THE LAW OF CONTRACT STUDY NOTES
CONTENTS
1. Essential elements of a contract
2. Offer and acceptance
3. Contractual capacity
4. Intention to create legal relationship
5. Mistake
6. Contracts in restraint of trade
7. Discharge of a contract
INTRODUCTION
The law of contract is an adaptation of the English Common Law of contract as modified by the law of Contract
Kenya Cap 23 1961 Laws of Kenya. The law of contract is very important because it lays done the foundation of
the superstructure of modern commercial transactions. Its essence is the promotion of business activities which
are the backbone of the development of our economy.
Definition
A contract is an obligatory agreement between two or more people which is intended to create legally binding
obligations. Anson defines a contract as “an agreement enforceable at law, made between two or more person
by whom rights are acquired by one or more to acts of forbearance or on the part of the other or others
Agreements that do not give rise to legal obligations are not contracts. Such agreements include
Domestic agreements a husband promising to buy his wife a house
Gentleman’s promise e.g. a friend promising another to lend him his bicycle on a weekend and come
the weekend refuses to do so
A social invitation a man invited his girlfriend for dinner and fails to turn up
Essential elements of a contract
For a contract to be legally binding if must have the following seven elements
Offer and acceptance- there must be a lawful offer and acceptance of the offer ie the offer and
acceptance must be made in accordance the law for a valid contract to arise.
Consideration- this is the price paid by one party for the promise of another. It means that each of the
parties gives something and receives something.
Contractual capacity- each party to a contract must be competent to contract ie every party must have
the legal ability to enter into a contract.
Intention to create legal relation - once the parties have entered into a contract it should be attached by
legal consequences. When either of the parties fails to fulfill their obligations the other can go to court
and get a legal remedies
Voluntary genuine consent- it means that the parties must have agreed upon the same thing in the
same sense. Consent must not be obtained by coercion, misrepresentation, undue influence or by
mistake
Lawful objective- the reason for entering into the contract must not be illegal, immoral or against
public policy
Possibility of performance- the contract must be capable of performance both physically and legally.
TYPES OF CONTRACTS
1. Bilateral an unilateral contracts
LAW OF CONTRACT Study notes Prepared by Mr. Antony Ambia Page 1
, 2. Void, voidable and valid contracts.
A void contract is one which has no legal effect. They are prohibited by law, or opposed to public
policy or out- right illegal. Examples of void contracts are contracts which the objective is illegal,
infant’s money lending contracts. Void contracts are not necessary illegal but all illegal contracts are
void.
Voidable contracts are binding and enforceable contracts but they lack of one or more of the essential
elements of a contract. It may cease to be binding at the option of the aggrieve party. Contracts usually
become voidable because of a vitiating factor- mistake, misrepresentation, coercion/duress or undue
influence. Where a party fails to set the contract aside within a reasonable time or affirms the contract,
the contract will remain binding.
A valid contract is one which has all the essential elements of a contract. It is binding to the parties
and enforceable by the parties.
3. Simple contracts and contracts of deed.
A simple contract is one which is not a contract of deed. A contract of deed is one which must be in
writing, sealed, signed and delivered to the person for whose benefit it is made. It need not be
supported by consideration. A simple contract also known as parol does not need to be in any form. It
can be in writing, oral, partially in writing and partially oral. Simple contracts must be supported by
consideration to be valid.
The following simple contracts must be made in writing to be binding
All contracts requiring to be stamped
Acknowledgement of statute barred debts
Transfer of immovable property
Representation of character and credit worthiness
The following contracts must be evidenced in writing
Contracts of guarantee
Contracts of the sale of land
Contracts for the sale of goods of two hundred shillings and over
Every hire purchase agreement
Contracts of employment
Moneylending contracts
A contract which is evidenced in writing must contain
The names of the parties or sufficient description of them
The subject matter of the contract with sufficient clarity
Signature of the person to be charge or his agent
Consideration must be shown unless the contract is one of deed
May consist of other documents provided they could be interrelated expressly or by implication
4. Contracts of record –they include court records and recognizances.
In the judgment of court the previous rights under a contract are merged. The consent of the parties is
presumed.
In recognizances an offender promises to pay a specified amount of money if he makes a breach of the
terms of a bond.
5. Executed contracts- an executed contract is one were all the parties to a contract have done what was
expected of them and nothing remains to be done.
6. Executory contract is one where both or one of the parties to a contract still has something to do eg a
sale of good on credit
7. Quasi contract- this kind of a contract is not based on the agreement of the parties. These contracts are
based on the doctrine of restitution. Under this doctrine no person may unjustly enrich himself/herself
LAW OF CONTRACT Study notes Prepared by Mr. Antony Ambia Page 2
, with a benefit obtained from another. He/she must compensate the person from whom the benefit was
unduly obtained in the same manner as though a valid contract existed between them. Examples of
quasi contracts include money paid under a mistake of fact, money had and received, money paid in an
ineffective contract etc
QUASI CONTRACTS
This happens when after considering the circumstances and the conduct of the parties confer a right in favour
of other party despite there being no agreement between the parties. The basis of quasi contracts is on the
equitable doctrine that a person shall not be allowed to an unjust enrichment at the expense of the other. Quasi
contracts are an obligation created by law in the following circumstances;
Claims on quantum merit- this means as much as earned. It is used when a person claims reasonable
remuneration for the services rendered by him/her in the absence of any express promise to pay for the
same. Planche v Colburn 1831, Craven- Ellis v Canon Ltd 1936 Ashiq pg 160.
Action for money had and received this arises where the defendant has received money for the use of
another by fraudulent means Reading v Anttorney-General Ahiq pg 191
Action for the money paid to the use of another –occur where the plaintiff has been compelled by the
law to pay or the interest to protect his goods or the defendant expressly requests him t make a
payment on his behalf Brooks Wharf v Goodman Bros 1937
Money paid on a total failure of consideration- where the plaintiff had paid money to the defendant in
pursuit of a contract the consideration for which has completely failed he can sue to recover the money
he/her has paid. Wilinson v Lloyd 1845
Money paid under a mistake of fact where the plaintiff paid money under a contract caused by mistake
of law or fact this can be recovered and the contract will remain valid. Where a person pays money to
save his property or a creditor has been overpaid by a debtor the payer can recover such monies paid.
Accounts stated- this is an acknowledgement of the money owed by one person to another or where
two parties after a series of transactions agree on a certain balance as owed. This is usually in writing.
Money paid by the defendant for the use of the plaintiff- this mostly happens in contracts of agency. If
the agent receives a secret commission or fraudulent payment from a third party the principle entitled
t recover the same from him.
8. Express and implied contracts- an express contract is one where the parties to a contract have
specifically agreed on the terms of the contract. It can be oral or written.
9. Illegal and unenforceable contracts
10. Contracts uberrimae
OFFER AND ACCEPTANCE
OFFER
An offer is the willingness to enter into a contract on definite terms as soon as these terms are accepted.
The person who makes an offer is called the offeror and the one to whom the offer is made is called the offeree.
An offer may be express in writing or orally or it can be implied.
TYPES OF AN OFFER
1. COUNTER OFFER
A counter offer is a reply to an offer whose effect is to vary the terms of the original offer and is an offer in its
self. A counter offer extinguishes the original offer.
2. CROSS OFFER/MUTUAL OFFER
This is an offer that is made simultaneously by two people to each other without the other knowing that the
other has made an offer to the other. eg where A offers to sell his property to B and B without begin aware of A
LAW OF CONTRACT Study notes Prepared by Mr. Antony Ambia Page 3
CONTENTS
1. Essential elements of a contract
2. Offer and acceptance
3. Contractual capacity
4. Intention to create legal relationship
5. Mistake
6. Contracts in restraint of trade
7. Discharge of a contract
INTRODUCTION
The law of contract is an adaptation of the English Common Law of contract as modified by the law of Contract
Kenya Cap 23 1961 Laws of Kenya. The law of contract is very important because it lays done the foundation of
the superstructure of modern commercial transactions. Its essence is the promotion of business activities which
are the backbone of the development of our economy.
Definition
A contract is an obligatory agreement between two or more people which is intended to create legally binding
obligations. Anson defines a contract as “an agreement enforceable at law, made between two or more person
by whom rights are acquired by one or more to acts of forbearance or on the part of the other or others
Agreements that do not give rise to legal obligations are not contracts. Such agreements include
Domestic agreements a husband promising to buy his wife a house
Gentleman’s promise e.g. a friend promising another to lend him his bicycle on a weekend and come
the weekend refuses to do so
A social invitation a man invited his girlfriend for dinner and fails to turn up
Essential elements of a contract
For a contract to be legally binding if must have the following seven elements
Offer and acceptance- there must be a lawful offer and acceptance of the offer ie the offer and
acceptance must be made in accordance the law for a valid contract to arise.
Consideration- this is the price paid by one party for the promise of another. It means that each of the
parties gives something and receives something.
Contractual capacity- each party to a contract must be competent to contract ie every party must have
the legal ability to enter into a contract.
Intention to create legal relation - once the parties have entered into a contract it should be attached by
legal consequences. When either of the parties fails to fulfill their obligations the other can go to court
and get a legal remedies
Voluntary genuine consent- it means that the parties must have agreed upon the same thing in the
same sense. Consent must not be obtained by coercion, misrepresentation, undue influence or by
mistake
Lawful objective- the reason for entering into the contract must not be illegal, immoral or against
public policy
Possibility of performance- the contract must be capable of performance both physically and legally.
TYPES OF CONTRACTS
1. Bilateral an unilateral contracts
LAW OF CONTRACT Study notes Prepared by Mr. Antony Ambia Page 1
, 2. Void, voidable and valid contracts.
A void contract is one which has no legal effect. They are prohibited by law, or opposed to public
policy or out- right illegal. Examples of void contracts are contracts which the objective is illegal,
infant’s money lending contracts. Void contracts are not necessary illegal but all illegal contracts are
void.
Voidable contracts are binding and enforceable contracts but they lack of one or more of the essential
elements of a contract. It may cease to be binding at the option of the aggrieve party. Contracts usually
become voidable because of a vitiating factor- mistake, misrepresentation, coercion/duress or undue
influence. Where a party fails to set the contract aside within a reasonable time or affirms the contract,
the contract will remain binding.
A valid contract is one which has all the essential elements of a contract. It is binding to the parties
and enforceable by the parties.
3. Simple contracts and contracts of deed.
A simple contract is one which is not a contract of deed. A contract of deed is one which must be in
writing, sealed, signed and delivered to the person for whose benefit it is made. It need not be
supported by consideration. A simple contract also known as parol does not need to be in any form. It
can be in writing, oral, partially in writing and partially oral. Simple contracts must be supported by
consideration to be valid.
The following simple contracts must be made in writing to be binding
All contracts requiring to be stamped
Acknowledgement of statute barred debts
Transfer of immovable property
Representation of character and credit worthiness
The following contracts must be evidenced in writing
Contracts of guarantee
Contracts of the sale of land
Contracts for the sale of goods of two hundred shillings and over
Every hire purchase agreement
Contracts of employment
Moneylending contracts
A contract which is evidenced in writing must contain
The names of the parties or sufficient description of them
The subject matter of the contract with sufficient clarity
Signature of the person to be charge or his agent
Consideration must be shown unless the contract is one of deed
May consist of other documents provided they could be interrelated expressly or by implication
4. Contracts of record –they include court records and recognizances.
In the judgment of court the previous rights under a contract are merged. The consent of the parties is
presumed.
In recognizances an offender promises to pay a specified amount of money if he makes a breach of the
terms of a bond.
5. Executed contracts- an executed contract is one were all the parties to a contract have done what was
expected of them and nothing remains to be done.
6. Executory contract is one where both or one of the parties to a contract still has something to do eg a
sale of good on credit
7. Quasi contract- this kind of a contract is not based on the agreement of the parties. These contracts are
based on the doctrine of restitution. Under this doctrine no person may unjustly enrich himself/herself
LAW OF CONTRACT Study notes Prepared by Mr. Antony Ambia Page 2
, with a benefit obtained from another. He/she must compensate the person from whom the benefit was
unduly obtained in the same manner as though a valid contract existed between them. Examples of
quasi contracts include money paid under a mistake of fact, money had and received, money paid in an
ineffective contract etc
QUASI CONTRACTS
This happens when after considering the circumstances and the conduct of the parties confer a right in favour
of other party despite there being no agreement between the parties. The basis of quasi contracts is on the
equitable doctrine that a person shall not be allowed to an unjust enrichment at the expense of the other. Quasi
contracts are an obligation created by law in the following circumstances;
Claims on quantum merit- this means as much as earned. It is used when a person claims reasonable
remuneration for the services rendered by him/her in the absence of any express promise to pay for the
same. Planche v Colburn 1831, Craven- Ellis v Canon Ltd 1936 Ashiq pg 160.
Action for money had and received this arises where the defendant has received money for the use of
another by fraudulent means Reading v Anttorney-General Ahiq pg 191
Action for the money paid to the use of another –occur where the plaintiff has been compelled by the
law to pay or the interest to protect his goods or the defendant expressly requests him t make a
payment on his behalf Brooks Wharf v Goodman Bros 1937
Money paid on a total failure of consideration- where the plaintiff had paid money to the defendant in
pursuit of a contract the consideration for which has completely failed he can sue to recover the money
he/her has paid. Wilinson v Lloyd 1845
Money paid under a mistake of fact where the plaintiff paid money under a contract caused by mistake
of law or fact this can be recovered and the contract will remain valid. Where a person pays money to
save his property or a creditor has been overpaid by a debtor the payer can recover such monies paid.
Accounts stated- this is an acknowledgement of the money owed by one person to another or where
two parties after a series of transactions agree on a certain balance as owed. This is usually in writing.
Money paid by the defendant for the use of the plaintiff- this mostly happens in contracts of agency. If
the agent receives a secret commission or fraudulent payment from a third party the principle entitled
t recover the same from him.
8. Express and implied contracts- an express contract is one where the parties to a contract have
specifically agreed on the terms of the contract. It can be oral or written.
9. Illegal and unenforceable contracts
10. Contracts uberrimae
OFFER AND ACCEPTANCE
OFFER
An offer is the willingness to enter into a contract on definite terms as soon as these terms are accepted.
The person who makes an offer is called the offeror and the one to whom the offer is made is called the offeree.
An offer may be express in writing or orally or it can be implied.
TYPES OF AN OFFER
1. COUNTER OFFER
A counter offer is a reply to an offer whose effect is to vary the terms of the original offer and is an offer in its
self. A counter offer extinguishes the original offer.
2. CROSS OFFER/MUTUAL OFFER
This is an offer that is made simultaneously by two people to each other without the other knowing that the
other has made an offer to the other. eg where A offers to sell his property to B and B without begin aware of A
LAW OF CONTRACT Study notes Prepared by Mr. Antony Ambia Page 3
