ACCEPTANCE

ELEMENTS OF LAW OF CONTRACT

ACCEPTANCE

This is manifestation of willingness to contract on the terms of offer.

Rules of acceptance

  1. Acceptance can be done orally or in writing (expressed) or through conduct (implied).
  2. Acceptance is only possible if the offer is still open.
  3. Acceptance must be absolute, unconditional and unqualified i.e offer must be accepted exactly in accordance with the terms of offer.
  4. Acceptance must be communicated to the offerer.
  5. Acceptance must be within a given time or within a reasonable time.
  6. Acceptance must be in the manner prescribed.
  7. The party accepting must have been aware of the existence of the offer.
  8. Acceptance subject to contract is incomplete acceptance.
  9. An offer made to a class of people or to a particular person can only be accepted members of that class or that specified person.

Rules of communication

  1. Communication of offer post takes effect when the letter containing the offer reaches the offeree. If the letter is lost or destroyed, there is no offer.
  2. Communication of acceptance the post is effective when the letter containing the acceptance is posted. This means that loss or destruction of the letter along the way will have no effect on the contract.
  3. Communication of revocation of offer becomes effective when the letter is received the offeree

Exemptions to the rules of communication

  1. Where the requirements of communication are waived i.e the offerer does not require the offeree to communicate but to act in a certain manner.
  2. Acceptance of unilateral contracts is not required to be communicated but it is enough for the offeree to act accordingly.
  3. Where it is ascertained that the offerer was to blame for not receiving communication then the requirement of communication is waived or suspended.
  4. Communication to an agent is valid communication.
  5. In instantaneous communication, the offer is made there and then and acceptance should also be immediate.

ELEMENT NO. 3; CONSIDERATION

Consideration is defined as:

  1. The price paid one party for the promise of another.
  2. It is the legal value bargained for and given in exchange for a promise.
  3. It is a promise for a promise, something for something situation i.e a status of equality or “quid pro quo”.
  4. It is some rights, interests, benefits or profits occurring to one party and some forbearance, loss, detriment or responsibility given, suffered or undertaken the other party. The benefit accruing and the loss sustained must be in return of a promise.

TYPES OF CONSIDERATION

  • Executed consideration -it is that consideration that has already been given. Also known as present consideration.
  • Executory consideration -it is that which is to be paid in future.
  • Past consideration -it is based on an act that has already been performed. It is a promise made after the contract is formed. Past consideration is not a valid consideration e.g Jane hires a taxi to take her from Nairobi to Thika for ksh. 1500. On arrival she promises to add the driver ksh.500 as a token of appreciation for the service but to be paid at a later date. The ksh.500 is a past consideration and it cannot be enforced in the court of law.

RULES OF CONSIDERATION

Rule 1: Consideration is necessary for all simple contracts

Rule 2: Consideration must be real although it needs not be adequate i.e consideration must be something for value but whether it is enough or not is not a concern of law.

Rule 3: Consideration must not be past.

Reference case: Rascola vs Thomas

R purchased a horse from T. After the sale was complete, T gave the promise that the horse was free from vice, however the horse proved to be full of vice and ungovernable. R sued T for misrepresentation. It was held that the promise that the horse was free from vice was a past consideration which cannot be enforced because the contract had already been concluded.

EXEMPTION TO THE RULE OF PAST CONSIDERATION

A past consideration can be enforced in the following circumstances:

  1. Discharge of a legal duty -where a person has been arrested, his/her lawyer acts to bail him out. If that person later promise to pay, such a consideration is past but it will be enforceable in the court of law. The understanding is that the request for legal services has implied promise to pay.
  2. Negotiable instruments -substitution of a promise to pay cash with a promise to pay through cheques, bills of exchange e.t.c. (negotiable instrument) is a past consideration but it will be enforceable. The understanding is that the promise to give a cheque prevents the other party from going to court to sue for the debt.
  3. Acknowledgment of statute barred debts -the promise to pay a statute barred debt is a past consideration but when it is made in writing, it resurrects the old debt. Statute barred debt is a debt that has stayed for more than six years without being paid or promise to pay being renewed.

Rule 4: Consideration must move from promisor to promisee: 

 This rule is also called the doctrine of privity rule. It states that strangers or 3rd parties cannot be able to enforce a contract that they aren’t party to even if it is for their benefits.

Reference case: Dunlop pneumatic tyre co vs Selfridge

Dunlop ltd was a manufacturer of tyres, it sold tyres to XYZ ltd under a contract where XYZ ltd was not to sell the tyres below Dunlop’s list price. XYZ ltd was also to obtain a similar agreement with other traders to whom he sold tyre. Selfridge bought tyres XYZ ltd and signed an agreement not to sell tyres below Dunlop’s list price. Selfridge broke the agreement and Dunlop sued Selfridge for breach of contract. It was held that the action must fail because there was no contract between Dunlop and Selfridge. In the contract between XYZ ltd and Selfridge, Dunlop was a stranger.

EXEMPTIONS TO THE PRIVITY RULE

  1. Trust schemes -this is a contract where property is entrusted to a trustee the owner on behalf of a certain beneficiary. This beneficiary is allowed to sue the trustee incase the trustee is misusing property.
  2. Under the road traffic act -in 3rd party motor insurance, a person who has been injured a vehicle can sue the insurer for compensation even if the contract was between insurance company and owner of the vehicle.
  3. Assignment of debts  -an assignee of debts may be able to sue the debtor if he is unpaid even if there was no contract between them. An assignee of debts is a person to whom the right to receive payment from a debtor has been transferred to him.

Rule 5: Consideration must be in excess of existing consideration

A person who is under a contractual obligation to perform a certain duty gives no more consideration fulfilling his obligations. Where consideration already exists, an obligation exists as well. A consideration must be something on top of the existing obligation. This is known as the rule in foakes vs bear.

Reference case: foakes vs bear

Plaintiff obtained a judgment against the defendant for payment of principal amount plus 2090 pounds which included loan interest and cost of the case. The defendant later asked the plaintiff that he pays the principal amount as long as the plaintiff will not demand interest and cost of the case. The plaintiff agreed to this but after payment of principal amount, he sued for the balance of interest and the cost.  It was held that the defendant was under an existing obligation to pay 2090 pounds (interest and cost of case) and he had done nothing to show why he should pay less. The decision in this case is that payment for a lesser sum even if accepted cannot offset a debt of a larger amount.

 

EXEMPTIONS TO THE RULE IN FOAKES VS BEAR

  • The rule in pinnel’s case -it states that payments of lesser sum may offset a debt of a larger amount where:
  • It is paid at an earlier date
  • Paid at due date but a different location
  • It is paid in kind at the creditor’s request
  • Rule in welvs drake

Payment of a lesser sum to a 3rd party at a creditors request will constitute sufficient consideration for a debt of a larger sum.

  • Compounding/compromise of debts

Where the assets of a debtor are not sufficient to pay all liabilities, creditors agree to receive a lesser proportion of how much there are owed. This is called compromise of debts and is common with companies facing liquidation.

  • Accord and satisfaction

This is where the lender accepts to be paid a lesser sum plus something else in kind and this will offset the whole debt

  • Doctrine of equitable estoppel (promissory estoppel)

If a person conducts himself or makes a statement that is relied upon the other party to a contract and that party suffers a loss changing his position. The maker of the statement may be stopped for denying the statement.

This rule protects persons who have incurred losses as a result of relying on verbal statement made on an existing contract.

Reference: central London properties vs high trees.
The plaintiff leased a block of flats for 2500 pounds per annum. Due to Second World War, the tenants were unable to raise the lease charges and they were contemplating terminating the lease contract. The plaintiff verbally offered to accept a reduced rent of 1250 pounds per annum. The resulting agreement was not supported a fresh consideration. The plaintiff relying on the promise reduced the rent to the tenants to prevent them from vacating the apartment. 5 years later after war ended, the matter went to court and it was held that the promise of the plaintiff to accept reduced rent of 1250 pounds was binding because it made the defendant to reduce rent to the ultimate tenants thus reducing their income. The court also ruled that the full rent of 2500 pounds would now be demanded because war was over and the promise had not been supported a consideration.

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