LAW OF CONTRACT

Introduction to contracts
-The law of contract is the foundation upon which the superstructure of modern business is built.
-In business transactions quite often promise are made at one time and the performance follows
later.
-The law of contract lays down legal rules relating to promises, their formation, their
performance and their enforceability.
-Generally speaking, litigation in the hospitality, or any other, industry arises because the
plaintiff believes one of the following to be true:
 The defendant did something he or she was not supposed to do.
 The defendant did not do something he or she was required to do.

Valid contracts may be established either in writing or verbally.

In most cases, written contracts are preferred over verbal contracts because it is easier to
clearly establish the precise responsibilities of each party when those responsibilities are
completely spelled out. In addition, time can cause memories to fade, businesspeople may
change jobs or retire, and recollections, even among the best intentioned of parties, can differ.
All of these factors can create discrepancies in verbal contracts.

Components of an enforceable contract

A contract is a legally binding agreement made between two or more persons by whom
rights are acquired by one or more to acts or forbearance on the part of the other or
others.

To constitute a contract however, an agreement must satisfy the following essentials:

- There must be an offer by one person that is often accepted by another.
Both parties must have the legal capacity to make such a contact. They must intend that their
behavior shall result in a legal contract. There must also be some consideration that flows
between the parties.

ELEMENTS OF A VALID CONTRACT

The elements of a contract are:
1) Offer and Acceptance
2) Intention to create legal relationship
3) Lawful Consideration
4) Contractual capacity(Legal capacity)
5) Consent
6) Illegal and void contracts

OFFER and ACCEPTANCE

An offer is an indication of willingness to do or refrain from doing something that is capable of
being converted by an acceptance into a binding contract.

A person making an offer is known as the offeror, proposer or promisor and the person to whom
it is made is called the offeree or promise.

An offer must be distinguished form an invitation to treat which is an invitation for others to
make offers e.g. displaying goods in a shop.
It is also to be distinguished from a declaration of intention which is a mere statement of intent to
invite offers in the future e.g. by advertising an auction.
TYPES OF OFFERS
1. Counter offer
This is an offer whose effect is to vary the terms of the original offer. It is in fact an offer it itself
which operates as rejection of the original offer.
2. Cross offer
Where “A” offers his property for sale to “B” and “ B” without being aware of “A”s offer,
simultaneously offers to buy the same property from A, the law offers that each of these cross
offers are not mutual acceptances of one another and no valid contract can result from them
alone.
3. Conditional offer
This is an offer made subject to a certain condition or conditions which are required to be
fulfilled. Such conditions may be implied by law or may be imposed by the offer. Where a
condition is attached to an offer and is not satisfied then the offer itself fails and no contract can
result from it.

ACCEPTANCE
An acceptance is an assent to the terms of an offer. It must correspond with the terms of an offer
and it is for this reason that a counter offer, cross offer or conditional assent is not acceptance.
For the acceptance to be valid, it must accord exactly to the wording of the offer.

RULES OF ACCEPTANCE

1. Acceptance must be given only by the person to whom the offer is made
If you propose to make a contract with A then B cannot substitute himself for A without your
consent as the offeror.

Boulton vs. Jones (1857)

Boulton bought a hosepipe business from Brocklehurst. Jones, to whom Brocklehurst owed a
debt, placed an order with Brocklehurst for the supply of certain goods. Boulton supplied the
goods even though the order was not addressed to him. Jones refused to pay Boulton for the
goods because he, by entering into contract with Brocklehurst, intended to set off his debt
against Brocklehurst. The court held that the offer was made to Brocklehurst and
it was not in the power of Boulton to step in and accept and therefore there was no contract.

2. Acceptance must be absolute and unqualified.

Acceptance must correspond in every detail with the terms of the offer. If there is any alteration
in the way the acceptance is made from that demanded by the offeror, then acceptance does not
amount to a contract. E.g. Hyde vs. Wrench

3. Acceptance may be express or implied

It is expresses when it is communicated by words written or spoken by doing some required act.
It is to be implied when it is gathered from surrounding circumstance or the conduct of parties.
Felthouse vs. Bindly (1862)
An offer had the words “If I hear no more, is shall consider the horse mine”. The offeree did not
reply. The court held that silence on its own did not constitute acceptance.

4. Acceptance must be communicated to the offeror

Normally, an acceptance is ineffective unless and until it is communicated to the offerer.

5. Acceptance must be given within reasonable time

If any time limit is specified, the acceptance must be given within that time. If no time limit is
specified, it must be given within reasonable time.

6. Acceptance cannot precede an offer

If the acceptance precedes an offer, it is not a valid acceptance and does not result in a contract.

INTENTION TO CREATE LEGAL RELATIONS

A contract doesn’t exist just because there is an agreement between two or more people.
The parties to the agreement must intend to enter into a legally binding agreement.
This is an intention to enter a legally binding agreement or contract.

CONSIDERATION
Consideration is the price for which the promise is obtained.
The price must be something valuable although it need not always be money.
Eg rights,benefits,shares
There are 2 types of consideration:
I. Executed consideration-This is where the act constituting consideration is wholly performed.
II. Executory consideration-This is where consideration consists of a promise to do something
in future.

Past consideration-Once negotiations are over and the parties have struck a bargain any
subsequent or fresh promise made by either party in relation to the bargain is known as past
consideration.

LEGAL RULES RELATING TO CONSIDERATION/characteristics

I. Consideration must be legal
II. Consideration must be sufficient or real but it need not be adequate
This means that parties can fix their own prices and provided that there is some definite valuable
consideration the court will not set aside a contract merely because the price fixed is inadequate.
Consideration must not be vague or indefinite as illustrated by the following cases:

White vs. Bluett

A son promised his father to stop being a nuisance for which the father promised to pay. The
courts held that the promise was too vague to constitute consideration

Collins vs. Godefry

The plaintiff sued for money he had been promised as payment for giving evidence in an earlier
case to which the defendant was party. He said he agreed to give evidence after being promised
the money. The court held that there was no consideration for the promise to pay as giving
evidence was public duty.

III. Consideration must move from the promisee

Only the person who has personally given consideration for a promise can sue for breach of the
promise. This is also known as privity of contract.
Dunlop Tyre Company vs. Selfridges Ltd
D had supplied goods to a wholesaler X on condition that any retailer to whom X
resupplied the goods should not sell the goods below the price fixed by D. X
supplied the goods to S upon this condition but S sold the goods below the stated
price. D sued S for breach of contract. The court held that there was no contract
between D and S as D had given no consideration to S in return for S’s promise to
X.
IV. The consideration must be something beyond the promises existing obligations to the
promisor.
That is it must not be part of the promises public duty or any private duty owed to the promisor.
Stilk vs. Myrick
A seaman deserted his ship breaking his contract and was induced to return to his
duty only by a promise of extra wages. The court held that he couldn’t sue for the
additional sum since he had done only what he had already contracted to do.

V. Consideration must not be past

A promise made for a past service is unenforceable.
Roscorla vs. Thomas
Having bought a horse, the purchaser promised to give the seller an extra sum if
the horse proved satisfactory. It was held that the promise was unenforceable since
it related to a past sale that had already been completed.

However, there are exceptions to this rule:

 Where there is a statute barred claim
 Where past consideration consists of services rendered at the express request of the promisor.
As illustrated by:
Lampeigh vs. Braithwait
The defendant was sentenced to death for murder. He requited the plaintiff to try
obtaining a pardon for him form the King which the plaintiff did. After the pardon
was granted, the defendant promised to pay the plaintiff £100 for is effort but failed
to honor the promise. When sued for the sum, the defendant pleaded past
consideration. The court held that the plaintiff had performed services at the
express request of the defendant and therefore a subsequent promise was binding
on him.
 A prior debt or liability on the part of the promisor who is the drawer of the bill is
valuable consideration for a bill of exchange.

VI. Payment of a smaller sum will not discharge liability to ta larger sum
If A owes B Ksh. 100 and B agrees to accept Kshs 50 in complete discharge of the debt nothing
stops B from later changing his mind and suing for the balance of Kshs 50. This is because the
promise is unsupported by consideration. However there are 2 exceptions to this:
 Where the smaller sum is paid in form or manner different from that originally
intended.
 Where the creditor promises to accept a smaller sum intending his promise to be relied upon
and the debtor alters his financial position in reliance on it (creditors promise). Then the creditor
may be as estopped (prevented) by equity from going back on his promise even though it is nor
supported by consideration.
The Hightree’s Case
A let property to B at a rent of £2,500 per annum. But agreed to accept half this
sum during the war years. B relied on this promise and made no attempt to raise
the full rent. Later A went back and sued for the full amount owing during the war
years. It was held that A could not retract from his promise.
 Agreements that lack consideration
Certain agreements are not enforceable:
Barren promises
Gratuitous promises
Illusory promises
Agreement supported by ;Moral consideration
;Past consideration

Bareen promises-it’s a promise to do something that is already required to do either by law or

by contract represents no additional sacrifice and is not a valid consideration.
It is a promise to pay an existing debt or to obey the law or a similar promise is called a barren
promise.

Gratuitous promise-A person who makes a promise without requiring some benefits in return
has made a gratuitous promise.one sided promises

Illusory promise-
This is due to a lack of mutuality or indefiniteness where only one party is bound to perform.it is
a promise that is not specific.
Eg the manager of a fleet of delivery trucks tells owner of a garage shop if your tires are of high
quality.i will purchase all the tires I need from you

Agreement supported by moral consideration-

when someone makes a promise to compensate another party for a benefit that has already been
received because of a sense of moral obligation eg obligated to do due to friend ship love
sympathy etc
Agreement supported by past consideration-it is a promise to repay someone for a benefit it
has been received
Eg mike promised his brother Brian that he would give him two tickets when Brian graduated
from college.As planned Brian graduated and mike gave him the tickets.brian relaised how
expensive the ticket the ticket were and promised to pay mike for one of the promises.Brian later
changed hs mind and decided not to keep his promise,Mike will not be legally held to his
promise since it was based on past consideration.

CAPACITY TO CONTRACT

Capacity here means competence of the parties to enter into a valid contract. Generally, persons
have capacity to make binding contracts but the law limits the contractual capacity of some
categories of persons to varying degrees.
Lack of contractual capacity in one or both of the parties may render the contract void.
Special rules apply to
i. minors
ii. corporations,
iii. persons of unsound mind
iv. Bankrupt
v. prisoners
vi. drunken persons.
 1. Limitations on Minors
The Age of Majority Act says that minors are persons below the age of 18.
Binding contracts
There are two types of contracts which are binding on minors:

a) Contracts for the supply of necessaries

Necessaries are goods or services necessary to maintain the minor in the style to which he is
accustomed having regard to his social position. These are things without which the minor could
hardly live such as food, clothing and medicine.
Besides goods certain services and expenses are also considered as necessaries such as lodging,
legal advice and funeral expenses. Under the Sale of Goods Act, the minnow is liable to pay a
“reasonable price” for goods which are necessaries. He is therefore not liable for the actual or
contract price and anyone dealing with a minor should bear this in mind as he is likely to lose in
case the minor defaults in payment particularly where goods are supplied to the minor on credit.

Nash vs. Inman (1908)

A tailor supplied an infant with 11 fancy waistcoats, but the infant failed to pay. The
infant was a university undergraduate. His father gave evidence that the infant was
adequately supplied with proper clothes according to his station in life. It was held
that the clothes were not necessaries and the infant was not liable to pay for them.

b) Beneficial contracts of service

There are contracts that benefit the minor

Chaplin vs. Lesly Frewen

The plaintiff contracted with the defendant publishers to publish his autobiography
since his wife and child needed money. Later the plaintiff tried to avoid the contract
but he courts held that it was binding as ir was beneficial in earning the plaintiff a
livelihood.

Voidable contracts
These are contracts which a minor is entitled to repudiate (fail to honor) either during minority or
within a reasonable time after attaining majority age.
Similar to a binding one in that in either case the contract must be beneficial to the minor.
Examples include:
 Lease agreements (by which a minor acquires an interest in land); In this case a minor must
pay the agreed rent unless he disclaims the lease before or within a reasonable time after his 18th
birthday.

 Contracts for purchase of shares (by which a minor acquires interest in a limited
company).An infant who applies for and is allotted a company’s shares becomes a member of
the company form the time his name is put on the register of members with rights and obligation
unless he cancels the contract.

 Contracts of partnership (by which the minor becomes a partner in a firm). This binds an
infant but he is free to repudiate it even after his 18th birthday.

Void contracts
Some contracts are unenforceable against minors when:
i.  Contracts are for repayment of money lent or to be lent
ii.  Contracts for goods supplied or to be supplied which are not necessaries.

2. Mentally disordered or Drunken Persons

A contract made with a person on unsound mind is binding on him if it is made by him during a
lucid interval.
For this purpose, it is immaterial that the other party may have been aware of their mental
capacity.
A contract entered into with is voidable if they are so drunk or insane as not to understand what
the contract is about and the other party is aware of it.
Matthews vs. Baxter
The defendant was held liable for breach of contract to buy some houses form the plaintiff which
he had made when he was drunk but later confirmed after becoming sober.

These persons are liable to pay for necessaries supplied to them pursuant to a contract which
they entered into while drunk or mad.

3. Corporations
Corporations can make any contracts within the powers granted to them at the time of their
incorporation or later. If a company acts beyond its powers we say that it has acted ultra vires
and the contract is void.

Powers of a statutory company are generally sated in the act of parliament creating it and those
of a registered company are implied in its memorandum of association which states the objective
for which the company is formed.

4. Prisoners
During imprisonment prisoners may enter contracts including buying and selling property.
However the usual restrictions about supervision and censorship of anything coming into prison
applies.

THE INTENTION TO CREATE A LEGAL RELATIONSHIP

For an agreement to constitute a contract, the parties must have intended to create legal relations.

Therefore if an agreement contains an express declaration that is not intended to have legal
consequences, it will not be enforceable by the courts.

However, often parties do not address this issue and courts have to decide having regard to
surrounding circumstances whether a contract should be implied.

Generally, business agreements are presumed to have been intended to be legally binding unless
there is an express declaration that they aren’t.
Where a husband and wife are living together amicably, there is a legal presumption that any
agreement they enter into is not legally binding. Social agreements between friends are presumed
not to have been intended to be legally binding.

CONSENT
Entering into a contract must involve the elements of free will and proper understanding of what
each of the parties is doing.
 Proper consent may be affected by any of the following :
1) Mistake
2) Misrepresentation
3) Duress
4) Unfair contract terms in standard form contracts
5) Undue influence or unconscionably

Mistake
Only limited types of mistakes will cause a contract to be non-binding on parties.
Eg a person signs or written documents mistakenly believing that it relates to relates to
something different from what it actually relates to
If a person cannot read or disability and signed it not on what on what it was

NB.If a person signs a document but doesn’t read terms conditions that contracts is binding and
not entitled to plead mistake.

Misinterpretation or misleading conduct

These are misleading or deceptive conduct and its dealt with under the common law and
equitable principles:
Remedies available
Rescission
This means that both parties are restored to the positions they were I before they entered int o the
contract.
This may be due to misinterpretation or misleading conduct.
This may require the court to order some monetary adjustments.

Damages
A mislead party may have a right to damage either in addition to or instead of rescission.

Termination
Termination effect is that the contract is valid up to the date of termination,but is then at an end
and the parties are discharged from any remaining obligation they have under the contract,
Court has the discretion to order a contract be terminated.
The mislead party can sue for loss of bargain damages which is the amount necessary to put the
mislead party in the position they would have been in had the contract been completed.

Types of misinterpretation
a)Fraudulent misrepresentation
This is when the person making the statement knew it was false had no belief in its truth or knew
it might be false and recklessly went ahead and made it anyway.

NB-if a subjective person believes that the representation was true no matter how unreasonable
or silly then that person has not made a fraudulent misrepresentation
However once a fraud is proven the misleading party can rescind the contract and sue for
damages/termination.

b) Negligence misrepresentation
To prove negligent misrepresentation,it must be shown that:
A person making the representation owed a duty of care to the other party to ensure that any
information they gave was true and reliable
The person breached that duty of care because the statement was misleading or false and was
made without due care
The misleading party suffered loss of damage by relying on the misrepresentation which was
reasonably foreseeable and not too remote

Duty of care will be found where the person making the representation could reasonable be
expected to foresee that the statement could be relied on.
It can be due to some special skill or supplier knowledge

c)Innocent misrepresentation
This is where a misrepresentation is made with no intention to deceive and without any
negligence
Misled party is not entitled to damages but is entitled to damages but entitled to contractual
remedies of damages/termination if the representation constituted a term of the contract.

d) Duress
This is where there has been an actual or threatened violence either to the contradicting party
directly to their immediate family.
It can extend to contracts entered to contract entered into as a result of threat to a parties well
being:a business or trade(economic duress)

To prove duress,it must be shown that:

A )party applied unlawful or unconscionable pressure(Physical,emotional or psychological) to
force the other party to enter into a contact and”:
B)Such pressure meant that the other party has no reasonable alternative but to enter into the
contract and
C)Such pressure caused the other party entering into the contact

e)Unfair contract terms in Standard Form contracts

A standard form contract is a contract that has been prepared by one party and the other party has
little or no opportunity to negotiate the contracts terms
In other words the contract is offeree on the basis of “take it or leave it”

A term is unfair when:

-It causes a significant imbalance in the parties rights and obligation under the contract and its
not reasonably necessary to protect the legitimate interest of the supplier and:
-It causes determent to another party
In determining whether a contract term is unfair a court will determine the transparency of the
term and the operation f the contract as a whole

TYPES OF CONTRACTS
I. VALID CONTRACT :-
Valid contract is that which is enforceable at law fc It creates legal obligations between the
parties. It enables one party to compel another party to do something or not to do something.
Parties Obligations:-In case of valid contract all the parties to the contract are legally
responsible for the performance of a contract. If one party breaks the contract other has right to
be enforced
through the court.
Example:-
Amun proposes sell his one acre land to Nasir for one million and the parties are capable of
contracting by law. So this contract is valid. If Amun fails to deliver the land Nasir can sue him
in the court for the delivery of land. On other hand Nasir fails to make the payment, Amun can
sue him for the recovery of payment.

II. VOID CONTRACT

"An agreement not enforceable at law is a void contract". Originally it is a valid contract but due
to certain reasons it becomes void after its formation. A void contract cannot be enforced by
either party.
Features of Void Contract:-
a. It is not enforceable by law.
b. It creates no legal rights.
c. It creates no obligations on any party.
d. An agreement which is against the public policy or against any law is also void.
e. Under this contract no compensation can be paid to any party.
An agreement in restraint of marriage and trade are common examples of void contract.

III. VOIDABLE CONTRACT:-

"An agreement which is enforceable by law at the option of one or more of the parties, there to
but not at the option of the other or others is a voidable contract".
Features of Voidable Contract:-
a. It is enforceable at law at the option of one or more of the parties.
b. A voidable contract can only be objected by the party who has been subject to fraud, coercion,
misrepresentation and undue influence.
c. If the contract is revoked by a person rightfully then he can also receive the compensation.
d. The contract is voidable at the option of the party whose consent is caused.
e. Contracts caused by fraud, undue influence, misrepresentation or by coercion are voidable
contracts.

CONTENTS OF A CONTRACT
Representation and contract terms
To enforce a contract, not only must the parties give evidence of the existence of a contract they
must also give evidence of its contents.
NB: not all statements made regarding contract are considered to be part of it.
-Certain statements particularly those made in the early discussions may be considered as part of
the final contract. These statements are known as representations.

Suppose you buy a car from a second-hand car dealer. He tells you the car has alloy
wheels. You buy it, but you later discover the wheels aren’t alloy, and they’re starting
to rust. If the car having alloy wheels was a term of the sale contract, then clearly the
dealer has breached the contract and you can sue him. But if it was just
a representation, you might have more difficulty suing him.

Remember, if it’s a term, the buyer always wins and always gets damages!
Statements that are within and form part of a contract are referred to as terms of contract.
These four factors can help us distinguish between a term and a representation:
 Relative knowledge. Does one party have expert knowledge of the subject matter?
In our example, if a car dealer tells you something about a car, it’s more likely to be a term; but
if you tell the dealer something, it’s more likely to be a representation.
 Reliance. Did one party obviously rely on what was said when they entered into the
contract? If you were particular about wanting a car with alloy wheels, if you told the
dealer that and if you made it clear you were buying the car because of its alloy wheels
– then it’s more likely to be a term of the contract.
 The strength of the statement. If it’s strong, it’s more likely to be a term (unless both
parties understood that it wasn’t!). In one well-known case, the seller said, “there’s
no need to inspect the horse, I assure you it’s a good horse”. That’s a pretty strong
statement, and the court held it to be a term of the contract.
 Timing. Did the statement immediately precede the making of the contract? If the seller said
“this car has alloy wheels” and you immediately said “I’ll buy it right
now”, then the alloy wheels are more likely to be a term of the contract.

IMPLIED AND EXPRESS TERMS

-Parties may expressly state every term of their contract with varying degrees of precision in
which case they have express terms.

-On the other hand, they may simply agree on the basic purpose of the contract and leave the
detailed terms to be implied form surrounding circumstances. In such a case they have implied
terms.

Express terms
These are of two kinds:
- Conditions
- Warranties
Conditions
A condition is an essential term which goes to the root of the contract that is it may constitute the
main purpose of the contract. Breech of a condition entitles the injured party to treat the contract
as discharged.
There are three types of conditions:
I. Condition precedent
This is a stipulation that the contract shall not bind one or both of the parties until a specified
condition is fulfilled. This is illustrated by:

Pym vs Campbell
The defendant agreed in writing to buy from the plaintiff a share in an invention which he
subsequently refused to take. The plaintiff sued for breach of contract. The defendant proved by
oral evidence that the contract was not to be binding until a third party had approved the
invention. The inve ntion was in fact never approved. The courts held that the defendant wasn’t
liable on the contract.

Other examples of conditions precedent:

Let's say that you want to buy a house. You enter into a contract for the purchase of the house.
However, you want to make sure that the house is in good condition -- That it has a solid roof,
good insulation and definitely no asbestos -- so you hire an inspector to come and look at it. In
your purchasing agreement, you include language which states that a condition of your purchase
is that the property must pass inspection. You agree to paint a house if the owner of the house
supplies the paint. Until the paint is supplied, you’re not required to (or able to) paint.

II. Condition subsequent

This is an express condition in a contract that the contract will cease to be binding on the
happening of a specified event.

Examples of conditions subsequent

 If the Dingbat Company closes its business, a supplier will not be required to fulfill.it s
contract and deliver gidgets to the company and the contract will terminate;
 Beatrice terminates her marriage to Reggie Fauntleroy, her interest in the real property
will terminate and revert to the grantors, Mom and Dad Fauntleroy.
 Pedro and the Red Sox sign a contract in which Pedro agrees to pitch for the Red Sox
“until I receive an offer to pitch in the Dominican professional league.” Here, Pedro
has a duty to perform on the contract until the condition he has set out is met. If that
condition is met, his duty to perform is terminated and he no longer has to pitch for the
Red Sox. See Hartman v. San Pedro Commercial Co., 66 Cal. App. 2d 935 (1944

III. Condition concurrent

That is a condition under which performance by one party is made dependent on
performance by the other at the same time e.g. payment of price shall be upon delivery of goods
ordered.

Warranties
These are inessential terms considered subsidiary to the main purpose of the contract. Breach of
a warrant entitles the injured party to sue for damages but not to treat the contract as discharged
or terminated.
Bettini vs. Gye
The plaintiff promised to attend rehearsals for 6 days for a concert. However she arrived
only in time for 2 days rehearsals. The defendant claimed that the contract was discharged by
breach of a condition. The court held that attendance at rehearsals was only a
warranty therefore the contract wasn’t discharged though the defendant was entitled to
damages for breach of a warranty.
Example 2
An example of a “warranty” is where the Seller warrants or agrees that at Settlement the
propertywill be in the same state and condition it was in immediately before the date of the
Contract. Theremay be a change in a physical feature of the property between the date of the
Contract andsettlement that the Seller is not willing to rectify. In this instance the Buyer
normally does not have a right to terminate or delay settlement unless the Contract provides
otherwise. Rather, the Buyer must settle and separately pursue a claim for damages/
compensation from the Seller.

Difference between a condition and a warranty

The importance of the distinction between a condition and a warranty is that the breach of a
“condition” normally entitles the innocent party to terminate the Contract and claim damages;
while the breach of a “warranty” normally entitles the innocent party to only claim damages.

Implied terms
The general rule is that parties are presumed to have expressed their intention fully. The courts
will only imply terms in contracts in the following cases:
I. To give effect to the clear intentions of parties
II. Where legislation requires it
For example in the Sale of Goods Act, there is an implied condition that goods will be suitable
for the purpose stated by the buyer to the seller.
III. Where in certain circumstances, it is necessary to give business efficacy to the contract as
illustrated by:

Charnock vs. Liverpool cooperation

The defendant garage was to repair the plaintiff’s car that had been damaged in an
accident. There was no term in the contract fixing time for repairs and the defendant
took 8 weeks. The plaintiff claimed damages for the unreasonable delay. The courts
held that in the interest of business efficacy, the court implied that repairs must be done within
reasonable time in this case 5 weeks and awarded damages to the plaintiff.

Exclusion clauses
-Parties to a contract may seek to exclude to limit the legal consequences of a breach of a term
thereof by inserting a suitable clause. These are known as exemption or exclusion clauses.
-Such a clause will be enforced by court if the document containing it was an integral part of the
contract and reasonable care was taken to bring it to the attention of the other party before the
contract was made.
-However, where one fails to carry out the basic obligation of the contract the court will not
allow him to rely on the exemption clause to escape liability as illustrated by:
Karsale Ltd vs. Wallis
The defendant inspected a car and agreed to buy it from the plaintiff. The agreement had a
clause to the effect “there is no condition or warranty that the vehicle is road worthy or
regarding its age, condition of fitness for any purpose.” When the car was delivered, it was in a
shocking condition and it could not self-start. The defendant refused to accept the car and the
plaintiff sued him for relying on the exemption clause.
The courts held that when the defendant first inspected the car, it was in an excellent
condition whereas the car which was subsequently delivered to him was the same car; it was in a
deplorable condition. Since the breach went to the root of the contract, the plaintiff was not
entitled to rely on the exemption clause.

Example 2
[Thornton v Shoe Lane Parking Ltd. (1971) 1 All ER 686]
A driver entering a car park who takes a parking ticket from a machine is only bound by terms
which are brought to their attention before taking the ticket. This is because the contract is
formed when the ticket is taken. The car park owner cannot rely on an exclusion clause printed
on the back of the ticket if they did not do anything beforehand to make the driver aware of it, for
example, by prominently displaying the exclusion clause at a point before the ticket is taken. If
the car is damaged due to insufficient care by the parking company, it will be liable despite the
exclusion clause
Courts base attract and ruling on exclusion clauses of two main fronts.
1. Incorporation
2. Interpretation

Incorporation
The person wishing to rely on the exclusion clauses must show that it formed part of contracts.
In this connection note the following rules:
Signed document: where the exception clause is contains in a document which has been signed it
will automatically form part of the contract
The signer is pre-assumed to have read and understood the signifance.

Unsigned documents
The exemption clauses may be contains in unsigned document eg ticket receipt.it must contain
exemption clauses.
Notice of the exception clause must have been given before the contract was made or at the time
the contract was made.
Pervious dealings-have ever done such business in the stated terms again or before
Privity of contract-
According to the doctrine of privity of contract a person who is not a party to a contract can
neither benefit from the contract or may be made liable under it.

Interpretation
Words used in the clause are examined
Rules of interpretations used are as follows
i. Strict interpretation
Exemption clause will be effective only if it is expressively covers the kind of liability which has
in fact arisen
This is a clause which excludes liability for a breach of warrant will not provide protection
against liability for a a breach of condition

ii. Contra proferentem

This notifies that very clear words were used before a party will be held exempt from liability in
negligence.

iii. Repugancy
This refers to a contradiction or inconsistency between clases of the same document deed or
contract
It is one which contrary to the contract itself.

POSSIBLE FAULTS IN A CONTRACT (vitiating factors in a contract)

A contract which is regular in all aspects may be rendered void or voidable by a mistake,
misrepresentation, fraud, duress or undue influence. These are known as vitiating factors in a
contract. When vitiation factors render a contract void neither party can enforce the agreement
and neither party gains any right under it or suffers any obligations from it.
When a contract is voidable on the other hand one party can avoid his commitment (innocent
party) meaning he can enforce or refuse to be bound by the contract.

MISTAKE
Generally a mistake made by one or both parties in a contract has no effect on the validity of the
contract. However a mistake may render the contract void where:
I. The mistake is of fact and not of law
II. The mistake is so fundamental as to destroy the basis of the agreement.
Such mistake that renders a contract void is called an operative mistake. The operative mistake
may be:
I. A common mistake as to the existence of a common matter that is where the subject matter has
ceased to exist or never existed when the contract was made. As illustrated by
Couturier vs. HastiePage
The plaintiff and defendant contract for the sale of corn which at the time was believed to be
aboard a ship. Unknown to them the corn was going bad and had been sold. The courts held that
there was no contract because the agreement contemplated the existence of something to non-
existent at the time of contracting.

II. Common mistake as to a fact fundamental to the contract. Mere mistake as to value or quality
of the subject matter even if common to both parties will not invalidate the contract. The mistake
must be fundamental to the contract to render it void.
III. Is a mutual mistake as to the identity of the subject matter of the contract. This means that
there is no real concurrence of offer and acceptance because A offers one thing and B accepts the
other.
Raffles vs. Wichelhause
The defendant agreed to buy from the plaintiff a cargo of cotton aboard the ship
“Peerless” leaving Bombay. There were in fact tow ships called “Peerless” that were
due to leave Bombay. One was leaving in October and the other in December. The
defendant was thinking of the one leaving in October while the plaintiff meant the
December ship. It was held that there was no contract between the two parties.

IV. Is a unilateral mistake as the identity of the person contracted. Such mistake operates to
avoid the contract only where:
a. The identity of the person contracted with is of fundamental importance
b. This is made clear to the person before or at the time of contracting.
Ingram vs. Little
A rogue offered to buy a car form the plaintiff and to pay by cheque. The plaintiff
refused the offer and check because he did not know the rogue. The rogue convinced
her that he was a well-known person and being convinced, she accepted his cheque
and let him take the car. The rogue sold the car to the defendant and the cheque
proved worthless. The courts held that the contract between the rogue and the
plaintiff was void for mistake. Therefore the rogue never had any right to the car
and could not lawfully sell it to the defendant.

V. Unilateral mistake as to the nature of the contract signed. Generally a person who signs a
contract is bound by it even if he doesn’t read it. But a person who signs a document under a
fundamental mistake as to its nature may have it avoid(able)ed.

MISREPRESENTATION AND FRAUD

Generally one has no duty to disclose all facts of his property. The subject matter of a contract to
the other contracting party. This rule is that the buyer should beware (Caveat emptor).
Ward vs. HobbsPage
The defendant sold pigs which he knew had swine fever to the plaintiff who was unaware of this.
The defendant didn’t say the pigs were healthy. The courts held that the contract could not be set
aside.

However where a party makes a positive false statement which deceives the other, this is
misrepresentation and may render the contract voidable at the option of the party misled.
Misrepresentation is legally defined as a false statement of material fact made by a party to the
contract or his agent which induces the other to enter into the contract. The statement must be of
fact and not law and is must be of material importance to the transaction. It must be relied on that
is it must succeed in inducing the offeree to enter into the contract.

Horsfall vs. Thomas

A sold a broken gun to B and patched the barrel with clay to conceal the crack. B did not
examine the gun and was therefore not mislead by the patch. It was held that the
misrepresentation had no effect on B and was therefore not actionable.
There are two types of misrepresentation:
I. Innocent misrepresentation
Is where a person makes a misrepresentation believing what the says to be true. Here the misled
party may affirm the contract or sue for damages.
II. Fraudulent misrepresentation
That is an untrue statement made knowingly or without belief in its truth recklessly
careless whether it be true or false. In this case the plaintiff may sue for damages or
repudiate the contract or have it rescinded or affirm it and claim damages.

UNDUE INFLUENCE AND DURESS

Duress is the actual or threatened violence to a person or his property. Undue influence is
pressure on or coercion of a party nor amounting to duress whereby he is precluded from
exercising free judgment.

Undue influence is presumed in contracts between persons in a fiduciary relationship e.g.

between a parent and child, trustee and beneficiary, advocate and client, doctor and patient e.t.c
that is a relationship of trust.
In this case, undue influence can be disproved by evidence of adequate consideration and
evidence that the weaker party received independent legal advice. Both duress and undue
influence render a contract voidable.

DISCHARGE OF CONTRACT
A contract may be discharged or brought to an end in several ways:
I. Discharge by performance
Whereby the parties fulfill their obligations. Performance must be complete and exactly in
accordance with the terms. Partial performance even if substantial will not discharge the contract
unless:
a. It was a divisible contract
b. Performance was prevented by the promise
c. Partial performance was accepted by the other party.

II. Discharge by agreement

A contract can be terminated by agreement. Such an agreement extinguishes the rights and
obligations of the parties. It must be either under seal or supported by valuable consideration.
III. Discharge by operation of law
Contracts of personal services are automatically discharged by death. Where a bankrupt person
obtains discharge form liabilities, his responsibility for all existing debts are cancelled. The law
also lays down time within which action for breach of contract must be commenced that is 6
years otherwise the right to sue lapses and the contract cannot be enforced.
IV. Discharge by frustration of contract
Courts will imply a term into a contract providing the discharge if certain types of
impossibility arise after the contract is made. These impossibilities are referred to as
frustrations. Frustrations or supervening impossibility will discharge a contract where:
a. The subject matter or the contract is destroyed.
Taylor vs. Caldwell
Hire of a theatre was frustrated by the theatre being burnt down. It was held that
the contract was void and the owner of the theatre was absolved form liability to
let the hall as promised.
b. Non-occurrence of an event
c. Death or illness occurs frustrating contracts

V. Discharge by breach

BREACH OF CONTRACT
A breach of contract is committed when a party without lawful excuse fails or refuses to perform
what is due from him under the contract, or performs defectively or incapacitates himself from
performing.
A breach of contract may entitle the injured party to claim damages, the agreed sum, specific
performance or an injunction.

PREVENTING BREACH OF CONTRACT

Preventing breach of contract may not always be possible.
The steps listed below can help minimize the chance of litigation in the
future.
1. Ensure all agreements are in writing
2. Read through contracts thoroughly
3. Keep copies of all contract documents
4. Use good faith when negotiating contracts
5. Note and calendar time deadlines for performance
6. Ensure the performance of third parties
7. Share contact information with those who need to know and educate staff on the consequences
of contract breach
8. Resolve ambiguities quickly and as fairly as possible

REMEDIES FOR BREACH OF CONTRACT

If a contract’s terms are broken, and the contract is enforceable, the consequences can be
significant. The plaintiff can pursue a variety of options when it is clear that the other party has
breached a contract. Some of the remedies that may be sought include the following:
1. Suit for specific performance.
When this option is selected, the party that broke the contract is taken to court, with the plaintiff
requesting that the court force the defendant to perform the specific contract terms that have not
been performed, or to refrain from engaging in some activity that is prohibited by the contract.

2. Liquidated damages.
Often, the language of a contract will call for a specific penalty if the contract terms are not
completed on an agreed-upon date.
Liquidated damages refer to these penalty payments. When a contract is breached, the liquidated
damages could be imposed.

3. Economic loss.
 When damages have not been specifically agreed upon in the terms of the contract, the party that
has created the breach may still be held responsible for damages.

4. Alternative dispute resolution.

Often, there is honest disagreement over the meaning of contract terms. When this is the case, it
may be difficult to determine which, if either, of the parties is in breach of the contract.
When that occurs, the parties, or in some cases the courts, will elect to use dispute resolution
techniques aimed at clearing up confusion or resolving the situation. Dispute resolution may also
be used in other controversies, such as those involved with personal injury, employment, or labor
disputes.
The two most common types of dispute resolution techniques are arbitration and mediation.

In arbitration, the arbitrator is an independent, unbiased individual who works with the
contracting parties to understand their respective views of the contract terms. The arbitrator then
makes a decision that is binding on each party. Advantages and disadvantages of arbitration
include:

Advantages:
1.  It is less costly
2.  It saves time and quick settlements are made
3.  The procedure is simpler
4.  The arbitrators have technical knowledge of the matters in dispute
5.  The ‘award’ of the arbitrator, once approved is final and no appeal lies from it.

Disadvantages:
  The arbitrators do not have sound knowledge of law in most cases
  The arbitration decisions are not uniform in similar matters
  The arbitrators are biased in some cases.

In mediation, the mediator, who is again an independent, unbiased reviewer of the facts, helps
the two parties come to an agreement regarding the issues surrounding the contract terms. While
the mediation process is a voluntary one, and neither party is bound by the recommendations of
the mediator, mediation can be an extremely effective way to bring a contract dispute to
resolution.