PSM 400: LEGAL ASPECTS OF PROCUREMENT

Study Manual
Distance Learning Module

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Copyright
ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored
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Instructions to students
This study manual is intended to assist distance-learning students in their
independent studies. In addition, it is only for the personal use of the
purchaser, see copyright clause. The course has been broken down into
seven (7) lessons each of which should be considered as approximately one
week of study for a full time student. Solve the review questions, verifying
your answer with the study materials provided and the recommended text
books and journals.
The course textbook and journal are:
TEXTBOOKS AND JOURNALS FOR THE COURSE
1. Bovis, Christopher, (2006) EC Public Procurement: Case Law and Regulation, Oxford
University Press,
2. Smith, J. C. (2002). The law of contract (4th ed.). London: Sweet & Maxwell.
3. Journal of Public Procurement, Academic Press

TEXTBOOKS AND JOURNALS FOR FURTHER READING

1.
2.
3.
4.
5.
6.

Arrowsmith, S. (2005) The Law of Public and Utilities Procurement, 2nd ed.,.Sweet &
Maxwell,
Arrowsmith, S., Linarelli, J., Wallace, D. Jr. (2000) Regulating Public Procurement:
National and International Perspectives, The Hague: Kluwer Law International,.
Government of Kenya (2005), Public Procurement and Disposal Act, Government
Printer
Jrg T. and Dickersbach. (2004) Supply Chain Management with APO: structures,
modelling approaches and implementation peculiarities. Springer-Verlag, Berlin
Kirk, W B. and Flynn, M. (2004)The Legal Aspects of Public Purchasing, Herndon, VA:
National Institute of Government Purchasing
International Journal of Procurement Management, Inderscience Publishers

Acknowledgement
We wish to express our sincere gratitude and appreciation to Mr. Wycliffe
Arani for his immense contribution towards the preparation of this study
pack on the Principles and Practice of Management. He is a part time lecturer
at the Management University of Africa, Jomo Kenyatta University of
Agrcultre and Technology, Karatina University and Dedan Kimathi University
of Technology.

Mr. Arani holds BEDs arts in Business Studies and

Mathematics from University of Nairobi, MSc in Procurement and Logistics

from JKUAT and currently pursuing his PhD in Supply Chain Management at
JKUAT.

Table of Contents
Copyright.................................................................................................................... ii
Acknowledgement..................................................................................................... iv
1.0

INTRODUCTION TO LAW AND LEGAL BUSINESS ENVIRONMENT..........1

1.1

Nature and difinition of law...............................................................1

1.2

The link between law and purchasing..................................................2

1.3

Classification of law.........................................................................4

1.4

Sources of law...............................................................................7

1.5

Review questions......................................................................................... 11

2.0 LAW OF CONTRACT

2.1 Formation of contract.................................................................................... 12
2.2 Elements of a contract.................................................................................... 13
2.3 Terms of the contract...................................................................................... 28
2.4

Discharge of a contract...........................................................................33

2.5 Remedies for breach of a contract..................................................................37

2.6 Marking contracts in the cyber
space39
2.7 Review
questions
..40
3.0 THE LAW OF AGENCY...................................................................................... 42
3.1 Classes of agents............................................................................................ 42
3.2 Creation of Agency......................................................................................... 43
3.3 Rights of The Agent......................................................................................... 46
3.4 Duties of the Agent......................................................................................... 47
3.5 Termination of Agency..................................................................................... 48
3.6 Re v i e w Qu e s t i o n s................................................................................ 49
4.0 The Supply of goods and services................................................................50
4.1 Sale of goods.................................................................................................. 50
4.2 Differences between sale and an agreement to sell........................................51
4.3 Agreement to sale at valuation.......................................................................52
4.4 Conditions and warantees...............................................................................53
4.5 Transfer of property........................................................................................ 56
5

4.6 Transfer of title by non

owner

57

4.8 Supply of goods and

services62
4.9 Review
questions
.
66
5.0 THE LAW OF TORT........................................................................................... 67
5.1 Liability in Negligency..................................................................................... 67
5.2 Settlement of disputes...................................................................................67
6.0 INTELLECTUAL PROPERTY LAW.....................................................................75
6.1 Reasons for embracing protection of intellectual property..............................75
6.2 Branches of intellectual property...................................................................79
6.3 Requirements for patenting an invention....................................................80
6.4 Review Questions............................................................................................ 80
7.0

THE PUBLIC PROCUREMENT AND REGULATION.......................................82

7.1 Objectives of public procurement....................................................................82

7.2 Procureemnt methods.................................................................................... 71
7.3 Review questions............................................................................................. 81

1.0 INTRODUCTION TO LAW AND LEGAL BUSINESS ENVIRONMENT

1.1 Nature and definition of law
The law is part of everyones life, a living part, a determining part, a controlling, giving
part. It concerns people; it is alive (J.R.Lewis)Law is generally an integral part of our
lives and affects every scope of our lives.
Some knowledge of law is therefore necessary to a greater or lesser extent for all
persons to understand their rights and obligations to each other. Despite this realization,
it is surprising to note that there is no universal accepted definition of law.
Many scholars have split the term law in an attempt to define it. In line with these
attributes, law can therefore be defined as:
General body of principles recognized and applied by the state in the
administration of justice the objective been maintenance of peace and order in
the society (Salmond)
A collection of rules binding on specific persons made and altered by certain
institutions and enforced by the machinery of government (W. Mbaya)
General rule of external human action enforced by a sovereign political authority
(Holland).
Body of rules which are seen to operate as binding rules for a community by
means of which sufficient compliance with the rules may be secured to enable
the set of rules to be seen binding (Panton)
Generally the rationale behind the introduction of law in any social set up is the
maintenance of peace and order. In carrying out its role of maintaining peace and order,
1

the government upholds the doctrine of the rule of law which provides that laws in a
country must be obeyed. In commercial transactions law becomes important aspect
since the parties involved in business are supposed to honour their agreements as they
perfect their respective areas of business. In a situation where the business parties
have some legal dispute, the law invariably determines the aggrieved party hence
compensation is extended to the party in question to mitigate the losses.
1.2 The link between law and purchasing:
In the contemporary business environment, it is becoming increasingly important for
purchasing professionals to keep abreast of legal developments relevant to their role of
acquisition of goods/services within their organizations whether private or public. The
distinct reasons for purchasing professionals to have a working knowledge of
commercial law entail the following:
-

First, the principle of ignorantiajuris non excusat (ignorance of the law does
not excuse) means that a company (which, in law, is a legal person) and its
servants, such as purchasing specialists, are presumed to know the law.

Second, all purchasing staff should have an awareness of the possible legal
consequences of their actions.

Third, a little knowledge is a dangerous thing and knowledge of the law should
indicate when it is advisable for buyers to seek professional advice.

Fourth, purchasing function is purely law rounded. This means that every step in
purchasing engrosses legal implications and to this extent therefore it is
worthwhile for the purchasing professionals to be acquitted with concepts of law.
Issues of concern in purchasing which have legal implications comprise: offer
and acceptance, counter offer, order document (LPO), delivery document, pricing
of the products, terms of payment, availability of the product, make/model of the
product, issues of warranty, quality/quantity of the product, delivery date.
2

Fifth, Purchasing professionals act as interface between the company and

external entities. Therefore any deal agreed upon by the buying company and
suppliers should be legally viable. The perfection of this attribute can
effectively/efficiently be done by purchasing personnel who has a wide
understanding of legal concepts.

Functions of law

Law as preservation of order-public order law, criminal law

Law as platform for human co-operation-law of contract

Law as medium of dispute resolution-law of tort

Law as tool of domination-counter-revolutionary offences

Law as mechanism for social engineering-land registration

Law as bulwark of morality-decriminalizing homosexual acts between consenting

adults

Law as regulation of governmental powers-constitutional law, administrative law

Law as protection of individual freedom-bill of rights, anti-discrimination

legislation

Law as attainment of justice-rules of natural justice, bill of rights, social security

law

Limitation of Law

What law could not achieve-e.g. love

What law should not interfere with-private life

Law may not be the best option

1.3 Classification of law

1) Public and private law:

-

Public law regulates the relationship between the state and the individual to
ensure peace, order and good governance of the country. Public law has three
branches;

Constitutional law: consist of rules which regulates the relationship

between different organs of the government (judiciary, legislature &
executive)

administrative law: it governs and relates to the actual functioning of the

executive instruments of the government

Criminal law: consist of wrongs committed against the state.

Private law governs the relationship between individuals or between an individual

and the state. This is the part of law that is concerned with the rights and
obligations of persons towards each other. Included in this category is the law of
contract, law of property, family law, law of succession, law of torts etc

2) Criminal and civil law:

-

Criminal law is based on default or conduct prejudicial to the community.

Whoever commits a crime is prosecuted by the state and punished accordingly.
Examples of criminal cases entail: Robbery, Arson, embezzlement, obtaining
money by false pretence, Forgery etc.

Civil law is concerned with rights between individuals where individual rights are
infringed. Civil cases comprise: Defamation, issuing bouncing cheque etc. An
individual may sue to recover compensation by way of various remedies e.g.
damages, injunction or specific performance.

Divisions of civil law

 Law of contract- the law that determines business agreements between two
parties
Law of tort- is the law that relates to civil wrongs and gives remedies. Is a civil
wrong which is rented in common law action for unliquidated damages which is
not exclusively the breach of contract e.g negligence, defamation, trespass.
Law of property- deals with the nature and extend of right which people may
enjoy over land and other property.
Law of succession-deals with personal rights of property and how it can be
transferred on the death of a person to his heirs
3) Procedural and substantive law:
- Procedural law (remedial law) lays down the rules for regulating court proceedings
during civil and criminal trials. This includes the civil and criminal procedure
codes and the law of evidence. To that extend therefore procedural law
prescribes the methods of enforcing rights which exists in by reason of
substantive law. Also the law in question is in most cases used in courts to
ascertain the methods of procedures to follow.
- Substantive law on the other hand lays down the actual rule of law. It includes the
laws that create, define, regulate legal rights and obligations thus the rule in
contract that an offer must be communicated to offeree is substantive.
4) International law:
International law is the branch of public law which has two main branches, namely,
Public

International Law and private international law.

Public International law: this is a branch of international law which regulates the
relations between various nations of the world (i.e. the international community). It is
derived from the customs, conventions and treaties which have been adopted by the
particular Nations or states, either bilaterally or collectively under the auspices of the
United Nations Organization. A Nation which alleges that another Nation has acted
towards it in a manner inconsistent with any of the aforesaid customs, conventions
or treaties may refer the complaint to the International court of Justice at the Hague
in Holland if the other Nation
accepts the proposal that the dispute should be referred to the court.
Private International Law: This is also known as Conflict of Laws. It is the branch
of international law which determines the national law that is to be applied by the
court in a case involving a Kenya citizen and a citizen of another country. E.g. a
Kenyan company enters into a contract with a German company. The German
company fails to honour the terms and conditions of the contract. In this scenario the
private international law can be used to determine which legal system will be
followed.

1.4 Sources of Law:

A source of law is an attribute in which a rule of law derives its force and validity; that is,
the will of the state as manifested in statutes or decisions of the courts.
According to Dr. G .Williams the sources of law comprise two factors i.e. the legal and
historical sources of law. The legal source is a legislation and precedent, while historical
source is the actual origin of the rule adopted by the court in arriving at its decision.
6

Section 3 of the Judicature Act (Cap 8 Laws of Kenya) sets forth the sources of Kenyan
law in the following order:
1) The Kenyan constitution
2) All other written laws including the Acts of Kenya parliament and of the United
Kingdom
3) The substance of the common law, the doctrine of equity and statutes of general
application
4) African customary law
5) Islamic law
The Kenyan constitution:
-

Lord James Bryce defines the constitution as consisting of those rules of laws
which determines the form of its government and the respective roles of its
organs and the respective rights and duties of it towards a citizen and of a citizen
towards the
Government.

A constitution may be written or unwritten. A written constitution is one which

most of the important constitutional provisions are enacted in a formal document
or series of documents.

A written constitution is generally considered to be rigid i.e. can only be changed

in some manner e.g. by requiring a specified majority. Kenya s current
constitution promulgated on the 27th of August, 2010 is a written constitution just
7

like the previous one. It provides for a rigorous approach to amendment at

Chapter 16 to guard against arbitrary and uncalled for amendments.
-

It has a total of 18 Chapters,264 Articles and 6 schedules. Article 2(4) of the

constitution establishes its unchallengeable position over any other written or
unwritten law i.e. the supremacy of the constitution.
A study of constitution entails consideration of the following:

Historical circumstances in which constitution came to be adopted.

Political and philosophical values underlined in the constitution i.e. Liberal

democracy, the preamble etc.

The position of authority enjoyed by constitution within the legal order i.e.
supremacy of the constitution.

Individual provisions of the constitution and their implications.

Amendments and interpretation for practical operations of the constitution.

All other written laws including the Acts of Kenya parliament and of the United
Kingdom:
This is the enacted law commonly known as legislation including Acts of parliament and
subsidiary legislation. The legislative power is vested with parliament. This power is
exercised by the passing of a bill by the National Assembly to become an Act of
Parliament (statute). A bill is a draft of a proposed Act of parliament which after 1 st, 2nd
and 3rd reading is presented to the president for his assent. Once he assents, the bill
becomes law thus an Act of Parliament.

The substance of the common law, the doctrine of equity and statutes of
general application:

Common law:

Originally the term common law meant the law that was not confined to one particular
area.
Now the term is used to signify the law (other than the legislation) which originated in
the ancient customs and was developed by judges on the principle of stare decisisi.e.
Judges are obliged to respect the precedents established by prior decisions.
Section 3 (c) of the Judicature Act recognizes the substance of the common law and the
doctrine of equity as the source of Kenya law to the extent that our courts find them
compatible with the needs of our people. The courts are absolutely free either to modify
the rules of common law and equity or to reject them altogether.
The doctrine of Equity:
Equity is a set of rules formulated and administered by the court of Chancery before
1873 to supplement the rules of common law. Equity rules were collection of rules which
were formulated to remedy defects in common law or to make it more reasonable.
During the early development of equity the early chancellors acted at their own
discretion, but eventually they did follow the decisions of earlier Chancellors. Thus, by
the 8th century, some firm rules of equity were established which guided later
chancellors in deciding disputes. Some of these maxims are:

He who seeks equity must do equity

He who comes to equity must come with clean hands

Equality is equity

Equity looks to intent rather than form

Equity looks on that as done which ought to be done

African Customary Law:
The principles of customary law in Kenya originate from habitual practices and

traditions of its people. After independence, the customary laws of Kenya have been
accorded full recognition as a source of Kenya law. Section 3(2) of the Kenya
Judicature Act provides:
The High court and all subordinate courts shall be guided by African customary law
in civil cases in which one or more of the parties is subjected to it or affected by it, so
far as it is applicable and is not repugnant to justice and morality or inconsistent with
any written law, and shall decide all such cases according to substantial justice
without undue regard to technicalities of procedure and without any delay.
It is important to note that customary law, according to section 3(2):
a) Only applies in civil cases i.e. where a dispute is between individuals and the
state is not involved as a party e.g. breach of a contract
b) Does not apply in criminal cases
c) Only applies where it is not repugnant to natural justice and morality
d) Applies where it is not inconsistent with any written law in Kenya
African customary law is applicable where the proceedings concern claim under
customary law basically law disputes, personal and family affairs. These issues of
concern comprise:

Land held under customary law

Marriage, divorce, maintenance or dowry

Matters affecting status and in particular the status of women, widows and
children, including guardianship, custody, adoption and legitimacy

Matters concerning succession

Islamic law:
10

The rules of Islamic law are derived from the Muslims religious book Quran which was
revealed to Prophet Mohammed. It is a limited source of Kenya law and is applied by
Kadhis courts where both parties profess the Muslim faith and the dispute is related to
one of the following matters: personal status, marriage, divorce and Inheritance.
1.5 Review questions
1. Define the term law
2. Discus various sources of law in Kenya
3. Discuss the importance of law in procurement

2.0 LAW OF CONTRACT

Introduction to the law of contract:
A contract is an agreement, enforceable by law, between two or more persons, to do or
to abstain from doing some act or acts.
In-order to decide if there is a contract the courts examine the situation objectively to
see if essential elements of a contract exist. For a simple contract to arise there must be
an intention by the parties to form a legally binding agreement and some consideration
must have passed from one party to the other.At the heart of every contract there
should be the meeting of minds
consensus ad idem. However agreement alone is not enforceable under the contract
law. The elements of agreement constitute offer and acceptance.
2.1 Formation of a contract:

11

The general rule of common law is that a contract can be entered orally, in
writing, partly orally and partly in writing, or may be merely implied from the
conduct of the parties to it.

Basically a valid acceptance of a valid offer results in a valid contract. A valid contract
is one that is legally effective and enforceable in court.
-

A void agreement cannot be enforced in court by either part. It has no legal force or
effect.
a voidable contract- these type of contracts are valid until they are repudiated by
the innocent party. For example, when one party persuades the other to contract by
means of fraud, the sales contract is voidable, by the buyer who has been misled.
Also contract with a minor is also voidable eg in Sternberg vsScala Ltd, an infant
purchased and partly paid shares in the defendant company. The infant was unable
to pay the balance against her shares and therefore repudiated the contract and
claimed back the money she had paid in respect of the shares she was holding. The
court held that she was entitled to repudiate the contract but she would not recover
the money paid because there had not been a total failure of consideration since the
shares had a potential market value

2.2 Elements of a contract

1) Offer and acceptance
Offer: An offer is an expression of willingness to enter into a contract on
definite terms as soon as those terms are accepted. For example X writes to
Y stating his desire to sell his house to Y at a specified price, X is said to have
made an offer to Y. X is the offeror and Y the offeree.

12

Rules of offer

An offer may be made to a specific person or to any member of a group of persons

or to the world at large, but cannot form the basis of a contract until it has been
accepted by an ascertained
persons or group of persons
(CARLILL v CARBOLIC SMOKE BALL CO, 1893)
The defendant offered a reward of 100 pounds to anyone who contracted influenza
after using their smoke ball for a fortnight. The plaintiff, relying on the advertisement,
bought the smoke ball and used it as prescribed but still contracted influenza. She
sued for the advertisement reward. Held that the advertisement was a true offer and
not a mere advertising puff and the defendant was held liable to pay the reward.

The offeror must intend to create a legal obligation if accepted

The offer must be communicated to the offeree

(R v CLARKE)
A reward was advertised for information leading to the arrest of the murderers of two
police officers and a free pardon if the person giving the information was an
accomplice. C gave the information. Held C was not entitled to government reward
because at the time the information was given by him he had forgotten all about the
reward.

The terms of the offer must be definite and complete

(GUTHING v LYNN, 1831)
L bought a horse from G and offered to pay another 5 pound for the horse if it
proved lucky to him. Held the term Lucky was too vague to form the basis of
legally enforceable agreement

An offer may be made by word of mouth, in writing or by conduct.

The offeror cannot bind the other party without his consent
(FELTHOUSE v BINDLEY, 1862)
13

F wrote to his nephew offering to buy one of his horses adding If I hear no
communication from you I consider that the horse is mine at 30.15 pounds. The
nephew did not reply, but told Bindley, an auctioneer, to keep the horse out of the
sale of his farm stock as it was sold to the plaintiff. Bindley sold the horse by mistake
and F sued him for damages. Held that as the nephew had never communicated his
acceptance to F. There was no contract of sale and the auctioneer was not liable.

The offeror may attach any conditions to his offer, but must communicate them to the
offeree, before they bind him by his acceptance of the offeree. In commercial
agreement, this rule is
important where the terms of the offer are usually of a complex nature.

An offer must be distinguished from: Invitation to treat Invitation to treat and a mere
supply of information
Invitation to treat: are ways of obtaining information or inviting offers from
prospective offerors. They are an offer to negotiate and occur in the stages prior to
an offer being made. In
the tendering process invitations to tender are invitation to treat. Examples of ITT

Catalogues and price lists

In Grainger and Son v Gough (1896) a price list that was circulated by a
wine merchant was held to be an invitation to treat and not an offer

Display of goods in self service

(Pharmaceutical Society Of Britain V Boots Chemists, 1953)

Goods were sold in Bs shop under the self service system. Customers selected
their purchases from the shelves, put them into baskets supplied by B and took
them to the cash desk where they paid the price. Held the customer made the offer
14

when he presented them at the cash desk and not when he removed them from the
shelves.

Display of goods in a shop window

(Fisher V Bell, 1961)

B a shopkeeper displayed a flick knife priced at four shillings in his shop window. He
was charged with offering for sale of an offensive weapon contrary to the Restriction
of Offensive Weapons Act. Held that mere display of the goods in a shop window is
not by itself an offer for sale. B was not bound to sell the knife to anyone entering his
shop.
Auctions
British Car Auctions Ltd v Wright (1972), which involved the sale of an
unroadworthy second hand car, the court had to decide if an auctioneer actually
offers the auction goods for sale. Technically under the law of contract the
auctioneer doesnt. The court held that at auctions the auctioneer invites the
people present to make offers. The bidders make offers(bids) and acceptance is
usually signified by the fall of the gavel

Advertisements:

As a general rule the advertisement of goods for sale is not regarded as an offer.
It is merely inviting offers from readers and do not constitute legal offers.
In Partridge v Crittenden (1968) an advertisement in a news paper for the
sale of bramble finches, cocks and hens, 25 shillings each was held to be
invitation to treat. However it is possible that depending on the information on
the website, it could be regarded as a unilateral offer.
Exceptions to ITT
Automatic machines:
15

Display of goods (automatic vending machines) is an offer to sell these goods and
not a mere invitation to treat. Why? No further bargaining between the parties is
either possible or necessary. The customer accepts the offer by putting money in the
machine and signifies acceptance by receiving the goods/receipt/ticket. If the
machine is empty its implied that the offer continues only while stocks last.

Tenders: A tender may legally constitute an offer or what is generally known as

standing offer.

Declaration of intention: Where a person expresses or declares his intention to do

a thing or an act, it does not bind him to another person who suffers damage
because he fails to carry out his
intention despite the fact that someone relied on his declaration and acted on it.
(HARRIS v NICKERSON, 1873)
N an auctioneer advertised that there would be a sale of office furniture. H a
prospective buyer, travelled from London to attend the selling function. Later N
decided not to sell the office furniture. H sued the auctioneer for the loss of time and
travelling expenses. Held that the auctioneer was not bound to sell the furniture as
he was merely stating his intention to sell, not making an offer which by acceptance
could have been turned into a contract.

Mere supply of information: The mere statement of the lowest price at which a
person will sell property or goods contains no implied condition to sell at that price to
the person making such
enquiry.
(HARVEY v FACEY, 1893)
In this case, H telegraphed to F: Will you sell to us Bumper Hall Pen? Telegraph
lowest cash price. F replied: Lowest cash price for Bumber Hall Pen is 900
pounds. H telegraphed back we agree to buy. F refused to sell the item in question
16

and H sued him contending that a telegram constituted a binding contract. It was
held that F was merely stating the lowest cash price and not making an offer.
Termination of offer:
by unconditional acceptance
An offer ends at the time stated in the offer
An offer not stating how long it will remain open, terminates after a reasonable
length of time
An offer ends if its rejected by the offeree
An offer ends if the offeree makes a counter offer
An offer is terminated by death or insanity of either the offeror or offeree
An offer usually ends if it is revoked or modified by the offeror before the offeree
accepts it

Rules of revocation:
a) Revocation of an offer must be communicated to the offeree, though not necessarily
by the offeror himself; it is sufficient if the offeree comes to know of it through any
reliable source.
(Dickinson V Dodds, 1876)
On Wednesday, the defendant gave the plaintiff a written offer to sell his house at
800 pounds. The offer was to be left open until next Friday 9 AM. On Thursday, the

17

defendant sold the house to someone else. On that very evening of Thursday, the
plaintiff was told by a third party that the house was sold to someone else. But
before 9 AM on Friday, the plaintiff delivered his acceptance to the defendant, which
the defendant refused to receive. It was held by the court that there was a proper
revocation of the offer and the plaintiff could not accept it.
b) The revocation by post does not take effect until it is actually received by the offeree
(Bryne V Van Tienhoven, 1880)
On October 1, the defendant posted an offer to sell some goods to B in New York. B
received the offer on the 11th, and immediately telegraphed his acceptance. On 8 th,
the defendant wrote a letter to B, revoking his offer and this was received by B on
25th. Held that the revocation, though posted on 8 th, was of no effect until it reached
B on 25th and the contract was completed on 11th when B telegraphed his
acceptance.

It is imperative to note that acceptance of offer by post becomes effective as soon as

the acceptance is posted, while revocation takes effect when it is actually received
by the offeree.

c) Where offeror promises orally or in writing (not under deed) to keep his offer open
for a specified time, he is not bound by it i.e. he can still revoke it at any time before
the expiration of that time unless:

The offer has already been accepted

The promise to keep the offer open is supported by consideration that is the offeree
paid some money to the offeror to keep his offer open for a specified period.

The promise to keep the offer open was made under seal. A promise under seal
does not require consideration.

18

A promise to keep an offer open for a certain specified time is called an option.
Normally this promise is not binding on the offeror unless it is under seal or the
offeree happens to give out some consideration to the offeror.
Acceptance:
Acceptance is the final expression of essence by word or conduct to the offer or
proposal conveyed in the manner indicated by the offeror where a particular means
of communication is requested/implied. Acceptance is final and unequivocal (no
varying of offeror terms or coding new ones). Any attempt to introduces new terms or
vary the offer amounts to a counter offer and not an acceptance of the original offer
(a rejection of original offer)
Rules of Acceptance:

An offer can be accepted orally, in writing or by conduct

In order to make a contract binding, the acceptance must be communicated and

mere mental intention to accept it is not sufficient ( FELTHOUSE v BINDLEY)

The acceptance must be communicated to the offeror in the manner prescribed

by him. The acceptance must also be made within the time prescribed by the
offeror and if no such time is specified, then within such time as it is reasonable
having regard to the nature of the transaction

The acceptance must be made before the offer lapses or is terminated

Acceptance once made cannot be revoked. An offer may be revoked by an

express notice before it is accepted. But acceptance cannot be revoked in any
circumstances. The moment a person expresses his acceptance of an offer, that
very moment the contract is concluded, and it does not matter whether the
acceptance is by word of mouth or in writing or sent by post.

Acceptance by post:
Where the parties choose post as a medium of entering into a contract, the
following rules apply:
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An offer becomes effective when it reaches the offeree, not when the letter of
offer is posted.

The acceptance is considered complete immediately the letter of acceptance is

posted, even if it is lost or destroyed in the post. As long as the offeree can prove
that he posted the letter of acceptance, the court will enforce the contract.

2) Consideration:
Consideration is something of value in the eyes of the law which constitutes the
price for which constitute the price for which the promise of the other party is
bought. It is that which is actually given or accepted in return for a promise. E.g.
company A receives kshs 1,000 and in return promises to deliver goods to
company B. The consideration for the delivery is kshs 1,000 Consideration to
support a contract may either be:
(i)

Executed: Consideration is some value already given by the promisee to the

promisor e.g. purchase of goods on credit. The seller has performed his side of the
obligation in delivering the goods to the purchaser.
Executory: Consideration is a promise to do something in future; e.g. in the above
illustration the consideration for the purchaser of the goods is executor, until he pays
for the goods received. It may be sometimes executor on both sides, such as where
the seller agrees to deliver the goods on a future date and the buyer promises to
make the payment on delivery.

Rules governing consideration:

Consideration must be sufficient but need not be adequate.

-

Sufficient means is of a type that the law recognizes as being capable of

having value e.g. money

20

Adequacy is about the value or the amount of consideration. The law is not
interested in how good a deal you have made as long as it is clear that you
have made some kind of deal

Consideration must not be past. It means some past act or forbearance which took
place before the promise is made.

Consideration must move from the promisee. The statement means that no one can
enforce anothers promise unless he has been a party to a contract, and provided
consideration to the promisor. A stranger to a consideration cannot sue on the
contract, although made for his benefit.

Consideration must be in excess of an existing obligation

Consideration must be legal that is it must not be a type of consideration which is

either prohibited by law or is against the public policy.

Consideration shouldnt be performance of existing public duties

Part payment of debt is not considered as sufficient consideration to settle the debt
in full

3) Intention to create legal relations:

A contract is a result of an agreement between the parties. In order a contract to be
enforceable, there must have been an intention to create legal relations. In
commercial transactions it will be presumed that the parties intend to create legal
relations unless there is an express statement to the contract. While in social and
domestic agreement it is usually presumed that parties do not intend to have such
consequences. Whether or not the parties intended to create legal relations is a
question of fact to be inferred from all the circumstances of a case (BALFOUR v
BALFOUR, 1919):
The defendant was a civil servant in Ceylon. While he and his wife were on leave in
21

England, it became apparent that because of ill-health, the wife could not return to
Ceylon. The husband promised to pay her thirty pounds a month whilst forced to live
apart. He failed to pay, and his wife sued on the contract. Held that the husband was
not liable because there was no necessary
implication from the circumstances of the parties that they intended to make a
legally binding contract. It was more like a domestic arrangement between husband
and wife rather than a contract.
4) Contractual capacity:
The general rule is that any person may enter into a contract but certain categories
of persons due to age, status or mental instability, Lack contractual capacity hence
renders the contract void, voidable or unenforceable. Any person who claims
exemption from liability on the ground of incapacity to contract must prove such fact
and in the absence of this proof he will be liable on
the contract. The special rules affecting each class of persons are as follows:

Infants or minors: A minor is a person who has not attained 18 years of his age. A
contract with or by a minor is void and a minor, therefore cannot bind himself by a
contract. It is presumed that a minor is not competent to contract. However,
contracts for supply of necessaries can be enforced e.g. contracts beneficial to an
infant in terms of education and training.

Persons of unsound mind: A person is said to be of unsound mind for the purpose
of making a contract, if at the time when he makes it, he is incapable of
understanding it and of forming a rational judgment as to its effect upon his interests.
Whether a party to a contract, at the time of entering into the contract, was of sound
mind or not is a question of fact to be decided by the court.

Married women: A married woman has full contractual capacity and can sue and be
sued in her own name. She is not incompetent to contract. A husband will be liable

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for his wifes contracts if the transactions were entered into at a request or on his
behalf. Where husband and wife are living together, there is presumption that the
wife is authorized by her husband to pledge his credit for necessaries.

Corporations: Corporations can enter into contracts within the scope of the
purposes for which it was formed/incorporated as derived from the object clauses in
the memorandum of association and cannot enter into contracts beyond the
authorized power since by doing this the corporations will be deemed to be acting
ultra vires (outside their powers).

5) There must be genuine consent (Factors that can vitiate a contract):

Sometimes even when there is an existence of an apparently completed and valid
contract, circumstances may exist that vitiate the contract making it void or voidable.
These factors are mistake, mispresentation, duress and undue influence. Mistake:
Mistake may be of two kinds: mistake of law and mistake of fact. A person may
escape his liability under an apparently complete contract by proving that he
contracted under a mistake of fact and his mistake was so fundamental that it
affected the root of the contract. A mistake of law, however, is no ground for relief
from transaction.
Where both the parties to a contract are under a mistake of fact, the contract is void.
Such a mistake may be in common or mutual, but a unilateral mistake generally is
not operative. An operative mistake may be classified as follows:

Common mistake to the existence of the subject matter: This type of mistake occurs
where both parties assume the existence of the subject matter of a contract. For
example A sells his car to B.
Both parties to the contract believe that the car is parked at As house but in actual
fact the car is stolen before the contract is entered into. The contract is void as the
both parties have made the same mistake regarding the existence of the subject

23

matter of the contract.

Mutual mistake to the identity of the subject matter: A mistake merely in the
expression is not sufficient to avoid the contract, what is really required is to prove
that the parties to the contract concentrated on cross-purposes; i.e. they never met
on the same point. For example, X having two houses Mount lodge and Park lodge
in the same area, offers to sell Mount lodge to Y and Y not knowing that X has two
houses, thinks that it is Park lodge and agrees to buy it. There is no really consent
and the contract is void.

Mistake to the quality of the subject matter: Mere mistake as to the quality of the
subject matter of a contract does not render it void. For example, where A sells a
painting to B which both believe to be an original work of a famous artist but turns
out to be a modern imitation, the contract remains valid in common law. The general
principle applicable is caveat emptor, ie buyer beware.

Mistake as to the identity of the other party: This type of mistake will nullify the
contract where the identity is of material importance and the mistake is known to the
other party.

Unilateral mistake: In unilateral mistake, only one of the parties is mistaken, while
the other is not. As a rule, this type of mistake will not be sufficient to render the
contract void but in a situation where one of the parties is mistaken and the other
party is aware of such erroneous belief, the contract may be avoided.

Mistake to the nature of document: The general rule of law is that a person is bound
by the terms of any document which he signs.

Mispresentation: This occurs when a party to a contract is induced to a contract

with another by a misleading statement made by the second party. The false
representation is not restricted to word and may be made by the conduct of the
parties. A person who wishes to avail himself of the defence of mispresentation in
avoiding the contract must prove: that the representation was a statement of law or
mere expression of opinion, that it was made before or at the time of making the
contract, that it was intended to induce him to contract, that he relied on this
24

statement and infact entered into contract and that the statement was untrue.
Elements of mispresentation:
A person who wishes to avail himself of the defence of mispresentation in avoiding
the contract must prove:

That the representation was a statement of material fact and not a statement of law
or mere expression of opinion

That it was made before or at the time of making the contract

That it was intended to induce him to contract

That he relied on this statement and in fact entered into contract

That the statement was untrue

Mispresentation may either be (i) fraudulent or (ii) innocent
Fraudulent mispresentation: This is a statement assumed to be made fraudulently
when it is made knowing that it is untrue or without having belief in its truth or
recklessly without caring whether it is true or false.
Innocent mispresentation: This is a false statement made innocently with an honest
belief to its truth and without any intention of deceiving the representee.

Duress: This is the actual or threatened violence to one of the parties to a contract
or to a member of his family. It also includes threatened imprisonment, criminal,
prosecution or dishonor of a member of his family.
Undue influence: A contract is said to be induced by undue influence where one of
the parties is in a position to dominate the will of another which prevents him from
making his judgment freely. Thus a person may avoid the contract if he can prove:
that the other party has dominated his will and that the transaction is substantially
25

unfair.
6) The object of the contract must be lawful:
One of the essential elements of contract is legality of the objects. Illegality of the
contract affects the validity of a contract. Contracts can be declared illegal either by
statute or common law. An illegal contract is void and cannot be enforced. Certain
contracts are prohibited by statutes and statutory regulations for instance contracts
which infringe the exchange control regulations made under the exchange control
act are prohibited.

2.3 Terms of the contract:

Basically, the terms of the contract encompass the promises which the parties to a
contract make to each other. The contents of a contract therefore, depend primarily
on the words used by the parties in entering into the contract. Its upon the parties to
negotiate their contracts and the courts do not interfere. Thus, the parties are
presumed to have made their intention absolutely clear regarding every material
term which is intended to govern their rights and obligations. It is worthwhile to note
that the terms of a contract can be expressed or implied.
Express terms:
The terms of a contract are said to be express terms if the parties themselves
advertised to them at the time of negotiations and actually agreed upon them(i.e.
incorporated them into the contract, either verbally or in writing).
Implied terms:
A term which the parties did not expressly incorporate into the contract may
26

nevertheless be regarded by the court as one of the terms of the contract by

implication. This will be done only when it is necessary in the business sense to
give efficacy to the contract. Also terms may be implied by statutes or by courts.

Terms implied by statutes:

This entail sale of goods and hire purchase Acts. Normally, the terms will be implied
unless they are expressly excluded by the parties in case of contracts for the sale of
goods. To this extent therefore the following attributes govern the sale of goods:

A condition that the seller has the right to sell the goods

A warranty that the buyer shall have and enjoy quiet possession of the goods

A warranty that the goods are free from any charge or encumbrance in favour of any
third party.

A condition that the goods shall correspond with description if sold by description

A condition that the goods shall correspond with sample and description if sold by
sample and description.

A condition that the goods will be suitable for the purpose stated by the buyer to the
seller.

A condition that the goods are of merchantable quality

A Condition, if sale by sample, that the bulk shall correspond with the sample.
Terms implied by the court:
The courts do not readily imply terms nor do they rephrase, rewrite or alter the
agreement they consider that the contract the two parties produce should be self
sufficient. It is a general rule of interpretation that where there is an express
provision in a contract, the court will not imply any provision relating to the same
subject matter.

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In ordinary contractual transactions, the terms are of the two kinds:

1) Conditions
2) Warranties
Conditions:
Conditions are terms of major importance and it is said that they go to the root of the
contract. Their breach entitles the innocent party to avoid the contract and claim
damages. Under the Sale of Goods Act, the innocent party is permitted, if he wishes
so, to continue with the contract and claim damages for the breach of the condition.
Warranty:
Warranty is a term of lesser importance and as such does not go to the root of the
contract. Its breach entitles the innocent party to claim damages, but gives no right
to the termination of the contract.Whether a term of a contract is a condition or
warranty, is a question to be determined by the court taking into consideration the
circumstances in which such a term was agreed. A condition may be precedent or
subsequent. A condition precedent is a stipulation expressly agreed upon by the
contracting parties that the contract will not be binding unless a specified condition is
fulfilled e.g. A agrees to buy Bs house for 10,000 pounds provided the surveyor s
report is satisfactory. A condition subsequent is an express condition in a contract
that the contract will cease to be binding on the happening of a certain specified
event.
Two cases involving opera singers show the difference between conditions and
warranties In Poussard v Spiers and Pond (1876) Mrs. Poussardwas an opera singer.
She agreed to sing in anopera starting on 28 November. However, shebecame ill and
was unable to sing until 4December.The Opera Company had to hire another singer so
28

that the opera could start on 28 November.They could only get another singer if they
hired for all the performances of the opera.They did this and refused the services of
MrsPoussard, once she was betterMrs. Poussard raised a court action to try to makethe
company pay her, However, the court said that Mrs. Poussardbreached aconditionof the
contract when shewas unable to perform on 28 November.This was a basic term of the
contract
The position was different inBettini v Gye
Bettini was an opera singer. He agreed to sing in London in a number of theatres
beginning on 30 March. He also agreed that he would arrive in London 6 days before
the first performance in order to practice. Bettini became ill and did not arrive in London
until 3 days before the first performance. The opera company refused to allow him to
sing.They said he had breached the contract. However, the court said that the part of
the agreement about practicing was a warrantynot a term.
Innominate terms
Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962] 2 QB 26 Court of
Appeal
A ship was chartered to the defendants for a 2 year period. The agreement included a
term that the ship would be seaworthy throughout the period of hire. The problems
developed with the engine of the ship and the engine crews were incompetent.
Consequently the ship was out of service for a 5 week period and then a further 15
week period. The defendants treated this as a breach of condition and ended the
contract. The claimants brought an action for wrongful repudiation arguing the term
relating to seaworthiness was not a condition of the contract.
Held:The defendants were liable for wrongful repudiation. The court introduced the
innominate term approach. Rather than seeking to classify the term itself as a condition
29

or warranty, the court should look to the effect of the breach and ask if the breach has
substantially deprived the innocent party of the whole benefit of the contract. Only
where this is answered affirmatively is it to be a breach of condition. 20 weeks out of a 2
year contract period did not substantially deprive the defendants of whole benefit and
therefore they were not entitled to repudiate the contract

Exception clauses:
The purpose of an exception clause is to limit or extinguish the liability of one of the
parties to which he would otherwise be liable in law. Such a clause will be enforced by
the court if the document containing it was an integral part of the contract and
reasonable care was taken to bring it to the attention of the other party before the
contract was made. But where a person has failed to carry out the basic obligation of
the contract, the court will not allow him to rely on the exception clause to escape
liability.
KARSALE LTD v WALLIS, 1956
W inspected a car and agreed to buy it from K. The agreement contained the following
clause:
No condition or warranty that the vehicle is roadworthy or so to its age, condition or
fitness for any purpose is given by the owner or implied herein. When delivery of the
car was made, it was in a shocking condition and incapable of self-starting. W refused
to accept the car. K sued him, relying on the exemption clause. Held that when W first
inspected the car, it was in excellent condition whereas the car which was
subsequently delivered to him, was no doubt the same car but it was in deplorable
condition. Held that breach went to the root of the contract and did not entitle the plaintiff
to rely on the exemption clause.
An exemption clause printed on a reverse side of the receipt is not valid unless some
30

special care is taken to bring to the notice of the other party.

CHAPELTON v BARRY U.D.C, 1940
C hired a deck chair from the defendant and paid substantial amount of money to obtain
a ticket. He did not read the information which appeared on the ticket. The ticket was
printed on the back that the defendant will not be liable for any accident or damage
arising from the use of chairs. When C sat on the chair, it collapsed and he was injured.
C sued the defendant. Held that the printed clause on the back of the receipt could not
become part of the contract as no reasonable care was taken to bring it to the attention
of the plaintiff. C was entitled to succeed in damages.
THOMPSON V L.M & S RAILWAY CO, 1930
The plaintiff bought an excursion ticket from the defendant company issued subject
to the conditions contained in the companys time-table. Mrs. Thompson could not
read the conditions. The conditions exempted the company from liability for
negligence. Owing to the negligence of the companys employee, the plaintiff was
injured and she sued the company. Held that the company was not liable as they
had taken reasonable steps to bring the conditions of their offer to the notice of the
plaintiff.
Where a person puts his signature on a contractual document, he is bound by any
exempting clauses contained in it. He cannot rely on his ignorance of the contents of
the document unless he was induced to sign by fraud or mis-presentation.
2.4 Discharge of a contract:
A contract may be discharged or terminated by one of the following ways:

Performance

Agreement
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Breach

Impossibility or Frustration

Lapse of time

Operation of the law

Performance:
A contract may be discharged by performance where both parties fulfill their
obligations under the contract and nothing remains to be completed. It is important
for the discharge of the contract that performance must be strictly in accordance with
the terms of the contract. Under the sale of Goods Act the seller is under strictly duty
to deliver the correct quantity of goods.
Agreement:
Since a contract is created by mutual agreement, it may also be terminated by
agreement. A subsequent agreement between the parties intended to extinguish the
respective rights and obligations under the original agreement must be either (i)
under seal or (ii) supported by
valuable consideration. This can be done orally, even if the original contract was in
writing or under seal. A contract may be discharged by agreement in any one of the
following ways:

By waiver: In case of a contract still executory, a mutual agreement between the

parties can release each other from their respective obligations and rights. This is
known as waiver, and can
take any form although the original contract was in writing or under seal.

By novation: An existing contract may be discharged when a new contract is

substituted in its place either between the same parties or between different parties,
the mutually being the
discharge of the old contract. This type of arrangement between the parties is known
32

as novation.

Accord and satisfaction: Where a party to a contract makes breach of his

obligation and the other party promises to accept less than what is due under an
existing contract, he is not bound
by such a promise. However, if a lesser is actually paid on an earlier date at the
request of the payee or something different in kind has been accepted, there is a
good discharge. In such a case, the old contract is discharged by accord and
satisfaction.
Breach of contract:
A contract may be discharged by breach; that is, the failure of one of the parties to
perform his obligation under the contract. Breach of contract may occur in any one of
three ways:

Failure to perform: Where a person fails to perform a contract, when the

performance is due, the other party can hold him liable for the breach, provided the
time of performance was made as the
essence of the contract. In commercial agreements, time is presumed to be the
essence of the contract and unless otherwise provided, the failure to deliver the
goods on the due date gives the innocent party a right to treat the contract
discharged and claim damages.

Renunciation: It may sometimes happen that even before the time of performance
arrives, one party to a contract repudiates his liabilities. Such a breach is known as
an anticipatory breach.
The other party may either sue for breach of contract immediately or he may wait
until the time when the contract could have been performed.

Self-disablement: A breach occurs by self-disablement when the defendant

disables himself from performing his contractual obligation, or does some act which
makes the performance of contract impossible.

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Impossibility or frustration:
Supervening impossibility or frustration will discharge the contract in the following
circumstances:

Destruction of subject-matter

None-occurrence of a stated event

Death or personal incapacity

Change in law

Government interference
Lapse of time:
A contract formed for a specified time is discharged when that period of time has
elapsed. Where no specified time is laid down, the lapse of reasonable time may
render the contract unenforceable in a court of law.
Operation of law:
A contract may be discharged by operation of law under the following circumstance:

By merger: This takes place when the parties embody the simple contract into a
contract under deed and in such circumstances an action lies only on the deed.

By bankruptcy: When a person becomes bankruptcy, all his rights and obligations
pass to his trustee in bankruptcy.

By death: The death of either party will discharge a contract for personal services
but other contractual rights and obligations are not affected.

By unauthorized material alteration: Where a party to a contract in writing or

under deed makes any material alteration in it without the knowledge and consent of
the other, the contract can be avoided at the discretion of the other party. An
alteration is material which varies the legal effect of contract.
2.5 Remedies for breach of a contract:

34

On breach of contract, the innocent party becomes entitled to any one or more of the
following
remedies.
a) Action for damages:
The normal remedy for breach of contract is damages. The aim of law is to place the
injured party as far as possible in the position he would have been if the contract had
been performed. It is not for every kind of damage that the plaintiff is entitled to
recover compensation. In some cases, the law considers that the loss sustained
from breach of contract is too remote to merit any compensation.

Mitigation of loss:
When a breach of contract takes place, the party suffering from the breach must
make all reasonable efforts to minimize his loss and he is not entitled to recover
those damages which he could easily have eliminated had he tried to resolve them.
If a buyer refuses to accept the delivery, the seller must try to sell those goods in the
market available and claim damages not more than the difference between the
contract price and the market price plus any incidental charges.
b) Refusal of further performance:
A party that suffers by a breach of contract is entitled to treat the contract as ended
and may refuse any further performance on his own part. But in case the victim of
the breach does not take the initiative to bring an action for rescission of contract
and the other party sues for any sums due to him, he may set up the breach as a
defence.
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c) Action for specific performance:

Specific performance is an order requiring a person to carry out a contractual
obligation. Failure to obey an order of specific performance constitutes contempt of
court, which is punishable by fine or imprisonment. As an equitable remedy is
granted at the discretion of the court. Action for specific performance is granted
when damages are inadequate remedy.
d) Action for injunction:
An injunction is an order of the court restraining the doing, continuance or repetition
of a wrongful act. It may be obtained to enforce a negative contractual term where
an order of specific performance would not be available. An injunction, being an
equitable remedy, is not automatically available but is issued at the discretion of the
court. But it will not be awarded when the damages would be sufficient
compensation to the plaintiff.
2.6 Making contracts in the cyber space
A contract may be formed by email in which case the offeror and offeree could be
either party depending on whether the supplier s communication constitutes an offer
or is merely inviting offers
In order for a contract to be enforceable you must first prove the existence of the
contract.In the absence of a formal written contract, there can be a dispute as to the
existence of anagreement or the exact terms of agreement.The terms of the contract
must be specific and clear. An agreement should state:
-

each partys obligations,

36

what payments must be made and when

Precise details of the work that will be done or goods to be sold and when.

It is advisable to keep a copy of the contract for your records, whether it be

stored electronically or in paper form.
When is an order for goods or services an order?
When is an order placed? When it is received or when it is accepted? When it
enters a computer network or when it is drawn to the attention of a particular
person designated as
the recipient?This is important. If either the seller or the customer wish to withdraw from
a deal it isnecessary to establish whether it is binding as that will establish their rights. Is
an order effective from the time an on screen order is made or when a receipt for the
order is given?
What if the sellers order clerk is on holidays and the email orders were not
checked? What if there is insufficient stock and the customer was not warned about
delays?
When is the contract formed?
Standard and special clauses
Standard and special clauses could be incorporated into a contract by explicit
agreement between the contracting parties.
Standard clause may be found in construction and supply contracts, it exempts the
contracting parties from fulfilling their contractual obligations for causes that could not
37

be anticipated and/or are beyond their control. These causes usually include act of
God, act of man, act of parliament, and other impersonal events or occurrences
2.7 Review question
Ace Ltd, a manufacturing company, wanted to replace all the computers in their offices
with a new comprehensive systems. They invited tenders for the provision and
installation of the equipment from various computer companies with whom thay had
dealt before. The letter inviting the tenders included the statement if the offer made by
you is the lowest offer received by us, we bind ourselves to accept such offer. In
response to the letter Niger computers Ltd bid Kshs. 360, 000, while Congo Computers
Ltd bid Kshs. 5,000 less than any lower bid. The contrac was awarded to Niger
Computers Ltd.
Ace Ltd then placed the order stating that the contract was to be on the basis of their
standard terms and conditions. However, Niger Computers Ltd purpoted to accept the
offer but on a contract form comprising their own standard terms, which included a price
variation clause. On the bottom of Niger Computer Ltds contract was a tear-off slip
acknowledging the agreement to terms. An employee of Ace Ltd duly signed and
returned the slip. Advise:
a) Congo Computers Ltd, who feel that they should have been awarded the contract
as they made the lowest bid.
b) Niger Computers Ltd, who want to raise the contract price to Kshs. 370,000,
which Ace Ltd are refusing.

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3.0 THELAW OF AGENCY

An agent is a person employed expressly or implicitly to do any act for another, or to
represent another in dealing with a third person. The person on whose behalf he acts is
called the principal. When a person employs another to contract on his behalf, the
relationship between them is known as agency. The effect of such contracts is that an
agent brings his principal into privity of contract with a third party. Once the principal is
brought into contractual relationship with the third party the agent drops out and his
principal remains contractually bound to the third party and he can sue or be sued by
the third party.
3.1 Classes of agents:
1)

Universal agent: A universal agent is one who has been appointed to act for the
principal in all matters.

39

2)

General: A general agent is appointed to do anything within the authority given to

him or in all transactions relating to a specified trade.

3)

Special: A special agent is appointed for one particular purpose. He has authority
to do that particular act or acts in that particular transaction.

4)

Factor: A factor agent is one who in the usual course of his business, has
possession of the goods or document of title to goods of his principal with authority to
sell, pledge or raise money on security of the same. The principal is bound by such sale
or pledge even though he has forbidden it unless there is a notice of such prohibition. A
factor agent has a general lien on the goods in his possession for all charges and
expenses properly incurred by him in the lawful execution of his duties.

5)

Brokers: A broker is an agent employed to buy or sell goods for commission. A

broker has no lien on goods and he cannot sue in his own name on the contract.
Normally brokers negotiate contracts between a buyer and a seller without having
possession of the goods or documents of title.

6)

Del Credere Agents: A Del credere agent is an agent for the sale of goods, who
in consideration of higher commission than is usually given, guarantees the due
payment of the prices of all goods sold by him. This guarantee is enforceable even
when it is given by him orally. But he does not make himself liable if the buyer refuses to
take delivery; his liability arises if the buyer does not pay for the goods which he has
already received.

7)

Auctioneers: An auctioneer is an agent who sells or offers for sale of goods or

land at any sale where persons become purchasers by competition, the buyer being the
highest bidder. When a bid is accepted and the hammer falls, the contract comes into
existence and the auctioneer then becomes the agent of both the parties for the
purpose of signing the memorandum.

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8)

Bankers: The general relationship between banker and customer is that of debtor
and creditor but he may be an agent of his customer when he buys or sells securities
and collects cheques on behalf of his customer. The banker is an agent to pay the
customers cheque when he has sufficient funds available in his account.
3.2 Creation of Agency:
Agency may be created by:

a)

Express agreement

b)

Implication or by conduct

c)

Necessity

d)

Ratification
Express Agreement:
This type of agency will arise by formal/express appointment of an agent. As a general
rule, no particular form of appointment is necessary to create express agency. He may
be appointed verbally even if he is employed to make a contract on behalf of his
principal which must by law be in writing or evidenced in writing.
Implied Agency:
The conduct or situation of the parties may dictate that the agency relationship is
created even though no express agreement between them. The most usual examples of
such agency are as follows:

Agency by Estoppel: Whereas an agency can in general arise by the will of the
principal, he may nevertheless so conduct himself leading another to believe that
41

someone is his agent; he

is then estopped from denying this fact. For example, if a person allows another to order
goods on his behalf and always pays for them, then he will be estopped from denying
the authority to a third person who relied on the appearance.

Agency by Cohabitation: Where a man and his wife are living together, the wife is
presumed to be husbands agent to pledge his credit for necessaries suitable to his
style of living if the necessaries are such as normally fall within the wife s province to
purchase. The husband is, however, free to rebut the presumption in any of the
following ways:

That the wife was adequately provided with necessaries or the means with which
to purchase them

That he had forbidden her to pledge his credit

That he had previously warned the shopkeeper in question not to give any
credit to his wife

That he gave a public notice in the newspapers to the effect that he will not be
answerable for his wifes debts

That the wifes order was excessive in quantity or extravagant in quality

Agency by Necessity:

An authority may be conferred by law where an agent has acted by reason of a genuine
emergency with a view to protecting his principal goods which are in danger of being
perished or deteriorated. His action must have been performed in good faith. He must
not assume the role of an agent of necessity unless he is unable to communicate with
the owner of the goods to obtain fresh instructions. An un appointed agent will bind the
principal if it can be shown he acted out of necessity and fulfils the following:

There was a genuine emergency

It was not possible to communicate with the principal

The agent was acting in the principals best interest

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Agency by ratification:
This may arise where the person purporting to act as an agent has acted without prior
authority of the principal and the principal subsequently ratifies the transaction. The
effect of ratification is to render the contract as binding on the principal as if the agent
had been properly authorized at the time of entering into the contract. The ratification
has a retrospective effect; that is, the agency is taken to have come into existence from
the moment the agent first acted and not from the date of the principal s ratification.

Requirements for ratification:

For a person to ratify a contract made on his behalf but without his authority, the
following conditions must be fulfilled:

The contract must be purported to be made on behalf of a named principal and a

contract intended to be made on behalf of an undisclosed principal cannot be ratified.

The agents intention to act for another must have been expressed or manifested at the
time of entering into the contract.

The principal must have been in existence and have had full contractual capacity at the
time the contract was made. A contract entered into by promoters of a company on its
behalf before its incorporation cannot be ratified after it comes into existence.

Ratification must take place within a reasonable time and in any event before the
expiration of the time, if any, fixed for performance

The principal must, at the time of ratification, have full knowledge of the material
facts

The ratification must be of the whole contract and the principal cannot ratify part of the
43

contract only

A void contract cannot be ratified. For instance a forged signature cannot subsequently
be ratified.
3.3 Rights of the Agent:

1)

Indemnity: The agent has a right of indemnity against his principal. The principal
is under a duty to indemnify his agent against all charges, expenses and liabilities
properly incurred by him in the lawful execution of his duties. The agent has a right, if
sued, to set off the value of his indemnity against the amount due from him to his
principal.

2)

Remuneration: Unless the services are rendered by the agent voluntarily and
gratuitously, he is entitled to receive any agreed remuneration and if none was agreed,
a reasonable remuneration should be given to the agent. The agreement to pay
remuneration may be implied by conduct or trade usage. The agent loses the right of
claiming any remuneration if he has misconducted himself in the performance of his
duties such as by accepting a bribe or accepting a secret commission.
3) Lien: Certain classes of agents such as factors, bankers, stockbrokers and
advocates can
hold their principals goods in respect of their remuneration and other lawful expenses
incurred in the course of execution of their duties. The right of lien is however, lost
where the agent parts with the possession of the goods.
3.4 Duties of the Agent:

1)

The agent must carry out the work undertaken according to his principal s
instructions.

44

Where he fails to act in accordance with the instructions, he will become liable for
breach and will also entitle the principal to terminate his agency without paying him any
remuneration for the work done
2)

The agent must keep his principal well informed about all matters concerning the
agency and must not disclose any information relevant to agency to a third party

3)

The agent must carry out the work with reasonable care, skill and diligence and if
he fails in his duty, he becomes liable to the principal for any loss suffered by him

4)

The agent must keep proper accounts and must produce these to his principal.
He should not mix his principal s money with his own unless the terms of the agency
permit him to do so

5)

The agent must not make any secret profit or accept bribes. Where he does so,
he will be forced to refund such amount to his principal and lose the right of receiving
commission. Apart from this, the principal can, if he chooses, repudiate the contract with
the third party.

The agent must himself do the work which he has undertaken. He cannot further
delegate his duties except in the following circumstances: Where the principal has
expressly permitted

Where the custom of trade permits it

Where it is necessary to complete the performance properly

Where an unforeseen emergency arises.

7) The agent must not place himself between his duties and self interests and where he
finds a clash between his interests and those of his principal, he must uphold the
interests of his principal. An agent who is employed to sell his principal s house must
not purchase it for himself.
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3.5 Termination of Agency:

Agency may be terminated in the same way as contract

Battle of forms
Butler Machine Tool Co Ltd v Ex-Cell-O Corp Ltd
This case is a battle of forms. The plaintiffs, the Butler Machine Tool Co. Ltd., suppliers
of a machine, on May 23, 1969, quoted a price for a machine tool of 75,535. Delivery
was to be given in 10 months. On the back of the quotation there were terms and
conditions. One of them was a price variation clause. It provided for an increase in the
price if there was an increase in the costs and so forth. The machine tool was not
delivered until November 1970. By that time costs had increased so much that the
sellers claimed an additional sum of 2,892 as due to them under the price variation
clause. Avoiding battle of forms
Use open tendering
Negotiate with suppliers to reach a compromise on standard terms and
conditions
Use framework and call off agreement/contracts
3.6 Review Questions
1. Discuss various forms of creating an agency
2. For a person to ratify a contract made on his behalf but without his
authority, discus the conditions that must be fulfilled:
3. Boggers Ltd employ Charles as their agent for the distribution and sale of
their computers. The agency agreement provides that the agency will last
for a period of two years commencing on 1 January 2015 and that

46

Charles will receive a 5 percent commission on every computer sold.

Discuss the rights and liabilities of the parties in relation to this agency
agreement

4.0 THE SUPPLY OF GOODS AND SERVICES

4.1 Sale of Goods
The law relating to the sale of goods has been largely regulated in Kenya by the Sale of
Goods Act (Cap 31) 1962. Contract for sale of goods is defined as a contract whereby
the seller transfers or agrees to transfer the property in goods to the buyer for a money
consideration, called the price. Section 3(4) provides that where the transfer of property
from the seller to the buyer takes place immediately, the contract is called a sale. But
where the transfer of property in the goods is to take place at a future date or subject to
some conditions thereafter to be fulfilled, the contract is called an agreement to sell.
An agreement to sell becomes a sale when time elapses or the conditions are fulfilled
subject to which the property in the goods is to be transferred.
The term goods includes all tangible movable property with the exception of money.
The consideration for the sale must be money, or partly money and partly in goods of
some other form of value.
A contract for sale of goods excludes or must be distinguished from
(i)

contract of barter where goods are exchanged

(ii)

Contracts of work and material (whereby the subject matter of the contract is the
provision of skill e.g. painting, repair of car, interior decoration of premises etc)

47

(iii)

Contracts of bailment (because there is no intention) to pass the property in such

contracts but merely to pass temporary possession of the goods) e.g. contracts of hire,
repair of goods.

4.2 Difference between sale and an agreement to sell:

a) In actual sale, the property in the goods passes to the buyer; while in an agreement
to sell, the property in the goods does not pass to the buyer at the time of the
contract.
b) If there is an agreement to sell and the goods are destroyed, the loss, as a rule, falls
on the seller; while in a contract of actual sale, the risk passes to the buyer
immediately the contract is made.
c) In a contract of sale, the seller can sue for the price of the goods, even though the
goods are still in his possession; while in an agreement to sell, he can sue for
damages if the buyer refuses to accept and pay for the goods.
Form of the contract:
A contract of sale may be made in writing (either with or without seal) or by word
of mouth or partly in writing and partly by word of mouth or may be implied from
the conduct of the parties. However, a contract for the sale of good for ten
pounds is required to be in writing.
Subject-matter of the contract:
The goods which form the subject-matter of a contract may be either existing
goods or goods to be manufactured or acquired by the seller after making the
contract.
Perishing goods:
48

Where specific goods are the subject matter of a contract of sale and they perish
without the knowledge of the seller at or before the time of contract, the contract
is void. This is based on the fact that a common mistake as to the existence of
the subject-matter renders the contract void.
Goods perished after an agreement to sell:
Where the contract is not of sale, but is only an agreement to sell and
subsequently the goods without any fault of the seller or buyer perish before the
risk passes to the buyer, the agreement is thereby avoided. This is based on the
rule that the supervening impossibility discharges the parties from their
respective obligations.
The price:
According to section 3, a contract of sale or an agreement to sell must be
supported by money consideration called the price. Any voluntary surrender of
goods by one person to another is a contract of gift and is not governed by the
rules relating to sale.
Ascertainment of price: The price may be expressly fixed by the parties in the
contract of sale or may provide for the method in which the price is to be fixed.
Where the price is not stated in the contract and no provision made for its
determination, the buyer must pay a reasonable price and what is a reasonable
price is a question of fact dependent on the circumstances of each particular
case.
4.3 Agreement to sell at valuation:
The price may be left to be fixed by the valuation of a third party, provided he accepts
the duty and performs it. But if the third party fails to make such valuation, the
agreement is avoided. If in pursuance of the contract the goods or any part thereof have
been delivered by the seller and accepted by the buyer, he must pay a reasonable price
for them. In case the third party is prevented from making the valuation by the seller or
by the buyer, the innocent party may maintain an action for damages against the party

49

in fault
4.4 Conditions and warranties:
A condition is a stipulation in a contract of sale the breach of which gives rise to a right
to treat the contract as a repudiated.
A warranty is a stipulation in a contract of sale breach of which may give rise to a claim
for damages but not a right to reject the goods and treat the contract as terminated
/repudiated. They are merely collateral to the main purpose of the contract.
Whether a term is a condition or a warranty depends on the construction of the
warrant. Conditions and warranties may either be
Express if agreed upon by parties at the time of making the contract.
Implied if attached to the contract by custom or by implication of the law
Implied warranties under SGA
The buyer shall have and enjoy quiet possession of the goods. This means that
where the buyer has obtained possession of goods, he has a right to enjoy them
and if his right of possession and enjoyment is disturbed, he is entitled to sue the
seller for damages.
An implied warranty is that the goods shall be free from any charge or
encumbrance in favour of any third party, not declared or known to the buyer
before or at the time when the contract is made. This warranty will not apply if
such encumbrance is declared to the buyer when the contract is made or he has
notice of it

50

Implied conditions under SGA

1) Right to sell: The first implied condition by virtue of section 14 (a) is that the seller
in every contract of actual sale has the right to sell the goods and in an agreement to
sell he will have the right when the property is to pass. As a result of this, if the title
turns out to be defective, the buyer is entitled to reject the goods and also claim
damages.
ROWLAND v DIVALL, 1923
In this case, the plaintiff bought a car from the defendant and used it for four months
before discovering that the car had never belonged to the defendant. The plaintiff had to
return the car to the true owner. It was held that the defendant was in breach of the
implied condition (Right to sell) and the plaintiff was entitled to recover the full price he
had paid because of the total failure of consideration.
2) Sale by Description: Section 15 states that where the goods are sold by
description, then there is an implied condition that the goods will correspond with the
description. The section further includes that if the sale is by sample as well as by
description, then it is necessary that the bulk of goods corresponds with the sample
and description.
VARLEY v WHIPP, 1900
In this case, the plaintiff sold a reaping machine to the defendant which the defendant
had never seen. The machine was described as new. On delivery, it was discovered
that the machine was much older and did not correspond with the description. It was
held that the defendant was not liable to pay the price of the machine as it did not fit
with the description given by the plaintiff.
3) Condition as to Quality or Fitness: A seller is not under duty to disclose the
defects attached to the goods which he sells. The buyer must look after his own
51

interest. But section 16 creates an exception to this rule of caveat emptor (Buyer be
aware) and states that where the buyer makes known to the seller the particular
purpose for which he is buying the goods and the seller specializes in the sale of
those type of goods, then there is an implied condition that the goods shall be
reasonably fit for such purpose.
BALDRY v MARSHALL, (1925) B told Marshal, a motor dealer, that he wanted to buy a
car which would be comfortable for touring purposes. Marshall recommended to him a
Bugatti car. B relied on his expert advice and bought a Bugatti car. When the car was
delivered, it was found that it was neither comfortable nor suitable for touring purposes.
B sued for the return of the purchase money. It was held that he could succeed.
4) Condition as to merchantability: Goods are said to be merchantable quality if they
are in such a condition that a reasonable man acting reasonably would after full
examination accept them. When goods are sold by description, they shall be of
merchantable quality i.e. fit for the purpose they are manufactured. It is worthwhile to
note that this implied condition does not apply where the buyer examines the goods
and he accepts them. But if such examination by the buyer does not reveal the
defects and the goods turn out to be defective when put into use, the buyer can
repudiate the contract and claim damages.
MORELLI v FITCH & GIBSON, (1928) M bought a bottle of ginger wine from the
defendants shop. When he was trying to open the bottle broke and seriously injured
his hand. Held that the plaintiff was entitled to damages as the bottle was not of
merchantable quality.
5) Sale by Sample: In a sale by sample, there is an implied condition that the bulk
shall correspond with the sample in quality and the buyer must be allowed to have a
reasonable opportunity of comparing the bulk with the sample. In addition to this,
there is an implied condition that the goods are free from any defect which would be
an apparent upon, examination, rendering them unmerchantable. But the liability is
excluded if defects should have been discovered on reasonable examination of the
52

sample.

4.5 Transfer of property, risks and title

Why is it important to know when the property in the goods passes?
The following examples explain why it is important to know when the property in the
goods has passed to the buyer:
Payment
Unless otherwise agreed, the seller may only sue the buyer for the price once
property in the goods has passed
Insolvency
If either the seller or the buyer becomes insolvent, then the rights of the other (noninsolvent) party may depend on whether or not property in the goods has passed to
the buyer.
Subsequent transfer of ownership
Unless the buyer has acquired ownership in the goods he cannot transfer that
ownership to another party
Risk
Unless the parties have agreed otherwise, risk is borne by the owner of the goods. Risk
in this context means the risk of theft, loss, or damage to the goods, but not the risk of
non-payment.
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4.6 Transfer of property in ascertained and unascertained goods

Where there is an unconditional contract for the sale of specific goods in a
deliverable state Property in the goods passes to the buyer when the contract is
made. This is irrespective of whether the time of payment or the time of delivery,
or both, are postponed where there is a contract for the sale of specific goods
and the seller is bound to do something to the goods for the purpose of putting
them into a deliverable state Property in the goods passes to the buyer When the
thing is done and the buyer has notice that it has been done
where there is a contract for the sale of specific goods in a deliverable state but
the seller is bound to weigh, measure, test, or do some other act or thing with
reference to the goods for the purpose of ascertaining the price Property in the
goods passes to the buyer when the act or thing is done and the buyer has
notice that it has been done
When goods are delivered to the buyer on approval or on sale or return or other
similar terms property in the goods passes to the buyer when;
-

the buyer signifies his approval or acceptance to the seller or does any other act
adopting the transaction

if he does not signify his approval or acceptance to the seller but retains the
goods without giving notice of rejection, then, if a time has been fixed for the
return of the goods, on the expiration of that time, and, if no time has been fixed,
on the expiration of a reasonable time

where there is a contract for the sale of unascertained or future goods by

54

description, and goods of that description, and in a deliverable state, are

unconditionally appropriated to the contract, either by the seller with the assent of
the buyer or by the buyer with the assent of the seller, the property in the goods
thereupon passes to the buyer; and assent may be express or implied, and may
be given either before or after the appropriation is made;
where, in pursuance of the contract, the seller delivers the goods to the buyer or
to a carrier or other bailee or custodier (whether named by the buyer or not) for
the purpose of transmission to the buyer, and does not reserve the right of
disposal, he is deemed to have unconditionally appropriated the goods to the
contract.
Passing of risk
Risk in this context means the risk of theft, loss, or damage to the goods, but not the
risk of non-payment.
Who has the risk?
This will depend on whether or not the buyer deals as a consumer:
When the buyer deals as a consumer, the goods remain at the sellers risk until
they are delivered to the consumer
When the buyer does not deal as a consumer, then unless otherwise agreed, the
goods remain at the sellers risk until the property in them is transferred to the
buyer. When the property in them is transferred to the buyer the goods are at the
buyers risk whether delivery has been made or not

4.7 Transfer of title by a non owner

55

The general rule of Nemo dat quod non habet is that no-one can transfer what he has
not got. The nemo dat rule protects the true owner of the goods and the innocent
purchaser gets no title whatsoever. However there are exceptions to this rule under sale
of goods Act which include;

Sale in market
Overt

Seller in possession
after sale

Buyer in possession
after sale

Estoppel

EXCEPTIONS
TO THE
NEMO DAT

Special powers
of sale

Sale by a
mercantile agent

Sale under
voidable title

Sale of a motor
vehicle
acquired on HP

Estoppel
Estoppel applies in cases where the owner of the goods acts in such a way that it
appears that the seller has the right to sell the goods. As a consequence, the owner is
then prevented (estopped) from denying the facts as he represented them to be. The
third party purchaser then becomes the owner of the goods at the expense of the
original owner.
There are two distinct categories of estoppel
-

Estoppel by representation
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Estoppel by representation might arise where the owner of the goods has by his words
or conduct represented to the buyer that the seller is the true owner of the goods, or has
his authority to sell the goods
-

Estoppel by negligence

Estoppel by negligence is where the owner of goods, by reason of his negligence or

negligent failure to act, allows the seller of the goods to appear to the buyer as the true
owner or as having the true owners authority to sell the goods. For this kind of
estoppel to arise it must first
be shown that the owner of the goods had a duty to take care so as not to act
negligently.
Sale By Mercantile Agent
The expression mercantile agent shall mean a mercantile agent having in the
customary course of his business as such agent authority either to sell goods, or to
consign goods for the purpose of sale, or to buy goods, or to raise money on the
security of goods. This exception to the nemo dat rule refers only to a person who is
acting as a mercantile agent and is able to satisfy all of its requirements.
Sale Under Voidable Title
If a party who has a voidable title to the goods resells them to an innocent third party
then that third party will gain good title to them provided that the original contract has
not by then been avoided
Sale by a seller in possession after Sale

57

This exception to the nemo dat rule allows a seller who, after a sale, remains in
possession of the goods or of the documents of title to them, to pass a good title to
a second buyer
Sale by a buyer in possession after sale
This exception allows a buyer in possession of the goods to pass good title even
where such a buyer has not got any such title to pass. This operates in the
following way.
Example
A buyer (X) takes possession of goods that he has agreed to buy although he has not
yet acquired title to them. The reason why he has not yet acquired title is immaterial but
might be because of a retention of title clause in the contract or because his cheque in
payment of the goods has been
dishonoured by his bank and it was a condition of the contract that title will not pass until
the goods have been paid for. He then sells the goods to Y. Y obtains good title to the
goods even though X did not himself have ownership of them.
Sale of a vehicle acquired on hire purchase
A bonafide purchaser of a motor vehicle from a person in possession under a hire
purchase agreement or conditional sale agreement obtains good title to the vehicle.
The sale of anything other than a motor vehicle is not covered under this exception

Sale in market overt

This was the oldest of the exceptions to the nemo dat rule. A sale in market overt
occurred when goods were sold in an established market between the hours of sunrise
58

and sunset. The basis of this exception was that a dishonest person would be unlikely
to sell stolen goods or goods that he did not own in such a market. The rule seems to
reflect the high degree of supervision that was seen in established markets in the
Middle Ages. It was clearly an outdated exception and was abolished
Sale Under Special Powers
Sale by order of a court. A court may order the sale of goods for any just and sufficient
reason
4.8 Supply of goods and services
It is the duty of the seller to deliver the goods, and of the buyer to accept and pay for
them, in accordance with the terms of the contract of sale.
Unless otherwise agreed, delivery of the goods and payment of the price are concurrent
conditions; that is to say, the seller must be ready and willing to give possession of the
goods to the buyer in exchange for the price, and the buyer must be ready and willing to
pay the price in exchange for possession of the goods
Rules as to delivery
Whether it is for the buyer to take possession of the goods, or for the seller to send
them to the buyer, is a question depending in each case on the contract, express or
implied, between the parties.
Apart from any such contract, express or implied, the place of delivery is the
seller's place of business, if the seller has one, and if not, the seller's residence.
If the contract is for the sale of specific goods, which to the knowledge of the
parties when the contract is made are in some other place, then that place is the
59

place of delivery.
If under the contract of sale the seller is bound to send the goods to the buyer,
but no time for sending them is set, the seller is bound to send them within a
reasonable time.
If the goods at the time of sale are in the possession of a third person, there is no
delivery by seller to buyer unless and until that third person acknowledges to the
buyer that the third person holds the goods on the buyer's behalf.
Unless otherwise agreed, the expenses of and incidental to putting the goods
into a deliverable state must be borne by the seller.
Delivery of wrong quantity

If the seller delivers to the buyer a quantity of goods less than the seller
contracted to sell, the buyer may reject them.

If the buyer accepts the delivered goods, the buyer must pay for them at the
contract rate.

If the seller delivers to the buyer a quantity of goods larger than the seller
contracted to sell, the buyer may accept the goods included in the contract and
reject the rest, or reject the whole.

If the seller delivers to the buyer a quantity of goods larger than the seller
contracted to sell and the buyer accepts the whole of the goods delivered, the
buyer must pay for them at the contract rate.

If the seller delivers to the buyer the goods the seller contracted to sell mixed
with the goods of a different description not included in the contract, the buyer
may accept the goods that are in accordance with the contract and reject the
rest, or reject the whole.

Installment deliveries
60

Unless otherwise agreed, the buyer of goods is not bound to accept delivery by
installments.

If there is a contract for the sale of goods to be delivered by stated installments,

which are to be separately paid for, and the seller makes defective deliveries in
respect of one or more installments, or the buyer neglects or refuses to take
delivery of or pay for one or more installments, it is a question in each case
depending on the terms of the contract and the circumstances of the case
whether the breach of contract is a repudiation of the whole contract, or a
severable breach giving rise to a claim for compensation but not to a right to treat
the whole contract as repudiated.

Delivery to carrier

If, in pursuance of a contract of sale, the seller is authorized or required to send

the goods to the buyer, delivery of the goods to a carrier, whether named by the
buyer or not, for transmission to the buyer is deemed, unless there is evidence to
the contrary, to be a delivery of the goods to the buyer.

Unless otherwise authorized by the buyer, the seller must make such contract
with the carrier on behalf of the buyer as may be reasonable, having regard to
the nature of the goods and the other circumstances of the case.

If the seller fails to act as required above and the goods are lost or damaged in
course of transit, the buyer may decline to treat the delivery to the carrier as a
delivery to the buyer, or hold the seller responsible in damages.

Unless otherwise agreed, if goods are sent by the seller to the buyer by a route
involving sea transit, under circumstances in which it is usual to insure, the seller
must give such notice to the buyer as may enable the buyer to insure them
during their sea transit. If the seller fails to give notice, the goods are deemed to
be at the seller's risk during the sea transit

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Supply of Services
Contract for the supply of a service means, a contract under which a person (the
supplier) agrees to carry out a service.
Implied terms for supply of services

Implied term about time for performance; Where, under a contract for the supply
of a service by a supplier acting in the course of a business, the time for the
service to be carried out is not fixed by the contract, left to be fixed in a manner
agreed by the contract or determined by the course of dealing between the
parties, there is an implied term that the supplier will carry out the service within a
reasonable time. What is a reasonable time is a question of fact.

Implied term about care and skill. In a contract for the supply of a service where
the supplier is acting in the course of a business, there is an implied term that the
supplier will carry out the service with reasonable care and skill

Implied term about consideration. Where, under a contract for the supply of a
service, the consideration for the service is not determined by the contract, left to
be determined in a manner agreed by the contract or determined by the course
of dealing between the parties, there is an implied term that the party contracting
with the supplier will pay a reasonable charge. What is a reasonable charge is a
question of fact
4.9 Review Questions
1. Highlight the distinct rights of unpaid seller
2. Discuss the implied conditions and warranties of a contract of sale of
goods

62

5.0 THE LAW OF TORT

5.1 Liability in negligence
Negligence is the failure to exercise the required amount of care to prevent injury to
others. For example, if you cause an accident that injures someone or damages their
vehicle because you were driving at an unsafe speed, then you could be sued for
negligence.
Requirements for Negligence
63

Before a court will award damages, the presumed negligence must satisfy 4
requirements:
there must be a legal duty to perform or to use reasonable care
there must have been a failure to perform that duty
the plaintiff must have suffered an injury or a loss
5.2 Settlement of disputes
Negotiation
Negotiation is by far the most common form of dispute resolution. The objective of
sensible dispute management should be to negotiate a settlement as soon as possible.
Negotiation can be, and usually is, the most efficient form of dispute resolution in terms
of management time, costs and preservation of relationships. It should be seen as the
preferred route in most disputes.
Its advantages are:

Speed

Cost saving

Confidentiality

Preservation of relationships

Range of possible solutions

64

Control of process and outcome

. Conciliation
This mechanism is used to discover whether there is room for the parties to a
dispute to make up.
A third party, the conciliator is appointed who discusses the dispute with the
parties and then prepares a solution based on what he or she as the conciliator
considers to be a just compromise.
The solution presented to the parties is reviewed with all relevant documents
after which the conciliator meets with the parties separately for oral presentation
of their cases.
The conciliator may consult the parties privately as often as necessary to reach a
solution. The proceedings are therefore flexible enough to accommodate this
process.
The conciliator tries to satisfy both parties. In doing this he or she looks for a
consensus and while not dictating a solution to the parties, nevertheless crafts
one for them. In effect, the conciliator may be regarded as designer of the
solution. This may be contrasted with mediation where the parties are guided to
design their own solution.
Mediation
Parties to a dispute seek mediation when they are ready to discuss a dispute
openly and honestly. Usually in a dispute, there are varying degrees of interests
and concerns therefore it is usual that a trade off may be made in a creative
manner which a court may not consider.

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 The underlying factor in mediation is that the parties have bargaining power and
that a continuing relationship is essential after the dispute therefore trial is to be
avoided.
A neutral party, the mediator, is brought in to help the parties find a solution to a
dispute. The person controls the process while the parties control the outcome. A
mediator cannot impose a decision on the parties.
In a typical mediation session, the mediator opens the session by declaring how
the session will run, who will speak, when, for how long and the length of the
session.
The parties are requested to confirm their good faith and trust in the process and
to agree that all that will be said will be confidential and therefore inadmissible in
any subsequent proceeding. After this, parties take turn to state their views of the
dispute.
The mediator asks for clarification as may be necessary. If necessary, the
mediator may meet with the parties separately in a confidential caucus to assess
position, identify real interest, consider alternatives or help generate a possible
solution. This is called shuttle mediation.
The process may involve several sessions before a solution is arrived at.
Mediation may be of different types but three popular variations are the rights
based mediation which focuses on legal rights of the parties, the interest based
mediation which focuses on the interests and compelling issues of the dispute
and therapeutic mediation which focuses on the problem solving ability of the
parties or the emotional aspects of the dispute.

Mini-Trial
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 A mini-trial is a private abbreviated process of presentation by lawyers to the

disputants to help them assess the strength and weakness of their positions and
to help them reach a decision whether or not to proceed to trial.
Usually there will be a third party advisor who renders a non-binding opinion
about the legal, factual and evidentiary points of the case and what the outcome
might be in court. The lawyers can then use this information to come to a
conclusion.
This is a two-part settlement process, which originates as mediation but may
graduate to arbitration using the neutral party as the arbitrator who gives an
award.
Early Neutral Evaluation/Fact Finding
This is an informal process whereby a neutral third party is selected by the
disputants to investigate the issue in dispute and submit a report or come to give
evidence at another forum like a court or arbitration.
The outcome of a neutral fact finding is not binding but the result is admissible for use in
a trial or other forum. The method is particularly useful in resolving complex scientific,
technical, sociological, business or economic issue. Using a neutral fact finder
eliminates the strategic posturing which characterizes the litigation or even arbitration
process
Arbitration
Arbitration is the settlement of any commercial dispute between two or more
parties by a person called arbitrator. Arbitration can also be defined as a
proceeding in which a dispute is resolved by an impartial adjudicator whose
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decision the parties to the dispute have agreed, or legislation has decreed, will
be final and binding.
It is a settlement technique in which a third party reviews the case and imposes a
decision that is legally binding for both sides. Arbitration agreements are
governed in Kenya by Arbitration Act (Cap 49).
Litigation
If the use of a consensual process is not provided for in the contract and cannot
otherwise be agreed, the only alternative is litigation. Litigation will involve
preparation for trial before a judge, and may well be a lengthy, drawn-out and
costly process. Parties often agree a settlement before the case comes to court,
but in some cases not before months or even years of effort have been spent on
expensive preparatory work. Its advantages are:

Possible to bring an unwilling party into the procedure

Solution will be enforceable without further agreement Its disadvantages are:

Potentially lengthy and costly

Adversarial process likely to damage business relationships

Outcome is in the hands of a third party, the judge.

Read on adjudication and mini-trial
Competition
Competition in Kenya is governed by the competition Act 2010. In this Act competition
means competition in a market in Kenya and refers to the process whereby two or more
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persons supply or attempt to supply to or acquire or attempt to acquire from, the people
in that market the same or substitutable goods or services
The Act applies to all persons including the Government, state corporations and local
authorities in so far as they engage in trade
Competition Authority is established under the Act which has the following functions

promote and enforce compliance with the Act

receive and investigate complaints from legal or natural persons and consumer
bodies

promote public knowledge, awareness and understanding of the obligations,

rights and remedies under the Act and the duties, functions and activities of the
Authority

promote the creation of consumer bodies and the establishment of good and
proper standards and rules to be followed by such bodies in protecting
competition and consumer welfare

recognize consumer bodies duly registered under the appropriate national laws
as the proper bodies, in their areas of operation, to represent consumers before
the Authority

make available to consumers information and guidelines relating to the

obligations of persons under the Act and the rights and remedies available to
consumers under the Act

carry out inquiries, studies and research into matters relating to competition and
the protection of the interests of consumers

study government policies, procedures and programmes, legislation and

proposals for legislation so as to assess their effects on competition and
consumer welfare and publicise the results of such studies

investigate impediments to competition, including entry into and exit from

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markets, in the economy as a whole or in particular sectors and publicise the

results of such investigations

investigate policies, procedures and programmes of regulatory authorities so as

to assess their effects on competition and consumer welfare and publicise the
results of such studies

participate in deliberations and proceedings of government, government

commissions, regulatory authorities and other bodies in relation to competition
and consumer welfare make representations to government, government
commissions, regulatory authorities and other bodies on matters relating to
competition and consumer welfare liaise with regulatory bodies and other public
bodies in all matters relating to competition and consumer welfare advise the
government on matters relating to competition and consumer welfare

The object of the competition Act is to enhance the welfare of the people of Kenya by
promoting and protecting effective competition in markets and preventing unfair and
misleading market conduct throughout Kenya, in order to;

increase efficiency in the production, distribution and supply of goods and

services

promote innovation

maximize the efficient allocation of resources

protect consumers

create an environment conducive for investment, both foreign and local

capture national obligations in competition matters with respect to regional

integration initiatives

bring national competition law, policy and practice in line with best international
practices

promote the competitiveness of national undertakings in world markets.

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6.0 INTELLECTUAL PROPERTY LAW

Intellectual property (IP) is a term referring to a number of distinct types of creations of
the mind for which a set of exclusive rights are recognized. Under Intellectual property
law, owners are granted certain exclusive rights to a variety of intangible assets, such
as musical, literary, and artistic works; discoveries and inventions; and words, phrases,
symbols, and designs. Common types of intellectual property include

copyrights,

trademarks, patents, industrial design rights and trade secrets in some jurisdictions.
6.1 Reasons for embracing protection of intellectual property:

Progress and wellbeing of new creations in the areas of technology and culture. The
innovators will invariably reap their creativity benefits if the law protects them from
unscrupulous traders who take the advantage when there is a vacuum of law in
some areas. Also the government encourages creators to disclose their creations to
the public in order to promote their progress of science and useful arts which are
engines of development-investors demand this guarantee.

Legal protection of this creation encourages the expenditure of additional resources

which leads to further innovation. Also through the law of intellectual property, the
innovators can have a drive even to do further research hence bringing forth new
71

creations in the market.

Promotion of intellectual protection spurs/foster economic growth, creates new jobs

and industries and enhances quality and enjoyment of life. These attributes to a
great extent promote generally the countrys performance in terms of perfection of
various projects

Reward creativity and Human endeavour which in return fuels the progress of
Humankind. This attribute is in line with bringing forth some semblance of value
creation in terms of what an individual does.

Provision of financial incentives: Exclusive rights allow owners of intellectual

property to benefit from the property they have created, providing a financial
incentive for the creation of an investment in intellectual property.

inventions in the mechanical field. Utility models are usually sought for technically less
complex inventions or for inventions that have a short commercial life. The procedure
for obtaining protection for a utility model is usually shorter and simpler than obtaining a
patent. The requirements for acquiring a utility model are less stringent than those of
patents. While thenovelty requirement must always be met, that of incentive
step or non-obviousness may be much less or even lacking. In practise,
protection for utility models is often sought for innovations of rather incremental nature,
which may not meet the patentability criteria. The maximum term of protection provided
by law for a utility model is generally shorter than the maximum term of protection
provided for a patent for invention (usually 7-10 years). The fees required for obtaining
and maintaining the right are generally lower than those for patents.
Industrial design:
This comprises any composition of lines or colours or any three dimensional forms that
gives a special appearance to a product of industrial / hand crafts. Basically industrial
design:
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Protect ornamental / aesthetic aspect of useful article.

Depends on shape, pattern, form associated lines or colour

Must be reproducible by industrial mean

Must be new and original

Protection is against unauthorized copying or imitation

Protection period is a maximum of 15 years.

Trade service/marks (Brand names):

A trademark is a sign, or a combination of signs which distinguishes the goods or

services of one enterprise from those of another. Such signs may use words, letters,
pictures and also shapes. Protection given to the proprietor is the exclusive right to
prevent others from using the sign or a sign so similar to it. Term of protection is 10
years and may be renewable.
Trade secrets
Confidential business information which provides a competitive edge in the market
ought to be maintained. This may entail: secrets e.g. formulae, data compilation, sales
methods, distribution methods, customer profiles, advertising strategies, list of
suppliers etc. The key requirements for trade secrets are based on keeping information
secret and not accessible to all; also commercial value and reasonable steps to keep
secret should be maintained.
Geographical indications:
Its also regarded as an appellation of origin/indication of source. It s a sign used on
goods

that

have

specific

geographical

origin

which

often

qualities/reputation/other characteristics attributable to that place of origin.

Layout designs of integrated circuits:

73

possess

Comprise a large range of products such as televisions, automobiles, data processing

equipment, watches etc.
2. Copyright:
Copyright is a set of exclusive rights granted to the author or creator of an original
work, including the right to copy, distribute and adapt the work. Copyright owners have
the exclusive statutory right to exercise control over copying and other exploitation of
the works for a specific period of time, after which the work is said to enter the public
domain. In regard to copyright ownership, the basic rule is that the person who created
the work is the owner of the copyright. However, there is an exception to this rule. This
section provides that where a person creates a work in the course of employment the
employer is the first owner of any copyright. Copyrights relate to artistic creations, such
as poems, novels, music, paintings and cinematographic works broadcasting rights. The
expression copyright forms the basis of artistic creations. In Kenya copyright provisions
are articulated under the copyright Act, 2001. This is an act of parliament that make
provision for copyright in literacy, musical and artistic works, audio-visual works, sound
recordings, broadcasts and for connected purposes. It is imperative to underscore the
fact that any person who sells or offers for sale any copyright work that require an
authentication device without an authentication device affixed thereto is guilty of an
offence and is liable to a fine not exceeding five hundred thousand shillings, or to
imprisonment for a term not exceeding four years or both. The terms of protection for
copyright infringement is fifty years. Exclusive rights granted are purely based on
preventing reproduction, distribution, communication as well as unauthorized sale of the
materials.
Challenges based on provision of intellectual property rights:

Lack of awareness

Low level of IP generation, acquisition exploitation and commercialization

Lack of IP policy within enterprises

Lack of resources (filing maintaining legal fees etc)

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Lack of effective legal protection of IP

Lack of IP culture

Lack of research and development subsidies from the government.

Employment and safety

Employment includes any policy or practice relating to recruitment procedures,
advertising and selection criteria, appointments and the appointment process, job
classification and grading, remuneration, employment benefits and terms and conditions
of employment, job assignments, the working environment and facilities , training and
development,

performance

evaluation

systems,

promotion,

transfer, demotion,

termination of employment an disciplinary measures.

Employment in Kenya is governed by the employment Act 2007 which covers
prohibition against forced labour, discrimination in employment, sexual harassment,
employment relationship, protection of wages, employment relationship, termination and
dismissal, protection of children, insolvency of employer, employment records,
management of employment, foreign contracts of service and dispute solving
procedures
Safety in work place is governed by occupational safety and health bill which covers
Vessels containing dangerous liquids, storage, ladders, ergonomics at the workplace,
safe means of access and safe place of employment, fire prevention, precautions in
places where dangerous fumes is likely, precautions with respect to explosive or
inflammable dust or gas, safety provisions in case of fire, evacuation procedure, the
handling, transportation and disposal of chemicals and other hazardous substances
materials
6.2 Branches of intellectual property:
Intellectual property is usually divided into two branches, industrial property and
copyright.

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1. Industrial property:
Industrial property takes a range of forms, the main types of which include patents to
protect inventions, utility models and industrial designs (aesthetic creations determining
the appearance of industrial products). Industrial property also covers trademarks as
well as geographical indications and protection against unfair competition. Industrial
property rights are administered by the Kenya industrial property institute (KIPI) under
IPA 2001 and TM of 1957 which was amended in 2002.
Patents:
A patent is a set of exclusive rights granted by a state (national government) to an
inventor or their assignee for a limited period of time. A patent can also be defined as a
right given by a government to a person or company that has invented some new and
useful idea(s). The patent gives its owner the right to stop other people or companies
from making, using or selling products that use the invention. But after the patent ends,
the patent owner cannot prevent other people from using the idea(s). Basically patent
right usually ends after twenty (20) years. The patentee may give or grant a license to
other parties to use the invention on mutually agreed terms. The patentee may also sell
his right to the invention to someone else who will then become the new owner of the
patent.
6.3 Requirements for patenting an invention:
An invention must meet the following requirements at the time of filing of the patent
application:

Novelty: It must be new (Not anticipated by prior art)

It must be not-obvious (involving an "inventive step"): It should not be

deduced by a person with average knowledge of the technical field.

Industrial applicability (utility): must be practical or capable of being

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used in industrial application

Patentable subject matter: must fall within the scope of patentable

subject matter as defined by national law.

Utility models (Petty patents):

Utility models are not widespread as patents and are used to protect inventions. The
expression
utility model is simply a name given to a title of protection for certain inventions,
such as
6.1 Reasons for embracing protection of intellectual property:

Progress and wellbeing of new creations in the areas of technology and culture. The
innovators will invariably reap their creativity benefits if the law protects them from
unscrupulous traders who take the advantage when there is a vacuum of law in
some areas. Also the government encourages creators to disclose their creations to
the public in order to promote their progress of science and useful arts which are
engines of development-investors demand this guarantee.

Legal protection of this creation encourages the expenditure of additional resources

which leads to further innovation. Also through the law of intellectual property, the
innovators can have a drive even to do further research hence bringing forth new
creations in the market.

Promotion of intellectual protection spurs/foster economic growth, creates new jobs

and industries and enhances quality and enjoyment of life. These attributes to a
great extent promote generally the countrys performance in terms of perfection of
various projects

Reward creativity and Human endeavour which in return fuels the progress of
Humankind. This attribute is in line with bringing forth some semblance of value
creation in terms of what an individual does.

Provision of financial incentives: Exclusive rights allow owners of intellectual

77

property to benefit from the property they have created, providing a financial
incentive for the creation of an investment in intellectual property.

7.0 PUBLIC PROCUREMENT

7.1 Objectives of public procurement:

Ensure public organisations get value for money

Enhance transparency and accountability
Ensure efficiency and effectiveness
Promote competition and ensures that competitors are treated fairly by use of

competitive procurement methods

Promotes integrity and fairness of procurement procedures
Restore public confidence in procurement process
Build public trust to stakeholders
Facilitate promotion of local industry and economic development
To ensure that goods and service are obtained at the right price, right quality, right
quantity, from right source and delivered at the right place.

7.2 PROCUREMENT METHODS

1. TENDERING PROCEDURE:
A public advertisement is issued inviting potential suppliers to purchase tender
documents. The fee paid is usually non- refundable. Lawyers may be consulted when
drafting the tender documents. The tender application is then returned in a sealed plain
envelop to avoid canvassing with suppliers on or before the closing date. The
application should be addressed to tendering committee. A tender box should be made
available for placing the applications.
Types of tender:
a) Open tenders: Prospective suppliers are invited to compete for a contract advertised
on the press.
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b) Restricted open tenders: Prospective suppliers are invited to compete for a contract,
the advertising of which is restricted to appropriate technical journals or local
newspapers.
c) Selective tenders: Tenders are invited from suppliers on an approved list who have
been previously vetted regarding their competence and financial standing.
d) Serial tenders: Prospective suppliers are requested on either an open or a selective
basis to tender for an initial scheme on the basis that, subject to satisfactory
performance and unforeseen financial contingencies, a programme of work will be
given to the successful contractor, the rates and prices for the first job being the
basis of the rest of the programme.
e) Negotiated tenders: a tender is negotiated with only one supplier so that competition
is eliminated.
2 Restricted tendering:
A procuring entity may use restricted tendering if the following conditions are satisfied:
Competition for contract, because of the complex or specialised nature of goods, works
or services is limited to prequalified contractors:
The time and cost required to examine and evaluate a large number of tenders would
be disproportionate to the value of the goods, works or services to be procured
There is only a few known suppliers of the goods, works or services as may be
prescribed in the regulations
3 Direct procurement:
A procuring entity may use direct procurement as allowed under subsection (2), (3) or
(3) as long as the purpose is not to avoid competition.
A procuring entity may use direct procurement if the following are satisfied:
There is only one person who can supply the goods, works or services being procured
There is no reasonable alternative or substitute for the goods, works or services
There is an urgent need for the goods, works or services being procured
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Because of the urgency the other available methods are impractical

The circumstances that gave rise to the urgency were not foreseeable and were not the
result of dilatory conduct on the part of the procuring entity
The following procedure in line with direct procurement shall apply:
The procuring entity may negotiate with a person for the supply of goods, works or
services being procured
The procuring entity shall not use direct procurement in a discriminatory manner
The resulting contract must be in writing and signed by both parties
4 Request for proposals:
A procuring entity may use a request for proposal for a procurement if?
The procurement is of services or a combination of goods and services
The services to be procured are advisory or otherwise of a predominately intellectual
nature
5 Request for quotations:
A procuring entity may use a request for quotations for procurement if:
The procurement is for goods that are readily available and for which there is an
established market
The estimated value of the goods being procured is less than or equal to the prescribed
maximum value for using requests for quotations
6 Procedure for low-value procurements:
A procurement entity may use a low value procurement procedure if
The estimated value of the goods, works or services being procured are less than or
equal to the prescribed maximum value for that low-value procurement procedure
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Any other prescribed conditions for the use of the low-value procurement procedure are
satisfied
7 Specially permitted procurement procedure:
A procurement entity may use a procurement procedure specially permitted by the
authority which may include concession and design competition.

81