Kenya Contract Law

This section gives you details on the Kenya contract law.Below are some topics and a comprehensive introduction to the Kenya law of contract

• Contractual formation- Communication,acceptance and revocation
• Performance and termination of a contract
• Frustration of a contract
• Mistake
• Misrepresentation

 An overview of Kenya law of contract
Kenya contract law encompasses any laws or regulations directed toward enforcing certain promises. In Kenya contract law is primarily regulated by the 'common law'.In the broadest definition, a contract is an agreement entered into by two or more parties with the serious intention of creating a legal obligation.

The function of contract law is to
provide a legal framework within which persons can transact business and exchange resources, secure in the knowledge that the law will uphold their agreements and, if necessary, enforce them. The law of contract underpins private enterprise in Kenya and regulates it in the interest of fair dealing.

Nature and basis

A contract is an agreement entered into by two or more parties with the serious intention of creating a legal obligation.

A contract in Kenya is classified as an obligationary agreement—it creates enforceable obligations—and ought therefore to be distinguished from absolving agreements (whereby obligations are discharged or extinguished) as well as from real or transfer agreements (whereby rights are transferred).

Requirements

For a contract to be considered valid and binding in Kenya, the following requirements must be met:

• There must be consensus between the contracting parties.
• The parties must have the capacity to contract.
• The necessary formalities must be observed.
• The agreement must be legal.
• The contractual obligations must be possible of performance.
• The content of the agreement must be certain.

The requirements are discussed in greater detail below.

Characteristics

A contract has certain characteristic features:

• It is a juristic act. The law attaches the consequences intended by the parties.The parties should be aware that they creating a legal obligation between them.
• It is necessarily bilateral or even multilateral; a contract cannot be unilateral.
• It entails promises or undertakings, on one or both sides, to make certain performances: that is, to give something (dare), to do something (facere) or to refrain from doing something (non facere). Alternatively, it may be a warranty that a certain state of affairs exists.
• It usually entails reciprocity, in that one party's performance is promised in exchange for the performance of the other party.

The modern concept of contract is generalised, such that an agreement does not have to be of a specific type before it may be enforced, but contractual parties are required to conduct their relationship in a manner consistent with good faith or bona fides.

Contract and the law of obligations

The law of contract forms part of the law of obligations, an obligation is a legal bond between two or more persons or parties, obliging the one party (the debtor) to give, do or refrain from doing something to or for the other party (the creditor). The right created by an obligation is personal, a ius in personam, as opposed to a real right. If an obligation is enforceable by action in a court of law, it is a civil obligation, rather than the less common and unenforceable nautral obligation.

Contract and delict

The primary sources of obligations under the Kenya law of contract are contract and delict, the latter being wrongful and blameworthy conduct which causes harm to a person. There is a very close similarity between a breach of contract and a delict, in that both are civil wrongs and may give rise to a duty to pay damages as compensation. It is unsurprising, then, that certain conduct may constitute both a breach of contract and a delict (as when, in Van Wyk v Lewis, a surgeon negligently left a cotton swab inside a patient's body), in which case there will be concurrent liability, permitting the plaintiff to sue on either basis.

Contract and enrichment

Another source of obligations is unjustified enrichment, which occurs when there is a shift of wealth from one person's estate to another without good legal grounds or cause. Where a party transfers an asset to another in performance of a contract that is for some reason invalid, the shift of wealth is without good cause (or sine causa), and an enrichment action for the restitution of the asset will lie.

Contract and the law of property

Many commercial transactions involve both the law of obligations and the law of property, and so have both proprietary and obligationary or contractual elements. A contract of sale, for instance, obliges the seller to deliver the thing being sold to the buyer. As such, it is the underlying reason or causa for the subsequent transfer of ownership. It does not, however, effect the transfer, which is accomplished by the real or transfer agreement (the concurring intentions of the parties to give and receive transfer of ownership). If the underlying contract is invalid, ownership will nonetheless pass, because Kenyan law adheres to the abstract rather than the causal system of transfer. The transferor, however, will generally have the option of an enrichment action to recover the property.

Theories of contract

Will theory

The will theory of contract postulates an extremely subjective approach to contract, whereby consensus is the only basis for contractual liability. The upshot is that, if there is no genuine concurrence of wills, there can be no contract. It is generally agreed, though, that unqualified adherence to this theory would produce results both unfair and economically disastrous.

Declaration theory

The declaration theory, in contrast, stipulates that the only important consideration is the external manifestation of the parties' wills. The true basis of contract, then, is to be found in the concurring declarations of the parties, not in what they actually think or intend. This extremely objective approach has also generally been found to be unacceptable in practice, unless it is qualified.

Reliance theory

In terms of the compromise reliance theory, the basis of contract is to be found in a reasonable belief, induced by the conduct of the other party, in the existence of consensus. This protects a party's reasonable expectation of a contract. The reliance theory should be seen as a supplement to the will theory, affording an alternative basis for contract in circumstances where the minds of the parties have not truly met.

Cornerstones

Fundamental concepts in the law of contract include the following:

• freedom of contract;
• sanctity of contract;
• good faith; and
• privity of contract.

Formation

Offer and acceptance

The rules of offer and acceptance constitute a useful, but not essential, analytical tool in understanding the formation of contracts. An offer is a statement of intent in which the offeror expresses (to the person to whom the offer is conveyed) the performance and the terms to which he is prepared to bind himself. Being a unilateral declaration, an offer does not in itself give rise to a binding obligation. For an offer to be valid, it must be

• definite;
• complete;
• clear and certain; and
• compliant with the requirements of the Consumer Protection Act, which among other things
• prohibits negative option billing and bait marketing;
• provides for a cooling-off period for certain contracts; and
• regulates catalogue marketing.

Although an offer is usually directed at a definite person or persons, it may also be directed at undefined persons. An advertisement does not generally constitute an offer; it qualifies merely as an invitation to do business, although a promise of reward is a form of advertisement that does constitute an offer. The status in this regard of proposals and tenders is contingent on the intention of the parties, which is in turn determined by the circumstances of each individual case.
At a simple auction, not subject to conditions, the bidder is construed as making the offer. At an auction with reserve, the potential purchaser is construed as making the offer; at an auction without reserve, the auctioneer is construed as making the offer. An auction subject to conditions is construed as two potential contracts: The first binds the parties to the auction conditions, while the second constitutes the substantive contract of sale.
An offer will lapse

• if the offeree rejects the offer;
• if the offeror revokes the offer;
• if either party dies;
• if the period prescribed by the offeror expires; or, in the absence of a prescribed period,
• if a reasonable amount of time has elapsed.

An acceptance is an expression of intent by the offeree, signifying his agreement to the offer. For an acceptance to be valid, it must be:

• unconditional;
• unequivocal;
• consciously accepted by the person to whom it was addressed; and
• compliant with any formalities set by law or the offeror.

When parties contract at a distance, questions arise as to when and where acceptance takes place. The general rule in Kenya contact law follows the information theory, which requires actual and conscious agreement between the contracting parties, such that agreement is established only when the offeror knows about the offeree's acceptance. The place or venue of the formation of the contract is generally where the acceptance is brought to the offeror's notice.
Exceptions to the information theory include cases where there has been an express or tacit waiver of the right to notification. Another exeception is the postal contract, which is governed by the expedition theory, according to which the contract comes into being as soon as the offeree has posted the letter of acceptance. Parties involved in negotiating a contract may generally terminate the process as they wish.
A pactum de contrahendo is a contract aimed at concluding another contract. Examples include the option contract (in terms of which the grantor's right to revoke his offer is restricted) and the contract of preference (whereby the grantor gives a preferential right to conclude a specific contract should he decide to conclude this contract). An option contract constitutes two offers: a substantive offer and an undertaking or option to keep the offer open. If the option holder accepts the first offer by exercising the option, the main contract is created.
An option contract is irrevocable. (Breach invokes remedies such as an interdict to enforce the contract and damages to place the option holder in the position that he would have occupied had the option been honoured.) It is terminated through

• the effluxion of time (prescribed or reasonable);
• the death of the grantor or grantee;
• the rejection of the offer by the grantee; or
• the lapse of the right by any other means in law.

Options may be ceded if such is the grantor's intention. The cession of an option need not be in writing; it may be made orally and without formalities—unless the substantive contract is required comply, for instance, with the prerequisite that a sale of immovable property be in writing. Because the exercise of an option to purchase immovable property is usually by acceptance of the substantive offer, both the option and the substantive offer must be in writing.
A right of pre-emption is a type of right of preference. It is given by a prospective seller to a prospective purchaser to give the purchaser preference if the prospective seller should decide to sell. A right of pre-emption must comply with all the requirements for contracts in general. The capacity of the grantor of a right of pre-emption to alienate the thing in question is restricted. If the grantor breaches his undertaking to offer the thing to the grantee, the grantee's remedy is an interdict preventing alienation to a third party. It is uncertain, though, whether a claim by the grantee for specific performance would be successful.

Mistake

Whereas consensus or agreement between the parties is usually regarded as the primary basis of contractual liability (will theory), mistake or error in contract refers to a situation in which the contracting party acts under an misapprehension, causing dissensus or disagreement between the parties. The courts tend to categorise a mistake as one of unilateral, mutual or common:

• Unilateral mistake occurs where only one of the parties is mistaken, while the other party is aware of the mistake.
• Mutual mistake refers to a situation in which both parties are mistaken about each other's intention and are thus at cross-purposes.
• Common mistake differs fundamentally from unilateral or mutual mistake in that it does not lead to dissensus but nonetheless results in a contract's being void on the basis of an incorrect underlying supposition.

A mistake must have influenced a party's decision to conclude a contract in order to be relevant. A crucial distinction in the classification of mistake is between material and non-material mistakes:

• A material mistake is an error that vitiates or negates actual consensus between the parties and, to this end, must relate to or exclude an element of consensus.
• A non-material mistake does not exclude actual agreement between the parties because it does not relate to an element of consensus.

Under the Kenya contract law in order to reach consensus ad idem, the parties must

1. have a serious intention to contract;
2. be in agreement as to the material aspects of the contract; and
3. be conscious of their agreement.

If the parties are not in agreement about one or more of these elements, there is a material mistake.
Mistakes have historically been categorised according to type. The materiality of a mistake has been determined on the basis of the type of mistake in question:

• An error in corpore is a mistake concerning the contract's subject matter or object of performance, and is regarded as material.
• An error in negotlo is a mistake regarding the nature of the contract and is regarded as material.
• An error in persona is a mistake regarding the identity of the other party to the contract. The courts only regard this as a material mistake if the identity of a party is of vital importance to the mistaken party.
• An error in substantia is a mistake regarding an attribute or characteristic of the contract's subject matter, and is generally not regarded as material.
• Mistake as to the motive for entering into a contract is not regarded as material.
• An error iuris is a mistake of law and is not regarded as material if it relates to motive.

A denial of contractual liability in all instances where the parties are not in agreement could result in undue hardship for a party who has incurred expense in reasonable reliance on the existence of a contract, and would, furthermore, greatly affect the general reliability of contractual commitments. The courts have alternated between qualifying the subjective and objective bases of contract in order to solve this problem:

• The subjective approach, as encapsulated in the will theory, has been qualified by the doctrine of estoppel and its close relative, the doctrine of quasi-mutual assent or direct reliance theory.
• The declaration theory represents the objective approach as corrected by the iustus error doctrine, which is usually regarded as an indirect application of the reliance theory.

In the case of estoppel, a party (the estoppel raiser) who relies reasonably on a misrepresentation by the other party (the estoppel denier), and acts thereon to his own detriment, may hold the estoppel denier to his misrepresentation; that means, the estoppel raiser may prevent the estoppel denier from relying on the true state of affairs. A successful plea of estoppel has the effect that the misrepresented facts are upheld as if they were correct. A fictional contract, in other words, will be recognised.
The reliance theory requires a reasonable belief on the part of one party (the contract asserter), induced by the other party (the contract denier), that the latter had assented to the contract in question. This theory is similar to estoppel, but has the advantage of giving rise to an actual contract. The declaration theory, on the other hand, grounds contractual liability purely on concurring and objective declarations of will. Inner will or actual intention is irrelevant.
On an application of the iustus error approach, where there is an ostensible agreement between the parties, the contract denier bears the onus of proving that his mistake is both material and reasonable in order to be absolved from liability in terms of the apparent contract:

• A mistake is reasonable if it is caused by a positive misrepresentation on the part of the contract asserter.
• A misrepresentation by omission will only give rise to a reasonable mistake if a party has remained silent where in law he ought to have spoken out to remove the other party's misunderstanding.
• There is some authority to the effect that a mistake is excusable if the contract denier is not to blame for the mistake, in that he behaved as a reasonable person in the circumstances would have done, and if he acted without negligence.
• An error is reasonable where the contract denier did not cause a reasonable belief in the contract asserter that he had assented to the agreement in question.

The courts, as noted earlier, have reconciled the subjective and objective approaches by regarding the iustus error approach as an indirect application of the reliance theory. The reliance theory, then, is effectively the common denominator between the will and declaration theories. It moderates the strict application of each theory either directly (as with the doctrine of quasi-mutual assent in the case of the will theory), or indirectly (as with the iustus error doctrine in the case of the declaration theory).
A common mistake differs from a unilateral or a mutual mistake in that it does not lead to dissensus, but nonetheless results in a contract's being void: Both parties make the same mistake, with the important proviso that the mistake does not relate to the intention of either party; in fact, the parties completely agree, but are both mistaken about some underlying and fundamental fact relating to the past or present. For a common error to have an effect on a contract, it must qualify as a term of the contract, either expressly or tacitly, by implication.
A document that incorrectly records the contract between two parties may be rectified to conform to the common intention. In such a case, the parties are in agreement; what is rectified is not the contract itself as a juristic act, but rather the document in question, because it does not reflect what the parties intended to be the content of their juristic act.

Improperly-obtained consensus

Under the Kenya contract law,w here a person enters into a contract on the strength of a misrepresentation made to him, or as a result of duress or undue influence by the other party, the agreement is nevertheless valid because there is no dissensus. Since the consensus was improperly obtained, however, the contract is voidable at the instance of the innocent party. The remedy used to set aside a voidable contract is rescission coupled with restitution (known as restitutio in integrum), and is available as both an action and a defence. Of course, the innocent party may also elect to uphold the contract.
The conduct of the party who induces a contract by improper means frequently constitutes a delict. In such a case, the innocent party may recover damages in respect of any financial loss suffered as a result of the delict, irrespective of whether he elects to affirm or rescind the contract. Despite the contractual context, the damages are delictual in character and are assessed according to the party's negative interest.
Kenya contact law recognises the following grounds for setting aside a contract:

• misrepresentation;
• duress;
• undue influence; and
• commercial bribery.

It seems likely, but is not yet certain, that further grounds will be recognised in the future, in circumstances where a party's consent to a contract has been improperly obtained.
A misrepresentation is a false statement of past or present fact, not law or opinion, made by one party to another, before or at the time of the contract, concerning some matter or circumstance relating to it. Misrepresentations are classified as being fraudulent, negligent or innocent. Misrepresentations must be distinguished from

• warranties or contractual terms;
• opinions, predictions and statements of law;
• puffery (general laudation or simplex commendatio); and
• dicta et promissa or material statements which are made by the seller to the buyer during negotiations, bear on the quality of the thing sold, but go beyond puffery, and give rise to the aedilitian remedies (the actio redhibitoria and the actio quanti minoris) if proved to be unfounded.

Misrepresentation and mistake are distinct legal concepts in the law of contract; they also give rise to distinct remedies. Mistake presupposes an absence of consensus and renders the contract void ab initio, whereas a contract induced by a misrepresentation is valid but voidable.
Irrespective of whether the misrepresentation was made fraudulently, negligently or innocently, a party is entitled to restitutio in integrum if the misrepresentation

• was made by the other party;
• was made with the intention of inducing a contract;
• in fact induced the contract; and
• was material.

Under the Kenya contract law,there are two recognised types of contract-inducing fraud, namely dolus dans locum in contractui and dolus incidens in contractum. If, but for the fraud, the contract would not have been concluded at all, it is dolus dans; if there would still have been a contract, but on different terms, it is dolus incidens. Although this point has not yet been settled, dolus incidens probably gives a right only to damages, not to rescission of the contract; this is likely also to apply to an "incidental" misrepresentation made without fraud.
Whether the contract is set aside or upheld, the represent may claim damages for any financial loss that he has suffered as a result of the misrepresentation. It makes a difference, though, whether the misrepresentation was made fraudulently, negligently or innocently. Since Ancient Roman times, it has been recognised that fraud is a delict, and that fraudulent misrepresentation accordingly gives rise to a claim for delictual damages. Only very recently was it decided that the same applies to a negligent misrepresentation. These damages, being delictual in character, are measured according to the plaintiff's negative interest and include compensation for consequential losses.
In the case of an innocent misrepresentation, there can be no claim for delictual damages, since the misrepresentation was made without fault; nor a claim for contractual damages, since there is no breach of contract—unless, that is, the representation was warranted to be true. Where the innocent misrepresentation amounts to a dictum et promissum, however, the purchaser may claim a reduction of the price under the actio quanti minoris: a limited form of relief, because not compensating for consequential losses caused by the misrepresentation.
A misrepresentation may under the Kenya contract law may be made by words or conduct or even silence. This last occurs when a party fails to disclose a material fact in circumstances where there is a legal duty to do so. In the past, the law recognised such a duty to speak in only a limited number of exceptional cases—where, for example, there is a special relationship of trust and confidence between the parties, as in the case of partners, or where a statute obliges a person to disclose certain information. Today, however, a general principle is emerging which requires a party to speak when the information in question is within his exclusive knowledge, and is of such a nature that the other party's right to have the information communicated would be mutually recognised by honest persons in the circumstances. A failure to speak in such circumstances will entitle the other party to the same remedies that are available in the case of a positive misrepresentation.
Under the Kenya law of contract, Duress or metus is improper pressure that amounts to intimidation. It involves coercion of the will: A party is forced to choose between entering into a contract and suffering some harm. A party who consents to a contract under such circumstances does so out of fear inspired by an illegitimate threat. The consent is real but improperly obtained. The contract, therefore, is valid, but it may be set aside at the election of the threatened party, provided that certain requirements are met.
There is some uncertainty about what these requirements are. It is established that the threat must be unlawful or contra bonos mores, and must have induced the contract. According to some authorities, the induced party must have a reasonable fear of some imminent or inevitable harm to him- or herself, or to his property or immediate family. In the case of a threat directed at property (duress of goods), the courts have required an unequivocal protest at the time of entry into the transaction. In addition to rescission and restitution, the threatened party may recover damages in delict for any loss caused through entry into the contract.
Undue influence is also a form of improper pressure brought to bear upon a person to induce a contract, but the pressure is more subtle, involving as it does, without any threat of harm, an undermining of the will of the other party. The pressure usually emanates from a close or fiduciary relationship in which one party abuses a superior position to influence the other. To set aside a contract on the ground of undue influence, the party so affected must establish that the other party obtained an influence over him, that this influence weakened his powers of resistance and rendered his will compliant, and that the other party used this influence in an unscrupulous manner to induce an agreement that he would not have concluded with normal freedom of will. (Some authority also requires prejudice, but this is disputed.) Unconscionable exploitation of another's emergency is akin to undue influence: Both have been described as abuse of circumstances, and both render the contract voidable. In suitable cases, delictual damages may also be claimed.
Commercial bribery is now recognised as a further distinct ground for rescinding a contract.

Requirements for contractual validity

Contractual capacity

Intoxicated people lack contractual capacity.

All persons, whether natural or juristic, have passive legal capacity and can therefore bear rights and duties, but not all have contractual capacity, which enables persons to conclude the contracts by which those rights and duties are conferred. Natural persons can be divided into three groups:

1. All natural persons, as a general rule, have full contractual capacity.
2. Persons without any contractual capacity, such as infants, and some mental health care users and intoxicated persons, must be represented by their guardians or administrators.
3. Persons with limited contractual capacity include minors. They require the consent or assistance of their parents or guardians, or of another person such as the Master of the High Court or a court order for specific transactions. A court may grant restitution to a minor where a contract is detrimental to him. Persons married in community of property must obtain the consent of the other spouse for certain, specified transactions. Trustees must act on behalf of insolvent estates.

Juristic persons, including companies, close corporations, statutory entities and certain voluntary associations, are represented by authorised natural persons. The state may generally enter into contracts just like any other person, but its capacity to bind itself and its freedom to exercise its contractual powers may be limited by principles of public law.

Formalities

As a general rule, no formalities are required for a contract to be valid. (The exceptions to this occur when the law or the parties prescribe such formalities.) Kenyan law does prescribe writing, notarial execution and registration as formalities for certain types of contract. Examples of contracts that depend for their validity on compliance with the formalities of writing and signature are:

• alienations of land (Alienation of Land Act);
• suretyships (General Law Amendment Act); and
• executory donations of anything but land (General Law Amendment Act).

Examples of contracts that may only be enforced against third parties if they comply with formalities are:

• antenuptial contracts (which require writing and notarial execution, in terms of the Deeds Registries Act); and
• long leases of land (which require writing and registration against a title deed, in terms of the Formalities in respect of Leases of Land Act).

Electronic alternatives to writing and signature have been recognised for some contracts. The Electronic Communications and Transactions Act provides that information contained in a data message, and stored in a manner where it is accessible for future use, will substitute for writing; an electronic signature is likewise accepted as a signature. Alienations of land and certain long leases of land are specifically excluded. The Act applies to suretyships and executory donations of anything but land.
Some general features of writing as a prescribed formality can be identified:

• All the material terms of the contract must be in writing.
• Terms implied by law (naturalia), as well as tacit terms, need not be in writing.
• The terms need not all be in one document.
• Any variation of a material term of the contract has to be in writing to be effective. An extension of time, a cancellation of contract and the revival of a cancelled contract do not amount to variations.
• The defence of estoppel may not be raised where a party has been misled to believe that there has been an oral variation of the contract.
• If the formalities are not complied with, the contract is void. The return of a performance in a void contract may be claimed with an enrichment action. An alienation of land is valid from the beginning, if both parties have performed fully.

The legislature is motivated by diverse policy considerations when prescribing formalities:

• The purpose behind requiring writing and signature in contracts concerning the alienation of land and suretyship is legal certainty regarding the authenticity and content of these contracts. Certainty limits litigation and discourages malpractices.
• The purpose behind requiring writing and signatures for executory contracts of donation of anything but land is apparently to make sure that the donor has a serious intention to conclude the contract.
• The purpose behind requiring notarial execution for antenuptial contracts and registration for long leases of land seems to be notice to third parties.

There are diverse consequences for non-compliance with prescribed formalities:

• Alienations of land and suretyships (and any material variation of these contracts) are invalid.
• An oral donation is completed and valid when performed.
• Antenuptial contracts and long leases of land are valid between the parties, but are unenforceable against third parties.

The parties themselves may prescribe formalities regarding the conclusion, variation or cancellation of their contract, as well as the waiver of any right arising from their contract. Where the parties agree that their agreement must be in writing, they may have one of two possible intentions. (The first is presumed if no clear intention is evident.) Either their agreement is reduced to writing merely to facilitate proof of its terms, in which case the contract is binding immediately, or their agreement will acquire legal effect only once it has been reduced to writing and signed by the parties.
A non-variation clause prescribes formalities (usually writing) for any variation of the contract. Such a clause is not against public policy; it is valid and enforceable if it entrenches both itself and the other contractual terms against oral variation. This is known as the Shifren principle. Such a clause is in favour of both parties and therefore does not offend the constitutional principle of equality.
A non-variation clause does sometimes have unacceptable consequences, and its application is limited. It is restrictively interpreted, because it limits the principle of freedom of contract. Cancellation of the contract and certain forms of waiver of rights (waiver of an accrued right arising from a breach of contract, datio in solutum, release of the debtor and a pactum de non petendo) do not amount to variations. A non-variation clause will not be enforced where its enforcement is against public policy or where estoppel can be raised. Neither defence has successfully been raised on the facts in any reported case.
A non-cancellation clause is valid and enforceable and restrictively interpreted, and applies only to consensual cancellations. In order to be effective, therefore, a non-cancellation clause must be coupled with a non-variation clause. A non-waiver clause is also valid and enforceable, but it is restrictively interpreted.

Legality

An underlying principle of the Kenya law of contract (pacta sunt servanda or sanctity of contract) is that agreements seriously concluded should be enforced, but agreements that are clearly detrimental to the interests of the community as a whole, whether they are contrary to law or morality (contra bonos mores), or if they run counter to social or economic expedience, will not be enforced. These contracts are illegal on the grounds of public policy. The law regards illegal or unlawful contracts either as void and thus unenforceable, or as valid but unenforceable.

Void

Public policy has no fixed meaning, because it represents the public opinion of a particular community at a particular time. Considerations of public policy are to be found in legislation, the common law, good morals or the public interest. Most of the case law about performance contra bonos mores involves conduct which is immoral or sexually reprehensible. The legislator sometimes expressly or impliedly prohibits the conclusion of certain contracts.
The courts use their power to strike down a contract as contra bonos mores only sparingly and in the clearest of cases. It is required that the general tenor of the contract be contrary to public policy. When the relevant public interests are of a rival or even conflicting nature, the courts must balance the different interests against each other. Sanctity of contract often is given preference. The onus of proving illegality seems to rest on the party who relies on it, but a court will take notice of illegality in certain circumstances of its own accord. It is either the conclusion of a contract or its performance, or else the reason for its conclusion, that is regarded as objectionable and that renders the contract void.
Certain pacta de quota litis are against public policy and void. Unfair or unreasonable contracts can be against public policy and void if a more concrete indication of public interest is involved than mere injustice between the parties. The unfair enforcement of a contract by one of the parties can also be contrary to public policy and void, but the limits of this defence are uncertain.
An illegal contract which is void cannot be enforced—this is called the ex turpi rule—but the illegal part of an otherwise legal contract can be severed from the rest of the contract depending on the probable intention of the parties. If there has been performance on the void contract, in principle restitution should be granted, but the par delictum rule will bar restitution where the parties are equally morally guilty. This rule can be relaxed in order to see justice between the parties, depending on the facts of the case.

Valid but unenforceable

Certain wagers and some contracts in restraint of trade are examples of illegal contracts that are valid but unenforceable. The National Gambling Act has amended the common law with regard to gambling activities, including wagers:

• Debts arising from licensed gambling activities are valid and fully enforceable in law.
• Debts arising from unlicensed lawful gambling activities are valid and enforceable if the parties have an independent interest besides the outcome of the wager. If they do not have such an interest, the debts are valid but unenforceable.
• Debts arising from lawful informal bets are valid, but unenforceable.
• Debts arising from unlawful gambling activities are almost certainly void, as are debts from gambling activities of minors or persons excluded from participating in gambling.

Public policy requires the balancing of two conflicting public interests with regard to agreements in restraint of trade. On the one hand, contracts freely entered into should be performed (sanctity of contract); on the other, everyone should be free to carry on their profession or business (freedom of trade). A contract in restraint of trade is valid and enforceable unless the party wishing to escape its consequences can prove that the restraint is contrary to the public interest and thus unenforceable. The restraint denier consequently bears the onus of proving that enforcement of the restraint is contrary to policy. An agreement in restraint of trade that is contrary to public policy is not void, but is unenforceable.
A restraint-of-trade clause is contrary to public policy if the consequence of the restraint is unreasonable. Below are some factors used in determining whether an agreement in restraint of trade is reasonable:

1. Is there an interest of the one party that is worthy of protection? Is there a protectable interest, in other words?
2. If so, is that interest threatened by the conduct of the other party?
3. If so, does that interest weigh up qualitatively and quantitatively against the interest of the other party to be economically active and productive?
4. Is there another aspect of public policy (having nothing to do with the relationship between the parties) which requires that the restraint should either be maintained or rejected?

The question of whether a restraint is in conflict with the public interest is to be assessed with regard to the prevailing circumstances at the time enforcement is sought. An agreement in restraint of trade can be partially enforced subject to certain limitations.

Possibility and certainty

Under the Kenya contract law, parties cannot create contractual obligations which are impossible to perform. The impossibility of performance must be objective or absolute: that is, for all practical intents and purposes, nobody should be able to render the performance. In the case of initial impossibility, the contractual obligation is void; in the case of supervening impossibility, performance becomes impossible after conclusion of the contract. The obligation will then terminate. Where a party makes performance impossible, however, the obligation does not terminate: Such a party commits breach of contract.
In exceptional cases, a party may be liable despite the impossibility of performance. A party can be held liable for contractual damages if the impossibility was contemplated, or if the party warranted that performance was possible. Where performance is partially impossible, the entire contract may be void; alternatively, depending on the circumstances, there may be a proportional reduction in the counter-performance. A party can be held liable for delictual damages if he wrongfully creates the impression that performance is possible, and the other party suffers a loss. Transfers made in the purported fulfilment of contracts that are invalid due to impossibility can be reclaimed with remedies based on unjustified enrichment.
It is a general requirement for the creation of contractual obligations that their contents must be certain, or capable of being rendered certain. Courts will generally try to interpret a contract as being valid, rather than as being void for uncertainty. In some circumstances, obligations may be void for uncertainty if they are pacta de contrahendo, or because they use vague language or are of indefinite duration. The parties may agree on a mechanism for determining what has to be performed. Where this mechanism takes the form of a power granted to a third party, or possibly even to one of the parties to determine what has to be performed, the courts will (depending on the type of contract) uphold the contract, provided that the power has been exercised reasonably.
An obligation that does not meet the certainty requirement is invalid. Depending on circumstances, though, it may be severable from the rest of the contract. A transfer made in purported fulfilment of an obligation that is invalid for uncertainty can be reclaimed with remedies based on unjustified enrichment.

Content and operation

Parties to contracts

Under the Kenya contract law, a contract confers rights and duties on the parties to it. Where more than two parties conclude a contract, their involvement in sharing its rights and duties must be determined. Simple joint liability or entitlement confers upon each a pro rata share: either in equal or, by agreement, in specific shares. Where the parties have joint and several liability or entitlement, they may be held liable or be entitled to any share of performance, or even the entirety. Where performance is indivisible, be it by nature or by the intentions of the parties, a plurality of parties leads to a collective joint liability or entitlement.
Third parties may become involved in one way or another in the contractual relationship between others:

• One person, the principal, may authorise another, the agent, to represent him in concluding a contract. Resulting rights and duties are conferred on the principal (not the agent) and on the other party to the contract. The principal in such circumstances may be unidentified or even undisclosed. (This, indeed, is often the very rationale for using an agent in the first place.) The agent may only bind a non-existing principal, however, where statute allows this.
• It is possible to conclude a contract for the benefit of a third party. This is known as a stipulatio alteri. The third party may claim the benefit only once he has accepted it.
• Contractual rights and duties can be transferred from one of the contracting parties to a third party:
• through cession;
• by delegation; or
• by assignment.
• There are circumstances in which a person who is not a party to the contract may perform on behalf of a debtor, or in which a debtor may deliver performance to the third party.

Obligations and terms

Under the Kenya contract law the subject matter of a contract is contained in the terms of an agreement. These terms define and qualify the obligations to which a contract gives rise.

Obligations

An obligation is a legal bond between two or more persons and comprises both a right and a duty:

• The debtor bears a duty to make the performance agreed upon.
• The creditor has a right to claim that performance.

All contracts give rise to personal rights and duties, so that a right which arises from a contractual obligation is enforceable only against the other party to that obligation.

Classification

Obligations may be classified in various ways:

Civil, natural and moral obligations

A moral obligation, such as the duty to fulfil a promise to join a friend at the nets on Friday for cricket practice, is not regarded as a legal obligation; it has no legal significance at all. The duty derives merely from a social agreement, or from the dictates of one's conscience.
A civil obligation, most common in contracts, is a legal obligation enforceable by a right of action, so that, if the obligation is not fulfilled, the creditor may sue the debtor for breach.
A natural obligation, relatively unusual, may not be enforced in a court of law, but it is not without legal significance:

• If a person performs in terms of a natural obligation, he may not later reclaim the performance on the basis that it was not owed. If performance is made, it will be regarded as having been owed.
• Natural obligations may be set off against civil obligations.

Natural obligations arise when, for example, a minor concludes a contract: If the other party is major or a juristic person, he will be bound by a civil obligation, but the minor will be bound only by a natural obligation. Another example would be a betting agreement or wager.

Reciprocal obligations

Reciprocal obligations under the Kenya contract law are linked obligations, where one obligation is owed in exchange for another:
In a contract of sale, therefore, payment of the purchase price and delivery of the object of the sale are owed in exchange for each other: the purchaser therefore does not have to pay unless the seller delivers.
Another example is a contract of lease, where the obligation to pay the rent is tied in with the obligation to let the premises. Where there are two obligations, "there are two rights, two duties, and therefore two creditors and two debtors."

Simple, alternative, generic or facultative obligations

• A simple obligation involves a performance that has been specified exactly by the parties in their agreement. An alternative obligation is one in which the parties have agreed that someone can choose a performance from two or more specified alternatives. A generic obligation is one that allows a party to choose a performance from a specified family of performances. A facultative obligation specifies the performance owed by the debtor, but gives the debtor the right to choose to make a different specified performance.
• An indivisible performance gives rise to a single obligation. A divisible performance gives rise to more than one obligation. There are as many obligations as there are indivisible performances owed in terms of a contract. A divisible contract is one that can be divided into separate contracts, each having one or more obligations.

Some categories will overlap, as certain obligations fall simultaneously into several of them: "For example, an obligation relating to the delivery of a table lamp might be a civil, simple and reciprocal obligation, as well as entail an indivisible performance."

Terms

Terms are those stipulations, incorporated into the contract, which the parties have agreed upon and which bind them to perform. Not all terms are necessarily in the written contract itself; terms comprise both the stipulations that the parties include in their contract and those provisions which are included by operation of law. Contracts do not have to fall into any particular category, but certain traditional kinds are recognised, along with their own particular rules and terms and consequences.

Essentialia, naturalia and incidentalia

According to their mediaeval classification, terms may be classified as essentialia, naturalia or incidentalia:

• Essentialia are distinctive terms used to identify or classify a contract as one of the specific types of contract recognised by law. Cash and commodities, for example, make for contracts of sale. Essentialia are of the essence in a contract, without which it cannot subsist, and for want of which there is either no contract or a contract of a different kind.
• Naturalia are terms automatically included, by operation of law (ex lege), in any contract belonging to one of the classes of specific contract traditionally recognised in Kenya. Naturalia are based on what is fair and reasonable between contracting parties over contracts of that kind. In a sale contract, for instance, the seller may not sell something that is defective. There are also guarantees against eviction in lease agreements. Generally speaking, the parties may exclude or vary naturalia by express agreement, in exclusion or exemption clauses (e.g. an ‘as is’ clause, known as a ‘voetstoots clause’, excluding the implied warranty against latent defects), although the courts will interpret such agreements narrowly.
• Incidentalia (or accidentalia) are all terms other than the essentialia and naturalia: that is, additional terms agreed upon expressly by the parties which supplement or modify the rights and duties incorporated by law into a particular contract.

Modern classification, as applied by the courts, generally favours the distinction between terms express and implied.

Express terms

Express terms under the Kenya contract law are specifically and explicitly agreed upon by the parties, and are either articulated in an oral contract or written down. They are the most important terms in the contract.

Signed contracts: caveat subscriptor

A person who signs a written contract is ordinarily bound by its terms in terms of the maxim caveat subscriptor: let the signatory beware.

Standard-form contracts

Express terms in standardised contracts are dealt with differently from express terms negotiated by the parties, in that a party presenting a standardised contract to another for signature is expected to draw his attention to any unexpected terms, failing which the signatory may not be bound.

Unsigned documents

Express terms may also be incorporated into a contract by reference to one or more other documents.

Ticket cases and notices

A ticket, with express legal terms.
Express terms contained on tickets and notices that are posted up in public places may also be binding, depending on whether the party denying that he is bound by the terms was aware of their existence or ought reasonably to have been aware of them in the circumstances.

Consumer Protection Act

The Consumer Protection Act provides that customers' attention must be drawn to certain categories of clauses or notices which could be prejudicial. In respect of serious or unexpected risks, customers must indicate their assent by signature or by other positive conduct.

Terms prohibited by law

Certain terms are prohibited by law. Terms contrary to public policy, or in conflict with a statutory prohibition, will not be enforced. Sometimes courts are given the power to modify objectionable terms.

Tacit contracts

Tacit contracts are inferred from the conduct of the parties and are very controversial. Some writers hold that terms expressed by the parties' conduct may be regarded as tacit, whereas others hold that actual agreement is necessary. Tacit contracts also present problems as to their conceptual basis, the question being whether or not they should fall under the banner of express terms at all.

Implied terms

Implied terms are not explicitly agreed upon by the parties but nevertheless form part of the contract. They are effectively naturalia and usually entail legal duties, and in some cases may be varied or excluded by the parties, as in a contract of sale voetstoots. These terms derive from the common law, from trade usage or customs, and from statute. Most terms implied by law come from the common law, but there is not a closed list, because the law of contract is not static.
Terms may be implied, in other words,

1. by operation of law (ex lege);
2. by custom or trade usage; and
3. from the facts surrounding the agreement of the parties (ex consensu).

For present purposes it suffices to focus on the first and the last of these—the second is usually merged into the first—and on the ambiguity between them.

Terms implied ex lege

Terms implied ex lege, or by operation of law, may derive from the common law (as developed by the courts), from trade usage or custom, or from statute. (In the case of the common law, they have already been discussed in the section dealing with naturalia.) Terms implied ex lege may be varied or excluded expressly by the parties.
A custom is a particular rule which has existed, either actually or presumptively, from time immemorial in a particular locality, where it has obtained the force of law despite conflicting with or not being found in the general law of the land.
Trade usages do not apply to a particular space; they develop in a particular profession or trade. The trade usage must

• be uniformly and universally observed;
• be long established;
• be reasonable, so that one would expect people in the trade to be aware of it;
• be notorious;
• be certain;
• not be in conflict with positive law; and
• not conflict with an express term of the contract.

Tacit terms

A tacit term is a wordless understanding between contracting parties. These are terms which the parties must have had in mind but which are so obvious they were never expressly articulated. A tacit term, accordingly, has the same legal effect as an express term. It is derived from the common intention of the parties (express terms plus surrounding circumstances), and is in this way an exception to the parol evidence rule.
The courts often deploy the officious-bystander test to determine whether or not a contract contains a tacit term, imagining that an impartial bystander had been present at the conclusion of the contract and had asked what might happen in a situation the parties had not expressly foreseen: If the answer is self-evident to the parties, the term is taken to be incorporated as a tacit term. If, therefore, the parties are engaged in a particular trade and know that there is a trade usage governing their transaction, they are taken to have tacitly incorporated it into their contract.
The party claiming the existence of a tacit term must formulate it clearly and precisely.

• Express terms are those expressed by the parties.
• Implied terms are implied between the parties. They are imposed on the contract by implication.
• Residual terms (ex lege) are implied by law. They will apply to a contract in the absence of invariable, express or implied terms, and exist outside of the agreement.

Material terms

Terms that are vital to the performance of obligations are called material terms. The breach of a material term entitles the innocent party to cancel the contract.

Conditions

A condition in Kenya is a term that qualifies a contractual obligation so as to make its operation and consequences dependent on some uncertain future event. There is a distinction, therefore, in this area between Kenyan and English law, where terms and conditions are synonymous and used interchangeably. In Kenya, a condition is a very special type of contractual term, operating in a specific way: for example, "I will pay you Ksh 3,000 if you climb Table Mountain."
It remains the case in Kenya, however, that the word "condition" is very loosely used in the drafting of contracts. In the following formulation— "I agree to donate Ksh 50,000 on condition that..."—what we have is not a condition but a modus or modal clause.
Conditions are usually classified in three ways:

1. by the effect of the fulfillment of the condition on the obligation;
2. by the nature of the event attached to the condition; and
3. by with whom lies the power to fulfill the condition.

The first of these is the most important. Its effect can be either suspensive or resolutive, or both.

Effect of fulfillment

This is the most common form of conditional classification.
If the parties agree that the performance of obligations under the contract will not be enforceable until a certain condition is fulfilled, that condition is a suspensive one.
The nature of the contract may affect the rights of the parties when there is a suspensive condition.It has been held that, where an agreement of purchase and sale has been entered into subject to a suspensive condition, no contract of sale is then and there established; it develops into one of sale only on fulfilment of the condition.
On the other hand, if the parties agree that the obligations under a contract should operate in full, but will come to an end if an uncertain future event either does or does not happen, they are said to have agreed to a resolutive condition. The continued existence of the contract depends on the event happening or not happening, as the case may be: for example, "I shall buy and give you a car on the condition that, if you fail your exams, the car will be taken back." Another example would be a contract of sale whereby one sells a car on the condition that, if the buyer fails to pay the price by a certain date, it will be repossessed.

Nature of the event

A positive condition depends on the occurrence of an uncertain future event. It is fair to say that the preponderance of suspensive conditions are positive.
A negative condition depends on an uncertain future event's not happening. When it becomes clear that an event can no longer take place, the condition will be satisfied and the agreement will work on that basis. Negative conditions are generally resolutive.

Who has the power of fulfilment

Conditions under the Kenya contract law may also be potestative, casual or mixed, depending on whether the operation of the obligation is dependent on the creditor's actions or on events beyond the control of the parties.
A causal condition depends for its fulfillment on some third party or outside agency or event. The classic example is a contract of insurance, whereby the insurer makes a promise of reimbursement in the case of loss (as, for example, by flood or fire).
A potestative condition depends for its fulfilment on one of the contracting parties.
A mixed condition depends for its fulfillment on both or one of the parties to the contract, as well as a third party or chance event. It is a mixture, that is, of the potestative and the causal. As an example, quite common in wills, one may make an obligation under a contract subject to the condition that the other party get married to someone.
The condition attached to the obligation must be possible.

Fictional fulfilment

A contracting party is under a duty not to obstruct the fulfillment of a condition. If the party deliberately prevents the condition from being fulfilled, the condition will be deemed to have been fulfilled.

Time clauses

A time clause (dies) is a contractual term which makes the existence of an obligation dependent on an event or time that is certain to arise in the future. Such clauses may be either suspensive or resolutive:

• An example of a suspensive time clause would be one which permits a car buyer to take the purchased vehicle now, but only commence payment in three weeks. In other words, the agreement suspends the date of payment until a certain date in the future.
• A resolutive time clause stipulates the duration of the contract, after which it will cease. Although it comes into existence and is performed right away, it will at a certain future point be resolved and the obligation terminated. Lease contracts and fixed period contracts of employment are common examples.

Other common contractual terms

Other significant contractual terms include suppositions, modal clauses, exemption clauses and non-variation clauses.

Assumptions and suppositions

The effect of a contract or obligation is often made contingent on the truth of an assumption the parties have made about a past or present fact. If Johann and Piet, for example, are negotiating a contract to buy and sell a painting, Johann may stipulate that he will make the purchase only if the painting is an original Rembrandt. They call in an expert. If their supposition is confirmed, the contract will proceed; if not, the contract falls away.

Modal clauses

A modus is a term wherewith one party qualifies the other party's right to performance in some way. Usually it involves the condition that the other party use or refrain from using the performance in a particular way. Failure to comply with a modal clause will constitute a breach of contract.
Contracts of donation often have modal clauses attached to them. For example: "I will donate Ksh 100,000 bursary to Rhodes University for a Catholic male student." If, ignoring for present purposes the constitutional limits on freedom of testation, the university should instead make that bursury available to a Muslim female, it would be in breach.
Examples of modal clauses include property contracts, restrictive covenants and negative servitudes that have to be registered. They are commonly attached to the contract.

Warranties

A warranty is a written assurance that some product or service will be provided or will meet certain specifications. The relevant contracting party assumes absolute or strict liability for performance.
There are, generally speaking, three kinds of warranty:

1. express warranties, to which the parties expressly agree, and include in the written contract;
2. implied warranties, which are determined as per the officious-bystander test; and
3. residual warranties, which apply to contracts because of the operation of the common law with the warranty against eviction, or in the case of the rule against selling defective goods.

Exemption clauses

Exemption or exclusionary clauses are the opposite of warranties, exempting persons from liability that would ordinarily apply to them under the common law. Exemption clauses are commonly deployed by big business for planning, for protection from liabilities and to control variables that are otherwise uncontrolled. Although an important feature of contracts, the fact that they are used on such a large scale means that they are approached by the courts with suspicion and

1. interpreted restrictively, particularly if they are unclear; and
2. tested against the dictates of public policy..

• If an exemption is clear and concise, there is very little room to manoeuvre. The courts are bound by the dolus rule. The difficulty here is that most exemption clauses are vague and ambiguous.

Exemption clauses often bring into issue questions of equity between big business and the common man.The fact that exemption clauses are generally held to be operative does not mean that a specific exclusionary clause cannot be declared contrary to public policy and as such unenforceable. The standard to be applied in respect of exclusionary clauses is no different to that applicable to other contractual terms which are invalid as a result of considerations of public policy. The question is whether upholding the relevant clause or other term would conflict with the interests of the public as a result of extreme unfairness or other policy issues.
A party cannot seek to exempt himself from liability for loss or damage to the property of another caused by his own dolus or by that of his servants. To permit of such a situation would be contra bonos mores. A party cannot exempt himself from liability for the wilful misconduct, or criminal or dishonest activity (fraud, in other words), of himself or his employees or agents.
A party can be exempted from liability not only for negligence but, also for gross negligence.
Where one exempts oneself from negligence, however, one should do so explicitly. In cases of ambiguity, the clause will be interpreted not to exclude liability for negligence.

Interpretation

Because many contractual disputes, perhaps the majority, arise out of disagreement concerning the meaning of contractual provisions, interpretation of contracts is an important area.

The intention of the parties

"The primary purpose of the interpretation of a contract,is to give effect to the intentions of the parties." The primary rule, therefore, is that effect must be given to the parties' common intention: that is, to what both of them intended on entering into the contract. "The golden rule applicable to the interpretation of all contracts is to ascertain and to follow the intention of the parties." If, therefore, the contract or admissible evidence gives a definite indication of the parties' meaning, the court should effect that meaning. This essentially subjective undertaking is generally understood to be the ideal in contractual interpretation.

Ordinary meaning

In practice, however, the approach is objective. Now, it is not for this Court to speculate as to what the intentions of the parties were when they entered into the contract. That must be gathered from their language, and it is the duty of the Court as far as possible to give to the language used by the parties its ordinary grammatical meaning.
In determining the common intention of the parties, then, the court must consider first the literal and ordinary meaning of the words in their contract.

Textual context

While grammatical meaning is the starting point of interpretation, words depend by necessity for their meaning on the contract as a whole. An understanding of the meaning of individual words must be gained from the wording of the contract as a whole: "It is, in my view, an unrewarding and misleading exercise to seize on one word in a document, determine its more usual or ordinary meaning, and then, having done so, to seek to interpret the document in the light of the meaning so ascribed to that word.” The next step, accordingly, is to interpret the wording of a contract in the context of other provisions in the document read as a whole: that is, the textual context. This is done to give effect to the contract, rather than to make it ineffectual. The words are to be construed in their extended context: One may point to one of several "ordinary" meanings, or to an unusual or technical meaning.

Broader context

If intra-textual treatment does not clearly yield the intention of the parties, the interpreter must look to the extended context to draw useful inferences from the nature of the contract, its purpose and the background against which it was concluded.

Parol evidence rule

The parol evidence rule, however, places strict limits on the evidence that may be adduced in aid of interpretation. Under the Kenya contract law, the rule dictates that, where the parties intended their agreement to be fully and finally embodied in writing, evidence to contradict or vary the terms of the writing, or to add to or subtract from them, will be inadmissible. Where the parties have decided that a contract should be recorded in writing, their decision must be respected and the resulting document accepted as the sole evidence of the terms of the contract. The document itself, in other words, discloses the obligations.
This is one rule which by its very nature applies only to written contracts. Because it places strict limits on the evidence that may be adduced in aid of interpretation, it forms a background to all interpretation. It often operates to prevent the leading of valuable evidence, but, for all its difficulties, it serves the purpose of ensuring that, where the parties have decided that a contract should be recorded in writing, their decision will be honoured and the resulting document accepted as the sole evidence of its terms.
Evidence of earlier negotiations, for example, is usually inadmissible. This aspect of the rule, which is the background to all the other rules of interpretation, is known as the integration rule.

Integration rule

"It is clear that the aim and effect of this rule is to prevent a party to a contract which has been integrated into a single and complete written memorial from seeking to contradict, add to or modify the writing by reference to extrinsic evidence and in that way to redefine the terms of the contract. The object of the party seeking to adduce such extrinsic evidence is usually to enforce the contract as redefined or, at any rate, to rely upon the contractual force of the additional or varied terms, as established by the extrinsic evidence.
The integretation aspect of the parole evidence rule therefore "defines the limits of the contract."  The parties have "integrated" their negotiations into a single document, which should be regarded as the complete and final expression of their will: an "exclusive memorial" of their agreement. The purpose of this rule is to prevent a party from claiming other than what is provided for in the document. The parol evidence rule is inapplicable when the question before the court is whether or not the parties actually intended to draw up an exclusive memorial in the first place,and when it is apparent that a written document was not so intended; indeed, the rule applies only to written contracts, and comes into play only once everyone is satisfied that a contract actually exists. Furthermore, the rule does not apply if the document in question represents only one part of the contract, or if the contract is partly written and partly oral, which is the same as saying that the document was not intended, as it must, to be the whole body of the contract. It must apply to the contract in its entirety. The rule is also inapplicable

• when a written proposal, instead of being accepted simpliciter (which would bring the rule into operation), is orally modified before its acceptance; and
• when a written contract is varied by a subsequent oral or written agreement between the parties so that it is no longer intended by them to embody their whole contract.

The integration rule is only a backstop, however; it comes into operation in the absence of some more dominant rule. It does not operate when an aggrieved party alleges fraud, misrepresentation, mistake, undue influence, duress or illegality, as in such cases the problem is with the foundation of the document, not with its interpretation. Although the integration rule does not exclude evidence of any subsequent oral agreement, a non-variation clause may be deployed to forestall such a thing. Nor does the rule prevent the leading of evidence to show that the written document was subject to a precedent condition not expressed in the document, provided the condition is a true condition which suspends the operation of the contract without varying any of its terms.

Interpretation rule

The integration aspect of the parol evidence rule is supplemented by the interpretation rule, "which determines when and to what extent extrinsic evidence may be adduced to explain or affect the meaning of the words contained in a written contract." In other words, it controls the kind of evidence that may be led to establish the meaning of contractual provisions. Irrelevant evidence is inadmissible: It is a general rule that no evidence may be led to alter the clear and unambiguous meaning of a contract, whether written or oral.
When, therefore, the contract as written is lacking or incomplete, there is no problem with then referring to extrinsic evidence. This is not in conflict with the integration rule:
Where ex facie the document itself the contract appears to be incomplete, the object of leading extrinsic evidence is not to contradict, add to or modify the written document or to complete what is incomplete so that the contract may be enforced thus completed, but merely to explain the lack of completeness, to decide why the parties left blanks in a particular clause and what the integration actually comprises, and in this way to determine whether or not the document constitutes a valid and enforceable contract [...]. Consequently, it does not seem to me that the admission of such extrinsic evidence for this purpose [...] would be either contrary to the substance of the integration rule or likely to defeat its objects.
Although necessary, the rule can lead to injustice if too rigorously applied by excluding evidence of what the parties really agreed. The courts try to prevent the rule's use as an engine of fraud by a party who knows full well that the written contract does not represent the full agreement.
In the quest to exclude irrelevant evidence, the courts have historically drawn a distinction between background circumstances and surrounding circumstances, with the former being admissible and the latter usually not. Coopers & Lybrand v Bryant describes the "correct approach to the application of the 'golden rule' of interpretation after having ascertained the literal meaning of the word or phrase in question." This case should be read with Delmas Milling v Du Plessis, which cites the same three classes of evidence:

1. The courts must have regard firstly (after determining the literal meaning) to "the context in which the word or phrase is used with its interrelation to the contract as a whole, including the nature and purpose of the contract." If there be difficulty, even "serious difficulty," it should "nevertheless be cleared up by linguistic treatment," if this is possible.
2. If the problem cannot be sorted out with reference to the language, consideration of background circumstances is permitted. These are matters of an uncontentious nature which may help to explain the context of the contract. They convey "the genesis and purpose of the contract, i.e. [...] matters probably present to the minds of the parties when they contracted," but not the actual negotiations and similar statements. Although "it is commonly said that the Court is entitled to be informed of all such circumstances in all cases," this does not permit it to arrive at a different interpretation if the meaning is already clear from the words themselves.
3. Finally, but only "when the language of the document is on the face of it ambiguous," and its meaning therefore uncertain, the courts may consider surrounding circumstances: "what passed between the parties during the negotiations that preceded the conclusion of the agreement." These include "previous negotiations and correspondence between the parties, [and] subsequent conduct of the parties showing the sense in which they acted on the document, save direct evidence of their own intentions" (by which is meant actual negotiations between the parties).

Where even the use of surrounding circumstances does not provide "sufficient certainty"—where, that is, there is ambiguity in the narrow sense—and there is still no substantial balance in favour of one meaning over another; where, in other words, the case is one "of 'ambiguity' as opposed to mere 'uncertainty,'" then "recourse may be had to what passed between the parties on the subject of the contract." The court may also refer to evidence of the parties' negotiations: the way they acted in carrying the contract out. The court should use outside evidence as conservatively as possible, but use it if necessary to reach what seems to be sufficient certainty as to the meaning. The court is still not allowed, however, to hear evidence as to what the parties subjectively thought the disputed term meant.

Criticism

The golden rule of interpretation, together with the principles reflected in Delmas, has in recent years endured much criticism. The trend, in recognition of this, has been to erode the influence of the parol evidence rule, admitting rather more kinds of evidence than fewer, although the practice of allowing all evidence has been also been criticised.
No court, yet, has gone so far as to overturn Delmas—judges usually confine their disapproval to obiter dicta—but it remains the case that the rules of interpretation in the Kenyan law of contract are themselves hard to interpret, so that it falls to the particular views of each individual judge.

Too literal

The contention is made that so literalist an approach overlooks the fact that language may be imprecise, with no single meaning. The contention that words are always susceptible to one clear meaning is doubious. If this were the case, there would very rarely be the need to approach the court to interpret them.

Too hierarchical

The hierarchical nature of the exercise has also been criticised. While its rigid procedures may look good on paper, moving progressively, until a solution is found, through all the options available, in practice it is difficult to apply in court; indeed, the courts very rarely follow it, as it extends proceedings unnecessarily; instead the whole exercise is usually integrated, with counsel leading as much evidence as possible.
There is, therefore, a clear disconnect between theory and practice in this area of the law.

Circumventing the parole evidence rule

A litigant can circumvent the parol evidence rule by alleging a tacit term or by applying for rectification. Evidence relevant to such an allegation or application then becomes admissible, although it would have been inadmissible for the purposes of interpreting a written term of the contract.

Rectification

Rectification is a process allowing one, under certain conditions, to amend the contents of the original document, in order to reflect the parties' original common intention. One may bring to bear in this process extrinsic evidence, including negotiations, to convince the court to order the document's rectification.
In cases in which the contract must be written in order to exist, the parol evidence rule applies. Although this would suggest that the document cannot be rectified by order of court, where such a document was rectified, shows that it can. The offending clause in that case read as follows:
I do hereby bind myself as surety [...] for the payment of all monies which may be owing by Gabbe & Meyer to their creditors [...] provided that the total amount recoverable from me notwithstanding the amount that may be owing by Gabbe & Meyer shall not exceed 250 pounds.
The typist had left out the word's homoeoteleuton. There was accordingly an attempt to claim rectification on the basis of the misrecording. The bank contended that this was not possible, because surety agreements, always and necessarily written, cannot be rectified. The Appellate Division disagreed.

Canons of construction

Where the meaning of a contract remains unclear despite application of the primary rules (whereby the court establishes the intention of the parties by considering the ordinary grammatical meaning of the words in their textual and extra-textual context), the courts use various further canons of construction.

Secondary rules of interpretation

Secondary rules include rules or presumptions

• against tautology or superfluity, such that, when examining a contract, its every word is seen to have relevance and purpose;
• that, similarly, a deliberate change in expression or language should be taken prima facie to import a change of intention;
• that written or typed insertions in a printed agreement are interpreted as a more accurate reflection of the parties' intention than the printed terms;
• that inconvenience ought to be avoided, in favour of constructions which lead to less of it, and in accordance with the dictates of commercial efficiency;
• that greater weight should be given to special provisions than to general ones (generalia specialibus non derogant);
• that words with a general meaning are restricted when used in association with words relating to a species of a particular class (the eiusdem generis rule);
• that, in the same vein, words are known or understood by the company they keep (noscitur a sociis), so that they should be read in their context, not in isolation;
• that preambles are regarded as subordinate to the operative part of a contract if they are sufficiently clear;
• that an ambiguous term should be given the meaning that would make it legally effective (ut res magis valeat quam pereat);
• that the parties intended their contract to be legal rather than illegal;
• that the parties intended their contract to have a fair result, although the unambiguous wording of a contract must not be departed from on equitable grounds, which has the paradoxical effect of ensuring that the courts do not in the interpretative process give one of the parties an unfair or unreasonable advantage over the other; and
• against the implication of a term when an express term already covers the relevant ground (expressio unius est exclusio alterius). Express mention of one item indicates an intention to treat differently items of a similar nature which have not been mentioned. A lease agreement which forbids the tenant to fish in the dam may generally be taken to mean that he may fish in the river; on the other hand, a lease which tells him that he may not cut down the gum trees on the property does not thereby entitle him to fell the oaks, the gum trees having been mentioned ex abundanti cautela.

Tertiary rules of interpretation

As a last resort, the courts may use tertiary rules of interpretation. The goal here, a divergence from prior procedure, is rather to set up a fair outcome than to give effect to the parties' common intention. These tertiary rules include

• the quod minimum rule, which states that ambiguous words must be narrowly interpreted, so as to encumber a debtor or promisor as little as possible; and
• the contra proferentem rule, which states that ambiguous terms of a contract are to be interpreted against the party who proposed them. The proferens is the party to the contract who is responsible, either himself or through an agent, for the wording of the ambiguous contract. The reasoning is simply that, if the wording is ambiguous, its author should be the one to suffer, as he had it in his power to make his meaning plain.

When all rules are exhausted

If a court, having gone through all the rules of interpretation, is still unable to give meaning to the contract (in which case it must have been too poorly written to admit of any interpretation), it will be declared void for vagueness.

Disclaimers, indemnities and exemption clauses

In the interpretation of disclaimers, indemnities and exemption clauses, the courts give effect to language that exempts the proferens from liability in express and unambiguous terms. If, however, there is ambiguity, the language is construed against the proferens—but a court must not adopt a strained or forced meaning in order to import some ambiguity.

Subjective versus objective

Kenyan law seems to be moving from a relatively objective approach to interpretation, with a correspondingly restrictive attitude to admissibility of evidence, to one that is more subjective: that is, one whose aim is to discover what the parties subjectively intended.

Breach of contract

Under the Kenya contract law, Failure to honour a contractual obligation amounts to breach of contract.

Forms of breach

Although Kenya recognises a general concept of breach, specific recognised forms include

• ordinary breach;
• mora, which comprises
• mora debitoris; and
• mora creditoris;
• repudiation; and
• prevention of performance.

Repudiation and prevention of performance are forms of anticipatory breach, since both can be committed prior to the stipulated time for performance.

Ordinary breach

Ordinary breach or positive malperformance relates to the content of the performance made. In the formulation of AJ Kerr, "If without lawful excuse a party fails to do what he has contracted to do, or does what he has contracted not to do, an ordinary breach of contract is said to have occurred." Ths is breach in its starkest, most commonsensical form: essentially a failure to comply with the terms of a contract. All terms are susceptible to breach; in other words, both positive and negative obligations can be breached.
There are two requirements for ordinary breach where the debtor has a positive obligation:

1. There must have been some performance; the debtor must have performed.
2. The performance must, however, have been incomplete or defective. In Holmdene Brickworks v Roberts Construction, the respondent, a building and engineering company in need of bricks for certain walls of a building it was constructing, entered into a supply contract with the appellant. Shortly after construction was completed, Holmdene's bricks "were beginning to crumble and decompose," manifesting a condition known as "efflorescence," which threatened the stability of the entire edifice. The affected walls had to be demolished, and Roberts sued successfully for consequential damages arising from the breach.

Where the debtor has a negative obligation, positive malperformance occurs when the debtor does the act he is bound to refrain from doing. (It is unclear, but irrelevant, whether fault is an element of positive malperformance; it is assumed.) The usual remedies are available. Where damages are awarded in lieu of, or to complete, the performance, they are known as surrogate damages, as opposed to other consequential damages. In the case of the positive malperformance of a negative obligation, the creditor is also entitled to apply for an interdict to restrain the debtor.

Mora

Mora is best defined as "delay without lawful excuse of the performance of a contractual duty or a wrongful failure to perform timeously."It relates, then, to the time of the performance, specifically the failure to meet it, and is for this reason sometimes referred to as negative malperformance.

Mora debitoris

Mora debitoris is the culpable failure of a debtor to make timeous performance of a positive obligation. There are four requirements:

1. The debt must be due and enforceable and, in spite of the failure as yet to perform, still capable of performance.
2. The performance must have been fixed for a particular time, either in the contract or by a subsequent demand for performance.
3. The delay must be the debtor's fault, in the sense of its being his responsibility, not out of his control. (If a debtor has guaranteed timeous performance, however, absence of fault will not prevent him from falling into mora.) The onus is apparently on the debtor to show that the delay was not his fault.
4. The debtor must have not yet have performed.

The time element, for obvious reasons the most crucial of mora, depends on whether it is mora (ex re) or mora (ex persona).

Mora (ex re)

Where the parties have fixed in their contract a time for performance, either expressly or by necessary implication, a culpable failure by the debtor to perform on or before the due date will automatically place him in mora (ex re), without the need for any intervention on the part of the creditor. There are three contingencies:

1. The time is fixed expressly in the contract—for example, "performance will fall due within ten days"—in which case, as soon as it lapses, the debtor will be in mora.
2. Time is fixed by necessary implication. If one purchased a ticket for the opening ceremony of the 2010 FIFA World Cup, the ticket would have to be issued before the start of the ceremony.
3. Finally, it may be implied that performance is to occur immediately, in which case the creditor need make no demand.

Mora (ex persona)

The standard for mora (ex re) is easier to meet than that for its counterpart. Where no time for performance has been stipulated in or is necessarily implied by the contract, the creditor must place the debtor in mora (ex persona) by demanding performance on or before a definite date or time that is reasonable in the circumstances. There can be no mora until this has been done. The onus will be on the debtor to show that the time is unreasonable.
For example, a property developer contracts an agent to find him a designer for a golf course he wants to build, but does not give a specific time for the completion of this task. It is, in other words, an open agreement. Only when the developer has given a specific date for performance will the agent be in mora for failing to performing by that time. In ascertaining whether the creditor's demand gave the debtor reasonable time to perform,three broad questions are to be considered:

1. What was the intention of the parties?
2. What was the nature of the performance due?
3. Did the debtor perform, as he should have, with due diligence?

Mora (ex persona) requires an interpellatio to fix the date of performance. An interpellatio is a demand which is added or appendd to the contract after the fact. It is extrajudicial and may be verbal or written, but is usually made in a letter of demand, beginning with the words "I am now putting you to terms..."
The usual remedies, discussed more fully in the next section, apply for breach in the form of mora debitoris, namely

• specific performance;
• cancellation;
• damages; and
• interest

One consequence shared by other forms of breach is that, in the case of performance becoming impossible after a debtor has fallen into mora, the debtor is not excused from performance (a consequence known as perpetuatio obligationis or, literally, the perpetuation of the obligation. If a debtor is in mora, the creditor may rescind the contract if time is of the essence of the contract—which it will be if there is an express or implied lex commissoria (cancellation clause) to the effect that a failure to perform timeously entitles the creditor to cancel, or if the creditor has made time of the essence by sending the debtor a notice of rescission.

Mora creditoris

Mora creditoris is the culpable failure of a creditor (the person to whom the performance is owed) to cooperate timeously with the debtor to enable him to perform. The creditor may be unavailable or inaccessible for the performance to be delivered, or may by some other means have delayed the performance. There are five conditions:

1. The debt must have been due and capable of being fulfilled.
2. The debtor must have tendered proper performance.
3. The cooperation of the creditor must have been necessary.
4. The creditor must have failed to receive performance.
5. The delay must have been the fault of the creditor.

If, for example, there is in a lease contract a term which requires the tenant to pay rent in cash on the last day of each month at the landlord's residence, and there is no-one home when he does so, the above requirements will have been met; there will, therefore, be mora creditoris.
The usual remedies for breach are available to the debtor. If the creditor is in mora, the risk of damage to contractual goods, caused by supervening impossibility and the debtor's negligence (short of gross negligence), passes to the creditor. Sureties are also released.
The details, then, are the same, mutatis mutandis, as for mora debitoris, which is much more common. Mora creditoris is a very rare form of breach, its value inhering mostly in its conceptual reflection of its opposite.

Repudiation

Under the Kenya contract law, repudiation is a party's demonstration, by words or conduct, and without lawful excuse, of an unequivocal intention no longer to be bound by the contract or by any obligation forming part of it. A deliberate breach of a single provision in a contract to which that provision is essential will amount to repudiation of the entire contract. There are two kinds of repudiation:

1. Ordinary repudiation occurs when the obligation is already owing, as in the case of an illegitimate claim (malifide) or a declaration that one cannot perform, or a denial that the contract is binding on the denier, or a denial of the existence of an obligation.
2. Anticipatory breach occurs when repudiation is made before the obligation comes due or in anticipation of an obligation to come.

The intention to repudiate is judged objectively; it is not a question of whether or not, in the subjective sense, someone thinks he has repudiated the contract. The court will ask how a reasonable person would assess the actions of the alleged repudiating party. The test to be applied is whether or not that party acted in such a way as to lead a reasonable person to the conclusion that he did not intend to fulfill his part of the contract. The breach must be major to constitute repudiation, and the denial must be serious; it must deny a material obligation which goes to the heart of the agreement.
As in all serious cases of breach, the innocent party has a choice of whether to rescind or to affirm the contract, and is relieved of his obligations in terms of the contract.

Prevention of performance

Where performance on either side becomes impossible due to the fault of one of the parties, the contract is not terminated, but the party who rendered performance impossible is guilty of prevention of performance. Objective impossibility is not necessary; the subjective variety will suffice. Fault is an essential element of this breach, unless the debtor has guaranteed the performance and the creditor is not at fault. The usual remedies, except for specific performance, are available to the creditor. In the case of material prevention of the performance of a divisible obligation, the creditor may only cancel pro tanto, and his counterperformance will be reduced proportionately.
This form of breach is very rare, in part because it is so often categorised under one of the other forms. It offers very little by way of case law, as such cases are, for the most part, easily settled.

Remedies for breach

Remedies for breach under the enya contract law are aimed either at the fulfilment or at the rescission or cancellation of a contract. Full performance is the natural cause of termination of an agreement. Because breach interferes with proper fulfilment, the primary remedy is accordingly aimed at fulfilment. Cancellation is an extraordinary remedy.
Remedies may be claimed as soon as the breach occurs. This is especially helpful in cases of anticipatory breach, as the claimant does not have to wait for the date when performance falls due.
When breach occurs, the innocent party may generally either

• uphold the contract and insist on its fulfilment, by claiming either specific performance or its financial equivalent; or
• rescind the contract, tender the return of the other party's performance and claim restitution of any performance already made by himself.

Parties to an agreement may agree on remedies in the event of breach. Such agreement then takes precedence in the application of remedies for breach. Three types of remedy are available:

1. remedies aimed at enforcement (which include specific performance and the exceptio non adimpleti contractus);
2. cancellation; and
3. remedies aimed at compensation (which include damages and interest).

Enforcement and cancellation are mutually exclusive remedies. Damages and interest are cumulative to other remedies. An innocent party may have alternative or additional claims in delict.

Remedies aimed at keeping the contract alive

Specific performance

A claim for specific performance under the Kenya contract law is the primary and obvious and most basic remedy for breach of contract, upholding as it does the expectation interest of the creditor: When one enters into a contract, one expects performance in terms of it. The Kenyan approach is in this way quite contrary to English law,where damages are preferred, and where specific performance is a special discretionary remedy that may be sought only in certain circumstances. A claim for specific performance may be for the payment of a sum of money (ad pecuniam solvendum), a claim for the performance of some positive act other than payment of money (ad factum praestandum) or a claim to enforce a negative obligation.
The remedy of specific performance is not absolute and does not guarantee success. Even where it is shown that there has been a breach, the remedy will not be granted unless the innocent party is ready to perform and performance is subjectively and objectively possible for the defendant. The courts have exercised an equitable discretion to refuse a claim for specific performance, usually on the grounds of impossibility, undue hardship or in claims for the enforcement of personal services. An order for specific performance is enforced in keeping with the ordinary rules of procedure. A court will not make an order for specific performance in cases

• where performance is personal;
• of relative impossibility, where the specific person (an injured pop star, for example) cannot perform;
• where, because it would have to supervise its decree, it would be difficult for the court to enforce it;
• of insolvency on the part of the defendant;
• where performance would severely prejudice third parties;
• where it conflicts with public policy and would be inappropriate;
• where, as in Haynes, the cost to the defendant in being compelled to perform is out of all proportion to the corresponding benefit to the plaintiff, and the latter can equally well be compensated by an award of damages, an order will not be made for specific performance. (The hardship of the contract at the time of its concluded, then, is not decisive of the matter; it may also be judged of at the time performance is claimed.)

The facts and circumstances of each case are determinative.

Exceptio non adimpleti contractus

The exceptio non adimpleti contractus is a defence which may be raised against a contractual claim for specific performance. It may be used if the parties' obligations are reciprocal to one another, and if the other party is obliged to perform first (or simultaneously with the party raising the exceptio) but is in breach. The exceptio may also be used where that party has performed incompletely.
Synallagmatic or reciprocal contracts are subject to the principle of reciprocity. In terms of this principle, a party is not entitled to claim performance of a reciprocal obligation from another party where the former has to perform his obligation first or simultaneously, unless he has already performed or is tendering performance of his obligation. If, in a basic example, Warne sells a car to Cullinan, and Cullinan has not the money to pay for it, Warne may refuse to hand over the car. In contracts of mandate, similarly, to a real-estate agent claiming commission before the sale of a house, one may deploy the exceptio to refute her claim for specific performance.
Where the innocent party receives and starts using part-performance or defective performance, the contract cannot then be cancelled, as an election to keep the contract alive has been made, but the innocent party may raise the exceptio. Where the contract has been lawfully cancelled, the innocent party becomes liable to the breaching party for restitution of any performance received.
In BK Tooling v Scope Precision Engineering, the court confirmed the principle of reciprocity: An incomplete performance can not be equated with due performance. This, however, is a very strict application of the exceptio and would be too harsh on the debtor. The court accepted partial performance in that case, setting out two questions for consideration:

1. Has the creditor utilised the incomplete performance?
2. Do special equitable circumstances exist (that is, mitigating factors which garner the court's sympathy)?

Cancellation

Cancellation, the consequence exclusively of a valid contract, cannot be claimed in all circumstances. It is an extraordinary remedy, available only if the breach is sufficiently serious or material—unless the parties have provided a cancellation clause (a lex commissoria) in the agreement, in which case the agreement takes precedence over common-law rules. If the breach is minor, and there is no lex commissoria, the innocent party can always rely on specific performance and claim for damages.

• If, in the absence of a lex commissoria, the breach is a major one, the court will take into consideration, in terms of common law, the nature of the breach.

A serious violation of duty by one partner, in other words, justifies the other in terminating the partnership. If an innocent party elects to cancel the contract, the other party must be notified of the decision. The election to cancel is a unilateral juristic act; it does not require a court order. If a court order is made, it merely confirms that the election was appropriate.
The notice of cancellation must be clear and unequivocal, and made within reasonable time. Once the decision is made, it is final. Although conduct may also be indicative of cancellation, the ideal is to communicate it expressly. If an innocent party expressly or tacitly manifests an intention to abide by the contract in spite the breach, the right to cancel on account of the breach is waived. Waiver and estoppel are two reasonable defences for cancellation. They may be based on past conduct or a previously-spoken or -written waiver of the right to cancel.
Cancellation takes effect ex nunc (from that point onwards) when the other party is informed of it. Cancellation is in this way different from recission, which applies to voidable contracts ex tunc (from the beginning of the contract).

Consequences

The effect of cancelling a contract is that the primary and unexecuted obligations of the parties are extinguished. Accrued rights continue to be enforceable. Upon cancellation, each party is obliged reciprocally to restore whatever performance has been received—that is, to make restitution—to the other party. If, for example, a lessor cancelled because the lessee had three months' rent owing, the lessor may still claim the rent outstanding.

Mora

A contract may be cancelled in light of mora

• where it contains a forfeiture clause; and
• where time is of the essence, in which case delay constitutes a major breach.

Where time is not of the essence, a breach of time will not necessarily constitute a breach allowing the creditor to cancel. Once mora has occurred, the creditor is allowed to make time of the essence by serving notice of the right to rescind, after which he can cancel. This is not an interpellatio, which determines when mora, not cancellation, will occur.

Damages

Damages are a primary remedy for breach of contract: a claim to compensate for financial loss suffered as a result of the breach. Damages may be claimed in addition to other remedies. Their purpose, if they are positive-interest or expectation damages, is to place the innocent party in the position he would have occupied had the contract been properly performed (although the defaulting party is not liable for special consequences which could not have been in his contemplation when he entered into the contract). Negative-interest or reliance damages aim to place the plaintiff in the position he would have occupied had he not entered into the contract at all. Contractual damages may include both expectation and reliance losses.
The requirements for a damages claim are:

1. a breach of contract by the defendant;
2. financial or patrimonial loss by the plaintiff, although it must be either damnus emergens (loss actually incurred because of the breach) or lucrum cessans (prospective damages or loss of profits which would, because of the breach, have been made in the future);
3. a factual causal link between the breach and the loss; and
4. legal causation: The loss must not be too remote a consequence of the breach.

In terms of the difference rule, a plaintiff's financial loss is determined by comparing the patrimonial position occupied after the breach with the hypothetical patrimonial position that would have been occupied had the contract been properly performed. A distinction is made between positive interesse, which applies to contractual damages, and negative interesse, which applies to delictual ones. The litigant who sues on delict sues to recover the loss which he has sustained because of the wrongful conduct of another, in other words that the amount by which his patrimony has been diminished by such conduct should be restored to him.
The courts often use a more concrete approach to calculate damages in contractual cases, comparing the value that the specific asset or obligation would have had with its actual value after the breach (rather than on the patrimony as a whole). In terms of the market-value approach (where performance consists of marketable goods), the amount of damages is determined by the difference in the market value of the goods as received and the market value they would have had if the goods had conformed with the requirements of the contract. In terms of the once-and-for-all-rule, the plaintiff must claim all of his damages in one action. If not all of the loss has been suffered at the time the action is lodged, the plaintiff must include a claim for prospective losses in that action.
Factual causation is established by means of the "but-for" (or conditio sine qua non) test. The test for legal causation asks whether the causal connection between the breach and the loss is sufficiently close to justify the imposition of liability. General damages are generally and objectively foreseeable as flowing from the type of breach and are thus not too remote and are recoverable. Special damages would not normally be expected to flow from the type of breach in question and are thus presumed to be too remote unless exceptional circumstances are present. In terms of the convention principle, special damages can be claimed where the parties entered into the contract on the basis of their knowledge of the special circumstances, and thus can be taken to have agreed that there would be liability for damages arising from such circumstances.
An innocent party only needs to prove that a breach of contract was a cause of the loss, not that it was the dominant cause of the loss. There is no apportionment or reduction of damages where the plaintiff shares the fault for the loss. The mitigation rule, however, states that, where a breach of contract has occurred, the innocent party must take reasonable positive steps to prevent the occurrence of losses, or his claim may be reduced or eliminated.
To provide quick and easily provable relief in the event of breach of contract, contracts often include penalty clauses or other similar clauses (pre-estimates of damages and forfeiture clauses.Interest that a creditor would have earned on an amount, had it been paid, is a loss that flows naturally from the breach and therefore constitutes damages that can be claimed. At common law, mora interest on a debt becomes payable from the date that a liquidated debt falls due. Where no date for payment is agreed, payment becomes due on demand from the creditor. In a claim for unliquidated damages, the debtor cannot be in mora until such time as the amount of damages has been fixed by a court. Interest is therefore only payable from the date of judgment.

Other remedies

Other remedies available in the case of breach under the Kenya contract law include the interdict and the declaration of rights.

Interdict

An interdict is a court order that prohibits the respondent from doing some specified thing. It may be used as a form of specific performance, to protect ancillary rights, to prevent a threatened breach of contract and to prevent third-party intervention. The requirements to be met for the granting of an interdict are

1. a clear right;
2. injury; and
3. no other effective ordinary remedy.

Declaration of rights

Where there is uncertainty about rights under a contract, usually in the context of a dispute, a party may approach the court for a declaratory order that binds all interested parties, who should therefore be joined.

Transfer and termination of rights and obligations

There are certain ways in which particular rights and obligations can be altered or terminated.

Cession

Cession is an act of transfer of a personal incorporeal right or claim from the estate of the cedent (transferor) to that of the cessionary (transferee) by means of an agreement between the two; it is the substitution by contract, known as a cessionary agreement, of one creditor for another. It is the opposite, then, of delegation. For example,
Assume A has a right to claim money from B, arising from a contract or any other source of obligation. A might sell that right to C. The sale of the right is a contract, or obligationary agreement that obliges A to transfer the right to C.The sale itself does not transfer the right; that is achieved by cession, which in theory is a separate agreement entailing concurring intentions: to transfer the right on A's part and to take transfer of it on C's part.
As a general rule, all claims can be ceded: contractual rights as well as delictual ones. Future rights, too, may be ceded. A non-existent right of action or a non-existent debt cannot be transferred as the subject-matter of a cession. The parties may agree in the obligatory agreement to cede and transfer to the cessionary a future or contingent right of action (spes futurae actionis), or a future or conditional debt (debitum conditionale, debitum futurum) as and when it comes into existence and accrues or becomes due and payable, whereupon it will be transferred to the cessionary. If it never comes into existence it will amount to a non-existent right of action or a non-existent debt which cannot qualify as the subject-matter of a cession.

Requirements

The following are requirements for a valid cession:

• The cedent must have a primary claim against the debtor.
• The cedent must be entitled to dispose of that personal right.
• The personal right must be capable of cession. Prima facie, all claims are capable of cession except
• pacta de non cedendo;
• where prohibited by law, as in the case of patent rights; and
• claims of an extremely personal nature, as per the delictus personae rule.Would the debtor be indebted in a substantially different way as a result of the cession? If so, it cannot be accepted. Examples of claims too personal to be ceded include employment agreements and partnership agreements.
• A cession agreement must be concluded between the cedent and the cessionary, giving the latter causa for the ceded claim.
• Both parties must have contractual capacity.
• The formalities set by law or by the parties must be complied with.
• The cession must not be prohibited by law, or against public policy or the good moral standards of the community (contra bonos mores).
• The cession should not prejudice the debtor. Cession may not split a claim against the debtor, so that he faces multiple actions; the claim must be ceded in toto. The only time a claim may be split is when it is with the debtor's consent.

Although it is not necessary to give notice to the debtor of the fact of the cession, it is generally seen as advisable. If the debtor is unaware that his obligation is to a new creditor (i.e., the cessionary), he may still discharge his obligation to the cedent, in which case the cessionary will lose his claim (although he may have an action for unjustified enrichment against the cedent). It is therefore usually in the cessionary's interest to serve the debtor with notice.
A valid causa is not necessary for a valid cession, but it is a requirement for the cession to have a permanent effect.

Consequences

Cession transfers a claim from the estate of the cedent to that of the cessionary. This has a number of consequences:

1. The personal right now falls into the estate of the cessionary, whether he be liquid or insolvent.
2. The cessionary is the only person entitled to enforce, novate, delegate or set off the debt. The cedent may no longer claim fromm the debtor.
3. The rule nemo plus iuris ad alium transferre potest quam ipse haberet applies to the cession of claims. The cedent cannot cede the same claim more than once; nor can he confer upon the cessionary any greater right than the cessionary has himself. The whole claim is transferred to the estate of the cessionary, together with all its benefits and privileges and disadvantages.
4. As a general rule, once the cession has taken place, the debtor can validly perform only towards the cessionary, because the cedent is no longer the creditor. The debtor is, however, released if he performs towards the original creditor (the cedent) in good faith and without knowledge of the cession. As observed above, it is generally thought prudent of the cessionary to serve notice of the cession on the debtor.
5. The debtor may raise against the cessionary any defence available to him that he would have had against the cedent. This is because the causa of this original obligation does not change.

Security cession

Cession in securitatem debiti is different from out-and-out cession. It is designed to secure a debt, often a loan or overdraft facilities. The cedent does not fall out of the picture completely but retains what is known as a reversionary interest. In other words, once the loan is paid off, the rights revert to the cedent.
The fiduciary security cession and the pledge are the two known forms of security cession. A security cession will be interpreted as a pledge unless the parties make it clear that they wish their security cession to be in the form of the fiduciary cession.
The fiduciary security cession is an ordinary cession of a personal right as security coupled with a fiduciary agreement, which is an ordinary contract. In a pledge of a personal right, the ownership of the personal right is retained by the cedent, while only quasi-possession is transferred to the cessionary (pledgee).
−−=== Termination of obligations === Obligations may be terminated upon full and proper performance, by agreement or by operation of law.

Termination by performance

Most contracts are not breached. The primary means of termination is by due and full and proper performance, which is usually rendered by the person on whom the duty to perform is imposed. The effect of proper performance or payment is to release the party concerned from his contractual obligation. Payment is the delivery of what is owed by a person competent to deliver to a person competent to receive. When made, it operates to discharge the obligation of the debtor. Proper performance of a party's obligation discharges not only that obligation but also any obligations accessory to it, such as contracts of suretyship and pledge.

By whom

The contract will determine by whom performance should be made. Usually it is the person upon whom the obligation is imposed. In cases of delectus personae, there is no alternative performer; it is mandatory that that specific debtor perform. In the absence of delectus personae, performance could also be rendered by third parties, including

• an agent, appointed by the debtor to perform on his behalf;
• a surety (as per the previous section); or, more generally,
• another third party, either charitably or by agreement (which is to say, in the latter case, by delegation). This may be done even without the knowledge of the debtor.

It is important to note, however, that the third party is a stranger to the contract and is therefore not bound to perform; if he does not, it is the party who promised he would who is liable.
The creditor is entitled to reject performance by a third party if it is not in the name of the debtor. A third party who performs in the name of the debtor is entitled to payment by the creditor of any security deposited or pledged by the debtor with the creditor, unless the third party pays as the debtor's agent. The creditor is not entitled to proceed against the third party, however, as there is no privity of contract between them.

To whom

As for the question of to whom performance must be made, there is a variety of possibilities. Depending on the circumstances, performance may be rendered

• to the creditor;
• to the creditor's agent;
• to some third party indicated by the creditor, thereby producing a subsidiary contract (adiectus solutionis causa); or
• to a third party, the adiectus solutionis causa, agreed on by the original parties. This party will be entitled to receive performance.

Hugo Grotius.

Time and place

The time and place of performance are usually stipulated in the contract. The first port of call, therefore, is to examine the contract and determine whether or not it stipulates a particular place for performance. If there is no specific stipulation, the type of contract will generally determine the place for the requisite performance. In the law of sale, for instance, it is the buyer's obligation to fetch the item from the seller. Some obligations can only be fulfilled in a certain place, like the transfer of property, which occurs only at the Deeds Registry.
If no date is stipulated, performance must occur "within a reasonable time," to be determined, again, by the nature of the contract.

Nature

Performance

In reciprocal contracts, a creditor has the right to receive full and complete performance. There must be strict compliance, in other words: 100 per cent performance. The principle of reciprocity recognises that in many contracts the common intention of the parties, expressed or unexpressed, is that there should be an exchange of performances. The creditor, therefore, may refuse any vaguely inappropriate performance. Part performance is not performance.
The strict legal position is that, if a builder, say, should complete only half the contracted construction, and then sue for payment, the other party will be entitled to deploy the exceptio. Because part performance is not performance, no payment will be owing. Importantly, though, the defendant will only succeed with the exceptio if the plaintiff's performance fell due prior to or simultaneously with the performance claimed from the defendant.
The courts reserve for themselves a discretion to depart from the strict legal position, and sometimes will award reduced counterperformance to the plaintiff, in which case it is up to the debtor to prove what the reduced fee should be. (The usual test to subtract the cost of rectifying the problem or defect or shortcoming from the full fee.) Strict exceptio will only be imposed if two requirements are met:

1. The creditor must not have utilised the incomplete performance. Mere accession to land, in the case of buildings, does not amount to utilisation. One has to move into a building for it to be considered utilised.
2. There must be no special equitable circumstances that exist. This is where the court exercises its discretion.

Performance may not be made in instalments unless such have explicitly been permitted or agreed upon by the parties; otherwise it must be made whole. Authority for this position goes as far back as Grotius, with his stipulation that performance be made in a lump.
The defaulting debtor may not elect to pay damages in lieu of performance, unless it is at the prerogative of the creditor. The law does not require that the creditor accept an offer to this effect; he is entitled to continue to demand performance.
No substitution is permitted: that is, no giving the creditor something else in lieu of performance. This is once more subject to the qualification that the parties may agree to the alternative, which is known formally as datio in solutum.
In summary, then, the requirements for performance are as follows:

• There must be strict compliance.
• Unless specifically agreed upon, performance may not be tendered in instalments.
• There is no election to pay damages in lieu of performance—unless this is agreed upon.
• Performance must be in forma specifica.
• There may be no substitution of performance unless the creditor accepts.

Termination by agreement

Termination or alteration of an obligation by agreement may take several forms.

Variation

The parties may agree to vary a term of their contract, in which case the contract is not terminated but is simply altered in some way.

Release and waiver

A release is an agreement between the parties that the debtor be freed or "released" from an obligation. (The term "waiver" is sometimes used synonymously, but "release," for reasons soon to become apparent, is more accurate here.) Releases are most often to be found in employment contracts.
A waiver occurs when the creditor elects, without discussion or arrangement (and therefore, unlike release, usually without agreement), to "waive" certain claims or rights under a contract; it is, in other words, the unilateral act of abandoning a right that exists for the creditor's sole benefit. By way of example, the non-breaching party has the right, in cases of major breach, to claim cancellation, but that right may be waived.

Nature

• Although the definitions above are generally accepted, scholarly debate rages on as to the precise nature of release and waiver. The power to release a debtor from his obligation rests entirely in the hands of the creditor, who need only say, "I do not wish to avail myself of this right," in order to terminate it. On the other hand, some authors contend in Contract: General Principles that it is a debt-extinguishing agreement, a bilateral juristic act which is not a contract^]

Features

There is generally a presumption against waiver—it is assumed that one does not easily or arbitrarily waive one's rights or remedies or powers—so that the burden of proof is his who alleges it. The requirements for meeting this burden are carefully specified. Two questions should be asked, keeping in mind "the fact that persons do not as a rule lightly abandon their rights." The questions are these:

1. Was there an intention to waiver? The creditor must have had full knowledge of his rights in terms of the waived obligation.
2. Would a reasonable person in the circumstances believe the right to have been waived? This inquiry is important because a waiver need not expressly be made by the creditor; it may be "derived by implication from his conduct," in which case "his conduct must be such that it is necessarily inconsistent with an intention to maintain his rights." In other words, his conduct must be such as to leave no reasonable doubt in the mind that he not only knew what his rights were, but intended to surrender them."

Release and waiver can be either partial or complete. Release, however, usually entails the release of a debtor from the entire contract, whereas waiver is generally concerned only with one particular obligation or term of the contract.

Novation

A novation is an agreement to extinguish and replace one or more obligations with a new obligation or obligations. An obligation is released upon the terms that simultaneously another obligation takes its place.If the original obligation is void, the novation also will be void. In Kenya, there are two forms of novation: novatio voluntaria and novatio necessaria.

Novatio voluntaria

Voluntary novation, is "a transformation and alteration of an earlier obligation, whether natural or civil, into another obligation whether natural or civil, when a fresh cause is created out of a foregoing cause in such wise that the earlier cause is destroyed." When parties novate they intend to replace a valid contract by another valid contract." This is novation in the strict and commonest sense: The parties novate the entire contract, but they retain their contractual relationship. Prescription ends when novation occurs.
Unless, as in the case of insurance agreements, it has been explicitly removed, the first contract can revive itself (residual position) if the second contract folds, as when voided for illegality. There is a presumption against novation, so that "where there is doubt the court prefers not to imply a novation."
The question is one of intention [.... I]n the absence of any express declaration of the parties, the intention to effect a novation cannot be held to exist except by way of necessary inference from all the circumstances of the case.
The second contract "is much rather deemed to have been made in order to strengthen the first one, and for the purpose of being annexed to it, than for the purpose of extinguishing it." Variation, in other words, is usually preferred to novation: It is generally assumed "that the parties intended only to modify, augment, or diminish the obligation, and not to extinguish the old debt, and substitute a new one, unless the contrary is particularly expressed."

Novatio necessaria

Compulsory novation, absolute in English law and much less common than voluntaria, takes place by operation of law, from "judicial proceedings between parties whose rights and obligations are in issue between them." Few judicial proceedings lead to novation; where they do, it is the damages awarded by the court which novate the contract.
It is important to note that "compulsory novation does not release pledges or securities nor are sureties discharged; it does not interrupt the running of interest nor is mora purged." This is "because properly speaking, it is not a novation, but an additional confirmation or continuation of a previous obligation."

Compromise

A compromise is an agreement whereby the parties settle a disputed obligation or some uncertainty between them. New obligations are created, and any existing obligations are extinguished. Compromise classically takes the form of an out-of-court settlement. Where payment is made in full and final settlement, it will depend on the circumstances whether this is an offer to compromise. The general rule is that the old or former relationship falls away, and the new relationship is governed by the settlement agreement.

Delegation

Delegation or intercessio is a form of novation where, by the agreement of all concerned, someone outside of the original contract is given the responsibility of carrying out the performance agreed to in it. Three parties are concerned with this act:

1. the delegator, or the party who incurred the obligation to perform under the contract;
2. the delegatee, or the party who assumes the responsibility of performing this duty; and
3. the obligee, or the party to whom this performance is owed.

The delegatee, in other words, is introduced as a debtor in place of the delegator (the original debtor), who is thereby discharged of his obligations. Usually this act takes the form of a full delegation of debt, and therefore a full substitution of the delegatee for the delegator. There is thus a new contract with a new debtor.
The common intention of all parties that the delegation take place may be either express or implied from the circumstances, including from the conduct of the parties.
Delegation should be distinguished from situations which, while similar, do not meet the definition provided above. For example, when a debtor asks a third party to meet the debt on his behalf, what we have is not a delegation but merely an agreement of mandate. Because the creditor knows nothing of this, and because, therefore, the common intention of all parties is lacking, it may not be said that a new contract has been created. Even when the debtor requests of the creditor that in future he refer to the third party for payment, this amounts only to an assignation of debt; the third party steps in of his own initiative—ex promiso. This does not amount to novation.

Effluxion of time

If a contract fixes a specific period for its duration, it terminates automatically at the end of such period. The Consumer Protection Act contains mandatory rules on fixed-term contracts covered by the Act.

Notice

Long-standing contracts, or contracts for an indefinite period, are terminable upon reasonable notice unless specifically agreed otherwise.
Express notice is given especially in the case of leases. A lease may be terminated on due notice of usually a month. Hybrid contracts have a fixed time as well as a termination option.
Notice may also be given impliedly. In situations where the contract is silent as to when it terminates, the reasonable-time test is usually deployed. Where reasonable time has passed, a party may terminate the contract on reasonable notice. The standard for reasonableness is tested with reference primarily to the type of contract in question.
If it is determined that the contract may be terminated by reasonable notice:

• Either party is entitled to give notice for any valid commercial reason.
• "Reasonable" is a relative term; what is reasonable depends on the circumstances of each case.
• The notice of termination must be clear and unequivocal.

Termination by operation of law

Obligations may also be terminated by law, as in the case of set-off, merger, supervening impossibility of performance, prescription, insolvency and death.

Set-off

Where two parties are reciprocally indebted to one another by reason of distinct obligations, one debt may be "set off" against the other to forestall the onerous burden of two different sets of possible litigation. The set-off occurs automatically, provided that its requirements are met, but applies only to liquidated claims: that is, to money only, not to pending debts. These are quickly and easily proved.
Set-off (or compensatio) might in its simplest form be instanced thus:

• Gore owes Hitchens R1,000 for a couch (the first obligation).
• Hitchens owes Gore R1,000 for rent (the second).
• The first obligation is set off against the other.
• There are now no further obligations between the parties.

Very rarely, however, are the obligations identical. Where one party's is greater than the other's, the smaller claim will be terminated and the greater diminished. This usually occurs by way of a claim which is followed by a counter-claim.

Merger

The extinction of a debt by merger or confusio occurs when one person becomes both creditor and debtor in respect of a debt. This is a rare but straightforward form of termination, described as "the concurrence of two qualities or capacities in the same person, which mutually destroy one another."

Insolvency

In the event of the debtor's insolvency (or liquidation if it is a company), the contract is not terminated immediately; its resolution is left to a trustee or judicial manager, to whom the insolvent estate is handed over. This party will make a decision on whether to terminate the contract or to settle it, or else to keep it alive if this is in the best interests of the estate. The procedure is governed by the Insolvency Act.

Supervening impossibility of performance

Supervening impossibility of performance takes place where an event occurs (or supervenes) after the contract has commenced which objectively renders the contract no longer possible of performance. This event must have been unforeseen and unavoidable by a reasonable person, such that no-one in that position could have fulfilled the obligation.
The distinction between supervening and initial impossibility (which does not terminate the contract) is an important one and often confused: The performance must have become objectively impossible, even if at first it was perfectly doable.
These circumstances, however, must have arisen due to some unavoidable and supervening event; the cause must not have been the debtor's fault.
Generic goods and services are not subject to supervening impossibility, because they are easily obtainable and performance is still theoretically executable. An inability to meet one's debts is also precluded, because it entails fault. The impossibility must, in an objective sense, be outside of one's control. The following are classic examples:

• Vis maior: an act of god, beyond one's control; fault is precluded and performance rendered objectively impossible.
• Casus fortuitus: intervention by the state or legislature which renders performance impossible.

Supervening impossibility generally terminates the obligation, as well as any counter-obligation, from the point at which impossibility arose. Accrued rights are enforceable, but future obligations disappear. Where, however, there has been a guarantee of performance, this will override the supervening impossibility—even acts of god.
The effect of partial or temporary impossibility of performance depends on the circumstances of the case. The general rule is that the contract will be suspended until the impossibility disappears; if the supervening event goes on for an unreasonably long period of time, the creditor will have the election to cancel.

Prescription

A person can lose or acquire rights because of the passage of time. The enforceability of obligations is also limited by time.

Exinctive prescription

Exinctive prescription entails the termination of obligations, and therefore their enforceability, by lapse of time. This ensures finality in business affairs and provides an incentive for persons to enforce their rights when they become due. A debt shall not be deemed to be due until certain requirements are satisfied." These are, on the part of the creditor,

1. "Knowledge of the identity of the debtor"; and
2. "Knowledge of the facts from which the debt arose."

"Provided the creditor shall be deemed to have such knowledge if he could have acquired it by exercising reasonable care." Prescription will be backdated accordingly if necessary.

Acquisitive prescription

Acquisitive prescription describes the acquisition of property, or rights of ownership, and therefore falls outside the scope of contract law.

Death

Contractual rights and duties are generally transmissible on death, although not in the case of a delectus personae or an express or tacit agreement to the contrary, in which case resolution of the contract is left to the executor of the deceased's estate.

Drafting

The main objective of the parties at the time of negotiation of the contract should be to achieve agreement regarding the exact purpose of their agreement on the best commercial terms and conditions.

Parties to the contract

It is vital to first determine the identity of the parties to the agreement and the nature of the agreement they wish to conclude and which has to be drafted on their behalf. The parties and their contact details should be properly described in the contractual document.

Nature of contract and heading

Under the Kenya contract law, the nature of the agreement depends on its contents. Where the contract is a nominate agreement, care must be taken to include the essentialia for that agreement in the contract. Other essential elements that should feature at the beginning of any contract include clauses describing the extent of the obligations of the parties.

Date of agreement

The contract should be properly signed and dated. The contract may be dated at the beginning or at the end in a signature block.

Sequence of clauses

The contract should be structured in a logical and practical fashion. After the heading and the description of the parties, and the definitions and interpretation clause, the core clauses should appear.

Specific clauses

These are followed by specific clauses on aspects negotiated by the parties for their contractual relationship, such as clauses on the remedies for breach of contract, including cancellation, penalty, forfeiture, limitation and exemption clauses; and conditions and time periods.

General clauses

General clauses such as clauses on how the contract must be amended, and on entire agreement, cession or assignment, waiver, communications and notices, applicable law and jurisdiction, alternative dispute resolution procedures, force majeure, costs, and confidentiality follow.

Structure and language

Lastly, principles of good language and grammar, and proper numbering, should be used throughout.