Learning objectives  

How is an ‘apparent’ simple contract created? 

The term ‘simple contract’ refers to the manner of its formation, not the nature of its terms or that it is ‘simple’ to create. The creation of a simple contract (note that at this stage there is no question of whether the contract is valid or enforceable), requires the presence of three elements (or three steps if you like):  

• Step 1: was there an agreement between the parties? There must be an offer by one party, and an acceptance or some evidence of a final agreement by the other (see chapter 5 on agreement). 

If you think there is an agreement, go to: 

• Step 2: was there an intention to contract? The parties must intend that their promises create legally enforceable obligations (see chapter 6). 

If you think there is an agreement and intention to contract, go to: 

• Step 3: was there valuable consideration? There must be something of value or benefit passing from one party to another in return for a promise to do something, unless the promise is made under seal or in the form of a deed (see chapter 6). 

Once you have established that each of these elements is present, an apparent simple contract can be said to exist. But at this point you do not know whether it is valid, and therefore enforceable. So don’t stop checking yet.  

Is the contract enforceable? 

If you are satisfied that there is an agreement and that you and the other party intend to create a contract supported by consideration (if you are entering into a deed, consideration is not required), then you have successfully created a simple contract, but is it valid and enforceable?  

There are now three more steps you need to take before you can start to feel confident that what you have created is a valid and enforceable contract, not an unenforceable one: 

• Step 4: do the parties have legal capacity? Did both of the parties understand what they were doing? What if one or both of the parties had limited capacity, for example, were underage (that is, under 18), or under the influence of alcohol or drugs (see chapter 7 on ‘Capacity’)?
• Step 5: is there genuine consent? What did the parties’ consent to or, was there a mistake, a misrepresentation, duress undue influence or unconscionable conduct which could mean the contract may fail (see Chapter 8 on ‘Consent’)?
• Step 6: was there legality of purpose and in the proper form? The purpose of the contract must be legal, not illegal.
• Step 7: was there any particular form the contract needed to be in (that is, could the contract be oral, or did a statute require it to be in writing)? Are there any statutory requirements that must be satisfied? (see Chapter 9 on ‘Legality’ and ‘Form’). 

As you will discover, how these questions are answered will help determine whether or not the contract is enforceable in court should a dispute arise between you and the other party.  

How are contracts classified? 

Contracts may be classified in a variety of ways, including formation, enforcement, performance and discharge. Knowledge of how contracts are classified will help you understand what type of contract you are dealing with, what is required of you and the other party, and the enforceability of the contract.  

What are bilateral and unilateral contracts? 

Contracts are either bilateral or unilateral, depending on what the offeree (the person to whom the offer is made) must do to accept the offeror’s (the person making the offer) conditions of agreement. Most contracts are simple and bilateral. 

Note the difference between a bilateral and a unilateral contract. The parties have different obligations under a unilateral contract compared with a bilateral contract. This is why you need to understand whether the language of the offer is creating a unilateral or a bilateral contract. 

• Bilateral contract: A bilateral contract involves a promise for a promise. It is the most encountered form of contract because it is created every time someone buys goods or services. Both parties have obligations. As a buyer, you have an obligation to pay for the goods or services, and the seller has an obligation to provide them. 
• Unilateral contract: A unilateral contract is where only one party assumes an obligation. There is no contract until the offeree performs the requested act, as they have the option of choosing whether or not to perform. It is a ‘promise for an act’.

An example of a unilateral contract involves reward cases where you lose something and offer a reward to anyone who finds it. There is no obligation on anyone to go and look for the item. But if someone is aware of the reward and they find the lost item and return it to you, then there is an obligation on your part to pay the reward if the finder makes a claim for it. If the offeree abandons their effort halfway through, they would not be in breach of contract. Nor would they be entitled to payment for their efforts because they have not complied with the conditions for payment of the reward (that is, they have not found the lost item). 

Problems can arise if you, as the offeror of a unilateral contract, attempt to revoke an offer after the offeree has begun performance. While there are no problems if you withdraw the offer before the offeree begins performance, there may be difficulties where the offeree has begun or substantially completed performance. As you will see in Section 4 of this chapter, part-performance of the act called for may be regarded as sufficient consideration for you as the offeror not to be able to revoke your promise. 

What does classification according to enforceability mean? 

As you read on, you will discover that there are references by the courts to the contract being ‘valid’, ‘voidable’, ‘void’, ‘unenforceable’ or ‘illegal’. It is important to understand the meaning and effect of each of these words on a contract because they are words used by the courts to describe the enforceability of the contract between the parties. 

• Valid: a valid contract is one that the law will allow either party to enforce. The parties intend to enter into a legal relationship and have agreed on the terms, thus creating legal rights and obligations, which the parties can enforce against each other in court.
• Voidable: the contract remains valid and binding unless and until it is rescinded or terminated (ended) by the innocent party. The difference between recission and termination is important when looking at remedies, as we shall see in the chapter ‘Rights and liabilities of the parties, discharge and remedies’, as they create different outcomes in relation to damages.  Whether a contract is void or voidable can be particularly important where an innocent third party is involved. If the contract is voidable (that is, it is valid and binding unless and until repudiated by the injured party), the seller of an item may not be able to recover the item from a third or subsequent party in possession of it if the item was obtained fraudulently.
• Void: a person who enters into a void agreement cannot enforce it or be forced to comply with it because there are no legal rights or obligations to enforce or comply with from the beginning of the transaction. Nor could they pass on good title to a third party because they would have no title to give. For example, if you have your computer stolen by another person and they sell it to a third party, the contract between the thief and the third party is void or of no legal effect. The thief has no title to give to the third party. If third party subsequently sells the computer to a fourth person then that person gets the same title to the computer that the third party had – that is, no title. You could then force the fourth party to give back the computer or its value. Why? Because the fourth party has no title and they would have to seek compensation from the third party, and they would have to try to find the thief (good luck there) to get back the value of the computer. 
• Unenforceable: while the contract appears to be valid, no legal action can be brought on it. This can happen because some procedural requirement is lacking – for example, a statute requires the contract to be evidenced in writing – for example, contracts for the sale of land. Correction of the defect will generally render the contract enforceable. This raises the issue of form (see below). 
• Illegal: when the purpose of the contract contravenes a statute or the common law, it will be illegal and generally treated as being void – for example, something of a criminal nature, such as robbing a bank with a friend.  

What is classification according to performance? 

• Executed contracts: an executed contract is performed and completed at the time of making. For example, if I wash your car for K25 and you pay me as soon as I finish, the agreement has been fulfilled and the contract expires. 
• Executory contracts: an executory contract arises when one of the parties promises to do, or refrain from doing, something in the future. For example, I agree to wash your car next week for K25. Here, both promises are yet to be performed. 

What is classification according to formation? 

• Express contracts: these are contracts where all the terms are agreed on by the parties and they may be:
  • wholly in writing (if the contract is important to you, have it put in writing as evidence of what you have agreed to)
  • evidenced in writing 
  • oral
  • partly written and partly oral.
• Implied contracts: the contract is implied from the circumstances surrounding the acts or conduct of the parties. For example, if you catch a taxi, it is implied that you will pay the fare and the driver will get you (safely) to your destination. 
• Quasi-contracts: The contract is the result of an ‘agreement’ imposed by law, such as third-party car insurance and is imposed irrespective of whether there is agreement between the parties.

Is the contract a formal or simple contract? 

Contracts may be classified into formal and simple contracts. Here the question is about the way in which the contract is made (its ‘form’) and not about its content (its terms). Of the two, the simple contract is the one most often encountered in commercial and day-to-day transactions, but it is still important to understand the difference between formal and simple contracts because of the consequences that may follow if the wrong choice is made – that is, the enforceability of the contract. 

• Formal contracts: these are contracts that must comply with certain execution formalities usually imposed by statute, that is, be in writing and signed. They get their validity from their form alone. 

Note that the Electronic Transactions Act 2021 has impacted on the statutory requirements requiring certain contracts to be in writing and signed as set out in the Frauds and Limitations Act 1988 and the Copyright and Neighbouring Rights Act 2000 by providing that the Electronic Transactions Act 2021 will apply, with some exceptions, to any kind of transaction whether it be commercial, non-commercial, domestic or international.  

• Deeds (contracts under seal): these are promises that must be in writing on paper, parchment or vellum, and signed by the party or parties to the contract and delivered. There is no need for consideration. They are often used in a company arrangement (a binding arrangement between a company and its creditors as to how the company’s affairs will be handled). A deed that is delivered subject to conditions and does not come into operation until the fulfilment of these conditions is called an escrow. 
• Simple contracts: this is a contract that is neither a formal contract or a deed, so to be enforceable, it must have valuable consideration present for it to be valid.  

Subject to statutory requirements, simple contracts can be created expressly, impliedly or by quasi-contract. By way of an example, a receipt from the supermarket for groceries or a service station for fuel which contains on its face the date and time of purchase, the items and the price, as well as the total price paid by the purchaser is evidence of acceptance of the items and would be more than enough to establish a contract.  

If the parties have taken the time to reduce the agreement to writing, the courts will assume that it is a complete record of the contract. Hence the need to be careful when drawing up a contract because the courts are generally reluctant to admit evidence of acts or words of the parties before the execution of the document if this has the effect of adding to, varying or contradicting the written agreement. This is known as the parol evidence rule (see the chapter 6 ‘Construction of the contract’). 

When are contracts void unless in writing? 

Certain simple contracts, to be valid and enforceable, are required by statute to be wholly in writing. If they are not, they are void. Note that the Electronic Transactions Act 2021 now satisfies the statutory requirement of ‘in writing’ if the document is in electronic format. 

What contracts must be evidenced in writing? 

There is a second class of contracts that statutes require to be evidenced in writing. The absence of writing does not affect their validity, but it makes them unenforceable in a court of law.  

The Sale of goods of K20 or more 

Section 6 of the Goods Act 1951 requires contracts for the sale of goods costing K20 or more to have one of the following three requirements, or they will be unenforceable: 

• the buyer has accepted part of the goods sold and actually received the same; or 
• the buyer has given something in earnest to bind the contract or has given something in part-payment to bind the contract; or 
• some note or memorandum in writing of the contract is made and signed by the party to be charged or by their authorised agent—for example, an auctioneer is the agent of the seller and, after the sale, also an agent of the buyer. 

What is a note or memorandum? 

A note or memorandum can take any documentary form—a letter, docket, invoice or even an entry in an auctioneer’s book—and it does not even have to be contained in one document, but it must show all of the following (s 6(1)):