In Kenya and beyond, contracts form the heart of modern business and personal dealings. They establish expectations, define roles, and offer legal safeguards when obligations are not met. Without proper contracts, disputes can arise, leaving parties vulnerable to financial loss or legal trouble.

Whether you’re drafting an agreement, addressing a breach, or ensuring compliance with legal requirements, this article provides a basic overview of contract law in Kenya. It provides an overview of contract law principles, the importance of written agreements, common types of contracts, remedies for breaches, and why professional legal assistance is invaluable.

What Is a Contract?

A contract is a legally binding agreement between two or more parties. It ensures that promises are enforceable by law, creating obligations for everyone involved. Contracts can be written, verbal, or even implied through conduct. However, written contracts are strongly recommended to reduce ambiguity and simplify enforcement.

Legal Framework of Contract Law in Kenya

Kenyan contract law is primarily governed by the Law of Contract Act (Cap 23 of the Laws of Kenya), which provides the foundational principles for the creation of contracts, enforceability, and remedies for breach. Rooted in English common law, the Act establishes key provisions to regulate agreements and protect parties from disputes.

Other sources of law include Case Law and the particular statute governing a sector when the contract governs a relationship in a specified sector. For example, an employment contract is governed by the Employment Act and its subsidiary legislation, and an insurance contract is by the Insurance Act and its subsidiary legislation.

Common Types of Contracts

Contracts come in many forms, depending on the nature of the agreement. Here are the most common types:

1. Employment Contracts: Define the terms of the relationship between employers and employees, including salaries, responsibilities, and termination conditions.
2. Service Agreements: Outline the scope and terms of services provided by one party to another. For instance, agreements with contractors, consultants, or maintenance providers.
3. Lease Agreements: Govern the rental of property, specifying terms such as rent, duration, and responsibilities of the landlord and tenant.
4. Sales Contracts: Cover the sale of goods, detailing the price, delivery, and warranties.
5. Partnership Agreements: Define the roles and responsibilities of partners in a business, as well as profit-sharing arrangements.
6. Loan Agreements: Specify terms for lending money, such as interest rates, repayment schedules, and consequences of default.

What Makes a Contract Legally Binding?

For a contract to be enforceable, it must satisfy specific legal requirements. Without these, the agreement could be declared invalid or unenforceable in court.

1. Offer and Acceptance

A contract begins when one party makes an offer, and the other party accepts it under the terms proposed. Acceptance must be clear and unconditional. For example, if a party offers to sell a car for KSh. 500,000, the other must agree without modifying the terms to form a binding agreement.

2. Consideration

Consideration refers to the exchange of something valuable between the parties. This could be money, goods, services, or even a promise to perform or refrain from certain actions.

3. Intention to Create Legal Relations

The parties must intend for the agreement to be legally binding. Social or domestic arrangements, such as promises between friends, typically lack this intention and cannot be enforced.

4. Capacity to Contract

All parties must have the legal capacity to enter into a contract. Minors, individuals under the influence of drugs or alcohol, or those of unsound mind may lack this capacity. Contracts involving these individuals are generally voidable.

5. Lawful Purpose

The contract must involve legal activities. For example, an agreement to engage in illegal trade would be unenforceable.

6. Certainty and Clarity

The contract must clearly outline the terms and obligations. Vague or ambiguous agreements are challenging to enforce. A well-drafted written agreement avoids such issues.

Why Written Agreements Are Critical

While verbal contracts may be enforceable, in some situations, written agreements offer greater clarity and protection. They serve as concrete evidence of the terms agreed upon and help avoid misunderstandings.

Types of Contracts That Must Be in Writing

Section 3(1) of the Law of Contract provides that certain agreements must be in writing to be enforceable under Kenyan law. These include:

• Contracts for the sale or disposition of land.
• Leases exceeding three years.
• Contracts of guarantee (where one party agrees to be responsible for another’s debt).

Under Section 6(3) of the Marriage Act prenuptial agreements are also required to be in writing to be enforceable. It states that parties intending to marry may enter into a written agreement before their marriage to determine property rights during the marriage.

Finally, under Section 4 of the Insurance Act, an insurance contract is generally considered valid when evidenced by a written policy. Furthermore, the Insurance Regulatory Authority (IRA) has set guidelines for insurance companies to issue written policies that outline the terms of the insurance coverage, premiums, exclusions, and claims process.

Failure to formalize these agreements in writing renders them unenforceable in court.

Written agreement should be signed by both parties, ensuring clarity and legal certainty regarding the arrangement.

What Is a Breach of Contract?

A breach of contract occurs when one party fails to fulfill their obligations under the agreement. Breaches can be:

1. Minor Breach: The breach doesn’t significantly impact the contract’s purpose. For example, delivering goods slightly late but in acceptable condition.
2. Material Breach: A significant failure that undermines the contract’s purpose, such as delivering defective goods or failing to provide agreed services.
3. Anticipatory Breach: When one party communicates their inability or unwillingness to perform their obligations before the due date.

Regardless of the type, a breach can have serious consequences. Kenyan courts assess the severity of the breach and the damages caused when determining remedies.

Remedies for Breach of Contract

When a breach occurs, the injured party can seek legal remedies. The goal is to compensate for losses or restore the situation as if the contract had been performed. Common remedies include:

1. Damages

Damages are monetary compensation for losses suffered due to the breach. They can be:

• Compensatory Damages: Cover actual losses, such as lost profits or additional costs incurred.
• Punitive Damages: Awarded in rare cases to punish the breaching party for egregious misconduct.

2. Specific Performance

The court orders the breaching party to fulfill their obligations. This remedy is common in contracts involving unique goods or land, where monetary compensation may not suffice.

3. Injunctions

An injunction restrains a party from performing specific actions that would breach the contract. For example, a court might issue an injunction preventing a party from selling property they promised to another buyer.

4. Rescission

The injured party cancels the contract, restoring both parties to their pre-contractual positions.

5. Restitution

The breaching party must return any benefits they received under the contract to the injured party.

Termination of Contracts

Termination of a contract marks the legal end of an agreement and releases the parties from their obligations. Contracts can terminate in several ways, depending on the terms and circumstances involved. Mutual agreement is a common route, where both parties consent to end the contract, often formalized through a written termination agreement. Alternatively, a contract may terminate naturally through performance, where all parties fulfill their obligations, bringing the contract to its intended conclusion. However, breach of contract can also lead to termination, especially when one party fails to meet their commitments, giving the injured party grounds to terminate and pursue remedies such as damages or specific performance. In some cases, unforeseen circumstances may render performance impossible, leading to termination by frustration; examples include the destruction of essential materials or legal changes that make the contract unenforceable. Additionally, many contracts include termination clauses, which specify conditions under which the agreement may be ended, such as non-payment or failure to meet deadlines. Regardless of the method, proper documentation and compliance with the law, including the Law of Contract Act, is essential to ensure that termination is legally valid and minimizes disputes.

Conclusion

While contracts are essential for protecting your rights and interests, contract law is intricate, and even minor errors can lead to significant financial or legal consequences. Always seek legal assistance regardless of whether you’re entering into an agreement, drafting one, or addressing a breach.

At Wacu Mureithi & Co. Advocates we provide expert legal services tailored to your needs. Contact us today by filling out our contact form or Schedule a Consultation. Let us help you protect your agreements and achieve peace of mind.

We specialize in:

Contract Drafting

We create legally sound, customized agreements tailored to your needs. Whether it’s an employment contract, service agreement, or partnership deed, our team ensures your rights and interests are protected.

Breach of Contract Litigation

If you’re dealing with a breach, we guide you through negotiation, mediation, or litigation. Our goal is to achieve the best possible outcome, whether that’s securing damages, enforcing the agreement, or seeking specific performance.

Legal Advice on Complex Contracts

Certain agreements, such as those involving high-value transactions or unique clauses, require expert scrutiny. We help you identify potential risks and ensure compliance with Kenyan law.