By the end of this chapter, you will be able to:
These skills will help you confidently handle contracts in the workplace, ensuring agreements are clear, fair, and legally sound.
Compiled by: Mary Ngugi
A valid contract in Kenya must satisfy certain legal requirements to be enforceable in a court of law. These essentials ensure that the parties involved have a clear understanding, mutual consent, and lawful intentions to enter into an agreement. In cooperative settings, where agreements often involve multiple stakeholders, adherence to these principles prevents disputes and promotes smooth operations.
The offer is the initial step in forming a contract, representing a clear proposal made by one party to another with the intention to be bound by it once accepted. In cooperative management, offers may arise when a cooperative proposes to purchase goods from a supplier or enter into a service agreement.
An offer must be definite, communicated to the offeree, and express the willingness to contract on specific terms. For example, a coffee cooperative may offer to buy a fixed quantity of coffee beans at a stated price from a farmer. The offer should clearly specify the quantity, price, and delivery terms to be valid.
It is essential to differentiate an offer from an invitation to treat, which is merely an invitation to negotiate or make an offer. For instance, advertising cooperative shares in a newspaper is an invitation to treat, not an offer. Only when a prospective member applies to purchase shares does an offer arise.
An offer can be terminated by revocation, rejection, lapse of time, or death of the offeror before acceptance. For example, if a SACCO offers a loan to a member but withdraws the offer before acceptance, no contract exists. Understanding termination prevents misunderstandings in cooperative negotiations.
The offer must be communicated effectively to the offeree to be valid. In the digital age, communication can occur via email, telephone, or written documents. A cooperative society sending a formal letter to a supplier constitutes communication of an offer.
Acceptance signifies the offeree’s unequivocal agreement to the terms of the offer, completing the consensus required for a contract. In cooperatives, acceptance can be seen when a member agrees to the terms of a loan or when a supplier agrees to deliver goods under agreed conditions.
Acceptance must be unconditional, communicated to the offeror, and correspond exactly with the terms of the offer. For example, if a cooperative offers to buy 100 bags of maize at Ksh 1,000 per bag, acceptance must be for the same quantity and price, not a counter-offer.
Acceptance can be express, such as a written or spoken agreement, or implied through conduct. A cooperative accepting goods delivered as per the order without objection is an example of implied acceptance.
Acceptance is effective when communicated to the offeror, but the postal rule states acceptance is effective when a letter of acceptance is posted, not when received. This rule may apply when a cooperative sends acceptance by mail to a distant supplier.
A counter-offer is a response that alters the terms of the original offer, effectively rejecting it and creating a new offer. For instance, if a cooperative offers to buy goods at Ksh 500 per unit and the supplier responds with Ksh 600, this is a counter-offer, not acceptance.
Capacity refers to the legal ability of parties to enter into a contract. This ensures that contracts are made by persons or entities recognized by law to understand and undertake contractual obligations.
In Kenya, persons below 18 years, those of unsound mind, and intoxicated persons generally lack capacity to contract. For example, a minor entering into a contract to supply goods to a cooperative may render the contract voidable.
Cooperative societies registered under the Cooperative Societies Act have capacity to enter into contracts within the scope of their objectives. A dairy cooperative can legally contract to purchase feed or machinery in its name.
Authorized agents or officers of cooperatives may contract on behalf of the society, provided they act within their authority. A cooperative manager signing a supply contract in accordance with the society’s bylaws has capacity.
Contracts made by persons lacking capacity are generally void or voidable, leading to potential losses or disputes. For instance, a contract entered into by an unregistered cooperative may not be enforceable.
Intention to create legal relations is a fundamental element that distinguishes social or domestic agreements from legally binding contracts. Cooperative managers must ensure that parties intend their agreements to be enforceable by law.
In Kenya, agreements made in a commercial context, such as between cooperatives and suppliers, are presumed to have legal intention. A contract for delivery of farm inputs to a cooperative is presumed intended to create legal relations.
Agreements of a social nature, such as between friends or family members, lack intention unless expressly stated. A cooperative member lending money to a colleague informally may not have binding contractual rights.
Intention can be inferred from the conduct of the parties, the language used in agreements, and the context. Written contracts with signatures and formal terms indicate intention to create legal relations.
Without intention, even if other elements exist, a contract is not enforceable. For example, a verbal agreement between cooperative members to share profits informally may fail for lack of legal intention.
Consideration is the price or value exchanged between parties, which distinguishes a contract from a mere promise. Cooperative contracts typically involve consideration in the form of money, goods, or services.
Consideration must be something of value that moves from the promisee, such as payment or performance of an act. A cooperative paying Ksh 500,000 for farming equipment provides valid consideration.
Consideration may be executed (performed at the time of contract) or executory (to be performed in the future). A cooperative paying cash upfront is executed consideration, whereas agreeing to pay in installments is executory.
Kenyan law requires consideration to be sufficient but not necessarily adequate, meaning the value exchanged need not be equal but must be legally recognizable. A cooperative selling shares at a nominal price still has valid consideration.
Certain contracts, such as deeds or promissory notes, may be enforceable without consideration. For example, a cooperative issuing a promissory note for a loan may not require immediate consideration.
Legality ensures that the subject matter and purpose of a contract comply with the law and public policy. Contracts involving illegal activities are void and unenforceable.
Contracts must relate to lawful activities, such as a cooperative contracting to buy agricultural inputs. The agreement must not contravene laws like the Cooperative Societies Act or the Agriculture Act.
Contracts involving illegal acts, such as fraud or unauthorized activities, are void. A cooperative entering into a contract to sell unregistered pesticides would have an illegal contract.
Agreements that negatively impact societal interests, such as contracts restraining trade unreasonably, are unenforceable. A cooperative contract that limits members’ freedom to trade elsewhere without justification may be void.
Third parties who are not part of the contract must also respect legality. For example, a supplier subcontracting an illegal activity under a cooperative contract risks nullifying the contract.
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Create a free accountThis chapter explored the essential elements that constitute a valid contract, including offer, acceptance, capacity, intention, consideration, and legality, all of which must be present for a contract to be enforceable. It then examined various types of contracts such as specialty or written contracts, simple contracts, contracts under seal, and those requiring written evidence. The discussion extended to the different methods through which contracts may be discharged, including express agreement, performance, breach, impossibility under the doctrine of frustration, and operation of law. The chapter also covered the remedies available for breach of contract, highlighting the equitable doctrine of part performance as a key legal principle. Finally, the terms of contract were analyzed with a focus on express terms explicitly agreed upon by the parties and implied terms that arise from the nature of the agreement or legal provisions. Together, these aspects provide a comprehensive understanding of how contract law is applied in commercial settings.
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