THE LAW OF CONTRACT

A contract may be defined as a legally binding agreement made by 2 or more parties. It has
also been defined as a promise or set of promises a breach of which the law provides a
remedy and the performance of which the law recognizes as an obligation.
The most important characteristic of a contract is that it is enforceable. The genesis of a
contract is an agreement between the parties hence a contract is an enforceable agreement.
However, whereas all contracts are agreements, all agreements are not contracts.
TYPES OF CONTRACTS
Contracts may be classified as:
1. Written / specialty contracts
2. Contracts requiring written evidence
3. Simple contracts
4. Contracts under seal
1. WRITTEN CONTRACTS
These are contracts which under the law must be written, that is embodied in a formal
document e.g. hire purchase agreement, contract of marine insurance, contract of sale of land.
Contracts under seal: this is a contract drawn by one party, sealed and sent to the party /
parties for signature. Such a contract requires no consideration e.g. a lease agreement,
mortgage, charge.
2. CONTACTS REQUIRING WRITTEN EVIDENCE
These are contracts which must be evidenced by some notes or memorandum.
Contents of the note / memorandum:
1) A description of the parties sufficient to identify them.
2) A description of the subject matter of the contract
3) The consideration (value)
4) Signature of the parties
Examples include; contracts of insurance other than marine, contract of guarantee.
3. SIMPLE CONTRACTS
These are Contracts whose formation is not subject to any legal formalities. The contract may
be:
• Oral
• Written
• Partly oral and written
• Implied form conducts of the parties
Examples include; contract of sale of goods, partnership agreement, and construction
contracts.
ELEMENTS OF A CONTRACT
These are the constituents or ingredients of a contract. They make an agreement legally
enforceable. These elements are:
a. Offer
b. Acceptance
c. Capacity
d. Intention
e. Consideration
f. Legality
g. Formalities, if any
SOURCES OF LAW OF CONTRACT
Under section 2 (1) of the Law of Contract Act, Cap 23, the sources of law of contract are:
1. Substance of common law
2. Doctrines of equity
3. Certain Statutes of General Application
4. Other Acts of the Kenyan Parliament
CREATION / FORMATION OF CONTRACTS
A contract comes into existence when an offer by one party is unequivocally accepted by
another and both parties have the requisite capacity. Some consideration must pass and the
parties must have intended their dealings to give rise to a legally binding agreement. The
purpose of the agreement must be legal and any necessary formalities must have been
complied with.
THE OFFER
An offer has been defined as: an unequivocal manifestation by one party of its intention to
contract with another. The party manifesting the intention is the offeror and the party to
whom it is manifested is the offeree.
RULES / CHARACTERISTICS OF AN OFFER:
1. An offer may be oral, written or implied from the conduct of the offeror.
2. An offer must be communicated to the intended offeree or offerees. An offer remains
ineffective until it is received by the offeree.
3. An offer must be clear and definite i.e. it must be certain and free from vagueness and
ambiguity. In Sands v. Mutual Benefits as well as in Scammell and Nephew Ltd v. Ouston, it
was held that words used were too vague and uncertain to amount to an offer.
4. An offer may be conditional or absolute. The offeror may prescribe conditions to be
fulfilled by the offeror for an agreement to arise between them.
5. The offeror may prescribe the duration the offer is to remain open for acceptance.
However, the offeror is free to revoke or withdraw his offer at any time before such duration
lapses e.g. in Dickinson v. Dodds, the defendant offered to sell a house to the plaintiff on
Wednesday 10/06/1874 and the offer was to remain open up to Friday 12th at 9.00 am.
However, on the 11th of June, the defendant sold the house to a 3rd party. The plaintiff
purported to accept the offer of Friday morning before 9.00 am. It was held that there was no
agreement between the parties as the defendant had revoked his offer by selling the house to a
3rd party on June 11th. A similar holding was made in Ruoutledge v. Grant, where the
defendant’s offer was to remain open for 6 weeks but he revoked or withdrew it after 4
weeks. It was held that there was no agreement between the parties.
6. The offeror may prescribe the method of communication of acceptance by the offeree.
If he insists on a particular method, it becomes a condition.
7. An offer may be general or specific i.e. it may be directed to a particular person, a
class of persons or the public at large. In Carlill v. Carbolic Smoke Ball Co, the defendant
company manufactured and owned a drug name the “Carbolic Smoke Ball” which the
company thought was the best cure for influenza, cold and other diseases associated with
taking cold water. The company put an advertisement in a newspaper to the effect that a £100
reward would be given to any person who contracted influenza or related diseases after taking
the smoke ball as prescribed i.e. 2 tablets, 3 times a day for 2 weeks. The advertisement
further stated that the company had deposited £1000 with the Alliance Bank on Reagent
Street as a sign of their sincerity in the matter. Mrs. Carlill who had read the advertisement
bought and took the Smoke balls as prescribed but contracted influenza. The company
rejected her claim and she sued. The company argued that the advertisement;
a. Was nothing but mere sales talk
b. Was not an offer to the whole world
c. Was not intended to create legal relations
The Court of Appeal held that though the wording of the advertisement was unclear, it
amounted to an offer to the whole world and the person who fulfilled its conditions,
contracted with the company hence Mrs. Carlill was entitled to the £100 reward.
EXAMPLES OF OFFERS
1. Public transport: as was the case in Wilkie v. London Passenger Transport Board.
2. Bidding at an auction as was the case in Harris v. Nickerson.
3. Submission of a tender
4. Application for employment
An offer must be distinguished from an Invitation to treat.
INVITATION TO TREAT
This is a mere invitation by a party to another or others to make offer or bargain. The invitee
becomes the offeror and the inviter becomes the offeree. A positive response to an invitation
to treat is an offer.
Examples of invitation to treat
1. Advertisement of sale by auction: At common law, an advertisement to sell goods or
other property by public auction is an invitation to treat. The prospective buyer makes the
offer by bidding at the auction and the auctioneer may accept or reject the offer.
It was so held in Harris v. Nickerson where a commission agent had sued as auctioneer for
failure to display furniture he had advertised for sale by auction. It was held that there was no
contractual relationship between the parties as the advertisement was merely an invitation to
treat and as such, the auctioneer was not liable.
2. Sale by display: At common law, the display of goods with cash price tags is an
invitation to treat. The prospective buyer makes the offer to buy the items at the stated or
other price which the shop owner may accept or reject. In Fisher-v-Bell, the defendant was
sued for ‘offering for sale’ a flick knife contrary to the provision of the Offensive Weapons
Act. The defendant had displayed the knife in a shop with a cash price tag. Question was
whether he had offered the knife for sale. It was held that he had not violated the Act as the
display of the knife was an invitation to prospective buyers to make offers.
3. Sale by self-service: At common law, a sale by self-service is an invitation to treat.
Prospective buyers make offers by conduct by picking the goods from the shelves and the
offer may be accepted or rejected at the cashier’s desk. The offeror is free to revoke his offer
to buy the goods at any time before reaching the cashiers desk. In Pharmaceutical Society of
Great Britain v. Boots Cash Chemists (Southern) Ltd (1952). The defendant owned and
operated a self-service store which stocked among other things, drugs which under the
provisions of the Pharmacy and Poisons Act (1933) could only be sold with the supervision
of the registered pharmacist. The defendant’s pharmacist was stationed next to the cashier’s
desk. The plaintiff society argued that the defendant had violated the Act as the pharmacist
was not stationed next to the shelves where the drugs were displayed. Question was at what
point a sale took place. It was held that the defendant had not violated the provisions of the
Act as its pharmacist was stationed next to the cashier’s desk where the actual sale took
place.
This case is authority for the proposition that in a sale by self-service, a sale takes place at the
cashier’s desk. A similar holding was made in Lasky v. Economy Grocers Ltd.
TYPES OF OFFERS
1. Cross offers
This is a situation where a party dispatches an offer to another who has sent a similar offer
and the two offers cross in the course of communication. No agreement arises from cross
offers for lack of consensus between the parties. The parties are not at ad idem.
2. Counter offer
This is a change, variation or modification of the terms of the offer by the offeree. It is a
conditional acceptance. A counter offer is an offer in its own right and if accepted an
agreement arises between the parties.
Its legal effect is to terminate the original offer as in Hyde v. Wrench (1840), the defendant
made an offer on June 6th to sell a farm to the plaintiff for £1,000. On 8th June, the plaintiff
wrote to the defendant accepting to pay £950 for the farm. On 27th June, the defendant wrote
rejecting the £950. On 29th June the plaintiff wrote to the defendant accepting to pay £1,000
for the farm.
The defendant declined and the plaintiff sued for specific performance of the contract. It was
held that the defendant was not liable as the plaintiff’s counter offer of £950 terminated the
original offer which was therefore not available for acceptance by the plaintiff on 29th June
as the defendant had not revived it.
A counter offer must however be distinguished from a request for information or inquiry.
Request for information:
An inquiry does not change terms of the offer. The offeree may accept the offer before or
after inquiry is responded to as was the case in Stevenson-v-Mc Lean, where the defendant
had offered to sell 3,800 tonnes of iron to the plaintiff at £ 40 per tonne and the offer was to
remain open from Saturday to Monday. On Monday morning, the plaintiff telegraphed the
defendant inquiring on the duration of delivery. The defendant treated the inquiry as a
counter offer and sold the iron to a third party. The plaintiff subsequently accepted the offer
but thereafter received the defendant’s notice of the sale to the 3rd party. The plaintiff sued in
damages for breach of contract. It was held that the defendant was liable.
3. Standing offer.
A standing offer arises when a person’s tender to supply goods and service to another is
accepted. Such acceptance is not an acceptance in the legal sense. It merely converts the
tender to a standing offer for the duration specified if any. The offer is promising to supply
the goods or services on request and is bound to do so where a requisition is made.
Any requisition of goods or services by the offeree amounts to acceptance and failure to
supply by the offeror amounts to a breach of contract.
As was the case in Great Northern Railway Co Ltd v. Witham, a plaintiff company invited
tenders for the supply of stores for 12 months and Witham’s tender was accepted. The
company made a requisition but Witham did not supply the goods and was sued. It was held
that he was liable in damages for breach of contract.
In standing offer, the offeror is free to revoke the offer at any time before any requisition is
made, unless the offeror has provided some consideration for the offeror to keep the standing
offer open.
This consideration is referred to as ‘an option’. This is an agreement between an offeror and
the offeree by which an offeree agrees to keep his offer open for a specified duration. In this
case, the offeror cannot revoke the offer.
In a standing offer, if no order to requisition is made by the offeree within a reasonable time,
the standing offer lapses.
TERMINATION OF OFFERS
A contractual offer may come to an end or terminated in any of the following ways:
1. REVOCATION:
This is the withdrawal of the offer by the offeror. At common law, an offer is revocable at
any time before acceptance.
Rules of revocation of offers:
1. An offer is revocable at any time before it becomes effectively accepted. It was so
held in Paybe v. Cave. In Dickinson v. Dodds, the sale of the house by the defendant to a 3rd
party revoked his offer to the plaintiff.
2. Notice of revocation must be communicated to the offeree. However, such
communications need not to be effected by the offeror. It suffices, if communicated by a 3rd
party as was the case in Dickinson v. Dodds.
3. An offer is revocable even in circumstances in which the offeror has promised to keep
it open to a specified duration, unless an option exists, as was the case in Dickinson v.
Dodds.
4. Revocation becomes legally effective when notice is received by the offeree.
5. An offer is irrevocable after acceptance. It was so held in Byrne v. Van Tienhoven.
6. In unilateral contracts, an offer is irrevocable if the offeree has commenced and
continues to perform the act which constitutes acceptance.
7. A bid at an auction is revocable until the hammer falls.
2. REJECTION:
An offer terminates if the offeree refuses to accept the same, the refusal may be express or
implied from the conduct of the offeree e.g. silence by the offeree amounts to a rejection as
was the case in Felthouse v Bindley.
4. COUNTER OFFER:
This is a change or variation of the terms of the offer by the offeree. It is a form of rejection.
The legal effect of a counter offer is to terminate the original offer as was the case in Hyde v.
Wrench.
5. LAPSE OF TIME:
If an offer is not accepted within the stipulated time and not revoked earlier, it lapses on
expiration of such duration. Where no duration is specified, the offer lapses on expiration of
reasonable time. What is reasonable time is a question of fact and varies from case to case.
In Ramagate Victoria Hotel Ltd v. Montefiore in early 6/1864, the defendant made an offer to
purchase 40 shares of the plaintiff company, the offer was not accepted until November by
which time the defendant had given up. The company sued for the value of the shares; the
defendant pleaded that the offer had not been accepted within a reasonable time. It was held
that the defendant was not liable as the offer had lapsed from non-acceptance within a
reasonable time.
A similar holding was made in Virji Khimji v Chatterbuck the defendant ordered timber
from the plaintiff and indicated that it be supplied as soon as possible. The plaintiff did not
respond but delivered the timber. 4 ½ months later, the defendant refused to take delivery and
was sued. It was held that he was not bound to take delivery as his offer had lapsed for non-
acceptance within a reasonable time.
5. DEATH:
The death of the offeror or offeree before acceptance terminates an offer. However, the offer
only lapses when notice of death of the one is communicated to the other.
6. INSANITY:
The unsoundness of mind of either party terminates an offer. However, the offer only lapses
when notice of the insanity of the one is communicated to the other.
7. FAILURE OF A CONDITION SUBJECT TO WHICH THE OFFER WAS MADE:
These are conditional offers. If a condition or state of affairs upon which an offer is made
fails, the offer lapses. In Financings Ltd v. Stimson, the defendant opted to take up a vehicle
on hire purchase terms. He completed the hire purchase application form and paid a deposit.
This form constituted his offer. He took delivery of the vehicle but returned it to the
showroom after 2 days for some minor rectification. The vehicle was stolen from the
showroom and when recovered it was badly damaged by reason of an accident. The
defendant refused to take delivery or pay installments and was sued. He pleaded the state of
the vehicle. It was held that he was not liable as his offer had lapsed. This offer was
conditional upon the motor vehicle remaining in substantially the same condition as it was
before and since its condition had changed, his offer had lapsed.

ACCEPTANCE
This is the external manifestation of assent by the offeree. It gives rise to an agreement
between parties. In legal theory, an agreement comes into existence at the subjective moment
when the minds of the parties meet. This moment is referred to as Consensus ad idem
(meeting of minds).
However, this subjectivity must be externally manifested by the offeree for the agreement to
arise. Acceptance may be oral, written or implied from the conduct of the offeree.
RULES OF ACCEPTANCE
1. Acceptance may be oral, written or implied from the conduct of the offeree. In Carlill
v. Carbolic Smoke Ball Co, acceptance by Mrs. Carlill took the form of her conduct by
purchasing and consuming the smoke balls.In Brogden v. Metropolitan Railway Co, where it
was held that the 1st load of coal supplied by Brogden constituted acceptance of the
defendants offer to supply the coal and hence there was an agreement between the parties.
2. The offeree must have been aware of and intended to accept the offer: A person
cannot accept an offer whose existence he is unaware of. In Crown-v-Clarke, the Australian
government offered £1,000 to any person who volunteered information leading to the arrest
and conviction of the killers of 2 police officers. Any accomplice who gave information
would be pardoned. Clarke, who was aware of the murder, gave the information and the
killers were arrested and convicted. However, he made it clear that he had given the
information to clear his name. It was held that he was not entitled to the reward as he had
given the information for a different purpose and therefore had not accepted the offer.
3. Acceptance must be unconditional and unqualified: The offeree must accept the offer
in its terms, any variation or modification of the offer amounts to a conditional acceptance
which is not an acceptance as was the case in Hyde v. Wrench where the plaintiff modified
the defendant’s offer of £1,000 to £ 950.
4. An offer must be accepted within the stipulated time if any or within a reasonable
time failing which it lapses. As was the case in Ramsgate Victoria Hotel v. Montefoire,
where the defendant’s offer made in June was not accepted until November by which time
had elapsed. A similar holding was made in E.A Industries Ltd v. Powyslands.
5. Acceptance must be communicated to the offeror in the prescribed method if any or
an equally expeditions method. Where no method of communication is prescribed, the
method to apply depends on the type of offer and the circumstances in which the offer is
made.
6. As a general rule, silence by the offered does not amount to acceptance, it was so held
in Felthouse v. Bindley. The plaintiff intended to buy a house owned by a nephew named
John who had no objection. The plaintiff intended to buy it or £30 15p. He wrote to Jon
stating ‘if I hear no more about him, I consider the horse mine at that price.’
John did not respond but 6 weeks later he gave the horse to the defendant for sale but
instructed him not to sell the particular horse. It was sold by mistake. The plaintiff sued the
auctioneer in damages for conversion. Question was whether there was a contract of sale
between the plaintiff and John. It was held that there was no contract for John did not
communicate his acceptance to the offer.
7. Where parties negotiate by word of mouth in each other’s presence, acceptance is
deemed complete when the offeror hears the offeree’s words of acceptance. It was so held in
Entores Ltd v. Miles Far East Corporation, where Lord Denning observed that there was
no contract between the parties until the offeror hears the words.
8. Where parties negotiate by telephone, acceptance is deemed complete when the
offeror hears the offeree’s words of acceptance. It was so held in Entores Ltd v. Miles Far
East Corporation.
9. Where parties negotiate by telex acceptance is deemed complete when the offeree’s
words of acceptance are received by the offeror. It was so held in Entores v. Miles Far East
Corporation.
10. In unilateral offers, commencement and continuation of performance constricts
acceptance. During performance, the offeror cannot revoke the offer but to do so if
performance is discontinued as was the case in Errington v. Errington and Woods.
A father bought a house where the son and daughter in-law lived by paying a deposit of £250
and raising the balance by a loan from a Building society. He promised to transfer the house
to them if they paid all instalments as and when they fall due. The £250 would be a gift to
them.
They commenced payment of the instalments but stopped before the entire sum had been
paid. The father was compelled to pay the remaining instalments. He declined the transfer of
the house to them. It was held that he was not bound to do so as they had discontinued
payments of the instalments.
11. In standing offers, a specific order or requisition by the offeree constitutes acceptance
and the offeror is bound as was the case in Great Northern Railway Co. v. Witham.
12. An offer to a particular/specific person can only be accepted by that person for an
agreement to arise. It was so held in Boulton v. James.
13. An offer to a class of persons can only be accepted by a member of that class for an
agreement to arise. It was so held in Wood v. Lecktrick.
14. An offer to the general public may be accepted by any person who fulfils its
conditions. As was the case in Carlill v. Carbolic Smoke Ball Co.
15. The postal rule of acceptance:
Where the offeror expressly or impliedly authorizes the offeree to communicate acceptance
by post, acceptance is deemed complete when the letter is posted whether it reaches its
destination or not. It was so held in Byrne v. Van Tienhoven and Co Ltd.
a) Express authorization:
These are circumstances in which the offeror expressly permits the offeree to communicate
acceptance by post. As was the case in Adams v. Lindsell, on 2/9/1817, the defendant offered
to sell to the plaintiff a quantity of wood on certain terms and required a response ‘in the
course of post.’ The plaintiff received the letter on 5/9/1817 and posted an acceptance. On
8/9/1817 the defendant posted a letter revoking the offer. The plaintiff’s letter of acceptance
was received on 9/9/1817. It was held that there was a contract between the parties as the
plaintiff had posted the letter of acceptance by the time the defendant purported to revoke the
offer. Hence, the revocation was ineffective.
b) Implied authorization:
There are circumstances in which the offeror by implication authorized the offeree to
communicate acceptance by post.
In Household Fire Insurance Co.-v-Grant, the defendant offered to buy 100 shares to the
plaintiff company. The offer was communicated by post. The Company allotted the shares to
him and the company secretary made out the letter of allotment which was posted but never
reached the defendant who was subsequently sued for the amount due on the shares. He
denied liability on the ground that the company had not communicated its acceptance.
However, it was held that since the company had posted the letter of acceptance, there was a
contract and the defendant was liable. In Henthorn v. Fraser, X made an offer to Y to take up
a lease. On the following day between noon and1 pm, X posted a letter withdrawing the offer
which was received by Y at 5pm. At 3.50pm on the same day, Y had posted a letter accepting
the offer. The letter was read by X on the following day. It was held that there was a contract
between parties which came into existence at 3.50pm when Y posted the letter of acceptance.
The purported revocation at 5pm had no effect.
In Byrne v. Van Tienhoven and Co Ltd on 1/10 the defendant made an offer to sell to eth
plaintiff 1000 boxes of tin plates but on 8/10 the defendant posted letter revoking the offer.
The same was received on 15/10. On 11/10 the plaintiff telegraphed the defendant an
acceptance which he confirmed by a letter posted on 15/10. It was held that there was a
contract between the parties which come into existence on 15/10 when the letter of
acceptance was posted.
c) No Authorization:
If the offeror does not expressly or implied authorizes the offeree to use the post but the
offeror uses the post, acceptance is deemed complete when the letter of acceptance is
received by the offeror.
16. If the offeror instructs his messenger to deliver to him the letter of acceptance in any
from the offeree, acceptance is deemed complete when the letter is handed over to the
messenger.
17. Acceptance need not be communicated to the offeror where such communication is
expressly or impliedly waived. This was the case in Carlill v. Carbolic Smoke Balls Co,
where Mrs. Carlill was not required to communicate the fact of purchase and consumption of
the Smoke balls.
18. Acceptance need not be communicated to the offeror where it makes the form of
conduct. This was the case in Brogden v. Metropolitan Railway co Ltd.

Once an offer is accepted, an agreement arises between the parties as there is consensus
between them. Offer and acceptance constitutes the foundation of a contractual relationship.
They do not constitute a contract as a contract must be characterized by other elements.

INTENTION TO CREATE LEGAL RELATIONS

In addition to offer and acceptance, an agreement must be characterized by intention. The
parties must have intended to create legal relations. Intention is one of the basic elements of a
contract as common law. An agreement is unenforceable unless the parties thereto intended
such a consequence.
Ascertainment of intention:
To determine whether parties intended to create legal relations, courts consider;
1. Nature or type of agreement i.e. whether commercial or business and domestic or
social.
2. The circumstances in which the agreement was entered into. These two factors
demonstrate whether the parties intended to contract.
a) Business or commercial agreements;
In considering such agreements, courts proceed from the presumption that the parties
intended to create legal relations.
1. Advertisements
These are intended to promote sales of the advertiser. They have a commercial objective. In
Carlill v. Carbolic Smoke Ball Co. Ltd, the company had manifested an intention to create
legal; relations by stating that it had deposited £1,000 with Alliance Bank Regent Street.
Hence Mrs Carlill was entitled to the £100 as she had contracted with the company.
2. Employment agreements.
These are commercial agreements intended to impose legal obligations on the parties thereto.
In Edwards v. Skyways Ltd, the plaintiff was a former employee of the defendant company
as a pilot and was declared redundant but promised on ex-gratia sum. He provided
consideration for the promise.
By reason of many other redundancies, the company was unable to make good the promise to
Edwards who sued. It was held that he was entitled to the sum as this was a business
agreement intended to create legal relations.
The court was emphatic that this was not a domestic agreement.
However, the circumstances in which a commercial or business agreement is entered into
may show that the parties did not intend to create legal relations and this would be the case
where honour clauses or honourable pledge clauses are used.
This is a clause in agreement to the effect that the parties do not intend to create legal
relations.
It denies the agreement legal intention thereby converting it to a gentleman’s agreement
binding in honour only.
Such an agreement is unenforceable in law as was the case in Rose & Frank v. Crompton
Brothers where the agreement between the two companies contained an honour clause, but
one of them purported to enforce the agreement.
The court of Appeal held that it was unenforceable as the honour clause had denied it legal
intention.
A similar holding was made in Jones-v-Vernon Pools Ltd where the agreement had an
honour clause.
It was observed that whenever an agreement contained an honour clause, the plaintiff was
obliged to trust the defendant as the agreement cannot be enforced by court of law.
b) Domestic or social agreements
Courts proceed on the presumption that the parties did not intend to create legal relations.
1. Agreement between husband and wife
Such agreements are generally not intended to impose upon the parties any rigid obligations.
In Balfour v Balfour, the defendant was a civil servant in Sri Lanka. At the time, he and his
wife were in Britain on holiday.
His wife fell ill and it became clear that she was not in a position to accompany him back to
Sri Lanka.
He promised to send her 30 pounds per month for the duration they would remain apart. He
did not and the wife sued.
It was held that her action was not sustainable as the parties had not intended to create a legal
relationship. A similar holding was made in Gould v Gould.

2. Agreements between Parent and Child

Such an agreement is ordinarily not intended to be a contract but a working relationship.
In Jones v. Pandervatton, the plaintiff persuaded her daughter to leave a well-paying job to
study Law in Britain, she was promised a maintenance allowance as she studied. She
reluctantly agreed. In the meantime, the plaintiff bought a house where the defendant lived as
part of the maintenance. Before the daughter completed her studies, the 2 quarreled and the
mother sought to evict her from the house. She argued that there was a contract between
them. However, it was held that the parties had not intended to create legal relations and the
mother was entitled to evict her. However, the circumstances in which a domestic or social
agreement is entered into may show that the parties intended to create legal relations.
Such intentions may be collected from the words used by the parties, their conduct and the
circumstances of the agreement;
1. Agreement between husband and wife
Such an agreement may be forced if the parties have manifested an intention to contract. E.g.
in McGregor v McGregor, a husband and wife sued each other for assault but later resolved
to withdraw the cases but live apart. The husband promised to pay a weekly sum as
maintenance while the wife promised to maintain the children.
The husband was in arrears for 6 weeks and the wife sued. It was held that her action was
sustainable as the parties had manifested an intention to contract. A similar holding was made
in Merrit v Merrit.
2. Other Social Agreements
Such agreements may be enforced if the parties have manifested an intention to contract. In
Simpkins v. Pays, the defendant owned a house where she lived with a granddaughter; the
plaintiff was a paying boarder (a lodger).
The three took part in a Sunday newspaper competition. All entries were made in the
defendant’s name. However, there were no rules on payment of postage. One week’s entry
won £750.
The plaintiff claimed 1/3of the sum. The defendant argued that this was a pastime activity not
intended to create legal relations.
However, the court held that the plaintiff was entitled to 1/3of the sum as the parties had
manifested an intention to contract.
A similar holding was made in Parker v. Clark. Case law demonstrates that an agreement is
legally unenforceable unless the parties to it intend such a consequence.
CAPACITY
In addition to consensus and intention, a contract must be characterized by capacity. This is
the legal ability of a party to enter into a contractual relationship. For an agreement to be
enforceable as a contract the parties must have had the requisite capacity.
As a general rule, every person has a capacity to enter into any contractual relationship.
However, in practice, the law of contract restricts or limits the contractual capacity of certain
classes of persons namely;
1. Infants or minors.
2. Drunken persons.
3. Persons of unsound mind.
4. Corporations.
5. Undischarged bankrupts.
1. CONTRACTUAL CAPACITY OF INFANTS OR MINORS
Under Section 2 of the Age of Majority Act, an infant or minor is any person who has not
attained the age of 18.
Contracts entered into by an infant are binding, voidable or void depending on their nature
and purpose.
1.BINDING CONTRACTS
These are legally enforceable contracts; the infant can sue or be sued on them. Both parties
are bound to honour their obligations.
These contracts fall into 4 categories;
1. Contracts for the Supply of “Necessaries”
Under section 4 (2) of the Sale of Goods Act necessaries mean goods suitable to the condition
in life of such an infant or minor and to his actual requirement at the time of sale and
delivery.
In Nash v. Inman, the defendant was an infant college student. Before proceeding to college,
his father bought him all the necessary clothing material.
However, while in college, he bought additional clothing material from the plaintiff but did
not pay for them and was sued.
His father gave evidence that he had bought him all the necessary clothing material. It was
held that he was not liable as the goods were not necessaries when supplied.

2. Contracts for the Supply of “Other Necessaries”

These are necessaries other than those covered by Section 4 (2) of the Sale of Goods Act. E.g.
Legal services, transport to and from work, lodging facilities etc.
An infant is bound by any contract for the supply of such necessaries. Under the Sale of
Goods Act, whenever an infant is supplied with necessaries, he is liable to pay not the agreed
price but what the court considers as reasonable.
3. Educational Contracts
An infant is bound by a contract whose purpose is to promote his education or instruction.
4. Contracts for Beneficial Service
These are beneficial contracts of service. Case law demonstrates that an infant can sue or be
sued and is bound by contracts whose object is to benefit him as a person.
In Doyle v. White City Stadium, the plaintiff was a qualified infant boxer. He applied to join
the British Boxing Board and was granted a license.
One of the rules of the body empowered it to withhold payment of any price money won if a
boxer was disqualified in a competition.
The plaintiff was disqualified on one occasion and the Board withheld payment. The plaintiff
sued. Question was whether the plaintiff was bound by the contract between him and the
Board. It was held that he was as in substance it was intended to benefit him hence the money
was irrecoverable.
A similar holding was made in Chaplin V. Leslie Fremin (Publishers) Ltd. Where the
plaintiff, an infant had engaged the defendant to write a book for him. He subsequently
discontinued the transaction. It was held that the contract was binding as it was intended to
benefit him.
A similar holding was made in Clements v. London and North Western Railway Co.
2. VOIDABLE CONTRACTS
Certain contracts entered into by an infant are voidable i.e. the infant is entitled to repudiate
the contract during infancy or within a reasonable time after attaining the age of majority.
By avoiding the contract, the infant escapes liability on it. The infant cannot be sued on the
contract during infancy. These contracts confer upon the infant a long-term benefit. Examples
include: Partnership agreements, lease or tenancy agreement and contract for the purchase of
shares.
Under Section 12 of the Partnership Act, an infant partner is not liable for debts and other
liabilities of the partnership during infancy since the contract is voidable at his option.
However, under Section 13 of the Act, if the infant does not avoid the contract during
infancy, or within a reasonable time after attaining the age of majority, he is liable for debts
and other obligations of the firm from the debt he became partner.
In Davis v. Beynon-Harris where an infant had taken up a lease but failed to repudiate the
contract during infancy or within a reasonable time thereafter, it was held that he was liable
under the contract.
3. VOID CONTRACTS
Under the provisions of the Infants Relief Act (1874) which applies in Kenya as a statute of
general application, certain contracts entered into by infants are void. These are contracts
which the law treats as non-existent. They confer no rights and impose no obligations on the
parties.
These contracts are;
1. All accounts stated with infants: These are debts admitted by an infant. The infant
cannot be sued on such admission.
2. Contracts for the supply of goods other than necessaries.
3. Money lending contracts: An infant is not bound to repay any monies borrowed from
a 3rd party as the contract is void. However, if the infant repays, the amount is irrecoverable.
In Leslie Ltd. V. Sheil, the defendant, an infant borrowed £400 from the plaintiff, a money
lending firm in 2 lots of £200 each and was liable to pay £475 inclusive of the interest but
failed to do so and was sued.
The plaintiff argued that it was entitled to damages for misrepresentation as the defendant had
fraudulently misrepresented his age.
It further argued that the defendant had received the money on its behalf. It was held that the
amount was irrecoverable as the contract was void by reason of the Infants Relief Act 1874.
Since a money lending contract was void, any security given by the infant is also void and
therefore unenforceable by the lending party. It was so held in Valentini v. Canali.
If an infant uses money borrowed under a void contract to purchase necessaries, the lending
party is in Equity put into the shoes of the party supplying the necessaries and can sue the
infant for the recovery of the amount borrowed as was used to purchase the necessaries.
This is the principle of subrogation as was explained in In re: National Permanent Benefits
Building Society Ltd.
Question has arisen as to whether an infant can ratify contracts made during infancy after he
has attained the age of majority. Any such purported ratification or adoption has no legal
effect.
2. CONTRACTUAL CAPACITY OF DRUNKEN PERSONS
A contract entered by a drunken person is voidable at his option by establishing that:
1. He was too drunk to understand his acts.
2. The other party was aware of his condition.
By avoiding the contract, the person escapes liability on it. In Gore v. Gibson, the defendant
was sued on a bill of exchange he had signed and endorsed. He pleaded that when he did so
he was too drunk to understand what he was doing and that the plaintiff was aware of his
condition.
It was held that he was not liable as the contract was voidable at his option by reason of the
drunkenness.
If a contract entered into by a person when drunk is ratified by him when sober it is no longer
voidable as was the case in Mathews v Baxter where the defendant had contracted to sell a
house to the plaintiff. When sued he pleaded drunkenness.
However, it was held that he was liable as the plaintiff proved that he had subsequently
ratified the transaction while sober.
Under Section 4 (2) of the Sale of Goods Act, if a drunken person is supplied with
necessaries, he is liable to pay a reasonable price.
3. CONTRACTUAL CAPACITY OF PERSONS OF UNSOUND MIND
A contract entered into by a person of unsound mind is voidable at his option by establishing
that:
1. He was too insane to understand his acts.
2. The other party was aware of his mental condition.
By avoiding the contract, the party escapes liability on it. In Imperial Loan Co. Ltd v Stone,
the defendant was sued on a promissory note he had signed. He argued that at the time, he
was insane and therefore incapable of comprehending the nature or effects of his acts and that
he was not liable on the promissory note as the contract was voidable by reason of insanity.
In the words of Lopes L.J. “In order to avoid a fair contract on the ground of insanity, the
mental capacity of the one contracting must be known to the other contracting party. The
defendant must plead and prove not merely his insanity but the plaintiff’s knowledge of that
fact and unless he proves these 2 things he cannot succeed.”

If a contract entered into by a person of unsound mind is ratified by him when he is of sound
mind it ceases to be voidable.
Under Section 4 (2) of the Sale of Goods Act, if a person of unsound mind is supplied with
necessaries, he is liable to pay a reasonable amount.
4. CONTRACTUAL CAPACITY OF UNDISCHARGED BANKRUPTS
These are persons who have been declared bankrupt by a court of competent jurisdiction.
Their capacity to contract is restricted by the provisions of the Bankruptcy Act .
5. CONTRACTUAL CAPACITY OF CORPORATIONS
These are artificial persons created by law, either by the process of registration or by statute.
The capacity of the corporations to contract is defined by law e.g. a statutory corporation has
capacity to enter in transactions set out in the statute as well as those reasonably incidental
thereto.
Other transactions are ultra vires and therefore null and void. The contractual capacity of a
registered company is defined by the object clause of the memorandum. At common law a
registered company has capacity to enter into transactions set forth in the objects and those
that are reasonably incidental to the attainment or pursuit of such objects.
It was so held in Ashbury Railway Carriage and Iron Co. v. Riche as well as in Attorney
General v. Great Eastern Railway Co
Other transactions are ultra vires (beyond the powers of) the company and void. Transactions
within the powers of a company are said to be intra vires a company.
An ultra vires transaction cannot be ratified and any purported ratification has no legal effect.
It was so held in Ashbury’s Case.
5. CONSIDERATION
In addition to consensus, capacity and intention, an agreement must be characterized by
consideration to be enforceable as a contract. At Common Law, a simple contract is
unenforceable unless supported by some consideration. Consideration is the bargain element
of a contract.
It is nothing but mutuality. It has been defined as “an act or promise offered by the one party
and accepted by the other party as price for that others promise.”
Judicial Definitions
In the words of Lush J. in Currie v. Misa, “a variable consideration may consist of some
right, interest, profit or benefit accruing to the one party or some loss, forbearance, detriment
or responsibility given, suffered or borne by the other.”

In the words of Patterson J in Thomas v. Thomas “consideration means something which is

of some value in the eye of the law moving from the plaintiff. It may be some benefit to the
defendant or detriment to the plaintiff but at all events it must be moving from the plaintiff.”
Consideration is whatever the promisee gives or provides to buy the promisors promises. By
so doing the promisee becomes party to the contract. Consideration takes various forms. In
Carllil v. Carbolic Smoke Ball Co, it took the form of detriment i.e. swallowing of the
smoke balls by Mrs. Carllil. In Patel v. Hasmani, it took the form of forebearance to sue.
TYPES OF CONSIDERATIONS
Consideration may be executory or executed but must not be past. However, in certain
circumstance past consideration may support a contractual claim.
1. Executory Consideration
Consideration is executory where the parties exchange mutual promises. Neither of the
parties has performed its part of the contract. The whole transaction is in future.
Executory consideration is good to support a contractual claim. E.g. purchase of goods on
credit for future delivery.
2. Executed Consideration
Consideration is executed where a party does an act to purchase the others promise. The act
may be partial or total performance of the party’s contractual obligation. It is good
consideration to support a contractual claim.
3. Past Consideration
Consideration is past where a promise is made after services have been rendered. There is no
mutuality between the parties. Past consideration is generally not good to support a
contractual claim.
In Roscorla v. Thomas, the plaintiff had just bought a horse from the defendant and as he
was leading it away, the defendant assured him that it was a good horse free from any vice.
The statement turned out to be untrue and the plaintiff sued for damages. It was held that the
defendants promise was unenforceable by the plaintiff as consideration was wholly past.
A similar holding was held in In re McArdles Case where Mrs. McArdles spent £488
improving and decorating the house they lived in at no one’s request. The house belonged to
Mrs. McArdles husband’s father and was to be sold after her mother-in-law’s death. The
beneficiaries of the estate signed a document promising Mrs. McArdle £488 when the estate
was distributed.
However, no payment was made and Mrs. McArdle sued. It was held that the promise was
unenforceable as consideration was past.
In certain circumstances, past consideration is sufficient to support a contractual claim.
These are exceptions to the general rule:
1. Acknowledgement of a statute barred debt
Under the Limitation of Actions Act, Cap 32 Laws of Kenya, a debt becomes statute barred
after 6 years. In such a case, the debtor is not bound to repay. However, a written
acknowledgement of the debt by the debtor is enforceable by the creditor though
consideration is past. It was so held in Ball v. Hasketh and Heyling v. Hasting.
2. Negotiable Instruments
One of the characteristics of negotiable instruments e.g. cheques, bills of exchange,
promissory notes, share warrants etc. is that past consideration is good to support any action
on the instrument.
A holder of a negotiable instrument can sue on it even though he has not given consideration
provided a previous holder gave some consideration.
This exception is contained in Sec 27(1) of the Bills of Exchange Act, and was relied upon to
enforce an action in Lombard Banking Co. Ltd v. Gandhi and Patel.
3. Rendering of Services on request
Where services are rendered by a party, at the express or implied request of another in
circumstances that give rise to an implied promise to pay, a subsequent promise to pay for the
services is enforceable.
The law takes the view that the rendering of the services and the promise to pay are an
integral part of the same transaction.
In Lampleigh v. Brathwait the defendant had killed a man named Patrick. He requested the
plaintiff to secure pardon for him from the king. The plaintiff exerted himself and made a
number of trips to see the king and ultimately secured the pardon. The defendant promised to
pay him £100 for the trouble, a promise he did not honour and was sued.
He argued that the plaintiff had not provided consideration for his promise to pay. However,
it was held that the promise was enforceable as it was inseparable from the request for the
services. A similar holding was made in Re Casey Patents Ltd.

RULES OF CONSIDERATION
1. Mutual love and affection is not sufficient consideration:
It was so held in Thomas v. Thomas. Mr. Thomas had expressly stated that if he died before
his wife, she was free to use his house as long as she remains unmarried. His brothers who
later became executors of his estate knew of this wish.
After his death, Mrs. Thomas remained in his house and unmarried. After the death of one of
the executors, the other sought to evict Mrs. Thomas from the house. She sued the late
husband’s estate. It was held that the husbands promise was enforceable as she had provided
consideration by way of the £1 she paid for every year she lived in the house.
The love she had for the late husband was not sufficient consideration but the £1 she paid
every year was.
2. Consideration must be legal
The act or promise offered by the promise must be lawful as illegal consideration invalidates
the contract.
3. Consideration must not be past
As a general rule, past consideration is not good to support a contractual claim as exemplified
by the decisions in Re McArdles case and Roscorla v. Thomas.
However, in certain circumstances, past consideration is sufficient to support a contractual
claim, as indicated above.
4. Consideration must be real.
This rule means that consideration must be something of value in the eyes of the law. It
means that consideration must be sufficient though it need not be adequate.
This rule means that as long as something valuable in law passes, the promise is enforceable.
It means that the law does not concern itself with the economics of a transaction.
It means that the courts of law do not exist to correct bad bargains. In Thomas v. Thomas, the
£1 Mrs. Thomas paid per year was sufficient consideration.
However, if the consideration is too low in comparison and there is evidence of a mistake,
misrepresentation, duress or undue influence, the courts may intervene.
5. Consideration must flow from the plaintiff/ promise.
This rule means that the person to whom the promise is made provides consideration and by
so doing there is a bargain between the parties or mutuality.
By providing consideration, the promise becomes party to the transaction. In Thomas v.
Thomas, Patterson J was emphatic that “consideration must at all times flow from the
plaintiff.”
The rule that consideration must flow from the plaintiff is referred to as The Doctrine of
Privity of Contracts.