By the end of this chapter, you will be able to:
Mastering these skills will help you confidently handle contracts in the workplace, ensuring clear agreements and fair solutions when issues arise.
Compiled by: Simon Ngugi
The law of contract requires certain elements to be present for an agreement to be legally enforceable. These essentials protect parties by ensuring clarity, fairness, and mutual consent in procurement dealings. Each element contributes to the contract’s validity, and failure to satisfy any one of them can render the agreement void or voidable. In Kenya, procurement officers must be conversant with these essentials to draft and execute contracts that comply with legal standards and procurement regulations.
The offer is the initial step in forming a contract, representing a clear proposal made by one party to another expressing willingness to enter into an agreement on certain terms.
An offer must be a definite and unequivocal proposal that outlines the terms under which the offeror is prepared to contract. It must be communicated to the offeree, demonstrating an intention to be bound immediately upon acceptance. For instance, when a supplier submits a bid to a county government to supply medical equipment at specified prices and delivery schedules, that bid constitutes an offer.
An invitation to treat is a preliminary communication that invites others to make offers, such as a request for proposals or tenders. It is not an offer itself and cannot be accepted to form a contract. For example, a procurement notice by a university inviting tenders is an invitation to treat, while the tender submitted by a supplier is the actual offer.
An offer remains open for acceptance for the time specified or a reasonable period if no time is stated. The offeror can revoke the offer at any time before acceptance, provided the revocation is communicated to the offeree. For example, a supplier who withdraws a bid before the procurement committee accepts it effectively revokes the offer.
The offer must be clearly communicated to the offeree to be valid. Silence or failure to respond does not amount to acceptance. This principle is critical in procurement where offers are often made in writing or electronically.
Acceptance is the unconditional agreement to all the terms of the offer, resulting in a mutual contract between the parties.
Acceptance must correspond exactly to the terms of the offer without modifications, known as the “mirror image” rule. Any variation constitutes a counter-offer, which rejects the original offer. For example, if a supplier agrees to supply goods but requests a change in delivery dates, this is a counter-offer, not acceptance.
Acceptance must be communicated to the offeror, either verbally, in writing, or implied through conduct. In procurement, acceptance is often formalized by signing a contract or issuing a purchase order. At a retail business, a signed purchase order confirms acceptance of the supplier’s offer.
Acceptance is effective when communicated to the offeror, but certain methods have specific rules. The postal rule states that acceptance is effective when the letter of acceptance is posted, not when received, which can be critical in tendering processes. Electronic communications, such as emails, are generally effective when received in the recipient’s inbox.
Once acceptance is validly communicated, a binding contract exists. This obligates both parties to perform their contractual duties. For example, a county government’s acceptance of a supplier’s tender forms a contract enforceable under Kenyan procurement law.
Capacity refers to the legal ability of parties to enter into a contract. Without capacity, contracts are void or voidable.
Parties must have attained the age of majority, which is 18 years in Kenya, and possess mental capacity to understand the contract’s nature and consequences. Contracts with minors or persons of unsound mind are generally voidable to protect vulnerable individuals.
Entities such as companies, cooperatives, and government agencies must act within their constitutional powers and mandates. For instance, a SACCO board must have authority under its bylaws to enter into procurement contracts; otherwise, the contract may be invalid.
Certain individuals or entities may be disqualified from contracting due to bankruptcy, insolvency, or specific statutory restrictions. For example, a bankrupt supplier cannot validly enter into a procurement contract until rehabilitation.
Public officers must act within their delegated authority when contracting on behalf of government bodies. Contracts signed beyond delegated powers may be ultra vires and unenforceable. County procurement officers must verify authority before contracting.
The parties must intend to create legal relations and be bound by the contract.
In commercial procurement transactions, there is a presumption that parties intend to create legal relations. This means that agreements between suppliers and buyers like banks or hospitals are legally binding unless expressly stated otherwise.
Social or domestic agreements, such as informal arrangements between friends, are generally presumed not to have legal intent. This distinction is important to avoid unintended contractual obligations.
Intention may be expressly stated in contract terms or implied from the conduct of parties, such as issuing purchase orders, making payments, or delivering goods. For example, a county government issuing a formal acceptance letter implies intention to contract.
Courts will not enforce agreements lacking intention to create legal relations. Procurement professionals must ensure contracts clearly reflect this intention to avoid disputes.
Consideration is the price or value exchanged between contracting parties, essential for a valid contract.
Consideration involves a benefit to the promisor or a detriment to the promisee. It distinguishes contracts from gifts and ensures mutual exchange of value, such as payment for goods supplied.
Consideration may be executed (performed immediately) or executory (to be performed in the future). In procurement, payment upon delivery is executed consideration, while payment after invoicing is executory.
Consideration must be sufficient but need not be adequate. This means the law requires some value but does not assess fairness. For example, a supplier agreeing to sell goods at Ksh 1,000 when market price is Ksh 1,500 still provides sufficient consideration.
Consideration must not be past; performance before the promise is made does not qualify. For instance, goods delivered before contract formation cannot be consideration for a later promise.
Public procurement contracts require clear consideration, often in the form of payment or service provision. This safeguards public funds and ensures accountability.
The contract’s purpose and terms must comply with the law and public policy.
Contracts must have a lawful object; agreements to perform illegal acts or contravene statutes are void. For example, a procurement contract for unlicensed pharmaceuticals is illegal and unenforceable.
Procurement contracts must comply with laws such as the Public Procurement and Asset Disposal Act, 2015. Failure to adhere to these requirements invalidates contracts.
Contracts against public policy, such as those promoting corruption or fraud, are void. Procurement officers must ensure contracts promote transparency and fairness.
Illegal contracts are void and cannot be enforced by courts. Parties may not seek legal remedies for breaches of illegal agreements.
Certain contracts require regulatory approvals or licenses to be valid, such as supply of medical supplies needing Pharmacy and Poisons Board approval.
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Create a free accountThis chapter explored the essential elements required for a valid contract, including offer, acceptance, capacity, intention, consideration, and legality, all of which establish the foundation for enforceable agreements. It then examined various types of contracts such as specialty or written contracts, simple contracts, contracts under seal, and those requiring written evidence, highlighting the importance of documentation in commercial dealings. The chapter also discussed the methods by which contracts can be discharged, including express agreement, performance, breach, impossibility under the doctrine of frustration, and operation of law, emphasizing how contractual obligations can come to an end. Remedies available for breach of contract were analyzed, with particular attention to the equitable doctrine of part performance as a means to enforce incomplete agreements. Finally, the distinction between express and implied terms of a contract was outlined, demonstrating how contractual obligations may be explicitly stated or inferred from circumstances. This comprehensive coverage equips learners with the fundamental principles necessary to apply contract law effectively in commercial contexts.
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