The Performance of Commercial Contracts in Kenya
Performance of a contract means the necessary acts done by contractual parties to fulfil their obligations under a contract. In consideration for each party entering into a contract, each party promises to the other, the fulfilment of certain obligations – what is also called a commercial bargain. The promisor promises the promisee under a contract to fulfil contractual obligations.
Who is Responsible for Performance?
While the promisor is alive, the promisor is responsible for performance of the contract. However, sometimes the promisor may die or if the promisor is a company, it may be dissolved, before performance of contractual obligations. In such a case of death, the dead contractual party’s obligations shall be liable to be performed by their personal representatives.
For example, if contractual parties enter into a loan agreement in which the lender loans money to the borrower and during the pendency of the loan, the borrower dies, performance of this contractual obligation may still be pursued by the lender against the estate of the deceased debtor such that the loan obligation is not extinguished and is simply passed on to the personal representative of the deceased borrower in that capacity.
On the other hand, the personal representatives of the dead promisor are not bound to perform the contract where a contrary intention appears to impute that performance by the promisor himself was required. Thus, where the contract requires specific performance of a contractual obligation that cannot be done by a person other than the living promisor, the death of the promisor extinguishes the contract. For example, if a client contracts a painter to paint a portrait using a special painting technique which that painter is known for, and the painter dies before said portrait is made, the obligation of performance may be extinguished.
Where more than one party has made a contractual promise to the other contractual party, that is, there is more than one promisor, then the multiple promisors are jointly and severally liable for performance of the contract. This means that the other contractual party can seek performance from one/all or some of the multiple promisors.
When should a Party Perform their Contractual Obligations?
Usually the time of performance is either stipulated by the contract itself or determined by the nature of the transaction.
For instance, in a land purchase contract, the time for the main performance of the contract is stipulated and takes place on the completion date which is often the date on which the parties expressly agree that the buyer of the land will hand over the balance of the purchase price while the seller agrees to hand over the completion documents to the buyer to enable registration of the transfer of the land.
On the other hand, where the contract does not explicitly state the time for performance, then than the performance of the contractual obligations should be done within a reasonable time. For example, in a contract for payment on the supply of goods, the time for a party to pay will reasonably take place either before or shortly after delivery of the goods.
When can a Party be Excused from Performance of their Contractual Obligations?
- In the case of novation where a third party is substituted to perform a promisor’s contractual obligation. The previous promisor is then excused from performance.
- Where the contract is illegal e.g., in a contract to share the proceeds of corruption, performance cannot be legally enforced.
- Where the contract is impossible to perform. However, mere difficulty to perform contractual obligations will not do.
- Where supervening events have made performance of a contract illegal.
- Where one party rescinds the contract, the counterparty is not bound to perform the contract.
- Where a contract is altered, the promisor is excused from the original performance and performs the altered contractual obligation.
- When the promisor requires facilities from the promisee to fulfil their contractual obligation but the promisee fails to provide the necessary facilities or conditions, then the promisor may be excused from performance of the contract e.g., in a contract to repair a house, if a repairman is not granted access to the house to be repaired.
Concurrent Performance of Contractual Obligations by Parties
Where parties are required under a contract to fulfil their contractual obligations simultaneously and one party indicates they will not fulfil their contractual obligation, the counterparty is released from simultaneous performance e.g. in a sale of goods contract where one party is selling but the customer is not prepared to simultaneously make payment.
Types of Performance of a Contract
Ordinarily a contract is discharged by each party carrying out their contractual obligations. However, sometimes a party may offer less than complete and conforming performance – contrary to the terms of the contract and there are principles under law as to the aggrieved party’s entitlement to claim compensation for the ‘less than perfect’ performance. The law classes different types of performance depending on the degree of fulfilment of contractual obligations as follows:
1. Actual Performance or Complete Performance of a Contract
This is when the party performs the contract in perfect conformity to the terms of the contract: for example, building a house to the exact specification required by the client in a construction contract. In this case the contractual party has provided due performance of the contract in question.
2. Tendered performance or Attempted Performance of a Contract
This is when a party makes a good faith effort to carry out their contractual obligations but is thwarted or prevented from doing so by the counterparty, or the counterparty does not accept performance, then the contractual party is not responsible for non-performance of the contract and he is also entitled to claim his contractual rights owed by the refusing counterparty.
3. Substantial Performance of a Contract
This occurs when performance largely conforms to the contractual terms, but nevertheless there are aspects which have been unilaterally altered or not adhered to by the contractual party; the law considers that the contract has been substantially performed and allows compensation to the extent of the costs incurred by the counterparty to correct the non-conformity. The test for whether or not a contract has been substantially performed is one of materiality – i.e. how material is the non-conformity to the achievement of the contractual goals.
4. Partial Performance of a Contract
In certain cases, where the contractual party has performed only part of the contract, in a claim for compensation the court may consider that the contract is divisible and may provide compensation to a contractual party for the divisible part of the contract that they have performed. In other cases, the court may consider partial performance to be inadequate and may consider that there has been a complete failure of consideration by the contractual party and award full compensation on this basis.
5. Non-performance or Failed Performance of a Contract
This is a situation where a party does not carry out their obligations under the contract whatsoever.
Continued Performance of an Expired Contract
In certain cases, parties may continue performing prior contractual obligations after the expiry of the term of the previous contract. The question thus arises as to whether the parties are still under a contract? The answer is that this is a question of fact. The facts will show whether or not there is a new implied agreement or not. Additionally, careful wording of the contract may oust such an intention of a continuing contract, for instance in a contract related to an interest in land, where the contract says that any variation must be agreed in writing and the Law of Contract Act provides that all contracts must be in writing, it is debatable whether or not acts done after the term of the contract has expired can be considered a continuing contract if these acts are performed but are not put down in writing in a contract. In Rajab Barasa & 4 Others v. Kenya Meat Commission 2016] eKLR, it was held that a fixed term contract will not be renewed automatically and a new contract has to be issued at the expiry of the same.
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