Contract Law 2 Class Notes.

15th march 2018
LECTURE 1 CONTRACT LAW 2
FORMALITIES OF ACONTRACT
In addition to basic elements of a contract, certain contracts are subject to

certain formalities which must be complied with for that agreement to be
legally enforceable.
Those formalities include the requirements that certain contracts
1 Must be in writing
2 Must be evidenced in writing
3 Must be made by deed.
This above requirement was confined to bill of exchange and promissory notes
and contract of marine insurance.
CONTRACT ACT CAP 23 LAWS OF KENYA stipulates that contracts whose

value is below ksh200 should not be in writing.
But contracts above the value of ksh 200 must be evidenced in writing.
Those contracts that must be in writing include sale of land agreements, hire
purchase agreements, credit sale agreements, and insurance contracts.
The law of property Act 1989, provides that, contracts for the sale or
disposition of an interest in land must be in writing. And must incorporate in
one documents all the terms which the parties have expressly agreed to or
when documents are to be exchanged, in both of them.
The above stated agreements are governed by section 3 of the contract act.
If the contract act states that the contract must take a specific form, and that
contract does not, it becomes void. Meaning it cannot be enforceable.
Contracts that must be in writing are subject to a requirement of a signature

by both parties.
Where documents are exchanged, for example in land agreements, each party
needs to sign only one document. This implies that, the vendor should sign the
willing buyer’s agreement, and the willing buyer should sign the vendor’s
agreement.
For instance, if the contract is formed earlier than intended, the risk is averted
by the inclusion of a clause that reads, subject to contract, on all pre-
contractual written documents.
When you include the term subject to contract, it is implied to be a lock out
agreement.
Case study
Pitt vs PHH asset management ltd 1993 case.
This is an English contract law case which confirmed the enforceability of” lock
out” agreements.
The facts of the case are as follows.
That, a prospective vendor of a house, made a lock out agreement with a

prospective purchaser. Where the vendor could not negotiate a sale to anyone
but olny the prospective purchaser for a fixed period of two weeks.
The above meant that, the vendor could not consider any further offers,
therefore, he could not negotiate with anybody else other than the prospective
purchaser for the stated period of two weeks.
The question for determination in the court of appeal was whether that lock out
agreement was a contract for sale of an interest in land, and therefore was
required to be in writing and signed by the parties in accordance with sec 2
The court of appeal held that sec 2 had no application to the agreement
because the defendant had not committed itself to sell the property to the
claimant. Since it was not in writing.
The reasoning of the court was as follows,
That the vendor and the prospective purchaser made what was called lock out
agreement.
That was a contract binding to them both.
The vendor broke it. Therefore is liable to the prospective purchaser for
damages that are to be assessed by the court.
But that appeal was dismissed because that agreement was not put down in
writing.
Case study 2
Yaxley vs gott [2000]
The above case demonstrates also the requirement for the contract to be made
in writing.
Facts of the case are as follows,
That the claimant agreed that he would renovate the property for the defendant
and act as managing agent in return for ownership of ground floor.
The claimant did as promised, but there was a dispute under which the
defendant denied the agreement to transfer the ground floor.
The defendant argued that the oral contract was void for failure to comply with
the requirements of formalities under sec 2 .
The court held that the arrangement was a constructive trust and that sec2(5)
expressly provided that, the existence or operation of such trust, would not be
affected by lack of writing.
The case of yaxley v gotts was distinguished in James v Evans (2000)
In the case of James v Evans 2000, the claimant had entered into an
agreement with the deceased for the lease of sheep farm for 10 Years.
But the contract was never concluded due to the death of the deceased.
The claimant had been permitted to take possession of the property by the
deceased and tend to the sheep.
The claimant gave a cheque to the deceased sister representing the value of the
flock, and six month rent in advance.
The claimant argued in court that a constructive trust had arisen due to the
common intentions of the parties that the tenancy would be granted and thus
sec 2 did not defeat his claim.
The court of appeal held that, as the claimant was aware at all times that the
tenancy was subject to contract and to the statutory provisions, a constructive
trust did not arise.
Also in the case of Mac Causland v Dancan Lawrie, the court held that, when
there is a variation of price, in the sale of land agreement that variation should
be in writing.
In this case of Mc Causland v Dancan Lawrie, the parties had made written
agreement dated 26th January 1995 under which the vendor agreed to sell the
property for $210,000.
The purchaser agreed to pay deposit of $ 1000 and the balance on completion.
The dates specified for completion was 26th March 1995-a Sunday.
The contract stated that if the purchaser could not complete the balance on the
specified completion date, he should pay the balance of 10% of full deposit.
When it was realized that the completion date was a Sunday, the vendor’s
solicitor wrote to the purchaser’s solicitor suggesting that completion should be
a Friday 24th March 1995.
This suggestion was agreed by exchange of letters but not by a document

signed by both parties.
Completion did not take place on 24th March and it was held that the variation
was not effective, as it did not comply with sec 2 as it was not in writing signed
by both parties.
Types of contracts which must be in writing.
CONTRACTS OF GUARANTEE such contracts are governed by sec 4 statutes of

Frauds 1677.
A guarantee exists when an individual, promises to another that he will meet

the liabilities of a third party should he become liable to pay and fails to do so.
Sec 4 of statutes of frauds 1677 provides that, No action shall be brought

whereby to charge the defendant upon any special promise to answer for the
debt, default or miscarriage of another person, unless there is written evidence
of the agreement.
Case study
Kirkham v Marter 1819
The defendant’s son had, with the permission of the claimant, ridden the
claimant’s horse.
He killed it. And was thus liable in tort to the claimant.
When the claimant threatened to sue him, the defendant orally promised the
claimant to pay him the value of the horse provided that he did not pursue his
legal claim.
The defendant did not pay, and when sued, he pleaded statutes of fraud 1677
as a defence that he was not liable on the guarantee because it was not
evidenced in writing.
It was held that the father’s promise “to answer for the miscarriage” of another
was a guarantee within statutes of fraud 1677.
Statutes of frauds does not apply in the following circumstances(no

requirement for the contract to be evidenced in writing.)
1 when the promise is made to the debtor. Statutes of fraud apply only when
promise made to the creditor.
2 when the contract is one of indemnity, rather than guarantee.
The difference between the contract of guarantee and indemnity is, a guarantee
is a promise to pay the debts of another, should he fail to pay. While indemnity
is a promise to indemnify a creditor against loss arising out of the principal
contract.
The case of Birkmyr v Darnell explains the difference between indemnity and
guarantee.
States that, if two people goes to the shop, and, one buys, and, the other says
to the seller, “let him have the goods, if he does not pay you, I will. This is a
guarantee.
But if he says: let him have the goods I will be your pay master or I will see you
paid. This is an indemnity. He intends to pay for the goods in any event and
not merely if the other fails to pay.

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15th march 2018

LECTURE 1 CONTRACT LAW 2

In addition to basic elements of a contract, certain contracts are subject to

Those formalities include the requirements that certain contracts

2 Must be evidenced in writing

3 Must be made by deed.

CONTRACT ACT CAP 23 LAWS OF KENYA stipulates that contracts whose

Contracts that must be in writing are subject to a requirement of a signature

Pitt vs PHH asset management ltd 1993 case.

The facts of the case are as follows.

That, a prospective vendor of a house, made a lock out agreement with a

The reasoning of the court was as follows,

That was a contract binding to them both.

Yaxley vs gott [2000]

Facts of the case are as follows,

The case of yaxley v gotts was distinguished in James v Evans (2000)

This suggestion was agreed by exchange of letters but not by a document

Types of contracts which must be in writing.

CONTRACTS OF GUARANTEE such contracts are governed by sec 4 statutes of

A guarantee exists when an individual, promises to another that he will meet

Sec 4 of statutes of frauds 1677 provides that, No action shall be brought

Kirkham v Marter 1819

Statutes of frauds does not apply in the following circumstances(no

2 when the contract is one of indemnity, rather than guarantee.

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