, who were manufacturers of milk chocolate offered to
public records of popular tune at a very low price
...
The wrappers when received were
worthless and were thrown away
...
for 4d each
...
They were offered royalty of 6¼ percent as provided by the statutory law: P refused
the offer contending that the money price was only part of the consideration for the
record and that the balance was represented by the
three wrappers
...
Co and required expenditure by the acquirer and also becuase a contracting
party can stipulate for what
consideration he chooses
...
Intext Question
What consideration was given in this case?
What is sufficient?
6
...
6
...
1 Executory Consideration
Consideration is said to be executory when it takes the form of a promise to be
performed in future
...
For example, S promises to deliver goods to B
at sometime in future, and B promises to pay for them on delivery
...
The consideration is therefore executory
...
6
...
2 Executed Consideration
Consideration is said to be executed when the promise constituting the consideration
is completely performed or executed
...
2
million
...
2 million and delivers the car to Y
...
The consideration is,
therefore, executed
...
6
...
3 Past Consideration
Past consideration is where the act put forward as consideration was performed
before the promise was made
...
Son passes with good grades and B promises A to pay Kshs
...
This is past consideration because A rendered services before B promised
to pay for them
...
Consideration may be executory or executed but it should not be past
...
5 Rules Relating to Consideration
6
...
1 Consideration Required for Simple Contracts
All contracts must be supported by consideration other than those made under seal
...
An agreement without consideration is void
...
For example, if X promises to give a television to Y as a present on his
birthday, the promise is not enforceable because no consideration has been given by
Y in return for X's promise
...
Take Note
Consideration is required for all contracts unless under a seal
...
5
...
This means ‘'consideration must move from the promise
...
G and T's father each agreed to pay a sum of
money to T
...
Held (1) T had not provided any consideration in return for G's promise
under the agreement, his action could not therefore, be maintained
...
Similarly, in Dunlop Pneumatic Tyre Co Ltd v Selfridge Co Ltd (1915) D sold tyres to
X, a distributor under a contract which provided that he would not resell them below
D's list prices and on terms that if X resold tyres to a trader buyer, he would obtain a
similar undertaking from him
...
S broke this undertaking and D sued them for the breach of
contract
...
It should be noted agreements on resale price maintenance as in Dunlop case are now
governed by the Restrictive Trade Practice Monopolies and Price Control Act
...
Summary
6
...
3 Consideration Need Not Be Adequate But Must Be Of Some Value
The courts will not inquire into the adequacy of consideration as long as some value is
given
...
If a party has made a bad
bargain the courts are not there to repair it
...
3 million to B for only Kshs
...
The consideration given by B is of some
value, although it is not equivalent to the market value of the car
...
In Thomas v Thomas (1842), P's
husband expressed his wish to the executor that if she survived him she should be
allowed to live in his house for as long as she wanted and did not marry again
...
Held, that satisfying the wishes of the husband was not a good consideration but P's
promise to pay £1 a year was a valuable consideration
...
Activity 6
...
5
...
In order to be sufficient the consideration need not be of some economic
value, something of purely nominal value may be treated as valid consideration
...
Ltd, discussed earlier, worthless chocolate wrappers
were considered as sufficient consideration
...
This bank then endorsed the
promissory note to the plaintiff bank who sued the defendants to recover the balance
of the amount due on the promissory note
...
Held, the act of
cancellation of the forty nine notes and handling over of the replaced note whatever
their value was a good consideration because the bank had suffered detriment in
doing so
...
In most circumstances the general rule is that the performance
of an existing duty does not amount to a consideration for a fresh promise
...
6
...
4
...
In Collins v Godfroy (1831),
P attended and gave expert evidence at a trial in which D was a litigant
...
P alleged that D had promised to pay him a certain amount for his loss of
time
...
This rule, however, does not apply where a person goes beyond the mere
performance of an existing public duty imposed by law
...
Ltd v
Glamorgan County Council (1925), during a miner's strike, the colliery owners feared
violence
...
The company asked for
extra protection and agreed to pay £2,200 for that purpose
...
The company argued the police were already under a legal duty
to provide such protection
...
6
...
4
...
In Stilk v Myrick (1809), P was a member of the
crew on a ship on a voyage
...
During the voyage two of the
crew deserted and the master of the ship promised the remaining crew if they would
work the ship home they should have the wages of two crew members who had
deserted equally divided among them
...
Held, the promise of extra payment was unenforceable as
there was no consideration for further payment, because the crews were already
under a contractual duty to work the ship home
...
D
subcontracted some work to PP soon realized that the price was too low to cover his
costs
...
D
was subject to a penalty in their main contract if the contract was not completed on
time
...
D failed to pay the extra money
...
Summary
Held P was entitled to extra payment since D had obtained the benefit in the form for
£20,000;
of completion of the work on time because of which D avoided loosing money under
the penalty clause in the main contract
...
Activity 6
...
6
...
4
...
2 Performance of Existing Duty already owed to a Third Party
An agreement to do an act which the promissor is under an existing obligation to a
third party to do may amount to a valid consideration
...
D then made an agreement with P by which if P
would deliver the coal to him, D would unload the coal at a fixed rate per day
...
Held, D were liable because
performance of an existing contractual duty might be consideration for a separate
promise by a third party
...
5
...
3 Part Payment of a Debt
In Re Selectmove (1995), however, the court held that the principle in Williams v
Roffrey Bros
...
In Pinnel case (1602), it was laid down that part payment is not a satisfaction of an
agreement to pay the full amount, even though the creditor agreed to take it in full
discharge
...
The parties then agreed that if F and obtained
judgment against him
...
After receiving the whole amount due under the
judgment, B sued
for interest due from the date of the judgment
...
Held, B was entitled to recover interest
because there was no consideration for the fresh promise made by her
...
(ii) Payment at a different place
...
For example, where the creditor asks for an article such as a television set, fridge,
car or land or where the debtor pays by bill of exchange
...
6
...
4
...
3 The Doctrine of Promissory Estoppel
The concept of promissory estoppel may be expressed as follows:
If a person, party to a legal relationship makes to the other party a clear and
unambiguous representation or promise that he will not insist on his full right under
that relationship, and intending that the other party to act on it, and if the other
party as a result of the promise does act upon it to his detriment or alter his position
or rely on the promise, the promissory is prevented or "estoppel" from denying its
truth
...
In Central London Property Trust Ltd v High Trees House Ltd (1947), (popularly
known as High Trees Case) in 1937 P let to D a block of flats for a term of ninety-nine
years at a ground rent of £2,500 a year
...
P
therefore, agreed to reduce the rent to £1,500
...
P then claimed full rent for the future and the arrears of the rent at the rate of
£2500 from 1940 to 1945
...
They
could not be allowed to go back on the promise made by them to D because the
agreement for reduction of rent had been acted upon
...
thereafter paid
the reduced rent
...
i
...
ii
...
In Combe v Combe (1951), H, the husband had promised to pay his wife W a certain
sum per year as permanent maintenance at the time of divorce
...
HW sued him on his promise
...
On appeal
by H, the Court of Appeal held that the doctrine of promissory estoppel must be used
only as a defence and not as a cause of action
...
failed to make any payments and
Summary
iii
...
In D
...
Builders v Rees
(1965), P did some work for D for which D owed him £482
...
P
reluctantly accepted the cheque and later sued for the balance of the original
debt
...
The Court in this
case did not consider payment by cheque as different from cash
...
For the doctrine to operate there must be a promise either by words or by
conduct, and that its effect must be clear and unambiguous
...
5 Past Consideration is no Consideration
The general rule is that a promise made subsequent to and independent of the act
does not amount to a valid consideration
...
In Roscorla v Thomas (1842), P entered into a contract of sale of a
horse to D
...
This undertaking was proved to be wrong as the
horse in fact was vicious
...
However, there are exceptions to the rule on past consideration
...
In Lampleigh v Braithwait (1615), B committed
a murder and asked L to seek a pardon for him from the King
...
Afterwards BL eventually sued him
...
promised to
pay him £100 for his trouble, but this payment was not made
...
Held,
Similarly, in Re Casey's Patents (1892), A and B were joint owners of certain patent
rights
...
Held, the contract was enforceable
because there had been an implied understanding between the parties at the time, to
the effect that C's services would be remunerated and the subsequent promise merely
fixed the amount
...
6
...
This means that a
stranger cannot take the benefit or burden of a contract
...
The rule of privity of contract may be illustrated by the case of Tweddle v Atkimson
(1861),G and T's father entered in a contract for the benefit of T
...
discussed earlier
...
D negligently
damaged the cargo causing a loss of £593
...
Held, DBeswick v
Beswick (1967), J purchased a coal business from his uncle, W's husband
...
When the uncle died, J refused to make
payments to W
...
were not a party
to the bill of lading and could derive no right under it
...
6
...
In modern business situations is
some cases it proved to be problematic
...
Some of these exceptions
are as follows:
(a) Implied Trusts
The concept of privity is restricted to contracts and does not extend to trust
...
Under such
device a promisee under a contract might declare himself trustee of the benefit of
the promise in question on behalf of a third party and latter can sue the trustee in
case of breach of trust
...
He agreed with D to assign to him the whole of his property, if D would pay
the debt due to X
...
At the
common law X could not sue D because of the rule of privity of contract so P and X
brought an action in equity
...
Accordingly, X could bring an action
jointly with P against D
...
It is a device to enforce a promise given prior to the main contract, but for
which the main contract would not have been made
...
D a car dealer
showed him one and said, "it's a good little bus
...
P agreed
to take it on hire purchase terms
...
D then sold the car to F, a
finance company, who entered into a hire purchase contract with P
...
A week later, the car was involved in an accident as a result of
which the car was wrecked and P was seriously injured
...
P sued D for the damage he suffered
...
Here, D had given an undertaking to P which had induced P to make the hire purchase
agreement
...
(c) Assignments of Choses in Action
The assignment of choses in action or things in action is a significant exception to the
rule of privity of contract assignment is a device which enables one party to transfer
the benefit of a performance which he has contracted to another person (the
assignee) in such a way that the assignee may enforce performance
...
If A owes B Shs5, 000, B can assign or transfer the debt to CA directly
...
You cannot see or touch it, but it gives
rise to rights that can be enforced
...
(d) Contracts Relating to Land
It is possible for the owner of the land to attach to it restrictive covenants which run
with the land and regulate its future use
...
Such covenants impose burdens on
subsequent purchasers and confers enforceable rights on persons who are not parties
to the contract
...
B may assign the lease to C, the assignee who takes it with all the
rights and duties of a the assignor B
...
(e) Insurance
There are several exceptions to the privity rule in insurance contracts, which provide
for benefits to be payable to third party
...
Also, if a person insures his life with an
insurance company and intends his wife and children to benefit from the policy, that
is, the contract of insurance, the law allows the beneficiary a right to enforce that
contract
...
In such cases both
P and T are bound by the contract made by A
...
The only requirement is
that somebody earlier must have provided some consideration
...
7 Summary
Summary
Consideration is at the heart of the contract
...
The concept of consideration requires that something
of value, even nominal, must be given or promised by each party
...
It involves the idea of benefit or detriment
...
An alternative concept is, however, the price which one party pays to buy
the promise or act of the other
...
This concept
of consideration is a better one since it emphasizes on the notion of
exchange
...
Consideration may be executory, executed or past
...
Consideration must
not be past where an agreement is made on the basis of an act followed by
a promise the courts will not enforce such a promise
...
An important rule is that consideration need not be adequate but it must be
of some value
...
Even nominal payment such as one
shilling or one chocolate wrapper will always suffice as a valid consideration
Summary
in exchange of something of consideration such as sale a house
...
Performance of an existing public or contractual duty is not a sufficient
consideration unless the promisee has done something more than what was
required under the duty
...
The harshness of this rule
is somewhat mitigated by the doctrine of promissory estoppel which applies
only as a defence and does not create a cause of action
...
Consideration must move from the promise
...
Under this doctrine a person is not
entitled to enforce a contractual promise if he is not a party to the
contract
...
A number of devised, therefore,
have evolved to circumvent it
...
3
1
...
2
...
3
...
4
...
5
...
6
...
(a) X promises his friend Y Shs
...
Later X refuses to pay Shs
...
(b) Mberia went to a police station to file a report of a robbery in his
house
...
Mberia promised to
pay Shs
...
Mberia failed to keep his promise of
Shs
...
(c) Murangu entered into a contract for the sale of his land to Musyoki
for
Shs
...
The land in fact was worth about Shs
...
Murangu
later refused to transfer the land to Musyoki on the ground that the
consideration was not adequate
...
Christopher later
promises to pay him Shs
...
Later Christopher refuses to
pay
...
Ltd
...
Steve sued Chemi-Chem Co
...
in contract
...
1
Introduction
...
2
Objectives
...
3
Terms and Representation
...
4
...
7
...
1 Importance of the Statement
...
4
...
7
...
3 Whether the Contract has been Reduced to Writing?
7
...
4 Reliance by the Plaintiff
...
4
...
7
...
7
...
7
...
7
...
7
...
7
...
7
...
1 Incorporation by Signature
...
10
...
7
...
3 Incorporation by Consistence Dealing
...
11 Construction of Exemption Clause
...
11
...
7
...
2 Contra Proferentum Rule
...
11
...
7
...
4 Repugnancy to the Main Object
...
11
...
7
...
7
...
7
...
7
...
In this lecture we are concerned with the actual terms of a contract
...
Most disputes about contract are concerned with the questions relating to
the performance of the obligations created by a contract
...
It is not necessary that all those
statements will become terms of the contract, Statement which are contained in the
contract are terms, whereas those not intended to form integral part of the contract
are representations
...
Apart from those terms expressly agreed between
the parties, certain other terms may implied into a contract
...
It is importance to distinguish between them because remedies available
for breach of contract varies according to the classification of the terms
Finally, contracts may contain provisions which purport to exclude or limit liability of
one of the parties to the contract by means of exemption clauses or impose standard
terms on the weaker party
...
The lecture will
be divided into several parts: Terms and representation; express and implied terms;
classification of terms; exclusion or limitation of terms, and standard form contracts
...
2 Objectives
7
...
Explain the importance of terms or contents of a contract
...
Distinguish between representations and terms of the contract
...
Explain when a representation is incorporated into a contract
...
Describe various ways in which terms may be implied into a contract
...
Assess the relative importance of the terms of the contract
...
Explain the use of exemption clauses and their control under the law
...
Discuss the use of standards form contract in the business context
...
3 Terms and Representations
Before they entered into a contract the parties may have been involved in negotiation
for sometime during the course of which they might have made many statements or
promises
...
The
statements and promises which form the integral part of the contract are the terms
of the contract
...
The distinction is important because if the
statement is held to be a term then damages will be automatically available, whereas
if it is merely a representation then the requirement of misrepresentation will have to
be satisfied
...
However, courts may sometimes incorporate a representation into the
contract so that it becomes its terms
...
While statements which are integral part of the contract are
terms
...
4 Incorporation of a Representation as a Term of the Contract
In case of incorporation of a representation into a contract, it is difficult to give any
certain rule which may confidently be used to predict which representation will be
incorporated and which will not
...
The precise test is looking at behavior of the parties would a
reasonable man have thought the parties intended the statement to be a term or a
representation
...
The courts have therefore developed some subsidiary tests
as possible aids to help them in this task
...
4
...
In Bannerman v White
(1861), D in course of negotiating for the purchase of hops, asked P, the seller if hops
have been treated with sulphur while growing
...
P answered that they have not been treated
with sulphur
...
Eventually some of the hops were found to
contain sulphur, D when sued for the price claimed he was entitled to reject hops
since it was a term of the contract that they should not be contaminated by sulphur
...
was in breach of the term of the contract as
Summary
7
...
2 Interval between the Negotiations and the Contract
If the interval between the negotiations and the final entering the contract has been
well marked, then it is likely to be held merely a representation
...
On 30th October a written contract of sale for the motorcycle was made
...
It was found later
that the actual date of the model was 1930
...
Held, P's action
should fail since there had been a marked lapse of time between making of the
statement and making of the contract
...
4
...
The exclusion
of an oral statement from the written contract may suggest that it was not intended
to be a contractual; terms
...
This is in conformity with the "parol evidence rule'' which
we shall discuss shortly
...
(See Birch v Paramount Estate Ltd, 1956)
...
4
...
In Schawel v Reade (1913), D advertised a horse for sale
...
Whilst P was inspecting a stallion, D
interrupted him, saying ‘'you need not look for anything: the horse is perfectly sound''
...
The horse in fact suffered from a disease and was unfit for stud purposes, Held, D's
statement over soundness of the horse was a term of the contract
...
4
...
Such was position in Schewel
v Reade, discussed earlier
...
D offered a second-hand car in part
exchange
...
According
to the registration book the car was first registered in 1948 and D, who subsequently
bought, confirmed it in good faith
...
Later P found that the second hand car was 1939 model the
current price for model was ₤175
...
Held, the statement as to the
age of the car was not a term of the contract since P being a car dealers possessed
special knowledge and skills, who could have discovered in time the true age of the
car
...
P bought the car and the trouble began
almost at once, P brought an action against D claiming damages for the breach of
warranty as to mileage
...
7
...
In Angell v
Duke (1875), P and D entered into a written contract for lease of a house belonging to
D together with the furniture in it
...
Held P could not
be permitted to contradict the terms of the written agreement which he himself had
signed
...
The most importance exception are:
(i) Where it had been previously agreed to suspend operation of the written
agreement until the
operation of some event, such as approval of a third party, and that this event had
not yet taken place
...
When P sued for breach of this agreement, D
were permitted to give evidence of an oral agreement to the effect that the written
agreement was not to operate until a third party had approved the invention and that
the third party had never approved it
...
(ii) Parol or extrinsic evidence may be received to show that the written contract was
executed by
both parties under a common mistake, and does not really record the parties' true
agreement
...
In Joscelyne v
Summary
Nissen (1970), P made a proposal to D, his daughter to take over his car hire business
...
P and D
subsequently entered into a written contract which placed no liability upon DD after
honouring the bargaining for a time, refused to pay electricity, gas and coal bills,
though she continued to take profit of the business
...
to pay house hold expenses
...
In J
...
Subsequently D decided to change over to transportation in
containers
...
Once container stored on desk, and while in transit fell
into the sea
...
Thus an oral agreement
may be read with the written instrument so as to form one comprehensive contract
...
(1976) that their goods would be carried below
the deck, but this was not incorporated in the written contract
...
1
Explain the parol rule and its exceptions
(iv) The court a sometimes deems a statement which is not incorporated within a
writte contract to
be part of another connected or collateral contract standing side by side with the
main contract
...
In De Lassalle v Guildford (1901)
...
P refused
to hand over his counterpart of the lease until he was assured that the drains were in
order
...
The drains were
not in order
...
Similarly,
in City and West Properties (1934) Ltd v Mudd, D had been the tenant of P's shop
where in fact he had also been living
...
D was, however, given an oral assurance by P that he would be allowed
to continue living at the premises
...
P then
brought an action for forfeiture of the lease for breach of the covenant
...
A recent example of the use of the collateral contract is to be found in Barry v
Heathcote Ball & Co (Commercial Auctions) Ltd (2001)
...
The manufacture's list price for each machine was ₤ 14,521
...
Held, the promise to hold the auction without reserve was an
offer of a collateral contract which was accepted by X when he made his bid
...
7
...
If the contract is wholly, by words of
mouth, the main task of the court is to decide what words were used
...
If the contract is wholly in writing,
to decide what was written normally present no difficulty and its interpretation is a
matter exclusively within the powers of the court
...
The parol evidence rule restricts the extent to which oral evidence may be admitted
to add to vary or contradict a written contract or deed
...
7
...
But the express terms do not always constitute the whole contract, although
they usually contain the main obligations of the parties
...
When parties enter into a contract, they often fail to deal
specifically with every eventuality which could arise under it or they may have
considered something too obvious to state
...
There are various ways in which terms may
be implied into a contract, namely: (1) terms implied by custom, (2) terms implied by
statute, and (3) terms implied by the courts
...
7
...
1 Terms Implied by the Customs
Summary
These may be contractual terms which are sanctioned by customs, whether
commercial or otherwise, in a particular trade, profession or locality
...
In Hutton
v Warren (1836), by a local custom, a tenant of agricultural tenancy was bound to
farm according to a certain course of animal husbandry and that when given a notice
he was entitled to receive some allowance for seeds and labour already expanded
...
In Fleury &
Kning v Mohamed Wali & Co, X agreed to buy 1,000 dozen handkerchiefs from Y
...
X claimed
that there was a trade custom in Zanzibar that handkerchiefs must be delivered in
twelve and therefore he was entitled to the reduction in price Held, such a trade
custom may be implied into the contract
...
7
...
Such
terms are implied, unless the circumstances show a different intention of the parties
...
The former implies the following terms in every contract of sale:
(i) Implied terms as to title
That the seller has the right to sell and that buyer should enjoy quite possession of
goods and the goods must be free from any charge or encumbrance
...
(iii) Implied term as to merchantable quality
That the goods supplied are of merchantable quality, i
...
, they are as fit for the
purpose or purposes for which goods of that kind are commonly bought
...
(v) Implied terms as to sale by sample
That the goods are sold by the sample the bulk must correspond with the sample in
quality
...
These Acts will be considered in
more detail in Business Law II lectures in the next semester
...
7
...
Firstly, they may imply terms
which are called terms implied as fact into a contract so as merely to give effect to
the unexpressed intention of the parties
...
In The Moorcock (1889) D were wharfingers who contracted to allow P, a
ship-owner, to discharge his ship at their jetty
...
When tide ebbed and the ship took the ground, it stuck a
ridge of hard ground beneath the mud and was damaged
...
Accordingly, D were held liable to pay damages to P
...
There are called
terms implied in law
...
In Liverpool City Council v Irwin (1977), the Liverpool City Council let
flats and maisonettes in a tower block to tenants
...
There was no formal tenancy agreement, but the Council and
the tenants signed a list of obligations on tenants
...
The defendants
(tenants) withheld payment of rent in protest at the Council's failure to maintain the
building properly
...
The Council
agued that there were no implied terms
...
It was sufficient to imply an obligation of the
landlord to take reasonable care to keep in reasonable repair the common parts of
the building
...
P,
therefore claimed storage charges but D argued that there had been no contract with
regard to the storage charges
...
Take Note
Express terms are those terms which the parties by their words spoken or
written formulates the contract
...
7
...
The courts
recognize this inequality and classified the terms into conditions, warranties or
innominate terms
...
A condition may thus be described as a
major or main obligation in the contract
...
It is the essence of the contract
...
Owing to illness she did not arrive until one week after
the season started, when a substitute had been taken on
...
Held, the actress' inability to perform from the first night was a
condition, which went to the root of the matter, which justified the producers to
rescind the contract
...
A warranty is thus a
term which is collateral to the main purpose of the contract
...
He undertook to arrive six days in advance for the
purpose of the rehearsals but was three days late
...
Similarly, in Kampala General Agency (1942) Ltd v Mody's (E
...
P sent the goods to another station on discovering that it was nearer to D's
ginnery
...
On the other hand, it was a breach of warranty and therefore
D was entitled to damages
...
Held, the
clause relating to rehearsal was not central to the main purpose of the contract and
therefore It should be noted, however, that the use of the term ‘'condition'' or
‘'warranty'' by the parties is not conclusive
...
(iii) Innominate Term
A third term type of term is an innominate or intermediate term
...
They lay somewhere
between conditions and warranties in terms of relative importance in so far as in
some events the breach of them may entitle the innocent party to repudiate the
contract and in other events the breach entitles him only to claim damages but does
not entitle him to repudiate the contract
...
In Hong Kong Shipping Co Ltd v
Kawasaki Kisen Kaisha Ltd (1962), D contracted for the charter of a vessel for a
period of twenty four months and described the vessel as ‘'being every way fitted for
ordinary cargo service''
...
It took seven
months to make her seaworthy and DP sued for breach of contract and claimed
damages for wrongful repudiation
...
Held, the breach of contract by P did not entitled DD could only claim damages for
the breach
...
to repudiate the contract since the vessel was
available for seventeen months out of twenty four months
...
Take Note
Terms may classify into conditions,warranties and innominate or intermediate terms
...
9 Exemption Clauses
An exemption clause is a term in a contract which tries to exclude or limit liability of
one of the parties for possible breach contract, or liability arising by way or tort or
statute
...
Exemption
clause may be divided into two broad categories: exclusion and limitation clauses
...
For example, a notice at a car park
station: "the owners of the car park will not be liable for any loss or damage to the
car or its contents"
...
For example, the ticket states that ‘' the railway company's liability for
any loss, damage or injury is limited to Shs
...
By such clauses a party to the contract exempt his liability which would otherwise be
his
...
Common law control can
conveniently be discussed under two headings: incorporation of the terms into the
contract and construction of the terms
...
10 Incorporation into the Contract
An exemption clause may become a term of the contract in three ways, namely by
signature, by notice, or by a consistent course of dealing
...
10
...
In L'Estrange v F
...
One of such terms was ‘' any
express or implied condition, statement, or warranty, statutory or otherwise not
stated herein is hereby excluded''
...
D pleaded exclusion of all implied terms
...
Held, as P had signed the written contract, she was bound by the terms of
the contract and it was wholly immaterial whether she had read it or not
...
This
means that an exemption clause in a contractual, document will be ineffective if a
party to it has signed it due to fraud or misrepresentation by the other party
...
10
...
In order
that a clause to be incorporated by notice a number of criteria must be satisfied
...
In Chapelton v Barry UCD (1940), P hired two desks
chairs
from a pile kept by D, the defendant Council on its beach
...
On the back of the ticket it was printed that the Council would not
be liable
in the event of any accident or damage arising from the hire of the chairs
...
Held, the Council was liable
since
the ticket was not a contractual document but was mere receipt for the payment
...
It will not suffice to show the other party an
exemption
cause or any other contractual term after the contract has already entered into
...
After checking in at the reception, they were shown to
their room
...
Valuable furs were stolen from their room and the hotel
sought to exclude any a liability for the loss
...
The defendant hotel was therefore
liable for the loss
...
In Parker v South Eastern Railway Co (1877) P left a bag in a
railway clock room and paid for a ticket
...
P lost his bag and claimed the value of the bag which exceeded ₤ 10
...
In this case three questions were posed which need to be asked in all ticket cases;
(a) Did the plaintiff know that there was printing on the ticket?;
(b) Did he know that the ticket contained or referred to conditions?; and
c) Had the defendant done what was sufficient to draw the plaintiff's attention to the
relevant condition?
7
...
3 Incorporation by a Consistence Course of Dealing
A final method of incorporation is whether a previous course of dealings between the
parties incorporates the clause into the contract
...
In such cases the courts will not
demand that reasonable notice of the exemption clause be available to the other
party on each and every occasion for it to be incorporated into the particular
contract
...
They always made contract orally on telephone, but followed it up by a
written contract containing standard terms which included a clause exempting D from
liability for latent defects
...
Held, the
exemption clause incorporated into the contract because of the consistence previous
dealing between the parties
...
In-text Question
Discuss how an exemption clause is incorporated into a contract?
7
...
As a
general rule, the court will apply strict rule of construction in relation to exemption
clauses
...
7
...
1 Strict Construction
The courts will not imply any exemption greater than that contained in the words
used
...
There was a clause in the written contract excluding ‘' all conditions,
warranties and liabilities implied by common law, statute or otherwise
...
When P brought an action for
damages, D pleaded the exclusion clause in the contract
...
7
...
2 Contra Proferentum Rule
The courts in this area apply what is known the contra proferentum rule, that is, the
courts will construe clause against the person seeking to rely on it
...
In Kenya Trading Corporation v Algemene Bank Netherland N
...
The validity date of the guarantee was until September,
30
...
Held, the letter had
to be construed as meaning that the railway receipt was merely evidence that P had
dispatched the sugar by that date
...
11
...
7
...
4 Repugnancy to the Main Object
If an exemption clause is repugnant to the main object and intent of the contract, the
court will not give effect to it
...
The carriers
released the consignment to the original buyers without production of proper
documentation, rather than to sub-purchaser
...
R's
contract with the carriers provided that the carrier's liability would cease absolutely
once the goods were discharged from the ship
...
Held, the clause was repugnant to the main object and intent of the contract because
it absolved the carrier from liability, if he delivered the person unable to produce
correct documentation
...
7
...
5 Fundamental Breach
If a party commits a fundamental breach of his contract, he is not entitled to rely on
any exemption clause in the contract
...
He paid certain charges for the deposit and obtained receipts for
each
...
X an assistant of P persuaded the railway clerk by telling
many lies to allow him to open the trunks and remove several articles
...
P then sued the railway company for breach of
contract
...
There was no such declaration or payment
...
However, in more recent cases the courts held that there is no rule of law than an
exemption clause can never apply where there has been a fundamental breach; it is
simply a matter of construction of the contract
...
The contract contained a clause exempting D from liability for any
injurious act of its employee unless such act could have been foreseen and avoided by
the exercise of due diligence on the part of D as his employer
...
Held, the exemption clause was
clear and unambiguous and it protects D from liability
...
7
...
Although
agreement is a basic element of every contract, in many instance it is more notional
rather than real
...
If a
term is harsh or unfair the other party can reject it
...
For example, if X
want to travel by bus, his agreement with the bus company is just notional
...
Such terms make a mockery of
the principle of freedom of contract because they are not open to negotiations
...
Ltd v Macaulay (1974) when he pointed out that the terms of
the modern ‘'standard form contracts have not been the subject of negotiations
between the parties to it, or approved by any organization representing the interest
of the weaker party
...
Take it or leave it''
...
Such contracts are known as contracts of adhesion
...
7
...
In order to do that, it is necessary to
ascertain the terms of the contract in question
...
Statements which are not part of the
contract are representations, while statement which form the integral part of
the contract are terms
...
However,
the courts have developed a series of indicators to ascertain the parties'
apparent intention
...
The guiding principles to decide whether a particular statement is a term or a
representation include such indicators as, importance of the statement,
interval between the negotiation and the contract, reliance by the plaintiff,
special knowledge possessed by the person who made the statement and
whether the contract has been reduced to writing?
We have also examined in this lecture, the parole evidence rule which states
that extrinsic evidence, , especially oral evidence may not be admitted to add,
to vary or contradict the terms of a written contract or deed
...
Contractual terms may be express or implied
...
However, express terms do
not always make up the whole contract
...
In
that case certain terms may be implied by custom, by statute or by the courts
...
These terms are distinguishable from each other by the
legal consequences which flow from the breach of any of them
...
A
warranty is a term which does not go to the root of the contract, a breach of
which gives the injured party a right to claim damages but he can not
repudiate the contract
...
The remedy available for the breach of innominate terms depends upon the
factual consequences which flow from its breach
...
On the other hand, if the breach is relatively minor, the innocent party is only
entitled to damages and has no right to repudiate the contract
...
An exemption clause is a term in a contract which
excludes or limits liability for breach of contract, or liability arising in tort or
by statute
...
In the first place, the
courts consider whether the exclusion or limitation clauses have been
incorporated by signature, by notice or by previous dealings between the
parties
...
Three rules are of
particular importance in construing exemption clauses: (1) the contra
proferentum rule under which any ambiguity in the wording of the exemption
clause shall be construed against party seeking to rely on it
...
The doctrine, however, is not a rule of law,
but merely one of construction
...
Such contracts are not the result of
any negotiations between the parties but are dictated by superior party
...
Activity 7
...
Distinguish between terms and representations
...
2
...
Discuss various ways in
which terms may be implied into a contract
...
Explain various classifications of terms of a contract and remedy provided
for their breach
...
Critically examine the rules developed by the courts to construe exemption
clauses
...
Kemboi booked a hotel in Mombasa on telephone and paid deposit by visa
Summary
card
...
The clause stated: The Hotel Management will not hold themselves
responsible for articles lost or stolen in the hotel premises
...
Advise Kemboi
6
...
During the
negotiations before the sale Kabiru told Ouma that the car is in perfect
condition and there is no need for it to be checked by a mechanic
...
In a few days the car
became completely unroadworthy
...
Advise Ouma
...
1 Introduction
8
...
3 Minors
8
...
1
...
3
...
1
...
3
...
2 Beneficial Contracts of Service
8
...
2 Voidable Contracts with Minors
8
...
2
...
3
...
2 Contracts to Acquire Shares in a Company
8
...
2
...
3
...
3
...
1 Contracts of Loan and Guarantee
8
...
3
...
3
...
3 Accounts Stated
8
...
3
...
3
...
3
...
4 Mentally Disordered Persons
8
...
6 Corporations
8
...
1 Chartered Companies
8
...
2 Statutory Corporations
8
...
3 Registered Companies
8
...
8 References
8
...
2 Objectives
This lecture will enable you to:
1
...
2
...
3
...
4
...
2 Objectives
8
...
Explain why the law attempts to protect certain persons while
entering into a contract and how the balance is stuck so as not to
cause hardship to those who deal with such persons
...
Discuss different types of contract made with minors and their
effects
...
Explain how far persons of unsound mind and drunken persons are
capable of making contracts
...
Describe the limitations on corporations to enter into contracts
8
...
2 Objectives
This lecture will enable you to:
1
...
Summary
2
...
3
...
4
...
3 Minors
A minor is a person under eighteen years of age
...
It should
be noted that under the reception clause in section 3 of the Judicature Act of Kenya,
the Infants' Relief Act was a statute of general application in England on 12th August
1897 and therefore applicable in Kenya, despite the fact that the Act is now repealed
in England by the Minors' Contract Act 1987
...
3
...
8
...
1
...
The term
necessaries is defined by the Sale of Goods Act, section 4(2) to mean "goods" suitable
to the condition in life of such infant or minor or other person and to his actual
requirement at the time of the sale and delivery''
...
Thus the term "necessaries" is not
confined to goods only but also includes necessary services; However articles of mere
luxury are always excluded though luxurious articles of utility are in some cases
allowed
...
Mackenzie (1844), it was held that fruits, ices and confectionary
supplied to an Oxford undergraduate for private dinner parties could not without
further explanation be treated as necessaries
...
In order to render a minor liable for necessaries, the supplier must prove not only
that the goods are suitable to the life style of the particular minor, but also to his
actual requirements at the time of sale and delivery
...
It was established that DP, could not recover
the price for the waistcoats since D already had sufficiently been provided with
clothing of the kind in question
...
Also, a minor is required to pay a reasonable price for necessary
supplies to him and not necessarily the contract price
...
Held
A minor's contract for necessaries is a valid contract in the sense that not only the
minor himself can sue on it but the other party can also sue on it when he has
performed his part
...
On balance of authorities it can be said
that the executory contracts for necessary goods are not enforceable against the
minor
...
8
...
1
...
Necessary services include education, apprenticeship, instructions and medical
and legal advices
...
A contract is beneficial to him if it enables him to earn his living, or
to improve his skills, occupation or profession
...
He agreed to join the company's own insurance scheme and to give up any
right to claim for personal injury under a statute
...
Held, the agreement was binding on C
since looked as a whole insurance scheme was more beneficial to him than the
statute
...
In Doyle v White City Stadium (1935), it was
held that a contract under which a minor professional boxer received a licence to box
was on whole beneficial to the minor and was binding on him for it was closely
connected with a contract of services in that it would enable to earn living
...
In Chaplin v Leslie Frewin (Publisher) Ltd (1966), P, a minor son of a wealthy and
famous comedian entered into a contract with D, a publishing company under which
the latter agreed to publish the life story of P, He later repudiated the contract on
the ground that it contained libellous matter and gave inaccurate pictures of his
approach to life
...
Take note
Contract for necessaries and beneficial contract of service are binding on
a minor and are therefore enforceable against him
...
In De Frances v Barnum (1890), G, a minor girl entered into a contract under
seal with P for apprenticeship as a stage dancer
...
G took employment with D
...
Held, the provisions of the contract were unreasonably harsh and unduly
burdensome to G
...
The beneficial contracts of services are binding on the minor even when they are
executory
...
P also agreed to pay for D's
boarding, lodging and traveling expenses
...
Before the tour began, a dispute arose between the
parties and D repudiated the contract
...
Held, D was
liable to pay damages
...
Although a minor is bound by the contract substantially beneficial to him, a trading
contract is not binding upon him however much it may be for his benefit
...
He fell in
arrears with his instalments on the lorry and P sued him contending that the contract
was binding on him since it was as whole for D's benefit
...
Take note
A trading contract with a minor is not binding upon him even if it is
beneficial to him
...
So also he is not
liable on warranty of goods sold by him
...
Activity 8
...
8
...
2 Voidable Contracts with Minors
Certain contracts entered into by minors are voidable
...
What is reasonable time is a question of
fact in each case
...
Under the
will the father of H agreed to pay ₤1500 a year to the trustees, who were to pay it to
H for life and then to the wife and issue of the marriage
...
Held, the repudiation was
ineffective because there was an unreasonable delay
...
Voidable contract are confined to contracts by which a minor acquires an interest in a
subject matter of a permanent nature, which imposes a continuous or recurring
liability on him
...
8
...
2
...
Such lease are voidable at the minor's option, but while in possession he is subject to
the liabilities imposed by the contract and may successfully be sued for the non
payment of rent
...
After three years he was sued for
the due rent
...
However, a minor is precluded from
acquiring a legal estate in land and thus cannot become an estate owner
...
3
...
2 Contract to Acquire Shares in a Company
The above principles also apply to the acquisition of shares in a company
...
He was sued by the company to recover a call, that is, the amount
outstanding on his shares, while he was still a minor
...
Held, M was liable to
pay call on shares, equally also because he had never repudiated the contract
...
3
...
3 Contract of Partnerships
Contract of partnerships with a minor are also governed by the same principles
...
If however, the minor continues in partnership after attaining
full age he will be liable for the firm's debts thereafter
...
It remains binding upon him unless he repudiates it within
reasonable time after attaining the majority
...
Held, M was liable for the debts of
Summary
partnership contracted since he came of age, because he held himself out as a
continuing partner by not repudiating the contract
...
Contracts in this category are contracts for lease, to acquire shares in a
company and of partnership
...
He has, however, to meet obligations which have already accrued at the
time
...
She neither
received any dividend nor attended any meetings of the company
...
Held, (1) she could not
recover money she had already paid because she had obtained the very consideration
for which she had bargained, that is, the allotment of shares and (2) she was not
liable to future calls
...
In Corpe v Overton
(1983),M, an infant agreed to enter into a partnership with D to be formed in future
...
He rescinded the contract and sued DM was entitled to recover the advance
since there was a total failure of consideration
...
He occupied the premises for about three months
and then repudiated the lease and left the premises
...
Held, there had not been a failure of consideration since he
had received the very thing he had been promised and for which he had made the
payment
...
Held,
Intext Question
Discuss how far a minor is liable on a voidable contract which he has not
set aside
...
3
...
Also, the Betting and Loans (Infants) Act 1892, makes void any agreement made by a
person after be comes of age to pay a loan contracted during minority
...
3
...
1 Contract of Loan
Contract to loan money made to a minor is not binding on him and therefore
irrecoverable
...
The bank sued A and B for
payment
...
Accordingly it could not be recovered from A and B, the
guarantors
...
In Nottingham Permanent Benefit
Building Society v ThurstanM, a minor became a member of a building society and
obtained advances of which part was paid by the society to the vendor of a piece of
land which M had agreed to purchase
...
M gave mortgage of land to secure advances and interest
...
Held, the mortgage was void but the society had a
lien on the land for that portion of the advances which had been paid to her
...
However, where an infant borrows money for this purpose, the lender may step into
the shoes of the seller and recover in equity from the infant the reasonable price
which seller could have recovered
...
8
...
3
...
Contract for
goods includes not only the sale, but also the exchange of goods
...
3
...
3 Accounts Stated
An account stated is an admission by a minor that a sum certain is due to another
...
8
...
3
...
The expression "void
contract'' in its strict sense signify that neither party can enforce the contract
...
This
means that such contracts are enforceable at the suit of the minor
...
Finally money or goods delivered by a minor to the other
party to a void contract is recoverable only if there has been a total failure of
consideration
...
He paid ₤68 for that purpose
...
Held, M was precluded from recovering the
money since he had received part of the consideration; though he was not bound to
pay the balance of the sum due because it was an executory promise
...
Soon after the purchase the car broke down and M sued D for the recovery of
the motorcycle on the ground that the contract was for non-necessary goods and
therefore void
...
(1989), (1929)
8
...
3
...
Also, because of the same section and section 5 of
the Betting and Loans (Infants) Act, 1892, a fresh promise made after full age by a
minor shall not render actionable debt contracted during infancy
...
When MP sued him on the
debt
...
P sued on the
bills
...
attained full age
8
...
4 Misrepresentation of Age
If a minor has induced the other party to enter into a contract with him by
fraudulently representing that he is of full age, he cannot be sued either in contract
or in tort
...
Equity has however developed the restitution remedy against minors
...
In R
...
He refused to pay it and L sued him
...
Where the minor is still in possession of the property transferred to him under the
contract, there is no doubt that an order for restitution can and will be made
...
8
...
5 Minors' Liability in Tort
A minor is not liable in a tort directly connection with any contract upon which no
action will lie against him
...
In Jennings v Rundall (1799), M, a
minor hired a horse for riding and injured it by excessive and improper riding
...
A minor may, however, be made liable in tort if act is of a kind not contemplated by
the contract
...
2
A minor is not liable in contract or tort where he has induced the other party
to enter into a contract by fraudulently misrepresenting his age
...
3
...
An action cannot be brought against minor in quasi-contract
if it would be an indirect way of enforcing a contract against him, However for an act
not contemplated by a contract, a minor may be made liable in quasi-contract
...
8
...
They are considered as unfit to deal with their own
affairs
...
248 and the court has made an order
for the management of estate or property of such a mentally disabled person, it
seems likely that such a person is absolutely incapable of entering into contracts
...
In order to set aside the contract,
the mentally disordered person should further demonstrate that his mental disability
was known or ought to have been known by the other contracting party at the time of
making the contract
...
Summary
But by virtue of the Sale of Goods Act, section 4(1), a contract for necessaries made
by a mentally disabled person is binding upon him
...
5 Drunken Persons
If a person, when enters into a contract is in such a state of drunkenness as not to
understand what he is doing, the contract is voidable at the option of that person
provided the other party knew of his condition
...
A drunken person may ratify the contract when he is sober
...
8
...
They have a legal personality distinct from that of
their members
...
6
...
Chartered corporation are created by the charter granted by the President
...
Most of the private Universities are created by a
charter
...
If,
however, it makes a contract outside its powers granted by the charter, the contract
is valid but the charter may be forfeited, or a member of the corporation may obtain
an injunction restraining the corporation from doing the act which will be a ground
for forfeiture of the charter
...
6
...
Their powers and
functions are set out in the creating statute
...
Any activity
of such a corporations outside the powers conferred upon them by the creating
statute is beyond their powers and therefore void
...
6
...
They are incorporated under the Companies Act, Cap
486
...
One of those documents is the Memorandum of Association, which
contain company's objects clause
...
The company could only
contract for the objects set out in the memorandum of the company
...
A
company may, however, enter into contracts that are reasonably incidental to or
consequential upon the operations that it is authorized by the objects clause to
perform
...
In
Ashbury Railway Carriage and Iron Co Ltd v Riche (1875) the objects of the
appellant railway company were to make and sell, or lend on hire, railway carriages,
wagons and all kinds of railway plants, fitting machinery plants and rolling stock; to
carry business of mechanical engineers, etc
...
The company's shareholders disapproved the deal and the company repudiated the
assignment of contract with R
...
The House of Lords held that construction of a
railway was not within the objects clause of the company and that the company did
not have capacity to enter into contract to construct a railway
...
Accordingly, R was not entitled to damages
...
In such cases, the company itself could plead that
it had acted ultra viresultra vires
...
Held, to make the opinion of the
directors the criteria of whether the new business would be advantageous was
legitimate and therefore intra vires (within the powers), provided such opinion was
reached in good faith
...
It was thought the doctrine
protects shareholders against use of company's funds for unauthorized purposes but in
view of the drafting of the objects clause in a very broadway, as in the case of Bell
House Ltd, has made such protection largely illusory
...
The doctrine now no longer apllies to a third party dealing with
companies in U
...
In Kenya, however, the doctrine is still applicable
...
Activity 8
...
Discuss how far the law attempts to protect a minor while entering into
Summary
contracts
...
A contract entered by a corporation could be deemed void if it is ultra
vires
...
Mentally disordered persons cannot enter into contracts because they are
incapable of giving any real consent
...
A person is not liable on a contract if at the time of making the contract
he
was so drunk that he was incapable of understanding the nature of the
transaction
...
5
...
1,000 from his neighbour
Richard
...
(c) Jane wish to participate in under eighteen athletic championship
competition in Uganda
...
5,000 for the job
...
(d) Maina was admitted to a mental hospital as a mental patient for some
mental problems
...
3,000 for Shs
...
LECTURE NINE: VITIATING FACTORS
Lecture Outline
9
...
2 Objectives
9
...
3
...
3
...
3
...
3
...
4 Misrepresentation
9
...
1 Actionable Misrepresentation
9
...
1
...
4
...
2 Inducing the Contract
9
...
2 Types of Misrepresentation
9
...
3 Remedies for Misrepresentation
9
...
3
...
4
...
2 Damages
9
...
3
...
5 Duress
9
...
6
...
6
...
6
...
7 Illegality
9
...
1 Contracts Prohibited by Statute
9
...
2 Contracts Illegal at Common Law
9
...
3 Contracts Void at Common Law on Grounds of Public Policy
9
...
8
...
8
...
9 Summary
9
...
1 Introduction
This lecture considers vitiating factors in an agreement and their impact on the
contract
...
Defects in the agreement
may occur because of absence of required formality, incapacity, mistake,
misrepresentation, duress, undue influence or illegality
...
In this lecture,
therefore, we shall discuss vitiating factors such as mistake, misrepresentation,
duress, undue influence and illegality
...
10 References
9
...
2 Objectives
At the end of this lecture, you should be able to:
1
...
Distinguish between various types of mistake and discuss the
solutions provided by the common law and equity in relation to
each type of mistake
...
Explain what sort of statement will amount to a misrepresentation
4
...
Explain the law where one of the parties to the contract used
duress, that is, unlawful physical or economic threats to coerce
the other to enter into the contract
...
Discuss how the law of contract has dealt with the situation where
it appears that one party may have been "unduly influenced" or
dominated by the other to enter into the contract
7
...
9
...
At common law, if it can be shown
that the contract was made because of a mistake, the contract may be treated as
void
...
In order to be
actionable the mistake must be of facts and not of law
...
Secondly, it must
be an operative mistake, it must be fundamental, that is, it must go to the root of the
contract
...
In cases
of mistake there is no genuine or real consent and therefore the contract is void
abinitio, that is, to treat the contract as completely ineffective from the start
...
For operative mistake the contract is void and has no legal effect
...
Both may make a
mistake in the following two situations
...
Such a mistake is referred
to as Common Mistake
...
Such mistakes are usually referred to as
Mutual Mistake and Unilateral Mistake
9
...
1 Common Mistake
In this situation both parties make the same mistake
...
Both parties entered into a contract believing
something to be true which was later found not to be true
...
3
...
1 Mistakes as to the Existence of Subject Matter
Common mistake usually occurs in cases of res extincta that is, where the parties
may enter into a contract when, unknown to both of them, specific subject matter of
the contract already ceased to exist
...
Unknown to either party the corn became fermented and had already been sold by
the master of the ship at an intermediate port even before the contract was made:
Held, P was not liable for the price since the contract plainly imports that there was
something to be sold and purchased at the time of contract
...
The principle applicable to a case of res extincta has been extended to the case of
res sua ("the thing was already his")
...
unknown to both parties, the fishery already belonged to P
...
9
...
1
...
At common law it will be rare for a contract to be
held void for mistake as to quality
...
In Bell v Lever Brothers Ltd (1932) appellants were employed by Lever
Brothers on five year service contracts as executive directors of one of their
subsidiaries
...
After they had paid the compensation amount, Lever Brothers
discovered that the appellants had committed serious breaches of duty during their
tenure which would have justified their dismissal without any compensation
...
Held, the agreements to pay compensation were valid since the
circumstances of the case itself disclosed no operative mistake and that the mistake
was one of the quality of the service agreement
...
But in Solle v Butcher (1950) the Court tried to give some relief from this rule of the
common law by formulating the principle of equitable mistake under which if a
mistake being found to be operative in equity the agreement was said to be voidable
and not void
...
Both parties acted on a mistaken assumption that the flat,
having been so drastically reconstructed as to be virtually a new flat, was no longer
controlled by Rent Restriction Acts
...
After two years P discovered the mistake
and sought to recover the rent he had overpaid
...
P was given the choice between surrendering the lease or
continuing in possession by paying the full amount of ₤ 250 of rent
...
However, in Great Peace Shipping Ltd
...
(2002) it was said that Solle v Butcher was wrongly decided since
the decision was inconsistent with Bell v Lever Brs Ltd
...
9
...
2 Mutual Mistake
Mutual mistake occurs when both parties misunderstand each other and are at a
cross - purposes, either as to the terms of the contract, or as to the subject
matter
...
If the parties to an apparent
contract misunderstand each other, then it can be argued that this is no agreement
between them
...
So the only possible conclusion is that it is impossible to impute any definite
agreement to the parties
...
(1913) an
auctioneer was employed to sell both hemp and tow
...
P intended to sell tow and DRaffles v Wichelhaus (1864) may also be treated
as a case of mutual mistake
...
There were two ships called
"Peerless" both sailing from Bombay with cargo of cotton
...
D meant the "Peerless" which left Bombay
in October whilst PD was not liable for refusal to accept cotton arrived by the
December ship
...
Held, there was no binding contract because
of the ambiguity of circumstances and it could not be affirmed which commodity was
subject of the contract
...
Held,
9
...
3 Unilateral Mistake
In unilateral mistake, only one of the party is mistaken
...
The situation in which unilateral mistake has most
often been pleaded is that of mistake of identity
...
In Cundy v Lindsay (1878) a rogue had deliberately set up a business
under the name of Blenkarn on the same road where a very respectable firm called
Blenkiron & Co
...
The rogue tricked P into supplying him a
large consignment of handkerchiefs by making his signature look as though it read
Blenkiron
...
but they neither
knew nor took trouble to ascertain the number of the street where they did business
...
at the
rogue's address
...
P sued D
in tort for conversion, that is, wrongfully handling another person's goods
...
This case must be contrasted with the later case of King's Norton Metal Co
...
Ltd (1897)
...
In fact Hallam & Co
...
P had dealt on a number of occasions with Hallam
& Co
...
When P received
another larger order from Hallam & Co
...
W took possession of the goods and sold them to D, who bought in
good faith
...
Held, the contact was not void for
mistaken identity because P had intended to deal with Hallam & Co
...
W and Hallam & Co
...
The Court in this case,
however, held that the contract was voidable for fraudulent misrepresentation but as
it had not been avoided before the sale by W to D, the latter had obtained a good
title
...
3
...
3
...
1 Rectification of Common Mistakes
Summary
Sometimes though the consent may be real, it has by common mistake been
inaccurately expressed in a latter written document
...
We have already discussed the remedy of rectification of a
simple transcript mistake in recording an oral agreement in writing in one of our
earlier lectures
...
3
...
2 Non est Factum
The Latin maxim non est factum literally means: it is not my deed
The normal rule of the law of contract is that a person who signs a contractual
document will be bound by its contents, unless the signature was obtained by fraud or
misrepresentation
...
He showed D some papers covered by a piece of blotting-paper with a number of
holes cut in it
...
D signed in spaces
...
Held, D was not bound by his
signature because it was obtained by fraud
...
However, the contract
may be void if the signer could establish the defence of non est factum
...
In this case, P was an elderly widow who owned a house held on long
leasehold
...
She
made it a condition that she should remain in occupation of it until she died
...
D took this document to P and asked her to sign it
...
D mortgaged the
house to a building society but failed to pay installments due under the transaction
...
P sued D and the building society
for a declaration that the assignment was void
...
Held, the defence of non est factum could not succeed
because:
1
...
2
...
Activity 9
...
Critically examine this statement
...
In common mistake, both parties make the same mistake
...
In unilateral mistake only one party is mistaken
Intext Question
Give examples of various types of mistake
9
...
4 Mistake in Document
9
...
4
...
If it is proved that owing to a
mistake the document fails to reproduce the common intention of the parties, the
court has jurisdiction not only to rectify the written contract, but also to order
specific performance
...
9
...
Not all these
statements become part of terms of the contract
...
If any such representation turns out to be untrue it
is called misrepresentation
...
A contract made as a result of misrepresentation is voidable at the instance of the
person to whom the misrepresentation was made
...
4
...
These are:
Summary
1) that a representation of fact was made by the defendant to the plaintiff at or
before the time of contracting;
2) that the representation was false or misleading in some material respect; and
3) that that the plaintiff was induced to enter into the contract on the basis of that
misrepresentation
...
4
...
1 Representation of Fact
A misrepresentation must be a false statement of facts
...
9
...
1
...
1 Statements of Opinion
As a general rule, statements of opinion will not qualify as statements of fact
...
During the negotiations B told W that in his opinion if
properly worked the land would carry 2,000 sheep
...
Held, the statement was an honest opinion of
capacity of the farm, not a representation of its actual capacity
...
As for instance where party making the statement does not
truly hold the opinion he expresses, or he has a particular expertise, or he is in a
better position to know the facts than is the other party
...
(1884)
...
The particulars of the sale documents
stated that it was let to "a most desirable tenant" at a rental of £ 400 per annum
...
When D discovered this they sought to
rescind the contract
...
9
...
1
...
2 Statement of Intention and Future Events
A statement as to the future is not a representation of existing fact, and is therefore
not actionable
...
In
Edgington v Fitzmaurice (1885) a company issued a prospectus in an attempt to raise
loan from the public and stated that the money was to be used for alteration and
addition to premises and the extension of the business
...
Held, the prospectus was a
fraudulent misrepresentation of fact because the company simply told a lie
...
4
...
1
...
But a false statement as to one's view of the
law can qualify as a statement of fact
...
4
...
1
...
In Fletcher v Krell
(1873), a lady applied for a post of governess and failed to reveal the fact that she
was a divorcee
...
Held, there
was no misrepresentation since non-disclosure could not constitute a
misrepresentation
...
First, where the silence distorts positive assertion
...
D then
fell ill and practice became virtually worthless
...
Held, D's silence in the face of this change of circumstance was a
misrepresentation
...
Thirdly, where a fiduciary relation exists between the contracting parties, for
example relationship between principal and agent, between partners, between
advocate and a client, and between promoters of a company and the public
...
Only part of the truth about something may mislead others by reason of
the facts which he has omitted to mention
...
Held, the failure to disclose had been a misrepresentation
...
4
...
2 Inducing the Contract
A false statement is a misrepresentation only if it actually induces the other party to
enter into a contract
...
Knowledge of the untruth of a representation is a complete bar to an action
for misrepresentation, since the palaintiff cannot assert that he had been mislead by
the statement
...
In Horsfall v
Thomas
(1862) the vendor of a gun concealed a dangerous fault in the barrel
(misrepresentation by
conduct) before offering it to the purchaser, who purchased the gun without
examining it
...
In Attwood v Small (1838) the vendor offered to
sell a mine and made exaggerated statements as to its earning capacities, to the
prospective purchaser
...
The agents reported that the statements were true,
and ultimately the contract was completed
...
The purchaser brought an action
for the recession of the contract
...
9
...
2 Types of Misrepresentation
Once an actionable misrepresentation has been established, the court must decide
what type of misrepresentation was involved
...
Misrepresentation is of three kinds:
9
...
2
...
More recently in Thomas Witter Ltd v TBP Industries Ltd (1996) it was stated the
fraud requires a dishonest disregard for the truth
...
However, if the representor genuinely believed in the truth of his statement, there
cannot be fraudulent misrepresentation
...
The directors of the
company, believing this consent would be given as a matter of course, issued a
prospectus containing a statement that the company had the right to use steam
power instead of horses
...
The Board of
Trade refused their consent to the use of steam power and the company was wound
up
...
Held, the action against the directors claiming damages for fraudulent
misrepresentation must fail since they honestly believed their statement to be true
...
4
...
2 Negligent Misrepresentation
Before 1963, the common law made no distinction between negligent
misrepresentation and innocent misrepresentation
...
But developments at common law
since the decision of the House of Lords in Hedley Byrne & Co
...
The remedy of damages is
available for negligent misrepresentation also
...
In Hedley
Byrne & Co
...
(1963) P had been asked for credit by a
company, Easipower Ltd
...
D who had known
the purpose of P's request, had carelessly replied that Easipower were financially
sound
...
Held, on the facts of the case that D were not liable since the reply had been
given "without responsibility"
...
In order to
succeed in an action for tort of negligence, the plaintiff must establish that: (1) the
defendant owed him a duty of care; (2) the defendant was in breach of that duty; and
(3) the breach had caused him loss
...
It may be noted that liability for negligent misstatement can attach
not only statements of fact but also to other forms of negligent statements such as
expression of opinion or statement of law
...
Ltd & Mardon 1976)
...
4
...
3 Innocent Misrepresentation
Innocent misrepresentations are those not covered by fraudent or negligent
misrepresentation
...
Take Note
Summary
Misrepresentation means pre-contractual false statement of fact
...
9
...
3 Remedies for Misrepresentation
The remedies available for misrepresentation depend upon the type of
misrepresentation
...
9
...
3
...
The effect of a contract being voidable is that it remains valid unless and until the
innocent party elects to rescind
...
If he chooses to proceed with the contract or does
some act from which it can reasonably be inferred that he has affirmed it, the
contract is valid and binding on both the parties
...
The word "rescission" or its verb "rescind"
means cancellation or avoidance of a contract
...
To avoid or rescind the innocent party must give notice to the other of his decision, or
alternatively do something from which an inference to rescind may be inferred
...
Ltd v Caldwell (1964) C sold and delivered a car to a
rogue N, in return for a cheque which proved to be worthless
...
C at once informed
the police and the Automobile Association of the deception and asked them to
recover his car
...
Eventually the car was sold to a finance company who bought it in good faith
...
Consequently C by setting the police and
Automobile Association in motion had clearly indicated his intention to rescind
...
The finance company, therefore, did not acquire a good
title to the car
...
The purpose of rescission is to restore the parties to their pre-contractual position
...
The
effect of rescission is to render the contract void
...
Rescission is an equitable remedy and therefore it is discretionary
...
9
...
3
...
1 Bar to Rescission
The right to rescind a contract is lost in the following situations:
a) Affirmation of the Contract
If the innocent party, with full knowledge of facts and of misrepresentation affirms
the contract, the right to rescind is lost
...
Affirmation may be by express words or may be implied by conduct
...
c) Impossibility of Returning Parties to their Original Position
If it is impossible to restore the parties substantially to their original position,
rescission cannot be enforced
...
9
...
3
...
The right to damages is not universal but depends on showing that the
representor's statement is either fraudulent or negligent in the senses set out above
...
The
purpose of awarding damages in tort is to put the plaintiff in a position he would have
been in if the misrepresentation had not been made
...
Any award of damages is therefore
calculated so as to compensate the plaintiff for any actual loss he has suffered for
entering into the contract in reliance on the misrepresentation
...
For
negligent misrepresentation liability under the principle of Hedley Byrne & Co Ltd v
Heller & Partners Ltd flows from the law of tort and so the tortious rules apply
...
For this reason a claim in tort may sometimes be advantageous to the plaintiff
...
4
...
3 Indemnity
Although damages are not available for innocent misrepresentation, it is possible to
claim an indemnity for expenses that have been incurred in carrying out obligations
under the contract
...
Remedies available for actionable misrepresentation depend on
Summary
the type of misrepresentation
...
For innocent misrepresentation only
remedy available is recission or avoidance of contract
...
There is no general right to damages for a wholly innocent
misrepresentation, but the innocent party may claim indemnity
for expenses
...
5 Duress
Duress means actual or threats of violence to the person, i
...
threats calculated to
produce fear of loss of life or bodily harm
...
Recently the courts have
developed the principle of economic duress which we shall discuss shortly
...
The majority of the writers state that duress makes the contract
voidable, but this has been disputed
...
A, the largest
shareholder in a company threatened B, the next largest shareholder with death if the
company did not agree to pay a large sum in cash and to purchase A's shares in the
company
...
Held, the deed was executed by B under
duress and therefore the contract was void
...
The effect of economic duress is to
render the contract voidable, which may be set a side by a court
...
D also
agreed to buy back P's shares at $2
...
P later realised that there was a possibility that D would earn huge
profit if the value of the shares went up
...
Fearing delays, and a loss of confidence in their company, D agreed to P's demands
...
P sued on the
indemnity contract
...
Held, D took a commercial decision that the
risk to their company of non-performance was greater than the risk of the need to pay
an indemnity
...
The doctrine of economic duress was recognized by the Kenya Court of Appeal in
Kenya Commercial Bank Ltd v Samuel Kamau Macharia (2008)
...
borrowed various amounts of money from Kenya
Commercial Bank and other lenders
...
It defaulted on the loan repayments
and was placed under receivership
...
However,
one week later the payment was returned and the receivership was restored because
the company had imposed conditions unacceptable to the debenture holders
...
Subsequently, the company
brought a suit against the debenture holders claiming Kshs56 million allegedly
extracted from them
...
Held, the doctrine of economic duress was not applicable because there was no
pressure or duress illegitimate or otherwise applied to induce the company to pay
...
It is worth noting that economic duress must be distinguished from mere commercial
pressure, which is an everyday incident of the hard-nosed bargaining which goes on in
the business world
...
Take Note
Duress is of two types :
Physical duress which means actual or threat of violence to the person,
and Economic duress which occurs when commercial threats or forms of
pressure, not associated with threats to person, is applied
...
6 Undue Influence
The common law doctrine of duress was rigid and was initially confined solely to
physical threats
...
Equity recognized that consent may be affected by influences other than physical
ones
...
The effect of undue influence is to make the contract voidable
...
6
...
The party seeking to avoid the contract must
prove that as a result of improper pressure by the other party, he felt compelled to
enter into the contract
...
In
this case a husband (H) and Wife (W) jointly owned a family home
...
H induced W to
Summary
sign a second mortgage and a legal charge on the family home as a security for loan
obtained from P
...
The proceeds of the loan after the existing mortgage was paid off,
were used by HH was unable to keep up the mortgage payments and P applied for an
order for possession of the family home
...
In this case
H was considered as an agent of the bank in procuring the transaction by means of
undue influence
...
(1866)
a son gave to his bank several promissory notes upon which he had forged the
endorsements of his father
...
The father thereupon agreed to mortgage his property to the bank
...
Accordingly, the agreement was set a side on the
ground that undue pressure had been exerted
...
When the market
crashed,
9
...
2 Presumed Undue Influence
Presumed undue influence arises from the existence of a relationship between the
parties
...
The first consists well known
relationships which the law will treat as relationships of trust and confidence
...
9
...
2
...
Only a few relationships fall into this category, notably those of
parent and child, guardian and ward, trustee and beneficiary, advocate and client,
doctor and patient, and religious advisor and disciple
...
Where such a relationship is exploited and abused to gain an unfair advantage, the
courts will intervene and set aside the contract
...
In Ottoman Bank v
Mawani (1966) a son entered into a contract of guarantee with a bank in favour a
firm of which his parents were the proprietors
...
Held, the son was not liable on guarantee since although he was of full age
he was under the authority of his father
...
6
...
2
...
Such relationships give rise
to a presumption of undue influence but do not automatically do so
...
Where, there is no automatic presumption of undue influence,
but such a presumption may arise if there is evidence to show that one party was
accustomed to place trust and confidence in the other
...
Held, there was a presumption of undue influence because the evidence showed that
the employer had assumed dominance over the employee
...
9
...
2
...
Rebutting the Presumption
The presumption of undue influence is, however, rebuttable if it can be shown that
the alleged victim entered into the contract after full, free and informed
consideration
...
6
...
This means that the victim must
bring an action for rescission to avoid it
...
9
...
The notion of illegality covers a number of factors which have been said to
deprive contracts of legal force
...
9
...
1 Contracts Prohibited by Statute
Contracts expressly or implicitly prohibited by statute are illegal and therefore void
...
A criminal conspiracy involves an agreement, but it can never be an
enforceable contract
...
e
...
In Re Mahamoud and Ispahani (1921)
P had a licence to sell linseed oil to other licensed dealers
...
D mis-represented to P
that he had a licence, thereupon P agreed to sell linseed oil to him
...
Held, P kshs
...
Summary
9
...
2 Contracts Illegal at Common Law
The following contracts are considered by the courts as patently reprehensible,
contrary to public policy and therefore termed as illegal
...
7
...
1 Contracts to Commit a Tort or other Civil Wrong
A contract to commit a tort or other civil wrong is illegal and therefore void
...
7
...
2 Contracts Promoting Sexual Immorality
An agreement to promote sexual immorality may be declared illegal at common law
...
Similarly, contracts ancillary to immoral purposes are equally affected
...
However, in modern time views on
sexual morality have changed and the law is less severe than once it was, particularly
on unmarried couples
...
7
...
3 Contracts Prejudicial to the Administration of Justice
Any contract having tendency to affect the administration of justice, is illegal and
void
...
9
...
2
...
9
...
2
...
In Garforth v Fearon (1787)
...
Held, as
the contract was contrary to public policy it was illegal and therefore no action lay
against X for breach of contract
...
7
...
6 Contracts Prejudicial to Foreign Relations
Contracts which tend either to benefit an enemy country or to disturb good relations
with friendly countries fall into this category
...
9
...
2
...
Neither party to an illegal agreement can enforce the
agreement against the other
...
Thus in case of an illegal contract for the sale of goods,
the buyer even if he has paid the price, cannot sue for non-delivery or the seller who
has made delivery of the goods cannot recover the price
...
Further more, any subsequent agreement or collateral contract which
is based upon the illegal transaction will also be affected by initial illegality and will
also be unenforceable
...
9
...
2
...
Severance means separating the void part of the contract from the valid part
Intext Question
1
...
9
...
3 Contracts Void at Common Law on grounds of Public Policy
Contracts falling under this head are not that reprehensible but are rather
inexpedient
...
They include the following contracts:
9
...
3
...
9
...
3
...
Similarly, a contract for future
separation between husband and wife is void
...
Also, a contract
by a married man to marry another woman at some future date is void on grounds of
public policy
...
8 Contracts rendered Void by Statute
There are several contracts rendered void by statute, but shall discuss two only in this
section
...
8
...
An example of a wager is betting on the result of a horse race or a
Summary
football match, or an election result
...
For example, two persons may differ
on a past event whether in 2004 olympic games Kenya won the gold medal in
marathon race or not and they bet on it
...
It s important to note that gambling is not in itself illegal, but void and no rights can
be conferred upon either party to such a contract
...
If the looser fails to pay, recovery cannot be enforced by
action for the amount of bet
...
8
...
This is a good working definition provided it is applied rationally and not too literally
...
Hence a distinction has to be made between contracts in
restraint of trade and contracts which are really necessary for carrying on a business
...
Section 2 of this Act provides that:
"Any agreement or contract which contains any provision or covenant whereby
any party thereto is restrained from exercising any lawful profession, trade,
business or occupation shall not be void only on the ground that such provision or
covenant is therein contained provided that:The High Court shall have power to
declare such provision or covenant to be void, where the court is satisfied that
having regard to the nature of the profession, trade, business or occupation
concerned, and the period of time and the area within which it is expressed to
apply, and to all circumstances of the case, such provision or covenant is not
reasonable either in the interests of the parties in as much as it affords more
than adequate protection to the party in whose favour it is imposed against
something against which he is entitled to be protected, and in the interest of the
public, in as much as such provision or covenant is injurious to the public
interest
...
The doctrine of restraint of trade contained in the provisions of the Contracts in
Restraint Trade Act is applicable to all types of restraint, but the doctrine is
traditionally applied to four major kinds of restraints
...
8
...
1 Employment Contracts
Under employment contracts an employer may put constraints upon his employee's
freedom of trade, business or profession during the continuance of the employment,
or after the period of employment has terminated; Constraints during the period of
employment are usually allowed but restraints after the termination of employment
are subject to the doctrine contracts in restraint of trade
...
A restraint imposed on an employer will be held unreasonable if there is some
proprietary interest of the employer which requires protection
...
The court in deciding the question of unreasonableness will also consider any time
limits imposed by restraint and/or the geographical area it covers
...
While on leave, the appellant found
employment with a rival firm
...
The arbitrator awarded an injunction and
directed that the appellant could not be employed by the rival firm
...
In the course of judgment, the Court observed that
in deciding the question of reasonableness the court must have regard to the nature
of the business, trade or occupation, the area over which the restraint is to be
imposed and the length of time for which it is to continue
...
9
...
2
...
Such covenants are prime facie valid and will not be unreasonable if the restriction
does not go beyond what is necessary to enable the purchaser to enjoy what he has
bought
...
A
...
X
...
The business specialized in merchandise
for expatriate community
...
The vendor opened a similar business in Pemba which was a
part of Zanzibar Protectorate
...
Held, the restraint was not unreasonable, since it was possible that in
a specialized line of trade, the vendor could injure the purchaser's commercial
position
...
8
...
3 Horizontal Agreements
Horizontal agreements or cartels are agreements between competing undertakings at
the same level in commercial chain, such as agreements between manufacturers or
between wholesalers or between retailers
...
Such agreement were generally looked on
more favourable by the common law courts for the simple reason that in commercial
agreements of this kind parties themselves are the best judge of their own interests
...
G
...
Ltd (1913) it was held that the
cartels are not injurious to the public
...
P
sued D to recover his shares of the goods
...
9
...
2
...
Any agreement between a manufacturer and wholesaler, or between a wholesaler and
retailer is a vertical agreement
...
In this case, the parties entered into a contract
under which the garage company which owned two garages agreed to buy all its
petrol only from Esso
...
In the case of a second garage the agreement was to
operate for twenty one years, and in return the garage owners received a mortgage
loan of £ 7,000
...
Held, both agreements were within the ambit of the
doctrine of restraint of trade but the restriction of four years and five months was
reasonable, as it was not in the circumstances longer than necessary to afford
protection to the oil company
...
The last two types of agreements are known as restrictive trading agreements which
are now regulated by the Restrictive Trade Practices, Monopolies and Price
Control Act, 1988
...
1 Introduction
10
...
3 Discharge by Performance
10
...
1 Substantial Performance
10
...
2 Acceptance of Part Performance
10
...
3 Prevention of Performance
10
...
4 Severable or Divisible Contracts
10
...
5 Time of Performance
10
...
6 Tender of Performance
10
...
4
...
4
...
4
...
1 Bilateral Discharge
10
...
2
...
4
...
3 Variation and Waiver
10
...
2
...
5 Discharge by Breach
10
...
1 Actual Breach
10
...
2 Breach by Anticipatory Repudiation
10
...
3 Effects of Breach
10
...
3
...
5
...
2 Effects of Breach by Anticipatory Repudiation
10
...
3
...
6 Discharge by Frustration
10
...
1 Impossibility
10
...
2 Supervening Illegality
10
...
3 Non - Occurrence of an Event which is the Foundation of the Contract
10
...
4 Government Intervention
10
...
5 Contracts Concerning Land
10
...
6 Limitations on the Operation of the Doctrine
10
...
7 The Legal Consequences of Frustration
10
...
8 References
10
...
Discharge of a contract may result from:
Summary
(i) performance, that is, when the parties perform their respective obligations under
the contract;
(ii) agreement, where the contract contains a term to discharge it or where the
parties to an existing contract enters into an agreement to extinguish the rights and
obligations that have been created;
(iii) breach, where a party fails to perform one of his obligations under a contract on
when it is due, or indicates that he will not perform on the agreed future date; or
(iv) frustration, where further fulfillment of the contract is brought to an abrupt
stop by some irresistible and extraneous cause for which neither party is responsible
...
2 Objectives
10
...
Describe various ways in which a contract may be discharged or
terminated
2
...
Discuss how a contract may be discharged by agreement
4
...
Explain the doctrine of frustration and the circumstances in which
the doctrine of frustration is applicable
...
3 Discharge by Performance
A contract is discharged by performance when the parties have performed their
obligations under the contract in accordance with its terms
...
Any deviation from
performance of exact contractual undertaking is breach
...
D agreed to
pay him 30 guinees provided that "he proceeds, continues and does his duty from
hence to the port of Liverpool"
...
Held, C's
widow could not recover anything for the work he had done since by the term of the
contract the deceased was obliged to perform his entire duty before he could demand
payment
...
He did part of the work to
the value of £333 and then stopped the work due to financial difficulties
...
Held, P could not recover the value of work done but could only recover for the
materials used by D
...
He installed the system but it did not work
properly and P repeatedly failed to correct the serious faults in that system
...
Held, P was in breach of contract and could recover
nothing
...
In practice, therefore it is subject o the following four exemptions
...
3
...
In Hoenig
v Isaacs (1952) P had agreed to decorate and furnish D's flat for a lump sum of £750
...
D complained of faulty design and
poor workmanship
...
Held, P had
made substantial performance and he would entitle to the full contract price, less the
cost of making good the defects
...
10
...
2 Acceptance of Part Performance
If one party partially performs his obligation and the other party having an option to
reject, accepts partial performance, it is possible to infer a fresh agreement by the
parties that payment shall be made for the partial obligation already performed
...
Quantum Meruit means "how much it is worth"
...
In Christy v Row (1808) P's ship was carrying D's coal from Shields to Hamburg
...
The master
of the ship delivered some of the coal at the request of the consignee at another
port
...
Such a fresh contract to pay will be inferred only where the beneficiary has a genuine
choice to accept or reject the benefit of the work done
...
Hence the principle of acceptance of partial
performance could not be applied to the circumstances of those cases
...
3
...
He was to be
paid £100 on completion of the book
...
Held, P could obtain 50 guineas
as reasonable remuneration on a quantum meruit (as much as he deserved)
...
In agreed to write a book
on costumes and ancient armour to be published in a series in
10
...
4 Severable or Divisible Contracts
Summary
Where a contract may be divided into several parts, payment for parts that have been
completed can be claimed
...
In Ritchie v Atkinson (1808) P, a ship owner agreed to carry a cargo of
hemp, freight to be £5 per ton
...
Held, P could
recover freight proportional to the quantity carried
...
Take note
The general rule relating to the performance is strict and the
parties must perform the terms of the contracts entirely
...
10
...
5 Time of Performance
Where time of performance is fixed in the contract, it must be per formed within that
time, when time is of the essence of the contract
...
However, by virtue of
Sale of Goods Act, section12 stipulations as to time of payment are not deemed to be
of the essence of the contract
...
3
...
If such an offer is made but the
other party refuses to accept it, the party tendering is free from liability under the
contract
...
4 Discharge by Agreement
As a contract is made by agreement, it may also be discharged by agreement
...
4
...
The most
important instance of this is where the contract may contain a term giving either
party a power to terminate it by notice
...
Also, there may be a term in the contract
providing for its dissolution on non-fulfillment of a condition or the happening of an
event
...
D warranted that the horse
had hunted with B hounds and gave P the right to return the horse if it did not comply
with the description
...
Then it was found that the horse in fact had never hunted with B hounds
...
Held, PP to terminate the contract
...
The option to return the horse was a condition subsequent which gave a
right to
10
...
2 New Agreement
The parties may discharge their contract by a subsequent or new agreement
...
The legal position depends on whether the
discharge is bilateral or unilateral
...
4
...
1 Bilateral Discharge
Bilateral discharge can take place where the contract is either wholly or partially
executory, i
...
, where both parties have performance obligations outstanding
...
This means that each party has agreed to release his rights under
the contract in return for a similar release by the other party
...
10
...
2
...
The accord is the agreement to discharge the original contract, and
satisfaction is the consideration which must be provided by the party who has not
performed his part of the promise
...
Activity 10
...
50, 000 and the payment was to be
made after three months
...
40,000
from Balala in full discharge of Balala's obligation to pay
shs
...
Later Ali sued Balala for the balance of shs
...
Advise Balala
It must also be noted that the requirement of consideration seems to have been
modified in Williams v Roffey, discussed in lecture on consideration
...
4
...
3 Variation and Waiver
The performance obligations under a contract may be terminated by either variation
or waiver
...
If variation is for the benefit of both parties, it satisfies the
requirement of consideration and the variation is legally enforceable
...
If one party
Summary
accedes to the request of the other, and promises that he will not insist upon
performance according to the strict letter of the contract, this is an indulgence
...
The party who had granted indulgence is bound by it
...
J
...
(1972) concerned a contract for sale of
coffee
...
The buyers, however, obtained a letter of credit expressed for
payment in sterling pound
...
Subsequently, pound
was devalued and the sellers claimed payment in Kenyan currency
...
Hence, they have to accept payment in Kenyan currency
...
4
...
4 Novation
A contract may also be discharged by novation
...
The terms of the contract, however,
remains the same
...
5 Discharge by Breach
Breach generally means failure to perform any promise which forms the whole or part
of the contract: A breach is of two kinds:
10
...
1 Actual Breach
Actual breach occurs where a party fails to perform one of his obligations under
the contract
...
For example, if A hires a lorry belonging to B to carry his
livestock from Nairobi to Mombasa on certain date and B never brings his lorry to A's
place, that is a breach
of contract by non-performance
...
Thus in the above example, if B brings his lorry to
A's place not on the date fixed but three days late, that is a breach of contract by
defective performance
...
Thus in the above example, where there is a term of the contract that the
lorry is suitable for carrying livestock and, if in fact, it is not, that is a breach of
contract
...
2
Owino contracted to supply 1,000 tons of maize to Ouma
...
Advise Ouma
10
...
2 Breach by Anticipatory Repudiation
Breach by anticipatory repudiation occurs where one party intimates either
expressly or by conduct that he does not intend to honour his obligations under
the contract when they fall due in future
...
That is express or explicit repudiation
...
Sometimes such a breach is called anticipatory
breach but since it is the announcement of intention rather than the nonperformance, it should be properly referred to as breach by anticipatory
repudiation
...
10
...
3 Effects of Breach
It is important to note that breach does not automatically discharge the contract
...
In either case the breach gives rise to a secondary obligation to pay damages for any
loss caused
...
Any breach of contract enables the injured party to sue for damages
...
It is important to note that this right has often been described as "the
right to treat the contract as discharged", or sometimes "the right to rescind the
contract"
...
This is because
the primary obligations do not automatically come to end and the secondary
obligations under the contract exist after breach
...
5
...
1 Effects of Actual Breach
If the injured party elects to treat the contract as repudiated his remedy depends on
the term breached
...
The term will be
Summary
treated as a warranty, where the result of the breach is to cause loss to the injured
party without substantially depriving him of the benefit he was intended to obtain
under the contract
...
A breach will be
deamed to be sufficiently serious where it deprives the injured party of substantially
all of the benefits he was supposed to receive under the contract or if the breach
goes to the root of the contract
...
5
...
2 Effect of Breach by Anticipatory Repudiation
The distinction between condition and warranty also applies to anticipatory
repudiation
...
In Hochester v
Dela Tour (1853) D agreed in April to employ P as a courier for him from June 1
...
P at once brought an action
for breach of contract
...
Held, P was entitled sue D immediately and need not wait until the date originally
set for performance
...
D broke this promise when his father was still
alive
...
Held, P was entitled to bring her action for
damages at once
...
However, it is not necessary for the injured party faced with anticipatory repudiation
to sue at once
...
In most cases he will be able to recover damages as before, but there is a
risk that the contract may be overtaken by events
...
Also, if on due date the injured party would not have been able to perform
himself, he would not be able to claim damages since he would then have been in
breach himself
...
3
1
...
5
...
3 Affirmation of Contract
If the injured party elects to treat the contract as still subsisting and go on
performing his contractual obligations without the other party's cooperation he can
claim the whole contract price
...
They
were not paid by the councils but by traders who hired advertising space on the bins
...
P refused to accept the repudiation,
prepared the plates, attached them to bins and continued to display them for next
three years
...
Thus repudiation does not bring the contract to an end, the injured party has a choice
whether or not to treat himself as discharged
...
This rule is subject to qualification that if a plaintiff
had "no substantial or legitimate interest" in completing the performance, he could
only claim damages (see Clea Shipping Corporation v Bulk Oil International, 1984)
...
6 Discharge by Frustration
The traditional common law approach was that once a party had entered into a
contract, he was obliged to fulfill his obligations under that contract even if
performance proves to be impossible or becomes radically different than
contemplated by the parties
...
D argued
that he had been deprived of the possession of the land by force by the king's enemies
and therefore lost profits
...
This earlier common law rule was very harsh and the courts gradually evolved the
doctrine of frustration to mitigate the rigours of this rule
...
Frustration refers to a supervening event which occurs after the parties have
made their agreement, and which could not reasonably have been contemplated
by the parties
...
It must be noted that the frustrating event must occur after the contract has been
formed
...
For example, if A makes a contract to sell his house to B
and unknown to both of them the house has already been destroyed by fire before the
contract was made
...
In order for frustration to occur the following requirements must be satisfied:
(a) An event occurs which was not contemplated by the parties when the contract was
made
(Jackson v Union Marine Insurance Co (1973) which we shall discuss later in this
lecture)
(b) An event occurs which makes the contract fundamentally different from the
original contract
(Metropolitan Water Board v Dick, Kerr & Co
...
(c) The event is one for which neither party was responsible
...
10
...
1 Impossibility
A contract may become impossible in three ways:
(a) Destruction of Subject Matter
If a specific object necessary for the performance of the contract cease to exist, the
contract automatically comes to an end
...
The
hall was destroyed by fire before the date of the first concert
...
DD was excused from his obligation
because there was impossibility of performance which arose from the destruction of
the music hall
...
Held,
(b) Death or Illness
If either party to a contract of personal service dies, or becomes ill or incapacitated,
it can be said that performance of the contract has become impossible and therefore
the contract comes to an end by frustration
...
It must be serious enough to prevent the person from
performing his obligation
...
Thus, temporary illness of a person employed for a period
will not generally discharge the contract
...
The contracts
covered by these rules are contracts of employment, apprenticeship and agency
...
His contract required him to play seven nights a
week
...
Held, the contract was frustrated since it became impossible for P (1966) to
continue it
...
In Howell v Coupland (1876) S contracted to sell crop to B
and made it clear that the crop to be sold was to be grown on specified land
...
Held, the contract had been frustrated because of
the non-availability of crop from the specified land
...
In Jackson v union Marine
Insurance Co Ltd (1874) a ship was chartered to proceed with all possible dispatch
from Liverpool to Newport and there to load a cargo for San Francisco
...
Held,
the contract was frustrated by long delay since there was an implied term that the
ship should arrive at Newport within a reasonable time for completion of the
contract
...
10
...
2 Supervening Illegality
In some cases performance remains possible but the contract is still frustrated due to
alteration of law after the formation of the contract
...
In that situation rules relating to illegal contracts will apply
...
As a result the concert had to be cancelled
...
Activity 10
...
Kabiru, sole proprietor of a business in Nairobi contracts on March
5th to import suger from Ahmed in Cairo
...
Discuss the legal position
...
6
...
In Knell v Henry (1903) D hired a flat for the days on which the
coronation processions of King Edward VII were scheduled to take place
...
D paid £25 at the
time of contracting and the balance of £50 was to be paid the day before the
coronation
...
Held, although performance of the contract was not physically impossible, it had been
frustrated because the foundation of the contract had been radically altered
...
The naval
review was part of the coronation celebrations but the naval review did not take
place because of the King's illness
...
Held, the
contract had not been frustrated
...
10
...
4 Government Intervention
Frustration may occur because of interference by the government in the activities of
one or both of the parties, causing a fundamental change of circumstances from that
contemplated by the parties when the contract was made
...
(1918) D agreed with P to construct a reservoir within six
Summary
years
...
After two years the government acting under war-time statutory
powers ordered D to cease work and to disperse and sell the plant
...
10
...
5 Contracts Concerning Land
For many years it was doubtful whether the doctrine of frustration applied to contract
relating to interests in land However, in National Carriers v Panalpina (1981) the
House of Lords decided that the doctrine frustration could apply to a lease albeit in
exceptional circumstances
...
The local authority closed the only street allowing access by
lorries to the warehouse for a period of twenty months due to some dangerous
conditions
...
Held, the
contract had not been frustrated because after the disruption these would still be
some three years of the lease to run and P was entitled to recover the unpaid rent
...
The doctrine of frustration may also apply
to contracts for the sale of land
...
6
...
In Davies
Contractors Ltd v FarehamUDC (1956) P agreed to build 78 houses for the Council
within 8 months
...
P tried to argue that their contract with the Council had become
frustrated so that they could then claim higher sum for their work on a quantum
meruit
...
(b) Self - induced frustration
The doctrine of frustration only applies where the frustrating event is without fault of
either party
...
In The Eugenia (1964) a
ship was chartered to travel from Genoa via Blacksea to India
...
The route taken was in breach of contract
...
Held, the contract
was not frustrated, as it was the charterers fault that the ship had gone into the Suez
Canal during the war-time
...
10
...
7 The Legal Consequences of Frustration
Frustration automatically discharges the contract and both parties are released as to
future obligations
...
The common law rule on the effect of frustration was regarded as harsh, and so
changes were made by the Law Reforms (Frustrated Contracts) Act, 1943 in England,
which is also applicable in Kenya
...
All sums paid before the frustrating event are recoverable and sums payable before
the frustrating event cease to be payable
...
Where one party has obtained a valuable benefit (other than money) by reason
of something done by the other party to the contract , that other party may
recover from him a just sum not exceeding the amount of the benefit
...
Activity 10
...
Performance must be strictly in accordance with the terms of the
contract
...
Discuss
...
As a contract is made by agreement, it may also be discharged by
agreement
...
Any breach of contract enables the injured party to sue for damages
...
Discuss
4
...
(a) Wanjiru was engaged by Beach Hotels Ltd to sing at their hotel for
the whole night on the new year eve
...
Beach Hotels Ltd sued her for
breach of contract
...
3
million
...
Wasike refuses to pay any
amount to Maina
...
1 Introduction
11
...
3 Damages
11
...
1 Types of Loss for which Damages may be awarded
11
...
2 Remoteness of Damage
11
...
3 Quantification of Damages
11
...
4 Liquidated Damages
11
...
5 Liquidated Damages and Penalty
11
...
5 Quantum Meruit
11
...
7 Specific Performance
11
...
9 Extinction of Remedies
11
...
11 References
11
...
There are both common
law and equitable remedies
...
The equitable remedies are injunction, specific performance,
restitution, rescission, rectification and a quantum meruit claim
...
The common law remedy of damages is always available as a right whenever a breach
of contract has occurred and the courts have no power to refuse it
...
The
equitable remedies cannot be claimed as of right, as a claim for damages, but are
awarded only in the discretion of the court
...
2 Objectives
11
...
Explain the various common law and equitable remedies available
whenever a breach of contract has occurred
...
Discuss the principles governing the award of damages
...
Describe the remedy of injunction and the types of injunction
available for breach of contract
...
Explain the remedy of specific performance and the cases in
which this remedy is not available
5
...
6
...
Discuss when a right of action for breach, of contract may
become extinguished
...
3 Damages
Whenever there is a breach of contract by one party, the other is entitled to claim
damages provided the damage is caused by the breach and not too remote
...
In most cases,
however, he is entitled to substantial damages, which are awarded to him as
compensation for the loss he has actually suffered
...
3
...
They are as follows:
11
...
1
...
This general measure of loss is often referred to as expectation loss
...
As a general principle damages for lost expectation may always be
recovered, subject to various limitations as to remotness and qualification of damage,
which we shall be discussing later in this lecture
...
They are two distinct
terms
...
Whereas damages means monetary compensation which the innocent
party is entitled to recover on a breach of contract
...
11
...
1
...
Reliance losses relate to expenses or other costs incurred in reliance on entering
into contract
...
Reliance damages will be
claimed and/or awarded when the innocent party is unable to show his expectation
loss
...
Thus, if the innocent party has not suffered any loss of profits, or who is unable to
establish what profit he would have derived from the contract, he can still claim as
an alternative the expenditure wasted as a result of breach
...
P submitted tender to buy the
tanker for £285 which was accepted
...
P claimed (i) £285, the purchase price of the tanker, (ii) £3,000 the cost of salvage
expenditure, and (iii) £300,000 the loss of profits if the tanker and oil existed
...
Here P, the innocent party was placed in the same position as if the contract had not
been entered into
...
His breach forced the
company to abandon its project to make the film
...
In this case the company could not claim expectation loss, that is, loss of
profits because it was difficult to prove what the profit would have been
...
11
...
1
...
But where
the contract specifically intended to confer other than pecuniary gain such as
comfort, pleasure or peace of mind such damages are recoverable
...
The travel agency's
brochure promised that clients would form a house party, skiing facilities, special
evening entertainment and so on; P was disappointed in every respect
...
In contrast, in Hayes v Dodds (1990) the court refused to allow damages for anguish
and vexation in commercial contract
...
Non-pecuniary loss is subject to the rule of remoteness of damage, that is, whether
this consequence of the breach was in contemplation of the parties at the time the
contract was made
...
3
...
4 Incidental and Consequential Loss
Damages may be recovered by the innocent party for incidental or consequential loss
resulting from a breach of contract
...
Incidental loss indicates expenditure
suffered by the innocent party after the breach has come to his knowledge
...
Consequential loss, on the other hand, does not result directly
from the breach of contract but is inevitable consequence of the breach and would
include damage caused to the person or property by defective products
...
1
1
...
11
...
2 Remoteness of Damage
A plaintiff will not necessarily be compensated for all the losses which may flow from
a breach of contract
...
Damages will not be awarded to compensate loss or
damage which was not caused by the breach
...
Middleton (1983) P
entered into a contract with D under which he was entitled to the use of garage
owned by D
...
D wrongfully terminated P's contract to use the garage
...
Held, the
loss by wasted expenditure was not caused by the breach of the the contract, because
ten weeks later D could have rightfully terminated the contract, whereupon the
equipment would in any case had become the property of D
...
It should be noted that in this case P did not suffer any
loss of profits
...
Even where the damage was caused by the breach, damages will not be awarded in
respect of loss which is said to be "too remote"
...
The purpose of this doctrine is to limit the amount of profit
or expectation loss the innocent party can claim
...
In this case, P,
the mill owners engaged D, who were carriers to take a broken mill shaft to a
Summary
manufacturer to copy it and make a new one
...
P did not make known to D that the delay
would cause loss of profits
...
promised to deliver next day
...
The test of remoteness of damage established in Hadley v Baxendale is frequently
described as consisting of two rules or a single rule with two limbs: Damage is not too
remote if it is:
i
...
e
...
Such as may reasonably be supposed to have been in the contemplation of both
parties at the
time they made the contract, as the probable result of the breach
...
First, the loss did not arise naturally, that is, "according to the usual
course of things" as there was reasonable possibility that the mill owners might have a
spare shaft in reserve
...
Take Note
The rule in Hadley v Baxendale represents the law on remoteness of
damage
...
The rule Hedley v Baxendale has been considered by the courts in many cases
...
P,
launderers and dyers contracted with D, an engineering firm to buy a large boiler for
the purpose of expanding their business and also to use the boiler to fulfill some
highly lucarative government dying contracts
...
Held, (1) P were entitled to recover damages for the loss of profit
arising from the failure to extend their business because D must have contemplated
that P would loose such business if delivery of the boiler was delayed, but (2) P could
not recover damages for the loss of profit obtainable from lucarative dying contracts
because they had no knowledge of such contracts
...
D, a ship owner agreed to carry a cargo of sugar from
Constanza to Basrah
...
But they did not know that P
intended to sell the cargo immediately on arrival
...
During the nine days the market
price of sugar had fallen heavily and P suffered loss
...
knew that there was a market for sugar at Basrah and that
In this case the House of Lords approved the rule in Hedley v Baxendale, but saying
that the loss must be contemplated as, a ‘real danger' or a serious possibility rather
than as the probable result of the breach'
...
2
What is the purpose of the remoteness of damage rule? What is the
guiding principle adopted by the courts in this regard?
11
...
3 Quantification of Damages
Once the court has decided that a particular kind of damage is recoverable under the
rule in Hedley v Baxendale, the next step is to decide on what principle the damages
must be evaluated or quantified in terms of money
...
The basic principle is that
the innocent party must, so far as money can do it, be restored to the position he
would have been in had the contract been performed properly
...
11
...
3
...
If the seller is in breach, for example if he fails to deliver the goods, and the
goods are finally available in the market, the buyer can buy similar goods at the
market price and can claim the difference between the market price at the date of
the breach and the contract price
...
Conversely, if it is a buyer who breaks the contract, for example by refusing to take
the delivery, the seller will be entitled to compensation for the difference between
the contract price and any lesser amount which he gets for the goods by selling them
elsewhere
...
If it is
the seller who
Summary
is in breach of contract and the buyer purchased the goods for resale and the seller
knew of this, the measure of damages will be the difference between the contract
price and the resale price
...
P contracted to resell the wheat to TD knew that P was buying
the wheat for resale
...
Held, P was entitled to
recover damages amounting to the difference between the contract price and the
resale price
...
If, on the other hand, it is the buyer who is in default and there is no available market
and the supply exceeds the demand the measure of damages is the loss resulting from
the buyer's breach
...
There was no shortage of such car as the
supply exceeded the demand
...
who were car dealers
...
In contrast, in Chater v Sullivan (1957) D contracted to buy a Hillman car from P and
then refused to accept it
...
Held, P was
entitled only to nominal damages since he could sell all the cars he could get from the
manufacturers, so he had suffered no loss
...
3
...
2 Factual Damages
The general principle is to put the innocent party in the position as if the contract
had been performed
...
Neverthess if the cost of rectification would be disproportionate to the
breach of contract, the courts would refuse to award damages on that basis
...
The pool they
constructed was not quite as deep as D specified, otherwise its construction was
excellent one
...
The cost of
making good the defect was enormous, amounting to £21,650
...
were hired to
construct a swimming pool for
11
...
3
...
In
Chaplin v Hicks (1911) D, an actor and theatrical manager agreed with P that if she
would attend an interview with other 49 actresses from whom he would himself select
12 and would give each of them theatrical engagements
...
When sued, D contended that P was
only entitled to nominal damages since the loss depended upon the chances of her
winning
...
It is clear that the courts will
not avoid the task of assessing damages on the ground of uncertainty or difficulty
...
3
...
4 Tax Liability
In some cases while calculating damages, the tax liability of the innocent party may
have to be taken into account
...
He brought an action against D, the
British Transport Commission under the tort of negligence, claiming damages,
including loss of earnings
...
Held, D were liable only for £6,695 since the damages for loss of earnings are
not taxable while income is
...
It is
interesting to notice that the Supreme Court of Canada in Ontario v Jennings (1966)
has rejected the reasoning of this decision
...
3
...
5 Mitigation
The innocent party may not recover damages for losses which could have been
avoided
...
The mitigation principle
embraces three separate means of avoiding loss:
(1) Loss will not be recovered if it could be avoided by taking reasonable steps
...
(2) The plaintiff must not by unreasonable action on his part increase the loss
resulting from the
breach
...
After six months the partnership was
dissolved through the retirement of two partners and the business was transferred to
two other partners
...
He sought to recover the salary that he would have received for the
remainder of two years period
...
Thus he has
not taken any reasonable step to mitigate his loss
...
If the
innocent party takes an action which in fact reduces his loss the damages paid will be
reduced accordingly
...
Take Note
Summary
It is worth noting that the mitigation principle applies not only to
ordinary breach, but also to breach by anticipatory repudiation but it
does not apply to a claim for an agreed sum
...
3
...
Such
damages are known as liquidated damages
...
Unliquidated damages, on the other hand, are damages that are not fixed by
agreement of the parties but are determined by the court as the proper measure of
damages
...
Sometimes, however, the amount of
agreed damages may be very high so as to compel the other party not to breach the
contract
...
11
...
4
...
Express
use of the words "penalty" or "liquidated damages" by the parties is relevant but not
conclusive ,and the court must still decide whether the sum is a genuine pre-estimate
of the probable loss
...
The contract contained a term whereby D
would pay £20 per week by way of penalty for late performance
...
Held, D were only liable to pay £20
per week for delay as agreed between the parties and the sum was not a penalty
although designated as a penalty
...
They are as follows:
(a) It is a penalty if the sum payable is extravagant and unconsciable in amount
compared with
the greatest loss, which might be caused by breach
...
A term in the contract provided the
party in breach must pay £1,000 as liquidated damages to the other
...
(b) Where a contract provides for the payment of a certain sum of money and in case
of the
breach the sum stipulated is greater than the sum which ought to have been paid, this
greater sum is penalty
...
10,000, if he
does not pay a debt of Shs
...
(c) Where a single lump sum is payable on the occurrence of certain events, some of
which are
serious and others mere trifling damage, there is a presumption (but no more) that
the lump sum is a penalty
...
In Ariston v Charly (1990) D entered into a
contract with P under which the latter agreed to manufacture records and print
sleeves
...
A clause in the contract provided that if P did not return
the items within 10days of D's request they would pay a penalty of £600 per day for
late delivery
...
Certain amount was due to P for the work done which they claimed from D, D
counter-claimed £600 per day for failure to return one item
...
(d) The fact that the loss is difficult or impossible to pre-estimate does not of itself
turn every
liquidated damages into a penalty
...
It was reasonable to quantify damages at a fixed
but not extravagant figure
...
4 Agreed Sum
The common law action for agreed sum is an action for payment by one party of an
agreed sum for contractual obligations which have already been performed by the
other
...
Provided the duty to pay has arisen the innocent party can
sue the party breaching the contract for the agreed sum
...
These are many advantages of such an
action, since questions of remoteness of damage, quantification and mitigation do not
arise
...
Held, P were under no duty to mitigate but
Summary
they were bound not to aggravate the damage
...
Activity
Discuss the common law remedy of agreed sum for a breach of contract
11
...
This remedy operates in two situations:
(a) Where there is a contract
The fundamental rule is that where there is a contract between two parties the
payment is to be determined according to the terms of the contract
...
In certain circumstance, however, this
general rule is not applicable and the court will allow a quantum meruit remedy
despite the existence of the contract
...
In Creven- Ellis v Canons Ltd (1936) P was
employed as a managing director of a company under a written contract which
provided for his remuneration
...
P rendered services for the company and
claimed remuneration specified in the contract or alternatively reasonable
remuneration on a quantum meruit
...
Furthermore, as we have explained in the previous lecture that in an entire contract
partial performance generally does not entitle the party in breach to any payment
...
Conversely, a quantum
meruit action may also be brought by innocent party in cases where he conferred
some benefit on the other party before the latter's breach
...
(For details on rules on performance recall the previous lecture)
...
In British Steel Corperation v
Cleveland Bridge & Engeneering Co Ltd (1984) P began a work on major construction
before all terms of the contract had been agreed
...
The final agreement was
never reached
...
Held, P was entitled to recover reasonable payment for the work done
...
6 Injunction
An injunction is a court order prohibiting the defendant from doing some specified
act, such as a breach of contract or commanding the defendant to do some positive
act
...
It is a
directionary remedy which the court may grant or refuse to grant
...
In Ibrahim Habib Makii v Sherkh Bros
Investment Ltd (1972) P was employed by D to collect rent on behalf of D from their
tenants for a commission
...
P sought an injunction restraining D from doing so
...
An injunction can be either prohibitory or mandatory
...
It
will be granted to enforce a negative stipulations in a contract where damages would
not be adequate remedy, thus it could be granted to prevent the breach of
reasonable restraint of trade clause
...
Held, D could be
restrained by an injuction to act for a third party but she cannot be compelled to act
for P
...
A mandatory injunction is an order/decree of the court commanding the defendant
to do some positive act or particular thing
...
For
example to demolish or modify a building which he has erected which he has not done
according to the terms of contract
...
An interlocutary
injunction is one which is issued at any time during the pendency of the suit for the
short term purpose of preventing irreparable injury to the petitioner prior to the time
that the court will be in a position to either grant or deny permanent relief
...
11
...
It cannot be claimed as a matter of right
...
The availability of specific
performance is a subject to a number of conditions
...
(b) Where the contract is for personal services
...
(d) Where a party to the contract is a minor and the contract is not enforceable
against him
...
(f ) Where the plaintiff has acted unfairly or dishonestly, since it is a remedy provided
by equity
...
A decree of specific performance is generally available in the following cases:
(a) Contracts connected with land, houses, or to take debentures in a company
...
(c) Where there is a mutuality of remedy between the parties
...
e
...
It must be noted that it is possible to claim damages and specific performance at the
same time
...
8 Restitution
The remedy of restitution seeks to restore money paid or the value of a benefit
conferred in circumstances in which there is no longer any obligation to perform
under a contract or in which no contract exists
...
(a) A party may recover money paid under a contract where there is a total failure of
consideration in the sense that there is a total failure of performance of whatever
was promised in the agreement
...
11
...
The Limitation
of Actions Act, 1968, lays down that actions founded on a contract, and actions
claiming equitable relief for which no period of limitation is provided by the Act or by
any other written law may not be brought after the end of six years
...
If on the date when the right of action accrued the plaintiff is
under disability such as insanity or minority, the limitation period does not begin to
run until disability ceases or the plaintiff dies
...
Activity
1
...
In the light of this statement explain
the rules governing a claim for damages for breach of contract
2
...
3
...
4
...
Kuria, a taxi owner gave his taxi for some repair to Ken Repairs
Ltd
...
However,
Summary
Ken Repairs took six weeks to repair the taxi
...
Advise Ken Repair Ltd
6
...
A term of the
employment contract provided that Wambugu will not take any
job with a rival firm or start a competitive business for 20 years
throughout the world after leaving the job with Sanford Kenya
Ltd
...
Sanford Kenya Ltd sued
Wambugu for breach of contract and applied an injunction to
restrain him from working with Leather Products Ltd
...
LECTURE TWELVE: AGENCY
Lecture Outline
12
...
2 Objectives
12
...
3
...
3
...
3
...
3
...
3
...
4 Authority of the Agent
12
...
6 Relationship between Agent and Third Party
12
...
7
...
7
...
8 Types of Agent
12
...
1 Classification according to Functions
12
...
2 Classification according to the Extent of Authority
12
...
9
...
9
...
10 Summary
12
...
1 Introduction
In this lecture we shall discuss the law of agency which basically consists of the rules
of the common law
...
It is
a legal device by which one person acts or makes a contract on behalf of another or
represents another in dealing with a third person
...
The person on whose behalf he acts is called the
principal
...
Thus a minor can be validly appointed as
an agent
...
We shall be discussing in this lecture various ways in which an agency may be
created
...
We shall also be discussing relationship between the principal
and agent, between principal and third party, and between the agent and the third
party, the authority of an agent, various types of agent, and various ways in which an
agency may be terminated
...
2 Objectives
12
...
Explain the law relating to agency
...
Describe various ways in which agency may be created
...
Describe the authority of the agent
...
Discuss the relationship between the principal and third party
...
Explain the relationship between the principal and agent
...
Discuss the relationship between the agent and the third
party
...
Distinguish between various types of agent
...
Explain various ways in which an agency may be terminated
...
2 Objectives
12
...
Explain the law relating to agency
...
Describe various ways in which agency may be created
...
Describe the authority of the agent
...
Discuss the relationship between the principal and third party
...
Explain the relationship between the principal and agent
...
Discuss the relationship between the agent and the third
party
...
Distinguish between various types of agent
...
Explain various ways in which an agency may be terminated
...
4 Authority of the Agent
An agent may have actual, ostensible (or apparent) or usual authority
...
For example, where a board of directors pass a resolution which
authorises two of their members to sign a cheque
...
Where the agency relationship is created by deed, the authority will be
construed strictly
...
PP was
not liable for the money borrowed by A for his own purposes on the bills of exchange
...
Held,
(i) Implied authority denotes authority which upon consideration of all the
circumstances may
be inferred to have been given to the agent by the principal
...
Thus a lawyer has an
authority to bind his client to any agreed compromise of litigation in which the client
is engaged
...
The effect
of implied authority from trade usage may be to grant an agent greater authority than
the principal intended
...
(b
...
It is
merely a form of estoppel and it has been termed agency by estoppel
...
In
Panoroma
Development (Guildford) Ltd v Furnishing Fabrics Ltd (1971) A was the secretary of
D, the
defendant company
...
(c
...
It arises where the agent is appointed by the principal to
some
position of the office
...
In Watteu v Fenwick (1893) A, a manager of a public house
owned by P bought some cigars from T on credit
...
A ordered cigars in his own name and T believed that A was
contracting in his own behalf
...
Held, P was
liable since it was usual for the public house managers to buy cigars for resale in
those
establishments
...
(d
...
principal, or has exceeded his authority, is liable in an action for breach of
warranty of authority by the third party with whom he made the contract
...
(ii) The action can only brought by the third party and not by the principal
...
For example his
authority has been terminated, without his knowledge, by death or mental disorder of
his principal
...
Intext Question
Explain what do you understand by breach of warranty of authority by
an agent
12
...
If no clear
intention is evident, the following rules apply:
12
...
5 Where the Principal is Disclosed and Named
When the agent not only disclosed to the third party the fact that he is a mere agent
but also named his principal, the prima facie rule is that the contract is the contract
of the principal, not that of the agent
...
The
agent incurs neither rights nor liabilities with regard the third party
...
3
...
He can neither sue or be sued
...
In Universal Steam Navigation Co
...
The charterparty provided for payment by the "charterers" of demurrage in the event
of ship being detained beyond the stipulated time
...
J was
subsequently sued for demurrage by the shipowners
...
Regardless of whether the
principal has been named or not, there are some exceptional cases in which the agent
may be personally liable
...
The
principal in this case has neither rights nor obligations
...
(i) Where he is in fact the principal but contracts as agent
...
5
...
In Humble v Hunter (1842) an agent entered into a charterparty and
described himself as "owner" of a particular vessel
...
(3) The undisclosed principal cannot sue if the third party can show that he wanted
the deal only
with the agent and with no one else
...
P then
sought to come into the contract
...
Also, on discovering the principal, the third party must elect whether to seek to make
either the agent or the principal liable and that he cannot go back on his decision and
sue the other
...
In Clarkson,
Brooker Ltd v Andjel (1964) it was held that commencement of proceedings against
the principal did not prevent the third party abandoning those proceedings in order to
seek payment from the agent
...
6 Relationship Between Agent and Third Party
The general rule is that an agent is nether liable or entitled under a contract which
he makes on behalf of his principal
...
There
are exceptions, however, to this general rule
...
6
...
We have already stated earlier in this lecture while discussing
relationship between the disclosed principal and the third party, certain situations in
Summary
which the agent may be personally liable on the contract made by him with the third
party
...
Where contract expressly provides that the agent should be a party to the
contract in addition to the principal
...
Where he contracts on behalf of a non-existent principal (recall Kelner v
Baxter, discussed earlier in this lecture)
...
Where the agent contracts on behalf of the undisclosed principal, until the
time the principal is disclosed the agent is the only person liable on the
contract
...
4
...
12
...
12
...
1 Duties of an Agent towards his Principal
The agent's obligations to his principal may derive from contract, or may be implied
by law
...
(a) Duty to Exercise Due Care and Skill
The agent is expected to exercise reasonable care and skill in the performance of his
duties
...
In Keppel v WheelP employed A to sell a house
...
AP, who accepted the offer "subject to the
contract"
...
Having no knowledge of the higher price offered by Y, P signed a contract for
the sale of the house with X
...
(1927) communicated it to
(b) Duty to Obey Instructions
The agent must carry out his principal's lawful instructions and failure to do so will
amount to a breach of contract
...
In Tuppin v Bilton (1843) A, an insurance broker
was employed by P to insure a ship owned by him
...
The ship was lost and P claimed damages
...
(c) Duty to Act in Good Faith
The agent is in a fiduciary relationship with his principal and therefore must act in
good faith and for the benefit of his principal
...
The classic example of conflict of interests is where he buys
for himself goods which he has been instructed to sell for his principal, or where he
sells his own goods when he has been instructed to buy on behalf of the principal
...
He can do so provided that he discloses all the facts to the
principal and even after knowing the facts the principal chooses to go ahead with the
transaction
...
A sold his own shares in the company to P for £3 per share
...
Held, P could claim £1 difference on each
share because there was a conflict of interest and duty
...
(ii) Duty Not to Make Secret Profits
An agent must not make any secret profit or take bribe beyond the commission or
other remuneration paid by his principal without the principal's consent
...
In Boston Deep Sea
Fishing Co v Ansell (1888) A, a director of X & Co
...
He accepted commission on the contract by the
shipbuilders
...
Held, A was liable to account for both the commission and the bonus,
although the bonus could never have been received by X & Co
...
This rule applies even where the principal could not have earned profit
himself or suffered no loss and may have benefited from the agent's action
...
The principal may recover the amount of secret profit from the agent
...
Held, A had to account to the
Crown, his employer the money he had received because he had obtained it by the
use of his position
...
In Andrews v Ramsey & Co
...
A told P that he had found a purchaser who
was willing to purchase the property at £ 2,100
...
P later learnt that A had also received £20 commission from the
Summary
purchaser
...
(2) The principal may summarily dismiss the agent without notice
...
In Armstrong v Jackson (1917) P
employed A to
buy some shares for him
...
Held, P could rescind the contract because A was in breach
of his duty to act in good faith
...
In
Mahesan v
Malaysia Government Officers Co-operative Housing Society Ltd (1979), A was a
director and secretary of a Cooperative Society which bought land at a price of
$944,000 from the vendor who had earlier bought it for $456,000
...
After the sale was completed the society discovered that
A had received $122,000 as a bribe or secret commission from the vendor
...
Also, in Sanford Corporation v Lever (1891) a company invited tender for supply of
coal
...
TA as well as 1s damages for the loss they suffered through entering
into the contract
...
Held, the company could recover 1s a ton received by
(5) Both agent receiving the bribe and the third party paying the bribe are guilty of a
criminal offence under the Prevention of Corruption Act
...
) Duty Not to Misuse Confidential Information
The agent must not misuse or disclose confidential information gained as a result of
his relationship with the principal
...
In Boardman v PhippsT, a trustee and S a solicitor though
were never appointed as agents, the courts treated them as such when they made
secret profit out of certain dealings with companies involving a reorganisation of
shares by exploiting information gained from the relationship of confidence
...
(1966)
If the principal fears his agent would pass on confidential information to a competitor
or that the agent will destroy confidential information, the principal may apply for an
Anton Piller injuction authorising the principal's representative to enter into the
agent's premises to take into custody or remove confidential information
(d) Duty to Render Account
The agent must keep proper accounts of all his dealings on behalf of the principal
...
Where he receives money on
behalf of the principal, he must keep it separate from his own
...
Delegation may take place in case of
necessity, or where it is customary or authorised by the principal
...
However, the agent will be
responsible to the principal for sub-agent's acts, and sub-agent will be responsible to
the agent who appointed him
...
7
...
The amount of commission and other
remuneration depends entirety on the terms of contract between the agent and the
principal
...
In absence of a custom, the agent is entitled to a reasonable
remuneration
...
Whether or not an agent is entitled to commission depends upon the individual facts
of each case, and especially the precise wording of the agency contract
...
In Luxer (Eastbourne)
Ltd v Cooper (1941) P instructed A, an estate agent to find a purchaser for his
cinemas
...
A found a prospective purchaser, who was ready, willing and able
to purchase subject to contract, but P withdrew from the sale
...
It seems today the courts may be more willing to imply a term in contracts of agency
that the principal must give the agent the opportunity to earn his commission
...
In Sheggia v Gradwell (1963) the agency
contract provided that P, the seller of a property should pay A, an estate agent
commission as soon as "any person introduced by us enters into a legally binding
contract to purchase"
...
Held, A was entitled to his commission when the purchaser entered into a
binding contract
...
In Miller v Radford (1903) P employed A to
find a tenant or a purchaser for his property
...
After one year the tenant purchased the property and A claimed a further
commission
...
The basic rule is that no commission is payable after the agency has been terminated
but the courts have on occasions departed from this basic rule where they felt it
would lead to unfair result
...
He was to be
paid a commission on sale
...
A was later dismissed
...
(b) Right to Indemnity
The agent has a right to claim indemnity for losses and liabilities reasonably incurred
by him in the course of his agency
...
PT, the true owner, A had to pay damages
...
had no right to
sell and in an action in tort for conversion by
However, the agent will lose right to an indemnity if he performs his duty negligently
...
A quoted the price, which was cum dividend but negligently failed to tell
this to P
...
A
sold but later had to pay dividend to the purchaser under the rule of Stock Exchange
...
(c) Lien
An agent is entitled to lien over principal's property which is still in his possession to
secure debts arising out of the agency relationship
...
The lien does not entitle the agent to sell the property in order
to realize the value in satisfaction of the debt
...
Intext Question
Describe the rights of agent as against his principal
Take Note
It is important to note that these rights of agent are also duties of principal
12
...
They may be classified according to their functions
or according to the extent of their authority
...
8
...
He cannot buy goods
or lands on behalf of his principal
...
He has a lien over the goods, that
is, a right to retain possession until his charges are paid
...
If however, he states that the sale is subject to reserve, then by
mistake sells below the reserve, the sale is not binding on the owner principal
...
Pledge means to deposit as security;
(iv) to consign goods for the purpose of sale; and
(v) to raise money on the security of goods
In addition he also has implied powers:
(i) to sell in his own name;
(ii) to give a warranty, if it is usual in the course of business;
(iii) to receive payment for the goods sold, and give valid receipts; and
(iv) to grant reasonable credit
...
(c
...
He differs from a factor or mercantile agent in that
(i) He has no possession of the goods and consequently he has no lien on them
(ii) Since he has no possession of the goods, he deal only on credit and debit notes
between buyers and sellers
(i) He does not sale or buy in his own name, unless there exists a trade custom
enabling him to do so
(ii) He cannot sue in his own name on the contract made through his agency
(iii) He is not liable to his principal if the buyer fails to pay the price
Stockbroker is a broker who is a member of a stock exchange or other similar
institution
...
The principal is bound by those rules even if he is not
aware of them
...
) Del Credere Agent
Del credere agent is an agent who sells goods on credit for an additional commission
and guarantees to his principal the due payment of the price of the goods sold by him,
if the purchaser fails to pay
...
He does not make himself liable to his principal
if the buyer fails to take delivery
...
He may receive deposit from the prospective purchaser either as agent of
the vendor or in an independent capacity
...
In that situation the vendor will be liable for the return of
the deposit if the agent becomes insolvent or misappropriates the deposit received by
him (see Goding v Frazer, 1966)
...
(f) Confirming House
This type of agency occurs in export trade when a supplier receives an order from a
customer abroad he would like to have confirmation of that order by a person in the
supplier's country
...
If the confirmer
fails to pay, the supplier can still claim the purchase price from the buyer
...
8
...
) Universal agent is a general agent with extensive powers
...
This kind of agency is to be created
by deed in the form of a General Power of Attorney
(b
...
A third party dealing with a
general agent can assume that the agent has power to do all that is usual in the
ordinary course of his business or trade
...
(c
...
Intext Question
Explain what you understand by universal agent, general agent and
special agent
12
...
The effect of termination is to bring the actual authority to an immediate end
...
9
...
) Agreement
...
The contract of agency may be rescinded by a fresh contract between the parties
...
If the agency is for a particular purpose it is terminated when that purpose
is accomplished
...
) Notice
...
If no period of notice is specified in the agency contract, then reasonable notice
must be given
...
If the agent is also an employee then proper notice as required by the law must
be given
...
For example, an
authorization to a wife to pledge her husband's credit for necessaries can be
terminated by giving her notice to that effect
...
) Revocation: As a general rule, the authority of an agent can be revoked at any
time by the principal before it has been exercised to bind the principal
...
(ii) For expenses and liabilities incurred by him
...
Summary
The principal's power to revoke the agent's authority is limited in the following
circumstances:
(i) If the principal has allowed the agent to assume authority, revocation will only be
effective
against the agent, if he knows of the revocation of the authority, or against the third
party if the third party has notice of it
...
In Gaussen v Morton (1830) a large sum of money was owned by P to A
...
Held, A's authority was irrevocable
since it was coupled with interest
...
(d) Performance
...
12
...
2 By Operational Law
(1) Death
...
(2) Insanity
...
However, the principal will be bound by the contract made by the agent with the
third party who has no notice of that incapacity
...
Held, P could recover the price of goods supplied to W
from H
...
Bankruptcy of the principal imposes legal incapacity and so it would
automatically terminate the agency
...
The contract of agency is subject to the usual rules of frustration
which we have discussed earlier in our lecture on termination or discharge of
contract
...
The contract of agency was for five
years
...
Held, the contract not frustrated since P could still supply other goods or goods
manufactured by other persons
...
12
...
The act of the
agent, done within the scope of his authority, binds the principal
...
Where
agency is created by express appointment it is said to be agency by
express agreement
...
Under certain
circumstances a person may become the agent of another without
having been appointed as such
...
An agency by necessity arises where the agent has acted by
reason of a genuine emergency with a view to protect his principal's
property
...
However, The principal may
subsequently adopt or ratify an agent's unauthorised acts
...
Agency may also be created by
cohabitation
...
An agent may have actual, ostensible or usual authority, Actual
authority is the authority given by the principal expressly or by
implication
...
Usual authority denotes the authority
which the agents of the type concerned usually have in a particular
trade or business
...
Where an agent contracts for a named principal, the agent incurs no
rights and liabilities under the contract
...
Where an agent discloses the principal and does not undertake personal
liability, he cannot be made personally liable,
Where neither the existence of the principal nor the identity of the
principal is disclosed, that is, undisclosed principal, the agent is
personally liable on the contract
...
The agent can also sue the third party on such contracts
...
The agency relationship creates certain rights and duties between
principal an agent
...
The right of an agent include the rights to claim commission and other
remunerations, or indemnity for the loss suffered in the course of
agency or to claim lien over the goods in his possession to secure debt
arising out of the agency
...
These are various types of agent which may be appointed
...
Another way to classify agents is according to the extent of
authority
...
An agency can be terminated either by the act of parties or by the
operation of law
...
It can also be
terminated by death, bankruptcy, insanity or frustration
...
1 Activity
1
...
2
...
3
...
4
...
5
...
6
...
7
...
8
...
9
...
A landslide occurred at a place half
way between Meru and Nairobi
...
The driver of
the lorry therefore decided to sell the fruits at the local market as
they were getting bad
...
Ombaka, sold the house to Kairu for the stated price but also took
two percent commission from Kairu
...
SAMPLE EXAMINATION PAPER
UNIVERSITY OF NAIROBI
MODULE II DEGREE PROGRAMME
FIFTH SEMESTER EXAMINATIONS
THIRD YEAR EXAMINATIONS FOR THE DEGREE OF BACHELOR OF COMMERCE
DBA 301: BUSINESS LAW A
INSTRUCTIONS:
- Answer any THREE questions
...
1
...
(12 marks)
(b) Juma had sent 10 tons of mangoes from Meru through Meru Transporters Ltd to a
buyer
in Nairobi
...
Meru Transporters entrusted their
driver to sell the mangoes in a nearby town
...
Juma sued Meru transporters for selling mangoes
...
(11 marks)
2
...
A contract is only void on the ground
of mistake when the mistake is such that there was never any real agreement
between the parties
...
3
...
If the innocent party has sustained loss, he is entitled to
substantial
Summary
damages which are calculated in accordance with certain rules
...
(12 marks)
(b) Kimani bought a boiler from Kuria for use in his factory
...
Kimani claimed (1) loss of profit
the factory would have made had the biler been delivered in time and (2) loss of
profit from some highly profitable contracts
...
(11 marks)
4
...
(12 marks)
(b) Abba & Co
...
never placed any order
...
for breach of contract
...
Will your answer be different if Abba & Co
...
(a) Discuss various classifications of law (8 marks)
(b) Discuss the following sources of law
(i) Common law and equity (8 marks)
(ii) African customary law (7 marks)
6
Title: BUSINESS LAW 1
Description: Its entails the required laws to pertake a business
Description: Its entails the required laws to pertake a business