A contract is an agreement between two parties with the intention to create legal relations.
ESSENTIALS ELEMENTS OF A VALID CONTRACT
- Offer and acceptance
- Consideration
- Intention to create legal relations
- Capacity of the parties
- Lawful objects
- Free consent {Vitiating Factors}
- Possibility of performance i.e the object of the contract should be something capable of being performed by an ordinary business person
- Certainty of terms i.e the wording of the contract must be certain and clear in meaning
- Meeting of mind, also known as ‘consensus ad idem’. The two parties must mean and refer to one and the same thing.
- Express and implied contract; -Express contract have a special agreement and terms. It is either in writing or by word of mouth. Implied contract on the other hand, are formed through conduct of the parties. The parties did not formally deliberate and agree on the terms of the contract.
- Bilateral and unilateral; -in bilateral contract, both parties are bound to fulfill their obligation in the contract. In unilateral contract, only one party is bound to fulfill obligations in the contract. Eg when one advertises a reward to anyone who may recover a lost property on behalf of the owner. This is a unilateral contract since it is only the advertiser who is bound in it.
- Executed and executory contract; -an executed contract is one where both parties have fulfilled their obligations completely. In executory contracts, the parties have not fulfilled their obligations at all or have fulfilled them partially.
- Simple and speciality contracts; -a simple contract is one that must be evidenced by consideration i.e all simple contract must have a consideration (price paid). A speciality contract is one that does not require consideration as evidence of its existence.
Speciality contracts may include:
- Contracts evidenced in writing; -these are contracts where there is a document or memorandum or receipt that shows the existence of contract e.g contracts of sale where amount paid is 200 and above should be evidenced in writing.
- Contracts in writing; -these are contracts where fundamental terms must be written down e.g lease, insurance, contract of employment e.t.c.
- Contracts under deeds; -these are contracts which must be written down, signed by the parties and sealed e.g contracts of purchase of land, buildings and other immovable properties must be under deeds.
- Valid, void and voidable contacts; -a valid contract has all the essential elements, is binding and enforceable. A voidable contract is one that is valid until avoided by the aggrieved parties because of the lack of one or more of the essential elements. A void contract has no legal effects because it lacks fundamental elements of a contract. It is non-existent under the law and cannot be enforced.
- Quasi contracts; -these are contracts that come into existence not because of offers and acceptance but out of the prevailing circumstances e.g in a sale or return basis, the buyer will only enter into a contract when he communicates acceptance of goods, retains the goods beyond the given duration or does something to adopt the transaction.
- Contracts of uberrima fides (utmost good faith) -these are contracts where only one party possesses knowledge of material information regarding the contract and is bound to disclose such information to the other party without concealing anything, ie in perfect good faith.
Contracts are insurance contracts of ‘uberrima fides’
FORMATION OF CONTRACTS (essential elements of valid contract explained in details)
ELEMENT NO.1: OFFER
Offer is defined as an expression of willingness to contract on definite terms once accepted. An offer becomes binding on the person making it as soon as it is accepted by the other party.
Distinction between:
- Offer and invitation treat
An invitation to treat is an inducement to customers to come and make an offer. It is an invitation to negotiate but not an offer. It can take the form of:
- Invitation to tender -this is an invitation to tender for supply of goods and services
- Display of goods for sale ie where goods are displayed alongside their price tags.
- Sale of shares by a public company through prospectus. Prospectus is a notice advertised by a company inviting general public to buy the shares in that company.
- Issue of travel timetables and passenger tickets.
- Offer and declaration of intention.
A declaration of intention to do something does not constitute an offer.
- Offer and mere supply of information
-if a customer request for a quotation and that quotation is sent to him, it does not amount to an offer but is simply supply of a requested information.
- An offer can be made to a specific person, a class of people or to the whole world.
- An offer can be expressed or implied.
- An offer must contemplate giving rise to legal consequences if accepted.
- The terms of offer must be certain i.e they should not be vague, ambiguous or loose in expression.
- Offer must be communicated to the offeree. Communications of an offer that is posted (through a letter) will take place when the letter is received by the offeree. If letter is lost, there is no offer.
- An offer once accepted becomes a contract and cannot be revoked or withdrawn.
- Conditions may be attached to the offer, but they must be communicated as well.
- There must be knowledge of offer before acceptance.
- An offer cannot bind the other party without his/her consent.
- Two identical cross offers do not constitute a contract. Cross offers arise where the parties make identical offers to each other in ignorance of each others offer
- Acceptance
An offer automatically comes to an end once it has been accepted and a contract is created.
- Rejection
An offer to a certain person will end when it is expressly rejected by the offeree.
- Revocation/withdrawal
An offer will come to an end when it is revoked by the offerer any time before acceptance.
- Death/bankruptcy of offerer
Death or bankruptcy of an offerer of personal services will automatically terminate the offer.
- Lapse of time
An offer that was open for a specified duration will come to an end at the expiry of the given time.
- Failure to meet conditions
Failure to meet conditions attached to an offer will automatically end that offer.
Failure to accept the offer in the manner prescribed
An offer will be terminated if it is not accepted in the prescribed manner or in the usual manner implied in the nature of the offer.
A counter offer is a variation of the original terms of an offer. It will automatically extinguish the original offer.
Types of offers
- Cross offer -these are simultaneous identical offers made in ignorance of each others offer. EgJohn offers to buy a car worth ksh. 2million from Jane. One week later, Jane offers to sell to john the car at ksh 2 million. This is called cross offer since Jane is ignoring John’s offer.
- Conditional offer -is an offer whose validity or acceptance is subject to fulfillment of certain given conditions.
- Counter offer -this is a response to an offer whose effect is to vary terms of the original offer. Eg John offers to buy a car worth ksh. 2million from Jane. One week later, Jane agrees to sell the car to John but at ksh 1.5million. This is called counter offer.
- Single and standing offers *a single offer is expressed in definite words and its acceptance or rejection will bring it to an end.*a standing offer is one that is not definite or specific in expression but its acceptance will give rise to specific contracts over a duration of time. Eg a tender to supply 500 bags of rice is a single offer while a tender to supply not more than 500 bags of rice may be termed as a standing offer.
