KENYA SCHOOL OF LAW

DIPLOMA IN LAW (PARALEGAL STUDIES)

PTP 101: ELEMENTS OF CONTRACT LAW

ACADEMIC YEAR 2025/2026; TERM 1

LECTURER: BENSON GAKA

TOPIC 2: ESSENTIAL ELEMENTS OF A
CONTRACT

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.
1. 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:
 An offer may be oral, written or implied from the conduct of the
offeror.
 An offer must contain an express or implied promise.
OFFER: Rules and
Characteristics of an Offer

1. An offer must be communicated to the intended offeree or

offerees. An offer remains ineffective until it is received by the
offeree.
2. An offer must be clear and definite i.e. it must be certain and
free from vagueness and ambiguity.
3. An offer may be conditional or absolute. The offeror may
prescribe conditions to be fulfilled by the offerer for an
agreement to arise between them.
OFFER: Rules and
Characteristics of an Offer

 In unilateral contracts there is no requirement that the offeree

communicates an intention to accept, since acceptance is through full
performance.
 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.
INVITATION TO TREAT

 An offer must be distinguished from an 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 invitor becomes
the offeree. A positive response to an invitation to treat is an offer.
 Examples of invitation to treat:
INVITATION TO TREAT

a) 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.
b) 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.
 It is well established in contract law that the display of an item in a
shop window is an invitation to potential customers to treat. The
defendant was therefore not guilty of the offence with which he had
been charged.
c) 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
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
TYPES OF OFFERS

 A counter-offer must however be distinguished from a request

for information or inquiry.
3.Request for information:
 An inquiry which does not change terms of the offer. The
offeree may accept the offer before or after inquiry is
responded to
TYPES OF OFFERS

 Any requisition of goods or services by the offeree amounts to

acceptance and failure to supply by the offeror’s amounts to a 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:
Rules of revocation of
offers

a) An offer is revocable at any time before it becomes effectively

accepted.
b) 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.
c) 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.
d) Revocation becomes legally effective when notice is received by the
offeree.
Revocation after
acceptance

 An offer is irrevocable after acceptance

 In unilateral contracts, an offer is irrevocable if the offeree has

commenced and continues to perform the act which constitutes
acceptance.
2. Rejection of Offer

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
3. 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

4. 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.
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.
 In legal practice, this rule emphasizes the need for clear
communication and proof of mental capacity when entering
contracts, especially with elderly persons, people with medical issues,
or vulnerable individuals.
7. Failure Of A Condition
Subject To Which The Offer
Was Made
 These are conditional offers.

 When an offer is made subject to a certain condition, it means the

offer will only be valid or capable of being accepted if that
condition is fulfilled. If the condition fails or does not happen, the
offer automatically lapses (ends), it cannot be accepted, and no
contract can arise.
 It is noteworthy that:

a) Conditional Offers Are Not Absolute: They depend on the fulfilment

of certain terms (conditions).
b) If a Condition Fails, the Offer Dies: Even if the parties were willing to
proceed, the law says no contract can be formed.
c) No Need for Revocation: The failure of the condition automatically
ends the offer, the offeror does not need to revoke it.
d) Protects Both Parties: Ensures that no one is bound by a contract
where the agreed circumstances have fundamentally changed.
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
Rules Of Acceptance

2. 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.
3. An offer must be accepted within the
stipulated time if any or within a
reasonable time failing which it lapses.
Rules Of Acceptance

4. Acceptance must be communicated to the offeror in the prescribed

method if any or an equally expeditious method.
5. As a general rule, silence by the offeree does not amount to
acceptance.
6. Where parties negotiate by word of mouth in each others presence,
acceptance is deemed complete when the offeror hears the offeree’s
words of acceptance.
7. Where parties negotiate by telephone, acceptance is deemed
complete when the offeror hears the offeree’s words of acceptance.
8. Where parties negotiate by telex acceptance is deemed complete
when the offeree’s words of acceptance are received by the offeror.
Rules Of Acceptance

9. 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
10. In standing offers, a specific order or requisition by the offeree
constitutes acceptance and the offerer is bound
11. An offer to a particular/specific person can only be accepted
by that person for an agreement to arise
12. An offer to a class of persons can only be accepted by a
member of that class for an agreement to arise..
13. An offer to the general public may be accepted by any person
who fulfills its conditions.
The Postal Rule Of Acceptance:
Express Authorization

 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.
 a) Express authorization:

 These are circumstances in which the offeror expressly permits the

offeree to communicate acceptance by post.
 There are some general theories on acceptance by post. One such
theory is that the rule prevents an offeree from accepting by post but
then nullifying this acceptance by rejecting the offer by a quicker
means of communication.
 Another theory is that without the rule an offeree would not be able to
know for certain whether they had actually entered into a contract or
not.
The Postal Rule Of Acceptance:
Express Authorization
 A further theory for the existence of the postal rule is that if the
offeror, either expressly or impliedly, indicates that postal acceptance
is sufficient then they should bear the consequences of the postal
rule.
 Further, the offeror should be considered as making the offer all the
time that the offer is in the post, and that therefore the agreement
between the two parties is complete at the moment that acceptance
is posted.
The Postal Rule of
Acceptance: Implied
Authorization
b) Implied authorization
 There are circumstances in which the offeror by implication
authorized the offeree to communicate acceptance by post.
 In contract law, acceptance of an offer must usually be
communicated to the offeror using the method specified by the
offeror. If the offeror does not expressly state how acceptance should
be communicated, the law may recognize implied authorization,
especially in cases where the post (mail) is a reasonable method
based on how the offer was made.
This can happen if:
• The offer was sent by post.

• The nature of the transaction or previous dealings between the

parties suggests that posting a letter is a normal way to respond.
• The parties are geographically far apart, making post a logical option.
The Postal Rule of
Acceptance: No Authorization

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.
 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.
The Postal Rule of
Acceptance: No Authorization

 Acceptance need not be communicated to the offeror where such

communication is expressly or impliedly waived.
 Acceptance need not be communicated to the offeror where it makes
the form of conduct.
 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;
 Nature or type of agreement i.e. whether commercial or business and
domestic or social.
 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.
 INTENTION TO CREATE LEGAL
RELATIONS

 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.
 INTENTION TO CREATE LEGAL
RELATIONS

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.
INTENTION TO CREATE LEGAL
RELATIONS

2. Agreements between Parent and Child

 Such an agreement is ordinarily not intended to be a contract but a
working relationship.
 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;
q. Would a promise by John’s father to reward him for passing
his exams be deemed as a contract?
INTENTION TO CREATE LEGAL
RELATIONS
3 Agreement between husband and wife
 In contract law, domestic or social agreements, especially those
between spouses, are usually presumed not to be legally binding.
 Courts generally assume that such agreements are based on mutual
trust and personal arrangements , not on an intention to create
enforceable legal obligations.
 However, an agreement between husband and wife can be
enforceable if the parties clearly show that they intended to create
legal obligations , for instance:
a) The spouses are legally separated or in the process of divorce;

b) There is a written agreement signed by both parties;

c) One party has acted on the promise to their detriment (e.g.,

giving up property, job, or housing);
d) The parties have ceased living as a family unit, turning the
relationship into more of a commercial or formal partnership.
INTENTION TO CREATE LEGAL
RELATIONS
4. Other Social Agreements
 Such agreements may be enforced if the parties have manifested an
intention to contract.
 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;
 Infants or minors.
 Drunken persons.
 Persons of unsound mind.
 Corporations.
 Undischarged bankrupts.
CAPACITY: 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.
 These are legally enforceable contracts; the infant can sue or be sued
on them. Both parties are bound to honour their obligations.
CAPACITY: CONTRACTUAL
CAPACITY OF INFANTS OR
MINORS
 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.
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.
CAPACITY: CONTRACTUAL
CAPACITY OF INFANTS OR
MINORS

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.
CAPACITY: CONTRACTUAL
CAPACITY OF DRUNKEN
PERSONS
A person who is intoxicated (drunk or under the influence of drugs)
is not automatically excused from a contract. However, if their level
of intoxication is so severe that they could not understand what they
were agreeing to, the contract may be voidable.
 A voidable contract means that it is valid and enforceable unless the
intoxicated party chooses to cancel (or "avoid") it.
 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.
CAPACITY: CONTRACTUAL
CAPACITY OF DRUNKEN
PERSONS
 If a contract entered into by a person when drunk is ratified by him when
sober it is no longer voidable
 EXCEPTION:

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.
CAPACITY: 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.
CAPACITY: CONTRACTUAL
CAPACITY OF PERSONS OF
UNSOUND MIND
 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.
CAPACITY: CONTRACTUAL
CAPACITY OF PERSONS OF
UNDISCHARGED BANKRUPT
 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
 Generally, can only enter into contracts for necessaries

 The law places significant restrictions to protect creditors, discourage

reckless borrowing, and prevent abuse.
 The person can still contract in limited ways but cannot deal with their
property or enter into large financial obligations without court or
trustee approval.
CAPACITY: 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.
CAPACITY: CONTRACTUAL
CAPACITY OF CORPORATIONS
 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.
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.”
 CONSIDERATION
Judicial Definitions
 A variable consideration may consist of some right, interest, profit or
benefit accruing to the one party or some forbearance, detriment, loss, 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.
Types Of Consideration
 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.
Types Of Consideration
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 certain circumstances, past consideration is sufficient to support a
contractual claim.
Types Of Consideration:
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.

2. Negotiable Instruments
 One of the characteristics of negotiable instruments e.g. cheques, bills of
exchange, promissory notes, share warrants e.t.c. 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.
Types Of Consideration:
Exceptions to the General
Rule
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.
Consideration: Rules of
Consideration
1. Mutual love and affection is not sufficient consideration:
 While love and affection are strong emotional and moral
motivators, they are not considered legally valuable
consideration.
 Courts require consideration to have economic or practical
value, not just emotional sentiments.
 Generally, consideration must have objective value

 Exceptions:

a) Contracts under seal (deeds): In these, consideration is not

required because the formal nature of the document shows intent.

b) Promissory estoppel (in equity): If one party relies on a promise to

their detriment, courts may enforce it despite lack of consideration —
 Consideration: Rules of
Consideration
2. Consideration must be legal

 The act or promise offered by the promise must be lawful as illegal consideration invalidates the
contract.

 If what is being offered or promised involves an illegal act, then it cannot

support a valid contract. A contract built on illegal consideration is void
and unenforceable.
 This principle is based on public policy, the courts will not enforce agreements
that encourage or rely on illegal conduct. For example:
a) Agreement to Commit a Crime. “I will pay you Ksh 20,000 if you
steal a document for me.”. This is illegal consideration. The act (theft)
is unlawful. The contract is void.
b) Bribery or Corruption. A promise to pay someone in exchange for
manipulating a public tender or awarding a government job.
c) Contracts to Defraud. If one party agrees to fake documents or
statements in exchange for money.
d) Agreements Violating Statutory Provisions. For instance, a contract
to sell land without complying with registration formalities under the Land Act,
or one that violates the Betting, Lotteries and Gaming Act.
Consideration: Rules of
Consideration
3. Consideration must not be past
 As a general rule, past consideration is not good to support a contractual
claim.
 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.
 Consideration: Rules of
Consideration
 It means that the courts of law do not exist to correct bad bargains

 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.

 The rule that consideration must flow from the plaintiff is referred to as The
Doctrine of Privity of Contracts.
Q&A

Q&A