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Contracts And Agreements

A Contract Is An Agreement That Is Legally Binding. Although, A Contract Is An Agreement, An Agreement Is Not Necessarily A Contract.

Offer:

An offer is a proposal or promise made by one party called the offeror to enter into a contract on a particular set of terms, with the intention of being bound as soon as the party to whom the promise is made (the offeree) signifies his acceptance.

There must be two (promisee and promisor) or more separate and definite parties to the contract with the capacity to contract. The promisor and Promisee must be definite, ascertained and existing at the time when the contract is made. One party must make an offer and the other accept.

Agreement:

The parties must be in a mutual assent. They must be in a Consesus ad idem.

Acceptance:

An acceptance is the final and unqualified expression of assent by words or conduct to the terms of the offer or proposal in the manner prescribed or indicated by the offeror. The Parties must intend to create legal relations. The parties must intend to be bound by their promises.

Consideration:

The promise of each party must be supported by consideration. In this case consideration is some benefit accruing to one party or some detriment suffered by the other. It is actually the price for the contract.

  • There must be a serious, objective intention by the Offeror.
  • The terms of the offer must be reasonably certain or definite so that the parties and the Court can ascertain the terms of the contract.
  • The offer must be communicated to the Offeree.

An Offer may be terminated in the following ways;

  • Revocation of the offer by the Offeror.
  • Lapsing of time.
  • Counter Offer.
  • Rejection of the offer by the Oferee.
  • Death.
  • Occurrence of terminating conditions.

In relation to contract, capacity to is the legally recognized person to enter into a legally binding agreement.

The Law of Contract limits the following;

  • Infants or minors
  • Drunken person.
  • Persons of unsound mind.
  • Corporations.
  • Aliens
  • Bankrupts

The mere fact of agreement alone does not make a contract. Both parties to the contract must provide consideration if they wish to sue on the contract. Each side must promise to do something to each other.

Considerations are some benefits or advantages going to one party, or some loss or detriment suffered by the other party.

This is a benefit which must be bargained for between the parties and is the essential reason a party will enter into a contract.

Lord Lush J in the case of Curie vs. Misa 1875 LR EX 153 defined Consideration as follows;

“ some right interest, profits or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by other”  

Nature of Consideration.

  • In a Bilateral contract, a contract is formed where parties exchange promises. Each party promises to do an act or refrain from doing an act.
  • A unilateral contract does not constitute to an exchange of promises. The only promise is the one made by the promisor to do or refrain from doing an act if the other party does or refrains from doing an act.

Executory Consideration.

An exchange of promise to perform the act in future is referred to as Executory consideration.

It consist of mutual promises and one promise is given in return of another e.g. In a bilateral contract for the supply of goods, A promises to deliver goods to B at a future date and B promises to pay. If A does not deliver them, this is a breach of contract.

Executed Consideration.

Consists in some act or forbearance that is complicated by the time the promise becomes binding. For example if the seller delivers goods and customer promises to pay, it is executed consideration.

In Executed Consideration, one party has already performed his obligation under the contract while there is an outstanding liability on the other party.

Past Consideration.

Consists of something done by the promise before the promise was done.

The promise is made after the act has been performed e.g. If A saves B’s house from fire while B was on a trip abroad and B later promises to buy him a car as a reward, the promise by B will be Past Consideration.

Past Consideration under the Law is not good consideration as the promise given after the act is purely gratuitous and it cannot be enforced by law.

Consideration must move from promisee in that for their top be a contract between the two parties, the consideration must move from the promisee.

A party can enforce a promise made to him only if he himself provided the consideration for that promise.

Consideration must be of some value but consideration need not be adequate. Consideration must be bargained for. The general rule is that consideration must be of some economic value but it need not be adequate.

It’s not the duty of the court to inquire as to whether the consideration paid for is equivalent to the value of that promise. The adequacy of the consideration is for parties to determine through bargaining.

It is the court that will hold that Consideration is insufficient under the following circumstances;

  1. Where a public duty is imposed upon the plaintiff by the Law. A person through the operation of the Law is under a public duty to act in a certain way or performs a duty that he is bound in Law to do provide no consideration.
  2. Where the Plaintiff is bound by an existing contractual duty to the defendants. If the Plaintiff does or is to perform or promise to the performance of an obligation already imposed on him by a previous contract between him and the defendant then there is no consideration.
  3. Where the Plaintiff is bound by an existing contractual duty to 3rd party. This arises when the Plaintiff performs a promise to perform an obligation already imposed upon him by a contract previously made between himself and the 3rd party.
  4. In this case the performance is a good consideration. E.g. A makes a promise to B in exchange of B doing or promising to do something which B is already obliged to do under an existing contract with C.
  5. Part Payment of a debt. Generally, the payment of part of an existing debt does not amount to consideration for the creditors promise to accept lesser sum as full settlement and forgo the balance. That there is no benefit that accrues  to the creditor and no detriment is suffered under by the debtor.

There are some conditions under which a contract can be legally terminated before the contractual duties have been fulfilled, this is known as Termination of a contract.

When is termination lawful?

Termination of contract is considered lawful when a legitimate reason exists to end the contract before performance has been complicated.

Reasons for termination

  • Impossibility of performance
  • Instances of mistake, fraud or misrepresentation
  • Breach of contract
  • According to a prior agreement

Discharge of a contract is the act of making an agreement null by ways of terminating contractual obligations. It occurs when the main or primary or primary obligations of a contract ends, but the contract may remain in existence giving rise to secondary obligations.

Primary obligations refer to the performance of contractual obligations and the conditions of the contract while secondary obligations refer to payment of damages or remedies in general.

Breach of contract is committed when a party without lawful excuse or unjustifiably;

  • Fails or refuses to perform what was due from him under the contract or,
  • Performs defectively or incapacitates himself from performing

While every breach of a contract gives rise to a right to claim damages in respect of the loss occasioned by the breach, not every breach of a contract gives to the innocent party the right to terminate the contact. Identification of circumstances in which a party is entitled to terminate a contract in the event of a breach by the other party raises difficult technical question, but it also gives rise to some difficult questions of policy.

For instance in the event of a breach should the law encourage the parties stick together and work out their differences or should it confer upon the parties a wide right to terminate their relationship so as to enable them to find alternative elsewhere? The law attaches a considerable significance to the right to terminate and it recognizes a wider right to terminate.

In the case of National Bank of Kenya Ltd  V Pipe Plastic Samkolit (K) Ltd and another  (2002) EA 503 where court of Appeal of Kenya stated:-

“This,  in our view, is a serious misdirection on the part of the Learned Judge.  A court of law cannot rewrite a contract between the parties. The parties are bound by the terms of their contract unless coercion, fraud or undue influence are pleaded and proved.  There was not the remotest suggestion of coercion, fraud or undue influence in regard to the terms of the clause.  As was stated by Shah JA in the case of Fina Bank Ltd v Spares and Industries Ltd (2000) 1 EA 52: “It is clear beyond peradventure that save for those special cases where equity might be prepared to relieve a party from a bad bargain, it is ordinarily no part of equity function to allow a party to escape from a bad bargain.”

 

The right to terminate depends in part upon the nature of the term broken (Whether or not it is a condition) but also upon the consequence of breach.

Fundamental or Actual breach

This is whereby a party fails one of its obligations it occurs when a party fails to prefer his contractual duties at all or does less than is required. It may take one of the following three forms

  1. Non-performance that is X, a ship owner  rents his ship to Y undertaking to have the ship at Mombasa for loading at a certain date and then never takes the ship to Mombasa This constitutes breach by non-performance.
  2. Defective performance that is X attempts to get his ship in Mombasa but arrives late.
  3. Non-truth of the statement that is a term of the contract; if it is written in the contract that the ship is suitable for carrying cars when in fact it is not.

 

 

Anticipatory breach

This is a breach which occurs before the date of performance laid down in the contact. A party indicates either expressly r implied by words of conduct, that they do not intend to honour   their obligation under the contract.

Therefore, the breach does not 0f itself bring a contract to an end. The breach may give the party the right to terminate the contract but it is for the innocent party to decide whether or not to exercise that right. The innocent party has a right to election whether to affirm or terminate the contract.

The following are circumstance that may constitute repudiation. (Refusal to perform the duty or obligation owed to the other party.)

  1. Discharge at the option of injured party
  2. Failure of performance
  3. Affirmation of the contract (voluntary)
  4. No or bad reason for claiming discharge

Forms of discharge by breach

The right of a party to be treated as discharged from further performance may arise in any one of the three ways. The other party may:

  1. Renounce its liability under it. In this case, the repudiation is by refusal to perform.
  2. By its own act make it impossible to perform. In a nutshell, this is concerned with inability to perform.
  3. Fail to perform what it has promised, This may by a total or substantial failure to perform, nonetheless, that failure may not have been willful or deliberate

The first two breaches may take place not only in the course of performance but also while the contract is wholly executor that is entitled to demand a performance by the other of the promise.

 

When a party breaches a contract, consequences may follow;

  1. Release from future obligations- An innocent party which is entitled to, and does choose to be treated as discharged by other party’s breach, is thereby released from further performance of those future obligations which remain still to be performed. After such discharge the innocent party is not bound to accept, or pay for, any further performance by the party in breach. The duty of the party in default to perform future informed obligations likewise comes to an end, as does that parties right to perform them.
  2. Contracts not rescinded ab inito - This is to say that the contract has come to an end of which the individual cares convey the truth with sufficient accuracy
  3. The occurred obligations will remain. Although both parties are discharged from further performance of their obligations, rights are not divested which have already been unconditionally acquired.
  4. Quantum Meruit claims with respect to payments not yet due at time of discharge e.g. goods supplied under the contract, the innocent party can sue for the reasonable value of this on a quantum meruit or quantum vale bat or include them in his claim for damages for breach. But if it is divisible, the guilty party may be entitled to claim for damages in respect of performance completed, subject to a counter claim for damages by innocent party in respect of loss suffered by the breach

 

Loss of the rights of discharge.

The right of discharge may be lost by waiver, affirmation acceptance and operation of law. In addition a party may be stopped for claiming to be entitled to treat a contract as discharged.

Damages.

This is the most common remedy available to the injured party. It entitles the injured party to recover compensation for the loss suffered by it due to the breach of contract from the party who caused it.

In action for damages for the breach of contract there arises two kinds of problem;

  • Remoteness of damage- it has to be established whether the loss suffered by the Plaintiff is the proximate consequence of the breach of contract by the defendant. The defendant is only liable to the proximate consequences of the contract and not liable for the damage which is remotely connected with the breach.
  • Measure of damages- This brings the question of how much compensation is to be paid for the breach? It involves determining the quantum of compensation.

           Damages are compensatory in nature.

Quantam meruit- This remedy allows the injured to recover the value of what he has done if the injured party has performed a part of his obligation under the contract before the breach of the contract has occurred.

Specific Performance and Injunction.

This is where a party to a contract instead of recovering damages for the breach may have recourse to the alternative remedy of specific performance of the contract or an injunction restraining the other party from making a breach of the contract. These provisions regarding these remedies have been contained in the Specific Relief Act,1968.

In some instances the Court may award the injured party compensation. In the case of Ibrahim Habib Makii vs. Sheikh Brothers Investment Ltd The Plaintiff had been appointed agent to collect rent on behalf of the defendants for 10% commission. The defendant terminated this and started to collect rent by himself whereby the Plaintiff sued for injunction restraining the defendant from doing so. The Court of Appeal for E. Africa overruled the High Court of Kenya and lifted the injunction on ground that the damages would sufficiently be compensated.

 

 

Vitiating factors these are factors invalidating a contract even if it has met necessary formation requirements of offer and acceptance and intention to create legal relations.

The presence of vitiating factors may render a contract void, voidable or unenforceable.

A void contract-this is a contract where the whole transaction is regarded as nullity. It means that no time has there been a contract between the two parties. Any goods or money obtained under the agreement must be returned. Where the goods have been sold to third party, they can be recovered by the original owner under the law of restitution.

A voidable contract- this is a contract that operates a s a valid contract until one of the parties takes a step to avoid it. Anything obtained must be returned using remedy of rescission.

An unenforceable contract- this is a contract that exists but cannot be enforced in the court if a party refuses to carry out its term. Items received under the contract cannot be usually reclaimed.

 

These vitiating factors include;

  1. Incapacity
  2. Misrepresentation
  3. Mistake
  4. Illegality
  5. Duress
  6. Undue influence

This is an ambiguous false statement of facts which is addressed to the party misled, inducing it to enter the contract. A misrepresentation renders contract voidable.

The misrepresentation must be a statement of facts.

The misrepresentation must have been addressed to the party misled

The misrepresentation must have induced the representee into making the contract

 

Types of misrepresentation

  1. Fraudulent misrepresentation
  2. Negligent misrepresentation
  3. Innocent misrepresentation

 

When one or both of the parties believe that a given set of facts exists and this belief subsequently turns out be wrong.  An operative mistake will render the contract void. A common mistake is one which both parties make regarding the same fact(s). It can be in three types;

  1. Mistake as to the existence of the subject matters of the contract.
  2. Mistake as to possibility of performing the contract (physical impossibility, legal impossibility and commercial impossibility)
  3. Mistake as to quality of the subject matter is usually not a fundamental one.

A mutual mistake occurs when the terms of the offer and acceptance suffer from latent ambiguity that is impossible to impute any agreement between the parties and the parties can be said to be at cross purposes.

A unilateral mistake is where only one party makes a mistake regarding a particular fact.

Illegality may affect the contract into ways, where the contract is illegal at the time of formation and the contract is valid but is performed in an illegal manner

Illegality renders a contract unenforceable.

Doctrine of duress renders the contract voidable

The following conditions must be satisfied in order for finding of duress;

  • Physical threats or economic pleasure amounting to coercion of the will was exerted on the victim.
  • The claimant had no practical alternative curse but to enter or modify the contract.
  • The pressure was illegitimate. A threat to do unlawful act such as commit a crime.

It occurs when one party improperly uses their influence over the other to induce them into a transaction

Undue influence renders contract voidable.

Most contracts can be made either oral or written, though some agreements must be in writing in order to be binding. They include;

  1. Real estate sales
  2. Agreements to pay someone else’s debts
  3. A real estate leases for longer than one year
  4. Contracts that take longer than one year to complete
  5. Contract for over a certain amount of money (depending on the state)
  6. Contracts that will last longer than the life of the party performing the contract
  7. A transfer of property at the death of the party performing the contract

Confidentiality Agreements are used to stop sensitive information becoming public Knowledge. There are legal consequences for the party that discloses protected information. Many businesses and companies use confidentiality clauses to stop competitors gaining important company information.

Some companies subject their employees into signing confidential agreements. Confidentiality does not have to be written and a verbal confidentiality agreement is as legally binding as written one.

Benefits of confidentiality Agreements.

  1. The agreement set down clearly terms and conditions of what is considered protected information.
  2. It can be used if a dispute occurs over disclosure and legal action is to be taken against the person who has leaked the information to the public.

In Singaporean High Court case of Medivac International Management Pte Limited vs. Moore [1988]IML The Court stated that the duty  of confidentiality outside employment outside employment is not as great as it is, during employment ”and accordingly, confidential information concerning an employer’s business acquired in the course of his service could be used by the employee, after his employment has ceased, unless the information was confidential that it required the same protection as trade secret.

NB. Information cannot be classified as confidential if it is already in the public domain. This is referred to as non-confidential information.

As much as the constitution of Kenya section 2 (5) (6) allows the application of the international conventions and laws there is always conflict in law that arises.

Conflict in law is a phrase used when the laws of different countries on specific topic are dissimilar .When this happens courts need decide which law will be followed.

General list of conflicts.

General principle that applies to contracts across national borders like other international principles are grounded in principles and customs recognized in almost all nations. The principles include;

  1. Party autonomy- the parties are free to choose the law governing the contract.
  2. Sovereignty- A Government is free from all external control of other states as it deals with the independence of sovereignty.
  3. Comity-This is in respect, consideration adoption or enforcement by one country of the laws of another country.
  4. Uniformity- The laws of different countries would be same or universal.
  5. Good faith- Entering into a contract with honorable intent and resolved to a sincere effort to obtain a deserved result.

Conflicts can be separated into the following sections;

  1. Jurisdiction of the court to handle the matter.
  2. Choice of the law to be used in the cases.
  3. Judgment day in the case.

 

What law should be applied to the case at hand?

When courts have been faced by this question of choice of la, generally a court can apply two choices

  1. A court can apply the law of forum (lexi fori)- which usually apply when the result is procedural or court can apply the law of transaction.
  2. In occurrence that gave the rise of first litigation in the first phase this is usually the controlling law selected when the matter is substantive.
  1. The names and personal contact information of both parties.
  2. The purpose of the contract.
  3. Restrictions any other included part in the contract
  4. Signatures of the parties.

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