INTRODUCTION TO BUSINESS

LAW

Department of Private Law,

Faculty of Law
Course overview & learning outcomes
• This course aims to impart you with knowledge and
skills in laws affecting business activities in Tanzania
• How the laws relating to contracts, company,
insurance, agency, and public enterprises regulate
and affect business operations
• In fact, any entrepreneur, marketing officer or
accounting professional must understand the
fundamental principles governing the establishment
and operation of business in TZ
 Learning outcomes
• At the end of this course, you are expected to be able to:
i) Understand the fundamental principles relating to business
law
ii) Have legal knowledge and skills on various business
transactions
iii) Assess and interpret various laws in the day-to-day business
environment
iv) Demonstrate ability to distinguish various forms of business
associations
v) Analyze procedures for establishing and financing corporate
entities
vi) Demonstrate skills to manage potential business risks
vii) Apply the knowledge and skills you will have acquired to
various business transactions
 Introduction to business law
Meaning, nature, classification and functions
of law
Sources of business law in Tanzania
Law as a tool for business operations
Court system of Tanzania
Meaning, nature, classification and functions of
law
• Law can be defined in various ways
• The body of principles recognized and applied to regulate
human conduct
• Simply stated, law is a set of rules affecting our daily
lives.
• They affect our relationships in our families, at work
places, at schools, etc.
• They constitute ‘legal rules’ made and enforced by the
state
• Rules of conduct the breach of which attract punishment
• Take a glance at the following phonogram:
 2. Executive: Enforces law
(Police, Public prosecution
(DPP), PCCB (TAKUKURU),
1. Legislature :
Immigration department, etc.
Makes law (principal
Ministries and gvt
legislation) Art. 64
departments also may pass
(1) of CURT
subsidiary legislation (Orders,
regulations, Circulars, etc) –
Art 34 (2) & Art 97 (5)

3. Judiciary: Interprets laws

(administers justice) –Art. 107 A (1)
 Nature/elements of law

• From such definitions, law is characterized by

the following:
i) Obligation to obey the law
ii) Law is enforced
iii) Punishment
iv) Law applies to all
 Classification of law

Civil/criminal Private/public Substantive/procedural

law law law

Law

International/domestic
law Religious/Human law
 Civil/criminal law

• Nature: Civil law (private law) deals with the

relationships btn individual persons/entities.
• Eg. Contract law, company law, banking law,
business law, etc.
• Criminal law (Public law) deals with the
relationship btwn individuals and State, eg.
Cyber law, criminal law, administrative law,
etc
• Who initiate a case: In civil law, a wronged
party himself institutes a case in a court of
law, while in criminal law, the state initiates
criminal proceedings
• Punishment: The wrong doer in civil law is
required to pay compensation for loss/injury
caused to another person. In criminal law, the
wrong doer is punished by imprisonment in
jail, fine, or corporal punishment
• Objective/function: Civil law protects individuals
against wrongful acts/omissions of other persons,
eg. breach of contracts, damage to property, etc
• Criminal law maintains peace and security
• Remedies: Common law remedies (damages) or
equitable remedies (specific performance,
injunction, rescission)
• Sometimes criminal damages may be awarded,
eg. in rape cases
 Law and business
• Law affects us from the day we are born and
throughout our life
• Every day people do enter into contracts without
realizing
• Think of when you go for shopping in a
supermarket, when you sign an employment
contract, when you sign a loan agreement, when
you order goods and services online or through a
forwarding and clearing company, etc
• Every day people establish business, but have you
asked yourself what guide them in the process?
 Law and business
• These are some of business practices in our daily life
• In order to be protected by the law, they need to be
legally valid.
• The objectives of law in business are:
i) Framework for establishing and operating business
ii) Business transactions
iii) Property and personal protection
iv) Enforcement of contractual and other benefits
eg. Contracts,
v) Managing business risks
vi) Flexibility in operating business
 Hey Jose, found
a business idea
Wonderful! I want to start a
Is it a company? business this
Do you know year
what the law
requires?

Jane, my
business is Don’t worry,
collapsing George
It’s running There are so
out of capital many ways of
Am stressed raising capital for
out your business
I will guide you on
what the law says
 Sarah, I want to
Insurance have our
policy could business
be the best protected
option for against risks
you You have any
idea?

Our company
produces
volumes of
You could
goods, but we
think of
find it costly to
recruiting
reach out
sales
customers
agents
across the
country
 Sources of business law
i) Constitution of the United Republic of Tanzania, 1977
• The Constitution is a basic law of the land
• It lays down the general and basic legal framework and
standards for all affairs
• Establishes organs of state and their functions
• Provides for rights and duties, eg right to property, Art 24
• All other laws get legitimacy from the constitution
ii) Legislation
• Laws made either by the Parliament or by other government
authorities by virtue of powers given by the Parliament
• Divided into principal legislation (statutes, or Acts) and
Subsidiary legislation (delegated legislation)
 Sources of business law
• Principal legislation/statutes are those pieces of
legislation which are enacted or made by the
Parliament
• Contain the substantive or procedural provisions
which have to be observed by the subjects and
actors under that law
• Some of the statutes relevant to business
professionals include:
• The Law of Contract Act [Cap 345 R.E 2019]
• The Companies Act [Cap 212 R.E 2002]
• The Sale of Goods Act [Cap 214 R.E 2002]
• The Electronic Transactions Act, No. 13 of 2015
 Sources of business law
• Article 97(5) gives the Parliament the powers
of enacting laws that make provisions for
conferring on any person or department of
the Government the power to make
regulations having the force of law
• Such regulations or rules are known as
‘delegated legislation.’
• They ensure effective enforcement of Acts of
parliament
 Sources of business law
ii) Case law
• Case law refers to judicial decisions that have a binding
force to future cases
• This law is laid down in course of deciding cases at the
level of High Court or Court of Appeal.
• Followed in subsequent cases of similar facts
iii) Received laws
• During British colonialism, Tanganyika received and
applied some laws from England
• These received laws are still applicable in Tanzania
• They include common law, doctrines of equity and the
statutes of general application in force in England by 22nd
July 1920
 Sources of business law
iv) Customary law
• Rules emanating from the customs practiced in a particular
tribal community
• Have the same status as other laws
• In the case of Mtatiro Mwita v Mwita Marianya (1968) HCD
no. 82, the Court stated:
“If persons of the same tribe enter into an agreement well known
to tribal custom under which terms are prescribed, these persons
must in the absence of evidence to the contrary, be understood
to be contracting in accordance with these terms. In such case
relevant customary law must be applied if it is...applicable and is
not repugnant to justice or morality or inconsistent with any
written law”
v) Writings of eminent legal scholars
 Court system of Tanzania
• Courts in Tanzania have been established in hierarchy
1. Court of Appeal
2. High Court
3. District Court and Resident Magistrates’ Court
4. Primary Court
• Each of these courts has been given powers to
decide certain cases
• Their decisions are binding to the parties
• If one is not satisfied with the decision of the lower
court, he may appeal to the upper court
• The Court of Appeal is the supreme court which has
a final say
Sources of law
 General Principles of Contract
What is contract?
• It is an agreement enforceable by law, section. 2(1)(h) of the Law
of Contract Act CAP 345 (LCA) .i.e. an agreement between two
or more parties intended to have legal consequences.
• An agreement is defined under 2(1)(e) to
mean every promise and every set of promises
forming the consideration for each other.
 Elements of a valid contract
• Parties
• Offer
• Acceptance
• Free consent
• Consideration
• Intention to create legal relations
• Capacity
• Legality
 Parties
• The term contract presupposes the existence
of two sides/parties, one proposing the other
accepting:
• Commonly referred as offeree and offeror
• Therefore, any contract requires two or more
parties in order to exist (natural or legal
persons)
• A contract may be entered between an
individual and a company; between two or
more companies, etc.
 Offer
Meaning of an offer:
• It is a set of terms moving from one party to
another with intention of the former to be
bound by them. See section 2 (1) (a) of the
Contract Act.
• It states that; it is a signification to another
person of one’s willingness to do or not do
something with a view of obtaining assent (or
refusal) of that other person
 Characteristics of offer
• The terms of an offer are usually Clear and
certain, definite and capable of acceptance.
• They must constitute final and firm expression by
the proposer of his willingness to be bound
should the offer be accepted.
• See the consequence of uncertainty of offer, s. 29
• Read: Alfi Estates Africa Ltd V Themi Industries and
Distibutors Agency Ltd. [1984] TLR 362/256
• Nittin coffee estate vs United Engineering Works
(1988)TLR203
Offer and invitation to treat contrasted
• Invitation to treat are terms which aim at
inviting people to approach the owners of the
goods or to respond to the advertisements by
making an offer.
• Its terms are usually uncertain, ambiguous
such that it is not known exactly as to whether
the proposer intends to be bound by them
and they tend to beg for further questions i.e.
not capable of acceptance.
• Common example here include the following:
 Examples of invitation to treat
AUCTIONS
• In an auction, the auctioneer's call for bids is
an invitation to treat, a request for offers.
• The bids made by persons at the auction are
offers, which the auctioneer can accept or
reject as he chooses.
• Similarly, the bidder may retract his bid before
it is accepted
Payne v Cave (1789)
• The defendant made the highest bid for the
plaintiff's goods at an auction sale, but he
withdrew his bid before the fall of the
auctioneer's hammer.
• It was held that the defendant was not bound
to purchase the goods. His bid amounted to
an offer which he was entitled to withdraw at
any time before the auctioneer signified
acceptance by knocking down the hammer.
 Display of goods

• The display of goods with a price ticket

attached in a shop window or on a
supermarket shelf is not an offer to sell but an
invitation for customers to make an offer to
buy
• When you pick a product, you are not bound
to pay if you don’t intend to buy it.
Fisher v Bell (1960)3 All ER 713
• A shopkeeper displayed a flick knife with a
price tag in the window. The Restriction of
Offensive Weapons Act 1959 made it an
offence to 'offer for sale' a 'flick knife'.
• The shopkeeper was prosecuted in the
magistrates' court but the Justices declined to
convict on the basis that the knife had not, in
law, been 'offered for sale'.
• "It is perfectly clear that according to the
ordinary law of contract the display of an
article with a price on it in a shop window is
merely an invitation to treat. It is in no sense
an offer for sale the acceptance of which
constitutes a contract."
 Advertisements
• advertisements of goods for sale are normally
interpreted as invitations to treat
• Partridge v Crittenden (1968)AllER421
• It was an offence to offer for sale certain wild
birds. The defendant had advertised in a
periodical 'Quality Bramblefinch cocks,
Bramblefinch hens, 25s each'
• His conviction was quashed by the High Court.
Lord Parker CJ stated that when one is dealing
with advertisements and circulars, unless they
indeed come from manufacturers, there is
business sense in their being construed as
invitations to treat and not offers for sale.
• However, advertisements may be construed as
offers if they are unilateral, ie, open to all the
world to accept .
Carlill v Carbolic Smoke Ball Co
(1893)1QB256
• An advert was placed for 'smoke balls' to prevent
influenza. The advert offered to pay £100 if
anyone contracted influenza after using the ball. :
• The company deposited £1,000 with the Alliance
Bank to show their sincerity in the matter. The
plaintiff bought one of the balls but contracted
influenza. It was held that she was entitled to
recover the £100. The Court of Appeal held that;
• a) the deposit of money showed an intention
to be bound, therefore the advert was an
offer;
(b) it was possible to make an offer to the
world at large, which is accepted by anyone
who buys a smokeball;
(c) the offer of protection would cover the
period of use; and
(d) the buying and using of the smokeball
amounted to acceptance.
 Tenders
• Where goods are advertised for sale by
tender, the statement is not an offer, but an
invitation to treat; that is, it is a request by the
owner of the goods for offers to purchase
them. The process of competitive tendering
came under scrutiny in the following cases:
 Communication of offer
• Expressly (S.9 LCA) offer is said to be
communicated expressly when it is made in
writing or orally (verbally)
• Impliedly – when made by conduct example:
• stepping into an omnibus (daladala) and
consuming eatables at a self service restaurant,
both create an implies promises to pay for the
benefits enjoyed.
• See:1. Witkie vs. London Passengers Transport Board 1917 1 ALL
ER 258.
• Offer is effectively communicated (or
communication of offer is complete) when it
comes to the knowledge of the person to
whom it was made s4(1) LCA
• Types of offers are:
• specific offer- made to a definite person or
definite class of persons and
• General offer- when made to the world at
large.
 Termination of offer, s. 6 (1)
• Means by which offer can be terminated:
• Rejection
• Counter offer; See for Hyde v Wrench (1840).

• Revocation before acceptance ; Byrne v Van

Tienhoven (1880)
• Failure of a condition subject to which the offer
was made
• Lapse of time
• Death of offeror
 Counter offer
• Hyde v Wrench (1840)
• 6 June W offered to sell his estate to H for £1000; H
offered £950
27 June W rejected H's offer
29 June H offered £1000. W refused to sell and H sued
for breach of contract
• Lord Langdale MR held that if the defendant's offer to
sell for £1,000 had been unconditionally accepted,
there would have been a binding contract; instead the
plaintiff made an offer of his own of £950, and thereby
rejected the offer previously made by the defendant.
 Revocation
• The offer may be revoked by the offeror at any
time until it is accepted. However, the
revocation of the offer must be communicated
to the offeree(s). Unless and until the
revocation is so communicated, it is
ineffective.
Byrne v Van Tienhoven (1880)5
CPD334
• 1 Oct. D posted a letter offering goods for sale.
8 Oct. D revoked the offer; which arrived on 20
Oct.
11 Oct. P accepted by telegram
15 Oct. P posted a letter confirming acceptance.
• It was held that the defendant's revocation was
not effective until it was received on 20 Oct. This
was too late as the contract was made on the
11th when the plaintiff sent a telegram.
Judgment was given for the plaintiffs.
 Lapse of time
• Where an offer is stated to be open for a
specific length of time, then the offer
automatically terminates when that time limit
expires. Where there is no express time limit,
an offer is normally open only for a reasonable
time.
• Ramsgate v Montefiore (1866)
• On 8 June, the defendant offered to buy shares in
the plaintiff company. On 23 Nov, the plaintiff
accepted but the defendant no longer wanted
them and refused to pay.
• It was held that the six-month delay between the
offer in June and the acceptance in November
was unreasonable and so the offer had 'lapsed',
ie it could no longer be accepted and the
defendant was not liable for the price of the
shares.
 Failure of a condition
• An offer may be made subject to conditions.
Such a condition may be stated expressly by
the offeror or implied by the courts from the
circumstances. If the condition is not satisfied
the offer is not capable of being accepted
• See Financings Ltd v Stimson (1962)
 Death
• The offeree cannot accept an offer after notice of
the offeror's death. However, if the offeree does
not know of the offeror's death, and there is no
personal element involved, then he may accept
the offer
• Bradbury v Morgan (1862)
• JM Leigh requested Bradbury & Co to give credit
to HJ Leigh, his brother. JM Leigh guaranteed his
brother's account to the extent of £100. Bradbury
thereafter credited HJ Leigh in the usual way of
their business..
• JM Leigh died but Bradbury, having no notice
or knowledge of his death, continued to
supply HJ Leigh with goods on credit.
• JM Leigh's executors (Morgan) refused to pay,
arguing that they were not liable as the debts
were contracted and incurred after the death
of JM Leigh and not in his lifetime. Judgment
was given for the plaintiffs, Bradbury
 Acceptance
• It is defined under S.2(1)(b) to mean signification of
assent to the proposal by a person to whom it was
made.
• Acceptance must be absolute and unqualified i.e. final
and conclusive (S.7 Cap345 ).
• An acceptance is a final and unqualified acceptance of
the terms of an offer. To make a binding contract the
acceptance must exactly match the offer. The offeree
must accept all the terms of the offer
• However, in certain cases it is possible to have a
binding contract without a matching offer and
acceptance. See s.9 LCA
 Communication of an acceptance
• Communication of acceptance is deemed to be
made by act or omission of the party accepting,
by which he intends to communicate it and which
has the effect of communicating it (S.3 LCA).
• Generally acceptance has no effect until it is
communicated to the offeror i.e. when it comes
to the knowledge of offeror S.2(1)(b) Cap. 345. In
Household Fire Insurance Co v Grant (1879) 41 L.T
298
• COMMUNICATION OF ACCEPTANCE
• The general rule is that an acceptance must be
communicated to the offeror. Until and unless the
acceptance is so communicated, no contract comes
into existence:
• Lord Denning in Entores v Miles Far East Corp (1955)
• If a man shouts an offer to a man across a river but the
reply is not heard because of a plane flying overhead,
there is no contract. The offeree must wait and then
shout back his acceptance so that the offeror can hear
it.
• The acceptance must be communicated by the
offeree or someone authorised by the offeree.
If someone accepts on behalf of the offeree,
without authorisation, this will not be a valid
acceptance:
• Powell v Lee (1908)
• The plaintiff applied for a job as headmaster
and the school managers decided to appoint
him. One of them, acting without authority,
told the plaintiff he had been accepted. Later
the managers decided to appoint someone
else.
• The plaintiff brought an action alleging that by
breach of a contract to employ him he had
suffered damages in loss of salary
• The county court judge held that there was no
contract as there had been no authorised
communication of intention to contract on the
part of the body, that is, the managers,
alleged to be a party to the contract. This
decision was upheld by the King's Bench
Division.
 Waiver of communication
• The offeror may dispense with the need for
communication of acceptance, act by the
offeree may constitute acceptance though not
communicated to the offeror, see Carlill case
above;
• Held it was sufficient for the claimant to act
on the offer without notifying her acceptance
to it
Communication of acceptance by post
• Under Cap. 345 it is governed by S.4(2) (a) and
(b) which stipulates that communication of
acceptance is complete as against the
proposer when it is put in course of
transmission to him so as to be out of power
of the acceptor and as against the acceptor
when it comes to the knowledge of the
proposer.
• This means that once a letter is posted the
proposer is bound and he cannot revoke his
offer afterwards.
• On the other hand the acceptor becomes
bound only when the acceptance comes to
the knowledge of the proposer, so the
acceptor can revoke his acceptance before it
comes to the knowledge of the proposer using
the quickest means
 Communication under common law
• Under common law once a mail is correctly
addressed, properly stamped and put in right
hands of the postal officer that is effective
communication unless expressly excluded and
the contract is concluded immediately as the
parties are bound there and then.
• The Postal Rule - even if the letter is delayed,
destroyed or lost in the post so that it never
reaches the offeror
• See Adams v Lindsell (1818) 106 E.R. 250. and Helthorn
v Fraser (1892) 2 Ch.27
• Adams v Lindsell (1818)
• 2 Sept. The defendant wrote to the plaintiff
offering to sell goods asking for a reply "in the
course of post“
• 5 Sept. The plaintiff received the letter and
sent a letter of acceptance.
• 9 Sept. The defendant received the plaintiff's
acceptance but on 8 Sept had sold the goods
to a third party.
• It was held that a binding contract was made when the
plaintiff posted the letter of acceptance on 5 Sept, so
the defendant was in breach of contract.
However The postal rule will not apply:
• (i) Where the letter of acceptance has not been
properly posted, as in Rie London v. Northern Bank
(1900), where the letter of acceptance was handed to a
postman only authorised to deliver mail and not to
collect it.
• (ii) Where the letter is not properly addressed. There is
no authority on this point
• (iii) Where the express terms of the offer exclude
the postal rule, ie if the offer specifies that the
acceptance must reach the offeror. In Holwell
Securities v Hughes (1974, below), the postal rule
was held not to apply where the offer was to be
accepted by "notice in writing". Actual
communication was required.
• (iv) It was said in Holwell Securities that the rule
would not be applied where it would produce a
"manifest inconvenience or absurdity".
 Intention to create legal relations
• The parties must intend the agreement to be legally
binding.
• But how can the court find out what is in the parties'
minds?
• The nearest the courts can get to discover this
intention is to apply an objective test and judge the
situation by what was said and done.
• The law divides agreements into two groups, social &
domestic agreements and business agreements.
• Tanganyika Garage vs. Marcel Mafuruki(1975)LRT 23
 Social and domestic agreements
• This group covers agreements between family
members, friends and workmates.
• The law presumes that social agreements are not
intended to be legally binding.
Lens v Devonshire Club
• It was held that the winner of a competition held by a
golf club could not sue for his prize where "no one
concerned with that competition ever intended that
there should be any legal results flowing from the
conditions posted and the acceptance by the
competitor of those conditions"
• However, if it can be shown that the transaction
had the opposite intention, the court may be
prepared to rebut the presumption and to find
the necessary intention for a contract.
• The cases show it is a difficult task to rebut such a
presumption
• Agreements between a husband and wife living
together as one household are presumed not to
be intended to be legally binding, unless the
agreement states to the contrary.
 Balfour v Balfour [1919] 2 KB 571
• The defendant who worked in Ceylon, came to England
with his wife on holiday. He later returned to Ceylon
alone, the wife remaining in England for health
reasons.
• The defendant promised to pay the plaintiff £30 per
month as maintenance, but failed to keep up the
payments when the marriage broke up. The wife sued.
• It was held that the wife could not succeed because:
(1) she had provided no consideration for the promise
to pay £30; and (2) agreements between husbands and
wives are not contracts because the parties do not
intend them to be legally binding
• The presumption against a contractual intention will
not apply where the spouses are not living together in
amity at the time of the agreement
Merritt v Merritt [1970] 2 All ER 760
• The husband left his wife. They met to make
arrangements for the future. The husband agreed to
pay £40 per month maintenance, out of which the wife
would pay the mortgage.
• When the mortgage was paid off he would transfer the
house from joint names to the wife's name. He wrote
this down and signed the paper, but later refused to
transfer the house.
• It was held that when the agreement was
made, the husband and wife were no longer
living together, therefore they must have
intended the agreement to be binding, as they
would base their future actions on it.
• This intention was evidenced by the writing.
The husband had to transfer the house to the
wife
• If a social agreement will have serious consequences for
the parties, this may rebut the presumption too
Parker v Clarke [1960] 1 All ER 93
• Tanner v Tanner [1975] 1 WLR 1346.
• A man promised a woman that the house in which they had
lived together (without being married) should be available
for her and the couple's children.
• It was held that the promise had contractual force
because, in reliance on it, the woman had moved out of her
rent-controlled flat.
• It seems that agreements of a domestic nature between
parent and child are likewise presumed not to be intended
to be binding
 Business agreements
• In business agreements the presumption is that the
parties intend to create legal relations and make a
contract.
• This presumption can be rebutted by the inclusion of
an express statement to that effect in the agreement
Rose and Frank Co v Crompton Bros Ltd [1925] AC 445
• The defendants were paper manufacturers and entered
into an agreement with the plaintiffs whereby the
plaintiffs were to act as sole agents for the sale of the
defendant's paper in the US.
• The written agreement contained a clause that it was
not entered into as a formal or legal agreement and
would not be subject to legal jurisdiction in the courts
but was a record of the purpose and intention of the
parties to which they honourably pledged themselves,
that it would be carried through with mutual loyalty
and friendly co-operation
• The plaintiffs placed orders for paper which were
accepted by the defendants. Before the orders were
sent, the defendants terminated the agency agreement
and refused to send the paper.
• It was held that the sole agency agreement was
not binding owing to the inclusion of the
"honourable pledge clause".
• Regarding the orders which had been placed and
accepted, however, contracts had been created
and the defendants, in failing to execute them,
were in breach of contract
• If a clause is put in an agreement and the clause
is ambiguous then the courts will intervene and
interpret it
 CAPACITY TO CONTRACT
• CAPACITY : Is an ability to perform legally valid
act i.e. ability to incur liability or acquire legal
rights. It is an essential element of a contract that
parties to a contract must have
capacity/competency to contract as provided
under s. 10 Cap 345
• Under S.11(1), Cap 345every person is competent
to contract who is of the age of majority
according to the law to which he is subject, and
who is of sound mind and is not disqualified from
contracting by any law to which he is subject.
• According to the above provision the following
persons are declared incompetent to contract
• 1) Minors
• 2) persons of unsound mind
• 3) persons disqualified by any law which they are
subject e.g. bankrupt persons
• Section 11(1) of LCA provides for a presumption of
capacity;
Every person is competent to contract who is of the age
of majority according to the law to which he is subject,
and who is of sound mind, and is not disqualified from
contracting by any law to which he is subject.
• The Age of Majority Act , cap 43 provides that a person
who is 18 yrs old and above is of majority age.
• Who is a person of sound mind? S. 12(1) LCA
define;
A person is said to be of sound mind for the
purpose of making a contract if, at the time
when he makes it, he is capable of
understanding it and of forming a rational
judgment as to its effect upon his interests
• Disqualification by any Law to which he is
subjected?
• S. 34 Bankruptcy Act cap 25; a bankrupt cannot
enter into an employment contract.
• Under Companies Act, once a company is
declared Insolvent, the court may wind it up and
appoint an official receiver, the company looses
the legal capacity to contract
• The consequence of contracting with the above
persons is that the contract becomes VOID. S
11(2) LCA
 Exceptions to s. 11 (2)
• As it can easily be noted, the consequences of
S. 11(2) are so harsh to the opposite party as a
void contract is as good as no contract existed
at all.
• Hence the law and the court have developed
some exceptions to mitigate the harshness of
the section.
 Valid Contracts with Minors/unsound
mind
• S. 4 SOGA, Cap 214;

4(2) Where necessaries are sold and delivered to an infant

or minor, or to a person who by reason of mental
incapacity or drunkenness is incompetent to contract, he
must pay a reasonable price therefor.
4(3) Necessaries in this section mean goods
suitable to the condition in life of such infant or
minor or other person, and to his actual
requirements at the time of the sale and delivery.
• S. 68 LCA also provide for this exception
If a person incapable of entering into a
contract, or anyone whom he is legally bound
to support, is supplied by another person with
necessaries suited to his condition in life, the
person who has furnished such supplies is
entitled to be reimbursed from the property
of such incapable person.
Nash v. Inman [1908] 2 KB 1, CA.
 Consideration
• The general rule is that an agreement without
consideration is void under S.25 of the LCA.
• Consideration centers on exchange of values
embedded in goods or services:
• So one who parts with value must be given
value in return by the one in whose favour he
parted with his value.
• Nothing should go for nothing (quid pro quo –
nothing should go for nothing)
• See: Currie v Misa (1875) LR 10 Ex. 153
 Forms of consideration
• Executed consideration:
• When the act constituting consideration is
completely performed at the time of making
the contract. for example in cash sales where
one picks the item and pays cash instantly.
• Executory consideration
• This is a kind of consideration when an act
constituting consideration is to be performed
in the future
 LEGALITY OR LEGAL OBJECT
• For a valid contract the law also requires that
both object and the consideration should be
legal, i.e. in accordance to law (s.23(1) LCA)
• A contract will be declared illegal if:
• The objects are by themselves contrary to law
(s.23(1)(b)
• Where the making of the contract is forbidden
by the law (s.23(1)(a)
• Where the agreement may cause injury to the
person or property of another (S. 23(1)(d)
LCA
• Immoral or contrary to public policy
(S.23(1)(e)LCA)
• Where the contract is for fraudulent purpose
(s. 23(1)(c) LCA )
 Free consent
• Consent means that the parties must have
agreed upon the same sense.
• This means that the parties must be free and
willingly to be bound by the terms of the
agreement
• For a valid contract it is necessary that the
consent of parties to the contract must be
free.
• According to section 13 of LCA consent is free
when it is not obtained by coercion, under
influence, fraud, misappropriation or mistake.
(these will be discussed in details in the next
immediate session)
• If the consent of either of the parties is not
free the agreement cannot become a contract
 Kinds of contracts/agreements
• The following are the main kinds of contract:
• Valid contract
• Voidable contracts
• Void agreements
• Unenforceable Contracts
• Illegal contracts
 Valid contract
• This is a contract which has fulfilled the conditions
under section 10 of the LCA
• A valid contract is said to have been formed where it is
evidenced by the following elements:
• Parties
• Offer and Acceptance
• Free consent
• Consideration
• Intention to create legal relations
• Capacity
• Legality/ legal object
• In short it is a n enforceable contract
 Void agreement
• An agreement which the court holds to be no
contract but a nullity from the beginning (as of
no legal effect) e.g. S.11(2) LCA- and
agreement by a person who is not hereby
declared to be competent to contract is void,
• S.25(1) LCA an agreement made without
consideration is void.
 Effect of a void agreement
• The effects of declaring it void is to make it
unenforceable. That is a agreement with no
legal force
• Any payment become recoverable except if
void for illegality.
 Voidable contract
• Is an agreement which is enforceable by law
at the option of one or more parties there to,
but not at the option of the other or others
s.2(1)(i) LCA.
• In other words it is a contract with full legal
force until the party entitled to rescind (set it
aside by returning the parties at their original
position) it does so, short of which the
contract remains intact.
 Illegal contracts
• For an agreement to be a good contract it
should be made for lawful consideration and
lawful object.
• Where the object or consideration of a
contract is unlawful or is contrary to public
policy it will be declared illegal.
• So illegal contracts are those formed contrary
to the law (penal code) or immoral or those
which the courts declare to be so.
 Unenforceable contracts
• These are contracts whose enforceability is
conditional upon fulfillment of certain
requirements.
• Failure to comply with those may render the
contract, which is otherwise valid
unenforceable i.e. the court will not call upon
the party or parties to fulfill his or their
obligations under the contract.
 VITIATING FACTORS
• Contract has to be entered by the parties out
of their fee consent.
• However consent can sometimes be vitiated
by several factor which has the effect of
inducing it causing it not to be freely and
voluntarily given.
• Those vitiating factors include the following
• Coercion or Duress (s. 15 of LCA)
• Undue influence ( s. 16 of LCA)
• Misrepresentation (s. 18 LCA)
• Fraud (s 17of LCA)
• Mistake
 Coercion or Duress (s. 15 of LCA)
• Defined under S.15 LCA to mean committing or
threatening to commit, any act forbidden by the
penal code, or unlawful detaining, or threatening
to detain, any property to the prejudice of any
person whatsoever, with the intention of causing
any person to enter into a contact.
• It covers actual or threatened physical violence to
or unlawful confinement of a contracting party or
his/her immediate family
• Note that the threat must however be to the
person not to the goods/properties.
• Effect: contract is voidable at the option of the
party whose consent was so causes.
• Coercion once proved, renders the contract
voidable
• See the case of Universe Tankships v ITWF
[1982] All ER 67
 Undue influence (s. 16 of LCA)
• Undue influence involve improper use of power
to affect somebody’s character, belief or actions
through e.g. fear, admirations etc. s.16 LCA
• The doctrine is designed to give relief where, in
circumstances not amounting to duress, a person
enters into a disadvantaged transactions, so it
covers any influence by which the exercise of free
will and fact has been prevented.
 Circumstances under which it can
happen:
• Where the relation subsisting between the
parties are such that one of the parties is in
a position to dominate the will of the other
party and (client/lawyer relation,
doctor/patient relation etc.
• Uses that position to obtain an unfair
advantage over the other.
• Where he holds a real or apparent authority over
the other or where he stands in a fiduciary
relation to the other
Sluis Brothers (EA) Ltd v Mathias Tawari Kitomari &
Others (1980) TLR 294

• Where he makes a contract with a person whose

mental capacity is temporarily or permanently
affected by reason of old age, illness, or mental or
bodily distress.
• Kawila Matata v Grace Titus Matata [1981] TLR 23
 Misrepresentation (s. 18 LCA)
• A misrepresentation is a false statement of fact
made by one party to another, which, whilst not
being a term of the contract, induces the other
party to enter the contract.
• Before contract is concluded various
representations are made with the aim of
inducing a party to enter into a contract.
• They amounts to misrepresentation when they
since are untrue, still forms part of the contract
 Types of misrepresentation
1.Fraudulent misrepresentation
• Is a false statement
• Made knowingly or without belief in its truth.
• Or recklessly , careless as to whether it be true
or false.
• Simply it is a statement when made the
presenter did not honestly believe it to be
true.
 2. Negligent misrepresentation
• Untrue statement made recklessly by a person
who does not care whether it is true or not or
who does not take reasonable care to inquire in
its truth.
• See Hadley Byrne v Heller [1964] AC 465
3. Innocent misrepresentation
• Is stating facts which are not true but maker
believes them to be true.
• The maker does not intend to deceive, but still a
misrepresentation because statement is not
warranted by information within his knowledge
 Fraud s. 17 of LCA
• Fraud means and include the following:
• The suggestion as to the fact, which is not true
by one who does not believe it to be true
• It is an active concealment of a fact by one
having knowledge but misleading another to
his prejudice
• A promise made without any intention of
performing it
• Any other act fettered to deceive
 Mistake
According to S.20 of LCA , Mistake is the
misapprehension or misunderstanding as to
material fact.

Types of Mistake
Common / Mutual Mistake
Unilateral / One Sided Mistake
 Common mistake
• Both parties are under a mistake as to a matter of
fact essential to the agreement. Both make the
same mistake e.g.
• Due to change precedent or because of
impossibility of performance at the time of the
contract. in such case there was a real consent at
the time of the contract which is then nullified.
• For example both parties working on assumption
that the subject matter about which they are
contracting is in existence at the time the
contract when it has in fact ceased to exist.
• Results of Common mistake (S. 20 (1) ) LCA
• reads “Where both the parties to an
agreement are under a mistake as
to a matter of fact essential to the agreement,
the agreement is void”.
 DISCHARGE OF CONTRACT
• Discharge of a contract refers to coming to an
end of the obligations/liabilities of a party to a
valid contract.
• Obligations/liabilities under a contract may be
brought to an end by several methods.
• There are mainly four methods of discharging
a contract
 Methods of Discharge
• Discharge by agreement
• Discharge by performance
• Discharge by breach and acceptance of that
breach
• Discharge by impossibility of performance and
frustration.
 Discharge by agreement
• What is created by agreement may be
dissolved by agreement
• Eodem modo quo oritur, eodem modo
dissolvitur
• That means parties to an agreement may
agree to have their contract discharged.
 Discharge by performance
• When parties conclude a contract, they
contemplate fulfillment of obligations.
• Therefore once performed your obligations
squarely it follows that you will be discharged
from contractual obligations.
• The discharge of the other party will also
depend on whether he has performed his
obligations.
Discharge by breach and acceptance of
that breach
• When a party breaches the contract it does
not mean that the obligations of the parties
have been discharged.
• It is open to the innocent party to decide
whether or not to accept the breach.
• If he accept the breach he stands absolved or
discharged from further performance of the
contract.
• If he does not accept the breach of contract by the
other party he is entitled to continue to insist on
performance.
• Breach by one party does not give rise to an automatic
right to an innocent party to regard himself as
discharged from further performance
• In cases of defective performance by one party, the
other may decide to affirm the contract.
• That is to say, he may waive his right to treat himself as
discharged, accept the defective performance and sue
for the damages. Breach of warrant.
 The right to treat contract as
discharged
• A right to treat the contract as wholly discharged
may arise where the other party to the contract
either, firstly renounces his liability under it or
• By his own act makes it impossible to fulfill his
obligations or
• Fails to perform what he has promised to
perform.
• In all three the breaching party may be said to
have repudiated his contractual obligations.
• In the first case he has repudiated by refusal
to perform.
• In the second he has repudiated them by
inability to perform
• In the third, he has repudiated them by total
or substantial failure to perform.
• The first two forms may happen not only
while performing but even when the contract
is executory.
• They normally referred to as ANTICIPATORY
BREACH.
• The last form of breach can only take place
during performance of the contract and is
usually termed PRESENT BREACH
 Discharge by Impossibility and
frustration, s. 56 of LCA
• After formation of a contract the parties may
find that the contract is not capable of
performance.
• This could be due to impossibility to perform
or
• It is rendered unlawful or
• The performance becomes commercially
useless.
• In these situations, a party may plead frustration
of the contract.
• Meaning that he is prevented by the supervening
events which are beyond his control.
• Such supervening event may render the
agreement either legally or physically impossible
of performance or commercially furtile.
• Such agreement becomes void as per s. 56 LCA.
 Instances of frustration
Destruction of the subject matter:
• The principle of frustration is said to apply in case
the performance of the contract is made
impossible because of the destruction of the
specific thing essential to that performance.
• In the case of Taylor v Cadwell (1863) in which a
contract was entered for the purpose of
entertainment.
• The plaintiff agreed with the defendant to hire to
music hall.
• Before the day of performance arrived, the
music hall was destroyed by fire.
• The plaintiff sued the defendant for damages
for breach of contract.
• Held the defendant not liable because
performance was made impossible because of
the destruction of the specific thing essential
to that performance.
 2. Non occurrence of contemplated
event
• Where a particular event on which the contract is
premised does not occur, the contract has been
held to be frustrated.
• In Krell v Henry (1903) 2kb 740, the defendant
agreed to hire a flat from the plaintiff for june 26
&27 1902.
• The contract contained no reference to the
coronation processions but they were to take
place on those days and to pass the flat.
• The processions were cancelled and 2/3 of the
rent were yet to be paid.
• The plaintiff sued the defendant to recover
rent.
• The court of appeal was of the view that the
processions and the relative position of the
flat were fundamental to and indeed the basis
for, the making of the contract and therefore,
since the procession were cancelled the
contract became discharged by frustration
• However, where the actual happening is not
made the basis of the contract, the doctrine of
frustration cannot apply.
• 3. Death or incapacity of party for personal
service.
• Where in a contract performance depend on
the existence of a particular person and that
person dies or become so ill that he cannot
perform the contract is frustrated.
• In Robinson v Davison (1871) LR Exch 269.
• The contract with the eminent pianist could
not materialise and was postponed because
the pianist fell ill.
• The plaintiff sued as he lost money because of
failure of appearance of the pianist on a
material day.
• Held for the defendant that under the
circumstances she was not merely excused
from playing but she was also not at liberty to
play hence contract frustrated.
• 4. unavailability of what was anticipated by
the parties
• Where the thing or person essential for the
performance becomes unavailable for that
purpose.
5. Government legislative intervention
• Where the government make a
law/rule/regulation/directive whose effect is to prevent a
party from fulfilling his obligation the contract is frustrated.

6. War
• Outbreak of war make performance of contract impossible.
• It relieves the parties from their obligations under the
contracts.
• But see Chapakazi Building v Parokia ya Kiwanja cha Ndege
(1983) TLR 252 and Kanyware Building Contractors v
Attorney General (1985) TLR 161.
• READ… READ.. READ.
 Remedies
• Contract remedies are the means by which the
violations of a right is either;
• Prevented (where a party is ordered to fulfill his
obligation) or
• Redressed (where a party is ordered to return a
benefit he has obtained under the contract) or
• Compensated (where a party is ordered to
compensate the other for the damage he has
suffered).
• The type of remedy open to an injured party
are invariably connected with what he
thought he could obtain under the contract.
• A party may have parted with value just to
find the other party either refuses to fulfill his
obligation or fulfills it defectively.
• In such cases the expectation of the innocent
party may not be realised
 Remedies
• Damages
• Restitution
• Specific performance
• Rescission.
• Damages: the party who has suffered damage
claims compensation in money to cover the
damage suffered.
• Damages are compensation for loss suffered
owing to a breach of contract.
• The object is to put the injured person as near
as possible in the same position, so far as
money can do it, as if he had not been injured.
• In Victoria Laundry v Newman Industries
(1949) 2 KB 528 it was held as follows:
• It is well settled that the governing purpose of
damages is to put the party whose rights have
been violated in the same position, so far as
money can do so, as if his rights had been
observed…
• Specific performance
• The trigger for the commencement of a specific
performance suit will be some threat of refusal,
express or at least implied, or some actual
refusal, on the part of a contracting party to
perform the contract in whole or part’.
• To be considered is the likelihood or degree of
risk of non-performance before granting specific
performance.
• Also to be considered is the discretionary factor
of hardship and balance of convenience’.
 Restitution
• The innocent party may have performed part
of the contract, the breaching party has not.
• The innocent party may claim back his
performance or its reasonable value –
restitutio in integrum.