Dear students, find out more about course outline and information.

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map while pursuing this course. Read extensively before pursuing this course.

THE OPEN UNIVERSITY OF TANZANIA

FACULTY OF LAW

ECONOMIC LAW DEPARTMENT

OLW 103: LAW OF CONTRACT

COURSE OUTLINE

1.0 Course Description

This is compulsory course which covers the formation, validity, and enforcement
of agreements and contracts. This course caters for all people with vision of
being lawyers or business professionals as professional development
opportunities. It provides to students with a sufficient knowledge and
understanding of the law of contract. Students will be introduced to the
concept of incurring obligations by agreement and will study the formation of a
contract and the basic elements of an enforceable contract, including
agreement, consideration, and the intention to create legal relations. The
important contents of a contract, including the express and implied terms will be
considered along with exemption clauses. Students will read and analyse the
sources of contract law, including both judicial decisions (case law) and
statutes, evolution of the theory and law of contracts, the creation and
termination of contract and quasi-contract rights. Development of the basic
doctrines and policies covered in Contracts, with a focus on the substantive law
of contract interpretation and construction, mistake, material breach,
conditions, and contract remedies shall be the focus of this course.

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2.0 Course Objectives

This is contract law course designed to give law students and non-law students
an overview of the purpose and standard components of a contract.
Formation, validity and contract enforcement, legal obligations under common
contract law and sales contracts are discussed. To gain perspective on the use
and misuse of contracts, students study case law involving contract breach and
disputes.

The law of contract intends to enhance students to demonstrate a thorough

working understanding of contract caw because the course aims at giving
students a good working knowledge of the elements of contract law and the
theories underlying it. It enables the students to develop the ability to
understand contract cases and practical contractual situations, that is to say
the importance of the issues in a case and how the court has resolved the issues.
Students through this course should develop the ability to interpret a statute;
they should also be able to understand the interrelation between the Law of
Contract Act and the relevant common law provisions.

Therefore, the main purpose of this course is to provide a detailed knowledge of

contract law as might be relevant to a person working in a legal office, private
or public sector organisation or other area requiring a specialised knowledge of
contract law principles and to enable the learner to evaluate contractual issues
in both social and domestic, and commercial environments.

3.0 Learning Outcomes

At the end of the course, students will be able to: -

i. Analyse and evaluate the nature and meaning of contracts, the

regulation of the form of contracts, and evaluate the impact of legislation upon
contract law;

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 ii. Scrutinize and apply the rules governing the requirement that the
parties to a contract must reach an agreement comprised of offer and
acceptance;

iii. Analyse the presumption and assess rules relevant to the

requirement that the parties have an intention to create legal relations;

iv. Analyse and assess the rules which govern the requirement that
consideration must be present in simple contracts;

v. Analyse and assess the nature and significance of the terms of a

contract, the differences between representations and terms, the nature and
significance of collateral contracts, the different types of contract and the
nature and operation of exclusion clauses;

vi. Determine and analyse the legal principles relating to the position of
persons who lack contractual capacity to enter into contracts, comparing
contrasts and the rights and liabilities of persons with whom they contract;

vii. Distinguish between and assess the meaning and effects of

consensual problems of contracts with reference to mistake, misrepresentation,
duress, undue influence and unconscionability;

viii. Determine the circumstances where a contract may be illegal or void

and assess the consequences;

ix. Determine the legal principles relating to privity of contract and

assignment of contract;

x. Evaluate, analyse and specify the different circumstances and

consequences that result in a contract being discharged;

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 xi. Analyse the various remedies available when a contract is
breached, and apply to a relevant case study; and

xii. Analyse the contemporary tends in the contract law especially with
the development of science and technology and functioning of the state in the
consumer protection role in the society.

4.0 Course Contents

The Law of Contract course is structured into six major knowledge areas which
have been devised to constitute the corresponding aspects of the contract law
into different lectures therein. These are: -

4.1 Knowledge Area 01: Introduction to Contract Law

This knowledge area provides a general sound introduction to the law of

contract. It offers a general introduction to the law of contract dealing in
particular with the development of the institution of contract and the basic
conceptions of the institution of contract, i.e. the freedom of contract and
sanctity of contract. The rules governing form of contract and the contents of a
contract are covered in this knowledge area.

4.1.1 Lecture 01: Nature of Contract Law

Contract law is very important in our daily socio-economic routines. However, it

has its own rules and principles which govern the contractual relationships. This
lecture gives discussion on the concept, characteristics, scope and significance
of the contract law.

 What is Contract Law

 Characteristics of Contract Law
 Scope of Contract Law
 Significance of Contract Law

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4.1.2 Lecture 02: Sources of Contract Law

In this lecture you are going to study the various sources of contract law of the
East African countries of Kenya, Uganda and Tanzania. You have to note from
the very start that the sources of contract law of Tanzania are generally not the
same as those of Kenya and Uganda.

 What is Source of Contract Law

 Sources of Contract Law

Lecture 03: Origin and Development of Contract Law

This lecture gives description of the where the contract law came from and how
did it develop in the societies. It traces evolution of the principles and rules of
the contract law worldwide and in Tanzania in particular.

 Origins of Contract Law

 Development of Contract Law World Wide
 Contract Law Development in Tanzania

Knowledge Area 01: Reading List

Engels, F: origin of the Family, Pricate Prosperty and the state.

McNeil: What is Contract? Pp. 14-17; exchange and cooperation pp. 41-17;
contacts and planning, pp. 57-64.

Cohen: “The Basis of contract” in 46 Havard Law Review 553.

Friendman: Law in a Changing society 2nd ed. 1972, Stevensons chpt. 4.

Lyall, A.: Contract, Freedom and Exchange (1975)8 E.A. L. Rev. 261-190.

Maine, H.J. Ancient Law (ed. Pollock) chapt. 1.

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Feaver: From Status to contract, 1969, Longmans.

Simpson: A History of the common Law of Contract: The rise of the Assumpsit
(1975).

Stolja: A history of contract at common Law (1975).

Knowledge Area 01: Instruments and Laws

Tanganyika order-in council, 1920, ss. 13(4) and 24.

Magistractes Courts Act, 1963, s. 14 (1). IV & Schedule.

Customary Law Limitation of Proceedings Rules, 1964 G.N. 311 of 1964, 5th item.

Written Laws, (Miscellanours Ammedments) Act. No. 50 of 1968.

Magistrates courts Act. 1984 No. 2 of 1984 which repaealed the M.C. Acrt., 1963.

The Law of Contract Act, Cap 345 RE 2002.

The Sales of Goods Act, Cap 214 RE 2002.

The Bill of Exchange Act, Cap 215 RE 2002.

The Constitution of the United Republic of Tanzania, Cap 2 RE 2002.

4.2 Knowledge Area 02: Introduction to Contracts

The universal definition of a contract is that it is an agreement with legal force.

So it is not all agreements or undertakings which amount to contracts. The legal
binding nature of an agreement is necessary for there to be a contract. Hence,
this knowledge gives conceptualisation of the contracts, agreements, promises
and other related terms as applicable in the contract law as well as their
underlying foundations.

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 Lecture 04: Concept of Contracts

Contracts and agreements sometimes have been used interchangeably

without realising their differences in the eyes of the law. This lecture imparts
understanding of the concept of contract and agreement, their differences
through their characteristics and scope as applicable in the contract law.

 What is Contract
 What is Agreement
 Agreement vis-a-vis Contract
 Characteristics of Contract
 Scope of Contracts

Lecture 05: Institution of Contracts

This lecture is intended to let you understand how the institution of contract
arose and its importance in the economic life of societies. Also, in this lecture we
are going to look at the institution of contract in African communities. The
lecture is confined to the development of the institution in basically subsistence
economies.

 Contract as an Institution
 Historical Growth of Institution of Contract
 Basic Conceptions of Institution of Contract
 Customary Contracts in African Communities
 Customary Contracts in Tanzania

Lecture 06: Classification of Contracts

There many types of contracts. Their variation depends on the criteria

applicable in the classification process. Hence, there are various criteria which
can be used in the classification of the contract such as mode of their

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formation, validity essentials requirement, formalities and many others. This
lecture imparts understanding.

 Simple Contracts
 Written Contracts
 Unilateral Contracts
 Bilateral Contracts
 Collateral Contracts
 Standard form Contracts
 Quasi-Contracts

Knowledge Area 02: Reading List

E. Contran & N.N. Rubin (eds): Readings in African Law, Vol. I, African Publ. corp,
New York, 1970, p. 201

M. Gluckman: Ideas in Barotse Jurisprudence, Yale Univ. Press, 1965 pp. 170-182.

T.O. Elias: The Nature of African Customary Law, Machester Univ. Press, 1956 pp.
144-148; 152-155.

Schaper: “Contract in Tswana Law” in Journal of African Law. Vol. 9 No. 3 pp.
142-153.

Knowledge Area 02: Instruments and Laws Applicable

The Law of Contract Act, Cap 345 RE 2002.

The Sales of Goods Act, Cap 214 RE 2002.

The Bill of Exchange Act, Cap 215 RE 2002.

The Constitution of the United Republic of Tanzania, Cap 2 RE 2002.

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Knowledge Area 02: Case Laws Applicable

Mtatiro Mwita v. Mwita Mrianya (1968) HCD 82.

Fadhili v. Lengipengi (1971) HCD 31.

Gudensia Samwel v. Melchior Marcel (1967) HCD 333.

Edward Kalemela v. Manyebe Rwenjega (1968) HCD 80

Ephraim Obongo v. Naftael Okeyo (1968) JCD 288.

Walimu Jilala v. John Mongo (1968) HCD 81.

Joseph Constantine v. Losilale Ndaskoi (1968) HCD 381.

Zephrin Mgabona v. Jones Kalumuna (1970) HCD 12.

Felalon (Fr. ) v. Kalinga (1970) HCD 259.

Endoshi v. LEMA (1971) hcd 445.

4.3 Knowledge Area 03: Essentials to Contracts

In this knowledge area, we will be learning that an agreement must contain

certain essential ingredients to be regarded as a contract. If any one of them is
missing, the agreement will not be legally binding. Therefore, at the end of
knowledge area, you should be able to understand and explain the offer,
acceptance, intention to create legal relations, parties and capacity, free
consent, consideration and legality.

4.3.1 Lecture 07: Parties to Contracts

In every contract there must be two parties. These parties may be natural
persons are for instance: Neema, Juma, Rose etc. while artificial persons are
persons created by law for Example companies, corporations and other
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associations or organizations which are empowered by law to enter into
contracts. Therefore, a contract may be between natural persons and natural
persons, natural person and artificial persons or artificial persons and artificial
persons. This lecture enlightens students on the parties to contract as well as the
doctrine of privity to contract.

 Who are Parties to the Contracts

 Third Parties to Contracts
 Rights and Liabilities of Third Parties

4.3.2 Lecture 08: Offer

Agreement is born from a signification by one person to another of his willingness

to do or abstain from doing anything with a view to obtaining the assent of that
other to such act or abstinence. This lecture gives description of the concept of
offer, characteristics, its difference from invitation to treat, communication,
revocation and termination of the offer.

 What is an Offer
 Characteristics of Offer
 What is Invitation to Treat
 Communication of Offer
 Revocation of Offer
 Termination of Offer

4.3.3 Lecture 09: Acceptance

Agreement is normally determined by the existence of offer and acceptance.

Acceptance is the final and unqualified agreement to all the terms contained in
the offer—and thus must be in response to the offer. It follows that adding or
amending an offer term amounts to a counter-offer which itself constitutes an
offer and is not an acceptance. This lecture shades light on the understanding
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of the nature, conditions, communication, rejection, revocation of the
acceptance in the contract law.

 What is acceptance
 Conditions for Valid Acceptance
 Communication of Acceptance
 Revocation of Acceptance

4.3.4 Lecture 10: Free Consent

Every party to a contract is required to conclude a contract out of his own free
will or volition. This is what is meant by the concept of free consent. The concept
of free consent reflects the underlying assumptions of a contract namely the
freedom of contract and sanctity of contract. This lecture provides
understanding of the concept of free consent, its vitality in the contract and
factors which may vitiate the free consent in the contract.

 What is free consent

 Coercion
 Fraud
 Misrepresentation
 Mistake
 Undue Influence

4.3.5 Lecture 11: Competence to Contract

Capacity to contract refers to competence to contract. The general rule is only

sane, sober persons of contractual age are capable of making valid contracts.
This means that certain groups of persons natural and artificial may have the
disabilities to contract. Thus minors persons of unsound mind, and person
disqualified by law cannot qualify to make contracts. This lecture discusses the
rules governing the competence to contract.
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 Capacity to Contract
 Age of majority
 Soundness of Mind
 Legal Qualification

4.3.6 Lecture 12: Intention to Create Legal Relations

To be enforceable a formation promise (promise made as part of an agreement

where there is no existing agreement between these parties covering this
subject matter), requires (a) an intention to be legally bound by the promise
(known as intention to create legal relations), and (b) either the promise must be
expressed in the form of a deed (indicating that any promise is taken seriously),
or the party who is seeking to enforce the promise of the other must show that
he has given something in exchange for that promise (i.e. it is a bargain, as
opposed to a gratuitous promise or gift). This lecture provides discussion on the
intention to create legal relations, its presumption and exceptions as applicable
in the contract law.

 Intention to create legal relations

 Social or Domestic Arrangements
 Commercial or Business Arrangements

4.3.7 Lecture 13: Consideration

Consideration means an act or a promise given in exchange for the promise

(i.e. the price for which the other's promise was bought). Consideration need not
be adequate but must be sufficient. In other words, the courts will not examine
whether what has been given in exchange is of equivalent value but some acts
or promises are not recognized by the law as being good consideration, e.g.
past consideration, performance of an existing legal duty. This lecture shades

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understanding of the concept, types, and rules governing consideration as an
essential element of the contract.

 What is consideration
 Types of Consideration
 Rules of Consideration

4.3.8 Lecture 14: Legality

The object of the contract must be lawful or legal. An agreement in which the
object is unlawful is void. For instance, the agreement to carry out an act which
is forbidden by public law is void. The same applies to an agreement which is
contrary to public policy. This lecture provides understanding of the concept of
legality, circumstances which cause illegality, effects of illegality on the contract
and its essence.

 What is legality
 What circumstances amount to legality
 Effects of Illegality in Contracts

4.3.9 Lecture 15: Formalities of Contracts

This lecture explains that most contracts can be made without any particular
formalities being followed. However, a few contracts must be made by deed;
written; or evidenced in writing. In addition, particular issues are raised when
contracts are made over the internet and by e-mail.

 Deed
 Evidence in writing
 Writing
 Witness
 Internet

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 Email

Knowledge Area 03: Reading List

Chandler, Devenney and Poole, ‘Common mistake: theoretical justification and

remedial inflexibility’ (2004) Journal of Business Law 34

Friedman, ‘The objective principle and mistake and involuntariness in contract

and restitution’ (2003) 119 Law Quarterly Review 68

Hare, ‘Identity mistakes: a lost opportunity’ (2004) 67 Modern Law Review 993

Phang, ‘Mistake in contract law – two recent cases’ (2002) Cambridge Law
Journal 272

Slade, ‘The myth of mistake in the English law of contract’ (1954) 70 Law
Quarterly Review 385

Enonchong, ‘Title claims and illegal transactions’ (1995) 111 Law Quarterly
Review 135

Rose, ‘Reconsidering illegality’ (1996) 10 Journal of Contract Law 271

Todd, ‘The inevitable triumph of the ante-nuptial agreement’ (2006) Fam Law
539

Virgo, ‘Withdrawal from illegal transactions – a matter for consideration’ [1996]

Cambridge Law Journal 23

Knowledge Area 03: Case Laws Applicable

A.H. Noorani Sons Ltd. V. Ngomen Estates Ltd, (1974) LRT no. 9.

Mukisa Biscuits Mfg. Co. Ltd. V. West End Distributors Ltd. (No. 2) (K) (1970) E.A.
469.

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Nicolene, Ltd. V. Smmonds (1953) 1. o. B. 543; (143; (1953)

Great Northern Railway Co. v. Ltd Witham (1873) L.R. 9 C.P. 16.

Howrad Co. (Africa) Ltd v. Burton (1964) E.A. 540 (K)

Esso Petroleum Ltd. V. Commrs. Of Customs & Excise (1976) 1 W.L.R. 1; S & T 18: C.
& F. 49.

Phramaceutical Society of Gr. Britain v. Boots (1953) 1. All e.r. 482; S. & T. 6; C & F;
S. T. 23-24.

Carilill v. Varbolic Smoke Ball Co. (1892)2 Q.B. 484 (1893) 1. Q.B. 256; S& t 40; C &
T, 1

Wiles v. Madscon (1943) 1 All E.R. 315.

Roberts v. Littlewood’s Mail Order Stores (1943) K.B. 269.

Fisher v. Bell (1961) 1 Q.B 394, (1960); 3 All E.R. 731.

Chandrakant Pamubhai Patel v. Lionel Marealle and another (1984) TLR (ms)

Nitin Coffee Estates Ltd. And another v. United Engineering Works Ltd. and
another CAT, Arusha Civil Appeal 15/1988.

Blackpool & Flycle Aero Club Ltd. V. Blackppol Borought Counicl (1990) 3 All E.R.
25.

Tweedle v. Atkinson (1861)

Dunlop Pneumatic v. Selfridge.

Kayanja v. New India Assurance Co. Ltd. (1968) E.A

Scruttons Ltd. V Midland Silicones Ltd. (1962) A.C.

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Beswick v. Beswick (1966) ch. 539; S & T 242.

Jackson v. horizon holidays Ltd. (1975) All E.R. 92.

Sat Dev. Sharma v. Home Insurance Co. of New York (K).

Tariock Singh Nayr v. Sterling Gen. Insurance Co. Ltd. (1966) E.A. 144.

4.4 Knowledge Area 04: What is in the Contracts

Although there are some contract cases where the central issue is whether or
not there was a valid contract, more often both parties agree that they have
made a binding agreement, but disagree as to the content of the agreement.
This knowledge area imparts understanding of the concept of terms of contract,
classification and exemption clauses.

4.4.1 Lecture 16: Terms of Contracts

The contents of a contract depend primarily on the words used by the parties in
the contract. These make up its express terms. A contract may, in addition,
contain terms which are not expressly stated, but which are implied, either
because the parties so intended, or by operation of law, or by custom or usage.

 What are terms of contracts

 Significance of Terms of Contracts

4.4.2 Lecture 17: Classification of Terms of Contracts

The terms of the contract set out the obligations on the parties under the
agreement. Express terms can either be oral or in writing. The courts have
developed rules on how to interpret these express terms. In addition, terms can
be implied into a contract. The different types of terms of contract are going to
be discussed in this lecture.

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 Express terms
 Implied terms
 Conditions
 Warranties
 Unfair Contract Terms

Lecture 18: Exemption Clauses

In some cases, one party to a contract may seek to avoid incurring liability for
certain breaches of the contract, or may specify that their liability for such a
breach will be limited, usually to a certain amount in damages. The concept,
formation, incorporation, interpretation rules of the exemption clauses are part
and parcel of this lecture.

 What is exemption clause

 Significance of exemption clause
 Types of exemption clause
 Validity of Exemption
 Interpretation of Exemption Clauses

Knowledge Area 04: Reading List

Macdonald, ‘The duty to give notice of unusual contract terms’ (1988) Journal
of Business Law 375

Macdonald, ‘The Emperor’s old clauses: unincorporated clauses, misleading

terms and the unfair terms in consumer contracts regulations’ (1999) 58
Cambridge Law Journal 413

Mason, ‘Contract, good faith and equitable standards in fair dealing’ (2000)
Law Quarterly Review 66

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Mitchell, ‘Unfair terms in consumer contracts’ (2000) Law Quarterly Review 557
Spencer, ‘Signature, consent and the rule in L’Estrange v Graucob’ (1973)
Cambridge Law Journal 103

Whittaker, ‘Unfair terms, public services and the construction of a European

conception of contract’ (2000) Law Quarterly Review 95

Knowledge Area 04: Case Laws Applicable

Suleiman Virji Sons v Mangaldas (1914) EAPLR 154 (C.A.).

Othman Kawila Matata v. Grace Titus Matata (1981) TLR 23.

Sluis Brothers (E.A.) Ltd. v. Mathias & Tawari Kitomari (1980) TLR 294.

Hloyds Bank Ltd. v. Bundy (1975) 1. Q.B. 326.

A Schroeder Music Publ. Co. v. Macaulay (1974) 1 WLR 1303.

Clifford Davis Management Ltd. v. W. E. A. Records Ltd. (1975) 1 All E.R. 227.

Pao on v Lau Yiu Long (1979) 3 WLR 435 (P.C.)

4.5 Knowledge Area 05: Discharge and Remedies of Contracts

Anything that has a beginning must have an end. A contract begins when it is
created. When created, a contract spells out obligations and rights of each
party. A contract is discharged if the obligations created by it become no
longer binding on the parties. There are four ways in which a contract can be
brought to an end: performance, frustration, breach and agreement. When a
contract is breached, there are three different types of remedy that can be
available to the innocent party: common law remedies, equitable remedies
and remedies agreed between the parties.

4.5.1 Lecture 19: Discharge of Contracts

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This lecture is going to aware and impart knowledge and understanding on the
discharge of contract. It makes us understand under which the contract can be
discharged as well as the ways that can discharge the contracts.

 What is discharge of contracts

 Rationale Behind Discharge of Contracts
 Methods of Discharge of Contracts

4.5.2 Lecture 20: Discharge by Agreement

In some cases, the parties will simply agree to terminate a contract, so that one
or both parties are released from their obligations. This lecture discusses first the
general rule is expressed in a maxim that says that what has been created by
agreement may be dissolved by an agreement. Parties to an agreement may
agree to have their contract discharged. Such discharge may be effected
through anyone of the following methods, namely, release, accord and
satisfaction, new agreement (novation), provision of discharge contained in the
contract itself.

 What discharge by agreement

 Elements of Agreement to discharge contract
 Methods of discharge by agreement
 Effects of discharge by agreement

4.5.3 Lecture 21: Discharge by Performance

This lecture deals with rules of performance as means to discharge the contract.
The general rule is that performance must exactly match the requirements laid
down in the contract, and this is known as entire performance. In practice,
contracts requiring entire performance are the exception rather than the rule.

 What is performance

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 Rules of performance of contracts
 Who has to perform the contracts
 Time of performance
 Place of performance

4.5.4 Lecture 22: Discharge by Frustration

If after a contract is made, something happens, through no fault of the parties,

to make its performance impossible, the contract is said to be frustrated. Where
the contract terms expressly or impliedly allocate the risk of a contract being or
becoming impossible to perform on a particular ground to one party (such as
on the ground of the destruction of the contractual subject matter) and that
event occurs, that party cannot rely on the impossibility of performance as an
excuse to a claim for non-performance or breach of that contract. This lecture
discusses the doctrine of frustration of contract.

 What is frustration of contract

 Origins of doctrine of frustration
 What circumstances amount to frustration
 What circumstances not amounting to frustration
 Effects of frustration to contract

4.5.5 Lecture 23: Discharge by Breach

A contract is said to be breached when one party performs defectively,

differently from the agreement, or not at all (actual breach), or indicates in
advance that they will not be performing as agreed (anticipatory breach).

 What is breach of contract

 Types of Breach of Contract
 Effects of breach of contract

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4.5.6 Lecture 24: Remedies for Breach

When a contract is breached, there are three different types of remedy that
can be available to the innocent party: common law remedies, equitable
remedies and remedies agreed between the parties. This lecture describes the
concept, origin, essence and classification of the remedies for breach of
contract.

 Remedies
 Doctrine of Ubi Jus Ibe Remedium
 Classification of remedies

Lecture 25: Damages

An award of damages is the usual remedy for a breach of contract. It is an

award of money that aims to compensate the innocent party for the financial
losses they have suffered as a result of the breach. Damages for breach of
contract are available as of right where the contract has been breached. The
general rule is that innocent parties are entitled to such damages as will put
them in the position they would have been in if the contract had been
performed. When a contract is breached, a party may suffer pecuniary loss
(that is to say financial loss) or non-pecuniary loss.

 What is damages
 Purpose of damages
 Classification of damages
 Assessment of damages
 Principles of damages

Lecture 26: Specific Performance and Injunction

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An order of specific performance is a court order compelling someone to
perform their obligations under a contract. As we have seen, the common law
will not force a party in breach to perform (except where the performance is
simply paying money), even though this may seem a fairly obvious solution to
many contract problems. The equitable remedy of specific performance does
compel the party in breach to perform. In practice, specific performance only
rarely applies, as the making of such an order is subject to the following
restrictions.

An injunction normally orders the defendant not to do a particular thing. For

example, Ken, a horse owner, rents a field from Julie, and it is a term of their
agreement that no buildings should be put up on the land. If Julie discovers that
Ken is about to build a stable, she could apply to the court for an injunction to
prevent him doing so. This is called a negative (or prohibitory) injunction.

 What is specific performance

 Application of specific performance
 What is injunction
 Application of injunction

Lecture 27: Restitution and Quantum Meruit

This lecture discusses restitution and quantum meruit. Restitution is the remedy
available when there has been unjust enrichment. Where money has been paid
under a contract, or purported contract, and performance has not been
received in return, or has not been adequate, the payer may want to claim the
money back, rather than claiming damages (if, for example, no additional loss
has resulted from the failure to perform). Restitution is not a remedy for a breach
of contract. Rather, restitution seeks to restore money paid or the value of a
benefit conferred in circumstances in which no contract exists, or in which there
is no longer any obligation to perform under a contract.

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Where work has been done or goods supplied but no payment has been
received and cannot be obtained under a contract, an action is available
called a quantum meruit (Latin for ‘as much as is deserved’), under which
claimants can claim a reasonable price for their performance. Payment cannot
be obtained under a contract where there is no contract, or where the price
has not been specified in the contract. A quantum meruit is based on
restitutionary principles and is different from damages, since it merely aims to
pay for performance, not to compensate for loss. So long as there is a contract
between the parties, under which the claimant was intended to be paid, the
court will order payment of a reasonable sum for the performance rendered –
essentially the market price or ‘going rate’. Where there is no contract because
the contract is void, the court will still be able to order a quantum meruit for
performance rendered

 What is restitution
 Application of restitution
 What is rescission
 Application of rescission

Knowledge Area 05: Reading List

Bridge, ‘Mitigation of damages in contract and the meaning of avoidable loss’

(1989) 105 Law Quarterly Review 38

Brodie, ‘Specific performance and employment contracts’ (1998) 27 Industrial

Law Journal 37

Campbell and Harris, ‘In defence of breach: a critique of restitution and the
performance interest’ (2002) 22 Legal Studies 208

Chen-Wishart, ‘Restitutionary damages for breach of contract’ (1998) 114 Law

Quarterly Review 363

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Coote, ‘Contract damages, Ruxley and the performance interest’ [1997]
Cambridge Law Journal 537

Enonchong, ‘Breach of contract and damages for mental distress’ (1996) 16

Oxford Journal of Legal Studies 617

Friedman, ‘The performance interest in contract damages’ (1995) 111 Law

Quarterly Review 628

Loke, ‘Cost of cure or difference in market value? Towards a sound choice in

the basis for quantifying expectation damages’ (1996) 10 Journal of Contract
Law 189

McKendrick, ‘Breach of contract and the meaning of loss’ (1999) 52 Current

Legal Problems 37

Phang, ‘The crumbling edifice? The award of contractual damages for mental
distress’ [2003] Journal of Business Law 341

Knowledge Area 05: Case Laws Applicable

Hochester v. De la Tour aa8 E.R. 922.

Short v. Stone (1846).

Frost v. Knight (1872)

The Mihalis Angelos (1970)3 All E.R 125; (1971) Q.B. 183.

Avery v. Bonden 1855. 103 E.R. 695.

White & Carter (councils) Ltd v. Macgregor (1962) A .C 413.

Howard v. Pickford Tool Co. Ltd. (1951) 1 K.B. 417

24
4.6 Knowledge Area 06: Contemporary Issues in Contract

Contracts are part and parcel of the human relations and socio-economic
activities. The law of contract was put in place to govern and moderate the
contractual relations so as they can produce what were intended and recover
the expectations of the innocent party. However, due to the development of
science and technology, contractual relations are now undertaken in
technological arena. There are many contemporary issues related to contract
which have been influenced by technology and globalisation that are subject
of this part.

In the consumer context, consumers are given certain ‘rights to redress’ for
misleading actions under the Consumer Protection from Unfair Trading and
these may replace the remedies otherwise available such as the ability to
recover damages for misrepresentation under other legislation.

4.6.1 Lecture 28: Electronic Contracts

This lecture discusses the electronic contracts in line with the enactment of
Electronic Transaction Act, Act No. 13 of 2015. This law has been made to suit
the changes of science and technology in the contractual relations. It has
recognised electronic contracts without discouraging traditional contracts. It
reflects technological advancement and business activities through online
means. The article appraises the law and describes how it covers electronic
transactions including electronic contracts. It analyses the law on point of
electronic contract formation, communication, performance and enforcement.

 What is electronic contract

 Forms of electronic contract
 Formation of electronic contracts
 Law on electronic contracts in Tanzania

25
4.6.2 Lecture 29: Consumer Contracts

Although the principles of the law of contract (covering issues such as offer and
acceptance, consideration and vitiating factors) apply to all contracts, in
recent years there has been increasing intervention by Parliament in certain
types of contract, with the result that many are now covered by special rules
governing both the way in which they are made and the terms they may
include.

The reason for intervention in consumer contracts is a move away from the
traditional idea that the parties should be left to negotiate the best possible
bargain for themselves, and a recognition that in many modern situations,
ordinary consumers will be contracting with large, powerful organisations and
effectively have no power to negotiate a favourable deal, or sometimes even a
fair one.

 Contracts for the Sales of Goods

 Contracts for the supply of services
 Hire purchase contracts
 Consumer protection

4.6.3 Lecture 30: International Contracts

When parties from different countries enter into a contract, they are governed
by international contract law unless they agree to abide by the laws of one of
the countries. ... International sales contracts are governed by the United
Nations Convention on Contracts for the International Sale of Goods (CISG) from
1980.

 International Contracts
 The United Nations Convention on Contracts for the International Sale of
Goods (CISG) from 1980

26
 Convention on the Law Applicable to Contractual Obligations 1980
 The Rome I Regulation (Regulation (EC) No 593/2008) of the European
Parliament and of the Council of 17 June 2008

Knowledge Area 06: Reading List

Alba, J., et al, (1997), Interactive Home Shopping: Consumer, Retailer, and
Manufacturer Incentives to Participate in Electronic Marketplaces. Journal of
Marketing, 61(July), 38-53

Armstrong, A., & Hagel III, J. (1996). The Real Value of ON-LINE Communities,
Harvard Business Review, May-June, 134-141

Chapter 8 of UNCTAD Information Economy Report 2006: The development

perspective; Laws and Contracts in an Ecommerce Environment (2006)
available at: http://r0.unctad.org/ecommerce/ecommerce_en/ier06_en.htm

Garcia, D. L., (1997), Network Commerce: Public Policy Issues in a Deregulated

Communication Environment. The Information Society, 13, 17-31.

Gogan, J. L., (1997), the Web's Impact on Selling Techniques: Historical

Perspective and Early Observations. International Journal of electronic
Commerce, 1(2), 89-108.

Gregory J. D., (2005), Internet Jurisdiction: Where Are We Now? Presentation to

the Toronto Computer Lawyers, available at
www.tclg.org/meetings/2005_nov.ppt (last viewed: March 9, 2011)

Ismail, et al, (2006), „Evaluation of Legal Risks for Ecommerce in Construction‟

Journal of Professional Issues in Engineering Education & Practice, 355-360 at 358

Pacini, C., et al, (2002), “To Agree or not to agree: Legal Issues in Online
Contracting”, Business Horizon 43-52 at 43

27
Pistorius. T, (1993), “The Enforceability of Shrink-wrap Agreements in South
Africa”, 5 South African Mercantile Law Journal, 1-19

Reck, M., (1994), Types of Electronic Auction, Paper presented at the

Conference ‘Information and Communications Technologies in Tourism’,
ENTER'94 Innsbruck.

Runge, A., (1999), the Management of Business Transactions through Electronic

Contracts, In: A. Camell; A. Min Tjoa; R.R. Wagner: Proceedings for the 10th
International Workshop on Database and Expert Systems Applications, Florence,
Italy: IEEE Computer Society Press, p. 824 - 831, 1999.

Samelson A, et al, (2003), The E-Sign Law: What does it mean for Government
Contracting Practices? Journal of Contract Management 35-43 at 36

Ervine, ‘Satisfactory quality: what does it mean?’ (2004) Journal of Business Law
684

Low, ‘Repair, rejection and rescission: an uneasy resolution’ (2007) 123 Law
Quarterly Review 536

Truilhek-Marengo, ‘Towards a European law of contracts’ (2004) 10(4) European

Law Journal 463

Knowledge Area 06: Instruments and Laws Applicable

Electronic Transaction Act, Act No. 13 of 2015

The Law of Contract Act, Cap 345 RE 2002

The Sales of Goods Act, Cap 214 RE 2002

The United Nations Convention on Contracts for the International Sale of Goods
(CISG)

28
Knowledge Area 06: Case Laws Applicable

Dell Computer Corp. v Union des Consommateurs 2007 SCC 34

Calder v Jones 465 U.S. 783 (1984)

Lucas v Western Telegraph Co (1906) 131 Iowa, 669, 109 N. W 191

Vacwell Engineering Co Ltd v BDH Chemicals Ltd (1971)

Daniels v R White & Sons Ltd (1938)

Adams v. Lindsell (1818) 1B & Ald.6812.

Alfi E. A Ltd v Themi Industries and Distributors Agency Ltd [1984] TLR 256 3.

Aspencer1.com Inc. v. Paysystems Corporation [2005]. JQ no 1573 4.

Blackpool & Fylde Aero Club Ltd v Black Borough Council [1990] 1 WLR 1195.

Boulder Consolidated Ltd v Tangaere [1980] 1 NZLR 560, 567 (CA)6.

Brinkibon Ltd v Stahag Stahl GmbH [1983], 2 AC 347.

Brower v. Gateway (2000), 246 AD 2d 246, 676 NYS 2d 56 8.

Bryne v Van Tienhoven (1880) 5C.P.D 3349.

Buku v. Magori [1971] HCD, No. 16110.

Busoga Millers & Industries Ltd v Purshottam Patel 22EACA 34811.

Calder v. Jones 465 U.S. 783 (1984) 12.

Carlill v. Carbolic Smoke Ball Company [1893]1QB256 13.

Cheleta Coffee Plantations Ltd v. Mehlsen [1966] E.A 203 14.

29
Dell Computer Corp. v. Union des consommateurs 2007 SCC 3415.

Dodd v. Nanda (1971) EA 58 and Jirvaj v Dervaj (1968) EA 26316.

Easthaven Ltd. v. Nutrisystem.com Inc. (2001) 55 OR 3d 33417.

Entores v Miles Far East Corporation [1955] 2 QB 327 (CA)

Last modified: Tuesday, 29 October 2019, 8:08 AM

30
 LECTURE ONE

NATURE OF CONTRACT LAW

Introduction

There are many practices in the societies that constitute agreements and
contracts in daily routines. There are social transactions, which lead to the
contracts formation. There are economic circumstances that necessitate
contracts as means to execute the transactions.

However, societies have different perceptions and philosophies underlying the

contracts and contract law. This leads to the variation of the contractual rules
and practices. The contractual relationships and the variation of the contractual
rules have caused disputes in the societies.

Due to the disputes arising from contractual relations, there was need of having
unanimous rules and principles which can govern the contractual transactions
which may prevent and remedy the contractual disputes.

Eventually, the contract law is established. Therefore, this lecture focuses on

imparting understanding of the concept, scope, nature and essence of the
contract law in societies. It establishes the conceptual foundations of the
contract law.

Concept of Contract Law

Contract law is the area of law that governs making contracts, carrying them
out and fashioning a fair remedy when there is a breach. It denotes the
principles and rules which govern how the contracts are formed, what
determines the validity of the contract, how contracts function, through which
ways the contracts can be discharged as well as what the entitlements of the
party to the contract whose contractual rights have been violated by the other

31
party. It implies the circumstance that determines which agreements amount to
the contracts. It differentiates agreement from the contract as not all
agreements are contracts but all contracts are agreements. It deals with
making and enforcements of the agreements and contracts.

Scope of Contract Law

The scope of contract law varies from country to country and from legal system
to legal systems depending on the types of obligations, they govern. Contract
law governs a contractual obligation that arises from agreements made
between two or more persons, which puts the promisor under the obligation to
perform his or her promises under the sanction of an action against him for
breach of the contract.

Contract law agreement concerns with a bargain, which is essentially

commercial in its nature and involves the sale or hire of commodities such as
goods, services or land. Hence, it focuses on the general principles and rules,
which govern contract generally. It does not devote itself with the specific types
of contracts.

Contract law is primarily concerned with supporting the social institution of

exchange. However, it is not as broad as the institution itself. An enormous
proportion of our life has its basis on exchanges that are in some sense
agreements, but contract law does not govern many of them usually. Contract
law does not govern some agreements, such as domestic arrangements.

Characteristics of Contract Law

Contract law is based on a consensus ad idem which means a meeting of the

minds between the parties i.e. an agreement among them. This determines the
basic principle of contract law, which is freedom of contract. It necessitates the
free will and choice of the persons to enter the contractual relationships.

32
Contract law is a part of private law because it does not bind the state or
persons that are not parties to the contract. Thus, contracts are voluntary and
require an exercise of the will of the parties. Hence, it regulates the relationships
between private persons that include the corporations when they are in
contractual relationships.

Contract law has its basis on liability for breach of promises. It governs such
questions as which agreements the law will enforce, what obligations the law
impose by the agreement in question and what remedies are available if the
obligations when parties do not perform as agreed.

Contract law may have a general or special application depending on the

nature and origin of contractual undertakings at a given time. Therefore, based
on the scope of application of contract law contract laws may be dissected in
to two areas of applicability complementing each other

Significance of Contract Law

Contract law provides protection of the person entering the agreements. It

makes the agreement enforceable when the agreements comply with the rules
and principles provided in the contract law. It protects the rights and
entitlements of the parties to the agreements. It ensures contractual rights are
realised through their enforcement. Hence, it provides security and peace of
mind to all the parties involved in the transaction.

In the case of Mohamed Idrissa Mohammed v Hashim Ayoub Jaku1, the court
emphasised on doctrine of sanctity that agreement must be adhered hence
there is protection of the parties to the agreement. The court held that where a
party to the contract has no good reason not to fulfil an agreement, there must

1 [1993] TLR 280 (CA)

33
be force for him to perform his part, for parties must adhere and fulfil an
agreement.

It empowers the parties to make agreements that the law will enforce. It also
enables parties to the contract to make exchanges that might otherwise carry
too great risk whether of disruption by some contingencies or default by the
other party. Accordingly, contract law in this respect is the most important which
creates smooth functioning of business transaction by creating certainty,
predictability, and enforceability.

As pointed out in the case of Edwin Simon Mamuya v Adam Jonas Mbala2 the
court was of the view that mesne profits or damages are recoverable in
addition to specific performance when a party delays to perform his part of the
contract without reasonable cause. This denotes that the court focused on the
enforcement of the rights when the other party to the contract fails to discharge
responsibilities as per the agreement. Hence, the court made the agreement
enforceable.

Contract law provides remedies when there is breach of contractual rights and
obligations. Contracts create the rights and responsibilities to the parties. When
these parties fail to perform the obligations arising from the contract, the
contract law entitles the innocent party with the remedies for the loss occurred
such as damages, specific performance, rescission, restitution and injunction.
The remedies intend restore the loss suffered to an innocent party to the
contract.

In the case of Njoro Furniture Mart Ltd v Tanzania Electric Supply Co Ltd 3, the
court had the view that it is correct in law to include in the award of damages

2 [1983] TLR 410 (HC)

3 1995 TLR 205 (CA)
34
an element calculated to offset the effect of inflation and devaluation. This is
because in principle the quantum of damages has to be such as to restore an
injured party, as far as possible, to the position prior to the injury.

In addition, section 73 of the Law of Contract Act 4 provides the consequences

upon which there is breach of contract. It enshrines the need of compensation
of the innocent party to the contract when the other party has breached the
contract. However, it limits compensation to the tune of loss or damage
naturally arising from the breach of contract.

Contract law prevents the strangers to the contract to benefit and made liable
to the contract. It sets limitations to the persons who are parties to the said
contract. The persons who are not parties to the contract cannot enforce the
contract. The doctrine of privity to contract governs this. However, there are
circumstances which contract law has allowed the strangers to the contract to
benefit and enforce the contract such as agency, negotiable instrument, third
party insurance, restrictive covenants and other circumstances. In the case of
Tweddle v Atkinson5, Justice Wightman correctly pointed out that no stranger to
the consideration can take advantage of a contract, although made for his
benefit. This implied that the common law doctrine of privity of contract means
that a contract cannot to the generality, confer rights or impose obligations
arising under it on any person except the parties to it.

However, there is no rule of law preventing a person from benefiting from

another's contract. What is law being access to a court seeking relief on a
contract and on that basis, the Tweedle precedent stands for a firm approach

4 Cap 345 RE 2002

5 [1861] EWHC J57 (QB), (1861) 1 B&S 393
35
that unless a person is privy or a party to, a contract, they will not be able to
enforce it in Court.

Therefore, our society depends upon free exchange in the marketplace at

every stage. The interactions in the market all the times depend upon voluntary
agreements between individuals or other “legal persons”. Such voluntary
agreements can never become binding without a legal contract. Principles of
contract law provide and ensure binding nature of the agreement or contracts.
Hence, it ensures agreements or contract become binding.

Conclusion

The law of contract governs or regulates agreements, which are intended to be

legally binding. The law allows parties to an agreement to make law for them
provided they do so within circumscribed limits. They should not infringe the laws
of the land nor should they go against public policy. Once private persons have
made their own law within the allowed limits the state will protect their legal
interests by enforcing the law made by the parties themselves or by applying
relevant laws of private persons as built up in the course of many years through,
especially, case law.

Review Questions

1. “Contract law is primarily concerned with supporting the social institution

of exchange” With aid of decided cases discuss the significance of the
contract law in supporting the institution of exchange in the societies.
2. The contract law is sui generis despite being similar with other parts of the
private law. In light of the statement, describe the unique characteristics
of the contract law that makes it unique from other private laws.
3. The scope of contract law varies from country to country and from legal
system to legal systems depending on the types of obligations, they

36
 govern. With reference of Tanzania contract laws, explain the scope of
contract law.
4. Societies have different perceptions and philosophies underlying the
contracts and contract law. What were the reasons that led for Tanzania’s
legislature to enact the Law of Contract Act while each society in
Tanzania has the customary contract law?
5. At the moment, people are free to enter agreements between
themselves because there is contract law which protect them in case
there is any concern. Discuss how the contract law protects the persons’
interests when they enter agreements.
6. The contract law allows parties to an agreement to make law for them
provided they do so within circumscribed limits. To what extent is the
statement true? Make reference to the contract laws in Tanzania.

References

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005). [Chapter 2 – Principles of Contract Law]

Brown, G. W., et al, Understanding Business and Personal Law, 9 th Edition,

McGraw – Hill Inc. United States of America, (1993). [Unit 2 – Entering into
Contract]

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

McKendrick, E., Contract Law, 13th Edition, MacMillan Education UK, United
Kingdom, (2009).

37
 LECTURE TWO

SOURCES OF CONTRACT LAW

Introduction

Contract law consists of various legal rules and principles which govern
contractual relations between persons. These legal rules and principles are not
embedded in one source. They are found in different sources. Where these legal
rules and principles are found are called sources of contract law. They
constitute instruments, customs, conventions, literature and other documents.

It is very important to understand where the legal rules and principles governing
the contractual relations are found. This is because they are not found in one
document or place. These sources vary depending on their nature and how
they are expressed. There are formal sources and informal sources.
Understanding their differences enhances our knowledge and enables us to
apply such knowledge in our practices which involve the legal issues and
concerns.

Hence, we are to understand the sources of the contract law through

identifying the sources, analysing the nature of the source and how and to what
extent such source provides for the legal rules and principles which govern the
contractual arrangements between the persons in the societies. This important
segment is going to be covered in this lecture. Therefore, at the end of this
lecture, we should be able to identify and explain the different sources of
contract legal rules and principles analyse how they are sources of the contract
law.

38
Sources of Contract Law

Sources of contract law are the places where the legal rules and principles
regulating contractual relations emanate. They are fountain from which the
legal rules and principles of contract law come from. They are literature,
instruments, documents, customs and practices which provide contractual rules
and principles.

There are many sources from which the legal rules and principles of the contract
law are based on. They range from formal to informal. They vary from the
document to practices. Their binding-ness vary from one source to another
depending on the legal value of such source and its reliance when
understanding and applying the said legal rules and principles.

Constitution

A constitution is the body of legal and political rules through which the state is
governed. The rules concern the government of a country. A constitution in the
narrow sense is a document or set of documents intentionally drafted to form
the fundamental law of a country. Constitutions may be classified as written or
unwritten, flexible or rigid, monarchical or republican, federal or unitary,
supreme or subordinate to the legislature, or based on the separation of powers.

The constitution is often regarded as the mother law. It is regarded so because it

is the supreme law of the land. This implies there is no other law which is above
the constitution of the country. Moreover, the other laws derive their legitimacy
from the constitution. This denotes that the other laws of the land go against the
constitutional provisions are declared to be null and void. Hence, even the
contract law has to derive their legality from the mother law unless they will be
declared to be null and void.

39
Article 64(5) of the Constitution of the United Republic of Tanzania 6 provides for
the constitutional supremacy over the other laws of the land. It provides that in
the event any other law conflicts with the provisions contained in this
Constitution, the Constitution shall prevail and that other law, to the extent of
the inconsistency with the Constitution, shall be void. Nonetheless, this does not
prejudice to the application of the Constitution of Zanzibar in accordance with
this Constitution shall have the force of law in the whole of the United Republic
of Tanzania.

Article 15(1) of the Constitution of the United Republic of Tanzania 7 provides for
the principle of freedom of persons which is the basic principle applicable in the
contractual relations. It provides that every person has the right to freedom and
to live as a free person. This means the person is free even to enter the
contractual transactions as free person.

Hence, the doctrine of freedom of the parties to contract as the fundamental

principle has its roots from the constitutional provision of the right to live a free
person which includes right to engage in the contractual relations as free
person. The constitutional provision entitled the requirement of free consent in
the contractual arrangements.

Acts of Parliament

These are laws which have been made by the legislature. These are laws which
are passed by the legislative organ of the state under its constitutional and
traditional mandate of law making. Since doctrine of separation of powers
entitles the legislative organ of the state to make and unmake laws binding
within the territory of the state. The laws made under such mandate are called

6 Cap 2 RE 2018
7 Ibid
40
Acts of the Parliament. However, they are known also as the principal legislation,
local statutes or primary laws.

The legislature enacts the laws under the mandate granted by the constitution.
For instance, Tanzania’s parliament is entitled to make laws under article 64 (1)
of the Constitution of the United Republic of Tanzania of 1977 8. This article vests
legislative power for union matters and matters of Tanzania mainland to the
parliament. Nonetheless, the legislative powers for matters for non-union
matters arising in Zanzibar are vested to House of Representatives under article
64(2) of the Constitution of United Republic of Tanzania of 19779.

Under such constitutional mandate, there are much principal legislation which
are made by parliament which provide for the legal rules and principles that
govern the contractual relations in Tanzania. These are the Law of Contract Act,
the Sales of Goods Act, the Land Act, the Bills of Exchange Act and many
others.

The Law of Contract Act is the principal legislation which provides general legal
rules and principles which deals with the contractual relations between persons
in the societies. It is replica of the Indian Evidence Act of 1872 which was
received in colonial Tanganyika during British colonial rule before
independence.

It is the general law which provide for the law relating to contracts. 10 It provides
for legal rules and principles that govern proposal, acceptance,
communication and revocation11, voidable contracts and void agreements12,

8 Cap 2 RE 2018
9 Ibid
10 The Law of Contract Act, preamble
11 Ibid, part II
12 Ibid, part III

41
contingent contracts13, performance of contracts14, certain relations resembling
to contractual relations i.e. quasi contracts 15, consequences for breach of
contracts16, indemnity and guarantee17, bailment18, agency19 and partnership20.

The Sales of Goods Act 21 is the specific principal legislation which caters for the
legal rules and principles which govern the contracts and agreements of sale of
goods from their formation, rights and duties, liabilities when there is breach of
the sale of goods. It in major portion provides for the law relating to contracts 22.

It provides for the formation of contract23 of sales through nature of contract

and agreements of sales, formalities, subject matter, price, conditions and
warranties, sale by sample. It also enshrines legal rules governing effects of
contract of sales24, performance of contract of sales25, rights of unpaid seller
against goods26, actions for breach of contract27, and supplementary
provisions28.

The Land Act29 is the general principal legislation as far as land issues are
concerned in Tanzania. It enshrines the legal rules and principles governing the
relations and transactions related to land. Hence, it generally provides for the

13 Ibid, part IV
14 Ibid, part V
15 Ibid, part VI
16 Ibid, part VII
17 Ibid, part VIII
18 Ibid, part IX
19 Ibid, part X
20 Ibid, part XI
21 Cap 214 RE 2018
22 The Sales of Goods Act, preamble
23 Ibid, part II
24 Ibid, part III
25 Ibid, part IV
26 Ibid, part V
27 Ibid, part VI
28 Ibid, part VII
29 The Land Act, Cap 113 RE 2018

42
basic law in relation to land other than the village land, the management of
land, settlement of disputes and related matters.30

This law provides for the legal rules governing the contractual relationships
requirements relating to land as subject matter of the contract. Section 64(1) of
the Land Act31 provides for requirement of writing for enforcement of contracts
relating to land. This provisions demands the contract of disposition 32 of land33 to
be in written form and be signed by both parties. It provides also that when the
contract of disposition of land is not in writing and signed by both parties is not
enforceable.

In addition, section 37(5) of the Land Act 34 provides for the effect of the
disposition of law which is primarily contract in nature when it lacks approval of
the land commissioner. It enshrines the inoperativeness of the contract of
disposition of the land between the persons when there is no approval of the
land commissioner. It provides that a disposition which has been carried out
without first obtaining the approval of the Commissioner shall be inoperative. It
adds the requirement of the contract of disposition of land to be enforceable as
matter of the enforcement of the contract of disposition.

30 The Land Act, preamble

31 Ibid
32 Section 2 of the Land Act defines disposition to mean sale, exchange, transfer, grant,
partition, exchange lease, assignment, surrender, or disclaimer and included the creation of an
easement, a usufructuary right or other servitude or any other interest in a right of occupancy or
a lease and any other act by an occupies of a right of occupancy over that right of right of
occupancy or under a lease whereby his rights over that right of occupancy or lease are
affected and an agreement to undertake any of the dispositions so defined.
33 Section 2 of the Land Act provides inclusive definition of the term land. It explains that land

includes the surface of the earth and the earth below the surface and all substances other than
minerals and petroleum forming part of or below the surface, things naturally growing on the
land, buildings and other structures permanently affixed to or under land and land covered by
water.
34 The Land Act, Cap 113 RE 2018

43
The Bills of Exchange Act 35 is the principal legislation provides for the legal rules
and principles relating to bills of exchange, cheques and promissory notes.
These negotiable instruments provided therein are based on the agreements
and promises between the persons which are contract oriented relationship
between the parties.

This law deals with the promissory notes which are naturally the contract in
nature. A promissory note is an unconditional promise in writing made by one
person to another signed by the maker, engaging to pay, on demand or at a
fixed or determinable future time, a sum certain in money, to, or to the order of,
a specified person or to bearer36. Hence, its enforcement has the same rules
and principles with the other contractual arrangements.

The Law of Marriage Act 37 is the principal legislation which regulate the law
relating to marriage, personal and property rights as between husband and
wife, separation, divorce and other matrimonial reliefs and other related
matters.

Marriage is contract but sui generis. Marriage has general features of contract
however; it has its own specific features which attract special attention of its
own law. This concept has the same rules of capacity and free consent as
applicable in the context of contract law. It provides some issues related to the
contract legal rules and principles.

For instance, section 67 of the Law of Marriage Act 38 provides for the agreement
of the spouses to live apart. It also articulates that the agreement is valid and
enforceable in the court of law. It provides that the parties to a marriage may,

35 Cap 215 RE 2018

36 The Bills of Exchange Act, part VI
37 Cap 29 RE 2018
38 Ibid
44
by writing signed by each other, agree to live apart and any such agreement,
including any provisions as to maintenance, matrimonial property and the
custody of the infant children, if any, of the marriage shall be valid and
enforceable. On the other hand, it provides the power of the court to vary,
amend, or set aside such agreement for the best interests of the child as well as
when there is change of material circumstances as to regard such agreement.

In addition, section 69 of the Law of Marriage Act39 entitles damages to the

party to the promise to marry when such promise is breached. It provides rights
to damages for breach of promise of marriage. It articulates that a suit may be
brought for damages for the breach of a promise of marriage made in Tanzania
whether the breach occurred in Tanzania or elsewhere, by the aggrieved party
or, where that party is below the age of eighteen years, by his or her parent or
guardian. Nevertheless, it provides the limitation to claim of damages for the
breach of promise to marry. These are no suit shall be brought against a party
who, at the time of the promise, was below the age of eighteen years. However,
the other limitation is on the award of damages. It provides that no damages
shall be awarded in any such action in excess of loss actually suffered as a result
of expenditure incurred as a direct result of the promise.

Subsidiary Legislation

These are laws which are made by other bodies than the legislature.
Traditionally, the legislature is entitled with the legislative power. Under modern
govern administration and circumstances, there are other departments and
person that are entitled to make laws but they are not part and parcel of the
legislature. They are called also subsidiary legislation, secondary legislation, or
delegated legislation.

39 Ibid
45
Section 4 of the Interpretation of Laws Act 40 provides definition of the term
subsidiary legislation. It provides that subsidiary legislation means any order,
proclamation, and rule, rule of court, regulation, notice, by-law or instrument
made under any Act or other lawful authority. These laws are made by other
lawful authority.

The need of having subsidiary legislation has been featured on the overworking
of the parliament and has few seating in a year, due to the growth and
development of functions and tasks of legislature. The legislature has been
overworked to the extent there has been delay of the enactment and
amendment of the laws hence necessitated the introduction of delegation of
power to other bodies to perform this task. This necessitated the delegation of its
legislative power to other bodies or person of the government for the purpose of
making specified law. In addition, delegated legislations of preventive nature
are more effective and useful than punishing person after has committed the
breach of the law. Such preventive delegated legislations are through licencing
rules and rate fixation.

The delegation of the legislative power of the parliament to the other bodies or
persons of the government is a constitutional phenomenon. It is permitted under
article 97(5) of the Constitution of the United Republic of Tanzania of 197741. It
provides that legislative mandate of the parliament shall not prevent Parliament
from enacting laws making provisions conferring on any person or department
of Government the power to make regulations having the force of law or
conferring the force of law on any regulations made by any person, or any
department of Government.

40 Cap 1 RE 2018
41 Cap 2 RE 2018
46
This constitutional delegation of legislative power implies that the parliament has
to enact principal legislation which confers the delegation of the legislative
power to the person42 or department of the government. Moreover, it denotes
that the parliament either empowers the other body or person to make laws
which have force of law or give force of law which have been made by the
other bodies or person as per the enabling Act43.

There are much subsidiary legislation whose provisions cater for the legal rules
and principles governing the contractual relations. For instance, Land
(Dispositions of Rights of Occupancy) Regulations44 provides for the conditions of
the some of the dispositions of the land which requires the approval of the land
commissioner to make them enforceable in the court of law. Dispositions of land
connote agreements and contracts related to conveyance of the land from
one person to another. It has the basic principles and rules of the contract.

Regulation 3 of Land (Dispositions of Rights of Occupancy) Regulations 45

provides for the categories of disposition of land which requires the approval of
the land commissioner. These are assignment of a right of occupancy which
was granted to the assignor less than three years before the proposed
assignment is to take effect; a loan granted on the security of every mortgage
of a right of occupancy or mortgage of a lease; partition of land granted under
a right of occupancy; creation of an easement; transfer; sale; grant; surrender.

42 Section 4 of the Interpretation of Laws Act defines the term person to mean means any word
or expression descriptive of a person and includes a public body, company, or association or
body of persons, corporate or unincorporated. However, under this constitution mandate means
public officer of the government mandated to promulgate the subsidiary legislation.
43 This principal legislation whose one of the provision confers the legislative mandate to the

person or department of the government to make subsidiary legislation for certain purposes. It is
also called Parent Act.
44 GN 74 of 2001
45 Ibid

47
These categories have the same attributes of the contractual arrangements
whose general principles are related to the contract and agreement.

The Public Procurement Regulations46 is the subsidiary legislation which deals

with the procurement of the public institutions. Procurement involves contracts
and agreements. Procurement involves tenders which have contractual
attributes. Hence, this legislation enunciates the legal rules and principles
tenders and procurement contracts and agreements as well as their
enforcement.

Regulation 3 of the Public Procurement Regulations47 provides for the concept

of contract as applicable in the context of procurement is a contract or
agreement made between a procuring entity and a tenderer as a result of
procurement proceedings. This contract involves two parties. These are
procuring entity and tenderer. Procuring entity means a public body or any
other body, or unit established and mandated by the government to carry out
public functions. These terms demonstrate that the procurement rules have the
same foundation with the contract legal rules and principles.

Precedents

These are principles of law established through decision of the court of record
which binds the courts in the subsequent courts when they determine the case
of similar nature. They are also called case laws. A case which establishes legal
principles to a certain set of facts, coming to a certain conclusion, and which is
to be followed from that point on when similar or identical facts are before a
court. They may have been made by the local courts or foreign courts. Their

46 GN 446 of 2013
47 GN 446 of 2013
48
binding-ness depends on the hierarchy of the court system as well as the legal
system.

There are two kinds of precedents. These are binding and persuasive
precedents. Binding precedents are the one which must be complied with by
the lower courts when they determine the matter of similar nature in the same
judicial hierarchy. These are made by the courts of the superior jurisdictions. For
instance, precedents made by the Court of Appeal of Tanzania have the
binding compliance to the High Court and other lower courts. Persuasive
precedents are the ones which are made by the courts of the concurrent
jurisdiction or made outside the judicial hierarchy.

There are many precedents which have been made by the court of record
which enunciate the legal rules and principles which govern the contractual
relations. For instance, the court enunciated the doctrine of sanctity of contract
through its holding in the case of Mohamed Idrissa Mohammed v Hashim Ayoub
Jaku48, it held that where a party to the contract has no good reason not to fulfil
an agreement, he must be forced to perform his part, for an agreement must
be adhered to and fulfilled.

In the case of Ali Kassam Virani Ltd v The United Africa Co. (Tanganyika) Ltd 49,
the court established the principle of implied term by the law to the contract
even though the parties did not prescribe in their contract.

In addition, in the case of Damodar Jinabhai and Co. Ltd. v Eustace Sisal Estates
Ltd50, the court established general rule of interpretation that where there is an

48 1993 TLR 280 (CA)

49 [1958] E.A. 204
50 (1966) (2) A.L.R. Comm. 514
49
express provision in a contract, the court will not imply any provision relating to '
the same subject matter.

Moreover, the case of Njoro Furniture Mart Ltd v Tanzania Electric Supply Co
Ltd51 establishes the purpose of quantum of damages in case there is breach of
contract. The court observed that since in principle the quantum of damages
has to be such as to restore an injured party, as far as possible, to the position
prior to the injury, it is correct in law to include in the award of damages an
element calculated to offset the effect of inflation and devaluation.

Furthermore, the A S Sajan v Cooperative and Rural Development Bank 52

articulated the cardinal principle in the awarding of damages. The court was of
the view that the cardinal principle in awarding damages is 'restitutio in
integrum' that is, the law will endeavour, so far as money can do it, to place the
injured person in the same situation as if the contract had been performed.
'Restitutio in integrum' dictates that the appellant be paid such sum of money as
to purchase the milling machine.

Received Laws

Tanzania legal system is product of colonial legacy. Most of the laws and their
systems had been introduced by the colonial masters. The introduction of these
laws was for assisting them to meet their demands while they were in the colony.
However, these laws were modified to some extent to suit the conditions and
circumstances of Tanzania after independence while incorporating with the
pre-existing systems of laws basing on the tradition and customs of societies
available in the country.

51 [1995] TLR 205 (CA)

52 [1991] TLR 44 (CA)
50
Hence, received laws are laws which emanated from other countries. They were
received during colonial rule through section 17 of the Tanganyika order in
council of 1920 which permitted the high court by then to apply the substance
of common law, doctrines of equity and statutes of general application.

Later, Tanzania inherited the reception clause through section 2(3) of the
Judicature and Application of Laws Act 53. The clause allowed the application of
common law, doctrines of equity and statutes of general application whose
origin is England.

However, the section limits the application of these received laws in the
condition that they will be applicable when there are lacunae in our own legal
system and circumstances of Tanzania must permit the application of those
laws.

Moreover, it was said in the case of Tanganyika Garage Ltd. v Marceli G.

Mafuruki54 that where the circumstances of a contract are not provided for in
the codified law of contract in Tanzania, one must fall back on the English
common law. Where the circumstances of a contract are covered by the
Contract Act, English cases may be persuasive in the interpretation of the
Ordinance (Law of Contract Act, now).

Customary Laws

Customary contract laws are not codified. The rules are traceable in customs
and usages of the given communities. Some customary contract rules can be
found in the writings of some scholars. They are rules and principles of practices

53 Cap 358 RE 2018

54 (1975) LRT 23
51
of the African communities which create and impose rights and duties to the
individuals in the society.

Section 4 of the Interpretation of Laws Act 55 provides definition of the customary

law. It stipulates that customary means any rule or body of rules whereby rights
and duties are acquired or imposed, established by usage in any African
Community in Tanzania and accepted by such community in general as having
the force of law, including any declaration or modification of customary law
made or deemed to have been made under section 12 of the Judicature and
Application of Laws Act, and references to "native law" or to "native law and
custom" shall be similarly construed.

Basing on section 13(4) of the Tanganyika Order-in Council, 1920, one may
argue that customary contracts were recognized and could be enforced in the
courts provided they did not go against the provisions of the existing law and
were not repugnant to justice or morality.

Section 11 of the Judicature and Application of Laws Act 56 provides for the
application of customary laws in matters of civil nature that includes contract.
However, the application of customary laws is subjected to conditions that they
must not go against the statutes and constitution. They are applicable to
members of the same community or members of the different communities but
having similar customary rules on the contract related matters. As it was
observed in Mtatiro Mwita v Mwita Marianya57 that relevant customary law must
be applied if it is applicable and is not repugnant to justice or morality or
inconsistent with any written law.

55 Cap 1 RE 2018
56 Cap 358 RE 2018
57 (1968) HCD No. 82
52
In addition, section 2(3) of the Law of Contract Act 58 provides for the
application of customary laws on matters related to the contract with the
conditions of being in line with the legality of the consideration and object of
the contract as provided forthwith under section 23 of the said law. Presence of
the statutory laws on the aspects of the contractual relation does not vitiate the
application of customary rules in relation to any matter in which the law
applicable is customary law.

Treaties

These are international agreement formally made and concluded between

sovereign states. They must be written. They are formally made. They are
governed by the international law. They are also called conventions, Covenant,
Statutes etc.

Treaties are one of the means through which States regulate their international
relations. They also constitute one of the formal sources of international law
according to Art 38(1) of the International Court of Justice (ICJ) Statute. The
cornerstone of the law of treaties is the principle pacta sunt servanda, namely
what has been agreed to must be respected.

There are two main constitutional theories for importing treaties and custom into
domestic legal orders, namely incorporation and transformation. These treaties
are applicable in Tanzania if we have ratified. They are applicable on the
contract matters with foreign element that means contract formed between
the Tanzanians and foreigners.

For instance, there is United Nations Convention on Contracts for the

International Sale of Goods. It was made in Vienna. It was formed on 11th April

58 Cap 345 RE 2018

53
1980. It has not been ratified by Tanzania. The Convention for the contracts on
International Sale of Goods does bring in many benefits such as:

Firstly, through this agreement, international trade becomes increasingly Hassle-

free, and the possibilities for dispute to occurrence lowered, on the bases that it
is the uniform sale of goods law which cut across the globe, as it applies to
contracts between companies located in different countries.

Secondly, CISG is noted for its simplicity CISG proclaims a practical approach
that recognizes freedom of contract: “A contract of sale need not be
concluded in or evidenced by writing and is not subject to any other
requirement as to form. It may be proved by any means, including witnesses.

Thirdly, The CISG law is superior to domestic commercial laws, notwithstanding

the fact that, CISG is not mentioned specifically within a contract made
between two companies of different states that ratified the convention, the
companies are legal bound. However in order to have the parts of the
convention excluded, the contract has to explicitly mention the convention or
the parts of it that parties have adopted this agreement.

Fourthly, The CISG can be both a discretional as well as mandatory set of rules. It
is discretionary when both parties agree to be bound by its rules; it has
mandatory application when the parties do not choose to use it but become
bound to it by virtue of its automatic application. As a result of the mandatory
application of the CISG, most international sale of goods contracts with parties
in western countries will be subject to the CISG, unless specifically excluded in
accordance with the CISG’s terms.

Fifthly, CISG has a unified code of rules and regulations, making importing and
exporting and other facets of international trade easier. Instead of dealing with

54
the domestic laws for international trade in several foreign countries, companies
can readily apply CISG.

Writings of the Prominent Jurists

These are professional publication of the eminent jurists on the contract law
subject matter. Sometimes these writings may be the source of general
principles governing the contract law. For instance, Anson’s law of Contract
written by Sir William Anson is an authoritative and detailed account of contract
law. This is a widely renowned and well-respected textbook for students of
contract law. It is a trusted source of reference for practitioners and academics.

Conclusion

There are many sources of general principles of contract law. They are local and
foreign. Their applications are governed by the circumstances and statutory
guidance. Understanding these sources is a step ahead towards mastery of law
of contract. Understanding sources of contract law provides the foundation for
understanding, applying, and interpreting and executing contract law. Hence, it
is vital to know the sources of the law. Therefore, for a lawyer it is not enough to
know the principles and basics of the contract law, one must be equipped with
understanding of where these principles can be found.

Review Questions

1. “Contract law consists of various legal rules and principles which govern
contractual relations between persons, which are not embedded in one
source”. Substantiate the statement with relevant examples and with
reference to Tanzania legal system.
2. The constitution of the State is the mother and source of all laws. In light of
the statement, how the constitution of the united republic of Tanzania of
1977 as amended from time to time is the source of the contract law?

55
 3. The Law of Contract Act is not the only principal legislation which provides
general legal rules and principles which deals with the contractual
relations between persons in Tanzania’s societies. How far is the statement
true?
4. There are many precedents which have been made by the court of
record which enunciate the legal rules and principles which govern the
contractual relations. Vindicate the validity of the statement with
references to precedents from Tanzania.
5. The sources of contract law are categorised into primary and secondary
sources. With vivid examples, how the primary sources of contract law are
different from the secondary sources of contract law?
6. “Where the circumstances of a contract are not provided for in the
codified law of contract in Tanzania, one must fall back on the English
common law.” To what extent is the statement true?
7. Customary laws of Tanzania have the same status with statutory laws of
Tanzania as far as the contract law is concerned. Argue for or against the
statement with aid of relevant legal authorities to support your arguments.
8. Critically, analyse the benefits and shortfalls of the application of the
United Nations Convention on Contracts for the International Sale of
Goods of 1980 in the contractual and commercial transactions and
relations.

References

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

56
Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Singh, A., Law of Contract, Eastern Book Co., (1980)

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

57
 LECTURE THREE

ORIGINS AND DEVELOPMENT OF CONTRACT LAW

Introduction

Contractual relations emerged with the development of the societies through

interaction between persons and societies at large. The interactions involved
between the societies in terms of exchanges of the commodities through barter
system. These relations have been developing throughout the development of
the societies in aspects of economy, politics, social and cultural interactions
within the society. Society’s interactions and contractual practices and rules
can be separated in their growth and development.

The development of the societies from primitive mode of production to the

socialist mode of production intensified the rules of contract. However, the rules
and practices of the contract varies from one society to another depending on
their beliefs, philosophy, view point and interactions perceptions. However, the
capitalist mode of production played great roles in the formation and
development of the contractual rules and principles.

Hence, the contemporary legal rules and principles of the contract law have
based on the shoulders of the previous origins and development in the societies.
Proper understanding of the contemporary rules can be vitiated when the
origins and development of the rules are neglected. The philosophy behind the
contractual rules can be revealed through their origins and growth.

Therefore, it is the mandate of this lecture enlighten us on where the principles of

contract law come from, how they did develop into today’s postulation and

58
what growth they have made so far and possible future for the legal rules and
principles as far the contract law is concerned.

Origins of Contract Law

The historical development of contract law can be under stood in terms of the
conceptual foundations of obligations, which was traced back to ancient and
classical Roman law. Although some principles of contract law go back three
centuries, the majority of contract rules were established in the early nineteenth
century. Before that, contract hardly existed as a separate branch of law, and
took up very few pages in textbooks.

In Babylon societies, Hammurabi code was the governing law. It constituted of

the first highly developed system on the contracts especially through
establishing the formalities which were to be followed in making of the
contracts. The rules governing the partnership were so common. These rules
were triggered by the master servant relations in the societies.

The Roman law of contracts, as found in the Byzantine emperor Justinian’s law
books of the 6th century, reflected a long economic, social, and legal evolution.
It recognized various types of contracts and agreements, some of them
enforceable, others not. A good deal of legal history turns upon the
classifications and distinctions of the Roman law.

Only at its final stage of development did Roman law enforce, in general terms,
informal executory contracts that is, agreements to be carried out after they
were made. This stage of development was lost with the breakup of the Western
Empire. As Western Europe declined from an urbanized commercial society into
a localized agrarian society, the Roman courts and administrators were
replaced by relatively weak and imperfect institutions.

59
Generally, the rebirth and development of contract law was a part of the
economic, political, and intellectual renaissance of Western Europe. It was
everywhere accompanied by a commercial revival and the rise of national
authority.

Historical Development of Contract Law

The contract law began to grow up throughout Europe through the practices of
merchants. These were at first outside the legal order and could not be upheld
in courts of law. Merchants developed informal and flexible practices
appropriate for active commercial life. By the 13 th century, merchants’ courts
had been established at the international trade fairs. The merchant courts
provided expeditious procedures and prompt justice and were administered by
men who were themselves merchants and thus fully aware of mercantile
problems and customs.

In the 12th and 13th centuries the development of the law of contracts on the
Continent and in England began to diverge. In England the common law of
contracts developed pragmatically through the courts. On the Continent the
process was very different, with speculative and systematic thinkers playing a
much larger role.

Before the nineteenth century, however, there were many areas of life where
free negotiation and bargaining were simply not an issue. An example is the
market for what were regarded as essential foodstuffs, which included wheat,
bread and beer. Although bakers and millers were entitled to make a profit, that
did not mean they could sell at whatever price people would pay. Prices and
quality standards for bread were fixed, according to the price the baker had
had to pay for the wheat, so limiting their profits, and ensuring that they could
not take advantage of shortages.

60
Yet today, it is one of the core subjects which lawyers must study, and affects
many areas of daily life. This has been brought up by the transformation of our
society which occurred during the late eighteenth and early nineteenth
centuries, a transformation which has been described as a move from status to
contract. In addition, society itself was undergoing huge changes, moving from
an agricultural to an industrial economy, and with that came political changes,
and changes in the way people saw society. Moreover, with the rise of an
economic doctrine called laissez-faire came a view that society was no more
than a collection of self-interested individuals, each of whom was the best judge
of their own interests, and should, as far as possible, be left alone to pursue those
interests. This laissez-faire approach carved out a very important place for
contracts where people make their own transactions, unregulated by the state,
it is important that they keep their promises, and as a result, contract law
became an increasingly important way of enforcing obligations.

Hence the foundations of the present day law of contract were laid in the 19 th
century. This period in history saw the rapid expansion of trade and industry
inevitable resulting in the increments in the volume of commercial disputes as a
result people turned to the court of law for solutions. Gradually, there developed
a body of settled rules which reflected and of the disputes from which they
arose and the prevailing belief of the time. However, these rules and belief are
affected by the dominant economic philosophy, the so called the laissez-faire
individualism-the view that the state should not meddle in the affairs of business
and that individuals should be free to determine their own destinies.

This philosophy was mirrored in the law of contract by two assumptions-freedom

of contract and equality of bargaining power. The freedom of contract theory
supposed that everyone is free to choose which contracts they entered into
and the terms on which they wish to do so. On the other hand, the equality of
bargaining power theory, the parties were deemed to have equal power to
61
bargain on their business and deemed to be of equal bargaining strength.
These theoretical foundations of contract law produced an acceptable legal
framework for the regulation of business transaction that resulted in the
crystallization or codifications of contract laws across the world.

The two theories did also define the role of the courts. Courts were required to
enforce the agreement of the parties, as it was without questions its fairness etc.
Over years the freedom of contract theory though maintained at present is
subjected to different limitations. The theory of equality of bargaining power
had brought certain unnecessary results because parties to a contract do not
necessarily have equality.

Foundational Principles of the Contract Law

The development of contract law implies the development of a market

economy. Where a commitment’s value is not seen to vary with time, ideas of
property and injury are adequate and there will be no enforcement of an
agreement if neither party has performed, since in property terms no wrong has
been done. In a market economy, on the other hand, a person may seek a
commitment today to guard against a change in value tomorrow; the person
obtaining such a commitment feels harmed by a failure to honour it to the
extent that the market value differs from the agreed price. There are various
foundational doctrines as far as the contract law is concerned.

Freedom of Contract

This is doctrine which postulates that everyone is free to choose which contracts
they entered into and the terms on which they wish to do so. Its origins in the
laissez-faire doctrine of the nineteenth century have had enormous influence on

62
the development of contract law. Perhaps the most striking reflection of this is
the importance traditionally placed on freedom of contract.

This doctrine promotes the idea that since parties are the best judges of their
own interests, they should be free to make contracts on any terms they choose
on the assumption that nobody would choose unfavourable terms. Once this
choice is made, the job of the courts is simply to act as an umpire, holding the
parties to their promises; it is not the courts’ role to ask whether the bargain
made was a fair one.

Fairness

It is the doctrine which lays down rules which are designed to apply in any
contractual situation, regardless of who the parties are, their relationship to each
other, and the subject matter of a contract. This regarded as fair because it
treats everybody equally, favouring no one. This doctrine is derived from the
laissez-faire belief that parties should be left alone to make their own bargains.

Hence, contract law is required simply to provide a framework, allowing parties

to know what they had to do to make their agreements binding. This framework
was intended to treat everybody equally, since to make different rules for one
type of contracting party than for another would be to intervene in the fairness
of the bargain.

As a result, the same rules were applied to contracts in which both parties had
equal bargaining power as to those where one party had significantly less
economic power, or legal or technical knowledge, such as a consumer
contract. However, it has flaw it its application in case the parties to said
contract are unequally. If people are unequal to begin with, treating them
equally simply maintains the inequality.

63
Sanctity of Contract

This foundation which postulates that once parties duly enter into a contract,
they must honor their obligations under that contract. It requires parties to
execute their contractual undertakings. It is the principle of good faith which
provides this precision in a way that one can merge both principles into one
when it comes to the performance of a contractual obligation pacta sunt
servanda bona fide.

Hence, the contract law claims to be about enforcing obligations which the
parties have voluntarily assumed. This foundation was explained in the case of
Mohamed Idrissa Mohammed v Hashim Ayoub Jaku59, where the court held
that where a party to the contract has no good reason not to fulfil an
agreement, there must be force for him to perform his part, for parties must
adhere and fulfil an agreement.

Conclusion

In most primitive era, societies have other ways of enforcing the commitments of
individuals; for example, through ties of kinship or by the authority of religion. In
an economy based on barter, most transactions are self-enforcing because the
transaction is complete on both sides at the same moment. Contract law is the
product of a business civilization.

Review Questions

1. The capitalist mode of production played great roles in the formation and
development of the contractual rules and principles. With vivid examples,

59 [1993] TLR 280 (CA)

64
 describe in what ways played great roles in the formation and
development of contractual rules and principles.
2. The contract law has been built on two major principles such as freedom
of contract and sanctity of contract. How are the freedom of contract
and sanctity of contract different from each other?
3. Contract law is the product of a business civilization. In the light of
aforementioned statement and with vivid examples, account for the
historical development of the contract law.
4. The historical development of contract law can be under stood in terms of
the conceptual foundations of obligations. With relevant examples,
explain the origins of the principles of the contract law.
5. The development of the societies from primitive mode of production to
the socialist mode of production intensified the rules of contract. In light of
the aforementioned statement, discuss the reasons that facilitated the
growth and development of contract law.
6. The development of contract law facilitates the development of a market
economy. Evaluate the contribution of the contract law in the
development of the market economy in different places and societies.
References

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brown, G. W., et al, Understanding Business and Personal Law, 9 th Edition,

McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

65
Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

66
 LECTURE FOUR

NATURE OF CONTRACTS

Introduction

In daily life, we do engage in different transactional relations. These may be

social or economic transactions. They are in form of business or commercial
arrangements. Most of these commercial or business arrangements have the
bases on the contracts. They may be in form of promises, agreements or other
binding relations with commercial orientation therein. They may either be written
or verbally expresses.

We make contract when we sign when we start a job, buy a house or hire a
television, buying and selling commodities, and many other transactional
relations. Also, we make contracts when we buy goods at the market, when we
get on a bus or train, and when we put money into a machine to buy chocolate
or drinks all without a word being written down, or sometimes even spoken.

However, the perceptions of the term contracts vary from the political, social to
the legal orientation. Their variations are based on the philosophy, cultural
beliefs, social and legal set ups. These variations may lead to different
consequences in the eyes of the law.

Since the understanding of the term contract varies depending on the

conceptual and theoretical bases underlying the concepts, there is need of
having this lecture as part of making us aware of what the contracts mean as
far as legal frameworks are concerned. Making contracts implies the right to
enforce them in case one party does against the contractual obligations. We
are to know the binding contracts and non-binding contracts so as to save our
transactional relationships before they get sour.

67
Therefore, this lecture imparts the conceptual and legal understanding of the
concept of contracts and their related terms such as agreements, promises and
others. It gives ability to discern the differences between the agreements,
promises, proposals and contracts. It enhances the application of such
understanding in exploring the practical situations and challenges in the
enforcement of the contracts or agreements.

Contract

There is no single and universal definition of the term contracts however all the
definition merge at the point of capable of being enforced by the law. The
definition of a contract is that it is an agreement between persons which obliges
each party to do or not to do a certain thing however this agreement has legal
force. So it is not all agreements or undertakings which amount to contracts. The
legal binding nature of an agreement is necessary for there to be a contract.

In the simplest sense contract an agreement enforceable by law. The

agreement may be to do something or to refrain from doing something. Hence,
if there is any agreement which the law and courts of law cannot enforce, such
agreement is not contract because it lacks legal enforcement. The possibility of
the agreement to be enforceable in the court of law is what makes an
agreement the contract in the eyes of the law.

Nevertheless, the contract can be defined to mean a voluntary, deliberate, and

legally binding agreement between two or more competent parties. Contracts
are usually written but may be spoken or implied. Some contracts must be in
writing to be legally binding and enforceable. Other contracts are assumed in,
and enforced by, law whether or not the involved parties desired to enter into a
contract.

68
Contracts can be enforceable whether oral or not in a written form so long as it
contains the necessary requirements as stipulated by the law. In the case of
Lucy v Zehmer60, Virginia Supreme Court has held that even an agreement
made on a piece of napkin can be considered a valid contract, if the parties
were both sane, and showed mutual assent and consideration.

Generally, a contract is an agreement through meeting of the minds between

two persons whereby one binds himself, with respect to the other, to give
something or to render some service. It has the force of law between the parties
and have been complied with in good faith.

The term force of law in the definition refers to the legal aspect of an agreement
as a contract. This means that you can go to court and ask for a civil action in
case of non-compliance of the contract. Any agreement without the 'force of
law' are not contracts but merely personal or social agreements.

The term in good faith denotes fairness and honesty of intention in the
performance of the contract, so as to not destroy or injure the right of one of the
parties. It would not be in good faith, for instance, when one party has
exempted himself from the contract while the other is still bound to it.

Nature of Contracts

The essence of contract is agreement. The contract emanates and bases on

the agreements between the persons. Absence of the agreements implies
absence of the contracts. Hence, the contract is an agreement between at
least two persons which is enforceable at law. A contract occurs when there is
an agreement by which one or several persons bind themselves, towards one or
several others, to transfer, to do or not to do something.

60 196 Va. 493; 84 S.E.2d 516 (1954)

69
The wordings of Justice Yanosik of the Alberta Court of Queen's Bench wrote in
the case of 406868 Alberta Ltd. v Westfair Foods Ltd61 who said that a contract is
a legally recognized agreement between two or more persons giving rise to
obligations that may be enforced in the Courts. It is not what an individual party
believed or understood was the meaning of what the other party said or did
that is the criterion of agreement. The contract must be clearly created by the
parties’ language and conduct. From what they have said, done, or written
there must be established a bargain or an agreement. It is not necessary that all
essential terms of the contract have been agreed upon. Certain essential terms
may be implied.

Contracts are based on the wills of the parties and their intention to be bound
by their agreements. They based on agreement of wills by which one or several
persons obligate themselves to one or several persons to perform a prestation. 62
By agreement of wills it is meant that the agreement is voluntary. Prestation is
best described as to do or not to do something. Therefore, when contracts freely
made and effectively sanctioned, and the most elaborate social organization
becomes possible.

Hence, the test of agreement for legal purposes is whether the parties have
clearly and unequivocally expressed their intention to contract and the terms of
such contract. It is not what an individual party believed or understood was the
meaning of what was said and done. If a contract is not clearly created by the
parties’ language or conduct the Court cannot construct one. It is for the parties
to use such language or employ such conduct as will make it plain that they
intended a contract.63

61 [1997] A.J. 790; also at 1997

62 Sidgwick, H., The Elements of Politics, 1879, Ch. 6
63 406868 Alberta Ltd. v. Westfair Foods Ltd., [1997] A.J. 790

70
Characteristics of Contracts

There are various characteristics which define the nature of the contracts. These
characteristics indicate the unique differences with agreements, promises and
proposals. They hereby explicated: -

Normativity of Contracts

Contracts once formed according to the necessary requirements according to

the law become binding upon the parties. They demonstrate that the parties to
the said contracts are committed enough to bind themselves as per the law
upon their contractual obligations. They are based on the commitment of the
parties to execute the contractual responsibilities. Hence contracts are
obligatory in nature in the sense that they oblige the parties to honour their
promises. When the parties cannot do according to the contractual promises,
the other party may enforce in the court of law. The contracts have the
compelling force or binding force towards the parties to the contracts.

In the case of Mohamed Idrissa Mohammed v Hashim Ayoub Jaku64, where the
court held that where a party to the contract has no good reason not to fulfil an
agreement, there must be force for him to perform his part, for parties must
adhere and fulfil an agreement. This indicates that the parties are bound by
their agreement and have to perform their obligations if failed to do so there
must be force for the party to honour the contract. This indicates the normativity
of the contract as it contains force of law.

64 [1993] TLR 280 (CA)

71
Autonomy of Contracts

The contracts are formed by the parties under their free will and choice without
being coerced or forced in any circumstance. Presence of any persuasion
against the willingness of another party may vitiate the validity of such contract.
This characteristic indicate that the parties are free to enter the contractual
relations and determines the terms and conditions of the said contract. Since,
legally persons are free and their freedom inhere them as human beings, the
free consent is very important aspect to determine the validity of the contract.

Section 10 of the Law of Contract Act65 articulates the concept of the

autonomy of the contract through the principle of the free consent of the
parties when entering the agreement and making the agreement the contract
in the eyes of the law. It provides inter alia that all agreements are contracts if
they are made by the free consent of parties competent to contract. This
means autonomy of the parties to enter the agreements is crucial to make the
contracts. Hence no free consent, means there is not contract to said
agreement.

Mutuality of Contracts

The contracts normally contain the mutual promises between the parties to that
contract. The contracts stipulate what each party shall benefit from the
performance of the said contract. They also stipulate what each party has to do
as responsibility in the said contract to ensure another party benefit from his or
her side. Hence, the contracts contain the reciprocal promises between the
parties to the contract. These reciprocal promises may be in form of actions,
omission, delivery, labour force, service, exchange, rights, interests or anything of

65 Cap 345 RE 2018

72
valuable. The mutuality of the contract exists in the form of the consideration
which indicate the exchange of the benefits and detriments between the
parties to the contract.

In the case of Hassani abdallah v African Bazaar66 the court commented on the
mutual satisfaction of the parties to the agreement through consideration so as
to discharge their obligation is necessary which part of mutuality of the
contractual agreements is. The court held that since consideration for this was
paid by defendant to plaintiff, there was an accord and satisfaction with
respect to the claim, hence the claim was settled between the defendant and
plaintiff.

In addition, in the case of Mohamedali Virji Walji v Shinyanga African Trading

Company Limited67 deducing the concept of mutuality from the holding of the
court related to the consideration indicating the reciprocal promises between
the parties. The court was of the view that consideration for the agreement to
submit the dispute to the accounting firm was supplied by the mutual and
reciprocal promises by each party to forego their claims and accept the
account to be stated.

Relativity of Contracts

Contracts operate and take effect only on the parties and the other persons
assigned or delegated in the said contracts. This indicate that the contract is the
private arrangements between the parties to the said contract and any other
persons if at all specified in the contract either impliedly or expressly. This limits
the enforcement of the contractual promises by or against the strangers to the

66 (1968) HCD 338

67 (1968) HCD 401
73
contract. The contracts cater for the parties unless stipulated otherwise in the
said contracts. Hence strangers are not welcomed in the contracts.

In the case of Burns and Blane Limited v United Construction Company Limited68,
the court observed that there was no privity of contract between plaintiff and
the third party with which defendant made the settlement, nor did defendant
expend funds to correct those defects in respect of which the settlement was
made. Therefore, the amount of the settlement should not be deducted from
plaintiff’s claim.

This indicates that to benefit or be obliged in the contract the persons must be
privy to the contract. To make a person a privy he must have acquired an
interest in the subject matter of the action by inheritance, succession or
purchase subsequently to the action or he must hold the property
subordinately.69

On the other hand, section 2(1)(d) of the Law of Contract Act 70 provides for the
definition of the consideration by indicating who can perform it. It provides that
when, at the desire of the promisor, the promisee or any other person has done
or abstained from doing, or does or abstains from doing, or promises to do or to
abstain from doing, something, such act or abstinence or promise is called a
consideration for the promise. This indicates that parties or other person to the
contract may discharge the contractual promises.

In addition, section 40 of the Law of Contract Act 71 enshrines on who has to

perform the contractual promises. It provides that if it appears from the nature of
the case that it was the intention of the parties to any contract that any promise

68 (1967) HCD 156

69 Peniel Lotta v Gabriel Tanaki and others [2003] TLR 315
70 Cap 345 RE 2018
71 Ibid

74
contained in it should be performed by the promisor himself, such promise must
be performed by the promissory; and in other cases the promisor or his
representatives may employ a competent person to perform it. This enunciates
that promises may be performed by the promisors or assigned or employed
persons.

Consensuality of Contracts

The contracts are consensual because they arise from the mere consensus of
the parties. The contracts are made by the consensus ad idem of the parties to
the said contract. The meeting of the minds of the parties is more emphatically
given in contract. When the assent of parties is given, at once there forms a
contract.

Hence, the contracts derive their name from the consent of the parties which is
required in their formation, as they cannot exist without such consent. For
instance, the contract of sale is an example of a contract based on
consensuality, because the moment there is an agreement between the seller
and the buyer as to the thing and the price, the vendor and the purchaser have
reciprocal actions On the contrary, on a loan, there is no action by the lender or
borrower, although there may have been consent, until the thing is delivered or
the money counted.

The mere consent that perfected the contract should bound the parties to the
fulfillment of what has been expressly stipulated, and all the consequences
which, according to their nature, may be in keeping with good faith, usage and
law. Therefore, this characteristic describes the intentions of the parties forming
the contract. In particular, it refers to the situation where there is a common
understanding in the formation of the contract.

75
In the case of Carlill v Carbolic Smoke Ball Company72, Bowen LJ said that one
cannot doubt that, as an ordinary rule of law, an acceptance of an offer made
ought to be notified to the person who makes the offer, in order that the two
minds may come together. Unless this is done the two minds may be apart, and
there is not that consensus which is necessary according to the English law.

Also, in the case of Baltimore & Ohio R. Co. v United States73the US Supreme
Court said an implied in fact contract is an agreement founded upon a
meeting of minds, which, although not embodied in an express contract, is
inferred, as a fact, from conduct of the parties showing, in the light of the
surrounding circumstances, their tacit understanding.

Conclusion

Contracts are the agreements with legal force. Contracts are the sources of
obligations. These obligations are the juridical necessities that results when
contracts are completed or perfected. There can be no contracts if there are
no obligations, though not all obligations arise from contracts. The obligation
that arises from contracts are called conventional obligations.

Review Questions

1. Contract can be defined to mean a voluntary, deliberate, and legally

binding agreement between two or more competent parties. In light of
the definition, describe the nature of the contracts.
2. The contracts are consensual because they arise from the mere
consensus of the parties. How far is the statement true?

72 [1893] 1 QB 256
73 (1923) [8]
76
 3. The contracts normally contain the mutual promises between the parties
to that contract. With aid of decided cases, to what extent is the
statement true?
4. The contracts are formed by the parties under their free will and choice
without being coerced or forced in any circumstance. In line with the
statement, how the principle of autonomy is reflected in the Law of
Contract Act, Cap 345 RE 2002?
5. There are various characteristics which define the nature of the contracts.
With aid of relevant authorities, describe the characteristics of the
contracts.
6. What do you understand by the term relativity of contract? To what
extent the relativity of the contract is reflected in the Law of Contract Act
or case laws related to contract law?

References

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brown, G. W., et al, Understanding Business and Personal Law, 9 th Edition,

McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

77
Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

Sidgwick, H., the Elements of Politics, 1879, Ch. 6

78
 LECTURE FIVE

INSTITUTION OF CONTRACT

Introduction

The universal definition of a contract is that it is an agreement with legal force.

So it is not all agreements or undertakings which amount to contracts. The legal
binding nature of an agreement is necessary for there to be a contract.

This lecture does not contain much legal content. It is intended to let you
understand how the institution of contract arose and its importance in the
economic life of societies. Also, in this lecture we are going to look at the
institution of contract in African communities. The lecture is confined to the
development of the institution in basically subsistence economies. The
approach is historical. In addition, in this lecture we are going to consider the
problem of recognition of customary contracts by courts of law.

Historical Socio-economic reasons behind the institution of contract

Tracing the historical development of mankind one finds that private

arrangements between individual persons began to surface with the
appearance of surplus product. When man could produce necessary product
only i.e. that necessary to enable him subsist, he had no option but to follow
communities’ rules, i.e. common ownership of means of subsistence and
reciprocal dependence.

Togetherness was the tool to combat famine, ferocious animals, bad weather,
and sickness etc. The problem laid in the fact that production of necessary
product only, could not ensure an individual adequate and constant food
supply and the other amenities of life. Insecurity prevented man from
developing acquisitiveness and greed.

79
Production of surplus product i.e. over and above that which was necessary for
subsistence ensured the individual adequate and constant food supply. The
surplus product he had could be exchanged for products he did not produce.
With the production of surplus product man found that he could live on his own
provided he exerted his labour power.

Domestication of animals and in particular, cultivation of edible plants,

guaranteed man constant and adequate food supply and this made him
decide to own his means of subsistence and break away from communality of
ownership of property.

This development ushered in the need for exchange with a view to acquiring
more and more property. Acquisitiveness and greed became the order of the
day, disrupted the old custom-of common ownership of property and led to
creation of classes in the society.

All class societies - those in the Slave mode of Production, Feudal Mode of
Production arid the Capitalist Mode of production are characterized by
propertied classes. Central to acquisition is exchange of values. Less value for
more value: buying cheap and selling dear, a month's work for meagre wages
and it is contract which- facilitated exchange of values.

In simpler or more primitive economies solidarity of relatively self-sufficient family

groups and the fear of departing from accustomed ways limit individual
initiative as well as the scope-and importance of what can be achieved by
deliberate agreements or bargains.

In societies where there is production of not only necessary product but also
surplus product rudiments of rules of contract begin to surface. The
development of the institution of contract and the laws relating to it is closely
linked up with the development of commerce and industry.

80
Extensive commerce involving travel and contract with other peoples led to
observation of habits and ideas which gave rise to a certain amount of free
individual thought and enterprise. Hebrew, Greek and Roman law of contract
grew due to the expansion of trade and commerce.

Commercial enterprises involve a greater anticipation of the future than is

necessary in a simpler or more primitive economy. It was the commercial
revolution, even before the industrial revolution, which served to transform a
predominantly fixed land economy into a more fluid and enterprising economy
on the basis of money and credit. Commercial transactions required a
developed notion of binding nature of promises. The expansion of the institution
of contract since the 17th century was intimately related to the Commercial
revolution in Northern Europe following trade with the East and America. The
industrial revolution which ushered in mass commodity production required a
very developed institution of contract and the laws relating to it.

Basic Conceptions of the Institution of Contract

The institution of contract carries with it certain basic conceptions. Firstly,

whether or not a society has a conception of the binding nature of contract
depends upon the material conditions in that society on its mode of production
(how in that society food, clothing and shelter and all other products labour are
produced) and the relations of production (relations between people resulting
from their roles in the production process).

Secondly, a developed institution of contract carries with it two fundamental

notions. These are freedom of contract and sanctity of contract. Freedom of
contract means persons are free to contract as they wish. Once they have
concluded a contract voluntarily that contract becomes sacrosanct in the
sense that nobody, not even the state, should interfere with it.

81
The two fundamental notions are features of a capitalist legal system and are
necessary legal developments in that society, based as it is upon the economic
phenomenon of exchange of commodities, buying and selling, and are also
necessary legal features of societies developing towards capitalism, or under
the impact of capitalism introduced from without, societies in which some things
become commodities, i.e., are capable of being and are bought and sold, in
particular land and human labour power.

Thirdly, the two fundamental notions, i.e., sanctity of contract and freedom of
contract form part of the bourgeois ideology and are "false consciousness". They
do function not to describe accurately the real relationships of bourgeois
society. They do obscure the real relationships. They are false in that their real
function is to persuade people that they are free when they are not free, that
they are equal when they are not equal, and that they enter into relationships of
their own free will when in fact those relationships develop independently of
men's will.

It is necessary to persuade people into all these things in order that they accept
to be. Exploited, and minimise incidence of open conflicts arising out of the
capitalist mode of production. This persuasion helps the state in that conflicts are
allowed' only within the ambit of the legal system. So that when a party
breaches a contract the innocent party, instead of fighting, seeks remedy in a
court of law.

Customary Contracts in African Communities

Customary contracts mean those contracts which are regulated or governed

by customary law. Among peasant communities one cannot rule out
production of surplus product in terms of food or other products of labour. So
long as there is a surplus one would expect exchange. And, exchange involves
agreements, be they in terms of barter or sale or another type of arrangement.

82
Provided barter, sale or other type of exchange exist then one would expect
exchange of promises and their fulfilment or breach. Such arrangements or
agreements may be legally binding, i.e., binding according to customs, usage
or rules of a given community or tribe.

The agreements may be enforceable in recognized state tribunals, in which

case their recognition is taken for granted. If they are not, then their very
recognition becomes an issue. The question as to the existence of customary
contracts is curious because one would not expect non-existence of exchange
of goods and services in, say, African communities.

The fact, however/ is that very little is known about customary contracts, apart
from marriage arrangements. Perhaps the problem lies in the tendency on the
part of writers to ignore researching and writing on customary contracts. Cotran
and Rubin have this to say the law of contract does not appear to form a very
substantial part of African customary law. It is not entirely clear what the reason
for this is.

It may be the result on the part of writers to ignore this topic in favour of others; it
may be that contractual relations are not very elaborately developed in African
Society; and that the writers were therefore unable to discover very much
material on the topic. In any event early writers on customary law paid very little
attention to contract, and it is only more recently that the subject has been
dealt with systematically.

A systematic treatment of the subject has shown that there are customary
contracts in African societies. I. Schapera who conducted research on
"Contract in Tswana Lawll from 1935 to 1940 says that a contract in Tswana Law
is basically a voluntary agreement between two parties, imposing obligations
upon one (or both), and reciprocally conferring rights upon the other (or both).
The contracts are enforceable in Tswana tribal courts.

83
Writing on contracts among the Barotse, Gluckman says that agreements
among the Barotse carry rights and obligations and are binding. Each party
must look to his obligations rather than to his gains. The agreements among the
Barotse suggest relationships of generosity and utmost good faith. The
agreements are, however, enforceable. Taboos and special conventions of
behaviour help in the fulfilment of obligations and thus minimise breaches. T.O.
Elias writing on the "Nature of African Customary Law" points out that there are
innumerable contractual relationships existing in the so called simple African
communities, at varying stages of economic development.

Today one cannot imagine a community or tribe that does not know about
contact. The contracts may not be sophisticated labour contracts, contracts of
assignment, sale of goods, house building contracts and contracts for services.

Conclusion

The growth and development of the institution of contract cannot be separated

from the growth and development of human beings. They are intertwined due
to their occurrence. Contract as an institution arose in line with surplus
production. The surplus product he had could be exchanged for products he
did not produce. With the production of surplus product man found that he
could live on his own provided he exerted his labour power.

Review Questions

1. The growth and development of the institution of contract cannot be

separated from the growth and development of human beings. Discuss
with vivid examples.
2. Contract as an institution arose in line with surplus production. Substantiate
the validity of the statement with relevant examples.

84
 3. The institution of contract carries with it certain basic conceptions.
Describe those basic conceptions that are carried with the institution of
contract.
4. The notions of sanctity of contract and freedom of contract form part of
the bourgeois ideology and are false consciousness. What arguments can
you raise to support the statement that the notions are false
consciousness?
5. What do you understand by the term customary contracts? In what ways
the customary contracts are manifested in the African communities?
6. With vivid examples, what are the socio-economic reasons that led to the
growth and development of the contract as an institution?

References

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Horwitz, M. J., ‘The historical foundations of modern contract law' (1974) 87(5)
Harvard Law Review 917

Kessler, F., ‘Contracts of Adhesion—Some Thoughts about Freedom of Contract

(1943) 43(5) Columbia Law Review 629

Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Simpson, A. W. B., 'The Horwitz Thesis and the History of Contracts' (1979) 46(3)
the University of Chicago Law Review 533

85
 LECTURE SIX

CLASSIFICATION OF CONTRACTS

Introduction

There are many types of contracts. These types do vary because of the criteria
applied in the classification of such contracts. Since the criteria for classifying
contracts are various, the types of contracts are various as well. The criteria for
classifying the contracts are manner of their expression, option to negotiate,
participation in the contracts and manner of their making. These criteria lead to
presence of various types of contracts such as simple, written, express, implied,
quasi contracts, unilateral, bilateral, collateral and standard form contracts.

Understanding the categories of contracts enhances us to be in position of

identifying their conceptual, theoretical and legal differences in the eyes of the
law. Moreover, the classification imparts ability to discern the practical
challenges of the different types of the contracts. Furthermore, the classification
of the contracts enables us to be aware of the enforcement challenges and
mechanisms of the different types of the contracts.

Henceforth, it is within the scope of this lecture to enlighten us on the criteria

which are applicable in understanding the different categories of contracts. This
lecture also shades light of knowledge on the different types of the contracts. In
addition, the lecture provides the conceptual, theoretical, legal and
enforcement differences between the different types of contracts.

Types of Contracts

Contracts can be anything from a formal written document to a purely verbal

promise. Contract could be made simply because of a handshake deal to do a
job where the only thing in writing is a quote on the back of an envelope. There

86
many types of contracts depending on the nature of criteria applicable in the
classification of the said contracts.

1. Oral Contracts

Oral contracts are contracts agreed verbally, but not in writing. They are made
with spoken words and either no writing or only partially written. An oral contract
may generally be enforced the same as a written contract. They have a shorter
time period within which a person seeking to enforce their contract right must
sue.

Oral contracts are legally binding spoken contracts between two or more
parties which is not written down hence breaking the terms of the contract
would be considered a breach. Therefore, when considering whether an oral
contract has been formed, it is important to determine whether or not the
fundamental elements of a contract have been satisfied. If the elements are
satisfied, a party will have a difficult task in trying to disprove the existence of a
contractual relationship.

Oral contracts are at their best when they pertain to simple agreements, easily
memorized, with plenty of evidence that such an agreement is in place. For
example, Mwabulambo agrees to buy Ditopile a refrigerator if Ditopile gives
Mwabulambo her television. Mwabulambo and Ditopile handshake on the
agreement with their friends Shabani and Aswile as witnesses, then
Mwabulambo keeps a receipt from the story he purchased the refrigerator from.

The problem on proving an oral contract is the lack of tangible evidence. Oral
contract cases often rely on the performance of one or both parties that
exhibits a clear reliance on the agreement. Where a person alleges the
existence of an oral contract, that party has the burden of proving the assertion

87
to the satisfaction of the court. This can be incredibly difficult where the only
record is something along the lines of phone call and/or notes of the call.

In the case of 406868 Alberta Ltd. v Westfair Foods Ltd74, the court was of the
view that oral contracts are as legally binding and enforceable as written ones,
but difficulties can and do arise when one or the other of the parties disputes or
denies the contract or essential terms which are asserted by the other. Where
there is no single document to which reference can be made in order to decide
if a contract exists between the parties, then everything that occurs between
the parties relevant to the alleged contract must be considered in deciding the
issue.

Despite the fact that oral contracts are harder to prove, certain evidence can
be used to bolster the enforceability of oral contracts such as the testimony of
witnesses to the creation of the contract, when one or more parties performs the
contract; and/or other evidence such as faxes, emails, receipts, letters, memos
and bills.

2. Written Contracts

Written contracts are contracts made on a printed document that has been
signed by both parties. They are contracts whose terms have been reduced to
writing. Written contracts are legally binding and easier to enforce than oral
contracts. In a written contract, one party agrees to perform a service or
provide a product, and the other party agrees to certain payment terms.

The goal of written contracts is to represent the bargain or agreement between

the parties which, in the event of a dispute between them as to its terms, will

74 [1997] A.J. 790

88
represent to the court the private law between the parties, whether, at the time
of trial, they like it or not.

Written contracts may consist of an exchange of correspondence, a letter

written by the promisee and assented to by the promisor without signature, or
even a memorandum or printed document not signed by either party.

Many contracts are written. This is because writings provide certainty, clarity,
and definiteness to the agreement. Writing contract does not depend on the
memories of the parties to the contract. For these reasons, it is good practice,
when possible, to put agreements in writing so that all of the parties to the
contract know what has been agreed to, and what is expected of them.

Written contracts play a vital role in any business transaction. Apart from making
the agreement between concerned parties legally binding, contracts can also
serve as future references, part of the business’ policies, as well serve as proof in
the event of misunderstandings, complaints or disputes needing litigation
proceedings.

3. Simple Contracts

Simple contracts are the contracts which are not made under seal. They are not
made under deed. They are made orally or in writing, rather than a contract
made under seal. They may be implied from the conduct of parties bound by
the contract. They are frequently entered into without thought or proper
deliberation, the law requires that there be some good cause, consideration or
motive, before they can be enforced in the courts.

There must be an offer, a consideration and an acceptance to make it worth or

valid. Even if the document is not legally drafted by a lawyer, it can still land you
in court if there is a breach of contract. The courts encourage to have a written

89
simple contract rather than a verbal one, as it will be hard to provide evidence
of its existence.

Any contract which does not satisfy the requirements of the contract under
deed is a simple contract. A simple contract, also known as parole does not
need to be in any special form as it may be oral, or written, or partly oral and
partly written or merely implied by conduct. E.g. passengers in a daladala, there
is a contract between the passengers and the owner of the daladala without
uttering a single word.

4. Specialty Contracts

These are contracts made under seal. They are written documents that have
been sealed and delivered and are given as security for the payment of a
specifically indicated debt. They must be signed by the parties sealed, for
example with a company seal and finally it must be delivered. They are formal
contracts. They must be in writing and signed, sealed and delivered. Sealing
and delivering are usually formalities.

Under English law the following contracts must be entered under deed
otherwise they are void gratuitous promises, i.e. promises not supported by
consideration, conveyances of land of all leaves for more than three years,
transfer of British ship, or shares therein and conditional bills of sale.

In a specialty contract, consideration is not required. Certain transactions must

be by deed, such as conveyance of an interest in land. All specialty contracts
are written but not all written contracts are specialty contracts. Whereas action
founded on simple contracts have a six-year limitation period; actions founded
on contract under seal have a 12-year limitation period.

90
 5. Unilateral Contracts

These are contracts in which only one party makes an express promise, or
undertakes a performance without first securing a reciprocal agreement from
the other party. They are one sided contracts. They occur when the party to
whom contracts are made, makes no express agreement on their parts, the
contracts are called unilateral, even in cases where the law attaches certain
obligations to his acceptance.

In the case of Petroleum Research Corp. v Barnsdall Refining Corp.75, the court
explained how the contract becomes unilateral. The court held that contract is
unilateral when one party furnishes no consideration to the other, and does not
obligate himself to do anything that may result in injury to himself or benefit to
the other.

In a unilateral contract, a promise on one side is exchanged for an act or

forbearance on the other side. The offeror, makes a promise in exchange for an
act by the offeree. If the offeree acts on the offeror's promise, the offeror is
legally obligated to fulfil the contract. However, the offeree cannot be forced
to act because no return promise has been made to the offeror. Only on
performance by the offeree, the offeror's enforceable promise exists.

In the case of Carlill v Carbolic Smoke Ball Co76, there was circumstance of
unilateral contract whereby a newspaper advert placed by the defendant
stated £100 reward will be paid by the Carbolic Smoke Ball Company to any
person who contracts the influenza after having used the ball three times daily
for two weeks according to the printed directions supplied with each ball. £1000
is deposited with the Alliance Bank, shewing our sincerity in the matter." Mrs

75 188 Okla. 62 (Okla. 1940)

76 [1893] 1 QB 256
91
Carlill purchased some smoke balls and used them according to the directions
and caught flu. She sought to claim the stated £100 reward.

The Court of Appeal held that Mrs Carlill was entitled to the reward as the advert
constituted an offer of a unilateral contract which she had accepted by
performing the conditions stated in the offer on the ground that in unilateral
contracts there is no requirement that the offeree communicates an intention to
accept, since acceptance is through full performance.

Unilateral contracts are said to bind only the promisor and do not bind the
promisee unless the promisee accepts by performing the obligations specified in
the promisor's offer. Until the promisee performs, he or she has provided no
consideration under the law.77

6. Bilateral Contracts

These are contracts involving two or more parties, which binds all parties to
reciprocal obligations. They are formal contracts between two people or groups
that both promise to do something for each other. They contain promises by
each party to fulfil certain obligations to complete the deal.

Bilateral contracts are formed by an exchange of a promise in which the

promise of one party is consideration supporting the promise of the other party.
Both parties to a bilateral contract make promises and both parties are bound
by their exchange of promises.

For example, a person offers his car for sale, and a buyer agrees to pay 40
million Tanzania shillings to purchase the car. In this bilateral contract, each

77 Boyer, P. S., Oxford Companion to United States History, New York: Oxford Univ. Press, 2001.
92
party is required to do something the buyer must pay the sales price, and the
seller must transfer ownership of the home to the buyer.

In the case of Montpelier Seminary v Smith78, bilateral contracts occur wherever

mutual promises are proffered and accepted. They consist of mutual promises
proffered and accepted. Both the contracting parties are bound to fulfil
obligations reciprocally towards each other; as a contract of sale, where one
becomes bound to deliver the thing sold, and the other to pay the price of it.

Bilateral contracts require agreement and performance from both parties to the
contract. Most contracts are bilateral, in the sense that one party may promise
to do or not do something and the other party promises to perform or abstain
from performing something in return.79

7. Collateral Contracts

A collateral contract is a separate contract which exists beside the main

contact. Largely, where a written contract, the tem of agreement base on the
contract. Courts have been ready to find a collateral contract where one party
refused to conclude the main contract unless certain assurance been given.

Concept of Collateral Contracts

Collateral contracts are the contracts which are supplemented with security in
case it is not in terms and conditions agreed between the parties. They are
contracts created with security. They are subsidiary contracts to secure the main
contracts. They induce a person to enter into a main contract or which depend
upon the main contract for its existence.

7869 Vt. 382, 38 Atl. 66

79Jolls, C., Contracts as Bilateral Commitments: A New Perspective on Contract Modification,
Journal of Legal Studies 1997, 26 (January): 203-237.
93
Lord Moulton in the case of Heilbut, Symons & Co v Buckleton80 described the
term collateral contract in the sense that “If you will make a contract, I will give
you £100″ is in every sense a contract. It is collateral to the main contract, but
each has independent existence. The main contract here, when taken as
consideration for the collateral contract, must be taken exactly as it is.

Requirements of Collateral Contracts

There are two general requirements of a collateral contract, there must have
consistency stand together with the main contract and alleged collateral
contract and it must be promissory. If these requirements are existing in the case,
the courts may hold that a collateral contract has come into existence and
become enforceable, not only as part of the main contract but as the
substance of a quite separate, but related.

The collateral contracts need consistence with the main contract. In the case of
Jacobs v Batavia and General Plantations Trust Ltd81 the court observed and
insisted on the consistence requirement of collateral contracts in the sense that
essentially the collateral contracts cannot contradict any element of the main
contract nor the rights created by it.

Also, in the case of De Lassalle v Guildford82 the court held that the
representation made by landlord as to the drain be in good order was a
warranty which was collateral to the lease. A promise which is not a term of the
main contract what could be enforced as a collateral contract.

80 [1913] AC 30
81 [1924] 1 Ch. 287
82 (1901) 2 KB 215

94
Collateral contracts are promissory in nature. In the case of JJ Savage and Sons
Pty Ltd v Blakney83 the court described the essential of collateral contract being
promissory in nature. The court held that a collateral contract is one where the
parties to one contract enter into or promise to enter into another contract.
Thus, the two contracts are connected and it may be enforced even though it
forms no constructive part of the original contract.

There must be intention to induce the persons to make the collateral contract
binding. In the case of Evans and Sons Ltd v Andrea Merzario Ltd84, the court
opined that a collateral contract is held binding when a person gives a promise,
or an assurance to another, intending that he should act on it by entering into a
contract.

Parole Evidence Rule in Collateral Contracts

Parole evidence rule is a principle to prevent changes the integrity of written

document or agreements by forbid both parties attempting to alter the
meaning of written documents or annul the documents through the use of prior
oral or written that are not included in the document.

In the case of CRDB Bank PLC v Africhick Hatchers Ltd and Two Others85, High
Court of Tanzania (Commercial Division) at Dar es Salaam held that oral promise
to advance additional fund does not amount to an enforceable collateral
contract; the reason being the oral agreement is not certain as to its terms and
conditions. The oral agreement remains as ‘a promise to agree.’

This rule prevents a party to a written contract from presenting extrinsic

evidence that discloses an ambiguity and clarifies it or adds to the written terms

83 (1970) 119 CLR 435

84 [1976] 1 WLR 1078
85 Commercial Case No 97 of 2014 (Unreported)

95
of the contract that appears to be whole. The parole evidence rule applies to
all written contracts whether it was stated in the contract or not. The parole
evidence rule has two components such as the integration rule and the
interpretation rule.

Integration Rule

In terms of the integration rule, the written agreement is the “exclusive

memorial” of the agreement between the parties. In the case of Union
Government v Vianini Pipes86 the court was of the view that the written
agreement contains all the express terms of the contract and as such the
contents of the document [may not be] contradicted, altered, added to or
varied by parole evidence.

Also, in the case of ABSA Technology v Michael’s Bid a House87, the court had
this to say the court may not admit evidence as to what the parties intended it
to mean if that has the effect of changing the terms of which they clearly
agreed in writing.

Interpretation Rule

In terms of the interpretation rule, the court looks to ascertain the meaning of
the terms. Interpretation is a matter of law and not a matter of fact and,
accordingly, interpretation is a matter for the court and not for witnesses. If the
contract is able to clearly and unambiguously define the terms of the contract,
the court will interpret those terms according to the contract.

86 1941 AD 43 at 47
87 (212/2012) [2013] ZASCA 10 (26 February 2013) at para 20
96
The case of Delmas Milling Co Ltd v Du Plessis88 provides what the court should
do when the meaning is not clear. The court held that where the contract does
not give a clear meaning to the terms of the contract then the court may
engage in the surrounding circumstances of the case to ascertain the meaning
of those terms however, this approach must be used as conservatively as
possible.

Exceptions to the Parole Evidence Rule

The parole evidence is not absolute. There are several exceptions to the parole
evidence rule. These are: -

(i) Proof of Customs or Trade Usages Demands what is part of Contract

Evidence of custom is acceptable attach term to written contacts that only

where the contracts are not included in the express term with respect to an
existing custom. In the case of Hutton v Warren89 is an example of custom. The
defendant landlord gave the plaintiff, a tenant farmer, notice to quit, but
insisted that the lessee should continue to farm the land during the notice
period. The tenant asked for a fair allowance for seeds and labour from they
were got no benefits. The tenants succeed. It was held by custom they were
bound to farm the land until the end of tenancy, but they also get the right to a
fair allowance for seed and labour.

(ii) Cessation of Operation of Contract

88 1955 (3) SA 447 (A) at 455

89 (1836) 1 M & W 466
97
In the case of Pym v Campbell90, it was shown that show that operation of
contract does not yet operate or has expired. Pym was to sell his invention to
Campbell. There was an agreement between the parties that defendant would
only buy if the other engineer also examined it and approved it. The engineer
did not approve it and thus defendant refused to conclude the agreement that
they were not bound. The plaintiff sued. The court held this evidence was
admissible as that was subject to condition precedent and this one of exception
to the parole evidence rule.

(iii) When written agreement does not intend to constitute the whole
contract

The other exception is when the written agreement does not intend to constitute
the whole contract. There is a good example found in the case of Van Den
Esschert v Chappel91. The purchaser asked the seller, before buying a house,
whether the house was affected by any white ants. The seller re-assured the
purchaser there were none of white ants. There was no mention of this in the
contract. Several months later, white ants damaged the house. The purchaser
sued. The court held, the plaintiff provide evidence to convince the court there
was partly oral and partly contract.

(iv) Clarification of Ambiguity

When the written contract has ambiguous language and evidence from outside
the contract intends to clarifies any ambiguous language, such evidence can
be admitted. Ambiguity extends not only present on language that is capable
of different possible meaning, or not clear by the other langue in the document,

90 (1856) 6 E & B 370

91 [1960] WAR 114
98
but also latent ambiguity where has specific meaning is shown to be ambiguous
when external facts are been considered.

In the case of Delmas Milling Co Ltd v Du Plessis92 the court elucidated what the
court should do when the meaning is not clear. The court held that where the
contract does not give a clear meaning to the terms of the contract then the
court may engage in the surrounding circumstances of the case to ascertain
the meaning of those terms however, this approach must be used as
conservatively as possible.

(v) Rectification of Mistakes

Sometimes, there are mistakes included with the written contracts, these
mistakes can be rectified through extrinsic evidence outside the document.
Hence, when contract clearly has wrong records therein the agreement of
parties made when recorded in writing. The parole rule can be applied if it
rectifies a mistake of the parties where the terms were not clearly expressed in
the written contract.

8. Quasi Contracts

The quasi contracts happen in our daily life, when people get into transactions
which create the contractual relationship while there is no contract between
them. The law of contract recognizes them and provides measure for their
enforcement.

92 1955 (3) SA 447 (A) at 455

99
In the case of Dominion Distillery Products v R93, Justice Maclean of Exchequer
Court of Canada wrote on arising of the quasi contracts in the sense that a
contract is in some cases said to be implied by law, which really is an obligation
imposed by law independently of any actual agreement between the parties,
and may even be imposed notwithstanding an expressed intention by one of
the parties to the contrary; it is an obligation of the class known in the civil law as
quasi-contracts.

Concept of Quasi Contracts

These are contracts created by a court order, not by an agreement made by

the parties to the contract. They denote transactions undertaken by the parties
which create the relationship the parties resembling to as if they have entered
into contract while in fact they have not done so. They transactions oblige the
parties to comply as there is contract between them but in fact there is no
contract between them.

The quasi contracts can be described as implied-in-law contracts imposed by

the courts to prevent injustice. They imply as special form of contracts that lacks
mutual assent of the parties but which is imposed on the parties by the courts to
avoid injustice. They also mean situations in which there is an obligation as if
there was a contract, although the technical requirements of a contract have
not been fulfilled.

In the case of Canada v Becker94, Justice Berger of the Alberta Court of Appeal
enunciated on the operation of the quasi contracts by saying that quasi-
contract operates to raise an obligation in law where in fact the parties made

93 (1938) 1 DLR 597, at page 613

94 1998 ABCA 283
100
no promise. Quasi-contract is therefore a notional or fictional contract implied in
law and not based upon the intention of the parties.

Purpose of Quasi Contracts

They are binding obligation that is imposed by the courts to avoid injustice or
unjust enrichment. Courts create quasi contracts to prevent a party from being
unjustly enriched, or from benefitting from the situation when he does not
deserve to do so.

In the case of Canada v Becker95, Justice Berger of the Alberta Court of Appeal
articulated the rationale behind quasi contracts by connoting that quasi
contracts are the obligations which law creates in absence of an agreement.
They are invoked by courts where there is unjust enrichment. Sometimes referred
to as implied-in-law contracts as a legal fiction to distinguish them from implied-
in-fact contracts i.e. voluntary agreements inferred from the parties' conduct.

Circumstances Amounting to Quasi Contracts

There are many circumstances through which the quasi contracts can be
implied by the contract law. The implications of quasi contracts are recognised
and enforced by the contract law. The following are some of the circumstances
which amount to quasi contracts;

(i) Provision of Necessaries for life

There are circumstances when the person make transaction of providing

necessaries for life to the person who according to the law is incompetent to
enter the contracts. This transaction creates the resemblance to the contractual

95 1998 ABCA 283

101
transactions. They can be enforced in the court of law for reimbursement of the
expenses incurred in the provision of such necessaries for life.

Section 68 of the Law of Contract Act 96 implies the circumstance that when the
person supplies necessaries to incapable person without any contract, he can
later be reimbursed with the expenses incurred by him or her upon provision of
those necessaries to the incapable person.

(ii) Payment of Money Due

There are situations when the person may pay money advanced to him to
another person legally. This occurs when there is mistake of parties in the time of
payment of the money due. Since there is no contract between them, the
contract implies quasi contract for reimbursement of the money paid to another
person mistakenly.

Section 69 of the Law of Contract Act97 describes and recognises the quasi
contract of this circumstances and can be enforced for the purpose of
reimbursement of such money paid. It provides that when person pays money
due to another person legally, he entitled to be reimbursed even though there is
no contract between them.

(iii) Non-gratuitous act to a person

When the person does something out of gratuity to another person and such
other person receives benefit through the non-gratuitous act, the receiving
person is duty bound to compensate the said person.

96 Cap 345 RE 2018

97 Ibid
102
Section 70 of the Law of Contract Act provides such circumstance by
articulating that upon non-gratuitous act to another person for benefit, the
person receiving benefit has to compensate the deliverer.

(iv) Custodianship of Good found

When a person finds goods of another person, takes custody of it for the owner
until the owner comes and take it, the said person is said to be in quasi contract
of custodianship of the goods and he or she is entitled for the expenses of
keeping such goods.

Section 71 of the Law of Contract Act explicates the circumstances of quasi

contracts via custodianship of the goods found. It provides that custodianship of
the goods found entitles the custodian expenses for keeping the goods from the
owner.

(v) Mistaken Payment of Money

There are circumstances whereby the person may pay money to another
person mistakenly. This means money is paid to the person who is not the
respective person to be paid with the money. This transaction in law creates the
circumstance of quasi contract where the receiver is required to reimburse the
money paid to the payer when demanded to do so.

Section 72 of the Law of Contract Act provides the circumstance which

resembles to the contractual relations when receiver of money paid mistakenly
to him or her. It provides that receiver money paid mistaken by another person,
he must reimburse upon demand from the payer.

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 9. Standard Form Contracts

These are contracts where the terms and conditions of the contract are set by
one of the parties, and the other party has little or no ability to negotiate more
favourable terms. They are not subjected to negotiations. Standard form
contracts are standardised written contracts. The terms of such contracts are set
out in printed standard forms which are used for all contracts of the same kind.

For example, when you board a bus, you enter into a contract of carriage. The
terms of such a contract will be printed, usually on the back of your travel ticket.
These will be uniform in all tickets issued by the carrier to all passengers. They are
standardised.

Standard form contracts are an exception to the rule on freedom to contract

which envisages that in concluding a contract parties are in equal bargaining
positions. The idea of an agreement freely negotiated between the parties has
given way to the necessity for a uniform set of printed conditions which can be
used time and time again, and for many persons.

The necessity to use standard form contracts has arisen because of the
complexity brought about by the existence of large-scale organisations. For
example, it would be difficult for the Postal Corporation, the National Insurance
Corporation, the Tanzania Telecommunications Company, the Tanzania Railway
Authority, and such like, to draw out a separate contract with every individual
who enjoys the services offered.

Thus, each time an individual travel upon a bus or train, takes his or her clothes
to the dry-cleaner, receives gas, electricity or water from the City, Municipal or
Town Council, or when taking up the lease of a house or flat, he or she will
receive a standard form contract, devised by the supplier, which he must either

104
accept in toto or, go without. Practically, the individual has neither alternative
but to accept nor power to negotiate but merely to adhere.

The standard form contracts contain many terms and conditions which are
often in fine print and very cumbersome for the consumer or customer to read
and exercise a rational choice whether to accept. Lord Denning, M.R. pointed
out in Thornton v Shoe Lane Parking Ltd 98 that no customer in a thousand ever
read the conditions. If he had stopped to do so, he would have missed the train
or the boat.

Standard form contracts undermine individual autonomy, as the buyer finds

himself obligated to terms to which he did not voluntarily agree. They protect
economic interests of the strong parties to the detriment of the weaker
contracting parties. They allow the strong party to create its own law to govern
transaction.

10. Express Contracts

Express contract is an exchange of promises in which the terms by which the

parties agree to be bound are declared either orally or in writing, or a
combination of both, at the time it is made. They occur when the two parties to
a contract state the particular terms of the contract.

Whether oral or written, the contract must manifest a mutual intent to be bound
expressed in a manner capable of being understood, and include a definite
offer, unconditional acceptance, and consideration.

For example, an express contract is formed when one party offers to install new
carpet in the other party’s house for the payment of 200,000/- TSHS. Here, the

98 [1971] All ER 686 CA

105
terms are clear. One party is receiving an installation of carpet, and the other
party is paying a clear amount for that service. This agreement then becomes
an example of an express contract that can be validated in a court of law.

Express contracts are legally binding contracts, the terms of which are all clearly
stated either orally or in writing. For an express contract to come together, there
must be an offer made by one of the parties, and acceptance of that offer by
the other party.

The elements of an express contract include the offer, the acceptance of that
offer, and a mutual agreement between the parties as to the terms of the
contract. Express contracts illustrate the promise that was made between the
parties in clear and certain terms.

The terms that are explicitly defined within an express contract include the
quantity of goods delivered or specific services rendered, as well as the time
period during which the transaction is expected to take place.

Further, for an express contract to be considered valid in a court of law, the

parties must either exchange something or value, or suffer a loss of some kind.
This binds them to the terms of the contract by expecting that they will hold up
their end of the bargain to either earn their reward or compensate for their loss.
Typically, this element of the contract is satisfied by the parties agreeing to pay
money in exchange for goods delivered or services rendered by the other party.

11. Implied Contracts

Implied contracts are contracts that lead the parties to believe that a contract
exists based on the behaviours of those involved.

The circumstances of a situation lead to either one person benefitting from his
actions, or to the understanding among the parties that a contract exists.

106
Implied contracts can be further broken down into contracts that were either
implied in fact or implied in law.

Implied in fact contract is a contract that exists when a person arrives at an

establishment and expects to receive a service. For instance, when a person
goes to the local deli, the deli expects that the customer will order and then pay
for his sandwich.

The customer also expects that, when he orders a sandwich and offers to pay
for it, he will receive exactly what he has ordered. This common understanding
between the parties based on their conduct in this situation serves as an implied
in fact contract.

Implied in law contracts are not technically contracts at all. These are situations
wherein a court can decide if a contract did, in fact, exist because of the
behaviour (or lack of behaviour) of those involved. The purpose of involving a
court is to determine whether the parties can collect restitution for services
rendered.

Conclusion

Contracts are legally enforceable agreement between two or more parties.

There are many types of contracts. They may be oral or written. They may be
unilateral or bilateral. They may be simple or specialty contracts. They may be
express or implied contracts. They can be quasi contracts. All in all, all contracts
are essentially sets of promises. Typically, each party promises to do something
for the other in exchange for a benefit.

Review Questions

1. Mwanahamis was injured in a car park partly due to the Mwendokasi’s

negligence. Mwanahamis was given a ticket on entering the car park

107
 after putting money into a machine. The ticket stated the contract of
parking was subject to terms and conditions which were displayed on the
inside of the car park. One of the terms excluded liability for personal
injuries arising through negligence. Discuss whether the exemption clause
for personal injuries through negligence did form part of the contract.
2. Oral contracts are as legally binding and enforceable as written ones, but
difficulties can and do arise when one or the other of the parties disputes
or denies the contract or essential terms which are asserted by the other.
With aid of decided cases, substantiate truth of the statement.
3. What are necessary conditions that must be considered for an express
contract to be considered valid in a court of law?
4. Standard form contracts are an exception to the rule on freedom to
contract which envisages that in concluding a contract parties are in
equal bargaining positions. What are the advantages and disadvantages
of the using the standard form contract in modern commercial
transactions?
5. Salala finds lost goods of Mwakitwe, takes custody of it for the owner until
the owner comes and take it. With relevant legal authorities, what are the
entitlements of Salala against Mwakitwe for custodianship of the lost
goods?
6. What do you understand by the term parole evidence rule as applied in
law of contract? Are there any exceptions to the said rule? Justify your
answer with support of relevant legal authorities.
7. Mwabulambo agrees to buy Ditopile a refrigerator if Ditopile gives
Mwabulambo her television. Mwabulambo and Ditopile handshake on
the agreement with their friends Shabani and Aswile as witnesses, then
Mwabulambo keeps a receipt from the story he purchased the
refrigerator from.

108
 a. Discuss with relevant legal authorities, whether the agreement
between Mwabulambo and Ditopile can be enforced.
b. What are challenges that may encounter parties in the
enforcement of such agreement?
8. Written contracts play a vital role in any business transaction as compared
to oral contracts. With aid relevant legal authorities, discuss the validity of
the statement.
9. A newspaper advert placed by the defendant stated 100,000/= TShs.
reward will be paid by the Azam Food and Dairies Company to any
person who contracts the stomach-ache after having used the milk three
times daily for two weeks according to the printed directions supplied with
each milk bottle. 100,000/=TShs. is deposited with the Watupori Bank,
showing our sincerity in the matter. Mrs Kadodi purchased some milk and
used them according to the directions and caught stomach-ache. With
aid of relevant legal authorities, answer the following: -
a. Was there a contract between Azam Food and Dairies Company
and Mrs. Kadodi?
b. If yes, what kind of contract?
c. Can Mrs Kadodi sue successfully Azam Food and Dairies Company?

References

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brown, G. W., et al, Understanding Business and Personal Law, 9 th Edition,

McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

109
Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

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 LECTURE SEVEN

PARTIES TO CONTRACTS

Introduction

We understand that a contract is a legally enforceable agreement between

two or more parties that creates an obligation to do or not do particular things.
The parties must be competent to enter into a contract. One party enters into
contract with another contracting parties and thus accepts the benefits and
obligations specified therein.

In every contract there must be two parties. Parties imply individual persons,
company, or other legal entity. These parties may be natural persons while
artificial persons are persons created by law such as companies, corporations
and other associations or organizations which are empowered by law to enter
into contracts.

Henceforth, a contract may be between natural persons and natural persons,

natural person and artificial persons or artificial persons and artificial persons. It
should be noted that every contracting party to a contract must be a
competent party.

It is very important to learn about the parties to the contracts because they are
the ones by who or against whom the contracts can be enforced. So, being
able to identify the respective parties to the contract ensures proper
enforcement of the contractual rights and duties. Therefore, the parties to a
contract should be properly and unambiguously identified.

In addition, understanding of the parties to the contract enhances the

determination of the rights and liabilities of each party to the said contract. This

111
lecture enlightens students on the parties to contract as well as the doctrine of
privity to contract.

Parties

Parties to contracts are the persons who hold the obligations and receives the
benefits of a legally binding agreement. These persons are the ones who have
reciprocal promises against each other in the contract. They are the ones who
formed the contract. Parties to a contract also have the legal right to do what
the contract promises.

The parties to a contract must have the legal capacity to enter into that
contract. Persons who are deemed incompetent due to physical or mental
illness lack capacity to enter into contracts. Section 11 (1) of the Law of
Contract Act provides what makes the party to contract competent to enter
contracts. It provides that 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.

If the parties are incompetent to enter an agreement, the contracts entered are
void. Section 11 (1) of the Law of Contract Act provides that agreement by a
person who is not hereby declared to be competent to contract is void.

Parties to the contract are the ones who are bound by the promises with their
representatives. Section 37 (1) of the Law of Contract Act 99 provides the
obligation of the parties to the contract to perform the agreement unless it is
stipulated otherwise. It provides that the parties to a contract must perform their

99 Cap 345 RE 2018

112
respective promises, unless such performance is dispensed with or excused
under the provisions of this Act or of any other law.

Moreover, section 37 (2) of the Law of Contract Act 100 provides that promises
bind the representatives of the promisor in case of the death of such promisor
before performance, unless a contrary intention appears from the contract. This
denotes that contractual relationships do not only bind the parties to the
contract but also the representatives of those parties.

Third Parties

Third party to a contract is a person who is not a party to the contract and has
not provided consideration for the contract but has an interest in its
performance. Third parties occur when there is assignment and or delegation in
the contract.

Section 2 (1) (d) of the Law of Contract Act 101 enunciates the possibility of
assignment or delegation in the contract. It provides that the promisee or any
other person has done or abstained from doing, or docs does or abstains from
doing, or promises to do or to abstain from doing, something, such act or
abstinence or promise. This connotes parties and other person may furnish the
consideration under the contract when the parties have consented. The transfer
of rights or duties has to be made with desire of the promisor.

Categories of third parties

(i) Third-party beneficiary

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If the parties to the contract intend a third party to be able to sue for
enforcement of a promise made in the contract, then that that person is a third
party beneficiary.

(ii) Assignee

If a party transfers a right under the contract to a third party, that person is an
assignee. The assignor i.e. the one who assigned the rights drops out of the
picture and the obligor i.e. the one who is obligated to perform must perform for
the assignee.

Assignment means transfer of rights under the contract. A party to the contract
may legally transfer his or her rights under the contract if the contract does not
state otherwise. The party who transfers rights under contract is called assignor
while the party to whom the rights under the contracts are transferred is called
assignee. The assignee is the third party who is not party to the original contract.

(iii) Delegate

If a party delegates a duty under the contract to a third party, that person is a
delegate. The delegate must now perform the contract, but the delegator (the
one who was obligated under the contract to perform) remains liable for
performance and breach

Delegation is the transfer of duties under the contract. The party to the contract
may legally transfer his or her duties to someone else. This party to the contract
delegates his or her contractual duties to another person who is not party to the
contract. The law allows the transfer of duties unless they in nature of personal
skill or service.

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Section 40 of the Law of Contract Act 102 provides the person who are required
to perform in the contract. It elucidates persons by whom the contractual duties
have to be performed. It provides that where it appears from the nature of the
case that it was the intention of the parties to any contract that any promise
contained in it should be performed by the promisor himself, such promise must
be performed by the promisor; and in other cases the promisor or his
representatives may employ a competent person to perform it.

In the case of Puma Energy Tanzania Limited v Spec-Check Enterprises103 High

Court of Tanzania (Commercial Division) at Dar es Salaam held that under the
principle to privity to contract, it is only parties who are privy to the contract that
are obliged to perform the same. Hence, any person who is not expressly party
thereto cannot legally be forced to perform such a contract and neither can
he/she demand performance from the other party.

This implies that parties to the contract are responsible to perform the
contractual duties however other persons at the desire of the promisor may
perform the said duties when the contract establishes the said intention of
delegation of duties.

Privity of Contracts

Contracts establish binding relationships between parties to the contract. The

relationship between parties is called privity of contract. That relationship
determines who can sue whom over the question of performance of contract.
Usually the parties to the locus stand to sue on the contract.

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There has been a long-established rule that only the parties to a contract could
incur rights and obligations under it. Described as the doctrine of privity, this
principle meant that third parties could neither sue nor be sued under a
contract. Even where a contract was made for the benefit of a third party, that
party still had no rights under it.

The doctrine of privity of contract is that a contract cannot confer rights or

impose those obligations arising under it, on any person except the parties to it.
It prevents a third party from suing on a contract and also prevents or forbids the
contracting parties to enforce obligations against the stranger for justice
reasons.

The privity of contract rule was applied in the old case of Tweddle v Atkinson104.
The plaintiff was engaged to be married, and his father and future father-in-law
made a contract providing that each of them would give a certain sum of
money to the plaintiff. Even though the contract expressly provided that the
plaintiff was to be entitled to enforce it, the court held that he could not do so.

This case established that third parties to a contract do not derive any rights
from that agreement nor are they subject to any burdens imposed by it. The
case derived the rule that no consideration moved from the plaintiff to guy and
therefore the plaintiff had no right to sue on the contract.

The same attitude was taken in the case of Beswick v Beswick105. The plaintiff’s
husband sold his business to his nephew in return for an annual allowance to be
paid to himself and, after his death, to his widow. Once the husband died, the
nephew refused to make payments to the widow. Despite the fact that the
husband had clearly intended her to benefit from the contract, it was held that

104 [1861] EWHC QB J57

105 [1968] AC 58
116
the widow could not sue the nephew on her own behalf, because she was not
a party to the contract. However, in this case the court was able to get round
the doctrine, because the widow was also the executor of her husband’s estate
and could, therefore, sue on behalf of the estate.

Exceptions to Privity of Contracts

A large number of exceptions to the privity rule had been developed over the
years, to avoid extreme cases of injustice, but these numerous exceptions
rendered this area of law extremely complex. Some of the exceptional
circumstances of the doctrine of privity to contracts are hereby accounted.

(i) Agency

A principle not named in a contract may sue upon it if the promise really
contracted as his agent. Also, a third party may sue the employee or the
employer even though he was not a party to the contract between the
employer and the employee.

In the case of Dunlop Pneumatic Tyre Co. Ltd. v Selfridge & Co. Ltd106 is that if a
party named in the contract was acting as an agent of an unnamed party; in
this case, the unnamed party can be sued. Hence the exception is under
agency

(ii) Collateral contracts

Collateral contract is one that accompanies the main contract between two
parties. It is one involving either of them and a third party. A person who was not
a party to the contract may sue on collateral contract

106 [1915] AC 7
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For example, A sells to B shoes and promises B, that the shoes would last for four
years because C, as a third party to whom he got the shoes from told him so.
Unfortunately, the shoes spent one year and became torn. B therefore can be
able to sue C who told A that the shoes would last five years. In other words, B
may not sue A on the contract of sale between A and B but on collateral
contract between him and C.

In the case of Andrew v Hopkinson107, it was held, that a customer who had
entered into a hire purchase agreement with a finance company on the
strength of misrepresentation made to him by the dealer could sue the dealer
on collateral contract between himself and the dealer

(iii) Multilateral Contracts

Multilateral contracts occur when a person joins an unincorporated association

such as a club, it could be said that he has gone into a contractual relationship
with other members even if he may not be aware of their identity and if the
person only liaises with the secretary of the organization. For instance, in one
case the courts decided that a competitor in a race contracted not only with
the organizers but with other competitors.

(iv) Third Party Insurance

In case a third party is not party to a contract, a statute may confer him right
and allow him to enforce on a contract even if he is not privy. For example,
under the Traffic and Road Safety Act, a third party goes ahead to enforce a
motor insurance policy against the insurance company and the owner of the

107 [1957] 1 QB 229.

118
vehicle. However, a third party who may be injured in an accident can go
ahead to sue the insurance company.

Third party insurance contract are conferred by the statute. The third party can
sue insurer under that circumstance. It was in Kayanja v New India Insurance
Company108, when it was held that a stranger to the contract cannot sue upon
it unless given statutory provision, as mentioned above, which gives rights, while
here the liability covered by an insurance company is one which is required by
the Traffic Act to be covered. Then an authorized driver has a statutory right to
sue the insurance company himself to impose an indemnity given to him by the
policy.

(v) Assignment

An assignment of contract occurs when one party to an existing contract hands

off the contract's obligations and benefits to another party. Ideally, the assignor
wants the assignee to step into his shoes and assume all of his contractual
obligations and rights.

For example, in a scenario where A contracted with B and B contracted with C.

B is able to sign a contractual right with C and this implies that C is a third party
who can be able to sue on A and B although he was not party to the contract
between them.

When there is assignment of rights and liabilities in the contract to the third party
become exception to the rule because the assigned person can sue or be sued
thought not the party to the contract. It was observed in the case of Darlington

108 [1968] 1 EA 295

119
Borough Council v Wiltshire Northern Ltd 109, the court of appeal held that the
council was entitled to nominal damages and substantial damages due to the
assignment.

(vi) Trust Beneficiary

Where third party is beneficiary in trust agreement, such third party can sue or
be sued even though he or she is not party to the trust agreement. This was
accentuated in the case of Lloyd’s v Harper110 it was held that the creditors
were entitled to the benefit from the contract made since the committee had
entered into as trustee for these who had suffered to the insolvency of the son.

(vii) Restrictive Covenants

This is a promise given by one party of a contract to another as an under taking

to refrain from doing a particular act. It’s common especially in contracts
concerning land. Court has jurisdiction to enforce a contract between the
owner of land and his neighbour purchasing part of it that the latter shall either
use or abstain from using land purchased in a particular way.

For instance, A contracts with B to buy land in which there exists a well.
However, B was instructed not to misuse it because people were using it. B went
ahead and misused it plus blocking it. The people using the well before
therefore can come to sue B as third parties though they were not party to the
contract between A and B. This becomes an exception where it included the
third party enforcing on the contract between A and B yet he was not a party
to it contrary to the doctrine of privity.

109 [1995] 1 WLR 68, 79

110 (1880) 16 Ch D 290
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In the case of Tulk v Moxhay111, it was held that an injunction to refrain building
would be granted because there are jurisdictions in equity to prevent, by way of
injunction, acts inconsistent with restrictive covenant on land, so long as the
land was acquired with notice of that covenant and the defendant retains land
which can benefit from the covenant.

Conclusion

Contracts are the legally-binding agreement which recognises and governs the
rights and duties of the parties to the agreement. Parties enter into a binding
agreement with one or more other contracting parties and thus accepts the
benefits and obligations specified therein. For a contract to be valid, every
contracting party to a contract must be a competent party.

Review Questions

1. Mwanaisha’s husband sold his business to his nephew in return for an

annual allowance to be paid to himself and, after his death, to his widow.
Once the husband died, the nephew refused to make payments to the
widow. Discuss with relevant legal authorities whether Mwanaisha can sue
nephew for refusal to make payments.
2. Hamsa sells to James shoes and promises James, that the shoes would last
for four years because Mtoto wa Mjini, as a third party to whom he got the
shoes from told him so. Unfortunately, the shoes spent one year and
became torn. Can James sue successfully Mtoto wa Mjini B because he
told Hamsa that the shoes would last five years?
3. Mama Kayaii contracted with Mzee Ojwang and Mzee Ojwang
contracted with Alexander. Discuss whether Mama Kayaii is able to sign a

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121
 contractual right with Alexander although he was not party to the
contract between them.
4. A contracts with B to buy land in which there exists a well. However, B was
instructed not to misuse it because people were using it. B went ahead
and misused it plus blocking it. Can the people who were using the well
successfully sue B for misusing and blocking the well?
5. It is only parties who are privy to the contract that are obliged to perform
the same. Hence, any person who is not expressly party thereto cannot
legally be forced to perform such a contract and neither can he/she
demand performance from the other party. What are advantages and
disadvantages of using the rule in the modern commercial
arrangements?
6. What do you understand by the doctrine of privity to contract? Discuss
with aid of decided cases, various exceptions which have developed to
avoid extreme cases of injustice.

References

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brown, G. W., et al, Understanding Business and Personal Law, 9 th Edition,

McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

122
Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

123
 LECTURE EIGHT

OFFER

Introduction

There are so many times that we have heard the term offer. Offer has been
used differently in the different contexts and circumstances. However, most of
the application of the word has relation with the deals, agreements, promises or
proposals. The variation of its usage depends much on the social, economic,
political or legal set ups. These variation bases affect even the validity and
enforcement of the concept in the eyes of the law.

Offer has been used interchangeably with the promise or proposal in the
context of contract law. It is the ignition of the contract formation. Contract is
made up of agreements. Agreements consists of offer and acceptance. Hence,
offer is very foundation of the contract existence in the eyes of the law.

Understanding nature, characteristics, communication, revocation and

termination of offer is very important not only in developing our knowledge of
how the contract is formed but also understanding the essence of the offer in
the contract law arena. Eventually, its understanding shall equip us with the skills
to analyse the practical challenges related to offer issues as well as
determination of those legal challenges according to the due process of law.

Henceforth, it is within the ambit of this lecture to discuss the concept of offer
and its application in the contract law and related laws. This lecture shades light
on the essentials which can be applicable in the determination of the validity of
the offer. It also enlightens the possibility of revocation, means of
communication and how and when the contract can be discharged. You are
warmly welcome to this juncture of feeding our minds and equipping our
competence as far as the contract law is concerned.

124
Offer

As pointed out in introduction of this lecture that contract begins with the offer.
Offer is the foundation of the contract. It is expression of willingness to contract
with another person on certain terms stipulated therein. This expression is what
initiates the contract. When the expression is accepted willingly it makes binding
contract when the other essentials of the contract are fully met.

Concept of Offer

Offer is a specific proposal to enter into an agreement with another person. An

offer must include some essential items especially the subject matter of the
agreement and must be communicated by the person making the offer. An
offer is essential to the formation of an enforceable contract and, when
accepted, creates the contract.112

An offer is a promise to be bound on particular terms, and it must be capable of

acceptance. The offer sets out the terms upon which the offeror is willing to
enter into contractual relations with the offeree.

Section 2(1) (a) of the Law of Contract Act 113 provides proposal which is
interchangeably used with offer. It provides that when one person signifies to
another his willingness to do or to abstain from doing anything, with a view to
obtaining the assent of that other to such act or abstinence, he is said to make
a proposal.

This definition means first the offer is signification of willingness. This implies that a
person who makes offer makes an expression of willingness to such other person.
If the expression is not of willingness, then the offer has no value in law. It must be

112 Socrates, Business Law Dictionary, at page 33

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made willingly. When the offer is not made under willing expression of the
person, it does not suffice to be called proposal or offer.

In addition, the definition connotes that expression of the person must aim either
to do or abstain from doing something. It implies that the person makes promise
of doing something or not doing something. The thing which is said to be done
or abstained from being done must be specifically stated therein.

Moreover, the definition denotes that the signification of the willingness of the
person to another will take effect when the other person assents to the said
expression of willingness. That’s why the definition provides that it expression of
willingness is given with the view of obtaining assent from the other person.
Hence, offer seeks assent from the person to whom such offer is made.

Conditions of Offer

There are many conditions which must be complied with in order to make offer
valid in the eyes of the law. Absence of either of the conditions invalidates the
offer. In the case of Edwin Simon Mamuya v Adam Jonas Mbala114 the court
observed that for there to be an offer in law it must inter alia be unconditional, it
must be communicated, and it must be made in such circumstances as to
leave no doubt that the party offering to perform is presently able and willing to
do so.

(i) Intention to be bound

In order to amount to an offer, it must be shown that the offeror had the
intention to be bound. This means that the offer must be made with willingness

114 1983 TLR 410 (HC)

126
of the person that makes such offer. Willingness of the person that makes offer
denotes the intention to be bound by such offer.

In the case of Harvey v Facey115 the Privy Council held that there was no
contract concluded between the parties. Facey had not directly answered the
first question as to whether they would sell and the lowest price stated was
merely responding to a request for information not an offer. There was thus no
evidence of an intention that the telegram sent by Facey was to be an offer.

(ii) Communication of offer

Offer when made has to be communicated to the intended person for

obtaining assent. Assent cannot be obtained when the other party is not aware
of the offer. Hence, offer must be made known to the intended persons.

Section 2 (1) (a) of the Law of Contract Act 116 uses the phrase when one person
signifies to another when defining the term proposal which is interchangeably
used with the offer. This phrase implies that the proposal has to be made known
from the maker to another person. Hence, without communication offer will not
be accepted. Therefore, offer must be communicated.

Section 4 (1) of the Law of the Contract Act 117 provides circumstance when the
communication of offer becomes complete. It provides that the
communication of a proposal is complete when it comes to the knowledge of
the person to whom it is made. Therefore, when the person to whom the offer
was made is aware of the offer, communication of offer becomes effective.

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 (iii) Certainty

In order offer to be binding, it has to be made with clear and specific stipulation
of its terms and conditions. This implies that terms and specifications of the offer
should not be vague and ambiguous. It has to be specific and clear. It has to be
certain to be binding. If the offer is uncertain, then the agreement will be
uncertain. When the agreement is uncertain, it is void.

Section 29 of the Law of Contract Act 118, provides for the consequence of the
agreement which is uncertain. It provides that an agreement, the meaning of
which is not certain, or capable of being made certain, is void. Hence,
agreement becomes void because of its uncertainty. However, uncertainty of
the agreement may be caused by uncertain offer.

Also, in the case of Mckins v Gros119 the Court confirmed the importance of
‘certainty’ in order to determine that the parties intended to create a legally
binding arrangement. The case in question concerned a meeting between the
parties that took place over dinner in a restaurant. One party agreed to leave
his employment with an investment bank to provide services to the other to
maximise his return on the sale of his business. The parties discussed a
mechanism for calculating the fee. Following the meeting, emails were
exchanged describing the agreement “on headline terms”, stating the
importance of the parties being “completely aligned” and of the need to make
a “proper contract”.

The Court confirmed that whilst elements of a contract had been present, in an
informal setting the intention of the parties should be examined. The language
subsequently used in the email exchange suggested there was no intention to

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create legal relations. The Court held there was not sufficient certainty of terms
and there was no contract.

The case provides a useful reminder, especially in a commercial environment, of

the importance of using clear language when discussing a deal in an informal
environment. Be sure to emphasise in any follow-up communication that such
discussions were “subject to contract” or alternatively get the terms recorded in
writing and signed without delay

Termination of Offer

Termination of offer means the discharge of the offer made. It is the process of
bringing the offer to an end. It involves making offer no longer binding in the
eyes of the law. It is ending of the operation of the offer. An offer may be
terminated through there hereby ways: -

(i) Revocation

Revocation of offer is the withdrawal of the offer by the person who make the
offer. It is the cancellation of the offer so that it can no longer be accepted. It
takes effect as soon as it is known to the offeree. An offeror may revoke an offer
before it has been accepted, but the revocation must be communicated to the
offeree.

Section 5 (1) of the Law of Contract Act 120 deals with the revocation of the offer.
It provides that a proposal may be revoked at any time before the
communication of its acceptance is complete as against the proposer, but not
afterwards. It has to be revoked before acceptance. This can be done at any
time when the communication of acceptance is yet to be completed.

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In the case of Dickinson v Dodds121, the defendant offered to sell his house to
the claimant and promised to keep the offer open until Friday. On the Thursday
the defendant accepted an offer from a third party to purchase the house. The
defendant then asked a friend to tell the claimant that the offer was withdrawn.
On hearing the news, the claimant went round to the claimant's house first thing
Friday morning purporting to accept the offer. He then brought an action
seeking specific performance of the contract.

The court held that the offer had been effectively revoked. Therefore, no
contract existed between the parties. There was no obligation to keep the offer
open until Friday since the claimant had provided no consideration in exchange
for the promise.

However, revocation can be done at any time before acceptance rule may
not apply in unilateral offers where acceptance requires full performance.

In the case of Errington v Errington Woods122, a father-in-law purchased a house

for his son and daughter-in-law to live in. The house was put in the father's name
alone. He paid the deposit as a wedding gift and promised the couple that if
they paid the mortgage instalments, the father would transfer the house to
them. The father then became ill and died. The mother inherited the house.
After the father's death the son went to live with his mother but the wife refused
to live with the mother and continued to pay the mortgage instalments. The
mother brought an action to remove the wife from the house.

The Court of Appeal observed that the wife was entitled to remain in the house.
The father had made the couple a unilateral offer. The wife was in course of
performing the acceptance of the offer by continuing to meet the mortgage

121 (1876) 2 Ch D 463

122 [1952] 1 KB 290
130
payments. Under normal contract principles an offer may be revoked at any
time before acceptance takes place, however, with unilateral contracts
acceptance takes place only on full performance. Lord Denning held that once
performance had commenced the Mother was estopped from revoking the
offer since it would be unconscionable for her to do so. Furthermore, there was
an intention to create legal relations despite it being a family agreement.

Section 6 (b) of the Law of Contract Act 123 explicates the notice of revocation
can terminate the offer. It provides that proposal may be terminated by the
communication of notice of revocation by the proposer to the other party

(ii) Lapse of Time

Sometimes, offers are given within the limitation of certain period. One of the
condition is that its acceptance must be made within the time specified in the
offer. When it is made out of the time specified, it is no longer binding because
its life span has expired.

Section 6 (b) of the Law of Contract Act 124 articulates the lapse of time can
terminate the offer. It provides that proposal may be terminated by the lapse of
the time prescribed in such proposal for its acceptance, or, if no time is so
prescribed, by the lapse of a reasonable time, without communication of the
acceptance.

An offer will terminate after a reasonable lapse of time and what amounts to a
reasonable period depends on the circumstances. In the case of Ramsgate
Victoria Hotel v Montefoire125, the defendant offered to purchase shares in the

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131
claimant company at a certain price. Six months later the claimant accepted
this offer by which time the value of the shares had fallen. The defendant had
not withdrawn the offer but refused to go through with the sale. The claimant
brought an action for specific performance of the contract.

The court was of the position that the offer was no longer open as due to the
nature of the subject matter of the contract the offer lapsed after a reasonable
period of time. Therefore, there was no contract and the claimant's action for
specific performance was unsuccessful.

(iii) Counter Offer

A counter offer is where an offeree responds to an offer by making an offer on

different terms. This has the effect of destroying the original offer so that it is no
longer open for the offeree to accept.

Section 6 (c) of the Law of Contract Act 126 provides the circumstance which
can terminate the offer. It provides that proposal may be terminated by the
failure of the acceptor to fulfil a condition precedent to acceptance. This
means offer can be terminated when there is counter offer from the promisee or
acceptor of the offer.

In the case of Hyde v Wrench127, the defendant offered to sell a farm to the
claimant for £1,000. The claimant in reply offered £950 which the defendant
refused. The claimant then sought to accept the original offer of £1,000. The
defendant refused to sell to the claimant and the claimant brought an action
for specific performance. The court held that there was no contract. Where a

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127 (1840) 49 ER 132
132
counter offer is made this destroys the original offer so that it is no longer open to
the offeree to accept.

(iv) Death or Insanity of offeror or offeree

Death or Insanity takes away the offer made. When the person who made offer
dies or becomes insane, his or her offer also dies. When the person to whom the
offer was made dies or becomes insane, the offer dies in relation to that person.
This is because insane or dead person cannot carry out the offer.

Section 6 (d) of the Law of Contract Act 128 provides the circumstance when the
death or insanity may terminate the offer. It provides that proposal may be
terminated by the death or insanity of the proposer, if the fact of his death or
insanity comes to the knowledge of the acceptor before acceptance.
However, the condition under this provision is that fact of death or insanity
comes to the knowledge of the other party to the said offer.

Invitation to Treat

Invitation to treat is an invitation to another person to make an offer to contract.

It a mere declaration of willingness to enter into negotiations. It is not an offer,
and cannot be accepted so as to form a binding contract.

Invitations to treat are invitations to the general public to make an offer on a

particular item. But, even here, there have been exceptions. For example, in a
1856 case, an advertisement of train rates was held to be a valid offer. Much
depends on the wording of the invitation.

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An offer needs to be distinguished from an invitation to treat. Whereas an offer
will lead to a binding contract on acceptance, an invitation to treat cannot be
accepted it is merely an invitation for offers.

(i) Display of Goods

Goods on display in shops are generally not offers but an invitation to treat. The
customer makes an offer to purchase the goods. The trader will decide whether
to accept the offer:

In the case of Fisher v Bell129, the defendant had a flick knife displayed in his
shop window with a price tag on it. Statute made it a criminal offence to 'offer'
such flick knives for sale. His conviction was quashed as goods on display in
shops are not 'offers' in the technical sense but an invitation to treat. The court
applied the literal rule of statutory interpretation.

In addition, in the case of Pharmaceutical Society of Great Britain v Boots130,

Boots introduced the then new self-service system into their shops whereby
customers would pick up goods from the shelf put them in their basket and then
take them to the cash till to pay. The Pharmaceutical Society of Great Britain
brought an action to determine the legality of the system with regard to the sale
of pharmaceutical products which were required by law to be sold in the
presence of a pharmacist. The court thus needed to determine where the
contract came into existence.

The court observed that goods on the shelf constitute an invitation to treat not
an offer. A customer takes the goods to the till and makes an offer to purchase.

129 [1961] 1 QB 394

130 [1953] 1 QB 401
134
The shop assistant then chooses whether to accept the offer. The contract is
therefore concluded at the till in the presence of a pharmacist.

(ii) Advertisement

Advertisements are messages paid for by those who send them and are
intended to inform or influence people who receive them. These messages try to
persuade people to buy a product or service, or a piece of text that tells people
about a job etc. They are notices that tell people about certain product or
service.

Advertisements are also generally invitations to treat. In the case of Partridge v

Crittenden131, the defendant placed an advert in a classified section of a
magazine offering some bramble finches for sale. S.6 of the Protection of Birds
Act 1954 made it an offence to offer such birds for sale. He was charged and
convicted of the offence and appealed against his conviction. The court held
that the defendant's conviction was quashed. The advert was an invitation to
treat not an offer. The literal rule of statutory interpretation was applied.

On the other hand, there are some instances an advert can amount to an offer.
In the case of Carlill v Carbolic Smoke Ball Co132 Court of Appeal held that Mrs
Carlill was entitled to the reward as the advert constituted an offer of a
unilateral contract which she had accepted by performing the conditions
stated in the offer.

(iii) Tenders

131 (1968) 2 All ER 421

132 [1893] 1 QB 256
135
These are proposals to do or perform an act which the party proposing, is bound
to perform to the party to whom the proposal is made. These are unconditional
offers of a party to a contract to perform their part of the bargain.

The request for tenders represents an invitation to treat and each tender
submitted amounts to an offer unless the request specifies that it will accept the
lowest or highest tender or specifies any other condition. If the request contains
such a condition this will amount to an offer of a unilateral contract where
acceptance takes place on performance of the condition.

In the case of Spencer v Harding Law133, The defendants advertised a sale by

tender of the stock in trade belonging Eilbeck & co. The advertisement specified
where the goods could be viewed, the time of opening for tenders and that the
goods must be paid for in cash. No reserve was stated. The claimant submitted
the highest tender but the defendant refused to sell to him.

The court was of the view that unless the advertisement specifies that the
highest tender would be accepted there was no obligation to sell to the person
submitting the highest tender. The advert amounted to an invitation to treat, the
tender was an offer, the defendant could choose whether to accept the offer
or not.

In the case of GBL & Associates Ltd v Director of Wildlife Ministry of Lands, Natural
Resources and Tourism and Two Others134 the court ruled out that the
advertisement by the Secretary of the Central Tender Board calling for the
purchase of elephant ivory was not an offer but an invitation to treat. Each of
the tenderers offered to buy at his quoted price and it was upon the
government of the United Republic of Tanzania to accept an offer or reject it.

133 Rep. 5 C. P. 561

134 1989 TLR 195 (HC)
136
The tender by the plaintiff was the highest evaluated tender and that it was the
offer that the government had accepted. By the Director Wildlife's letter dated
19/5/88 to the plaintiffs’ principal in Hong Kong, the Director of Wildlife had
created a legally binding contract between the government of the United
Republic of Tanzania and the plaintiff's principal.

In the case of Baco and Ayub Trading Company Limited v Permanent Secretary,
Ministry of Defence and National Service135, High Court of Tanzania (Commercial
Division) at Dar es Salaam held that it is now well settled that a letter of intent or
award letter merely indicates a party’s intention to enter into a contract with the
other party in future. A letter of intent is not intended to bind either party
ultimately to enter into any contract. The letter of intent merely expresses an
intention to enter into a contract. There is no binding contract at this stage.
However, a letter of award may be construed as a letter of acceptance if such
intention is evident from its terms.

Moreover, High Court of Tanzania (Commercial Division) at Dar es Salaam went

on holding that where parties to a transaction exchanged letters of intent, the
terms of such letters may, of course, negative contractual intention; but, on the
other hand, where the language does not negative contractual intention, it is
open to the courts to hold that the parties are bound by the document; and the
courts will, in particular, be inclined to do so where the parties have acted on
the document for a long period of time or have expended considerable sums of
money in reliance on it. Be that as it may

(iv) Auctions

135 Commercial Case No 40 of 2015

137
Auction is a sale open to the general public and conducted by an auctioneer,
a person empowered to conduct such a sale, at which property is sold to the
highest bidder. A bid is an offer by a bidder, a prospective purchaser, to pay a
designated amount for the property on sale.

Where an auction takes place with reserve, each bid is an offer which is then
accepted by the auctioneer. Where the auction takes place without reserve,
the auctioneer makes a unilateral offer which is accepted by the placing of the
highest bid.

In the case of Heathcote Ball v Barry136, the claimant had submitted the highest
(and only) bids at an auction stated to be without reserve. The items were two
Alan Smart engine analysers which were worth £14,000. The claimant had
submitted bids of £200 each. The auctioneer refused to sell them at that price.
The claimant brought an action for breach of contract claiming damages of
£27,600.

The court held that the claimant was entitled to damages. Where an auction
takes place without reserve the auctioneer makes a unilateral offer which is
accepted by submitting the highest bid. There was thus a binding contract and
the claimant entitled to damages covering the loss of bargain.

(v) Machines

The machine represents the offer; the acceptance is inserting the money. In the
case of Thornton v Shoe Lane Parking137, the claimant was injured in a car park
partly due to the defendant's negligence. The claimant was given a ticket on
entering the car park after putting money into a machine. The ticket stated the

136 [2000] EWCA Civ 235

137 [1971] 2 WLR 585
138
contract of parking was subject to terms and conditions which were displayed
on the inside of the car park. One of the terms excluded liability for personal
injuries arising through negligence. The question for the court was whether the
term was incorporated into the contract i.e. had the defendant brought it to the
attention of the claimant before or at the time the contract was made. This
question depended upon where the offer and acceptance took place in
relation to the machine.

The court held that the machine itself constituted the offer. The acceptance
was by putting the money into the machine. The ticket was dispensed after the
acceptance took place and therefore the clause was not incorporated into the
contract.

Conclusion

Contractual agreement is made of offer and acceptance. One party, the

offeror, makes an offer which once accepted by another party, the offeree,
creates a binding contract. for there to be an offer in law it must inter alia be
unconditional, it must be communicated, and it must be made in such
circumstances as to leave no doubt that the party offering to perform is
presently able and willing to do so. An offer needs to be distinguished from an
invitation to treat. Whereas an offer will lead to a binding contract on
acceptance, an invitation to treat cannot be accepted it is merely an invitation
for offers.

Review Questions

1. There are many conditions which must be complied with in order to make
offer valid in the eyes of the law. In light of the statement and with aid of
relevant legal authorities, discuss the conditions for the offer to be valid.

139
2. James sent a whats app message to Fetty which stated: - "Will you sell us
Ball Pen? Telegraph lowest cash price-answer paid;" Fetty replied by
whats app message: - "Lowest price for Ball Pen £900." James then replied:
- "We agree to buy Ball Pen for the sum of nine hundred pounds asked by
you. Please send us your title deed in order that we may get early
possession." Discuss whether the contract was formed.
3. Aswile was given a ticket on entering the car park after putting money
into a machine. The ticket stated the contract of parking was subject to
terms and conditions which were displayed on the inside of the car park.
Did the machine constitute an offer? Support your answer with relevant
legal authorities.
4. Gerawala Estate Limited advertised a sale by tender of the stock in trade
belonging Kiwiko & Co. The advertisement specified where the goods
could be viewed, the time of opening for tenders and that the goods
must be paid for in cash. No reserve was stated. Argue with relevant
authorities whether the advertisement constituted an offer.
5. Arms and Co. Ltd had AK-47 gun displayed in shop window with a price
tag on it. Statute made it a criminal offence to 'offer' such AK-47 gun for
sale. Arms and Co. Ltd was brought for prosecution for committing the
criminal offence. As Judge how will you interpret the statute in the
particular circumstance?
6. Mtoto wa Town offered to sell a farm to Bush Mshamba for
1,000,000/=TShs. The Bush Mshamba in reply offered 800,000/=TShs which
Mtoto wa Town refused. Bush Mshamba then sought to accept the
original offer of 1,000,000/=TShs. Mtoto wa Town refused to sell to Bush
Mshamba and Bush Mshamba brought an action for specific
performance. Discuss with aid relevant legal authorities:-
a. Whether the contract was formed between them
b. Whether there was breach of contract

140
 c. Whether the specific performance can be awarded
7. Lowa offered to purchase shares in Hitel PLC at a certain price. Six months
later Hitel PLC accepted this offer by which time the value of the shares
had fallen. Lowa had not withdrawn the offer but refused to go through
with the sale. Hitel PLC brought an action for specific performance of the
contract. Argue whether the offer was still valid when Hitel PLC accepted.
8. Mwahuwi offered to sell his house to Maimuna and promised to keep the
offer open until Friday. On the Thursday Mwahuwi accepted an offer from
a third party to purchase the house. Mwahuwi then asked a friend to tell
Maimuna that the offer was withdrawn. On hearing the news, Maimuna
went round to Mwahuwi’s house first thing Friday morning purporting to
accept the offer. He then brought an action seeking specific
performance of the contract. Discuss validity of the revocation made by
Mwahuwi.
9. A father-in-law purchased a house for his son and daughter-in-law to live
in. The house was put in the father's name alone. He paid the deposit as a
wedding gift and promised the couple that if they paid the mortgage
instalments, the father would transfer the house to them. The father then
became ill and died. The mother inherited the house. After the father's
death the son went to live with his mother but the wife refused to live with
the mother and continued to pay the mortgage instalments. The mother
brought an action to remove the wife from the house. Can the mother
succeed in her action to remove the wife from the house? Support your
answer with aid of decided cases.
10. On behalf of the government of the United Republic of Tanzania the
Secretary of the Central Tender Board by advertisement in the Daily
Newspaper of 9/2/88, invited tenders for sale of elephant ivory of
approximately 13 tons. The tenderers were requested to quote prices per
kilogram in US$ or any convertible foreign currency, the quotations to be

141
firm and valid for acceptance for at least 60 days from closing date of the
tender. Further, successful tenderers were required to make full payment
and to collect the ivory within 30 days from the date of the award. GBL &
ASSOCIATES LTD, an agent of M/S TAT Hing Ivory Wares Factory, Hong
Kong, offered to buy the whole lot of ivory at US$ 80 per kilogram or at US$
l0% above highest bidder's offer should its offer be beaten. On 13/5/88 the
Director of Wildlife, Ministry of Lands, Natural Resources and Tourism
accepted GBL & ASSOCIATES LTD’s offer to buy the ivory at 10% above
the highest bid which was US$ 140 - that is to say, at US$ 154 per kilogram
subject to GBL & ASSOCIATES LTD confirmation within seven days of
receipt of the letter of acceptance of the sale and at the price per
kilogram. On the same day, i.e. 13/5/88 GBL & ASSOCIATES LTD
communicated its confirmation to the Director of Wildlife. On 19/5/88 the
Director of Wildlife wrote to GBL & ASSOCIATES LTD principal in Hong Kong
stating that the GBL & ASSOCIATES LTD were the winners of the
government tender for the sale of nearly 16.5 tons of mixed ivory. The
letter of the Director of Wildlife which was copied to GBL & ASSOCIATES
LTD was silent as to the time for payment of the sale price. On 28/5/88 the
Acting Director of Wildlife wrote to GBL & ASSOCIATES LTD confirming that
the tender had been awarded to it and requiring the plaintiff company to
pay the sale price within the period of one week from the date of the
letter. GBL & ASSOCIATES LTD objected, maintaining that the tender
regulations under which they had been operating had provided for a
thirty day, and not seven day, period of payment of the sale price. On
22/6/88 the Director of Wildlife cancelled the award of the tender to the
GBL & ASSOCIATES LTD. Answer the following with relevant legal
authorities : -
a. Did the advertisement constitute an offer?

142
 b. Was the Central Tender Board obliged to accept the highest bid or
any of the tenders for that matter?
c. By the Director Wildlife’s letter dated 19/5/88, was there a legally
binding contract?
d. Was the unilateral cancellation of the award of the tender by the
Director of Wildlife vide his letter of 22/6/88 legal?

References

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brown, G. W., et al, Understanding Business and Personal Law, 9 th Edition,

McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

143
 LECTURE NINE

ACCEPTANCE

Introduction

Offer alone without acceptance cannot make agreement. There must be an

agreement. Both offer and acceptance cannot be made by the same party.
There must be person who makes the offer and person who accepts the said
offer. The person who makes an offer is called offeror, promisor or proposer. The
person who accepts an offer is called offeree, promisee or acceptor.

Binding agreement consists of the valid offer and valid acceptance. Once a
valid acceptance takes place, a binding contract is formed. Acceptance
becomes valid when it meets certain legal rules and conditions. It is therefore
important to know what constitutes a valid acceptance in order to establish if
the parties are bound by the agreement.

Moreover, acceptance must be judged objectively, but can either be expressly

stated or implied by the offeree's conduct. To form a binding contract,
acceptance should be relayed in a manner authorized, requested, or at least
reasonably expected by the offeror. This necessitates its understanding

Henceforth, it is the purpose of this lecture to impart conceptual understanding

of the concept of acceptance and the basic principles which determines the
validity of the acceptance so as to create the binding agreement. It is
important lecture because it shades light on how binding agreement comes
into existence through valid acceptance when the valid offer exists as per the
requirements of the law. Let us have learning adventure in this lecture as far as
the acceptance in contract law is concerned.

Acceptance

144
An acceptance of an offer is an indication, express or implied, by the offeree
made whilst the offer remains open, and in the manner requested in that offer of
the offeree's willingness to be bound unconditionally to a contract with the
offeror on the terms stated in the offer. This means acceptance is the final and
unequivocal expression of assent to another's offer to contract.

Section 2 (1) (b) of the Law of Contract Act 138 explains when the acceptance
takes places. It illuminates inter alia that when the person to whom the proposal
is made signifies his assent thereto, the proposal is said to be accepted. It means
acceptance is signification of assent to the offer made.

Therefore, acceptance means the signification by the offeree of his willingness

to enter into a contract with the offeror on the terms offered to him by the latter.
Without an acceptance there can be no contract.

Conditions of Acceptance

(i) Absolute

Acceptance must be absolute. This implies that the acceptance should not
limited. It has to match completely with the terms of the offer. The acceptance
should not introduce conditions outside the offer terms. It should be within the
scope of the terms of the offer. Outside the ambit of the offer, acceptance
becomes invalid.

Section 7 (a) of the Law of Contract Act139 articulates the requirement of

absoluteness of the acceptance to become binding in the eyes of the law. It
provides that in order to convert a proposal into a promise, the acceptance

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must be absolute. This means if the acceptance is not absolute then proposal
cannot be promise which means cannot be binding agreement.

If the terms differ this will amount to a counter offer and no contract will exist. In
the case of Hyde v Wrench140, the defendant offered to sell a farm to the
claimant for £1,000. The claimant in reply offered £950 which the defendant
refused. The claimant then sought to accept the original offer of £1,000. The
defendant refused to sell to the claimant and the claimant brought an action
for specific performance. The court held that there was no contract. Where a
counter offer is made this destroys the original offer so that it is no longer open to
the offeree to accept.

(ii) Unqualified

Acceptance must be unqualified. It implies that there should not be any

modification on the terms of the offer. There should not be any amendment or
repeal of the offer specifications in the acceptance. The logic is that
acceptance must match with the specification of the offer stipulated.

Section 7 (a) of the Law of Contract Act 141 articulates the requirement of
absoluteness of the acceptance to become binding in the eyes of the law. It
provides that in order to convert a proposal into a promise, the acceptance
must be unqualified. This means if the acceptance is qualified then proposal
cannot be promise which means cannot be binding agreement.

(iii) Communication

140 (1840) 49 ER 132

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For a proposal to become a contract, the acceptance of such a proposal must
be communicated to the promisor. The communication must occur in the
prescribed form, or any such form in the normal course of business if no specific
form has been prescribed. Further, when the offeree accepts the proposal, he
must have known that an offer was made. He cannot communicate
acceptance without knowledge of the offer.

Section 7 (b) of the Law of Contract Act 142 requires the communication of the
acceptance. It provides that acceptance must be expressed in some usual and
reasonable manner, unless the proposal prescribes the manner in which it is to
be accepted.

If the offer prescribes a manner in which it is to be accepted, and the

acceptance is not made in such manner, the proposer may, within a
reasonable time after the acceptance is communicated to him, insist that his
proposal shall be accepted in the prescribed manner, and not otherwise, but if
he fails to do so he accepts the acceptance.

Acceptance can be through conduct. In the case of Brogden v Metropolitan

Railway143, the claimants were the suppliers of coal to the defendant railway
company. They had been dealing for some years on an informal basis with no
written contract. The parties agreed that it would be wise to have a formal
contract written. The defendant drew up a draft contract and sent it to the
claimant. The claimant made some minor amendments and filled in some
blanks and sent it back to the defendant. The defendant then simply filed the
document and never communicated their acceptance to the contract.
Throughout this period the claimants continued to supply the coal. Subsequently

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143 (1877) 2 App. Cas. 666
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a dispute arose and it was questioned whether in fact the written agreement
was valid.

The court held that the written contract was valid despite no communication of
the acceptance. The acceptance took place by performing the contract
without any objection as to the terms.

In Tanzania, communication of acceptance becomes complete when it is in

course of transmission and out of power of the sender as well as it has come to
the knowledge of the proposer. Section 4 (2) of the Law of Contract Act 144
provides that the communication of an acceptance is complete as against the
proposer, when it is put in a course of transmission to him, so as to be out of the
power of the acceptor and as against the acceptor, when it comes to the
knowledge of the proposer.

In common law, there is postal rule of communication of acceptance. Where it

is agreed that the parties will use the post as a means of communication the
postal rule will apply. The postal rule states that where a letter is properly
addressed and stamped the acceptance takes place when the letter is placed
in the post box.

In the case of Adams v Lindsell145, the defendant wrote to the claimant offering
to sell them some wool and asking for a reply 'in the course of post'. The letter
was delayed in the post. On receiving the letter, the claimant posted a letter of
acceptance the same day. However, due to the delay the defendants had
assumed the claimant was not interested in the wool and sold it on to a third
party. The claimant sued for breach of contract.

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145 (1818) 106 ER 250
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The court observed that there was a valid contract which came in to existence
the moment the letter of acceptance was placed in the post box. This case
established the postal rule. This applies where post is the agreed form of
communication between the parties and the letter of acceptance is correctly
addressed and carries the right postage stamp. The acceptance then becomes
effective when the letter is posted.

However, under common law, it is relatively easy for the parties to exclude the
application of the postal rule. In the case of Holwell Securities v Hughes146, Dr
Hughes granted Holwell Securities an option to purchase his house for £45,000.
The option was to be exercisable 'by notice in writing' within 6 months. Five days
before the expiry, Holwell posted a letter exercising the option. This letter was
never received by Hughes. Holwell sought to enforce the option relying on the
postal rule stating the acceptance took place before the expiry of the option.
The court observed that by requiring 'notice in writing', Dr Hughes had specified
that he had to actually receive the communication and had therefore
excluded the postal rule

(iv) Silence is not acceptance

Silence does not generally amount to acceptance. In the case of Felthouse v

Bindley147 A nephew discussed buying a horse from his uncle. He offered to
purchase the horse and said if I don't hear from you by the weekend I will
consider him mine. The horse was then sold by mistake at auction. The
auctioneer had been asked not to sell the horse but had forgotten. The uncle
commenced proceedings against the auctioneer for conversion. The action
depended upon whether a valid contract existed between the nephew and

146 [1974] 1 WLR 155

147 [1862] EWHC CP J35
149
the uncle. The court held that there was no contract. You cannot have silence
as acceptance.

Revocation of Acceptance

Revocation of acceptance is the act of recall or annulment of acceptance so

that it cannot no longer be binding. Revoked acceptance makes no binding
agreement. However, revocation of the acceptance is the legal process which
means it has to be made according to the requirements of the law.

Section 5 (2) of the Law of Contract Act enshrines the revocation of the
acceptance and when has to be made to become effective in the eyes of the
law. It provides that an acceptance may be revoked at any time before the
communication of the acceptance is complete as against the acceptor.

This means when the communication of acceptance is complete then, there

can be no revocation. The communication of an acceptance is complete as
against the proposer, when it is put in a course of transmission to him, so as to be
out of the power of the acceptor and as against the acceptor, when it comes
to the knowledge of the proposer.148

Conclusion

A contract is a legally binding agreement between two or more parties which

starts with an offer from one person but which does not become a contract until
the other party signifies an unequivocal willingness to accept the terms of that
offer. The moment of acceptance is the moment from which a contract is said
to exist, and not before. There is a manifestation of willingness to be bound by

148 The Law of Contract Act, s 4 (2)

150
one party followed by a manifestation of an assent by the other by words or
conduct, generally and usefully called offer and acceptance.

Review Questions

1. Julius offered to sell Samsung Galaxy A10 to Beatha for 760,000/- TShs.
Beatha in reply offered 700,000/- TShs. which Julius refused. Beatha then
sought to accept the original offer of 760,000TShs. Was there valid
acceptance? Argue authoritatively.
2. A nephew discussed buying a horse from his uncle. He offered to
purchase the horse and said if I don't hear from you by the weekend I will
consider him mine. The horse was then sold by mistake at auction. The
auctioneer had been asked not to sell the horse but had forgotten. The
uncle commenced proceedings against the auctioneer for conversion.
Discuss with authorities whether uncle’s silence amounts to acceptance.
3. Dr Mwakani granted Kyte Securities Co. an option to purchase his house
for 45,000,000/= TShs. The option was to be exercisable 'by notice in
writing' within 6 months. Five days before the expiry, Kyte Securities Co.
posted a letter exercising the option. This letter was never received by Dr,
Mwakani. Kyte Securities Co. sought to enforce the option relying on the
postal rule stating the acceptance took place before the expiry of the
option. Can the postal rule apply in such circumstance? Give reasons and
authorities for your answer.
4. Pambakali ltd wrote to James offering to sell them some wool and asking
for a reply 'in the course of post'. The letter was delayed in the post. On
receiving the letter, James posted a letter of acceptance the same day.
However, due to the delay Pambakali ltd had assumed James was not
interested in the wool and sold it on to a third party. Was there valid
contract between them despite the delay?

151
 5. Ruvuma Coal Supply Ltd were the suppliers of coal to Tanzania Railway
Corporation. They had been dealing for some years on an informal basis
with no written contract. The parties agreed that it would be wise to have
a formal contract written. Tanzania Railway Corporation drew up a draft
contract and sent it to the claimant. Ruvuma Coal Supply Ltd made some
minor amendments and filled in some blanks and sent it back to Tanzania
Railway Corporation. Tanzania Railway Corporation then simply filed the
document and never communicated their acceptance to the contract.
Throughout this period Ruvuma Coal Supply Ltd continued to supply the
coal. Was there valid acceptance? Argue legalistically.
6. Acceptance becomes valid when it meets certain legal rules and
conditions. Discuss the conditions that acceptance must meet to become
valid as per the contract law.
7. What do you understand by the term revocation of acceptance? Can the
acceptance be revoked? Give reasons and authorities for your answer.

References

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brown, G. W., et al, Understanding Business and Personal Law, 9 th Edition,

McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

152
Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

153
 LECTURE TEN

FREE CONSENT

Introduction

There is no agreement which is valid in the eyes of the law when the parties to
such agreement did assent the said agreement with freedom and choice.
Hence, binding agreement stems on the shoulders of the free consent. The
essence of free choice and voluntariness is so crucial in the determination of the
validity of the contract. When parties lack free choice or are involuntary to enter
the agreement, the agreement cannot be said to have the binding-ness upon
them.

Freedom is inherent to human beings. Human beings are born free and equal.
Hence, undertaking the transactions which have legal consequences to the
parties must take effective consideration of the willingness of the parties to the
transactions. Voluntariness, willingness and free will are important inherent
natural attributes of humanity. Contractual transactions are not exceptions to
the freedom and choice of the parties. The consent of the contracting parties
must be free. If the consent is not free, the contract shall be treated as void or
voidable depending upon the factor which affected the consent.

Therefore, every party to a contract is required to conclude a contract out of his

own free will or volition. This is what is meant by the concept of free consent. The
concept of free consent reflects the underlying assumptions of a contract
namely the freedom of contract and sanctity of contract. This lecture provides
understanding of the concept of free consent, its vitality in the contract and
factors which may vitiate the free consent in the contract as well as the
consequences when the agreement lacks the free consent.

Consent

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Consent is a term of common speech, but may have more specific definitions in
such fields as the law, medicine, research, and sexual relationships. It has
different connotation in different circumstances and context. Hence its
understanding in specific contexts may differ from its everyday meaning.

Consent is the voluntary acquiescence to the proposal of another. It is the act or

result of reaching an accord. It denotes a concurrence of minds. It involves
actual willingness that an act or an infringement of an interest shall occur. It
involves an understanding between two or more parties about a particular issue,
covering their obligations, duties and rights related to their contractual relations.
It occurs when one person voluntarily agrees to the proposal or desires of
another.

Consent can be either express or implied. It is express when the parties to the
contract state specifically that they entering the contract with their free will. It is
implied when the parties engage in the contractual transactions which has
indication being party to the said contract. This is done through conduct of the
parties to the contract. It is informed consent when there is the assent of the
parties to the contract whereby the party agrees to commit an act or to allow
something to happen, made on the basis of knowledge of all the relevant facts,
including the risks involved and any alternatives available. It involves full
disclosure by both parties about their agreement.

Consent is an act of reason and deliberation. A person who possesses and

exercises sufficient mental capacity to make an intelligent decision
demonstrates consent by performing an act recommended by another.
Consent assumes a physical power to act and a reflective, determined, and
unencumbered exertion of these power.

155
Section 13 of the Law of Contract Act 149 defines the term consent. It provides
that consent is two or more persons are said to consent when they agree upon
the same thing in the same sense. This means that consent is the agreement of
the parties about something in their contractual arrangements. This agreement
must be in the same sense by both parties to the said agreement. It is in short
meeting of the minds of the parties to the contract about their agreement.

Free Consent

Free consent means consent with the absence of any kind of coercion, undue
influence, fraud, misrepresentation or mistake. When the consent which is given
is affected by these elements it calls into question whether the consent given
was free and voluntary. The objective of this principle is to ensure that judgment
of the parties while entering into the contract wasn’t clouded. Therefore,
consent given under coercion, undue influence, fraud, misrepresentation or
mistake has the potential to invalidate the contract.

For a contract to be valid, the consent of the parties must be genuine. The
principle of consensus-ad-idem is followed which means that the parties
entering into the contract must mean the same thing in the same sense. The
parties to the contract must have the same understanding in regards to the
subject matter of the contract.

Section 10 of the Law of Contract Act 150 provides what makes agreement
contract. It articulates the essentials for valid contract. It provides that all
agreements are contracts if they are made by the free consent of parties
competent to contract, for a lawful consideration and with a lawful object, and
are not hereby expressly declared to be void.

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This statutory provision declared that free consent of the parties is very important
to make agreement enforceable in the court of law. It indicates that
enforceability of the contracts relies inter alia when the parties to contract
expressed their free consent at the time of making such agreements.

Factors that Vitiate the Free Consent

Mere consent is not enough for a contract to be enforceable the consent given
must be free and voluntary. Section 14 (1) of the Law of Contract Act 151
provides the circumstances which defines the free consent. It indicates when
does the consent becomes free. It provides that consent free when it is not
caused by coercion, undue influence, fraud, misrepresentation or mistake.

Therefore, section 14 (2) of the Law of Contract Act 152 clarifies further that
consent is said to be not free when it would not have been given but for the
existence of such coercion, undue influence, fraud, misrepresentation or
mistake.

(i) Coercion or Duress

Coercion means forcing a person to do something that they would not normally
do by making threats against their safety or well-being, or that of their relatives
or property. The person making the threats is attempting to gain compliance
from a victim through intimidation. The threats can be physical in nature,
meaning that pain or injury has been implied or has actually taken place.

The threats can also be psychological in nature, meaning that they intend to
cause emotional distress. Creating feelings of obligation, rejecting someone

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from a group, or threatening to disclose a secret are all forms of psychological
intimidation. For example, telling a person that intimate private photos of them
will be emailed to their company unless they agree to sign a contract would be
a form of coercion.

Section 15 (1) of the Law of Contract Act defines coercion. It explains that
coercion is the committing, or threatening to commit, any act forbidden by the
law, or the unlawful detaining, or threatening to detain, any property, to the
prejudice of any person whatever, with the intention of causing any person to
enter into an agreement.

This statutory definition means coercion is either application of force or threats to

use force. It also signifies that use of force or threats to use force can be
directed to the person or property of the person. In addition, it articulates that
the purpose of using the said force or threats to use force is causing any person
to enter agreement.

Section 19 (1) of the Law of Contract Act 153 provides the effect of the coercion
into the agreement. It provides inter alia that where consent to an agreement is
caused by coercion, the agreement is a contract voidable at the option of the
party whose consent was so caused. This means coercion makes the contract
voidable.

What being voidable means? Section 2 (1) (i) of the Law of Contract Act 154
explains what does it mean when the agreement is voidable. It provides that
voidable agreement is an agreement which is enforceable by law at the option
of one or more of the parties thereto, but not at the option of the other or
others.

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This means that voidable agreement can be enforced under the condition of
the approval of the party who has been induced to enter the said agreement. It
is the agreement which is not at the option of the party who caused such
inducement including coercion to make someone enter the agreement.

It also implies that where a person enters a contract as a result of threats of

physical violence, the contract may be set aside providing the threat was a
cause of entering the contract. There is no need to establish that they would not
have entered the contract but for the threat.

In the case of Barton v Armstrong155, Armstrong was the chairman and held the
largest sharing holding in Landmark Corporation Ltd a public company. Barton
was the managing director and also had a substantial shareholding in. There
were two other directors Bovil and Cottrel. There had been a long history of ill will
between the parties and a struggle over who should have controlling power
with Armstrong being the most aggressive. The other directors in the company
were also unhappy with Armstrong and wanted him to be removed for abusing
certain privileges and they disagreed with the way he ran the company
believing him to be putting the company at risk of insolvency. However,
Armstrong refused to resign. The three managed to take control of subsidiary
companies and removed all credit facilities from Landmark Corp. When
Armstrong discovered the credit had been removed he made a number of
death threats to Barton to pressure him into signing an agreement which
contained various elements including the purchase by Barton of Armstrong's
shares in the company at a substantial over value. Barton agreed to this partly
due to the threats but also due to the fact that it would mean that Armstrong
would no longer have controlling interest and he believed he would be able to
turn the company around without Armstrong's dealings. However, the company

155 [1976] AC 104

159
became insolvent shortly after and Barton sought to have the contract set
aside.

Privy Council held that the contract could be set aside. Where there is duress to
the person there was no obligation to show that he would not have entered the
agreement but for the threat, it simply being sufficient that the death threats
were a cause.

Also, in the case of IFR ltd v Federal Trade Spa156, in 1998 an agreement was
entered in to between IFR (English company) and Federal (Italian company)
whereby IFR were to distribute and give sole right of resale of certain specified
items including radio, electronic and telecommunication equipment. The
agreement was to last for 2 years. This succeeded an earlier agreement and
contained a jurisdiction clause (stating the agreement would be governed by
English law) and an arbitration clause which were not in the earlier agreement.
Three months before the contract was due to expire IFR gave notice in writing
that they would not be renewing the contract when it expired. Under Italian law
this termination would give rise to compensation. However, no such
compensation was payable under English law. Federal sought to raise duress to
render the 1998 agreement void so as to take advantage of the Italian right to
compensation.

The effect of a finding of duress has always been to render a contract voidable
as oppose to void, however, a voidable contract would not have aided Federal
as they had acted on the contract without protest for nearly 2 years so would
most certainly have lost their right to rescind. In their argument they raised the
earlier case law relating to vitiating consent (The Sibeon & Sibotre, The Atlantic

156 [2001] EWHC 519

160
Baron and Pao On) and stated that where there is no consent the contract must
be void ab initio as oppose to voidable.

Queen’s Bench Division held that following later case law (Universe Sentinel etc)
the basis of duress is not the absence of consent; when acting under duress the
actor will give consent for the contract. The contract is therefore initially valid. It
is the absence of choice that renders the contract voidable.

(ii) Undue Influence

Undue influence is the influence that prevents someone from exercising an

independent judgment with respect to any transaction. A contract or gift
procured by the exercise of undue influence is liable to be set aside by the
courts. The exercise of undue influence must normally be proved affirmatively it
must be shown that there is a dealing or transaction in which an unfair
advantage has been taken of another person.

In the case of certain relationships for example, between parent and child,
husband and wife, doctor and patient, solicitor and client, undue influence is
presumed to be exercised in the absence of evidence to the contrary, and
banks should advise spouses to seek independent legal advice before
mortgaging the family home at the behest of the other spouse for business
loans.

Undue influence exists where a contract has been entered as a result of

pressure which falls short of amounting to duress, the party subject to the
pressure may have a cause of action in equity to have the contract set aside on
the grounds of undue influence. Undue influence operates where there exists a
relationship between the parties which has been exploited by one party to gain
an unfair advantage.

161
Section 16 (1) of the Law of Contract Act 157 describes when the undue influence
can be said to exist. It provides that a contract is said to be induced by undue
influence where the relationship subsisting between the parties are such that
one of the parties is in a position to dominate the will of the other and uses that
position to obtain an unfair advantage over the other.

This provision articulates that undue influence occurs in relation where one party
dominates the other. This dominance influences the will of another party in the
contract. The other party uses the position of dominance of will against the
other so that he or she can obtain unfair advantage over the other.

Section 16 (2) of the Law of Contract Act 158 deduces the circumstances of the
dominance of will over the other. The circumstance of dominance occurs when
there real, apparent authority or fiduciary relationship between the parties or
one party is affected mentally.

This section provides that a person is deemed to be in a position to dominate

the will of another where he holds a real or apparent authority over the other, or
where he stands in a fiduciary relation to the other. Also, it explains that a person
is deemed to be in a position to dominate the will of another where he makes a
contract with a person whose mental capacity is temporarily or permanently
affected by reason of age, illness, or mental or bodily distress.

Who has the obligation to prove that there was no undue influence in the
contract? Section 16 (3) of the Law of Contract Act provides the burden of
proof of absence of undue influence in the contract. It provides that the
burden of proving that such contract was not induced by undue influence shall
lie upon the person in a position to dominate the will of the other.

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This occurs where a person who is in a position to dominate the will of another,
enters into a contract with him, and the transaction appears, on the face of it or
on the evidence adduced, to be unconscionable.

Section 19 (1) of the Law of Contract Act 159 provides the effect of the undue
influence into the agreement. It provides inter alia that where consent to an
agreement is caused by undue influence, the agreement is a contract voidable
at the option of the party whose consent was so caused. This means undue
influence makes the contract voidable.

This means that a contract may be set aside either absolutely or, if the party
who was entitled to avoid it has received any benefit thereunder, upon such
terms and conditions as to the court may seem just. This is possible when the
contract is voidable on the ground that the consent of a party thereto was
caused by undue influence.

Distinction between Coercion and Undue Influence

In case of both coercion and undue influence the consent is not free and the
contract is voidable at the option of the aggrieved party. But there are some
basic points of difference between the two. These are: -

Relationship between the parties is not necessary to establish coercion or duress

where as some sort of relationship must exist between parties to prove and
establish the undue influence at the time of making agreements.

When coercion exist, consent is given under the threat of act, omission or
attempt forbidden by the law but in undue influence, Consent is obtained by

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dominating the will, no offence is committed. Hence no offence is involved to
obtain consent in undue influence.

Coercion involves use or application of the physical force or threats to use or

apply the force whereas the undue influence deals with the moral pressure to
dominate the will of others to obtain unfair advantage.

When the contract induced by the coercion is avoided, any benefit received
has to be restored or refunded whilst when the contract induced by undue
influence is avoided, it is at the discretion of the court to direct the aggrieved
party to restore or refund the. Benefit received.

(iii) Fraud

Fraud is the intentional deception to obtain unfair advantage. It is intentional

false representation of facts to induce the other entering the contract so that
the inducing party can obtain unfair benefits from the induced party through
the contract entered between the inducing and induced parties.

Fraud can be defined also to mean intentional misrepresentation of material

existing fact made by one person to another with knowledge of its falsity and for
the purpose of inducing the other person to act, and upon which the other
person relies with resulting injury or damage. It may be made by an omission or
purposeful failure to state material facts, which nondisclosure makes other
statements misleading.

Hence, fraud is a false representation of a matter of fact, whether by words or

by conduct, by false or misleading allegations, or by concealment of what
should have been disclosed, that deceives and is intended to deceive another
so that the individual will act upon it to her or his legal injury.

164
Fraud is proved by showing that the defendant's actions involved five separate
elements a false statement of a material fact, knowledge on the part of the
defendant that the statement is untrue, intent on the part of the defendant to
deceive the alleged victim, justifiable reliance by the alleged victim on the
statement, and injury to the alleged victim as a result.

Section 17 (1) of the Law of Contract Act 160 defines the circumstances which
when committed during making of contract can amount to fraud. It defines
fraud in terms of the circumstantial arrangements of the parties to the said
contract. They are the circumstances which constitute fraud. These are: -

First, the suggestion, as to a fact, is committed by a party to a contract, or with

his connivance, or by his agent, with intent to deceive another party thereto or
his agent, or to induce him to enter into the contract, of that which is not true by
one who does not believe it to be true.

Second, the active concealment of a fact by one having knowledge or belief

of the fact is committed with intent to deceive another party thereto or his
agent, or to induce him to enter into the contract.

Third, a promise made without any intention of performing it made by a party to

a contract, or with his connivance, or by his agent, with intent to deceive
another party thereto or his agent, or to induce him to enter into the contract.

Fourth, any other act fitted to deceive committed by a party to a contract, or

with his connivance, or by his agent, with intent to deceive another party
thereto or his agent, or to induce him to enter into the contract; and

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Fifth, any such act or omission as the law specially declares to be fraudulent
committed by a party to a contract, or with his connivance, or by his agent,
with intent to deceive another party thereto or his agent, or to induce him to
enter into the contract.

Section 17 (2) of the Law of Contract Act 161 caters for when the silence amounts
to fraud in relation to formation of contract. It provides that as general rule that
mere silence as to facts likely to affect the willingness of a person to enter into a
contract is not fraud. However, under the exceptional circumstance of the case
are such that regard being had to them, it is the duty of the person keeping
silence to speak, or unless his silence is, in itself, equivalent to speech, then
silence amounts to fraud.

As general rule, the fraud makes the contract voidable at the option of the
party to the contract who has been induced with fraud to enter the said
contract.162 However, a fraud which did not cause the consent to a contract of
the party on whom such fraud was practised, does not render a contract
voidable.163

(iv) Misrepresentation

Misrepresentation is an untrue statement of fact, made by one party to the

other in the course of negotiating a contract that induces the other party to
enter into the contract. The person making the misrepresentation is called the
representor, and the person to whom it is made is the representee.

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162 The Law of Contract Act, s 19(1)
163 The Law of Contract Act, s 19(2)

166
A false statement of law, opinion, or intention does not constitute a
misrepresentation nor does a statement of fact known by the representee to be
untrue. Moreover, unless the representee relies on the statement so that it
becomes an inducement though not necessarily the only inducement to enter
into the contract, it is not a misrepresentation.

There are three types of misrepresentation innocent misrepresentation, negligent

misrepresentation and fraudulent misrepresentation. Fraudulent
misrepresentation is a statement which is made either knowing it to be false,
without belief in its truth, or recklessly, careless as to whether it be true or false. 164
A negligent misrepresentation is a statement made without reasonable grounds
for belief in its truth. The burden of proof being on the representor to
demonstrate they had reasonable grounds for believing the statement to be
true.165 An innocent Misrepresentation exists where the representor can
demonstrate reasonable grounds for belief in the truth of the statement.

Section 18 of the Law of Contract Act 166 defines the term misrepresentation to
denote three important aspects. First, misrepresentation is the positive assertion,
in a manner not warranted by the information of the person making it, of that
which is not true, though he believed it to be true. Second, misrepresentation is
any breach of duty which, without an intent to deceive, gains an advantage to
the person committing it, or anyone claiming under him, by misleading another
to his prejudice, or to the prejudice of anyone claiming under him. Third,
misrepresentation is causing, however innocently, a party to an agreement to
make a mistake as to the substance of the thing which is the subject of the
agreement.

164 Derry v Peek (1889) 5 T.L.R. 625

165 Howard Marine v Ogden [1978] QB 574
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As general rule, misrepresentation causes the contract to be voidable at the
option of the party who was misrepresented during making contract. 167
Exceptionally, if the party whose consent was so caused by misrepresentation
had the means of discovering the truth with ordinary diligence, it cannot be
voidable.168 In addition, a misrepresentation which did not cause the consent to
a contract of the party to whom such misrepresentation was made, does not
render a contract voidable.169 Moreover, if the party to a contract, whose
consent was caused by misrepresentation thinks fit, insist that the contract shall
be performed, and that he shall be put in the position in which he would have
been if the representations made had been true.170

Where there has been a fraudulent misrepresentation, the innocent party is

entitled to rescind the contract and claim damages. The damages that are
awarded are not based on contractual principles but the damages available in
the tort of deceit. There is thus no requirement that the damages are
foreseeable.

In the case of Doyle v Olby171, the claimant, Doyle, purchased a business from
the defendant, Olby, as a result of a several fraudulent misrepresentations
relating to the profitability and operations of the business. The trial judge
assessed damages on contractual principles as to what position the claimant
would have been in had the statements been true and awarded a sum of
£1,500. However, the claimant had suffered loss to the extent of £5,500 as a
result of entering the contract. The claimant appealed on the assessment of
damages.

167 The Law of Contract Act, s 19(1)

168 The Law of Contract Act, proviso to s 19(1)
169 The Law of Contract Act, s 19(2)
170 The Law of Contract Act, s 19(3)
171 [1969] 2 QB 158

168
The court held that contractual damages are not applicable to
misrepresentation since a representation is not a term of a contract. Where
there has been a fraudulent misrepresentation damages should be assessed in
the tort of deceit.

Distinction between Fraud and Misrepresentation

Fraud and misrepresentation have many points in common. For example, in

both cases a false representation is made by a party. Similarly, in both cases the
contract is voidable. But there are many points of difference. These are: -

In fraud, false statements of facts are made intentionally while in

misrepresentation, false statements of facts are made without intention. This
difference lies in the intention to give false representation of the facts.

The person making the untrue statement of facts does not believe it to be true in
misrepresentation but the person making the untrue statement of facts believes
it to be true in fraud.

The aggrieved party can rescind the contract but cannot claim damages when
the contract has been induced by the misrepresentation but aggrieved party
besides rescinding the contract can also claim damages when the contract has
been induced with fraud.

(v) Mistake

Mistake is a misunderstanding or erroneous belief about a matter of fact or a

matter of law. It is the erroneous belief concerning something. Whenever an
agreement is made under a mistake, there is no consent, and the agreement is
not valid.

169
There are some mistakes which do not amount to mistake in the law. For
instance, section 20 (2) of the Law of Contract Act 172 provides that an erroneous
opinion as to the value of the thing which forms the subject matter of the
agreement is not to be deemed a mistake as to a matter of fact.

Section 20 (1) of the Law of Contract Act173 provides for the effect of bilateral
mistakes which means when both parties are at mistakes as far their contract is
concerned. It provides that 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.

Section 22 of the Law of Contract Act 174 provides for effect of unilateral mistake
in the contract. It declares that unilateral mistake of the party to the contract
does not render the contract voidable. It provides that a contract is not
voidable merely because it was caused by one of the parties to it being under a
mistake as to a matter of fact.

Section 21 of the Law of Contract Act 175 provides for the effect of the mistakes
of law. It provides that a contract is not voidable because it was caused by a
mistake as to any law in force in Tanzania but a mistake as to a law not in force
in Tanzania has the same effect as a mistake of fact

Common mistakes exist where both parties to the contract make the same
mistake. Three categories have emerged as giving rise to a cause of action are
the subject matter of the contract no longer exists, where the goods already
belong to the purchaser, mistake as to quality.

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Res extincta is mistake which occurs when the subject matter of the contract no
longer exists. This apply where both parties enter a contract with the belief that
the subject matter exists when in fact it does not exist. The contract will be held
to be void for mistake.

In the case of Scott v Coulson176, at the time of entering a contract for life
insurance both parties believed the person whose life was to be insured was
living. When in fact he was dead. The contract was void for mistake as it was a
common mistake as to the existence of the subject matter.

Res sua is the common mistake which occurs where the goods already belong
to the purchaser. This applies where a party contracts to buy something which in
fact belongs to him. This will generally render the contract void. Although if the
action is based in equity this will render the contract voidable.

In the case of Cooper v Phibbs177, a nephew leased a fishery from his uncle. His
uncle died. When the lease came up for renewal the nephew renewed the
lease from his aunt. It later transpired that the uncle had given the nephew a life
tenancy in his will. The lease was held to be voidable for mistake as the nephew
was already had a beneficial ownership right in the fishery. This is an instance of
res sua. Normally where a contract is found to have been entered under a
common mistake the contract will be rendered void as oppose to voidable. The
lease was held to be voidable rather than void as the claim was based in equity
as it related to beneficial ownership as oppose to legal ownership. This caused
some uncertainty as to whether there was equitable relief for mistake which was
wider than that which existed at common law. In particular Lord Denning
argued that such a position of the law existed in Solle v Butcher.

176 [1903] 2 Ch 439

177 (1867) LR 2 HL 149
171
Mistake as to quality is the common mistake as to quality is only capable of
rendering a contract void where the mistake is as to the existence of some
quality which renders the subject matter of the contract essentially different to
that what it was believed to be.

In the case of Bell v Lever bros178, Lever bros appointed Mr Bell and Mr Snelling
(the two defendants) as Chairman and Vice Chairman to run a subsidiary
company called Niger. Under the contract of employment, the appointments
were to run 5 years. However, due to poor performance of the Niger Company,
Lever bros decided to merge Niger with another subsidiary and make the
defendants redundant. Lever bros drew up a contract providing for substantial
payments to each if they agreed to terminate their employment. The
defendants accepted the offer and received the payments. However, it later
transpired that the two defendants had committed serious breaches of duty
which would have entitled Lever bros to end their employment without notice
and without compensation. Lever bros brought an action based on mistake in
that they entered the agreement thinking they were under a legal obligation to
pay compensation. The House of Lords held that this was only a mistake as to
quality and did not render the contract essentially different from that which it
was believed to be. The action therefore failed.

Conclusion

Contractual transactions are not exceptions to the freedom and choice of the
parties. The consent of the contracting parties must be free. Consent is said to
be not free when it would not have been given but for the existence of such
coercion, undue influence, fraud, misrepresentation or mistake. Coercion means
forcing a person to do something that they would not normally do by making

178 [1932] AC 161

172
threats against their safety or well-being, or that of their relatives or property.
Undue influence is the influence that prevents someone from exercising an
independent judgment with respect to any transaction. Fraud is a false
representation of a matter of fact, whether by words or by conduct, by false or
misleading allegations, or by concealment of what should have been disclosed,
that deceives and is intended to deceive another so that the individual will act
upon it to her or his legal injury. A misrepresentation is a false statement of fact
or law which induces the representee to enter a contract. Mistake is a
misunderstanding or erroneous belief about a matter of fact or a matter of law.
It is the erroneous belief concerning something. If the consent is not free, the
contract shall be treated as void or voidable depending upon the factor which
affected the consent.

Review Questions

1. Rosta was the chairman and held the largest sharing holding in Danga
Corporation Ltd a public company. Baharia was the managing director
and also had a substantial shareholding in. There were two other directors
Sista Du and Baza Meni. There had been a long history of ill will between
the parties and a struggle over who should have controlling power with
Rosta being the most aggressive. The other directors in the company were
also unhappy with Rosta and wanted him to be removed for abusing
certain privileges and they disagreed with the way he ran the company
believing him to be putting the company at risk of insolvency. However,
Rosta refused to resign. The three managed to take control of subsidiary
companies and removed all credit facilities from Danga Corp. When
Rosta discovered the credit had been removed he made a number of
death threats to Baharia to pressure him into signing an agreement which
contained various elements including the purchase by Baharia of Rosta's
shares in the company at a substantial over value. Baharia agreed to this

173
 partly due to the threats but also due to the fact that it would mean that
Rosta would no longer have controlling interest and he believed he would
be able to turn the company around without Rosta's dealings. However,
the company became insolvent shortly after and Baharia sought to have
the contract set aside. Can he succeed in setting aside the contract
between him and Rosta? Support your answer with relevant legal
authorities.
2. Makinikia Gold Corporation appointed Mr Kiherehere and Mr
Ushambenga as Chairman and Vice Chairman to run a subsidiary
company called Makinikia Ndogo Co. Under the contract of
employment, the appointments were to run 5 years. However, due to
poor performance of the Makinikia Ndogo Co, Makinikia Gold
Corporation decided to merge Makinikia Ndogo Co with another
subsidiary and make Mr Kiherehere and Mr Ushambenga redundant.
Makinikia Gold Corporation drew up a contract providing for substantial
payments to each if they agreed to terminate their employment. Mr
Kiherehere and Mr Ushambenga accepted the offer and received the
payments. However, it later transpired that Mr Kiherehere and Mr
Ushambenga had committed serious breaches of duty which would have
entitled Makinikia Gold Corporation to end their employment without
notice and without compensation. Makinikia Gold Corporation brought
an action based on mistake in that they entered the agreement thinking
they were under a legal obligation to pay compensation. Advice
Makinikia Gold Corporation on the effect of such mistake on the
agreement with Mr Kiherehere and Mr Ushambenga.
3. A nephew leased a fishery from his uncle. His uncle died. When the lease
came up for renewal the nephew renewed the lease from his aunt. It later
transpired that the uncle had given the nephew a life tenancy in his will. Is
the renewal of lease from aunt valid? Argue authoritatively.

174
 4. At the time of entering a contract for life insurance both National
Insurance Company Ltd and Mwalindile believed Mtoto whose life was to
be insured was living. When in fact he was dead. What is the legal effect
of such mistake to the life insurance contract? Support your answer with
relevant legal authorities.
5. For a contract to be valid, the consent of the parties must be genuine.
What are the factors that can vitiate the genuineness of the consent of
the parties when entering contract?
6. Both coercion and undue influence the consent to be not free and the
contract is voidable at the option of the aggrieved party. With relevant
authorities, what are the differences between coercion and undue
influence?
7. Despite many differences that exist between fraud and misrepresentation,
fraud and misrepresentation have many points in common. Substantiate
the truth of the statement with relevant examples.

References

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brown, G. W., et al, Understanding Business and Personal Law, 9 th Edition,

McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

175
Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

176
 LECTURE ELEVEN

CAPACITY TO CONTRACT

Introduction

Competence of parties is very important in the determination of whether

contract is valid in the eyes. Competence to enter into a legally binding
agreement is called capacity. It denotes the legal ability of the persons to enter
the binding contracts in the eyes of the law. The competence is more legal issue
rather than biological aspect. Hence, it is determined according to the criteria
enshrined in the law.

Capacity to contract refers to competence to contract. The general rule is only

sane, sober persons of contractual age are capable of making valid contracts.
This means that certain groups of persons natural and artificial may have the
disabilities to contract. Thus minors persons of unsound mind, and person
disqualified by law cannot qualify to make contracts.

Who are competent to contract? What factors determine the competence to

contract? What are the legal consequences of the contract entered with
incompetent persons to contract? All and other questions are going to be
covered throughout this lecture. This lecture discusses the rules governing the
competence to contract.

Capacity

Usually the capacity to contract refers to the competence to enter into a legal
agreement and the competence to perform some act. Hence, it implies first the
legal competence of entering the legal agreement or contracts. It also
denotes, the capacity to perform the contractual obligations. It is the legal
competence of a person to enter into a valid contract. It is determined by

177
whether a person has attained majority age, is mentally capable of
understanding the contract terms and is not disqualified by the law to do so.

Capacity of parties is an essential for a valid enforceable contract. In the

simplest of terms, the parties to a contract must be competent to enter into a
contract for it to be binding on them. Thus, the incapacity of a party can
prevent a contract from being enforced.

Section 10 of the Law of Contract Act179 provides what agreements can amount
to contract that is enforceable contract. It enunciates important elements
which must be present in the contract to become enforceable. It provides inter
alia that all agreements are contracts if they are made by the free consent of
parties competent to contract, for a lawful consideration and with a lawful
object, and are not hereby expressly declared to be void.

Factors Which Determine Capacity to Contract

Capacity of person to enter into a contract is determined by age of majority,

soundness of the mind and qualification by the law of the country. This
according to section 11 (1) of the Law of Contract Act 180. If parties are of age of
majority, sound mind and not disqualified by the law are competent to enter
into contract.

Soundness of Mind

Soundness of the mind is defined in terms of the capacity of the person to make
rational judgment at the time of entering into contract and not before or
afterwards. It also includes the understanding ability of the person that enters
the contract.

179 Cap 345 RE 2018

180 Ibid
178
Section 12 (1) of the Law of Contract Act181 defines a person of sound mind in
terms of when does he or she become of sound mind. It provides that 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.

This definition enunciates the following important aspects in relation to the

soundness of the mind for purpose of entering the valid contract. First, soundness
of mind denotes the understanding capacity of the person and rational
judgment making. Second, the soundness of the mind implies understanding
and deciding on the effect of the contract upon his or her interests. Third,
soundness of the mind is determined at the time of making contract, not before
nor afterwards.

Section 12 (2) of the Law of Contract Act 182 provides when person who is usually
of unsound mind can make contract. it provides that a person who is usually of
unsound mind, but occasionally of sound mind, may make a contract when he
is of sound mind. This means even a person of sound mind can enter into
agreement. This has to be done at the time when the person is of sound mind.

Section 12 (3) of the Law of Contract Act 183 provides when the person who is
usually of sound mind cannot make contract. it provides that A person who is
usually of sound mind, but occasionally of unsound mind, may not make a
contract when he is of unsound mind. This means that even person with sound
mind cannot enter the contract when he / she becomes of unsound mind.

181 Ibid
182 Ibid
183 Cap 345 RE 2018

179
Henceforth, a patient in a lunatic asylum, who is at intervals of sound mind, may
contract during those intervals. A sane man, who is delirious from fever or who is
so drunk that he cannot understand the terms of a contract or form a rational
judgment as to its effect on his interests, cannot contract whilst such delirium or
drunkenness lasts.

Unsoundness of the mind can result of various causes. A person can be of

unsound mind due to mental diseases. The person with mental diseases is
termed as insane person. A person can be of unsound mind because of
intoxication which affect the mind of the person. Persons who are insane or
intoxicated persons lack the capacity to contract.

Consequences of Unsoundness of Mind

It may occur that a person of unsound mind can enter contract with the person
of sound mind. The contract entered is void because the party to the contract
did lack capacity to contract. The contract which has become void implies that
it cannot be enforced by the law governing such contract.

Section 11 (2) of the Law of Contract Act 184 provides for the consequence of the
agreement which made by the person who are not competent to contract. it
provides that an agreement by a person who is not hereby declared to be
competent to contract is void. Void agreement means the agreement cannot
be enforced by the law.185

On the other hand, contract entered with person of unsound mind binds the
parties when the said contract is for supply of necessaries for life. If a person,
incapable of entering into a contract, or any one whom he is legally bound to

184 Ibid
185 The Law of Contract Act, s 2(1)(g)
180
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.

Section 68 of the Law of Contract Act 186 provides for the claim for necessaries
supplied to person incapable of contracting such as a person of unsound mind.
It provides inter alia that where a person incapable of entering into a contract 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. The other party is entitled to claim the
reimbursement of the expenses incurred.

Under common law, contract made by the incompetent person to contract is

voidable at option of the party who lacked the capacity to contract and
becomes binding if he affirms it. Therefore, the person of unsound mind is
competent to contract but he can avoid it by satisfying the court that he or she
was incapable of understanding the contract and the other party knew it.

In the case of Matthews v Baxter187, it was held that that if the drunken party,
upon coming to his senses, ratifies the contract, he is bound by it. Also, in the
case of in Gore v Gibson188, it was held that a contract made by a person so
intoxicated as not to know the consequences of his act is not binding on him if
his condition is known to the other party. It appears, however, that such a
contract is not void but merely voidable.

186 Cap 345 RE 2018

187 (1873) LR 8 Ex 132
188 1845) 13 M & W 621; 153 ER 260

181
In the case of Campbell v Hooper189, mortgagee sought a decree for
repayment of debt evidence showed mortgagor was lunatic when contracted
mortgagee was unaware of it the court held that mere fact of lunacy cannot
make a contract invalid. If the other party had knowledge of it, it becomes
voidable at the option of the lunatic.

In the case of Proform Sports Management Ltd v Proactive Sports Management

Ltd & Stretford190 claimant football agent entered into a representation
agreement with Wayne Rooney when he was 15 years old. In June 2002, the
player and his parents wrote to Claimant stating they would not renew the
agreement when it expired in December 2002. Three days after the expiry of the
agreement, the player entered into a new representation agreement with the
Defendant. Claimant brought proceedings against the new agent for unlawful
interference with and/or the procuring of a breach of contract. Defendant
applied for summary judgment on the grounds that as a matter of law there was
no liability for inducing the breach of a voidable contract with a minor.

The court held that there could be no liability for inducing the breach of a
voidable contract with a minor. If the contract was one which the minor was
entitled to lawfully terminate, then there was no breach. Also, the court held
further that the only contracts which are binding on a minor are contracts for
‘necessaries’ either necessary goods/services supplied or contracts for the
minor’s benefit such as contracts of apprenticeship or education. The contract
in issue where claimant was to act as the player’s agent and carried out
functions of personal representation was not analogous to a contract for
necessaries. Players’ agents did not undertake matters essential to a player’s

189 24 L. J. (Ch.) 644

190 [2006] EWHC 2903 (Ch); [2007] 1 All ER 54
182
training or livelihood. The agreement was a voidable contract and was not
binding on the player who was a minor.

In the case of Pearce v Brain191, a minor exchanged a motor cycle for a car, but
found that the car had defects. The court decided that the contract must stand
as he had used the car and, therefore, had enjoyed the benefit of it.

Age of Majority

The age of majority is the legally defined age at which a person is considered
an adult, with all the attendant rights and responsibilities of adulthood. The age
of majority denotes adulthood age. Adulthood is related with capacity to
undertake the rights and responsibilities in the societies.

Moreover, the age of majority refers to age at which a person, formerly a minor
or an infant, is recognized by law to be an adult, capable of managing his or
her own affairs and responsible for any legal obligations created by his or her
actions. A person who has reached the age of majority is bound by any
contracts, deeds, or legal relationships, such as marriage, which he or she
undertakes.

The age of majority is determined by the law. In the case of Smith v Smith192, the
court explained that an age generally specified by statute, at which time, upon
an individual is given the full gamut of legal rights and responsibilities generally
available to an adult of sound mind. However, the laws may differ depending
on the particular aspect which is covered therein.

191 (1929) 2 K. B. 310

192 (1972) 433 Mich. 606
183
For instance, in Tanzania age of majority is 18 years of age and above. Section 5
of the Law of the Child Act 193 defines a child as person below 18 years of age.
Hence age of majority 18 years of age. The persons below age of majority are
called children, minors or infants.

Consequences of Age of Majority

Persons who are below age of majority are called minors. Minors are
incompetent to enter into legal contracts with other persons. If the said minor
enters the contract while below age of majority such contract becomes void.

Section 11 (2) of the Law of Contract Act 194 provides for the consequence of the
agreement which made by the person who are not competent to contract. It
provides that an agreement by a person who is not hereby declared to be
competent to contract is void. Void agreement means the agreement cannot
be enforced by the law.195

Nevertheless, contract entered with minors binds the parties when the said
contract is for supply of necessaries for life. If a person, incapable of entering
into a contract 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.

Section 68 of the Law of Contract Act 196 provides for the claim for necessaries
supplied to person incapable of contracting such as minors. It provides inter alia
that where a person incapable of entering into a contract is supplied by
another person with necessaries suited to his condition in life, the person who

193 Cap 13 RE 2018

194 Ibid
195 The Law of Contract Act, s 2(1)(g)
196 Cap 345 RE 2018

184
has furnished such supplies is entitled to be reimbursed from the property of such
incapable person.

The other party is entitled to claim the reimbursement of the expenses incurred.
The minor must return any consideration given by the other party and is liable for
the reasonable value of necessaries.

In the case of Nash v Inman197, the court explained necessaries as those things
without which a person cannot reasonably exist and include food, clothing,
lodging, education or training in a trade and essential services. The “condition of
life” of the minor means his social status and his wealth. What is regarded as
necessary for the minor residing in a stately home may be unnecessary for the
resident of a council flat. Whatever the minor’s status, the goods must be
suitable to his actual requirements-if he already has enough fancy waistcoats,
more cannot be necessary.

Therefore, necessaries are such things as relate immediately to the person of the
minor, as his necessary food, drink, clothing, lodging and medicine, are matters
only as are positively essential to the minor's personal subsistence or support; it is
also used to denote articles purchased for real use, so long as they are not
merely ornamental, or are used as matters of comfort or convenience only, and
it is a relative term to be construed with reference to the minor's age and station
in life.

In the case of Johnstone v Marks198 the court was of the view that the duty lies
upon the plaintiff to prove, not that the goods supplied belong to the class of
necessities as distinguished from that of luxuries, but that the goods supplied
when supplied were necessaries to the infant. The circumstance that the infant

197 [1908] 2 KB 1, CA
198 (1887)19 QBD 509
185
was sufficiently supplied at the time of the additional supply is obviously material
to this issue, as well as fatal to the contention of the plaintiff with respect to it.

In addition to, in the case of Roberts v Gray199, the court was of the view that
that an infant's contract for necessaries is binding that doctrine also applied not
merely to bread and cheese and clothes, but to education and instruction.

Under common law, contracts entered with minors are voidable at the option of
minor and can be repudiated when the minor reached age of majority. The
repudiation must be done within reasonable time after reaching age of
majority. In the case of Edwards v Carter200 the court observed that the law
gave this minor the privilege of repudiating the obligations which he had
undertaken during his minority within a reasonable time after he came of age. It
laid no obligation upon him, it merely conferred upon him a privilege of which
he might or might not avail himself, as he chose. If he chooses to be inactive, his
opportunity passes away. If he chooses to be active, the law comes to his
assistance

Misrepresentation of Age

When it comes to dealing with children who misrepresent themselves either as to

their age or in some other fraudulent fashion and then seek to repudiate the
contract. Traditionally, a minor’s misrepresentation about age did not affect the
right to disaffirm and create any obligation to reimburse the adult for damages.
In modern, many states find that the minor who misrepresents his or her age will
be estopped (prevented) from asserting lack of capacity as a defense.

199 (1913) 1 KB 520 (1912)

200 1893 AC 360
186
In the case of Wilbur v Jones201, the court was of the view that an infant stands in
no different position from a person of full age in relation to matters of fraud; and
therefore, if he makes a representation upon which a person acts, he will not be
allowed to impeach the validity of it on the grounds of his minority.

On the other hand, in the case of Jewel v Broad202, the general rule is that,
unless for necessities, the contract of an infant is not binding upon him, nor is he
liable for a fraudulent representation that he was of full age whereby the
plaintiff was induced to contract with him.

Legal disqualification

There are some persons according to the law cannot enter contracts unless they
meet legal requirements. These persons are disqualified by the law governing
them. If they are disqualified, they have not capacity to enter contract. These
are persons disqualified by law are alien enemies, insolvents, convict,
corporations and professionals.

There are other people who cannot enter into a contract. i.e. do not have the
capacity to contract. The reasons for disqualification can include, political
status, legal status, etc. Some such persons are foreign sovereigns and
ambassadors, alien enemy, convicts, insolvents, etc.

In the leading case of Ashbury Railway Carriage and Iron Co. Ltd v Riche203 the
objects set out in the company’s memorandum were “to make and sell, or lend
on hire, railway carriages and waggons, and all kinds of railway plant, fittings,
machinery and rolling stock; to carry on the business of mechanical engineers
and general contractors; to purchase, lease, work and sell mines, minerals, land

201 21 NBR 4 (NBCA, 1881)

202 19 OLR 1 and affirmed at 20 OLR 176 (Ontario, 1909)
203 (1875) L.R. 7 H.L. 653

187
and buildings; to purchase and sell as merchants, timber, coal, metals, or other
materials, and to buy any such materials on commission or as agents.”

The directors purchased a concession for making a railway in Belgium and

purported to contract with Riche that he should have the construction of the
line. Riche’s action for breach of the alleged contract failed since the House of
Lords held that the construction of a railway, as distinct from rolling stock, was
ultra vires the company and that therefore the contract was void. Even if every
shareholder of the company had expressed his approval of the act, it would
have made no difference, for it was an act which the company had no power,
in law, to do.

Conclusion

Capacity to contract implies the minimum mental capacity required by law for
a party who enters into a contractual agreement to be bound by it. 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. Age of majority is the moment
when minors cease to be considered such and assume legal control over their
persons, actions, and decisions, thus terminating the control and legal
responsibilities of their parents or guardian over them. 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. Mere loss of memory is not sufficient to constitute
unsoundness of mind as such loss of memory, on its own, does not render any
person unable to manage his own affairs. It has been held that loss of memory
and absent mindedness is not inconsistent with the acts of a sane man.

Review Questions

188
1. Dauda Football Agency entered into a representation agreement with
Kelvin Mbape when he was 15 years old. In June 2012, the player and his
parents wrote to Dauda Football Agency stating they would not renew
the agreement when it expired in December 2012. Three days after the
expiry of the agreement, the player entered into a new representation
agreement with the Manara Sports Agency. Dauda Football Agency
brought proceedings against the new agent for unlawful interference with
and/or the procuring of a breach of contract. Manara Sports Agency
applied for summary judgment on the grounds that as a matter of law
there was no liability for inducing the breach of a voidable contract with
a minor. Is the ground raised by Manara Sports Agency tenable under
such circumstance?
2. “Unless for necessities, the contract of an infant is not binding upon him,
nor is he liable for a fraudulent representation that he was of full age.”
Discuss the statement with relevant legal authorities.
3. An agreement by a person who is not hereby declared to be competent
to contract is void. How far is the statement true? Is the position the same
under common law?
4. The objects set out in the Tanzania Railway company’s memorandum
were “to make and sell, or lend on hire, railway carriages and waggons,
and all kinds of railway plant, fittings, machinery and rolling stock; to carry
on the business of mechanical engineers and general contractors; to
purchase, lease, work and sell mines, minerals, land and buildings; to
purchase and sell as merchants, timber, coal, metals, or other materials,
and to buy any such materials on commission or as agents.” The directors
purchased a concession for making a railway in Burundi and purported to
contract with Hazikimana that he should have the construction of the line.
Is the contract with Hazikimana valid? Argue authoritatively.

189
 5. Aswinde, a young billiard professional, 16 years of age agreed to go on a
joint tour with Sama, an adult professional. Sama expended a lot of time,
went to a lot of trouble and incurred liabilities to make the necessary
preparations. A dispute arose and Aswinde repudiated the contract
before the tour began. Sama sued for damages. Aswinde pleaded his
infancy, alleging the contract was not for necessaries. Is the plea
tenable? Support your answer with relevant authorities.
6. Robby One Fashion Ltd was a tailor working in Dar es Salaam. Kijoti was a
minor studying at Mzuzu University. Robby One Fashion Ltd sold some cloth
on credit to Kijoti for what was approximately 145,000/=TShs. Robby One
Fashion Ltd sued to recover the money, and Kijoti pleaded infancy. Can
Robby One Fashion Ltd succeed to recover money from Kijoti? Is Kijoti
plea tenable? Support your answer with relevant authorities.

References

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brown, G. W., et al, Understanding Business and Personal Law, 9 th Edition,

McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

190
Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

191
 LECTURE TWELVE

INTENTION TO CREATE LEGAL RELATIONS

Introduction

To be enforceable a formation promise requires an intention to be legally bound

by the promise. This is called intention to create legal relations. It means either
the promise must be expressed in the form of a deed indicating that any
promise is taken seriously, or the party who is seeking to enforce the promise of
the other must show that he has given something in exchange for that promise.

Understanding the intention to create legal relations is very important because it

is applicable in the determination of validity of the contract. It also upholds the
doctrine of sanctity of the contract when the parties did express their intention,
seriousness and commitment to perform the contract. Since, the parties must
have an intention to create legal relations, intention to create legal relations
usually operates to prevent a purely domestic or social agreement from
constituting a contract. However, under exceptional circumstances, the social
or domestic agreement constitute contracts.

The requirement of intention to create legal relations in contract law is aimed at

sifting out cases which are not really appropriate for court action. Not every
agreement leads to a binding contract which can be enforced through the
courts. For example, you may have an agreement to meet a friend at a pub.
You may have a moral duty to honour that agreement but not a legal duty to
do so. This is because in general the parties to such agreements do not intend to
be legally bound and the law seeks to mirror the party's wishes

Intention is the state of mind of one who aims to bring about a particular
consequence. The rules governing the intention to create legal relations are
discussed in this lecture. This lecture provides discussion on the intention to

192
create legal relations, its presumption and exceptions as applicable in the
contract law. Therefore, the lecture examines the doctrine of intention to create
legal relations, begins by considering cases involving domestic and social
agreements before turning to analyse the role of intention to create legal
relations in the commercial environment.

Intention to create legal Relations

The doctrine establishes whether a court should presume that parties to an

agreement wish it to be enforceable at law, and it states that an agreement is
legally enforceable only if the parties are deemed to have intended it to be a
binding contract.

Determination of Intention to Create Legal Relations

In order to determine which agreements are legally binding and have an

intention to create legal relations, the law draws a distinction between social
and domestic agreements and agreements made in a commercial context.

Social and Domestic Arrangements

In social and domestic agreements, the law raises a presumption that the
parties do not intend to create legal relations.

In the case of Jones v Padavatton204, a mother promised to pay her daughter

$200 per month if she gave up her job in the US and went to London to study for
the bar. The daughter was reluctant to do so at first as she had a well-paid job
with the Indian embassy in Washington and was quite happy and settled,
however, the mother persuaded her that it would be in her interest to do so. The
mother's idea was that the daughter could then join her in Trinidad as a lawyer.

204 [1969] 1 WLR 328

193
This initial agreement wasn't working out as the daughter believed the $200 was
US dollars whereas the mother meant Trinidad dollars which was about less than
half what she was expecting. This meant the daughter could only afford to rent
one room for her and her son to live in. The Mother then agreed to purchase a
house for the daughter to live in. She purchased a large house so that the
daughter could rent out other rooms and use the income as her maintenance.

The daughter then married and did not complete her studies. The mother sought
possession of the house. The question for the court was whether there existed a
legally binding agreement between the mother and daughter or whether the
agreement was merely a family agreement not intended to be binding.

The Court of Appeal held that the agreement was purely a domestic
agreement which raises a presumption that the parties do not intend to be
legally bound by the agreement. There was no evidence to rebut this
presumption.

Moreover, in the case of Balfour v Balfour205, a husband worked overseas and

agreed to send maintenance payments to his wife. At the time of the
agreement the couple were happily married. The relationship later soured and
the husband stopped making the payments. The wife sought to enforce the
agreement. The court was of the view that the agreement was a purely social
and domestic agreement and therefore it was presumed that the parties did
not intend to be legally bound.

Exceptions in Social and Domestic Arrangements

205 [1919] 2 KB 571

194
This presumption may be rebutted by evidence to the contrary. This evidence
may consist of a written agreement. In the case of Errington v Errington Woods206,
A father-in-law purchased a house for his son and daughter-in-law to live in. The
house was put in the father's name alone. He paid the deposit as a wedding gift
and promised the couple that if they paid the mortgage instalments, the father
would transfer the house to them. The father then became ill and died. The
mother inherited the house. After the father's death the son went to live with his
mother but the wife refused to live with the mother and continued to pay the
mortgage instalments. The mother brought an action to remove the wife from
the house.

The Court of Appeal held that the wife was entitled to remain in the house. The
father had made the couple a unilateral offer. The wife was in course of
performing the acceptance of the offer by continuing to meet the mortgage
payments. Under normal contract principles an offer may be revoked at any
time before acceptance takes place, however, with unilateral contracts
acceptance takes place only on full performance. Lord Denning held that once
performance had commenced the Mother was estopped from revoking the
offer since it would be unconscionable for her to do so. Furthermore, there was
an intention to create legal relations despite it being a family agreement.

In addition, this presumption may be rebutted where the parties have

separated. In the case of Merritt v Merritt207, a husband left his wife and went to
live with another woman. There was £180 left owing on the house which was
jointly owned by the couple. The husband signed an agreement whereby he
would pay the wife £40 per month to enable her to meet the mortgage
payments and if she paid all the charges in connection with the mortgage until

206 [1952] 1 KB 290

207 [1970] 1 WLR 1211

195
it was paid off he would transfer his share of the house to her. When the
mortgage was fully paid she brought an action for a declaration that the house
belonged to her.

The Court of Appeal held that agreement was binding. The Court of Appeal
distinguished the case of Balfour v Balfour on the grounds that the parties were
separated. Where spouses have separated it is generally considered that they
do intend to be bound by their agreements. The written agreement signed was
further evidence of an intention to be bound.

Furthermore, the presumption may be rebutted where there is a third party to

the agreement. In the case of Simpkins v Pays208, a grandmother,
granddaughter and a lodger entered into a weekly competition run by the
Sunday Empire News. The coupon was sent in the Grandmothers name each
week and all three made forecasts and they took it in turns to pay. They had
agreed that if any of them won they would share the winnings between them.
The grandmother received £250 in prize money and refused to share it with the
other two. The lodger brought the action to claim one third of the prize money.

The Queen's Bench Division held that there was a binding contract despite the
family connection as the lodger was also party to the contract. This rebutted the
presumption of no intention to create legal relations in social and domestic
arrangements.

Commercial Arrangements

Where an agreement is made in a commercial context, the law raises a

presumption that the parties do intend to create legal relations by the
agreement.

208 [1955] 1 WLR 975

196
In the case of Esso Petroleum v Customs & Excise209, Esso ran a promotion
whereby any person purchasing four gallons of petrol would get a free coin
from their World Cup Coins Collection. The question for the court was whether
these coins were 'produced in quantity for general resale' if so they would be
subject to tax and Esso would be liable to pay £200,000. Esso argued that the
coins were simply a free gift and the promotion was not intended to have legal
effect and also that there was no resale.

The court held that there was an intention to create legal relations. The coins
were offered in a commercial context which raised a presumption that they did
intend to be bound. However, the coins were not exchanged for a money
consideration and therefore the coins were not for resale.

In addition, Edwards v Skyways210, the claimant was an airline pilot working for
the defendant. He was to be made redundant. The defendants said that if he
withdrew his contributions to the company pension fund, they would pay him
the equivalent of company contributions in an ex gratia payment. The claimant
agreed to this and withdrew his contributions. The company then ran into further
financial difficulty and went back on their promise relating to the ex gratia
payment.

Court of Appeal held that the agreement had been made in a business context
which raised a strong presumption that the agreement is legally binding. The
claimant could therefore enforce the agreement and was entitled to the
money.

Exceptions to Commercial Arrangement

209 [1976] 1 WLR 1

210 [1964] 1 WLR 349

197
The presumption of existence of intention to create legal relations in commercial
arrangements can be rebutted by binding in honour only clauses. In the case of
Rose & Frank Co v Crompton Bros 211, the claimants and defendants entered an
agreement for the supply of some carbonised tissue paper. Under the
agreement the claimants were to be the defendant's sole agents in the US until
March 1920. The contract contained an honourable pledge clause which
stated the agreement was not a formal or legal agreement and shall not be
subject to the jurisdiction of the courts in neither England nor the US. The
defendants terminated the agreement early and the claimants brought an
action for breach.

House of Lords was of the view that the honourable pledge clause rebutted the
presumption which normally exists in commercial agreements that the parties
intend to be legally bound by their agreements. The agreement therefore had
no legal affect and was not enforceable by the courts.

Also, in the case of Ferrera v Littlewoods Pools212, the facts were almost identical
to those of Jones v Vernon Pools whereby the claimant filled in a winning entry
and sent it off to Littlewoods Pools. Littlewoods disputed ever receiving the entry
and denied the fact that they would be legally obliged to pay out even if they
had received the entry due to the binding in honour only clause and based on
the Court of Appeal precedent set in Jones v Vernon Pools. The claimant, a
litigant in person, argued that the decision in Jones v Vernons was outdated
and should be overruled.

Court of Appeal held that Littlewoods were not bound to pay out. The court was
bound by the decision in Jones v Vernon Pools the existence of the binding in

211 [1925] AC 445

212 [1998] EWCA Civ 618

198
honour only clause demonstrated an intention that the parties did not intend to
be legally bound.

Conclusion

Intention to create legal relations implies serious intention and commitment of

the parties that their contract is binding upon them and has to be performed by
them. An essential ingredient of a binding contract is that the parties must have
had an intention to create legal relations. In other words, they must have had
an intention to be bound by the terms of their agreement. In social and
domestic arrangements, the law presumes absence of intention to create legal
relations as a general rule. It can be seen that intention to create legal relations
therefore seeks to keep agreements between family and friends outside the
court’s jurisdiction. However, under exceptional circumstance, social and
domestic arrangements can have intention to create legal relations when there
are written agreements, presence of third parties and where they are
separated. Under commercial arrangements, the general rule is that there is
intention to create legal relations unless there is specified binding honour
clauses between the parties.

Review Questions

1. Not every agreement leads to a binding contract which can be enforced

through the courts. Do you agree? Support your answer with relevant
authorities.
2. Mwambusi and Mwakilindile entered an agreement for the supply of
some tissue paper. Under the agreement Mwambusi were to be
Mwakilindile’s sole agents in Tanzania until March 2020. The contract
contained an honourable pledge clause which stated the agreement
was not a formal or legal agreement and shall not be subject to the
jurisdiction of the courts in neither Kenya nor Tanzania. Mwakilindile

199
 terminated the agreement early and Mwambusi brought an action for
breach. Is the agreement between Mwakilindile and Mwambusi
enforceable basing on honourable pledge clause? Support your answer
with relevant examples.
3. Rubani was an airline pilot working for Air Tanganyika Limited. He was to
be made redundant. Air Tanganyika Limited said that if he withdrew his
contributions to the National Social Security Fund, they would pay him the
equivalent of company contributions in an ex gratia payment. Rubani
agreed to this and withdrew his contributions. Air Tanganyika Limited then
ran into further financial difficulty and went back on their promise relating
to the ex gratia payment. Discuss with relevant authorities whether the
agreement between Air Tanganyika Limited and Rubani is enforceable.
4. Lake Energies Ltd ran a promotion whereby any person purchasing four
gallons of petrol would get a free coin from their World Cup Coins
Collection. Edo purchased four gallons of petrol for his boda boda. He did
not get any coin. He demanded from Lake Energies Ltd but they denied
by arguing that the coins were simply a free gift and the promotion was
not intended to have legal effect and also that there was no resale. Is the
argument tenable? Argue authoritatively.
5. A grandmother, granddaughter and a lodger entered into a weekly
competition run by the Biko Ltd. The coupon was sent in the
Grandmother’s name each week and all three made forecasts and they
took it in turns to pay. They had agreed that if any of them won they
would share the winnings between them. The grandmother received
250,000,000/= TShs in prize money and refused to share it with the other
two. Was there binding contract between grandmother, granddaughter
and a lodger? Answer with authorities.
6. A husband left his wife and went to live with another woman. There was
180,000/=TShs left owing on the house which was jointly owned by the

200
 couple. The husband signed an agreement whereby he would pay the
wife 40,000/=TShs per month to enable her to meet the mortgage
payments and if she paid all the charges in connection with the
mortgage until it was paid off he would transfer his share of the house to
her. When the mortgage was fully paid she brought an action for a
declaration that the house belonged to her. Can she succeed in her
action? Support your answer with relevant authorities.
7. Juakali purchased a house for his son and daughter-in-law to live in. The
house was put in Juakali's name alone. He paid the deposit as a wedding
gift and promised the couple that if they paid the mortgage instalments,
Juakali would transfer the house to them. Juakali then became ill and
died. The mother inherited the house. After Juakali’s death the son went
to live with his mother but the wife refused to live with the mother and
continued to pay the mortgage instalments. The mother brought an
action to remove the wife from the house. Advise wife on her
entitlements.
8. In order to determine which agreements are legally binding and have an
intention to create legal relations, the law draws a distinction between
social and domestic agreements and agreements made in a commercial
context. Substantiate with relevant authorities.
9. A husband worked overseas and agreed to send maintenance payments
to his wife. At the time of the agreement the couple were happily
married. The relationship later soured and the husband stopped making
the payments. The wife sought to enforce the agreement. Can she
succeed?

References

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

201
Brown, G. W., et al, Understanding Business and Personal Law, 9 th Edition,
McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- T

202
 LECTURE THIRTEEN

CONSIDERATION

Introduction

In contract law consideration is concerned with the bargain of the contract. A

contract is based on an exchange of promises. Each party to a contract must
be both a promisor and a promisee. They must each receive a benefit and
each suffer a detriment. This benefit or detriment is referred to as consideration.

Consideration is essential to the validity of any contract other than one made by
deed. Without consideration an agreement not made by deed is not binding, it
is a nudum pactum i.e. naked agreement, governed by the maxim ex nudo
pacto non oritur actio which means a right of action does not arise out of a
naked agreement.

Since consideration is very important element to the contract, its legal rules must
be understood so as to be able to determine the validity of the consideration as
well as consequence for lack of consideration in the consideration. All these
issues are covered in this lecture.

Consideration

Consideration can be defined to inducement to and the basis of a contract;

that which is bargained for and that which is given by one party in exchange for
a promise by the other party. Consideration is often a promise to perform a
certain act in exchange for another promise but it can also be a promise to
refrain from doing something. It is the exchange of benefits and detriments by
the parties to the contract. Benefits and detriments can be interest, profits, rights
and acts which denotes that consideration is something of value that is
promised to enter into a contract.

203
Consideration was defined aptly in the case of Currie v Misa213 and is summed
as a valuable consideration, in the sense of the law, may consist either in some
right, interest, profit, or benefit accruing to the one party, or some forbearance,
detriment, loss, or responsibility, given, suffered, or undertaken by the other.

Types of Consideration

(i) Executed Consideration

Executed consideration is consideration which has been done by one party

while the other party will perform in future. It is exchange of performance and
promises. Executed consideration is performance on one side, and it is this
performance which makes obligatory the promise on the other. The outstanding
obligation is all on one side. Executed consideration will exist when the
promisor’s promise is bought by the performance of an act.

This type of consideration is found in unilateral contract where one party makes
a promise in exchange for an act or conduct to be performed by another party.
When this performance occurs the consideration is considered executed.

(ii) Executory Consideration

Executory consideration is the consideration which will be done in the future

according to the promises of both parties. It is exchange of promises. Executory
consideration implies each party is bound to some act or forbearance in the
future. There is an outstanding obligation on both sides. Executory consideration
will arise where the promisor’s promise is made in return for a counter-promise

213 (1874) LR 10 Ex 153

204
from the plaintiff. This type of consideration is formed when there has been an
exchange of promises between parties otherwise known as a bilateral contract.

Rules of Consideration

There are many rules which govern the validity of the consideration in the
contractual arrangements. These rules are general and their exceptional
circumstances. They are accounted for as hereunder: -

(i) Consideration should not be past

Consideration has to be made always after the agreement to be made. If it is

before the making of the agreement, it is not consideration at all. The essence
of this rule is that anything must be made or done when there is an agreement.
Prior agreement, there cannot be said to have the consideration. Therefore,
past consideration is no consideration.

In the case of Re McArdle214, Majorie McArdle carried out certain improvements

and repairs on a bungalow. The bungalow formed part of the estate of her
husband's father who had died leaving the property to his wife for life and then
on trust for Majorie's husband and his four siblings. After the work had been
carried out the brothers and sisters signed a document stating in consideration
of you carrying out the repairs we agree that the executors pay you £480 from
the proceeds of sale. However, the payment was never made. The Court of
Appeal was of the observation that the promise to make payment came after
the consideration had been performed therefore the promise to make payment
was not binding. Past consideration is not valid.

214 (1951) Ch 669

205
However, under exceptional circumstance the past consideration can be
consideration when it was proceeded by the request. Hence, past
consideration may be valid where it was proceeded by a request.

In the case of Lampleigh v Braithwaite215, the defendant had killed a man and
was due to be hung for murder. He asked the claimant to do everything in his
power to obtain a pardon from the King. The claimant went to great efforts and
managed to get the pardon requested. The defendant then promised to pay
him £100 for his efforts but never paid up.

The court held that whilst the promise to make payment came after the
performance and was thus past consideration, the consideration was
proceeded by a request from the defendant which meant the consideration
was valid. The defendant was obliged to pay the claimant £100.

(ii) Consideration must match the terms of the contract

Consideration must be the one which was agreed. When parties enter
agreements on the bases of the specified terms of consideration, such nature of
consideration must be accorded for in the contract. When the consideration is
not what the parties bargained for and agreed, it amounts to no consideration
at all.

In the case of Miyombo Sahani v Nkandi Makune216 there was the agreement
was for sale of a bull capable of pulling a plough, not just any bull; as the bull
supplied was wild and unable to do the work for which it was purchased, and it
went back to the owner who then kept it, this was fundamental failure in the

215 [1615] EWHC KB J17

216 [1998] TLR 328

206
terms of the agreement. Hence, the court held that as the animal supplied was
not the one bargained for, it amounted to a failure of consideration.

(iii) Consideration must be sufficient but not adequate

Adequacy of consideration is irrelevant so long as the parties are satisfied by it

unless it induces the voluntaries and consent of the parties. Hence adequacy
can be used to determine the consent and not the legality of the
consideration.217 There is no requirement that the consideration must be market
value, providing something of value is given. given in exchange for a house
would be valid. The courts are not concerned with whether the parties have
made a good or bad bargain.

In the case of Chappel v Nestle218 House of Lords Nestle ran a sales promotion
whereby if persons sent in 3 chocolate bar wrappers and a postal order for 1
shilling 6d they would be sent a record. Chappel owned the copyright in one of
the records offered and disputed the right of Nestle to offer the records and
sought an injunction to prevent the sales of the records which normally retailed
at 6 shillings 8d. Under s.8 of the Copyright Act 1956 retailers were protected
from breach of copyright if they gave notice to the copyright holders of the
ordinary retail selling price and paid them 6.25% of this. Nestle gave notice
stating the ordinary selling price was the 1 shilling 6d and three chocolate bar
wrappers. The question for the court was whether the chocolate bar wrappers
formed part of the consideration. If they did it was impossible to ascertain the
value, they represented and therefore Nestle would not have complied with
their obligation to give notice of the ordinary retail selling price. If the wrappers

217 The Law of Contract Act, s 25(3)

218 [1960] AC 87

207
were a mere token or condition of sale rather than constituting consideration,
then the notice would be valid and Nestle could sell the records.

The court held that the wrappers did form part of the consideration as the
object was to increase sales and therefore provided value. The fact that the
wrappers were simply to be thrown away did not detract from this. Therefore,
Chappel were granted the injunction and Nestle could not sell the records as
they had not complied with the notice requirements under s.8.

In the case of Selemani Sembiko v Republic219 the court observed on the issue
that if the party assured another party to have received consideration, the party
cannot take back what he or she or it assured before. The court held that once
the corporation had repeatedly assured the appellant that all was all right and
that it had duly received the proceeds of the cheque. It seemed plain to the
court that the corporation cannot validly be heard to come back to the
appellant and allege that it has not received consideration for the motor
vehicle, contrary to its own earlier assurances which were as clear and
unambiguous as they could possibly be.

(iv) Consideration must move from the promisee

The contract law requires the party to the contract to provide the consideration.
Hence, if a person other than the promisee is to provide the consideration, the
promisee cannot enforce the agreement.

In the case of Tweddle v Atkinson220, a couple were getting married. The father
of the bride entered an agreement with the father of the groom that they would
each pay the couple a sum of money. The father of the bride died without

219 1992 TLR 144

220 [1861] EWHC QB J57

208
having paid. The father of the son also died so was unable to sue on the
agreement. The groom made a claim against the executor of the will. The court
held that the claim failed: The groom was not party to the agreement and the
consideration did not move from him. Therefore, he was not entitled to enforce
the contract.

Nevertheless, section 2 (1) (d) of the Law of Contract Act 221 provides the
meaning of consideration and who can furnish the consideration. It provides
that when, at the desire of the promisor, the promisee or any other person has
done or abstained from doing, or docs does or abstains from doing, or promises
to do or to abstain from doing, something, such act or abstinence or promise.

This statutory provision provides the exceptional rule that consideration must
move from the promisee. It indicates that any other person may furnish
consideration. However, the other person may furnish consideration when the
promisor desires so. Hence, the exception operates at the desire of the promisor.

(v) Consideration must be lawful

The consideration under the agreement must be lawful. This means it has to
comply with the provisions of the law. It should not defeat any provision of the
law of the land. It must not be against the requirement of the law. Consideration
should be lawful to make it essential of the contract. Lawfulness of the
consideration is determined by the provision of law, public policy, morality and
its nature.

Section 10 of the Law of Contract Act 222 enunciates the principle of lawful
consideration in making the contracts valid in the eyes of the law. It provides

221 Cap 345 RE 2018

222 Cap 345 RE 2018

209
among other things that all agreements are contracts if they are made by the
free consent of parties competent to contract, for a lawful consideration and
with a lawful object, and are not hereby expressly declared to be void

Section 23 (1) of the Law of Contract Act223 provides the circumstances that
determine the lawfulness of the consideration in the contract. It provides that
the consideration or object of an agreement is lawful, unless it is forbidden by
law, it is of such a nature that, if permitted, it would defeat the provisions of any
law, it is fraudulent, it involves or implies injury to the person or property of
another or the court regards it as immoral or opposed to public policy.

(vi) An existing public duty will not amount to valid consideration

Public duty is obligation to citizens in the society. Doing the public duty that exist
before a certain person cannot be used a consideration for the agreement
between the doer of the public duty and other person. Therefore, where a party
has a public duty to act, this cannot be used as consideration for a new
promise.

In the case of Collins v Godefrey224 The claimant, Collins, had been

subpoenaed to attend court as a witness in separate court case involving the
defendant, Godefrey. Godefrey had sued his attorney for malpractice and
Collins was required by the court to attend as an expert witness. In fact, Collins
never gave evidence but was required to be on standby for six days in case he
was called. After the trial Collins gave Godefrey an invoice to cover his time
spent at court and demanded payment by the next day. Without giving him the
full day to pay, Collins commenced an action to enforce payment. The court

223 Ibid
224 (1831) 1 B & Ad 950

210
was of the view that Collins was under a public duty to attend court due to the
subpoena. Where there exists an existing public duty this cannot be used as
consideration for a new promise. Godefrey was not required to pay him.

On the other hand, when the person does public duty beyond the scope of the
responsibility, it can amount to valid consideration. Therefore, when the parties
to contract do beyond the public duty, it can amount to valid consideration.

In the case of Glasbrook Bros v Glamorgan County Council225, The defendant

owners of a colliery asked the police to provide protection during a miner's
strike. The police provided the protection as requested and provided the man
power as directed by the defendants although they disputed the level of
protection required to keep the peace. At the end of the strike the police
submitted an invoice to cover the extra costs of providing the protection. The
defendants refused to pay arguing that the police were under an existing public
duty to provide protection and keep the peace. The House of Lords observed
that in providing additional officers to that required, the police had gone
beyond their existing duty. They were therefore entitled to payment.

Also, in the case of Ward v Byham226, an unmarried couple had a child together
and lived together for five years. The father then turned the mother out of the
house and sent the child to live with a neighbour and the father paid the
neighbour £1 per week. The mother then got a job as a live in house keeper and
wished to have the daughter live with her. The father agreed to allow the
daughter live with the mother and agreed to pay her £1 per week provided she
ensured the child was well looked after and happy. The father made payments
but then when the mother remarried he stopped making payments. The mother
brought an action to enforce the agreement. The father argued that the

225 [1925] AC 270

226 [1956] 1 WLR 496

211
Mother was under an existing legal duty to look after and maintain the child and
therefore was not providing any consideration for the promise to make
payment.

The Court of Appeal held that by promising to ensure the child was well looked
after and happy she had gone beyond her existing legal duty and therefore
had provided consideration. She was entitled to the payment.

(vii) An existing contractual duty will not amount to valid consideration

It may occur that the party may have pending duty in the existing contract, the
party may not use such existing duty as valid consideration in the new contract.
It is his or her obligation therein and has to be discharged. It cannot be applied
to discharge another contract. If a party has an existing contractual duty to do
an act, this act cannot be used as consideration for a new promise.

In the case of Stilk v Myrrick227, the claimant was a seaman on a voyage from
London to the Baltic and back. He was to be paid £5 per month. During the
voyage two of the 12 crew deserted. The captain promised the remaining crew
members that if they worked the ship undermanned as it was back to London
he would divide the wages due to the deserters between them. The claimant
agreed. The captain never made the extra payment promised.

The court held that the claimant was under an existing duty to work the ship
back to London and undertook to submit to all the emergencies that entailed.
Therefore, he had not provided any consideration for the promise for extra
money. Consequently, he was entitled to nothing.

227 [1809] EWHC KB J58

212
Nevertheless, the party goes beyond their existing duty on the existing contract,
such exceeded performance of duty can amount to valid consideration. In the
case of Hartley v Ponsonby228, Half of a ship's crew deserted on a voyage. The
captain promised the remaining crew members extra money if they worked the
ship and completed the voyage. The captain then refused to pay up.

The court held that the crew were entitled to the extra payment promised on
the grounds that either they had gone beyond their existing contractual duty or
that the voyage had become too dangerous frustrating the original contract
and leaving the crew free to negotiate a new contract.

In addition, if doing the existing duty on the contract confers the practical
advantage in the contract, it can amount to valid consideration. In the case of
Williams v Roffey Bros229, the defendants were building contractors who entered
an agreement with Shepherds Bush Housing Association to refurbish a block of
27 flats. This contract was subject to a liquidated damages clause if they did not
complete the contract on time. The defendants engaged the claimant to do
the carpentry work for an agreed price of £20,000. 6 months after commencing
the work, the claimant realised he had priced the job too low and would be
unable to complete at the originally agreed price. He approached the
defendant who had recognised that the price was particularly low and was
concerned about completing the contract on time. The defendant agreed to
pay the claimant an additional £575 per flat. The claimant continued work on
the flats for a further 6 weeks but only received an additional £500. He then ran
out of money and refused to continue unless payment was made. The
defendant engaged another carpenter to complete the contract and refused
to pay the claimant the further sums promised arguing that the claimant had

228 [1857] 7 EB 872

229 [1990] 2 WLR 1153

213
not provided any consideration as he was already under an existing contractual
duty to complete the work.

The court ruled out that consideration was provided by the claimant conferring
a benefit on the defendant by helping them to avoid the penalty clause.
Therefore, the defendant was liable to make the extra payments promised.

Moreover, if the existing contractual duty is owed to a 3rd party this may be
used as valid consideration for a new promise. In the case of Scotson v Pegg230,
a purchaser of some coal paid the defendant to carry and to unload the coal.
The claimant was the supplier of the coal who had also paid the defendant to
carry and unload the coal. The claimant brought an action to recover the
money paid arguing the defendant was already under an existing duty to carry
and unload the coal and thus provided no consideration.

The court ruled out that an existing contractual duty owed to a 3rd party to the
contract can amount to valid consideration for a new promise. Consequently,
the claimant could not recover the sums paid and the defendant was entitled
to get paid twice for doing the same thing.

(viii) Consideration is necessary for valid contract.

It is general rule that agreement without consideration are void and cannot
become contract. This rule signifies that the contract can be declared void due
to lack of consideration. When the contract is declared void that means it
cannot be enforced by the law.

Hence the contract without consideration is as good as nothing. It can be

consideration as no contract at all. If no consideration is stipulated in the

230 [1861] EWHC Exch J2

214
consideration such contract can be declared void for uncertainty. In the case
of Alfi East Africa Ltd v Themi Industries & Distributors Agency Ltd231 Kwast, an
employee of the appellant company entered into an agreement on behalf of
the appellant with the respondent company. According to the terms of the
agreement all the advantages were on one side, in favour of the respondent.
Two pieces of machinery specifically ordered by the appellant for itself were
diverted to the respondent by Kwast under the agreement. The respondent was
to pay the price of the machinery which price was not mentioned nor was a
method of calculating it agreed upon. When Kellner, a Director and principal
shareholder of the respondent company came to know about this he had the
Board of Directors cancel the agreement. The respondent then claimed special
and general damages from the appellant for breach of contract. The court held
that price is a fundamental matter in an agreement of sale such as the one
under consideration, and as there was no agreed price there was no
agreement in terms of s. 29 of the Law of Contract Act, the agreement is void
for uncertainty.

Section 10 of the Law of Contract Act 232 provides the necessary requirements
which make any agreement to become the contract. Among of the necessary
requirements for the agreement to become contract presence of lawful
consideration. It provides inter alia that all agreements are contracts if they are
made by the free consent of parties competent to contract, for a lawful
consideration and with a lawful object, and are not hereby expressly declared
to be void. Hence, presence of consideration is so important to make the
contract valid in the eyes of the law. In the case of A.D. Mashoto v A.H.
Kaunga233 the court was of the view that since the agreement was with a

231 [1984] TLR 256

232 Cap 345 RE 2018
233 1986 TLR 67

215
consideration and possession of both the property and the title deed passed as
long as consent has not been refused the objector has an interest in the
property which interest a court of law ought not to disregard with abandon.

Moreover, section 25 (1) of the Law of Contract Act234 provides the

consequence for the agreement to lack lawful consideration. It provides that
agreements without consideration are void. The agreements which are void
cannot be enforced by the law235. This suggests that lawful consideration is
important element of valid contract. In the case of Mohamed Iddi Mjasir v Mrs.
Jayalaxmi Jayantilal Joshi236 the court held that there was no evidence that the
consideration of Shs 150,000/= as purchase price passed to the alleged vendor,
the late Jayantilal B. Joshi as such the contract of sale is rituated by lack of
consideration.

When there is another agreement which varies the terms of the existing
agreement, there must be consideration for that purpose. Absence of support
of consideration the agreement cannot vary the terms of the existing contract.
In the case of Edwin Simon Mamuya v Adam Jonas Mbala237 the court observed
that the agreement which varies the terms of an existing contract must be
supported by consideration.

Exceptions to the requirement of consideration

There are exceptional circumstances under which the contracts without

agreements become valid. These exceptions are forthwith provided under
section 25(1) of the Law of Contract Act CAP 345 RE 2002.

234 Ibid
235 The Law of Contract Act, s 2(1)(g)
236 1993 TLR 274
237 [1983] TLR 410

216
 (i) Promise made on natural love and affection

There promises which are made by the persons which can be binding even
though there is no consideration at all in those promises. These must be promises
made in account of natural love and affection. In addition, promises must be
written, signed by both parties. Moreover, the promises must be registered under
the respective law in force.

Section 25 (1) (a) of the Law of Contract Act 238 recognises promises made in
account of natural love and affection, written and registered under the law in
force of registration of documents, they become valid without consideration.

(ii) Promise of compensation

When the person promises another person to compensate for what the other
person has done can be enforceable even though there is no consideration
between the said persons. However, the promise to compensate must be done
voluntarily. Also, the promise must deal with something that the promisor was
compellable to do. The promisee must have done the said thing with
voluntariness.

Section 25 (1) (b) of the Law of Contract Act 239 provides for the promise to
compensate person who voluntarily did something for promisor or legally
compellable for promisor to do, it becomes valid despite having no
consideration.

(iii) Promise to pay time barred debts

238 Cap 345 RE 2018

239 Cap 345 RE 2018

217
When the period of limitation of debts payment has expired however the debtor
acknowledges and promises to pay such debt even out of time of period of
limitation, such promise is enforceable even if it lacks the consideration.

Section 25 (1) (c) of the Law of Contract Act 240, provides for the enforcement of
the promise to pay the timed barred debts. It requires that written and signed
promise to pay time barred debts become valid even though no consideration
is involved.

In the case of Laemthong Rice Companyltd v Principal, Secretary, Ministry of

Finance241, the court was of the view that according to section 25(1)(c) of the
Contract Decree (in pari material with Law of Contract Act), an
acknowledgment of debt made after the expiration of the period of limitation
would give rise to a fresh period of limitation if it is coupled with a promise to pay
the debt. The Ministry's letter dated 15 July 1996 was an acknowledgment
coupled with a promise to pay the debt within the meaning of section 25(1)(c)
of the Contract Decree and therefore operated to give a fresh start to the
period of limitation from the date of that letter, and since the suit was instituted
only six months later, it was in time.

(iv) Gifts

There is no need to prove consideration in gifts. In the case of Mkamangi

Elifuraha v Mwinyishehe Mwinyishehe242, when the appellant wanted to buy a
plot of land from the respondent the latter decided to give it to the former free
of charge. The giving of the plot of land was evidenced in writing (Exh. B). After
the appellant had built a house on the plot the respondent wanted to have his

240 Ibid
241 [2002] TLR 389
242 [1991] TLR 191

218
plot of land back. The first appellate court held that the document was not
evidence of a contract between the parties as there was no consideration.

The court of Appeal observed that since we have found that the genuineness of
Exhibit B could not legally be challenged by the learned judge and that it was
evidence of a gift and as such was unaffected by the absence of
consideration, then it follows that there was consent. There is no need of
consideration in gift because Exhibit B evidenced a gift that was actually given
to the donee, the appellant, by the donor, the respondent.

(v) Promissory estoppel

Promissory estoppel is the legal principle that a promise is enforceable by law,

even if made without formal consideration, when a promisor has made a
promise to a promisee who then relies on that promise to his subsequent
detriment. Promissory estoppel is intended to stop the promisor from arguing that
an underlying promise should not be legally upheld or enforced.

Promissory estoppel is an equitable remedy that prevents a party from ‘going-

back on’ or rescinding a promise. Clearly the concept is not simple as just
preventing the rescission of a promise. To determine whether promissory
estoppel will apply in a situation where a promise has been rescinded the test
laid out in the Central London Property Trust Ltd v High Trees House Ltd [1947] KB
130 must be examined.

In this case, in 1937, High Trees House Ltd leased a block of flats in Clapham,
London, for a rate £2500/year from Central London Property Trust Ltd. Due to the
conditions during the beginning of World War II occupancy rates were
drastically lower than normal. In January 1940, to ameliorate the situation, the
parties made an agreement in writing to reduce rent by half. However, neither
party stipulated the period for which this reduced rental was to apply. Over the

219
next five years, High Trees paid the reduced rate while the flats began to fill, and
by 1945, the flats were back at full occupancy. Central London sued for
payment of the full rental costs from June 1945 onwards (i.e. for last two quarters
of 1945).

The court reviewed the past case law, especially Hughes v Metropolitan Railway
Co243, where the House of Lords had held that parties should be prevented from
going back on a promise to waive certain rights. Denning J stated that the
cases showed that a promise which the promisor knew was going to be acted
on by the person to whom it was made was enforceable despite a lack of
consideration. The time had come for this to be recognized as giving rise to an
estoppel. Here, the plaintiffs had made a binding promise. However, the
evidence showed this only applied during the war. Therefore, after the war the
defendants were liable for the full rent.

The requirements of the test are:

(i) Clear and Certain Promise

The first requirement of promissory estoppel is that the promisor must give clear
and unambiguous statement that he does not intend to enforce his legal rights.
The promise may be express or implied.

(ii) There must have been an existing legal relationship between the
parties

Promissory estoppel generally only operates when there is a pre-existing

relationship between the parties and will not work to create new ones. In the

243 (1877) 2 App Cas 439

220
case of Combe v Combe244, a husband promised to make maintenance
payments to his estranged wife but failed to do so. The wife brought an action
to enforce the promise invoking promissory estoppel.

The Court of Appeal held that her action failed. There was no pre-existing
agreement which was later modified by a promise. The wife sought to use
promissory estoppel as sword and not a shield.

(iii) There must have been a reliance on the promise

The promisee must rely on the promisors’ promise in order to attempt to apply
promissory estoppel. This means that by relying on the promise the actions of
the promisee have changed. This requirement has a very low threshold and
although there has been argument that a detriment may be required to
establish reliance both the cases of Central London Property Trust Ltd v High
Trees House Ltd [1947] KB 130 and Central London Property Trust Ltd v High Trees
House Ltd [1947] KB 130, dispute this.

(iv) It cannot be enforced against the promisor

The requirement of promissory estoppel is that it cannot not be enforce against

the promisor. Thus it can be used only as a defence and thus cannot be used as
a sword. In Combe v Combe245 (1951) CA, the court held that promissory
estoppel does not create a cause of action and as such the requirement of
consideration in formation of contract is still relevant. Promissory estoppel is a
rule of evidence that prevents the promisor from denying the truth of statement
which the promisee had relied.

244 [1951] 2 KB 215

245 [1951] 2 KB 215

221
Therefore, in the case of Maracle v Travellers Indemnity Co.246, the principles of
promissory estoppel are well settled. The party relying on the doctrine must
establish that the other party has, by words or conduct, made a promise or
assurance which was intended to affect their legal relationship and to be acted
on. Furthermore, the representee must establish that, in reliance on the
representation, he acted on it or in some way changed his position.

Also, in the case of City of Penticton v CUPE247 the court was of the view that the
application and the attractiveness of the notion of estoppel is quite easy to
appreciate. One party enjoys a legal right under a contract. That party says that
it is not going to enforce that right on a particular occasion. The other party
relies on that representation and acts accordingly. Then the first party changes
its mind and decides that it does want to enforce its strict legal rights; but only
after its counterpart has irretrievably committed itself. The equitable doctrine of
estoppel is designed to prevent such an unfair tactic.

Conclusion

A contract is based on an exchange of promises. Each party to a contract must

be both a promisor and a promisee. They must each receive a benefit and
each suffer a detriment. This benefit or detriment is referred to as consideration.
Consideration is the exchange of benefits and detriments between the parties
to the contract. It includes payment or something of value made in exchange
for performance of a contract that is acceptable for a contract to be binding.
Consideration is needed so that both parties incur some sort of burden or
obligation in the agreement. When forming a contract, consideration is needed
to make the agreement a formal, valid contract. Hence, consideration is a
necessary element for an enforceable contract.

246 (1991) 2 S.C.R. 50

247 18 LAC 2d 307

222
Review Questions

1. All agreements without consideration are void. With aid relevant legal
authorities, discuss the validity of the statement.
2. Julius, an employee of Jezebel Company entered into an agreement on
behalf of Jezebel Company with Sugar Production Ltd. According to the
terms of the agreement all the advantages were on one side, in favour of
Sugar Production Ltd. Two pieces of machinery specifically ordered by
Jezebel Company for itself were diverted to Sugar Production Ltd by Julius
under the agreement. Sugar Production Ltd was to pay the price of the
machinery which price was not mentioned nor was a method of
calculating it agreed upon. When Helen, a Director and principal
shareholder of Sugar Production Ltd came to know about this he had the
Board of Directors cancel the agreement. Discuss whether Sugar
Production Ltd can enforce the agreement against Jezebel Company.
3. What do you understand by the term consideration? What is the
significance of the consideration in contractual relationships?
4. Rajolina carried out certain improvements and repairs on a bungalow.
The bungalow formed part of the estate of her husband's father who had
died leaving the property to his wife for life and then on trust for Rajolina's
husband and his four siblings. After the work had been carried out the
brothers and sisters signed a document stating in consideration of you
carrying out the repairs we agree that the executors pay you
480,000/=TSHS from the proceeds of sale. However, the payment was
never made. Discuss whether can sue successfully for non-payment of the
promised money.
5. Lampati had killed a man and was due to be hung for murder. He asked
the Mwashua, the well-known advocate to do everything in his power to
obtain a pardon from the President. Mwashua went to great efforts and

223
 managed to get the pardon requested. Lampati then promised to pay
him 100,000,000/TShs for his efforts but never paid up. Is Lampati entitled to
the promised money? Argue authoritatively.
6. Nestory ran a sales promotion whereby if persons sent in 3 chocolate bar
wrappers and a postal order for 1 shilling 6d they would be sent a record.
Chaupele owned the copyright in one of the records offered and
disputed the right of Nestory to offer the records and sought an injunction
to prevent the sales of the records which normally retailed at 6 shillings 8d.
Under s.8 of the Copyright Act 1956 retailers were protected from breach
of copyright if they gave notice to the copyright holders of the ordinary
retail selling price and paid them 6.25% of this. Nestory gave notice stating
the ordinary selling price was the 1 shilling 6d and three chocolate bar
wrappers. The question for the court was whether the chocolate bar
wrappers formed part of the consideration. If they did it was impossible to
ascertain the value they represented and therefore Nestory would not
have complied with their obligation to give notice of the ordinary retail
selling price. If the wrappers were a mere token or condition of sale rather
than constituting consideration, then the notice would be valid and
Nestory could sell the records. Is the consideration of wrappers valid in this
arrangement?
7. Collins had been subpoenaed to attend court as a witness in separate
court case involving Geoffrey. Geoffrey had sued his attorney for
malpractice and Collins was required by the court to attend as an expert
witness. In fact Collins never gave evidence but was required to be on
standby for six days in case he was called. After the trial Collins gave
Geoffrey an invoice to cover his time spent at court and demanded
payment by the next day. Without giving him the full day to pay, Collins
commenced an action to enforce payment. Can he succeed in his
action? Support your answer with relevant authorities.

224
8. Baharia was a seaman on a voyage from Dar es Salaam to Pemba and
back. He was to be paid 500,000/=TShs per month. During the voyage two
of the 12 crew deserted. The captain promised the remaining crew
members that if they worked the ship undermanned as it was back to Dar
es Salaam he would divide the wages due to the deserters between
them. Baharia agreed. The captain never made the extra payment
promised. Is Baharia entitled to such extra payment?
9. Half of a ship's crew deserted on a voyage. The captain promised the
remaining crew members extra money if they worked the ship and
completed the voyage. The captain then refused to pay up. Is captain
obliged to pay the extra money as promised?
10. An unmarried couple had a child together and lived together for five
years. The father then turned the mother out of the house and sent the
child to live with a neighbour and the father paid the neighbour
100,000/=TSHS per week. The mother then got a job as a live in house
keeper and wished to have the daughter live with her. The father agreed
to allow the daughter live with the mother and agreed to pay her
100,000/=TSHS per week provided she ensured the child was well looked
after and happy. The father made payments but then when the mother
remarried he stopped making payments. The mother brought an action to
enforce the agreement. The father argued that the Mother was under an
existing legal duty to look after and maintain the child and therefore was
not providing any consideration for the promise to make payment. Is the
father argument tenable? Can the mother succeed in her action? Answer
authoritatively.
11. A couple were getting married. The father of the bride entered an
agreement with the father of the groom that they would each pay the
couple a sum of money. The father of the bride died without having paid.
The father of the son also died so was unable to sue on the agreement.

225
 The groom made a claim against the executor of the will. Is the groom
entitled to enforce the contract?

References

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brown, G. W., et al, Understanding Business and Personal Law, 9th Edition,
McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

226
 LECTURE FOURTEEN

LEGALITY

Introduction

Under the doctrine of rule of law, everything which is undertaken within the
country must be within the ambit of the law. Everything must be done
according to the law. This indicates supremacy of the law. Neither person nor
intentions of the persons should be above the law. Hence, everyone and
everything must be according to the law. This includes even the contractual
relationships.

The contractual arrangements made by the private persons should not be used
as means to dodge the compliance of the law. They have to be undertaken
according to the scope of the law governing the same. If they are purposed
outside the scope of the law, they cannot be enforced to defeat the statutory
provisions. Hence, the contracts which are against the laws of the land are
illegal contracts. They are not enforceable in the courts of law because doing so
shall defeat the very essence of constitutional principle of rule of law.

The objects or purposes of the contract must be legal. An agreement in which

the object is unlawful is void. For instance, the agreement to carry out an act
which is forbidden by public law is void. The same applies to an agreement
which is contrary to public policy. This lecture provides understanding of the
concept of legality, circumstances which cause illegality, effects of illegality on
the contract and its essence.

Legality

227
Legality connotes the state of being according to the law. It indicates the
quality that something is in line with the provisions of the law. It is observation of
the law in doing something. It is what makes something legal.

Circumstances of illegality

The legality of the contract is not in the obligation, but in the purpose of making
of the contract or in the performance of it. This shows that what determines the
legality of contract is the purpose of making such contract or performance of
such contract vis-à-vis the statutory compliances.

Section 23 (1) of the Law of Contract Act 248 explicates the circumstances which
determine the illegality of contracts. These are: -

(a) When contracts are forbidden by law

There are agreements which are forbidden by the law to be formed and be
carried out. For instance, agreements by way of wager. They are gambling
agreements. These are agreement in which one party loses and anther party
wins even though some skill is involved.

Section 30 of the Law of Contract Act 249 prohibits agreements by way of wager.
It provides that no suit shall be brought for recovering anything alleged to be
won on any wager, or entrusted to any person to abide the result of any game
or other uncertain event on which any wager is made. Hence agreement by
way of wager is void.

248 Cap 345 RE 2018

249 Ibid
228
In the case of Anderson Ltd v Daniel250, the Fertiliser Act 1906 required every
person that sold for use as a fertiliser any soil that had been subject to an
artificial process, to provide the purchaser with an invoice stating the respective
percentages of certain chemicals. The court held that the effect of
noncompliance did not merely render the vendor liable to pay a penalty, but
made the sale illegal and precluded the vendor for suing for the price of the
contract.

(b) When the contracts are of such a nature that, if permitted, they would
defeat the provisions of any law

There are laws which permit some activities to be done under licence. These
laws require acquisition of licence before running a business or trade or
practising profession. Licence is the legal document which state that the holder
has the permission from the proper authorities to carry on certain trade or
profession. If there are agreements made by persons who has no licence in the
business or profession which require licence, the agreements are illegal because
if they are allowed by the law they would defeat the provisions of the licencing
laws.

Hence, the agreements are of such a nature that if permitted, they would
defeat the provisions of any law in the country, the agreements are illegal and
therefore unenforceable because the court cannot allow enforcement of law
which defeats any provision of the law which operates in the country.

In the case of Florent Rugarabamu v Hassan Maige Goronga251, the court

observed that the partnership (in nature it is agreement) has been tainted by

250 [1924] 1 KB 138

251 1988 TLR 243 (CA
229
the illegality arising from the failure to comply with the requirements of section
11 of the Business Names Ordinance, Cap. 213 and no partner can enforce a
right under this tainted partnership.

(c) When the contracts are fraudulent in nature

Fraud is intentional deception in order to obtain unfair advantage. It is a false

representation by means of a statement or conduct made knowingly or
recklessly in order to gain a material advantage. It is the crime of gaining money
or financial benefits by a trick or by lying. The law prohibits and punishes the
fraudulent activities.

Hence, if the contracts are fraudulent in nature in the sense that they made
under deceit or false pretence of one party so as to gain unfair advantage from
the other party, such contracts are illegal and therefore unenforceable.

In the case of Zakaria Barie Bura v Theresia Maria John Mubiru252 the court held
that the making of the agreement under two sale documents intended to
deceive the Treasury as to the proper tax liable to be paid for the transaction
rendered the agreement illegal and therefore void ab initio and unenforceable.

(d) If the contracts involve or imply injury to the person or property of

another

Injuring a person or property of person is against the law. It is an offence to injure

someone. For instance, section 225 of the Penal Code253 criminalises the causing
grievous harm to a person and punishes the offender. It provides that any

252 1995 TLR 211 (CA)

253 Cap 16 RE 2018
230
person who unlawfully does grievous harm to another is guilty of an offence and
is liable to imprisonment for seven years.

Hence, making of any contract whose purpose is to injure the persons or

property of the person is going against the provision of the law. Such contracts
are illegal and cannot be enforced in the courts of law. If the court could
enforce such contracts, the contracts can be used as means to violate the laws
of the land.

(e) The court regards the contracts as immoral or opposed to public

policy.

Public policy holds that no person should be allowed to perform an act that
harms the public benefit. Hence, the contract whose performance is harmful
act to the public benefits is considered to be contrary to the public policy even
though such act may not be illegal. Contracts which are against the public
policy is void ab ignition. It means they are nothing from the beginning. They are
void and cannot be enforced.

In the case of Egerton v Brown254 the court observed that no subject can lawfully
do that which has a tendency to be injurious to the public or against the public
good which must be termed, as it sometimes has, the policy of the law or public
policy in relation to the administration of the law.

Circumstances against Public Policy

A condition is against public policy if it is in the interest of the state that it should
not be performed. What is contrary to public policy has varied from time to time,
and many conditions now upheld which in former days would have been

254 (1853) 4 HLC 1

231
declared to be contrary to the (public) policy of the law. The rule remains, but its
application varies with the principles which for the time being guide public
opinion.255

In the case of Fender v Mildmay256, the court described on the application of

the doctrine of public policy to make contracts illegal. It opined that the
doctrine (of public policy) should be invoked only in clear cases, in which the
harm to the public is substantially incontestable, and does not depend upon the
idiosyncratic inferences of a few judicial minds.

(i) Unreasonable restraint of trade or profession

Restraint of trade is a limitation on full exercise of doing business or practice

profession with others in the societies. Restraint of trade or profession is taking
away right of persons to make a living, do business or practice profession in a
market economy. Unreasonable taking away of this right of person of making a
living through business or practice of profession is against the public policy.

Section 27 (1) of the Law of Contract Act 257 declares the agreements in
unreasonable restraint of trade, business or profession void. It provides that every
agreement by which anyone is restrained from exercising a lawful profession,
trade or business is to that extent void, unless the restraint is reasonable in
reference to the interests of the parties concerned and in reference to the
interests of the public. It is declared void because unreasonable restraint injures
the public benefits.

255 Sherrin, C., Williams on Wills, 8th Edition, Butterworths, London, (2002), page 355
256 (1937) 3 All ER 402
257 Cap 345 RE 2018

232
Section 27 (2) of the Law of Contract Act258 enunciates what is not
unreasonable restraint of trade, profession or business. It provides that an
agreement in restraint of trade is not reasonable in reference to the interests of
the parties, if the restraint exceeds what is reasonably necessary to protect a
proprietary interest of the promisee.

Who has the burden of proving that the restraint of trade, profession or business
is reasonable or unreasonable? Section 27 (3) of the Law of Contract Act 259
explicates that the promisee has the burden of proving that any restraint is
reasonable in reference to the interests of the parties. Also, it elucidates that the
promisor has the burden of proving that any restraint is unreasonable in
reference to the interests of the public.

(ii) Restraint of Marriage

Marriage is the right of person who has the legal age. A person who has
minimum age as required by the law governing the marriage has the right to
contract marriage. However, sometimes persons may enter agreement to
restrain other person from contracting marriage. Taking away of this right is
against the public policy since the law encourages marriages and protects
family relationships. Hence, contracts which discourage, harm or interfere with
good family relationships are illegal and therefore unenforceable in the courts.

Section 26 of the Law of Contract Act 260 declares the agreements which are
made to restrain the person from contracting marriage void. It provides that
every agreement in general restraint of the marriage of any person, other than
a minor, is void.

258 Ibid
259 Ibid
260 Cap 345 RE 2018

233
On the other hand, if the agreement restrains the person who has not reached
the minimum age as required by the law to contract marriage such agreement
is valid because the law disregard the issue of contracting marriage against the
statutory provisions governing the marriage in the societies.

(iii) Restraint of legal proceedings

Legal proceedings are important in the administration of justice in the country. If

there is any restraint of legal proceedings, such restraint implies the obstruction
of administration of justice in the country. The law prevents interference with the
administration of justice. Any contract which interferes with the administration of
justice through preventing legal proceedings to take place are void.

Section 28 of the Law of Contract Act261 declares the agreements which restrict
absolutely the right to legal proceedings in courts or tribunals void. It provides
that every agreement, by which any party thereto is restricted absolutely from
enforcing his rights under or in respect of any contract, by the usual legal
proceedings in the ordinary tribunals, or which limits the time within which he
may thus enforce his rights, is void to the extent of absolute restrictions.

Nonetheless, the arbitration agreements are not illegal. Proviso of section 28 (a)
of the Law of Contract Act 262 provides that it is not illegal for a contract by
which two or more persons agree that any dispute which may arise between
them in respect of any subject or class of subjects shall be referred to arbitration,
and that only the amount awarded in such arbitration shall be recoverable in
respect of the dispute so referred. Also, it is not illegal for any contract in writing
by which two or more persons agree to refer to arbitration any question

261 Ibid
262 Ibid
234
between them which has already arisen. Moreover, the provision of law does
not affect rights of the parties in reference to the arbitration agreement. Proviso
of section 28 (b) of the Law of Contract Act 263 affect any provision of any law in
force for the time being as to references to arbitration.

In the case of Hendry v Zimmerman264, a person agreed to testify for a party in a

court action only if something was left for her in the party's estate plan. The court
refused to enforce the contract as against public policy because it causes
obstruction of justice administration.

Legal Consequences of Illegality on Contracts

Illegal contracts are the contracts whose object or performance is against the
law of the land or public policy. Illegal contracts are prohibited due to their very
nature. Such contracts are prohibited since the performance, formation, or
object of the agreement is against the law. Contracts can well be illegal without
contravening the law. There are certain activities which the law does not
actually prohibit, but at the same time need to be discouraged with respect to
the public interest, such as prostitution. While a void contract is not necessarily
illegal, an illegal contract is often void.

Generally, the courts do not aid either party to illegal contracts. The courts leave
the parties where they placed themselves through the contracts. Neither party
can enforce such contracts nor receive aid from the courts of law.

However, sometimes not all parties to the contract are equally at fault. In such
cases, the court may party who at less fault or no fault at all to such illegal

263 Cap 345 RE 2018

264 (1948) 1 WWR 385
235
contracts to be restored with money advanced to the other party or property
they may have parted with.

In the case of Zakaria Barie Bura v Theresia Maria John Mubiru265 the court was
of the view that although the sale agreement was illegal the appellant
purchaser was entitled to the sums of Shs 500,000/= which he paid under the
illegal contract and which appeared to have been deposised in court by the
respondent.

In the case of Colen v Cebrian266, a husband and wife claimed commission that
was owed prior to their dismissal from the company for whom they worked. The
husband had evaded tax, by giving to his wife commission to which he alone
was contractually entitled. The company claimed that they should not have to
pay the commission because the contract was tainted by illegality and the
employment tribunal ruled that they did not have to pay the commission. The
Court of Appeal, however, overturned the tribunal’s decision, ruling that there
was a clear distinction between the method of calculating the commission and
the ultimate destination of that commission. The Court of Appeal upheld the
contract, providing that illegality as to performance will not always result in the
unenforceability of the contract.

Lord Justice Carnwath said that if at the date of the contract the contract was
perfectly lawful and it was intended to be performed lawfully, the effect of
some illegal performance is not automatically to render the contract
unenforceable.

265 1995 TLR 211 (CA)

266 [2003] EWCA Civ 1676
236
Also, in the case of Parkingeye Ltd v Somerfield Stores267, the Court of Appeal
was asked to consider whether a party was able to rely on illegality as a
defence to a claim for the payment of contractual fees. In doing so, it
examined when illegality would render the contract void and when illegality
was found to be so minor that it would not destroy the contract.

Conclusion

Legality is very crucial as essential of contract in the societies where the rule of
law applies. The courts cannot enforce the contracts which are illegal. Illegal
contracts are the contracts whose object or performance is against the law of
the land or public policy. Illegal contracts are prohibited due to their very
nature. Such contracts are prohibited since the performance, formation, or
object of the agreement is against the law. Contracts can well be illegal without
contravening the law. Contracts encouraging immorality such as selling a
daughter for marriage, seeking to interfere with the administration of justice or
injurious to the state, transacting in goods known to be stolen, to commit torts or
crimes or to promote sedition or mutiny or, in time of war, enemy attacks have
all been held to be unenforceable as against public policy, or seeking to
enforce a contract obtained by fraud.

Review Questions

1. Sethi and Rugema were partners. Their partnership was duly registered.
The first partnership venture failed to take off. Another venture was
agreed and resorted to. This change of venture was not registered as
required by section 11 of the Business Names Act, Cap. 213. When a
dispute arose between the partners assistance of the Court was sought.

267 [2012] EWCA Civ 1338

237
 Can the parties enforce right arising from such partnership agreement?
Support your answer with relevant authorities.
2. Zarina Enterprises was a supermarket who contracted for Chibudee, to
install and operate a monitoring system in Zarina Enterprises’ car parks.
The system recorded the number plates on customer’s vehicles and
charged them if they overstayed the free period. Chibudee was not paid
by Zarina Enterprises but retained all the amounts generated from
charging over stayers. Chibudee sent demands in a series of letters to
customers. In the third such letter Chibudee falsely stated they had
authority to bring civil proceedings against those who did not pay,
committing the tort of deceit. Zarina Enterprises terminated the contract
earlier than agreed. Chibudee claimed damages for the lost revenue it
would have obtained under the contract. Zarina Enterprises raised a
defence to its own breach of contract in that as the contract was illegally
performed it should be void. Is the defence tenable? Answer
authoritatively.
3. A husband and wife claimed commission that was owed prior to their
dismissal from the company for whom they worked. The husband had
evaded tax, by giving to his wife commission to which he alone was
contractually entitled. The company claimed that they should not have to
pay the commission because the contract was tainted by illegality and
the employment tribunal ruled that they did not have to pay the
commission. Discuss with relevant authorities, whether the decision of the
employment tribunal was correct in law.
4. Mwakitopile agreed to testify for Salehe in a court action only if something
was left for him in the Salehe's estate plan. Salehe agreed and refused to
honour the demand from Mwakitopile. Mwakitopile sued Salehe. Is the
agreement enforceable? Support your answer with relevant authorities.

238
5. Mwanahamis and Kimaro agreed to enter sale agreement of motor
vehicle. They agreed also to make of the agreement under two sale
documents so as to reduce the tax payable to the Tanzania Revenue
Authority. Two sale agreements were prepared and signed by the vendor
and purchaser one of which indicated a lesser sale price in order to
defraud internal revenue. The sale agreement did not bear any stamp
duty. Discuss any legal effect to the sale agreement.
6. Kisasa Garage Ltd was a small garage which was tied to Chamakubwa
Filling Station along with two other neighbouring garages, by way of a
solus agreement. There was a petrol price war in 1975, during which
Chamakubwa Filling Station had a support scheme that enabled them
and their partner garages to sell for 70p per gallon. However, in line with
the terms that had been agreed by the parties, Chamakubwa Filling
Station restricted Kisasa Garage Ltd to sell for no less than 75p per gallon
and as such, their sales sold dramatically, by 44,000 gallons in a year. As
such, Kisasa Garage Ltd purchased their fuel elsewhere and
Chamakubwa Filling Station sought for an injunction to prevent them from
doing so. Kisasa Garage Ltd claimed that Shell had unreasonably
restricted their trade. Is the claim valid in contract law? Argue
authoritatively.
7. Under s. 1(1) Fertilisers and Feeding Stuffs Act 1906 any seller of artificial
fertilizer had to provide the buyer with an invoice stating the percentage
of chemicals in it. The Act imposed a fine for failing to do this. MoFert Co.
LTD sold a quantity of “salvage” (sweepings from the holds of ships) as
artificial fertilizer to Mkulima Hodari but did not supply him with an invoice.
Mkulima Hodari refused to pay, arguing the contract was illegal. MoFert
Co. LTD argued they had a defence under s.6 of the 1906 Act as they had
a reasonable excuse for not providing an invoice, saying it was the
custom of the trade not to provide an invoice for “salvage” as it was

239
 prohibitively expensive. Discuss the effect of s. 1(1) Fertilisers and Feeding
Stuffs Act 1906 to said agreement.

References

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brown, G. W., et al, Understanding Business and Personal Law, 9th Edition,
McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012).

Sherrin, C., Williams on Wills, 8th Edition, Butterworths, London, (2002).

240
 LECTURE FIFTEEN

FORMALITIES IN CONTRACTS

Introduction

Contracts are formed through agreement of the parties. The formation of

contract can have different formalities depending on the nature, subject matter
and intention of the parties to the said contract. However, there are some law
which require certain contracts to comply with certain formalities. Failure to
follow the stipulated formalities leads to the non-enforcement of the contracts.
The law may require the certain formalities for different purposes such as
prevention of fraud, evidential and referential concerns of the contract when
the dispute occurs.

The formalities may be different from one contract to another as well as from
one law to another. They are determined by the nature of the contracts and
specifications of the law governing the said contracts. These formalities may be
such as witnesses, documentation, evidence in writing, approval, or consent as
far as the particular contract formed is concerned.

Understanding contract formalities is a very important topic for anyone who

plans to go into a contract with another party. Whether you run a business or
want to conduct a deal with a friend or acquaintance, there need to be some
formalities in your contract to prevent any issues should the parties come to a
disagreement about the contract terms. Formalities are also important if you
want to make changes to the contract at any point.

Hence, this lecture shades light on the formalities requirements for different kinds
of contracts while considering much the law which govern and specify the said
requirements in the particular contracts. It gives understanding of the formal
conditions, procedures, and practices of the certain contracts. It also imparts

241
the knowledge and skills in the determination of the legal consequences for
failure to comply with the formalities stipulated.

Formalities

These are formal actions or procedures that are carried out as part of a
particular activity or event. They are dependent on the compliance of certain
conventional rules, practice or procedures in undertaking something officially.
They are small point of practice that, though apparently insignificant, must
generally be observed to achieve a particular legal result.

Formality also means the conditions which must be observed in making

contracts, and the words which the law gives to be used in order to render them
valid. It also signifies the conditions which the law requires to make contract or
agreement.

Formalities requirements are generally designed to prevent fraud, but strict

adherence to such requirements might themselves facilitate fraud by enabling
those who entered into such contracts to deny the existence of the contract or
otherwise seek to avoid their promised obligations by relying on non-
compliance as a defence to a contractual claim.

Requirement of Formalities

As a general rule contracts do not need to comply with any sort of formalities.
This means an agreement does not have to take a specific written form in order
to be deemed a binding contract. Often the contract will simply be oral.

There are some types of contract which currently require certain formalities to
be followed to make them enforceable. However, nowadays many categories
of contract are governed by statute.

(a) Contracts for Disposition of Right of Occupancy

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These contracts involve transfer of land rights such as ownership, occupation
from the occupier to another person. These contracts require certain formalities
to be enforced in the courts of law. Section 64 of the Land Act 268 provides for
writing required for enforcement of contracts relating to land.

Section 64(1)(a) of the Land Act 269 provides that contract for the disposition of a
right of occupancy or any derivative right in it or a mortgage is enforceable in a
proceeding only if the contract is in writing or there is a written memorandum of
its terms. This suggests that a contract for disposition of right of occupancy can
be enforceable if it is in written or reduced into written form.

Moreover, the contract for disposition of right of occupancy may be made in

the prescribed form i.e. deed. Section 64(2) of the Land Act 270 provides that A
contract for a disposition of a right of occupancy or any derivative right in it or a
mortgage is enforceable in a proceeding only if may be made using a
prescribed form. It may be made in the prescribed form as per the Land Forms
Regulations of 2001.

Furthermore, the contract for disposition of right of occupancy must be signed

by both parties. Being signed means it has to be written down. Section 64(1)(b)
of the Land Act 271 provides that contract for the disposition of a right of
occupancy or any derivative right in it or a mortgage is enforceable in a
proceeding only if the contract or the written memorandum is signed by the
party against whom the contract is ought to be enforced.

Disposition of right of occupancy means any sale, exchange, transfer, grant,

partition, exchange lease, assignment, surrender, or disclaimer and included the

268 Cap 113 RE 2018

269 Ibid
270 Ibid
271 Ibid

243
creation of an easement, a usufructuary right or other servitude or any other
interest in a right of occupancy or a lease and any other act by an occupies of
a right of occupancy over that right of right of occupancy or under a lease
whereby his rights over that right of occupancy or lease are affected and an
agreement to undertake any of the dispositions so defined. 272

Contracts of sale of land must be in writing. In the case of Jafta v Ezemvelo KZN
Wildlife273 the court specifically referred to “paper based concepts such as
‘writing’, ‘signature’ and ‘original’ to explain the term writing in the sense of
reducing the terms of an agreement to paper or other documentary form
thereby constituting the agreement as a written contract.

In addition, contracts for disposition of right of occupancy must have approval

from the land commissioner to be operative in the eyes of the law. Approval is
the requirement of the land law to effect the disposition of the right of
occupancy.

Section 37(5) of the Land Act, provides for the effect of the contract of
disposition of land which lacks the approval from the land commissioner. It
provides that a disposition which has been carried out without first obtaining the
approval of the Commissioner shall be inoperative.

In the case of Abuali Alibhai Aziz v Bhatia Brothers Ltd274, the court held that the
fact that radical title is vested in the President as trustee on behalf of citizens,
means also that land in TANZANIA is national property and the state is a superior
landlord hence approval of the land commissioner is necessary to protect rights
of the superior landlord. When the contract of disposition of land lacks approval

272 The Land Act, s 2

273 2008 (10) BLLR 954 (LC)
274 Misc. Civ. Appeal No. 1 of 1999

244
of commissioner, it is unenforceable until the approval is obtained from the
respective authority.

(b) Contracts of Employment

The contracts of employments have to be reduced into written particulars. The

law obliges the written statement of particulars of the employment. It is the duty
of employer to reduce the employment particulars into written form.

Section 15 (1) of the Employment and Labour Relations Act 275 deals with the
written statement of the particulars. It provides that when the employee
commences employment, with the following particulars in writing, namely
name, age, permanent address and sex of the employee; place of recruitment;
job description; date of commencement; form and duration of the contract;
place of work; hours of work; remuneration, the method of its calculation, and
details of any benefits or payments in kind; and any other prescribed matter.
Hence this denotes that there must be evidence in writing of the employment
between the employer and employee.

If an employee does not understand the written particulars, the employer shall
ensure that they are explained to the employee in a manner that the employee
understands.276The employer shall keep the written particulars for a period of five
years after the termination of employment.277 If in any legal proceedings, an
employer fails to produce a written contract or the written particulars, the

275 Cap 366 RE 2018

276 The Employment and Labour Relations Act, s 15(3)
277 Ibid, s 15(5)

245
burden of proving or disproving an alleged term of employment stipulated shall
be on the employer.278

(c) Contracts of Sale of Goods

As general rule, the contracts of sale of good can be made in various

formalities. Section 5 (1) of the Sales of Goods Act279 provides the formality of
making contract of sale of goods. It provides that a contract of sale may be
made in writing either with or without seal or by word of mouth, or partly in
writing and partly by word of mouth, or may be implied from the conduct of the
parties.

There are certain contracts of sales of goods demand to be in written form or

evidence in writing so as to be enforceable in the courts of law. Hence, no
written memorandum of the contract of sale of goods implies no enforcement
of the said contract in the courts of law when the dispute arises thereto.

Section 6(1) of the Sales of Goods Act 280 provides that a contract for the sale of
any goods of the value of two hundred shillings or more shall not be enforceable
by action unless some note or memorandum in writing of the contract is made
and signed by the party to be charged or by his agent in that behalf. This implies
that there is must be memorandum or note in writing and signed by the party to
ensure the contract of sale of goods of such value to be enforced in the courts
of law.

Part Performance

278 Ibid, s 15(6)

279 Cap 214 RE 2018
280 Ibid

246
Part-Performance doctrine is an equitable principle that allows a court to
recognize and enforce an oral contract despite its legal deficiencies. It provides
a way around the statutory bar to the enforcement of an oral contract. It
provides that where the plaintiff has partly carried out the contract, relying on
the defendant’s promise, equity may enforce the contract despite non-
compliance with formalities.

By applying the part performance doctrine, a party can establish the existence
of a contract despite the lack of any written evidence. Generally, without
written evidence a contract does not satisfy the formal requirements set by
legislatures under their statutes of frauds. The doctrine of part performance is an
exception to this. This doctrine allows failure to comply with the statute of frauds
to be overcome by a party's execution, in reliance on an opposing party's oral
promise, of an oral contract's requirements. Nonetheless, a party must still meet
the burden of proving the existence of the contract by clear and convincing
evidence.

The doctrine of part performance developed in the courts of equity. Its primary
function was to further the policies behind the Statute of Frauds. In appropriate
circumstances, part performance could provide a device for evading the
operation of that statute when rigid application of it would actually result in
sanctioning a fraud, causing injustice in the name of technicality.

In the case of Maddison v Alderson281, the plaintiff was the housekeeper of a

person who subsequently died intestate. Sometime before his death she had
some idea of leaving his service, but on a verbal promise by him to make a will
leaving her a life estate in land she was induced to continue in his service until
his death without any wages.

281 (1883) 8 App Cas 467

247
The court held that that there was no evidence of any definite contract
between the plaintiff and the intestate and that her service did not amount to
part performance, as it was not unequivocally and necessarily referable to the
contract, but was explicable on other grounds.

The court reasoned that the requirement of the doctrine of part performance is
that the acts of part performance relied upon must be ‘referable’ to the
contract sued on. The principle underlying the doctrine of part performance
was expressed by Lord Selborne: ‘In a suit founded on such part performance,
the defendant is really ‘charged’ upon the equities resulting from the acts done
in execution of the contract, and not (within the meaning of the statute) upon
the contract itself. If such equities were excluded, injustice of a kind which the
statute cannot be thought to have had in contemplation would follow. The
matter has advanced beyond the stage of contract; and the equities which
arise out of the stage which it has reached cannot be administered unless the
contract is regarded.

Rationale of Writing Contracts or Reducing into Written Form

Despite the general rule that contracts can be made in any formality, there are
grounds which justify the need of having the contracts written. The grounds
range from preventing the fraud to referential purposes.

(i) Proof of details

This is definitely one of the reasons why a written contract is essential for your
start-up business or any type of contract –it can legally serve as proof of details
on whatever you and the other party have mutually agreed. It provides the
ultimate understanding of the agreement between the owners of a company or
its investors, about the services rendered by a third party, or payment

248
obligations you need to comply with your hired workers. All these things should
be stated in the written contract as legal proof.

As it can be difficult to prove later what was said orally, there are practical
advantages of putting a contract in writing, despite there being no legal
requirements to do so. In Hadley v Kemp282, Gary Kemp was the songwriter in
the pop group Spandau Ballet. He was sued by other members of the group for
royalties received for the group’s music. The basis of their claim was that there
had been an oral agreement to share these royalties. They were unable to
prove the existence of any oral agreement and so their action failed.

(ii) Prevention of misunderstanding from arising agreement

A written contract is usually produced during a sensitive business venture

between parties entering into a business agreement. The main purpose of this
formal written agreement is to give each concerned party the chance to read
and have a clearer understanding of the terms or conditions, including the
personal expectations of each party and what they have come to terms after a
thorough discussion. The written contract will also be a reminder to each party
that this business transaction should be taken seriously.

(iii) Provision of security and peace of mind to the parties to the contract

In any business dealing, a written contract can provide security and peace of
mind to all of the parties involved in the transaction. For example, a written
employment contract sets forth the terms between the employer and an
employee with regards to their duties and responsibilities, payment and overall
relationship. An employer is legally responsible in complying strictly with the

282 [1999] EMLR 589

249
employee’s wages and other benefits mandated by the law, whereas the
employee is expected to perform diligently his or her assigned duties mentioned
in the job description. A written contract gives ample protection on the parties
involved when the agreed terms or conditions are not followed or are
breached.

(iv) Guarantee of confidentiality

One of the ultimate benefits of having written contracts in business transactions

is the opportunity to agree to confidentiality and non-disclosure provisions
protecting sensitive information. As part of the agreement, the concerned
parties are legally bound to hold in secrecy the transactions involved and the
information shared among them, and the party that violates this confidentiality
agreement would be held liable under the agreement.

(v) Avoidance of expensive litigation proceedings

When a party to an agreement breaks the contract, the written agreement will
be used as a general reference on what the parties have agreed and
determine who is really at fault. Having a readily available written contract
reduces the chances of bringing the issue to litigation proceedings, or even
dragging litigation more than it may be necessary, which could be very costly
and time-consuming.

(vi) Serving as an official record of the business agreement

A written contract is used as an official record establishing what the parties

involved have agreed on. For instance, it provides guidance on the level of
authority given to owners or managers in the business, completion date of any

250
work contracted to a service provider, payment of work completed, or simply
stating the terms on who or when to terminate a contract.

Conclusion

While contracts can be generally created without formality, some transactions

are thought to require form either because it makes a person think carefully
before they bind themselves to an agreement, or merely that it serves as clear
evidence. Formalities requirements are generally designed to prevent fraud, but
strict adherence to such requirements might themselves facilitate fraud by
enabling those who entered into such contracts to deny the existence of the
contract or otherwise seek to avoid their promised obligations by relying on non-
compliance as a defence to a contractual claim.

Review Questions

1. As a general rule contracts do not need to comply with any sort of

formalities. However, there are some types of contract which currently
require certain formalities to be followed to make them enforceable.
Substantiate the truth of the statement with relevant authorities.
2. There are many reasons that justify for the contracts to be written or
reduced into writings. What are these reasons?
3. There were five members of a well-known pop group. The song composer,
guitarist/keyboard player and singer, Mr. Mbosso, also owned the songs’
publishing company. Mr. Mbosso wrote and composed the songs; the
band members ‘contributed’ to the songs during rehearsals. Three
members sued Mr. Mbosso and his publishing company for payments of
shares of his ‘publishing income’ of the songs. Their primary argument was
that there was an oral agreement that rendered him contractually bound
to distribute the publishing income. Is their argument tenable? Give
reasons and authorities for your answer.

251
 4. Yaya was the housekeeper of Rodiger who subsequently died intestate.
Sometime before his death she had some idea of leaving his service, but
on a verbal promise by him to make a will leaving her a life estate in land
she was induced to continue in his service until his death without any
wages. What are challenges that may encounter Yaya in enforcement of
her entitlements?
5. What do you understand by the part performance doctrine? What is its
relevance as far as commercial transactions are concerned in the
modern societies?
6. Discuss with examples and relevant legal authorities, the contracts which
currently require certain formalities to be followed to make them
enforceable in Tanzania.

References

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brown, G. W., et al, Understanding Business and Personal Law, 9th Edition,
McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

252
Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012).

Sherrin, C., Williams on Wills, 8th Edition, Butterworths, London, (2002).

253
 LECTURE SIXTEEN

TERMS OF CONTRACTS

Introduction

The contents of a contract are known as terms or clauses. An agreement will

generally consist of various terms. Even the simplest forms of contract will have
terms. The main terms generally being the price paid and the subject matter of
the contract, such as the goods or services provided. The contents of a contract
depend primarily on the words used by the parties in the contract. These make
up its express terms. A contract may, in addition, contain terms which are not
expressly stated, but which are implied, either because the parties so intended,
or by operation of law, or by custom or usage.

Statements made during the course of negotiations could amount to a

contractual term or a representation. Hence, it is important to know whether a
particular statement is a contractual term or if it is a representation as this will
determine the appropriate cause of action and remedy available. If the
statement amounts to a term of the contract which is not fulfilled, the innocent
party may sue for breach of contract. If the statement is merely a representation
which turns out to be untrue, the innocent party may bring an action for
misrepresentation.

This lecture focuses on understanding the terms of contract from their

conceptual underlying to their significance in the contract law. It imparts ability
to determine whether the statements made during negotiations is a term or
mere representation. This determination shall enable determination of remedies
for their breach.

Terms of Contract

254
Terms of contract are contents stipulated in the contract which prescribe the
rights and duties of each party for their realization and discharge during the
performance of the contract. They constitute conditions and warranties in the
contract which need to be adhered for the implementation of the contract by
parties. They form the core of the agreement between parties to the contract.

Significance of Terms of Contract

Terms of the contract form the rights and duties of the parties to the contract.
Hence they are the reason for the performance and implementation of the
contract by the parties. They provoke the parties to perform the contract
because they yield up benefits to them.

Terms of contract create favourable environment for the performance of the

contract. Terms of contract pave the way for each party to perform their
contractual duties since performance of contract needs conducive
circumstance to allow the parties discharge their obligations.

What Contractual terms stand for?

Rights of parties to the contract. These are entitlements each party is inhered by
virtue of the contract. For example, in contract of sale of land, portion of law
and money for portion are rights to buyer and seller respectively.

Duties of the parties to the contract. These are obligations each party need to
implement to other party for discharge of the contract. For example, in contract
of sale of land, delivery of agreed portion of land is the duty of the seller while
money payment to the seller is the duty of buyer.

Conditions of the contract. These are the most important terms of contract.
Serious consequences if breeched. Innocent party can treat contract as
repudiated (and thus is freed from rendering further performance of contract)

255
and can sue for damages. To know term is condition or not is question of fact
depending on the evidence and nature of agreement between the parties to
the contract as was postulated in the case of Schuler AG v. Wickman Machine
Tools Service Ltd (1974).

Warranties of the contract. These are lesser importance than conditions, and
can be breached without such serious consequences. Innocent party can sue
for damages but is not able to terminate the contract.

Terms of Contract or Mere Representations

Where a contract is formed orally it may be difficult to establish which

statements made in negotiating the contract amount to terms and which
statements are merely representations. In deciding whether a statement
amounts to a term or representation the courts look at four factors: -

(i) The parole evidence rule

Where the contract has been put into writing only the terms included in the
written document are terms any verbal statements will be representations unless
the verbal statements are collateral contracts to main written contract. This is
parole evidence rule that prevent changes the integrity of written document or
agreements by forbid both parties attempting to alter the meaning of written
documents or annul the documents through the use of prior oral or written that
are not included in the document.

In the case of CRDB Bank PLC v Africhick Hatchers Ltd and Two Others 283, High
Court of Tanzania (Commercial Division) at Dar es Salaam held that oral promise
to advance additional fund does not amount to an enforceable collateral

283 Commercial Case No 97 of 2014 (Unreported)

256
contract; the reason being the oral agreement is not certain as to its terms and
conditions. The oral agreement remains as ‘a promise to agree.’

(ii) Relative expertise

Expertise of the parties to the contract may affect the nature of their statement
either to be term or mere representation. If the representor has the greater
knowledge, it is more likely to be a contractual term. Conversely if the
representee has the greater knowledge it is more likely to be a representation.

In the case of Oscar Chess Ltd v Williams284, Mrs Williams purchased a second
hand Morris car on the basis that it was a 1948 model. The registration document
stated it was first registered in 1948. The following year her son used the car as a
trade in for a brand new Hillman Minx which he was purchasing from Oscar
Chess. The son stated the car was a 1948 model and on that basis the Oscar
Chess offered £290 off the purchase price of the Hillman. Without this discount
Williams would not have been able to go through with the purchase. 8 months
later Oscar Chess ltd found out that the car was in fact a 1939 model and worth
much less than thought. They brought an action for breach of contract arguing
that the date of the vehicle was a fundamental term of the contract thus giving
grounds to repudiate the contract and claim damages.

The Court of Appeal held that the statement relating to the age of the car was
not a term but a representation. The representee, Oscar Chess ltd as a car
dealer, had the greater knowledge and would be in a better position to know
the age of the manufacture than the defendant.

284 [1957] 1 WLR 370

257
In addition, in the case of Dick Bentley Productions v Harold Smith Motors285, Dick
Bentley knew the defendant, who was a car trader specialising in the prestige
market, for some time. He had asked him to look out for a well vetted Bentley
car. The defendant obtained a Bentley and recommended it to the claimant.
He told him that the car had been owned by a German Baron and had been
fitted with a replacement engine and gearbox and had only done 20,000 miles
since the replacement. Mr Bentley Purchased the car but it developed faults.
The defendant had done some work under the warranty but then more faults
developed. It transpired that the car had done nearer 100,000 miles since the
refit. The question for the court was whether the statement amounted to a term
in which case damages would payable for breach of contract, or whether the
statement was a representation, in which case no damages would be payable
since it was an innocent misrepresentation and the claimant has also lost his
right to rescind due to lapse of time. The Court of Appeal was of the view that
the statement was a term. Mr Smith as a car dealer had greater expertise and
the claimant relied upon that expertise.

(iii) The importance of the statement and reliance

The statement may be a term or representation depending on the importance

of the statement as expressed by the parties to the contract as well as the
reliance on such statement in making the said contract. Where the representee
indicates to the representor the importance of the statement, this is likely to be
held to be a term.

In the case of Bannerman v White286, the claimant agreed by contract to

purchase some hops to be used for making beer. He asked the seller if the hops

285 [1965] 1 WLR 623

286 (1861) 10 CBNS 844
258
had been treated with sulphur and told him if they had he wouldn't buy them as
he would not be able to use them for making beer if they had. The seller assured
him that the hops had not been treated with sulphur. In fact, they had been
treated with sulphur.

The court held that the statement that the hops had not been treated with
sulphur was a term of the contract rather than a representation as the claimant
had communicated the importance of the term and relied on the statement.
His action for breach of contract was successful.

In the case of Ecay v Godfrey287, the defendant sold a boat to the claimant. He
stated that as far as he was aware the boat was sound and free from vice but
advised the claimant to have it surveyed. The boat turned out to be defective.

The court held that the statement that the boat was sound was merely a
representation. The statement was not sufficiently emphatic to amount to a term
and the advice to have the boat surveyed demonstrated the defendant did
not wish the claimant to rely on the statement.

Moreover, in the case of Schawel v Reade288, the claimant purchased a horse

from the defendant. The claimant went to see the horse and had told the
defendant that he wished to use the horse for stud purposes. Whilst he was
examining the horse, the defendant told him that the horse was sound. He
stated that if there was anything wrong with the horse he would tell him and told
him there was no need to get a vet to check him out. In reliance of these
statements the claimant purchased the horse which turned out to have a
hereditary eye disease and was therefore not able to be used as a stud.

287 [1947] 80 Lloyds Rep 286

288 [1913] 2 IR 81
259
The court held that the statement was a contractual term. The defendant had
assured him he could rely on his word and the claimant had communicated the
purpose for which the horse was to be used. The defendant was thus in breach
of contract.

(i) Timing

Time between when the statement was made and when the contract was
entered may determine whether the statement is a term or mere representation.
The longer the time lapse between making the statement and entering the
contract the more likely it will be a representation.

In the case of Routledge v Mckay289, the claimant acquired a Douglas BSA

motorcycle and sidecar by exchanging another motorcycle and paying £30.
The registration documents stated that it was a 1942 model and this is what the
defendant stated the year of the motorcycle to be when the claimant came to
look at it. The motorcycle was in fact a 1936 model but had been modified and
re-registered by a previous owner. The purchaser went away to think about it
and then returned a few days later a written agreement was produced to the
effect of the exchange which ended with the words "It is understood that when
the £30 is paid over that this transaction is closed".

The Court of Appeal held that the statement was a representation and not a
contractual term. The registration document was not prima facie evidence of a
contractual term. Neither party was an expert, nor there a lapse of time
between the making of the statement and entering the contract giving the
claimant the opportunity to check the statement. Furthermore, there was no
mention of the date in the written agreement and the words of the agreement

289 [1954] 1 WLR 615

260
stating the transaction is considered closed excluded any possible collateral
warranty.

Interpretation of Terms

Parties can often be in dispute about the meaning of terms and what the terms
of a contract require either party to do. The courts have adopted an objective
approach to interpreting contractual terms and determine the meaning of
terms by referring to what a reasonable person would understand the terms to
mean, by taking into account the natural and ordinary meaning of the
language used in the actual text if written or oral term of the contract, reading
the terms in context and as part of the whole contract, taking into account the
objective background and surrounding circumstances known to both parties;
and taking into account the purpose and object of the transaction.

The parties’ subjective intentions, beliefs or expectations are not relevant to

determining what a term means. For example, Kitime genuinely believes that a
clause requires Anne to transfer ownership of farming equipment to them
immediately. A court will disregard such evidence and determine the meaning
of the clause based on what a reasonable person would understand the clause
to mean, taking into account the factors listed above.

Conclusion

Terms of contracts are the provisions or statements which form part of the
contract. Not all statements made by the parties during negotiations are
intended to have contractual force. Some are only representations, meaning
they are intended to induce the other party to enter into the contract, but not
to be capable of imposing liability for breach of contract. Each term gives rise to
a contractual obligation, breach of which can give rise to litigation. Not all terms

261
are stated expressly and some terms carry less legal gravity as they are
peripheral to the objectives of the contract.

Review Questions

1. It is often argued that there is no contract without terms of the contract.

Discuss the validity of such argument with relevant examples.
2. Nyumbi acquired Bombi BSA motorcycle and sidecar by exchanging
another motorcycle and paying 300,000/=Tshs. The registration documents
stated that it was a 1942 model and this is what the defendant stated the
year of the motorcycle to be when the claimant came to look at it. The
motorcycle was in fact a 1936 model but had been modified and re-
registered by a previous owner. Nyumbi went away to think about it and
then returned a few days later a written agreement was produced to the
effect of the exchange which ended with the words "It is understood that
when the 300,000/=Tshs is paid over that this transaction is closed". Discuss
whether the statement is contractual term or mere representation.
3. Parties can often be in dispute about the meaning of terms and what the
terms of a contract require either party to do. What approaches the
courts have adopted when ascertaining the meaning of the terms of the
contract?
4. Mwantumu purchased a horse from Rasta. Mwantumu went to see the
horse and had told Rasta that he wished to use the horse for stud
purposes. Whilst he was examining the horse, the Rasta told him that the
horse was sound. He stated that if there was anything wrong with the
horse he would tell him and told him there was no need to get a vet to
check him out. In reliance of these statements Mwantumu purchased the
horse which turned out to have a hereditary eye disease and was
therefore not able to be used as a stud. Is Rasta in breach of contract?
Give reasons and authorities to support your answer.

262
5. Azam Kilimanjaro Sea Ltd sold a boat to Mo Transport Ltd. Azam
Kilimanjaro Sea Ltd stated that as far as they were aware the boat was
sound and free from vice but advised Mo Transport Ltd to have it
surveyed. The boat turned out to be defective. Is the statement that the
boat was sound by Azam Kilimanjaro Sea Ltd mere representation? Justify
your answer with relevant authorities.
6. Komba agreed by contract to purchase some hops to be used for
making beer. He asked the seller if the hops had been treated with
sulphur and told him if they had he wouldn't buy them as he would not be
able to use them for making beer if they had. The seller assured him that
the hops had not been treated with sulphur. In fact, they had been
treated with sulphur. Discuss whether the statement that the hops had not
been treated with sulphur is contractual term or mere representation.
7. Hausa John knew Matawi, who was a car trader specialising in the
prestige market, for some time. He had asked him to look out for a well
vetted Bentley car. Matawi obtained a Bentley and recommended it to
Hausa John. He told him that the car had been owned by a German
Baron and had been fitted with a replacement engine and gearbox and
had only done 20,000 miles since the replacement. Hausa John
purchased the car but it developed faults. Matawi had done some work
under the warranty but then more faults developed. It transpired that the
car had done nearer 100,000 miles since the refit. The question for the
court was whether the statement amounted to a term in which case
damages would payable for breach of contract, or whether the
statement was a representation, in which case no damages would be
payable since it was an innocent misrepresentation and the claimant has
also lost his right to rescind due to lapse of time. As magistrate, what is
your response to the issue? Justify your answer with relevant legal
authorities.

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 8. Mrs Williams purchased a second hand Morris car on the basis that it was
a 1948 model. The registration document stated it was first registered in
1948. The following year her son used the car as a trade in for a brand
new Hillman Minx which he was purchasing from Oscar Chess. The son
stated the car was a 1948 model and on that basis the Oscar Chess
offered £290 off the purchase price of the Hillman. Without this discount
Williams would not have been able to go through with the purchase. 8
months later Oscar Chess ltd found out that the car was in fact a 1939
model and worth much less than thought. They brought an action for
breach of contract arguing that the date of the vehicle was a
fundamental term of the contract thus giving grounds to repudiate the
contract and claim damages. Is their argument tenable in law? Support
your answer with relevant legal authorities.

References

Adams and Brownsword, ‘Contract, consideration and the critical path’ (1990)
55 Modern Law Review 536

Atiyah ‘Consideration: a restatement’, Essays on Contract, Oxford: Oxford

University Press, United Kingdom (1990)

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brinkworth and Powell, ‘Contract and consideration: a new commercial reality?’

(1991) 12 Business Law Review 5

Brown, G. W., et al, Understanding Business and Personal Law, 9th Edition,
McGraw – Hill Inc. United States of America, (1993).

264
Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Mitchell and Phillips, ‘The contractual nexus: is reliance essential?’ (2002) 22

Oxford Journal of Legal Studies 115

Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012).

Sherrin, C., Williams on Wills, 8th Edition, Butterworths, London, (2002).

265
 LECTURE SEVENTEEN

CLASSIFICATION OF TERMS OF CONTRACT

Introduction

Term of contract implies any provision forming part of a contract. Each term
gives rise to a contractual obligation and breach of which can give rise to
litigation. All terms are not stated expressly but some terms carry less legal gravity
as because they are peripheral to the objectives of a contract.

As contracts contains different types of terms, some are oral and some are
written and some are more important than others. The more important terms are
called conditions and the less important terms are called warranties. The terms
of the contract set out the obligations on the parties under the agreement.

Expression Classification

How the terms of contract are expressed, may create two types of terms of
contract. This classification is based on whether the terms is clearly expressed by
the parties in their contract and during formation of the contract.

Express Terms

Express terms of contract are terms which are orally or written agreed by the
parties in the contract. They are contents provided expressly by the parties in the
contract. They are agreed by the parties themselves. They are statements
agreed during negotiations by parties and included in the contract to bind
them. For instance, contents of subject matter, price, payment, place of
payment, time of performance agreed by parties become express terms.

Express terms can either be oral or in writing. The courts have developed rules on
how to interpret these express terms. In addition, terms can be implied into a

266
contract. The different types of terms of contract are going to be discussed in
this lecture.

Implied Terms

Implied terms of contract are terms which are presumed into the contract on
the basis of the nature of the agreement and the parties’ apparent intentions, or
on the basis of law on certain types of contract. They are not agreed by the
parties themselves in the contract however they can be implied due to the
circumstances.

Implied terms are the terms in which it has not been mentioned by either party
that will nonetheless be included in the contract, often because the contract
does not make any commercial sense without that term. They connote the
practice of setting down the default rules for contracts.

When the terms that the contracting parties expressly choose run out or setting
down mandatory rules which usually operate to override the terms that the
parties may have themselves chosen. The purpose of implied terms is to
supplement a contractual agreement in order to make the deal effective for
the business purposes and to achieve fairness between the parties or to relieve
hardship.

Terms Implied by Fact

These are terms that courts assume both parties would have intended to include
in the contract had they thought about the issue. They are implied on a “one-
off” basis. Two overlapping tests have been traditionally used to ascertain
parties’ intention officious bystander test and business efficacy test: terms must
be implied to make contract work. Both tests are subjective in the sense that
they ask what parties in the case at hand would have agreed, not what a
reasonable person in their position would have agreed. So the term cannot be

267
implied if one of the parties was unaware of the subject matter of the term or
facts on which it is based.290

Implied Terms in Law

These are terms which the law requires present in certain types of contracts i.e.
not just on “one-off” basis and sometimes irrespective of the wishes of the parties

Significance Classification

This is classification of the terms of the contract basing on the significance

nature of the terms. Since the significance of the contractual term differs, the
types of contractual terms may also differ from one another.

The importance of a term can be clearly understood by explaining the contract.

So, if an agreement is eventually put into writing form, then the statement is
more likely to be a term of the contract. The general rule is that the party is
bound by all the terms set out in a contractual document once they have
signed it. This applies whether they have read the terms and understood them or
not.

Conditions

Conditions are so important contractual terms that without them, a reasonable

person would consider that one or other of the parties would not have entered
into the contract. If a party misrepresents a condition of a contract, the other
party may be entitled to rescind the contract, as if the parties never entered
into the contract.

290 Spring v. National Amalgamated Stevedores and Dockers Society (1956)

268
Conditions are essentially the basis for a contract for they provide for the
obligations of each party to an agreement. The simplest way to think of a
condition in contract law is found in the terms “If…then”. “If” one party fulfills an
obligation as contained in the agreement, “then” the other party to the
agreement must fulfill their obligation to that party.

For instance, a condition in a contract for a sale of goods might include the
terms that the successful completion of a contract relies upon an agreed upon
delivery date of the goods. In order to fulfill the terms of that contract, the seller
will only receive compensation for their goods if the buyer receives those goods
by that set date.

In the case of Poussard v Spiers291, Madame Poussard entered a contract to

perform as an opera singer for three months. She became ill five days before the
opening night and was not able to perform the first four nights. Spiers then
replaced her with another opera singer. The court held that Madame Poussard
was in breach of condition and Spiers were entitled to end the contract. She
missed the opening night which was the most important performance as all the
critics and publicity would be based on this night.

Warranty

A warranty is a term in a contract that is more like a promise by one party than a
condition agreed upon by both parties. A major difference is that if a party fails
to live up to a warranty, the aggrieved party can sue for damages, but the
failure does not provide cause for termination of the contract.

If the other party considers the warranty by one party important enough, then it
could be classified as a condition. Generally, however, a warranty is usually only

291 (1876) 1 QBD 410

269
a statement of facts. They can be expressed or implied and can exist for the
lifetime of the contract or be contractual only for a limited time.

In the case of Bettini v Gye292, Bettini agreed by contract to perform as an opera

singer for a three month period. He became ill and missed 6 days of rehearsals.
The employer sacked him and replaced him with another opera singer. The
court held that Bettini was in breach of warranty and therefore the employer
was not entitled to end the contract. Missing the rehearsals did not go to the
root of the contract.

Innominate Term

An innominate term is a term that cannot be defined as either a condition or

warranty in contracts. In the case where a party seeks recourse for a failure of
the other party to fulfill the obligations of innominate term, it will be up to the
courts to determine a remedy.

If the court determines that a breach has occurred, the remedy for the breach
will depend on how the injured party is affected at the time the breach
happens. If the breach is deemed substantial, then the innominate term will be
viewed more like a condition, and in addition to claiming damages, the injured
party may terminate the contract. If the court views the breach to be more in
line with a failure to fulfill a warranty, the injured party may claim damages, but
does not have the ability to terminate the contract.

292 (1876) QBD 183

270
In the case of Hong Kong Fir Shipping v Kawasaki Kisen Kaisha293, A ship was
chartered to the defendants for a 2 year period. The agreement included a
term that the ship would be seaworthy throughout the period of hire. The
problems developed with the engine of the ship and the engine crew were
incompetent. Consequently the ship was out of service for a 5 week period and
then a further 15 week period. The defendants treated this as a breach of
condition and ended the contract. The claimants brought an action for
wrongful repudiation arguing the term relating to seaworthiness was not a
condition of the contract.

The court held that the defendants were liable for wrongful repudiation. The
court introduced the innominate term approach. Rather than seeking to classify
the term itself as a condition or warranty, the court should look to the effect of
the breach and ask if the breach has substantially deprived the innocent party
of the whole benefit of the contract. Only where this is answered affirmatively is
it to be a breach of condition. 20 weeks out of a 2 year contract period did not
substantially deprive the defendants of whole benefit and therefore they were
not entitled to repudiate the contract.

Conclusion

The contractual terms can be classified into more important and less important
terms. The more important terms are conditions; the less important terms are
warranties. In determining whether a term is a condition or a warranty, the court
will use the objective approach to interpreting contracts and will consider the
language used by the parties, the surrounding circumstances, and the object
and purpose of the transaction. If a party breaches a condition, the other party
can terminate the contract/seek damages for any loss suffered. Where the

293 [1962] 2 QB 26 Court of Appeal

271
breached term is a warranty, the wronged party can only seek monetary
damages for any loss suffered; they cannot terminate the contract. The
contract remains binding on both parties.

Review Questions

1. How the terms of contract are expressed, may create two types of terms
of contract. What are they? How are they different from each?
2. Implied terms of contract are terms which are presumed into the contract
on the basis of the nature of the agreement and the parties’ apparent
intentions, or on the basis of law on certain types of contract. With
examples, how terms of contract can be implied?
3. Ruby entered a contract with Tigo Fiesta Ltd to perform as an opera singer
for three months. She became ill five days before the opening night and
was not able to perform the first four nights. Tigo Fiesta Ltd then replaced
her with another opera singer. Did Ruby breach condition of the contract
which entitled Tigo Fiesta Ltd to end the contract? Support your answer
with relevant legal authorities.
4. Marioo agreed by contract to perform as an opera singer for a three
month period. He became ill and missed 6 days of rehearsals. The
employer sacked him and replaced him with another opera singer. Was
Marioo in breach of condition or warranty? Argue authoritatively.
5. A ship was chartered by Seafarers Intercontinental Inc. to Azam Marine
Services Ltd for a 2 year period. The agreement included a term that the
ship would be seaworthy throughout the period of hire. The problems
developed with the engine of the ship and the engine crew were
incompetent. Consequently the ship was out of service for a 5 week
period and then a further 15 week period. Azam Marine Services Ltd
treated this as a breach of condition and ended the contract. Seafarers
Intercontinental Inc. brought an action for wrongful repudiation arguing

272
 the term relating to seaworthiness was not a condition of the contract.
Discuss the nature of such breach by Azam Marine Services Ltd.
6. Ngozi Boots Ltd were manufacturers of certain tools and Robby One were
a sales company granted the sole right to sell certain tools manufactured
by Ngozi Boots Ltd. A term of the contract between the parties was
described in the contract as being a condition and provided that Robby
One would send a sales person to each named company once a week
to solicit sales. This imposed an obligation to make 1,400 visits in total.
Robby One failed to make some of the visits and Ngozi Boots Ltd
terminated the contract for breach of condition. With aid of decided
cases, discuss whether there was a breach of condition.
7. Hanga leased a computer from Kaligraph. Hanga was to pay 584,000/=
TShs by 20 instalments every 3 months. A term of the lease agreement
provided that punctual payment was required and breach of this term
would entitle the lessor to terminate the agreement. Hanga got into
arrears with the instalments and Kaligraph took possession of the
computer and sold it on for 175,000/= Tshs. Kaligraph sued Hanga
claiming arrears and all future payments amounting to 6,869,000/=Tshs in
total. Was the term relating to prompt payment a condition? Support your
answer with relevant authorities.

References

Adams and Brownsword, ‘Contract, consideration and the critical path’ (1990)
55 Modern Law Review 536

Armstrong, A., and Hagel III, J. The Real Value of ON-LINE Communities, Harvard
Business Review, May-June, (1996). 134-141.

Atiyah ‘Consideration: a restatement’, Essays on Contract, Oxford: Oxford

University Press, United Kingdom (1990)

273
Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brinkworth and Powell, ‘Contract and consideration: a new commercial reality?’

(1991) 12 Business Law Review 5

Brown, G. W., et al, Understanding Business and Personal Law, 9th Edition,
McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Dahiyat. E. R, “Intelligent Agents and Contracts: Is a Conceptual Rethink

Imperative?” 15 Journal of Artificial Intelligence Law. (2007). 375-390 at 383.

Garcia, D. L. Network Commerce: Public Policy Issues in a Deregulated

Communication Environment. The Information Society, (1997). 13, 17-31.

Gogan, J. L. The Web's Impact on Selling Techniques: Historical Perspective and

Early Observations. International Journal of electronic Commerce, (1997). 1(2),
89-108.

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Ismail, et al, Evaluation of Legal Risks for Ecommerce in Construction‟ Journal of

Professional Issues in Engineering Education & Practice, (2006). 355-360 at 358

Kaustuv. M. D, Forum-Selection Clauses in Consumer Click wrap and Browse

wrap Agreements and the Reasonably Communicated Test‟ (2002). 77 (2)
Washington Law Review, 481 at 499-500

274
Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

Lee, H. G., and Clark, T. H. Impacts of the Electronic Marketplace on Transaction

Cost and Market Structure. International Journal of Electronic Commerce,
(1996). 1(1), 127-149

Mitchell and Phillips, ‘the contractual nexus: is reliance essential?’ (2002) 22

Oxford Journal of Legal Studies 115

Mollel. A, et al, Electronic Transactions and the Law of Evidence in Tanzania,

Peramiho Printing Press, (2007)

Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Neo, B. S. The implementation of an electronic market for pig trading in

Singapore. Journal of Strategic Information Systems, (1992). 1(5), 278-288.

Pacini. C, et al, “To Agree or not to agree: Legal Issues in Online Contracting”,
Business Horizon (2002). 43-52 at 43

Samelson A, et al, The E-Sign Law: What does it mean for Government
Contracting Practices? Journal of Contract Management, (2003). 35-43 at 36

275
 LECTURE EIGHTEEN

EXEMPTION CLAUSES

Introduction

In some cases, one party to a contract may seek to avoid incurring liability for
certain breaches of the contract, or may specify that their liability for such a
breach will be limited, usually to a certain amount in damages. This can be
done through exemption clause which forms part and parcel of contract. The
exemption clause is an agreement in a contract that stipulates that a party is
limited or excluded from liability. Exemption clauses can be used unfairly which
may disadvantage a party. Therefore, there have been changes to the law to
create more fairness and to limit the use of clauses.

Exemption clause is generally included in a contract to protect the party

drafting the contract from being sued by the other party for damages,
negligence or other losses. Exemption clauses can be used by the parties to
allocate risk between them. Exemption clauses can be split into exclusion clause
and limitation clause. Exclusion clauses excludes liability completely for specified
outcomes. Limitation clauses limits a maximum on the amount of damages the
party may have to pay if there is a failure of some part of the contract. The
concept, formation, incorporation, interpretation rules of the exemption clauses
are part and parcel of this lecture.

Exemption Clauses

Exemption clauses are contractual provisions that aim to exclude or limit

contractual liability of the appropriate party in advance, i.e. before such liability
occurs. They are contractual terms by which one party attempts to either cut
down the scope of his contractual duties or regulate the other parties right to
damages or other possible remedies for breach of contract. The possibility to

276
incorporate an exemption clause into a contract is derived from the principle of
freedom of contract, the non-mandatory nature of civil law provisions and the
creditor’s subjective right to void of any of his rights.

Exemption clause seeks to restrict the liabilities that may arise from the legal
relation. Exemption clauses can be split into exclusion clause and limitation
clause. Exemption clause limits a maximum on the amount of damages the
party may have to pay if there is a failure of some part of the contract. An
exclusion clause excludes liability completely for specified outcomes. Exemption
clause is generally included in a contract to protect the party drafting the
contract from being sued by the other party for damages, negligence or other
losses.

Validity of Exemption Clauses

Validity of exemption clause means the legitimacy of the exemption clauses in

the eyes of the law. The courts normally have to consider first whether the
exemption clauses are valid or not. The determination of validity focuses of
whether the legal requirements have been met. When the legal requirements
are met, exemption clauses are valid. The courts recognise them and apply in
the particular case.

Exemption clauses are valid when they meet the legal requirements. However,
these legal requirements are common law based. In addition, the exemption
clauses are enforceable by the courts of law if they are valid. Hence, validity is
determined prior enforcement. If the exemption clauses are not valid, they are
unenforceable. Nevertheless, if the exemptions clauses are valid, they are
enforceable.

Therefore, exemption clauses are valid and enforceable in the eyes of the law
and courts of law when they meet the following conditions or prerequisites: -

277
 i. Exemption clause should be clearly worded in the contract for
example not absurd and must not be ridiculous.
ii. Exemption clause must come before the formation of a contract or
agreement.
iii. Exemption clause also needs to be legible or readable.
iv. Exemption clause must be placed in places, which can be seen easily
by people.
v. Exemption must be fair and reasonable.
vi. Exemption clause also cannot be applied for children as well as
unfortunate for example handicap.
vii. Exemption clause must be notified to other party.

Incorporation of Exemption Clause

The term of ‘incorporation’ means including the clause within the contract.
Consideration will be given to whether the exemption clause is within the
contract. The courts have traditionally held that exclusion clauses only operate
if they are actually part of the contract. There seem to be three methods of
incorporation

(i) Incorporation by signature

Exemption clauses may be incorporated in the contract by including within the

written document of the contract. Hence, it forms part of the written contract.
When the parties to the contract signs the contract signifies to have consented
with the exemption clauses therein. Signature of the said party means
incorporation of the exemption clause in the contract.

278
In the case of L’Estrange v Graucob294, the claimant purchased a cigarette
vending machine for use in her cafe. She signed an order form which stated in
small print 'Any express or implied, condition, statement of warranty, statutory or
otherwise is expressly excluded'. The vending machine did not work and the
claimant sought to reject it under the Sale of Goods Act for not being of
merchantable quality. The court of Appeal held in signing the order form she
was bound by all the terms contained in the form irrespective of whether she
had read the form or not. Consequently, her claim was unsuccessful.

The court observed that if the clause is written on a document which has been
signed by all parties, then it is part of the contract. If a document has not been
signed, any exception clause which it contains will only be incorporated if the
party relying on the clause can show that he took reasonable steps to bring it to
the attention of the other party before the contract was made.

In somewhat of a contradiction, that is not to say that the proferens actually has
to show that the other person read the clause or understood it except where
the clause is particularly unusual or onerous. It is not even necessary to show that
the attention of that particular person was actually drawn to it. It is somewhat
like the 'reasonable man' test in tort: the party trying to rely on the clause needs
to take reasonable steps to bring it to the attention of the reasonable person.

(ii) Incorporation by notice

Sometimes, the exemption clause cannot be within the contract entered but it
may be in form of notice given during the making of the contract. The notice
which contains the exemption clause can form part of the contract when it is
given at the time of making the contract. The notice must come into awareness

294 [1934] 2 KB 394

279
of the other party during the contract formation, not after the contract has
been formed. Hence, the exemption clause can be incorporated in the
contract through the notice.

In the case of Parker v SE Railway295, the plaintiff took a parcel to a railway

company depot for delivery, and received a ticket on which were printed
conditions including a disclaimer. On the front of the ticket were printed the
words ‘see back’. The jury was asked only if they concluded that he knew of the
condition.

A re-trial was ordered on the company’s appeal. The judge’s direction was
incorrect. He would not be bound if he did not know there was writing on the
ticket, but will be if he knows there is writing and that it contains conditions, or
even if he knows there is writing, but not that it contains conditions, provided the
jury was satisfied that reasonable notice had been given that the ticket did
contain conditions.

The court rationed that an exclusion clause will have been incorporated into the
contract if the person relying on it took reasonable steps to draw it to the other
parties' attention. This holding signifies the notice communication to the other
party of the contract.

Also, in the case of Thornton v Shoe Lane Parking296, the claimant was injured in
a car park partly due to the defendant's negligence. The claimant was given a
ticket on entering the car park after putting money into a machine. The ticket
stated the contract of parking was subject to terms and conditions which were
displayed on the inside of the car park. One of the terms excluded liability for
personal injuries arising through negligence.

295 (1877) 4 CPD 416

296 [1971] 2 WLR 585
280
The question for the court was whether the term was incorporated into the
contract i.e. had the defendant brought it to the attention of the claimant
before or at the time the contract was made. This question depended upon
where the offer and acceptance took place in relation to the machine.

The Court of Appeal held that the machine itself constituted the offer. The
acceptance was by putting the money into the machine. The ticket was
dispensed after the acceptance took place and therefore the clause was not
incorporated into the contract. The court seems to indicate that the wider the
clause, the more the party relying on it will have had to have done to bring it to
the other parties' attention.

The notice must be given before formation of the contract as illustrated in Olley
v Marlborough Court Ltd297, where the claimant booked into a hotel. The
contract was made at the reception desk where there was no mention of an
exclusion clause. In the hotel room on the back of the door a notice sought to
exclude liability of the hotel proprietors for any lost, stolen or damaged property.
The claimant had her fur coat stolen. The court held that the notice was
ineffective. The contract had already been made by the time the claimant had
seen the notice. It did not therefore form part of the contract.

(iii) Incorporation by previous course of dealings

Parties may engage the contractual arrangements for more than one. In doing
so, they may separate contracts or one contract. They may be engaging the
transactions in later agreement basing on the previous dealings between the
parties. Exemption clause may be incorporated those previous dealings
between the parties to the contract.

297 [1949] 1 All ER 127

281
In the case of McCutcheon v MacBrayne Ltd298, the claimant's car sank in a car
ferry owned by the defendant. The claimant had used the car ferry on a few
occasions previously. Sometimes he had been asked to sign a document
containing an exclusion clause sometimes he had not been asked to sign a
form. On this occasion he had not been asked to sign a document. The
defendant sought to rely on the exclusion clause claiming it had been
incorporated through previous dealings. The court held that there was no
consistency in the course of dealings and therefore the clause was not
incorporated. The defendant was liable to pay damages.

This indicates that terms including exclusion clauses may be incorporated into a
contract if course of dealings between the parties were regular and consistent.
What this means usually depends on the facts, however, the courts have
indicated that equality of bargaining power between the parties may be taken
into account.

Furthermore, in the case of Hollier v Rambler Motors299, the claimant had used
the services of the defendant garage on 3-4 occasions over a five-year period.
Each time he had been asked to sign a document excluding liability for any
damage. On this occasion the contract was made over the phone and no
reference to the exclusion clause was made. The garage damaged the car
during the repair work and sought to invoke the exclusion clause through
previous dealings.

The court held that there was not a sufficient number of or regularity of
transactions to amount to a previous course of dealings capable of
incorporating the exclusion clause. It was not reasonable to expect the

298 [1964] 1 WLR 125

299 [1972] 2 WLR 401
282
claimant to remember the clause from one transaction to the next.
Consequently, the garage was liable to pay for the damage.

Interpretation of Exemption Clause

Interpretation of an exemption clause is used by courts to assess liability; the

legal term given to interpretation of an exemption clause is ‘construction’.
Courts generally interpret exemption clauses narrowly adjusting it to reasonable
circumstances. If the court thinks that the exemption clause used in the contract
is unreasonable, court can declare it as void. As a contract cannot be made
unilaterally, only reasonable restrictions can be brought by exemption clause.

In the case of Glynn v Margeston300, A printed form of bill of lading contained

general words of obligation referring to the goods being shipped ‘in and upon
the’ Zena, now lying in the port of Malaga, and bound for Liverpool’. Those
words were followed by printed words intended ‘to be used in a variety of
contracts of affreightment’. Construed literally the words would allow deviation
to any port even if far off the voyage from Malaga to Liverpool. The court held
that words which the parties have themselves chosen and written into the
contract should have greater effect than printed standard terms

In this case, there was a clause within the contract that allowed a ship to stop at
any port in Europe and North Africa, however, its intended journey was from
Spain to Liverpool. The court decided that clause that was printed must not
interpret in such a way that it defeats the object of the contract and what the
contract intends to do. The purpose of the contract, in this case, was that
oranges were to be shipped from Spain to Liverpool.

300 [1893] AC 351

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In the case of Houghton v Trafalgar Insurance Co. Ltd301, the claimant and the
defendant had entered into an insurance contract (with the defendant being
the insurer). The contract included an exemption clause, which stipulated that
the Defendant was not liable to pay out where the claimant’s vehicle had an
excess load at the time of an accident. The specific wording of the exemption
clause was that coverage was excluded for “loss, damage and or liability
caused or arising whilst the car is conveying any load in excess of that for which
it was constructed”. The Claimant suffered a car accident and attempted to
claim on his policy. At the time of the accident there were 6 people in the
vehicle. The vehicle was designed to seat only 5.

There was ambiguity in the exemption clause. The insurers in this case had a
clause in their policy which caused ambiguity, they stated, ‘any load’, the court
decided that the insurance company could not be exempt from liability. Since
the meaning was ambiguous and that in such cases the meaning would be
interpreted in the interests of the insured, in other words – contra proferentem. If
there is any ambiguity, it is the company’s clause and the ambiguity would be
resolved in favour of the assured.

Fairness in Contracts

When looking at contracts, the courts will usually take into account the fairness
within the contract when considering liability.

In the case of RW Green Ltd v Cade Bros Farms302, the sellers had sold potato
seeds which were infected with a virus, and as a result, the buyers had endured
a loss of profit. The courts had decided that the sellers did not give any oral
information to the buyers that they were different from the original bought. The

301 [1954] 1 QB 247

302 (1978) 1 Lloyd's Rep. 602, QBD
284
sellers had stipulated that there was no complaint about the seeds within the
required three days of delivery. However, it was decided that the buyers could
not have known the presence of the virus in the seeds within three days of it
being delivered. Therefore, the defence that was claimed by the sellers was that
no complaint was made within the time stated, and this would not have been
fair to the buyers.

Another case of St Albans City and DC v International Computers303, a contract

to provide software (COMCIS) for the implementation of the Community
Charge of International Computers Ltd limited its liability to £100,000. The
software was meant to create a register of tax payers. Because of errors in the
software, the loss to the council was £1,313,846. The council claimed breach of
contract, and that the liability limitation was unreasonable under the Unfair
Contract Terms Act 1977. International Computers Ltd claimed that the liability
limitation should remain. The court decided that there was a breach of contract
by the defendants (International Computers), that there was negligence on the
part of the defendants, and the clause was seen as unreasonable.

In the case of George Mitchell v Finney Lock Seeds304, the plaintiffs (George
Mitchell) claimed that seeds were not the cabbage seeds that were ordered
because they did not have commercial value. The plaintiff endured a financial
loss. The court awarded the plaintiff, and decided that limiting liability did not
apply in this contract. The defendants appealed, however, the court dismissed
the appeal, deciding that the defendant’s liability was not limited due to
‘conditions’, and that breach of contract could not be due to conditions,
without the defendant’s negligence.

303 [1996] EWCA Civ 1296

304 [1982] EWCA Civ 5
285
The court decided that it would not be fair to rely on ‘conditions’ when
concerned in the seed business, and that defendants could provide guarantee
against crop damage, without increasing price of seeds, and that it would not
be fair or reasonable to depend on ‘conditions’ that were not enforceable.

Conclusion

A party to a contract may include a term in a contract to exclude or limit his/her

liability in the event of a breach of contract or in any specified circumstances.
Exemption clause seeks to restrict the liabilities that may arise from the legal
relation.

Review Questions

1. Alexis purchased a cigarette vending machine for use in her cafe. She
signed an order form which stated in small print 'Any express or implied,
condition, statement of warranty, statutory or otherwise is expressly
excluded'. The vending machine did not work and the Alexis sought to
reject it under the Sale of Goods Act for not being of merchantable
quality. Is her rejection tenable in law? Support your answer with relevant
legal authorities.
2. Remutuz Insurance Company and Dongonyo had entered into an
insurance contract (with Remutuz Insurance Company being the insurer).
The contract included an exemption clause, which stipulated that
Remutuz Insurance Company was not liable to pay out where
Dongonyo’s vehicle had an excess load at the time of an accident. The
specific wording of the exemption clause was that coverage was
excluded for “loss, damage and or liability caused or arising whilst the car
is conveying any load in excess of that for which it was constructed”.
Dongonyo suffered a car accident and attempted to claim on his policy.
At the time of the accident there were 6 people in the vehicle. The

286
 vehicle was designed to seat only 5. Discuss whether the claim can be
made successful by Dongonyo.
3. Ngonyani had used the services of Japan Auto Garage Ltd on 3-4
occasions over a five-year period. Each time he had been asked to sign a
document excluding liability for any damage. On this occasion the
contract was made over the phone and no reference to the exclusion
clause was made. Japan Auto Garage Ltd damaged the car during the
repair work and sought to invoke the exclusion clause through previous
dealings. Can Japan Auto Garage Ltd succeed in seeking the exclusion
clause through previous dealings? Argue authoritatively.
4. Samata's car sank in a car ferry owned by Dar Ferry Ltd. Samata had used
the car ferry on a few occasions previously. Sometimes he had been
asked to sign a document containing an exclusion clause sometimes he
had not been asked to sign a form. On this occasion he had not been
asked to sign a document. Dar Ferry Ltd sought to rely on the exclusion
clause claiming it had been incorporated through previous dealings. Was
the exclusion clause through previous dealings incorporated in the
contract? Give reasons and authorities for your answer.
5. Kitime booked into a hotel. The contract was made at the reception desk
where there was no mention of an exclusion clause. In the hotel room on
the back of the door a notice sought to exclude liability of the hotel
proprietors for any lost, stolen or damaged property. Kitime had her fur
coat stolen. What is the legal status of such notice? Is the Hotel liable for
stealing of Kitime’s fur coat? Argue with authorities.
6. Mimi was injured in a car park partly due to the Pambakali's negligence.
Mimi was given a ticket on entering the car park after putting money into
a machine. The ticket stated the contract of parking was subject to terms
and conditions which were displayed on the inside of the car park. One of
the terms excluded liability for personal injuries arising through negligence.

287
 Was the exclusion clause incorporated in the contract? Support your
answer with authorities
7. Exemption clause is generally included in a contract to protect the party
drafting the contract from being sued by the other party for damages,
negligence or other losses. What are advantages and disadvantages of
exemption clauses?

References

Adams and Brownsword, ‘Contract, consideration and the critical path’ (1990)
55 Modern Law Review 536

Armstrong, A., and Hagel III, J. The Real Value of ON-LINE Communities, Harvard
Business Review, May-June, (1996). 134-141.

Atiyah ‘Consideration: a restatement’, Essays on Contract, Oxford: Oxford

University Press, United Kingdom (1990)

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brinkworth and Powell, ‘Contract and consideration: a new commercial reality?’

(1991) 12 Business Law Review 5

Brown, G. W., et al, Understanding Business and Personal Law, 9th Edition,
McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Dahiyat. E. R, “Intelligent Agents and Contracts: Is a Conceptual Rethink

Imperative?” 15 Journal of Artificial Intelligence Law. (2007). 375-390 at 383.

288
Garcia, D. L. Network Commerce: Public Policy Issues in a Deregulated
Communication Environment. The Information Society, (1997). 13, 17-31.

Gogan, J. L. The Web's Impact on Selling Techniques: Historical Perspective and

Early Observations. International Journal of electronic Commerce, (1997).
1(2), 89-108.

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Ismail, et al, Evaluation of Legal Risks for Ecommerce in Construction‟ Journal of

Professional Issues in Engineering Education & Practice, (2006). 355-360 at
358

Kaustuv. M. D, Forum-Selection Clauses in Consumer Click wrap and Browse

wrap Agreements and the Reasonably Communicated Test‟ (2002). 77 (2)
Washington Law Review, 481 at 499-500

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

Lee, H. G., and Clark, T. H. Impacts of the Electronic Marketplace on Transaction

Cost and Market Structure. International Journal of Electronic Commerce,
(1996). 1(1), 127-149

Mitchell and Phillips, ‘the contractual nexus: is reliance essential?’ (2002) 22

Oxford Journal of Legal Studies 115

Mollel. A, et al, Electronic Transactions and the Law of Evidence in Tanzania,

Peramiho Printing Press, (2007)

289
Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Neo, B. S. The implementation of an electronic market for pig trading in

Singapore. Journal of Strategic Information Systems, (1992). 1(5), 278-288.

Pacini. C, et al, “To Agree or not to agree: Legal Issues in Online Contracting”,
Business Horizon (2002). 43-52 at 43

Samelson A, et al, The E-Sign Law: What does it mean for Government
Contracting Practices? Journal of Contract Management, (2003). 35-43 at
36

290
 LECTURE NINETEEN

DISCHARGE OF CONTRACTS

Introduction

Contracts are not meant to be eternal. They begin with the intention of coming
to an end unless they are not business or commercial contracts. As the saying
goes, everything that has beginning has ending. The same applies to the
contractual relationships. It reaches a point where the parties are no longer
want to go on with their contractual arrangements. The ending of the contract
may be instigated by either one party or both parties. The discharge of contract
may be influenced by the circumstances that surround the contractual
relationships.

The discharge of the contracts may be made through either mutual agreement
between the parties to the contract or notice of one party due to the
occurrence of some circumstances or events initiated by other party or out of
power of the party’s control. The discharge of contract may be needful
depending on the level of the change of circumstances and justice needs
between the parties to the contract.

Contract law has different legal rules, principles, practices and conditions which
govern the whole process of reaching the contract to an end. These rules differ
depending on the nature and mode of discharge applied. These rules provide
the legal implications upon the discharge of the contract of the particular mode
and involvement of the parties in the default which lead to the discharge of the
contract.

Understanding of the legal rules and principles which govern the discharge of
the contract is very important as far as determination of the rights and duties of
the parties during the discharge of contract is concerned. In addition, the

291
understanding of the legal rules and principles in the discharge of the contract
enhances understanding of the legal implications of each mode of the
discharge of the contract. Moreover, when we get acquainted with the wisdom
of the legal rules and principles as far as the discharge of the contract is
concerned, we develop the ability to apply the legal rules and principles in the
particular and proper circumstances which deal with the discharge of the
contract.

Discharge of Contract

Discharge of contract is the process which involves bringing the contractual

relationships to an end. It deals with the termination of the contractual
arrangements between the parties. It implies the ending of the contractual
promises and obligations between the parties to the contract. It makes
contractual promises no longer binding between the parties. It focuses on the
dissolution of the contract and its rights and duties. It makes the contract no
longer existing between the parties.

Reasons for Discharge of Contract

Discharge of contract can be instigated by various circumstances that

surrounds the contract and its performance. These circumstances may be
caused by either the parties to the contract, third parties or they may not be
caused by any person that is the circumstance has occurred out of the control
or power of human beings. The circumstances which lead to the discharge of
the contract are as follow: -

(i) Expiry of Fixed Period

There are contracts whose operation is fixed within specified duration. For
instance, parties may decide to operate their contracts for two years. This

292
means after expiration of the specified duration, the parties are free to
discharge their contract. Hence when the time of operation of the contract
specified by the parties has reached, the discharge of the said contract may
occur unless renewed by the same contractual relationships or by different
contractual relationships between the parties to the contract.

(ii) Occurrence of Supervening Events

Sometimes, there may occur the events which make the performance of the
contract impossible. These events have to be occurred out of the default of the
parties to the contract. These events were not foreseeable by the parties during
making of the contract. These events make the parties unable to perform the
contract due to the impossibility brought about by the events. Hence, when the
supervening events have occurred and the performance of the contract
becomes impossible due to such event, the contract may be discharge.

(iii) Illegality

The parliament of the contract has the power to make and unmake laws within
the country. The making of the new laws may be originated by the change of
circumstances within the society or the need to fulfil certain purposes in the
society. It may occur that the parliament passes the new law which renders
certain contracts and their performance illegal that means the new law
prohibits certain contractual relationships and undertaking. The passing of this
law makes the contract of specified nature illegal in their performance and the
parties are forbidden to continue performing, hence the contract may be
discharged through operation of the law due to the illegality.

(iv) Contractual Breach

293
The doctrine of sanctity of the contract requires the parties to the contract to
honour the contractual promises and must perform them in good faith. Hence,
the contractual obligations are meant to be complied with basing on the
intention of the parties as well as requirement of the law. When one party to the
contract fails to honour the contractual obligations, the other party may be
discouraged to continue performing the contract. This incidence triggers the
other party to initiate the process of discharging the contract due to the fact
that the other party has breached the contract. Hence, the other party sees
that there is no longer need to continue with the contract while the other party
do not respect and comply with the contractual provisions. Therefore, the
contractual breach may cause the discharge of the contract.

(v) Purpose Fulfilment

Sometimes the contracts are established to meet certain purposes which has
been stipulated by the parties to the contract at the time of the making of the
contract. Performance of the contract which ensures that the contractual
purposes have been met, the contract may be discharged by the parties
because the contract is no longer serving the purpose for which it was
established. Fulfilment of the contractual purposes incidents the need to
discharge the contract between the parties as the purpose for which it was
established is over. If the contract was made for a particular purpose and the
purpose has been fulfilled, the contract becomes discharged.

(vi) Incapacitation of Parties

There are contracts which are made for personal service of the parties to the
contract. Personal service contracts operate on the bases of the personal skills
and care of the particular party to the contract. When these parties are
incapacitated to the extent they can no longer provide the personal service

294
stipulated in the contract, the performance of the contract cannot be made.
The incapacitation may occur to the party due to disease, insanity or death of
the party to the contract. Hence, the incapacitation of the parties may
discharge the contract which involve personal service of the particular party to
the contract.

Ways of Discharge of Contract

The discharge of the contract may occur through various ways. The variation of
the ways to discharge the contract depends on the circumstance which lead to
the discharge of the said contract. Despite the existence of the many ways to
discharge the contract, there are four major ways through which the contract
can be discharged.

(i) Agreement

The contract is formed basing on the agreement of the parties. It is the

agreement also which may make the parties discharge their contract. Hence,
the contract may be discharged through mutual agreement between the
parties to the contract. The parties to the contract may agree to discharge the
contract due to various circumstances such as change of the circumstance
which makes the contract no longer serve their interests.

The agreement to discharge the contract must be made voluntarily as between

the parties to the contract. There must be free agreement. Parties to the
contract should not be induced in any way to agree to terminate the contract
through agreement with the other party. Hence, freedom of the agreement of
the parties to discharge the contract is the key to determine the validity of the
discharge of the contract through mutual agreement between the parties.

295
The agreement to discharge the contract between the parties to the contract is
called an accord. The accord can justify the discharge of the contract when
coupled with the satisfaction of the parties in their accord. The satisfaction of
the parties in the agreement to discharge the contract is the consideration of
the parties. Hence, there must be accord and satisfaction in the agreement to
discharge the contract.

(ii) Performance

Performance means the fulfilment of the contractual promises and obligations. It

implies that the parties to the contract have honoured their contract and done
according to the manner and extent stipulated in the contract. When the
parties to the contract perform the contractual duties and obligations, the
contract is said to be performed. When the contract is performed accordingly,
the contract is discharged. Hence, the contract may be discharged through
performance of the contracts by the parties to the said contract.

Performance of the contract may ensure validity of the discharge of the

contract when it is done completely and exactly as general rule. This general
rules requires that performance of the contract should not make any slight
deviation to the specification of the contract on its performance especially on
the extent of performance, manner of performance, time and place of
performance of the contract.

However, under exceptional circumstances, the performance of the contract

which has slight deviation from the specification of the contract may discharge
the contract so as avoid the harshness of the general rule of completeness and
exactness of performance and also to bring justice to the parties depending on
the level of performance. Hence, despite the partial performance of the

296
contract when the other party has accepted or refused the performance of
other party may discharge the contract.

(iii) Breach

When the contract has been breached by one party, the innocent party may
be entitled to discharge the contract because to continue performing the
contract while the other party has breached may be injustice for the innocent
party. Hence, breach of the contract is the mode of discharging the contract.

The breach of the contract may be actual that means it has already occurred
in the contract. The breach also may be anticipatory when the party to the
contract does something which express the clear indication that when the time
of the performance of the contract is reached will not be able to perform the
contract.

The nature and extent of breach may be different. For instance, breach of
contract may occur on the important terms of the contract i.e. conditions or less
important terms i.e. warranties. The variation of the nature and extent of the
breach of the contract may affect the nature of remedies entitled to the
innocent party to the contract which is said to be breached by the other party.

(iv) Frustration

The contract may be frustrated. The frustration of the contract means the
performance of the contract has become impossible or illegal due to the
occurrence of the supervening events. The events must be supervening to
frustrate the contract. The supervening events means the events which has
occurred out of power of the human control, out of default of any party to the
contract and it was not foreseeable at the time of making of the said contract.

297
The frustration of the contract may discharge the contract because it makes the
contractual performance impossible or illegal.

There are various circumstances which may frustrate the contract according to
the principles and rules of the contract law which deal with the discharge of the
contract. These are destruction of the subject matter of which the performance
of the contract depends on, non-existence of the subject matter at the time of
making the contract, commercial sterility, operation of the law, incapacity of
parties to the personal service contracts. These circumstances frustrate the
contract as they render the performance of the contract impossible or illegal.

There are also circumstances which may not frustrate the contract as per the
legal rules and principles of the contract relating with the doctrine of frustration.
These are when the contract becomes difficulty to perform, when the contract
becomes expensive to perform or the event which frustrate the contract was
foreseeable at the time of making the contract and when the event which
frustrate the contract has occurred due to the fault of the party to the contract.

Conclusion

Discharge of contract is legal process. It is as the legal process because there

are legal rules, principles, practices and conditions which provide for the
manner, time, extent and implication of the discharge of the contract.
Discharge of the contract may be inevitable due to the various circumstances
which may influence. For instance, the discharge may be influenced by the
contractual breach, purpose fulfilment, incapacitation of the parties, expiry of
time of contract, and illegality. Discharge of contract may occur through
various ways such as agreement, performance, breach and frustration of the
contract. The ways of discharge of the contract have different legal
implications.

298
Review Questions

1. Discharge of contract can be instigated by various circumstances that

surrounds the contract and its performance. With vivid examples, discuss
the validity of the statement.
2. The discharge of the contract may occur through various ways. With
relevant examples, what are the ways through which the contract can be
discharged?
3. Write short notes on the following
a. Frustration of contract
b. Breach of contract
c. Discharge of contract
d. Agreement to discharge the contract
4. Distinguish the following terms
a. Breach of Contract and Discharge of Contract
b. Frustration of Contract and Performance of contract
c. Agreement and Contract
5. Discharge of contract is the legal process. Substantiate the validity of the
statement with relevant examples.

References

Adams and Brownsword, ‘Contract, consideration and the critical path’ (1990)
55 Modern Law Review 536

Armstrong, A., and Hagel III, J. The Real Value of ON-LINE Communities, Harvard
Business Review, May-June, (1996). 134-141.

Atiyah ‘Consideration: a restatement’, Essays on Contract, Oxford: Oxford

University Press, United Kingdom (1990)

299
Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brinkworth and Powell, ‘Contract and consideration: a new commercial reality?’

(1991) 12 Business Law Review 5

Brown, G. W., et al, Understanding Business and Personal Law, 9th Edition,
McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Dahiyat. E. R, “Intelligent Agents and Contracts: Is a Conceptual Rethink

Imperative?” 15 Journal of Artificial Intelligence Law. (2007). 375-390 at 383.

Garcia, D. L. Network Commerce: Public Policy Issues in a Deregulated

Communication Environment. The Information Society, (1997). 13, 17-31.

Gogan, J. L. The Web's Impact on Selling Techniques: Historical Perspective and

Early Observations. International Journal of electronic Commerce, (1997).
1(2), 89-108.

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Ismail, et al, Evaluation of Legal Risks for Ecommerce in Construction‟ Journal of

Professional Issues in Engineering Education & Practice, (2006). 355-360 at
358

300
Kaustuv. M. D, Forum-Selection Clauses in Consumer Click wrap and Browse
wrap Agreements and the Reasonably Communicated Test‟ (2002). 77 (2)
Washington Law Review, 481 at 499-500

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

Lee, H. G., and Clark, T. H. Impacts of the Electronic Marketplace on Transaction

Cost and Market Structure. International Journal of Electronic Commerce,
(1996). 1(1), 127-149

Mitchell and Phillips, ‘the contractual nexus: is reliance essential?’ (2002) 22

Oxford Journal of Legal Studies 115

Mollel. A, et al, Electronic Transactions and the Law of Evidence in Tanzania,

Peramiho Printing Press, (2007)

Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Neo, B. S. The implementation of an electronic market for pig trading in

Singapore. Journal of Strategic Information Systems, (1992). 1(5), 278-288.

Pacini. C, et al, “To Agree or not to agree: Legal Issues in Online Contracting”,
Business Horizon (2002). 43-52 at 43

Samelson A, et al, The E-Sign Law: What does it mean for Government
Contracting Practices? Journal of Contract Management, (2003). 35-43 at
36

301
 LECTURE TWENTY

DISCHARGE BY AGREEMENT

Introduction

Agreement is important in the formation as well as discharge of contract. The

formation and discharge of contract are governed by the principle of the
freedom of contract which implies that the parties should be free, voluntary and
be able to undertake the arrangements and transactions with free will and
choice. The freedom of contract is the back bone of the contract making,
operation and termination. The freedom of contract is manifested when the
parties to the contract agree freely for the same thing in the same sense for
what they have agreed in the contract.

The contract can be terminated through agreement of the parties to the

contract as it can be formed through the agreement of the parties to the
contract. The agreement which discharge the contract has to be free and
mutual between the parties. It has to be mutual in the sense that it has to be
beneficial for both parties to the contract. It becomes beneficial to both parties
when it takes consideration of the interests of the parties to the contract and the
parties are satisfied in the discharge.

There are many legal rules and principles which govern the discharge of the
contract via the agreement of the parties. These principles determine the
validity of the discharge of the contract through the agreement when the
agreement to discharge the contract has essentials to justify its legality. Hence,
when the agreement to discharge the contract is valid, the discharge of the
contract also becomes valid.

This lecture ventures on the exploration of the discharge of contract by the

agreement of the parties. It elucidates the principles and rules of law that

302
governs the agreement to discharge the contract. It explicates the methods of
the discharge of contract through agreement. It shades light on the legal
implications of the discharge of the contract through agreement of the parties.

Discharge of Contract by Agreement

A discharge of a contract by agreement is when parties to the contract end a

contract when the terms and conditions have been met or fulfilled. However,
the involved parties can also choose to terminate a contract even when the
primary terms and conditions of the said contract have not yet been fulfilled.

Agreement

A contract may be discharged by agreement when both parties agree to bring

the contract to an end and release each other from their contractual
obligations. Agreement is the set of promises between the person who makes
the promise and person who receives the promise which involves doing
something or abstain from doing something. The agreement contains the
proposal and acceptance. There is proposal from one party and acceptance
from the other party. Hence, proposal and acceptance together they form
agreement.

The agreement much be crystal clear in the sense that there should not be any
vague or ambiguous terms between the promises therein. The certainty and
clarity are the rules of law which requires the agreement to be so in order to
avoid the misunderstanding and failure to perform the agreement. The
agreement which is ambiguous can be declared void because it creates
uncertainties which affect its performance.

The agreement must be made freely. The parties to the agreement should make
their proposals and acceptance while having freedom of will and choice as to
the terms of the agreement. Neither party should be forced or induced anyhow

303
without his or her consciousness towards entering the agreement. Freedom of
choice and will of the parties must exist at the time of making the agreement,
not before or afterwards. It is the requirement of the contract law for parties to
the agreement to be willingly when making the agreement.

Essentials of Agreement to Discharge the Contract

The contract law provides for the various essentials which must be present in the
agreement whose purpose is to discharge the contract. The important elements
are important because they determine the validity of the agreement which can
affect the validity of the discharge of the contract through the said agreement.
The essentials are: -

(i) Accord

Accord is the agreement to discharge the contract. Accord must be made by

the parties to the contract who wish to discharge their contractual relationships
due to the various circumstances surrounding their contractual arrangements.
The accord which comes from the third parties may not discharge the contract
because the parties have not initiated the discharge. The accord has to be
made freely by the parties to the contract. The rules demand that each party to
the contract must agree to discharge the contract freely without any
inducement.

(ii) Satisfaction

This is consideration for the agreement to discharge the contract. The

agreement itself to discharge the contract is not enough without the
consideration to do so. The consideration for agreement to discharge the
contract is the one which makes the parties satisfied to discharge the contract.

304
The essence of the agreement to discharge the contract is in the satisfaction of
the parties to the contract.

Hence, both parties must provide consideration. If both parties have continuing
obligations, then generally the consideration will be simply each of them giving
up their rights under the contract. The only time consideration becomes an issue
is where one party has fully performed their part of the contract when the other
has not. The non-performing party must then provide consideration to make the
agreement binding. Also if the agreement is made by deed there is no
requirement to provide consideration. There is in effect a contract to end a
contract.

Ways of Discharge of Contract by Agreements

(i) Novation

Novation is the substitution of an old contract for a new one. The new
agreement extinguishes the rights and obligations that were in effect under the
old agreement. It takes place when the original parties continue their obligation
to one another, but a new agreement is substituted for the old one. It ordinarily
arises when a new individual assumes an obligation to pay that was incurred by
the original party to the contract. The novation is often used when the parties
find that payments or performance cannot be made under the terms of the
original agreement, or the debtor will be forced to default or go into bankruptcy
unless the debt is restructured.

Novation can be also defined as a type of substituted contract that has the
effect of adding a party, obligor or obligee, who was not a party to the original
duty. Substitution of a new contract, debt or obligation for an existing one,

305
between the same or different parties. In the case of Tauber v Von Abo305, the
court defined the term novation as applicable in the contract law. The court
held that novation can be described as the replacing of an existing obligation
by a new one, the existing obligation being discharged by the new obligation.

The novation may be made in three different ways. First, novation occurs
without the intervention of any new person. Second, novation takes place by
the intervention of a new debtor. Third, novation takes place by the intervention
of a new creditor where a debtor contracts some obligation in favour of a new
creditor. Third way of novation called a delegation.

The novation requires the consent of all the involved parties and must be legally
enforceable. If it is not legally enforceable, then the involved parties will still be
bound by the terms and conditions of the original contract. The new contract
must be implemented before the expiration date of the initial contract.

In the case of Barclays National Bank Ltd v Smith306, the court held that in order
to create a novation, that the new agreement should contain something
different from what is contained in the earlier obligation. If it does not, then it is
useless to declare an intention to novate, for a novation will not be effected.

Section 62 of the Law of Contract Act 307 provides for the effect of the novation.
It provides that where the parties to a contract agree to substitute a new
contract for it, or to rescind or alter it the original contract need not be
performed. This denotes that substitution of the new contract over the old
contract makes the no necessity for the parties to perform the old contract.

305 1984 (4) SA 482 (ECD) at 485C

306 1975 (4) SA 675 at 683C-D
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It is a settled principle of the common law, that a mere agreement to substitute
any other thing in lieu of the original obligation is void, unless actually carried
into execution and accepted as satisfaction. No action can be maintained
upon the new agreement, nor can the agreement be pleaded as a bar to the
original demand. But where an agreement is entered into by deed, that deed
gives, in itself, a substantive cause of action, and the giving such deed may be
sufficient accord and satisfaction for a simple contract debt.

(ii) Alteration

Alteration occurs when all of the involved parties agree to making some
changes to only the terms and conditions of the original contract. When this
occurs, the previous contract is discharged. Should there be a lack of full
consent among all of the involved parties, however, the alternation is not
considered valid, and the original contract will remain the one by which
everyone is obligated.

Some contracts may undergo what are called material alterations, an example
of such being changing the amount of money paid by one party to the other.
Even though the nuts and bolts of the contract are not necessarily being
altered, this change does have an impact on the liability of it.

Section 62 of the Law of Contract Act 308 provides for the effect of the alterations
of the contract terms with the new terms of the contract. It provides that where
the parties to a contract agree to alter it the original contract need not be
performed. This denotes that alteration of the new contract terms over the old
contract terms makes the no necessity for the parties to perform the old
contractual terms.

308 Cap 345 RE 2018

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 (iii) Waiver

Waiver of contract refers to the giving up of contract rights by one party. This
can be done either by a positive act or through a deliberate failure to take
certain actions. The waiver of contract needs to be both voluntary as well as
intentional in order to constitute a legal waiver or release of the contract rights.

Mere silence on a matter is generally not enough to constitute a waiver of

contract. The party needs to actually take steps to give up their contractual
rights in order for the court to find that a waiver existed. In the case of Long v
Clark309, the court was of the view that it is a general rule that mere indulgence
or silence cannot be construed as a waiver unless some element of estoppel
can be invoked.

A contract may be discharged by agreement between the parties to waive

their rights arising from the contract. Thus, in case of waiver, the person who is
entitled to any right under the contract, intentionally relinquishes them without
consideration and without a new agreement. Under English law waiver is
possible only by agreement under seal.

Section 63 of the Law of Contract Act 310 provides inter alia that every promisee
may dispense with wholly or in part, the performance of the promise made to
him at any satisfaction which he thinks fit. This indicates that it is the promisee
with the power to waive the contractual promises. Also, the dispensation of the
contractual promises may be done either in whole or in part. Moreover, the
dispensation of the contractual promises is made at the satisfaction of the
promisee to the contract.

309 90 Kan. 535 (Kan. 1913)],

310 Cap 345 RE 2018
308
 (iv) Rescission

This is cancellation of certain terms of the contract by the parties to the

contract. The parties to the contract agree and decide to cancel their contract
wholly or partly without replacing with the new one or changing the terms. This
must occur with the mutual agreement ad consent of the parties to the
contract.

When some of the contractual terms have been cancelled, the remaining
contractual terms are still operative and enforceable while the cancelled terms
are discharged from the obligations to the parties to the contract. When the
whole contractual terms are cancelled, the contract is discharged through the
agreement of the parties to rescind the contract.

Section 62 of the Law of Contract Act 311 provides for the effect of the rescission
of the contract by the parties to the contract. It provides that where the parties
to a contract agree to rescind contract, the rescinded contract need not be
performed. This denotes that rescission of the contract makes the no necessity
for the parties to perform the contract.

(v) Remission

Remission means acceptance of a lesser performance than what was actually

due under the contract. A remission is conventional when it comes about
through an express grant to the debtor by a creditor. It is tacit when the creditor
makes a voluntary surrender of the original title to the debtor under private
signature constituting the obligation.

311 Ibid
309
Section 63 of the Law of Contract Act 312 provides that promisee may remit
performance of promise. This indicates that remission can be done by the
promisee of the contract. It enshrines inter alia that every promisee may remit,
wholly or in part, the performance of the promise made to him any satisfaction
which he thinks fit. Hence, remission may be done at the satisfaction of the
promisee in the contract. Also, the remission of the contract may be done wither
wholly or partly. Moreover, the remission is construed on the basis of the
performance of the promise.

Conclusion

The parties to a contract can agree at any time to end it. Such an agreement is
itself a contract, so there must be consideration. If both parties have obligations
under the contract which have not yet been carried out, release from those
obligations counts as consideration, so nothing more is required. Where one
party has already fully performed their side of the contract, they may require the
other party to give value in exchange for release from the remaining obligation.
The party promising to release the other party may change their mind before
the value is paid. However, if the party in breach has relied on the agreement
and has changed their situation in some way, a court may force the party
promising release to keep to the agreement.

Review Questions

1. What so you understand by the term novation? Explain with relevant

authorities the ways through which the novation can be made.
2. The contract law provides for the various essentials which must be present
in the agreement whose purpose is to discharge the contract. Discuss with

312 Cap 345 RE 2018

310
 relevant authorities, the essentials for the agreement to discharge the
contract.
3. Both rescission and remission are inter alia ways to discharge the contract
via agreement. What are the legal differences between the two in
relation to discharge of the contract by the agreement?
4. Accord and satisfaction are important elements for a contract to be
discharged through agreement. How accord is different from satisfaction
as far as discharge of contract through agreement is concerned?
5. “Mere silence on a matter is generally not enough to constitute a waiver
of contract.” With aid of decided cases, discuss the validity of the
statement.
6. “A mere agreement to substitute any other thing in lieu of the original
obligation is void, unless actually carried into execution and accepted as
satisfaction.” How far is the statement true? Support your answers with
relevant legal authorities.
7. Differentiate the following terms as applicable in the contract law
a. Accord and Satisfaction
b. Waiver and Alteration
c. Remission and Rescission
d. Novation and Agreement

References

Adams and Brownsword, ‘Contract, consideration and the critical path’ (1990)
55 Modern Law Review 536

Armstrong, A., and Hagel III, J. The Real Value of ON-LINE Communities, Harvard
Business Review, May-June, (1996). 134-141.

Atiyah ‘Consideration: a restatement’, Essays on Contract, Oxford: Oxford

University Press, United Kingdom (1990)

311
Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brinkworth and Powell, ‘Contract and consideration: a new commercial reality?’

(1991) 12 Business Law Review 5

Brown, G. W., et al, Understanding Business and Personal Law, 9th Edition,
McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Dahiyat. E. R, “Intelligent Agents and Contracts: Is a Conceptual Rethink

Imperative?” 15 Journal of Artificial Intelligence Law. (2007). 375-390 at 383.

Garcia, D. L. Network Commerce: Public Policy Issues in a Deregulated

Communication Environment. The Information Society, (1997). 13, 17-31.

Gogan, J. L. The Web's Impact on Selling Techniques: Historical Perspective and

Early Observations. International Journal of electronic Commerce, (1997).
1(2), 89-108.

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Ismail, et al, Evaluation of Legal Risks for Ecommerce in Construction‟ Journal of

Professional Issues in Engineering Education & Practice, (2006). 355-360 at
358

312
Kaustuv. M. D, Forum-Selection Clauses in Consumer Click wrap and Browse
wrap Agreements and the Reasonably Communicated Test‟ (2002). 77 (2)
Washington Law Review, 481 at 499-500

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

Lee, H. G., and Clark, T. H. Impacts of the Electronic Marketplace on Transaction

Cost and Market Structure. International Journal of Electronic Commerce,
(1996). 1(1), 127-149

Mitchell and Phillips, ‘the contractual nexus: is reliance essential?’ (2002) 22

Oxford Journal of Legal Studies 115

Mollel. A, et al, Electronic Transactions and the Law of Evidence in Tanzania,

Peramiho Printing Press, (2007)

Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Neo, B. S. The implementation of an electronic market for pig trading in

Singapore. Journal of Strategic Information Systems, (1992). 1(5), 278-288.

Pacini. C, et al, “To Agree or not to agree: Legal Issues in Online Contracting”,
Business Horizon (2002). 43-52 at 43

Samelson A, et al, The E-Sign Law: What does it mean for Government
Contracting Practices? Journal of Contract Management, (2003). 35-43 at
36

313
 LECTURE TWENTY-ONE

DISCHARGE BY PERFORMANCE

Introduction

A contract places a legal obligation upon the contracting parties to perform

their mutual promises, and it carries on until the discharge or termination of the
contract. The most natural and usual mode of discharging a contract is to
perform it. A person who performs a contract in accordance with its terms is
discharged from any further obligations. As a rule, such performance entitles him
to receive the other party’s performance.

The essence of the contract is in the performance of the contract. Performance

of contract is what makes the contract alive. The performance of the contract
clearly indicates the intention of the parties to the contract. It is very important
to perform the contract because it would be useless to make contract with not
commitment to perform its obligations. The performance of the contract ensures
the parties to achieve the purposes for which the contract was formed. The
parties’ interests are achieved and protected when the contract is performed
accordingly.

The performance of the contract emanates from the doctrine of the sanctity of
the contract. The sanctity of contract doctrine requires honouring and
respecting the contractual promises and obligations and performance in good
faith. The contractual promises are honoured though the performance of the
contract. Hence, the contract must be performed by the parties to the contract
or representatives of the parties to the contract in good faith. Failure to perform
the contract is disrespecting the contract and intentions of the parties which
removes the very essence of having the same contract.

314
The contract may be discharged through the performance of the contract.
There are various legal rules and principles of the contract law which govern the
performance of the contract to the tune of discharging the contract. These
legal rules are worth to be understood so as to be apply the same in the factual
situations and solving the practical challenges and issues related to the
performance of the contract. These are going to be covered in this lecture. The
lecture imparts understanding of the legal rules and principles which govern the
performance if the contract so as discharge the contract. It develops ability to
apply the legal rules and principles in real situations.

Performance

Performance is the fulfilment of the contractual obligations and promises. It

denotes that parties are doing what they have agree in the contract. It is the
compliance to the terms and conditions of the contract. It shows that the parties
meet the obligations binding them in the contract they have entered. It implies
the act of doing what is required by the contract. It is implementation of the
agreement of the parties in the contract. Hence, performance of a contract
means the caring out of these obligation.

Parties to the contract must fulfil the contractual obligations according to the
terms and conditions laid down therein. Performance of the contract is among
of the ways to discharge the contract through the doing what is required by the
said contract. A contract is performed when there is execution of the terms of a
contract after which the involved parties are discharged from their duties, as
listed within the contract. Each party must perform or offer to promise which he
or she has made.

315
Types of Performance of Contract

There are many forms of the performance in relation to discharge of the

contract. The forms of the performance differ depending on the entirety or non-
entirety of the performance of the contractual promises. These are: -

(i) Actual Performance

When a promisor to a contract has fulfilled his obligation in accordance with the
terms of the contract, the promise is said to have been actually performed.
Actual performance gives a discharge to the contract and the liability of the
promisor ceases to exist.

For example, Kitime agrees to deliver 10 bags of cement at Yasin’s factory and
Yasin promises to pay the price on delivery. Kitime delivers the cement on the
due date and Yasin makes the payment. This is actual performance.

(ii) Substantial Performance

This is where the work agreed upon is almost finished. The court then orders that
the money must be paid, but deducts the amount needed to correct minor
existing defect. Substantial performance is applicable only if the contract is not
an entire contract and is severable.

The rationale behind creating the doctrine of substantial performance is to

avoid the possibility of one party evading his liabilities by claiming that the
contract has not been completely performed.

However, what is deemed to be substantial performance is a question of fact to

be decided in both the case. It will largely depend on what remains undone
and its value in comparison to the contract as a whole.

316
In case of substantial performance, the party that has performed can recover
the amount appropriate to what has been done under the contract, provided
that the contract is not an entire contract. The price is thus, often payable in
such circumstances, and the sum deducted represents the cost of repairing
defective workmanship.

(iii) Partial Performance

This is where one of the parties has performed the contract, but not completely,
and the other side has shown willingness to accept the part performed. Partial
performance may occur where there is shortfall on delivery of goods or where a
service is not fully carried out.

Partial performance must be accepted by the other party to be valid and

discharge the contract. In other words, the party who is at the receiving end of
the partial performance has a genuine choice whether to accept or reject.

Payment is made on a basis from that for partial performance. It is made on

quantum meruit, which literally means as much as is deserved. So, for example,
if half of the work has been completed, half of the negotiated money would be
payable.

(iv) Attempted Performance

When the performance has become due, it is sometimes sufficient if the

promisor offers to perform his obligation under the contract. This offer is known as
attempted performance or more commonly as tender.

Thus, tender is an offer of performance, which of course, complies with the terms
of the contract. If goods are tendered by the seller but refused by the buyer, the
seller is discharged from further liability, given that the goods are in accordance

317
with the contract as to quantity and quality, and he may sue the buyer for
breach of contract if he so desires.

The rationale being that when a person offers to perform, he is ready, willing and
capable to perform. Accordingly, a tender of performance may operate as a
substitute for actual performance, and can effect a complete discharge.

Rules of Performance

There are many legal rules and principles which govern the discharge by the
performance. These rules qualify the nature of performance and its effect in the
discharge of the contract. These are: -

(i) Parties to perform

The general rule of the performance of the contract is that the parties to the
contract must perform the obligations of the contract. This rule emanates from
the doctrine of privity which prevents from benefiting or being liable for the
contract because they are total strangers to the contract between the parties
to the said contract.

Section 37 (1) of the Law of Contract Act 313 provides for the obligation of the
parties to the contract to perform the contract. It offers inter alia that the parties
to a contract must perform their respective promises unless such performance is
dispensed with or excused under the provisions of this Act or of any other law.
Hence, this signifies that on absence of waiver, exemption of the performance
of the contract, the parties to the contract must perform the contract.

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The exceptional rule is that performance of the contract may be made by third
party to the contract when there is clear indication from the parties to the
contract. Hence, it is possible the contract to be performed by the third party.

Section 40 of the Law of Contract Act 314 entails persons by whom promise is to
be performed. It inter alia provides that in other cases the promisor or his
representatives may employ a competent person to perform the contract on his
or her behalf.

In addition, when the party to the contract accepts such performance from the
third party, he or she is bound by such acceptance. Section 41 of the Law of
Contract Act315 provides for the effect of accepting performance from third
person. It enshrines that promisee cannot afterwards enforce it against the
promisor when a promisee accepts performance of the promise from a third
person.

Moreover, the performance of the contract may representatives in case of

death of the party to the contract. Section 37(2) of the Law of Contract Act 316
provides that promises bind the representatives of the promisor in case of the
death of such promisor before performance, unless a contrary intention appears
from the contract.

(ii) Exact and Complete Performance

Exact and complete performance by both the parties puts an end to the
contract. In expecting exact performance, the courts mean that, performance
must match contractual obligations. In requiring a contract to be complete, the

314 Ibid
315 Ibid
316 Ibid

319
law is merely saying that any work undertaken must be carried out to the end of
the obligations.

A contract becomes discharged through performance where both parties have

fully performed their contractual obligations. If one party does not fully perform
the contract this will amount to a breach of contract and the other party may
have a claim for damages unless the contract has been frustrated.

In the case of Cutter v Powell317, the claimant's husband agreed by contract to

act as a second mate on the ship the 'Governor Parry' on a return voyage to
Jamaica. The voyage was to take eight weeks and he was to be paid on
completion. A term in the contract stated:

"Ten days after the ship 'Governor Parry,' myself master, arrives at
Liverpool, I promise to pay to Mr. T. Cutter the sum of thirty guineas,
provided he proceeds, continues and does his duty as second mate in
the said ship from hence to the port of Liverpool. Kingston, July 31st, 1793."

Six weeks into the voyage the claimant's husband died. The claimant sought to
claim a sum to represent the six weeks work undertaken.

The court held that the wife's action failed because the payment was on
condition that he worked the ship to Liverpool, since he did not fulfil this
condition the widow was entitled to nothing.

The harshness of this rule relating to discharge through performance has been
mitigated by the creation of various exceptions:

(a) Divisible or Severable Contracts

317 [1795] EWHC KB J13

320
The rule relating to discharge through full performance applies where there
exists an entire contract. Where it is possible to divide a contract into separate
parts, eg. if a sum is agreed to be payable per week or hour, then the courts
can award a sum for the separate parts of the contract which have been
completed

In the case of Ritchie v Atkinson318, by contract the claimant agreed to carry a

cargo of specified quantity of hemp and iron. The price agreed was £5 per ton
for the hemp and 5 shillings per ton of iron. The claimant only carried part of the
agreed quantity. The defendant argued the contract had not been fully
performed and therefore no payment was due.

The court held that the contract could be divided into separate parts as the
parties had agreed a price per ton. The claimant was thus entitled to payment
for the amount carried although the defendant was entitled to damages for
non-performance in relation to the amount not carried.

(b) Substantial Performance

A further exception exists where a court is satisfied that substantial performance

is present. The court may then award the contractually agreed price and
deduct sums to reflect the amount not performed.

If, however, the performance is not held to amount to substantial performance

the claimant is entitled to nothing. Difficulty arises as to what amounts to
substantial performance. There is no precise limit set down but is to be
determined on the facts of individual cases.

318 (1808) 10 East 295

321
In the case of Bolton v Mahadeva319 the claimant installed central heating in the
defendant's home. The agreed contract price was £560. The defendant was not
happy with the work and refused to pay. Defects in the work amounted to £174.
The action by the claimant to enforce the payment failed since the court held
there was no substantial performance.

In the case of Hoenig v Isaacs320, the claimant agreed to decorate and furnish
the defendant's flat for £750 payable by two instalments and the balance on
completion. The claimant completed the work but the defendant was
unsatisfied some of the furnishings and refused to pay the all the final instalment.
The cost of the defects in the furniture came to £56. The Court of Appeal held
that the claimant had substantially performed the contract and was therefore
entitled to the contractually agreed price minus the cost of the defects.

(c) Acceptance of partial performance

Where one party freely agrees to accept partial performance, then a sum is
payable for the work completed. The main focus is on free acceptance.

In the case of Sumpter v Hedges321, the claimant agreed to build two houses
and stables for the defendant. It was agreed that £565 would be payable on
completion. The claimant commenced performance and then ran out of
money and was unable to complete. He had performed just over half of the
contract. The defendant completed the work himself. The claimant sought to
recover £333 representing the value of the work he had completed. He argued
that in completing the work himself, the defendant had thereby accepted
partial performance and prevented the claimant from completing the contract.

319 [1972] 1 WLR 1009

320 [1952] 2 All ER 176
321 (1898) 1 QB 673

322
The Court of Appeal held that the claimant's action failed. The court held that
the defendant had no choice but to accept partial performance as he was left
with a half completed house on his land.

(d) Tender of performance

Where a party is willing to perform and tries to tender performance but the other
party does not accept the performance then the party seeking to tender
performance is discharged from the contract and the non-accepting party is
liable in damages for non-acceptance.

In the case of Startup v MacDonald322, a contract stated that 10 tons of oil were
to be delivered to the defendant within the last 14 days of March. The claimant
delivered the oil at 8.30pm Saturday March 31st. The defendant refused to
accept the delivery because of the lateness of the hour. The court held that the
claimant had tendered performance within the agreed contractual period and
was thus entitled to damages for non-acceptance.

(e) Performance prevented by the promisee

Where the promisee prevents completion of the performance then the promisor
is entitled to payment for the work which has been completed.

In the case of Planche v Colburn323, the claimant agreed to write a book on

costume and armour for the defendant as part of a series called 'the Juvenile
Library'. The agreed contract price was £100 to be payable on completion. The
claimant commenced writing and had completed a great deal of it when the
defendant cancelled the series. The defendant refused to pay the claimant

322 (1843) 6 Mann & G 593

323 [1831] EWHC KB J56
323
despite his undertaking and the fact that the claimant was still willing to
complete. The claimant brought an action to enforce payment. The court held
that the claimant was entitled to recover £50 because the defendant had
prevented the performance.

(iii) Time of Performance

A contract should be performed at the time specified. When this has been
accomplished, the parties are discharged automatically and the contract is
discharged eventually. There are, however, many other ways in which a
discharge may be brought about.

On the other hand, when the time of performance has not been stipulated, the
contract must be performed at reasonable time. This indicates that it must be
performed at reasonable time. However, reasonable time is a question of fact
which vary from different circumstances. It also depends on the nature of the
contract and its performance and observed from the clear intentions of the
parties to the contract.

Section 46 of the Law of Contract Act 324 provides when to performance the
contract in case of absence of stipulation of the exact time for performance. It
provides inter alia that where, by the contract, a promisor is to perform his
promise without application by the promisee, and no time for performance is
specified, the promise must be performed within a reasonable time.

Moreover, section 47 of the Law of Contract Act 325 provides for time and place
for performance of promise where time is specified and no application is to be
made. It provides that the promisor may perform it at any time during the usual

324 Cap 345 RE 2018

325 Ibid
324
hours of business on such day and at the place at which the promise ought to
be performed. This occurs when a promise is to be performed on a certain day,
and the promisor has undertaken to perform it without application by the
promisee.

Furthermore, section 48(1) of the Law of Contract Act 326 provides when to
perform the contract when there is application for performance on certain day
to be at proper time and place. It elucidates that it is the duty of the promisee
to apply for performance at a proper place and within the usual hours of
business. This duty is when a promise is to be performed on a certain day and
the promisor has not undertaken to perform it without application by the
promisee.

Section 55(1) of the Law of Contract Act 327 provides for effect for failure to
perform the contract at the specified time. It enunciates that the contract
becomes voidable at the option of the promisee, if the intention of the parties
was that time should be of the essence of the contract.

The contract not performed timely becomes voidable when a party to a

contract promises to do a certain thing at or before a specified time, or certain
things at or before specified times, and fails to do any such thing at or before
the specified time, the contract or so much of it as has not been performed.

On the other hand, section 55 (2) of the Law of the Contract Act 328 provides for
effect of the failure to perform the contract on time when the time is not matter
of essence as per the intention of the parties.

326 Ibid
327 Cap 345 RE 2018
328 Ibid

325
It enshrines that the contract does not become voidable by the failure to do
such thing at or before the specified time; but the promisee is entitled to
compensation from the promisor for any loss occasioned to him by such failure.
It does not become voidable where it was not the intention of the parties that
time should be of the essence of the contract.

In addition, when the party to the contract performs the contract outside the
time agreed and the other party agreed the performance, the agreeing party
will not be to claim compensation from the party who failed to perform on time.

Section 55(3) of the Law of Contract Act 329 provides that the promisee cannot
claim compensation for any loss occasioned by the non-performance of the
promise at the time agreed where, in case of a contract voidable on account
of the promisor's failure to perform his promise at the time agreed, the promisee
accepts performance of such promise at any time other than that agreed.

However, the promisee can claim compensation for any loss occasioned by the
non-performance of the promise at the time agreed where at the time of such
acceptance, the promisee gives notice to the promisor of his intention to do so.

(iv) Place of Performance

A contract should be performed at the place agreed upon. When this has been
accomplished, the parties are discharged automatically and the contract is
discharged eventually. There are, however, many other ways in which a
discharge may be brought about.

Where the place of performance has not been specified in the contract and
there is no application from the promisor, the contract must be performed at

329 Ibid
326
the reasonable place. What is reasonable place varying from circumstances?
Hence each case has to be determined on its own.

Section 49 of the Law of Contract Act 330 provides for the place for performance
of promise where no application to be made and no place fixed for
performance. It articulates that it is the duty of the promisor to apply to the
promisee to appoint a reasonable place for the performance of the promise,
and to perform it at such place. This duty exists when a promise is to be
performed without application by the promisee, and no place is fixed for the
performance of it.

Conclusion

When the parties to a contract perform their respective promises, the contract is
said to have been performed. This is the normal and natural mode of
discharging a contract. When performance is proper and complete on either
side, the parties become free from any further liability. If only one party performs
what he promised, he alone gets a valid discharge, and he acquires a right of
action against the other for non-performance. Discharge by performance
occurs when one or both parties agreeing to a contract fail to perform their
obligations. This is one of the more natural modes for discharging a contract. If
both parties have properly completed their obligations that were set forth by the
contract, they are then free from any further liability. If one party fails to perform
their obligations, then the other party has the right to take action against the
party that did not perform.

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Review Questions

1. Asha’s husband agreed by contract to act as a second mate on the ship

the 'Presidee Parry' on a return voyage to Zanzibar. The voyage was to
take eight weeks and he was to be paid on completion. A term in the
contract stated: "Ten days after the ship 'Presidee Parry,' myself master,
arrives at Pemba, I promise to pay to Asha’s husband the sum of thirty
thousand Tshs, provided he proceeds, continues and does his duty as
second mate in the said ship from hence to the port of Unguja, July 31st,
1793." Six weeks into the voyage Asha’s husband died. Asha sought to
claim a sum to represent the six weeks work undertaken. Can she
succeed in her action? Answer authoritatively.
2. By contract Kuli agreed with Danga Industrial Ltd to carry a cargo of
specified quantity of coal and iron. The price agreed was 5m Tshs per ton
for the coal and 2.5m Tshs per ton of iron. Kuli only carried part of the
agreed quantity. Danga Industrial Ltd argued the contract had not been
fully performed and therefore no payment was due. Is the argument
raised by Danga Industrial Ltd tenable in contract law? Support your
answer with relevant authorities.
3. Ndunguru installed central heating in the Kinunda's home. The agreed
contract price was 560,000/=Tshs. Kinunda was not happy with the work
and refused to pay. Defects in the work amounted to 174,000/= Tshs. The
action by Ndunguru to enforce the payment failed since the court held
there was no substantial performance. Ndunguru is agreived with the
decision of the court and wants to appeal. Advise Ndunguru on failure of
his action as far as performance of the contract is concerned.
4. Saulo agreed to decorate and furnish Hyera’s flat for 750,000/= Tshs
payable by two instalments and the balance on completion. Saulo
completed the work but Hyera was unsatisfied some of the furnishings and

328
 refused to pay the all the final instalment. The cost of the defects in the
furniture came to 56,000/=Tshs. Advise Saulo on his entitlements.
5. Mwingira agreed to build two houses and stables for Ndauka. It was
agreed that 56,500,000/=Tshs would be payable on completion. Mwingira
commenced performance and then ran out of money and was unable to
complete. He had performed just over half of the contract. Ndauka
completed the work himself. Mwingira sought to recover 33,300,000/=Tshs
representing the value of the work he had completed. He argued that in
completing the work himself, Ndauka had thereby accepted partial
performance and prevented Mwingira from completing the contract. As
a judge, what is your decision upon such argument?
6. A contract stated that 10 tons of oil were to be delivered to Komba within
the last 14 days of March. Mapunda delivered the oil at 8.30pm Saturday
March 31st. Komba refused to accept the delivery because of the
lateness of the hour. What is legal effect of Komba’s refusal? What is the
entitlement to Mapunda?
7. Mahundi agreed to write a book on costume and armour for Mahuwi as
part of a series called 'the Juvenile Library'. The agreed contract price was
100,000/=Tshs to be payable on completion. Mahundi commenced
writing and had completed a great deal of it when Mahuwi cancelled
the series. Mahuwi refused to pay the Mahundi despite his undertaking
and the fact that Mahundi was still willing to complete. Mahundi brought
an action to enforce payment. Can he succeed? Support your answer
with relevant authorities.

329
References

Adams and Brownsword, ‘Contract, consideration and the critical path’ (1990)
55 Modern Law Review 536

Armstrong, A., and Hagel III, J. The Real Value of ON-LINE Communities, Harvard
Business Review, May-June, (1996). 134-141.

Atiyah ‘Consideration: a restatement’, Essays on Contract, Oxford: Oxford

University Press, United Kingdom (1990)

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brinkworth and Powell, ‘Contract and consideration: a new commercial reality?’

(1991) 12 Business Law Review 5

Brown, G. W., et al, Understanding Business and Personal Law, 9th Edition,
McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Dahiyat. E. R, “Intelligent Agents and Contracts: Is a Conceptual Rethink

Imperative?” 15 Journal of Artificial Intelligence Law. (2007). 375-390 at 383.

Garcia, D. L. Network Commerce: Public Policy Issues in a Deregulated

Communication Environment. The Information Society, (1997). 13, 17-31.

Gogan, J. L. The Web's Impact on Selling Techniques: Historical Perspective and

Early Observations. International Journal of electronic Commerce, (1997).
1(2), 89-108.

330
Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Ismail, et al, Evaluation of Legal Risks for Ecommerce in Construction‟ Journal of

Professional Issues in Engineering Education & Practice, (2006). 355-360 at
358

Kaustuv. M. D, Forum-Selection Clauses in Consumer Click wrap and Browse

wrap Agreements and the Reasonably Communicated Test‟ (2002). 77 (2)
Washington Law Review, 481 at 499-500

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

Lee, H. G., and Clark, T. H. Impacts of the Electronic Marketplace on Transaction

Cost and Market Structure. International Journal of Electronic Commerce,
(1996). 1(1), 127-149

Mitchell and Phillips, ‘the contractual nexus: is reliance essential?’ (2002) 22

Oxford Journal of Legal Studies 115

Mollel. A, et al, Electronic Transactions and the Law of Evidence in Tanzania,

Peramiho Printing Press, (2007)

Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Neo, B. S. The implementation of an electronic market for pig trading in

Singapore. Journal of Strategic Information Systems, (1992). 1(5), 278-288.

331
Pacini. C, et al, “To Agree or not to agree: Legal Issues in Online Contracting”,
Business Horizon (2002). 43-52 at 43

Samelson A, et al, The E-Sign Law: What does it mean for Government
Contracting Practices? Journal of Contract Management, (2003). 35-43 at 36

332
 LECTURE TWENTY-TWO

DISCHARGE BY FRUSTRATION

Introduction

Sometimes circumstances change so much after a contract is made that it is

impossible to carry it out. For instance, the subject matter of the contract may
be destroyed, as where there is a contract to buy a painting, but before it can
be handed over, it is stolen or destroyed by fire.

If this happens without the fault of either party a court may find that the
contract has automatically ceased ('become frustrated'). In that case neither
party will be bound. The court must be satisfied that there is no provision in the
contract that the contract should continue to bind even if such an event should
occur.

Frustration of a contract takes places when there supervenes an event that is

without default of either party and for which the contract makes no sufficient
provision, which so significantly changes the nature of the outstanding
contractual rights and/or obligations from what the parties could reasonably
have contemplated at the time of its execution that it would be unjust to hold
them to the literal sense of its stipulations in the new circumstances; in such case
the law declares both parties to be discharged from further performance.

Henceforth, this lecture deals with the doctrine of frustration and its operation as
far as discharge of contract is concerned. It shades light on the application of
the doctrine of frustration of the contract. It illuminates on the circumstances
which may amount to frustration of contract as well as the circumstances which
cannot frustrate the contract. It is worth for understanding of the principle, its
application and critical analysis on the essence of the doctrine on whether it

333
should exist or not due to the development of the various aspects in the
contract law.

Frustration of Contract

Doctrine of frustration is common law doctrine which discharges the contract

when there is occurrence of supervening event that makes performance of the
contract impossible or changes substantially the principal purposes of the
parties in the contract. It involves termination of contract by law due to the
occurrence of event which prevents achievement of the contractual purpose,
renders the performance practically impossible or renders performance illegal.
Where a contract is found to be frustrated, each party is discharged from future
obligations under the contract and neither party may sue for breach.

A contract may be frustrated where there exists a change in circumstances,

after the contract was made, which is not the fault of either of the parties, which
renders the contract either impossible to perform or deprives the contract of its
commercial purpose.

In the case of M/S Kanyarwe Building Contractor v the Attorney General and
Another331 where the court established that the doctrine of frustration might be
invoked where events occur that make the performance of the contract
impossible and these frustrating events are not the fault of either party.

Frustration mitigates the rigour of the common law’s insistence on literal

performance of absolute promises. It operates to kill the contract and discharge
parties from further liability under it. It brings a contract to an end forthwith,
without more and automatically. It should not be due to the act or election of

331 1985 TLR 161 (HC).

334
the party seeking to rely on it, so that there must be some outside event or
extraneous change in the situation.332

Invoking Doctrine of Frustration

Frustration occurs whenever the law recognizes that without default of either
party a contractual obligation has become incapable of being performed
because the circumstances in which performance is called for would render it a
thing radically different from that which was undertaken by the contract.333

It is not hardship or inconvenience or material loss itself which calls the principle
of frustration into play. There must be as well such a change in the significance
of the obligation that the thing undertaken would, if performed, be a different
thing from that contracted for.334

The doctrine of frustration has been invoked to mitigate the onerous doctrine of
absolute contracts where performance of a contract is prevented by
supervening events for which neither party to the contract is responsible and loss
allocation is required.

Circumstances of Frustration

The contract can be frustrated when there is supervening events. Supervening

events are the unforeseen events which occur beyond the control of human
being that makes the contract impossible or illegal to perform. They are
unforeseen by the parties to the contract. Also, they are out of control of human
beings. In addition, they render contract impossible to be performed.
Henceforth, when they occur, they make the contract frustrated. These are: -

332 J. Lauritzen AS v Wijsmuller BV ([1990] 1 Lloyd’s Rep. 1

333 Davis Construction Ltd. v. Fareham Urban District Council 1956 AC 696 and at (1956) 2 All ER
145
334 Ibid

335
 (i) Destruction of Subject Matter

In the case of Taylor v Caldwell335, the claimant hired out a music hall in Surrey
for the purpose of holding four grand concerts. The claimant went to great
expense and effort in organising the concerts. However, a week before the first
concert was due to take place the music hall was destroyed by an accidental
fire.

The claimant sought to bring an action for breach of contract for failing to
provide the hall and claiming damages for the expenses incurred. The court
held that the claimant's action for breach of contract failed. The contract had
been frustrated as the fire meant the contract was impossible to perform.

(ii) Personal Incapacity

In the case of Condor v Baron Knights336, a 16 year old agreed by contract to

play the drums for the defendant band for 7 nights per week for 5 years. The
claimant suffered a mental breakdown and was told by his doctor that he
should not perform more than 4 nights per week. The band dismissed him.

He brought a claim for wrongful dismissal. The court held that the claimant's
action was unsuccessful as his medical condition made it impossible for him to
perform his contractual obligations and the contract was thus frustrated.

(iii) Performance Illegality

335 (1863) 3 B & S 826

336 [1966] 1 WLR 87
336
In the case of Fibrosa Spolka v Fairbairn337, an English company which
manufactured textile machinery agreed by contract dated 12th July 1939 to
supply some machines to a Polish company.

The machines were to be delivered in 3-4 months. £1,600 was payable up front
and the balance of £3,200 payable on delivery. The Polish company paid £1000
on 18th of July on account of the initial payment due. On 1st Sept Germany
invaded Poland and on 3rd Sept Great Britain declared war on Germany. On
23rd of September Orders in Council made Poland an enemy territory making it
illegal for British companies to trade with Poland.

The court held the contract was frustrated as it was no longer possible to
perform the contract because of the supervening illegality.

(iv) Performance cannot be in specified manner

In the case of Nicholl and Knight v Ashton, Eldridge & Co338, by contract the
parties agreed that a cargo of cotton seed was to be shipped from Egypt to
England. The contract specified the ship, The Orlando, which was to carry the
cargo. This ship became damaged and was in for repairs when the contract
was due to be performed.

The court held that by naming the exact ship which was to carry the cargo, the
contract was frustrated as it was impossible for this ship to carry the cargo within
the contractually agreed period.

(v) Deprivation of commercial purpose

337 [1943] AC 32
338 [1901] 2 KB 126
337
In the case of Krell v Henry339, the defendant hired a flat on Pall Mall for the sole
purpose of viewing King Edward VII's coronation procession. The price agreed
was £75 for two days. The defendant paid £25 deposit. Due to illness of the King
the coronation was cancelled. Consequently, the defendant did not use the
flat.

The claimant sought to claim the outstanding £50. The court held that the
contract was frustrated as cancellation of the procession deprived it of its
commercial purpose. The claimant's action for breach of contract was thus
unsuccessful.

However, in the case of Herne Bay Steam Boat v Hutton340, the defendant hired
out the claimant's steamship. The purpose of the contract was to take paying
passengers to view the Naval Review which was part of King Edward VII's
coronation celebrations. The defendants were also offering a day’s cruise for
the passengers. The Naval Review was cancelled as the King was ill.

The defendant did not use the steamship and the claimant brought an action
for the agreed contract price. The defendant argued the contract had
become frustrated due to the cancellation of the Naval Review.

The court held that the contract was not frustrated. The contract had not been
deprived of its sole commercial purpose as it was still possible to perform the
days’ cruise. The Naval Review was not the only commercial purpose of the
contract.

Circumstances which do not amount to frustration

339 [1903] 2 KB 740

340 [1903] 2 KB 683
338
There can be no frustration when one of the very things known to be possible
and considered by the parties when making the agreement takes place.341
Hence, there are events which when they occur cannot amount to frustration.
These are: -

(i) Expensiveness

In the case of Davis Contractors v Fareham UDC342, Davis Contractors agreed to

build 78 houses for Fareham Council within 8 months for an agreed price of
£85,000. Due to a shortage in skilled labour and material the contract took 22
months to complete and was much more expensive than anticipated.

Davis Contractors were paid the contractually agreed price but bought an
action arguing for more money based on the fact that the contract had
become frustrated and therefore they were entitled to further payment based
on a quantum meruit basis.

The court held that the contract was not frustrated. The fact that a contract
becomes more difficult to perform or not so profitable is not sufficient to amount
to frustration. It was still possible to perform the contract.

(ii) Difficulties

In the case of Tsakiroglou & Co Ltd v Noblee Thorl GmbH343, the defendant
agreed to ship some Sudanese peanuts during November or December 1956 to
Hamburg for a certain price. On 2nd of Nov the Suez Canal was closed to
shipping.

341 Lane v Lane 1 DLR 655 (1936)

342 [1956] AC 696
343 [1962] AC 93

339
The defendant could still have transported the peanuts within the contractually
agreed time but this would mean going via the Cape of Good Hope which
would have taken four times as long and increased the cost of transport
considerably. The defendant did not carry the goods and argued that the
contract had been frustrated.

The court held that the contract was not frustrated. It was still possible to perform
the contract without any damage to the peanuts. The fact that it was more
difficult or costly to perform is not sufficient to amount to frustration.

(iii) Fault of Party to Contract

In the case of Maritime National Fish v Ocean Trawlers344, the claimant owned
five fishing vessels one of which was chartered to the defendants. The fishing
vessels were all fitted with otter trawler nets. New legislation was introduced
requiring licences to be held by those using otter trawl nets.

The claimant applied for five licences but was only granted three. He had to
name which vessels the licence would be used on. He named his own vessels
and excluded the vessel which the defendant was using. This meant that the
defendant was unable to use the vessel for fishing.

The claimant sued the defendant for the price of hire and the defendant in his
defence stated the defendant had committed a breach in not providing a
licence so he was not obliged to pay for the cost of hire. The claimant argued
there was no breach as the failure to provide a licence was a frustrating event
in that the decision to grant licences rested with the secretary of state.

344 [1935] AC 524

340
The court held that the contract was not frustrated since the claimant had
chosen to keep the three licences granted for himself rather than using one to
fulfil his contractual obligation. He had therefore induced the frustrating event
and was therefore in breach of contract.

(iv) Foreseeable Events

In the case of Walton Harvey Ltd v Walker & Homfrays Ltd345, a hotel owner
entered a contract with an advertising agency enabling them to put illuminated
adverts on the roof of their hotel. The hotel was then compulsorily purchased by
the Local Authority and demolished. The advertising agency sued for breach of
contract and the hotel argued the contract had become frustrated.

The court held that the contract was not frustrated as the hotel owners were
aware that the Local Authority were looking to purchase the hotel at the time
they entered the contract. They should have foreseen the fact that this could
happen in the life time of the contract and made provision in the contract for
such an eventuality. They were therefore liable to pay damages for breach of
contract.

Also, in the case of Peter Cassidy Seed Co Ltd v Osuustukkuk-Auppa Ltd346, the
claimant, an English company, purchased some ants’ eggs from the defendant
in Finland. The ants’ eggs required an export licence. The after agreeing to the
sale, the defendant was refused the licence.

The claimant brought an action for breach of contract. The defendant argued
the contract was frustrated so they were not liable for breach. The court held

345 [1931] 1 Ch 274

346 [1957] 1 WLR 273
341
that the defendant should have foreseen the possibility of the licence being
refused and therefore the contract was not frustrated.

(v) Force Majeure

In the case of Jackson v The Union Marine Insurance Co Ltd347, the plaintiff ship
owner, contracted under a charter party to proceed with all possible dispatch
to Newport. He insured the cargo. The ship ran aground before the cargo could
be collected, and was delayed. The charterers threw up the charter party and
contracted elsewhere for the delivery of the goods. The plaintiff claimed under
his insurance.

The court held that the delay had been so long as to put an end to the
contractual obligations. The charterers were therefore not obliged to load the
cargo, and the loss constituted a loss of the chartered freight by perils of the
sea. It was the happening of the event and not the fact that the event was the
result of a breach by one party of his contractual obligations that relieved the
other party from further performance of his obligations.

There are the cases which hold that, where the ship owner has not merely
broken his contract, but has so broken it that the condition precedent is not
performed, the charterer is discharged. Why? Not merely because the contract
is broken. If it is not a condition precedent, what matters it whether it is
unperformed with or without excuse? Not arriving with due diligence or at a day
named is the subject of a cross-action only. But not arriving in time for the
voyage contemplated, but at such a time that it is frustrated is not only a
breach of contract, but discharges the charterer. And so it should though he
has such an excuse that no action lies’

347 (1874) LR 10 CP 125

342
Effect of Frustration of Contract

Where a contract is found to be frustrated, both parties are released from their
obligations under the contract and neither party may sue for breach. Both
parties are released from future obligations relating to the contract.

Section 56 (2) of the Law of Contract Act 348 arranges for consequences of when
the contract becomes impossible to perform. It provides that a contract to do
an act which, after the contract is made, becomes impossible, or, because of
some event which the promisor could not prevent, unlawful, becomes void
when the act becomes impossible or unlawful.

To be void means the contract cannot be enforced in the court of law. Hence,
if the contract is frustrated, it becomes nothing. It is as good as it is not formed.
However, the nothing nature of contract due to frustration begins from the day
of frustration onwards and not before. Anything done before, the parties have
to be restored to their original position.

Conclusion

A contract may be discharged by frustration. The contract may be frustrated

where there exists a change in circumstances, after the contract was made,
which is not the fault of either of the parties, which renders the contract either
impossible to perform or deprives the contract of its commercial purpose. Where
a contract is found to be frustrated, each party is discharged from future
obligations under the contract and neither party may sue for breach.

348 Cap 345 RE 2018

343
Review Questions

1. Sultan hired out a music hall of Kidunda in Iringa for the purpose of holding
four grand concerts. The Sultan went to great expense and effort in
organising the concerts. However, a week before the first concert was
due to take place the music hall was destroyed by an accidental fire.
Sultan sought to bring an action for breach of contract for failing to
provide the hall and claiming damages for the expenses incurred. Discuss
whether Sultan can succeed on his action.
2. Azam ship owner, contracted with Jumanne under a charter party to
proceed with all possible dispatch to Newport. He insured the cargo. The
ship ran aground before the cargo could be collected, and was delayed
for 1 year. The charterers threw up the charter party and contracted
elsewhere for the delivery of the goods. Can Jumanne sue successfully
Azam for breach of contract due to delay?
3. Oga, Nigerian company, purchased some ants’ eggs from XiJin in China.
The ants’ eggs required an export licence. Thereafter agreeing to the sale,
XiJin was refused the licence. Oga brought an action for breach of
contract. Advise Oga on the possibility of success of his action.
4. Ugape, a hotel owner entered a contract with an advertising agency
enabling them to put illuminated adverts on the roof of their hotel. The
hotel was then compulsorily purchased by the Local Authority and
demolished. The advertising agency sued for breach of contract and the
hotel argued the contract had become frustrated. Is the argument by
Hotel tenable in contract law? Answer authoritatively.
5. Nyanda owned five fishing vessels one of which was chartered to
Nzangamba. The fishing vessels were all fitted with otter trawler nets. New
legislation was introduced requiring licences to be held by those using
otter trawl nets. Nyanda applied for five licences but was only granted

344
 three. He had to name which vessels the licence would be used on. He
named his own vessels and excluded the vessel which Nzagamba was
using. This meant that Nzagamba was unable to use the vessel for fishing.
Advise Nzagamba on his rights.
6. Shiboub agreed to ship some Sudanese peanuts during November or
December 1956 to Hamburg for a certain price. On 2nd of Nov the Suez
Canal was closed to shipping. Shiboub could still have transported the
peanuts within the contractually agreed time but this would mean going
via the Cape of Good Hope which would have taken four times as long
and increased the cost of transport considerably. Shoboub did not carry
the goods and argued that the contract had been frustrated. What is
legal status of Shiboub’s argument that contract was frustrated?
7. Mwarabu Contractors agreed to build 78 houses for Songea Municipal
Council within 8 months for an agreed price of 85,000,000/=Tshs. Due to a
shortage in skilled labour and material the contract took 22 months to
complete and was much more expensive than anticipated. Mwarabu
Contractors were paid the contractually agreed price but bought an
action arguing for more money based on the fact that the contract had
become frustrated and therefore they were entitled to further payment
based on a quantum meruit basis. Do you concur with Mwarabu
Contractor’s argument that the contract was frustrated? Argue
authoritatively.
8. Mtoto wa Mjini hired out the ‘Jamali’s steamship. The purpose of the
contract was to take paying passengers to view the Naval Review which
was part of President Juma Mataka’s coronation celebrations. Jamali’s
steamship were also offering a day’s cruise for the passengers. The Naval
Review was cancelled as the President was ill. Jamali did not use the
steamship and Mtoto wa Mjini brought an action for the agreed contract
price. Jamali argued the contract had become frustrated due to the

345
 cancellation of the Naval Review. They have consulted you for legal
opinion. Do the needful.
9. Mwajuma hired a flat on Kyte Mall for the sole purpose of viewing King
Mswati's coronation procession. The price agreed was USD 75,000 for two
days. The Mwajuma paid USD 25,000 deposit. Due to death of the King the
coronation was cancelled. Consequently, Mwajuma did not use the flat.
Kyte Mall sought to claim the outstanding USD 50,000. As Magistrate, what
is your ruling on that claim?
10. By contract Rashid and Mariam agreed that a cargo of cotton seed was
to be shipped from China to Tanzania. The contract specified the ship,
The Karuu, which was to carry the cargo. This ship became damaged and
was in for repairs when the contract was due to be performed. Discuss
whether the contract has been frustrated.
11. Kitoto, agreed by contract to play the drums for the Malaika music band
for 7 nights per week for 5 years. Kitoto suffered a mental breakdown and
was told by his doctor that he should not perform more than 4 nights per
week. The band dismissed him on the ground that the contract was
frustrated. Is the band correct on its dismissal and ground used? Answer
with relevant authorities.

References

Adams and Brownsword, ‘Contract, consideration and the critical path’ (1990)
55 Modern Law Review 536

Armstrong, A., and Hagel III, J. The Real Value of ON-LINE Communities, Harvard
Business Review, May-June, (1996). 134-141.

Atiyah ‘Consideration: a restatement’, Essays on Contract, Oxford: Oxford

University Press, United Kingdom (1990)

346
Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brinkworth and Powell, ‘Contract and consideration: a new commercial reality?’

(1991) 12 Business Law Review 5

Brown, G. W., et al, Understanding Business and Personal Law, 9th Edition,
McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Dahiyat. E. R, “Intelligent Agents and Contracts: Is a Conceptual Rethink

Imperative?” 15 Journal of Artificial Intelligence Law. (2007). 375-390 at 383.

Garcia, D. L. Network Commerce: Public Policy Issues in a Deregulated

Communication Environment. The Information Society, (1997). 13, 17-31.

Gogan, J. L. The Web's Impact on Selling Techniques: Historical Perspective and

Early Observations. International Journal of electronic Commerce, (1997).
1(2), 89-108.

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Ismail, et al, Evaluation of Legal Risks for Ecommerce in Construction‟ Journal of

Professional Issues in Engineering Education & Practice, (2006). 355-360 at
358

347
Kaustuv. M. D, Forum-Selection Clauses in Consumer Click wrap and Browse
wrap Agreements and the Reasonably Communicated Test‟ (2002). 77 (2)
Washington Law Review, 481 at 499-500

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

Lee, H. G., and Clark, T. H. Impacts of the Electronic Marketplace on Transaction

Cost and Market Structure. International Journal of Electronic Commerce,
(1996). 1(1), 127-149

Mitchell and Phillips, ‘the contractual nexus: is reliance essential?’ (2002) 22

Oxford Journal of Legal Studies 115

Mollel. A, et al, Electronic Transactions and the Law of Evidence in Tanzania,

Peramiho Printing Press, (2007)

Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Neo, B. S. The implementation of an electronic market for pig trading in

Singapore. Journal of Strategic Information Systems, (1992). 1(5), 278-288.

348
 LECTURE TWENTY-THREE

DISCHARGE BY BREACH

Introduction

The clear intention of the parties to the contract when they enter contract is to
perform the contract so as to meet their purposes. The performance of contract
is done through executing the contractual promises. Sometimes, parties to the
contract fail to implement what they have agreed in the contract. The failure of
doing what parties have agreed to do in the contract is called breach of
contract.

Breach of contract may be intentional, negligently or innocently. Breach is

intentional when the parties to the contract refuse to perform the contractual
obligations willingly. It becomes negligent when the parties fail to do or abstain
from doing something as per the contractual agreements as a reasonable
person. It is innocent when the parties fail to discharge their duties in the
contract without their fault.

The breach of contract may discharge the contract basing on the legal rules
and principles governing the contractual arrangements and breach of
contract. The rules and principles determine circumstance through which the
breach can be said to occur and legal implications of the said breach in the
contract. The rules may determine the rights and duties of the party to the
contract which is said to have been breached by the other party.

This lecture enchants us with understanding of the concept of the breach of

contract and circumstances where the breach of contract can be said to
occur. It also enlightens on the legal rules which govern legal consequences for
the breach of contract as well as the rights and duties of the parties related to
the breach of the contract. Henceforth, the lecture is important in

349
understanding the rules and developing the ability to apply the rules in practical
contractual situations.

Breach of Contract

This is a failure by a party to a contract to perform his obligations under that

contract or an indication of his intention not to do so.349 The failure of party to
perform the contract may be actual or anticipated. If it is anticipation, it may be
called as repudiation.

The repudiation of a contract entitles the injured party to treat the contract as
discharged and to sue immediately for damages for the loss sustained. The
same procedure applies to an actual breach if it amounts to breach of a
condition or breach of an innominate term when the consequences of breach
are sufficiently serious. In either an anticipatory or actual breach, the injured
party may, however, decide to affirm the contract instead.

Breach of contract denotes the violation of a contract or an agreement that

occurs when one party fails to fulfill its promises according to the provisions of
the agreement. Sometimes it involves interfering with the ability of another party
to fulfill his duties. A contract can be breached in whole or in part. It is the most
common reason contract disputes are brought to court for resolution.

In other words, the breach of the contract occurs when there is the failure to
perform any term of a contract, written or oral, without a legitimate legal
excuse. A breach of contract may include not completing a job, not paying in
full or on time, not delivering goods or substituting inferior goods, or being late
without excuse from the other party.

349 Martin, E. A., A Dictionary of Law, Oxford University Press, 5th Edition, New York, (2003), at pg.
54
350
There are two main ways a party can breach a contract where a party fails to
actually do what a clause states must be done by the time agreed, or if no time
is provided, within a reasonable time and where a party’s conduct manifests an
unwillingness or inability to perform the contract; if this occurs before the
performance is due, it is considered to be an anticipatory breach.

Types of Breaches of Contract

There are many types of breach of contract. The variation of breaches of

contract affect the legal consequences for parties to the contract as well as
remedies the innocent party is entitled in relation to such breach. These are: -

(i) Actual Breach

An actual breach of contract refers to a failure to meet the obligations stated in

a contract. This means the failure has already occurred and is not something
that is merely anticipated. A party can breach a contract in a number of ways,
from failing to meet contractual deadlines to complete nonperformance.
Fortunately, there are remedies available to help the innocent party get fair
compensation for his or her injury or loss.

The actual breach implies failure at present and date of performance is

reached, without legal excuse, to perform any promise that forms all or part of
the contract. This includes failure to perform in a manner that meets the
standards of the industry or the requirements of any express warranty or implied
warranty, including the implied warranty of merchantability.

When an actual breach amounts to breach of a warranty, or breach of an

innominate term and the consequences of breach are not sufficiently serious to
allow for discharge, the injured party is entitled to sue for damages only.

351
An actual breach of contract happens when a party is unable to fulfill his or her
contractual obligations by the deadline for performance or during the course of
performance. When one party in a contract does not fulfill his or her contractual
duties by the performance deadline, the other party is not required to perform
his or her obligations and can hold the breaching party liable for contract
breach.

When one party refuses or fails to perform his or her contractual duties, it results
in an actual contract breach during the course of performance. An actual
contract breach also occurs if a party performs his or her obligations but fails to
comply with the contract's terms. This kind of breach occurs when the guilty
party breaches the contract's essential conditions. Nevertheless, a breach of
nonessential conditions will not cause the contract to be dismissed. It only gives
the innocent party the right to be compensated by the breaching party.

(ii) Anticipatory Breach

Anticipatory breach is the repudiation of obligations by one party to a contract

before the obligations have been fully performed. This releases the other party
from his or her contractual obligations; one party cannot simultaneously
repudiate obligations and demand that the other party perform.

Anticipatory breach is either a renunciation or an inability to perform. If it is a

renunciation, it must be a clear and absolute refusal to perform. There must be
an intent on the part of the wrongdoer to no longer be bound by the contract.
If the anticipatory breach is a demonstrated inability to perform, then intention is
less critical and capability is more critical.350

350 E5 Group Inc. v Franssen, 2008 ABPC 336

352
For example, an anticipatory breach occurs if a person contracts to sell his car
to A, but sells and delivers it to B before the delivery date agreed with A. This act
of a person selling and delivering his car to B prior contractual to deliver the
same car to A shows that the party will not complete the work, hence it is
anticipatory breach of the contract.

Another example, A is required to deliver a container of goods within seven

days of signing a contract with B. If, a couple of days before the delivery is due,
A tells B that he has run out of those goods and will not be able to deliver them
within the seven-day period, A is in anticipatory breach of the contract. Once
the delivery is due, A is in actual breach of the contract.

In the case of Universal Cargo Carriers Corporation v Citati351, the court

explained anticipatory breach in the sense that anticipatory breach means
simply that a party is in breach from the moment that his actual breach
becomes inevitable. Since the reason for the rule is that a party is allowed to
anticipate an inevitable event and is not obliged to wait till it happens, it must
follow that the breach which he anticipates is of just the same character as the
breach which would actually have occurred if he had waited.

Anticipatory breach occurs when a party, by express language or conduct, or

as a matter of implication from what he has said or done, repudiates his
contractual obligations before they fall due. What must be shown before such a
breach is said to occur is the conduct of the party who has broken the contract
is such that the other party is entitled to conclude that the party breaching the
contract no longer intends to be bound by its provisions.

351 [1957] 2 Q.B. 401

353
For this type of breach to occur the following must be established first the
conduct which amounts to a total rejection of the obligations of the contract,
second, lack of justification for such conduct. If, to these, is added the
acceptance by the innocent party of the repudiation, then the effect will be to
terminate the contract. 352

This does not mean that the repudiating party is free from all liability. It simply
means that the innocent party may be freed from his obligations (as in the case
of a breach at the due date of performance), and may pursue such remedies
as would be available to him if the breach had taken place at the time when
performance was due.353

In the case of Hochster v De la Tour354, the claimant agreed to be a courier for

the defendant for 3 months starting on 1st June 1852. On the 11th May the
defendant wrote to the claimant stating he no longer wanted his services and
refused to pay compensation. The claimant obtained a service contract
elsewhere but this was not to start until 4th July. The claimant brought an action
on 22nd May for breach of contract. The defendant argued that there was no
breach of contract on 22nd May as the contract was not due to start until 1st of
June.

The court was of the view that where one party communicates their intention
not to perform the contract, the innocent party need not wait until the breach
has occurred before bringing their claim. They may sue immediately or they can
choose to continue with the contract and wait for the breach to occur.

(iii) Fundamental Breach

352 Trio Roofing Systems Inc. v Atlas Corp., 2004 Carswell Ont 770
353 Ibid
354 (1853) 2 E & B 678

354
It is breach goes to the root of the contract and allows discharge. It occurs
where the failure of one of the contracting parties to perform a primary
obligation under the contract has the effect of depriving the other party of
substantially the whole benefit which the parties intended that party to receive.
It is also called material breach because there is substantial breach of contract
which usually excusing the harmed party from further performance and giving
him the right to sue for damages.

In the case of Suisse Atlantique Societe D’ Armement Maritime S.A. v N.V.

Rotterdamsche Kolen Centrale355, the court observed that if a breach goes to
the very root of the contract, it is called fundamental breach.

The fundamental breach of contract is a breach by a contractually obligated

party if it results in detriment such as substantially depriving them of things they
are entitled to receive according to the contract. However, if the breaching
party did not foresee these issues and a reasonable person in a similar situation
would have been able to foresee a similar result, it may be determined that a
fundamental breach of contract did not actually occur.

In the case of Karsales (Harrow) v Wallis356, the Defendant (Mr Wallis) agreed to
buy a used car if the vendor was able to find a company with which the
Defendant could enter into a hire-purchase agreement. The vendor found such
a company (the Claimant). Once the agreement was entered into, the
Defendant inspected the vehicle he had agreed to purchase through the hire
purchase agreement and found that it had been substantially altered from the
version he had previously seen and agreed to buy. Namely, the radio was
missing, as were the chrome strips around the body, the new tires had been

355 [1967] 1 AC 361

356 [1956] 1 WLR 936
355
replaced by old ones, the bumper was not held together with rope and
perhaps most importantly, the car could not start. The Defendant therefore
refused to pay for the car. The hire purchase agreement contained an exclusion
clause which stated that ‘No condition or warranty that the vehicle is
roadworthy or as to its age, condition or fitness for any purpose is given by the
owner or implied herein.’

It was held that Karsales was under an obligation to provide a car which is in
substantially the same condition as when Mr Wallis inspected it. This is particularly
the case for hire purchase agreements where the purchaser had previously
inspected the vehicle. More broadly, where there is a fundamental breach of a
contract, a party cannot rely on an exemption clause. Not in the least, the Sale
of Goods Act 1979 would still imply a term into the contract that the goods will
be fit for purpose which cannot be excluded through such a clause.

The remedy for fundamental breach and repudiation is effectively the same the
innocent party may elect to terminate the contract or to accept the
repudiation bringing the contract to an end. In either case, the parties are
discharged from future obligations under the contract, and the innocent party
may look to the other party for damages.

In the case of Photo Productions Ltd. v Securicor Transport Ltd 357, the court
suggested a strict rule of construction approach whereby a fundamental
breach is found only through examining the reasonable intentions of the parties
at the time of the contract.

(iv) Minor Breach

357 [1978] 1 W.L.R. 856

356
A minor breach occurs when a party to the contract fails to perform a part of a
contract. The failure is so small and of such a nonessential part that all parties
can otherwise fulfill any remaining contractual obligations. It constitutes a
party’s inability to perform the full task expected by the contract. It is referred to
as an immaterial or partial breach of contract.

A minor breach is less serious because it does not prohibit the parties from
satisfactorily completing the rest of the contract. For example, a homeowner
hires an electrician to install a lighting system with a specific brand of wiring. If
the electrician fails to install the lighting system, it is a material breach. If the
electrician installs the lighting, but uses a different brand of wiring than the
brand requested, it is a minor breach.

The minor breach requires all parties to complete their obligated performance,
or non-performance, of the contract. The non-breaching party may sue for a
minor breach. The lawsuit must be for any damages that was caused by the
failure to perform the minor detail.

The breach is minor if, even though the breaching party failed to perform some
aspect of the contract, the other party still receives the item or service specified
in the contract. For example, unless the contract specifically provides that “time
is of the essence” or gives a specific delivery date of goods, a reasonable delay
by one of the parties may be considered only a minor breach of the contract.
When a breach is minor, the non-breaching party is still required to perform
under the contract, but may recover damages resulting from the breach. For
example, when a seller’s delay in delivering goods is a minor breach of
contract, the buyer must still pay for the goods but may recover any damages
caused by the delay.

357
Conclusion

Breach of contract is a legal cause of action in which a binding agreement or

bargained-for exchange is not honored by one or more of the parties to the
contract by non-performance or interference with the other party's
performance. If the party does not fulfill his contractual promise, or has given
information to the other party that he will not perform his duty as mentioned in
the contract or if by his action and conduct he seems to be unable to perform
the contract, he is said to breach the contract.

Review Questions

1. Mwananchi agreed to be a courier for Simchile for 3 months starting on 1 st

June 2019. On the 11th May 2019 Simchile wrote to Mwananchi stating he
no longer wanted his services and refused to pay compensation.
Mwananchi obtained a service contract elsewhere but this was not to
start until 4th July 2019. Mwanachi brought an action on 22 nd May for
breach of contract. Simchile argued that there was no breach of
contract on 22nd May 2019 as the contract was not due to start until 1 st of
June 2019. As Judge of the case, what is your ruling on that action?
2. Magava supplied bins to Mtandika Village Council and were allowed to
display adverts on these bins. Mtandika Village Council owned a garage.
Mtandika Village Council’s sales manager entered a contract with
Magava for them to place adverts on the bins for a period of 3 years. The
agreed price was payable by three annual instalments and if one of the
payments was late the whole price became immediately due. Mtandika
Village Council had not authorised the sales manager to enter the
contract and phoned Magava on the same day as the contract had
been made telling them that he did not want the advertising. Magava
ignored the Mtandika Village Council's communication and arranged for

358
 the advertising plates to be made up and placed on the bins. Mtandika
Village Council refused to pay the first instalment and Magava submitted
a bill for the full three years of advertising. Is Magava entitled in such bill?
Answer authoritatively.
3. By contract Fransisco was to carry cargo for Godbless. Fransisco arrived
early to collect the cargo and Godbless told them to sale on as they did
not have any cargo for them to carry and would not have by the agreed
date. Fransisco decided to wait around in the hope that Godbless would
be able to supply some cargo. However, before the date the cargo was
supposed to be shipped the Crimean war broke out which meant the
contract became frustrated. Advise Fransisco on the matter at hand.
4. Mr. Wallis agreed to buy a used car if the vendor was able to find a
company with which Mr. Kyte could enter into a hire-purchase
agreement. The vendor found such a company Mr. Wallis. Once the
agreement was entered into, Mr. Kyte inspected the vehicle he had
agreed to purchase through the hire purchase agreement and found
that it had been substantially altered from the version he had previously
seen and agreed to buy. Namely, the radio was missing, as were the
chrome strips around the body, the new tires had been replaced by old
ones, the bumper was not held together with rope and perhaps most
importantly, the car could not start. Mr. Kyte therefore refused to pay for
the car. The hire purchase agreement contained an exclusion clause
which stated that ‘No condition or warranty that the vehicle is roadworthy
or as to its age, condition or fitness for any purpose is given by the owner
or implied herein.’ Is Mr. Kyte under an obligation to provide a car which is
in substantially the same condition as when Mr Wallis inspected it? Support
your answer with relevant authorities.
5. There are many types of breach of contract. The variation of breaches of
contract affect the legal consequences for parties to the contract as well

359
 as remedies the innocent party is entitled in relation to such breach.
Vindicate the truth in the statement with relevant authorities.
6. Differentiate the following terms: -
a. Actual Breach and Anticipatory Breach
b. Fundamental Breach and Minor Breach
c. Breach of Contract and Discharge of Contract

References

Adams and Brownsword, ‘Contract, consideration and the critical path’ (1990)
55 Modern Law Review 536

Armstrong, A., and Hagel III, J. The Real Value of ON-LINE Communities, Harvard
Business Review, May-June, (1996). 134-141.

Atiyah ‘Consideration: a restatement’, Essays on Contract, Oxford: Oxford

University Press, United Kingdom (1990)

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brinkworth and Powell, ‘Contract and consideration: a new commercial reality?’

(1991) 12 Business Law Review 5

Brown, G. W., et al, Understanding Business and Personal Law, 9th Edition,
McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Dahiyat. E. R, “Intelligent Agents and Contracts: Is a Conceptual Rethink

Imperative?” 15 Journal of Artificial Intelligence Law. (2007). 375-390 at 383.

360
Garcia, D. L. Network Commerce: Public Policy Issues in a Deregulated
Communication Environment. The Information Society, (1997). 13, 17-31.

Gogan, J. L. The Web's Impact on Selling Techniques: Historical Perspective and

Early Observations. International Journal of electronic Commerce, (1997).
1(2), 89-108.

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Ismail, et al, Evaluation of Legal Risks for Ecommerce in Construction‟ Journal of

Professional Issues in Engineering Education & Practice, (2006). 355-360 at
358

Kaustuv. M. D, Forum-Selection Clauses in Consumer Click wrap and Browse

wrap Agreements and the Reasonably Communicated Test‟ (2002). 77 (2)
Washington Law Review, 481 at 499-500

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

Lee, H. G., and Clark, T. H. Impacts of the Electronic Marketplace on Transaction

Cost and Market Structure. International Journal of Electronic Commerce,
(1996). 1(1), 127-149

Martin, E. A., A Dictionary of Law, Oxford University Press, 5th Edition, New York,
(2003).

361
 LECTURE TWENTY-FOUR

REMEDIES FOR BREACH OF CONTRACT

Introduction

A contract is an agreement between two or more parties which creates certain

legal obligations. If one or more parties to a contract do not perform according
to the terms of the agreement, then there is a breach of a contract. Most
contracts end when both parties have fulfilled their contractual obligations, but
it's not uncommon for one party to fail to completely fulfill his or her end of the
contract agreement. Breach of contract is the most common reason contract
disputes are brought to court for resolution.

Contract law allows for judicial intervention in the event of a breach that is
substantial, that goes to the root of the contract also stated to be fundamental,
by relieving the non-breaching party of his or her obligations and exposing the
breaching party to damages or, if appropriate, an order for performance of the
breached contractual obligation. The right to enter into a contract carries with it
an inherent right to sue for breach of that contract. It comes from Latin Maxim
Ubi Jus Ibe Remedium which means where there is right, there is remedy.

The law of remedies is concerned with the character and extent of relief to
which an individual who has brought a legal action is entitled once the
appropriate court procedure has been followed, and the individual has
established that he or she has a substantive right that has been infringed by the
defendant. This lecture describes the concept, origin, essence and classification
of the remedies for breach of contract.

Remedies

362
The notion of “remedy” may vary from jurisdiction to jurisdiction. In some cases,
remedy refers mainly to the procedural aspect of redress; in others remedy is the
substantive relief obtained.

Remedies are the methods available at law for the enforcement, protection, or
recovery of rights or for obtaining redress for their infringement. 358 They are legal
ways of either placing an aggrieved party back in the position it was in before
the nonperformance, or placing the party in the same position as if the contract
had been performed.

Remedies are the entitlements that court can award the party whose rights
have been violated by other another.359 These entitlements are either provided
by the laws or judicial discretion as the court deems fit depending on the
circumstances of each case before it. They are court enforcement of a legal
right resulting from a successful civil lawsuit.

In the case of Center for Auto Safety v Ruckelhaus360, the court described that
remedies are the means by which a right is enforced or the violation of a right is
prevented, redressed or compensated. They are remedial judicial actions to
right a wrong or to prevent an infringement upon a legal right. 361 They are the
means employed to enforce a right, or redress an injury. 362

The law of remedies is much more based on the principle that for every right,
there is a remedy; where there is no remedy, there is no right. It was enunciated
in the case of that Marbury v Madison363 that it is a settled and invariable

358 Martin, E.A., A Dictionary of Law, 5th edition, Oxford University Press, United Kingdom, 2003, pg.
423
359 Vachon v Canada [1985] 2 S.C.R. 417
360 (1984) 747 F. 2d 1
361 Chelentis v Luckenbach Steamship 247 U.S. 372
362 Knapp, Stout & Co. v McCaffrey 177 U.S. 636
363 5 U.S. (1 Cranch) 137, 162–163 (1803)

363
principle in the laws of England, that every right when with-held must have a
remedy, and every injury its proper redress.

Remedies may be ordered by the court, granted by judgment after trial or

hearing, by agreement between the person claiming harm and the person
he/she believes has caused it, and by the automatic operation of law. Some
remedies require that certain acts be performed or prohibited, others involve
payment of money to cover loss due to injury or breach of contract, and still
others require a court's declaration of the rights of the parties and an order to
honor them.

Ubi Jus Ibe Remedium

It is an ambitious principle or maxim of Roman law now often used, and well
known to the common law but also part of the judicial arsenal in the Chancery
courts. It is Latin maxim which literally means where there is right, there is
remedy.

It is the principle of fundamental right to remedy. The right to a remedy has

been recognized historically as a fundamental right, but that it should
appropriately be considered a fundamental interest under the law. Remedies
perform two critical functions in the law: they define abstract rights and enforce
otherwise intangible rights. Rights standing alone are simply expressions of social
values. It is the remedy that defines the right by making the value real and
tangible by providing specificity and concreteness to otherwise abstract
guarantees.364

364 Thomas, T. A., Ubi Jus, Ibi Remedium: The Fundamental Right to a Remedy Under Due Process
(July 2004). 41 San Diego Law Review 1633 (2004). Available at SSRN:
https://ssrn.com/abstract=564302
364
In the case of Ashby v White365, the court defined ubi jus ibe remedium. It means
that there is no wrong without a remedy. Whenever the common law gives a
right or prohibits an injury, it also gives a remedy. If a man has a right, he must, it
has been observed, have a means to vindicate and maintain it, and a remedy if
he is injured in the exercise and enjoyment of it, and, indeed, it is a vain thing to
imagine a right without a remedy, for want of right and want of remedy are
reciprocal.

Ubi Jus Ibe Remedium is the principle that where one's right is invaded or
destroyed, the law gives a remedy to protect it or damages for its loss. Further,
where one's right is denied the law affords the remedy of an action for its
enforcement. This right to a remedy therefore includes more than is usually
meant in English law by the term “remedy”, as it includes a right of action.
Wherever, therefore, a right exists there is also a remedy. This principle, which has
at all times been considered so valuable, gave occasion to the first invention of
that form of action called an action on the case.

In the case of Leo Feist v Young366, the court explained the maxim of ubi jus ibe
remedium as an elementary maxim of equity jurisprudence that there is no
wrong without a remedy. Hence, the basic principle contemplated in the
maxim is that, when a person's right is violated the victim will have a remedy
under law. Also, it states that the person whose right is being infringed has a right
to enforce the infringed right through any action before a court.

Categories of Remedies

When a contract is breached, there are two major types of remedy that can be
available to the innocent party such as legal remedies and equitable remedies.

365 (1703) 14 St Tr 695, 92 ER 126

366 (1943) 138 F. 2d 97
365
This classification is based on the system of English common law, which was
divided into courts of law that could award monetary damages and courts of
equity of chancery. This could grant equitable remedies if the court remedy was
deemed unfair or insufficient.

For historical and political reasons in the development of the English legal
system, the courts of law were originally only able to grant monetary relief. If a
petitioner wanted something other than money, recourse to a separate system
of equity was required. The courtrooms and proceedings for each were
separate. That actual separation is long gone, but the distinction is still
recognized; a judge may be said to be “sitting in law” or “sitting in equity,” or a
case may involve requests for both money and some action.

This distinction between legal and equitable remedies originally came about
because courts of law only had the power to grant legal remedies, whereas
courts of Equity granted equitable remedies to do justice in situations where
money would be inadequate relief. The courts of law and the courts of equity
have merged, but the distinction still has some importance because in a
number of courts, a trial by jury is either granted or refused, according to
whether the remedy sought is legal or equitable. When a legal remedy is sought,
the plaintiff is entitled to a jury trial, but this is not true when an equitable remedy
is requested.

(i) Legal Remedies

Legal remedies are the ways a right is enforced by a court of law when injury,
harm, or a wrongful act is imposed upon another individual. They are based on
the extent of relief the plaintiff is entitled to receive after appropriate court
procedures were followed and the plaintiff proved with sufficient evidence they
were wronged by the defendant.

366
The legal remedies are the ways by which a victim party to the contract may
enforce his/her right and be compensated by a breaching party to the
contract for the breach of the contract through a court of law. They occur
where an injured party is seeking for an adequate compensation for his/her loss
due to the breach of the contract.

The legal remedies often take the form of monetary damages that are awarded
to help make the innocent party whole. They are designed to allow the
aggrieved party to recover financial loss resulting from the breach. They are
based on based on the extent of relief the plaintiff is entitled to receive after
appropriate court procedures were followed and the plaintiff proved with
sufficient evidence they were wronged by the defendant.

(ii) Equitable Remedies

Equitable remedies are actions the court chooses to address a breach of

contract. It is designed to return the aggrieved party to its original position or in
the same position as if the breach had not occurred. They are imposed when
money damages would not adequately cure the non-breaching party.

The equitable remedies are granted by equity to redress a wrong. Since the
range of legal remedies was originally very limited, equity showed great flexibility
in granting remedies, which were discretionary that is the conduct of the parties
particularly that of the claimant, was taken into account.367

The equitable remedies occur when the court orders the defendant to
complete a contract as originally agreed. This step is taken when payment
alone is not sufficient to make up for damages. Equitable relief can also be

Martin, E. A., A Dictionary of Law, 5th edition, Oxford University Press, United Kingdom, 2003,
367

pg. 178
367
offered if legal damages are not available. The court can also modify the
contract terms or cancel the contract if it is deemed unfair to one or both
parties.

The equitable remedies are related to fairness, as opposed to the actual

monetary damages suffered as the result of a breach. Courts can also change
or modify the terms of the contract to make it fairer for one or both parties or, if
the contract is particularly unfair to one party, the court can rescind or cancel
the entire contract and place both parties back in the positions they were
before they entered the contract. Hence, the courts design equitable remedies
to do justice in specific situations where money does not provide complete relief
to individuals who have been injured. Injunctions, decrees of specific
performance, declaratory judgments, and constructive trusts are typical
examples of some kinds of equitable remedies.368

The equitable remedies come from the equitable jurisdiction developed in the
English Court of Chancery and Court of Exchequer. These judicial remedies
developed by courts of equity from about the time of Henry VIII to provide more
flexible responses to changing social conditions than was possible in precedent-
based common law.369

Conclusion

A contract is an agreement or promise made between two or more parties that

the courts will enforce. In some cases, the agreements and promises made in a
contract are not kept by a party or more parties. Therefore, this situation called
breach of contract which means failure to keep the promises or agreements of
a contract. Breach of contract is a legal cause of action in which a binding

368 Lord Denning, The Discipline of Law. Butterworths. (1979). pg. 197
369 Bray, S. L. Preventive Adjudication, University of Chicago Law Review. (2010), 77: 1275, 1281
368
agreement is not honored by one or another more of the parties. There can be
a variety of reasons for breaching a contract and the consequences of such a
breach can be very serious, even if the breach was unavoidable. When a
contract is breached, there are two major types of remedy that can be
available to the innocent party such as legal remedies and equitable remedies.
Remedies are the manners in which a right is enforced or satisfied by a court
when some harm or injury, recognized by society as a wrongful act, is inflicted
upon an individual.

Review Questions

1. What do you understand by the phrase Ubi Jus Ibe Remedium? Explain its
relevance in modern commercial transactions.
2. For historical and political reasons in the development of the English legal
system, the courts of law were originally only able to grant monetary relief.
Discuss the statement with vivid examples.
3. When a contract is breached, there are two major types of remedy that
can be available to the innocent party such as legal remedies and
equitable remedies. What are the main distinctive features between legal
and equitable remedies?
4. Courts can also change or modify the terms of the contract to make it
fairer for one or both parties. How far is the statement true in relation to
remedies for breach of contract?
5. “Having the right without means to enforce such right is as good as there
is no such right at all.” Discuss in relation to the contract law.
6. The notion of “remedy” may vary from jurisdiction to jurisdiction. In some
cases, remedy refers mainly to the procedural aspect of redress; in others
remedy is the substantive relief obtained. In the light of the statement,
explain the meaning of remedies as applicable in the contract law.

369
References

Bray, S. L. Preventive Adjudication, University of Chicago Law Review. (2010), 77:

1275, 1281

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

Lee, H. G., and Clark, T. H. Impacts of the Electronic Marketplace on Transaction

Cost and Market Structure. International Journal of Electronic Commerce,
(1996). 1(1), 127-149

Lord Denning, the Discipline of Law. Butterworths. (1979)

Martin, E. A., A Dictionary of Law, 5th edition, Oxford University Press, United
Kingdom, (2003).

Thomas, T. A., Ubi Jus, Ibi Remedium: The Fundamental Right to a Remedy under
Due Process (July 2004). 41 San Diego Law Review 1633 (2004).

370
 LECTURE TWENTY FIVE

DAMAGES

Introduction

Contract law seeks to put the parties in the position they would have been in
had the contract been performed. Damages in contract law are a legal
remedy available for breach of contract. Damages are an award of money to
compensate the innocent party.

Damages connote a cash compensation ordered by a court to offset losses or

suffering caused by another’s fault or negligence. There can be little doubt that
damages come within the province of the common law, although some early
transgressions appear to have taken place where equity awarded damages.

Damages in the vast majority of cases are the pecuniary compensation

obtainable by success in an action, for a wrong which is either a tort or a
breach of contract, the compensation being in the form of a lump sum
awarded at one time, unconditionally and in sterling.

This lecture ventures of the understanding of the concept, history and

categories of damages as legal remedies for the breach of contract. It
moreover explores on the losses for which the damages may be awarded in
case there is breach of contract. It furthermore explicates the principles
governing in the assessment of the damages to be awarded to the non-
breaching party to the contract.

Damages

Damages are a monetary payment awarded for the invasion of a right at law. It
is the pecuniary satisfaction awarded by a judge or jury in a civil action for the
wrong suffered by the plaintiff. They are designed not only as a satisfaction to

371
the injured person, but likewise as a punishment to the guilty, to deter from any
such proceeding for the future, and as proof of the detestation of the jury to the
action itself.370

In the case of R v Agat Laboratories Ltd.371, the court defined damages. It stated
that damages are money adjudged to be paid by one person to another as
compensation for a loss sustained by the latter in consequence of an injury
committed by the former.

The legal principle is that the award of damages is an attempt, as far as money
can, to restore the position of the injured party to what it was before the event in
question took place. This means that the object is to provide restitution rather
than profit. Hence, in a case where a man disregards every principle which
actuates the conduct of gentlemen, what is to restrain him except large
damages?372

History of Damages

Originally redress of wrongs which include the contractual wrongs was direct
that is an eye for an eye, a tooth for a tooth. The introduction of monetary
systems and dissatisfaction with the inequities of this vengeful redress led to
settling disputes by awarding money damages.

There can be little doubt that damages come within the province of the
common law, although some early transgressions appear to have taken place
where equity awarded damages.373

370 Case of John Wilkes 19 How. St. Tr. 1167; Lofft 19 (1764)
371 1998 ABPC 24
372 Merest v Harvey (1813) 5 Taunt. 443
373 Canson Enterprises v Broughton & Co., [1991] 3 S.C.R. 534

372
Today the concept is present in virtually every body of law. Although there was
a developed system of monetary compensation for wrongs in Roman law and
although the remedy appeared early in the development of English law and
became the primary remedy of the common-law courts, the growth of the
modern law of damages is a function in large part of the importance of the jury
in Anglo-American legal procedure.

In the United States particularly, a body of legal doctrine has developed around
such issues as how evidence may be submitted to a jury, how a judge may
instruct a jury on the law, and what damages a jury may award for particular
wrongs.

Why Damages

Damages are awarded to a plaintiff because they adequately compensate

him or her for the loss due to the breach of contract. They attempt to
compensate the plaintiff for harm suffered. The types and measure of damages
vary according to the nature of the claim. They may include pecuniary that is
related to loss of income, medical expenses, non-pecuniary related to pain and
suffering, and punitive purposed to deter wrongful conduct damages.

In the case of Njoro Furniture Mart Ltd v Tanzania Electric Supply Co Ltd374, the
court described the rationale behind the awarding of the damages to the
injured party of the contract. The Court of Appeal of Tanzania held that since in
principle the quantum of damages has to be such as to restore an injured party,
as far as possible, to the position prior to the injury, it is correct in law to include in
the award of damages an element calculated to offset the effect of inflation
and devaluation.

374 1995 TLR 205 (CA)

373
In the case of A S Sajan v Cooperative And Rural Development Bank 375, the
court was of the view that the cardinal principle in awarding damages is
'restitutio in integrum' that is, the law will endeavor, so far as money can do it, to
place the injured person in the same situation as if the contract had been
performed. 'Restitutio in integrum' dictates that the appellant must be paid such
sum of money as to purchase the milling machine.

Damages have deterrent role when there is breach of contract. In the case of
John Wilkes376; the court was of the view that damages are designed not only as
a satisfaction to the injured person, but likewise as a punishment to the guilty, to
deter from any such proceeding for the future, and as proof of the detestation
of the jury to the action itself

Categories

(a) Liquidated and Unliquidated Damages

These are damages are based on the calculation of the parties to the contract
prior the breach of the contract. If determined before by the parties, damages
are liquidated but if determined after the breach of the contract by the court is
unliquidated damages.

(i) Liquidated Damages

Liquidated damages are a pre-agreed sum of money specified in a contract

which will be paid in the event of a breach of contract unless the courts
consider that the sum is beyond that of the loss. They are capable of being
quantified in monetary terms. They are fixed in advance by the parties to a
contract as the amount to be paid in the event of a breach. They are

375 1991 TLR 44 (CA)

376 19 How. St. Tr. 1167; Lofft 19 (1764),
374
recoverable provided that the sum fixed was a fair pre-estimate of the likely
consequences of a breach, but not if they were imposed as a penalty.

Section 74(1) of the Law of Contract Act 377 entails the award of the liquidated
damages on the condition that it is not penalty based damages. It provides that
where in a contract has been broken, if a sum is named in the contract as the
amount to be paid in case of such breach, or if the contract contains any other
stipulation by way of penalty, the party complaining of the breach is entitled,
whether or not actual damage or loss is proved to have been caused thereby,
to receive from the party who has broken the contract reasonable
compensation not exceeding the amount so named or, as the case may be,
the penalty stipulated.

(ii) Unliquidated Damages

Unliquidated damages are damages whose amount is fixed by the court. They
occur when the amount to be recovered depends on all the circumstances of
the case and on the conduct of the parties, and is fixed by opinion or by an
estimate.

In the case of R v Agat Laboratories Ltd.378, the court stipulated clearly the
difference between liquidated and unliquidated damages. It stated that
damages are either liquidated or unliquidated. Whenever the amount to which
the plaintiff is entitled can be ascertained by calculation or fixed by any scale or
other positive data, it is said to be liquidated or made clear. But when the
amount to be recovered depends on all the circumstances of the case and on
the conduct of the parties, and is fixed by opinion or by an estimate, the
damages are said to be unliquidated.

377 Cap 345 RE 2018

378 1998 ABPC 24
375
 (b) General and Special Damages

The damages can be categorized into general or special damages. This

categorisation is based on the directness of the loss and requirement of the
proof of the loss.

(i) Special Damages

Special damages are the damages capable of precise calculation such as out-
of-pocket expenses and loss of earnings. This consists of out-of-pocket expenses
and loss of earnings incurred down to the date of trial, and is generally capable
of substantially exact calculation.379

The special damages are such as the law will not infer from the nature of the
act. They do not follow in ordinary course; they are exceptional in their
character and therefore much is claimed specially and proved strictly.380

In the case of Zuberi Augustino v Anicet Mugabe381, the court observed that it is
trite law that special damages must be specifically pleaded and proved;
although pleaded cost of repair was not proved since the engine was blown off
and because it is a notorious fact that prices are rising in astronomic proportions
and that the amount pleaded cannot even buy a reconditioned engine we
allow the amount pleaded.

(ii) General Damages

General damages are such as the law will presume to be the direct natural or
probable consequence of the act complained of.382 This includes

379 British Transport Commission v Gourley, [1956] A.C. 185

380 Ströms Bruks Akt Bolag v Hutchison, [1905] A.C. 515
381 1992 TLR 137 (CA)
382 Ströms Bruks Akt Bolag v Hutchison, [1905] A.C. 515

376
compensation for pain and suffering and the like, and, if the injuries suffered are
such as to lead to continuing or permanent disability, compensation for loss of
earning power in the future.383

In the case of R v Agat Laboratories Ltd.384, the court made clear demarcation
between the general and special damages. It explicated that damages fall
under two heads: general damages, i.e., such damages as the law will presume
to flow from that which forms the subject-matter of the action; and special
damages, i.e., such other damages as can be recovered only if specially
alleged and specifically proved. When an action cannot be sustained unless
there is special damage, the subject-matter is described as not being
actionable per se.

Also, in the case of McIntyre v Docherty385, the court stated that damages are
initially categorized as either special or general. Special damages generally
compensate a plaintiff for pre-trial pecuniary out-of-pocket or positive losses. In
contrast, general damages compensate for negative losses, which can include
both pecuniary and non-pecuniary losses.386

Heads of Damages

There exist various heads of damage in contract law under which an amount
can be claimed to reflect different types of loss. When one party to a contract
fails to perform his obligation, the other can seek damages under the following
headings: -

(i) Reliance Loss

383 British Transport Commission v Gourley, [1956] A.C. 185

384 1998 ABPC 24
385 2009 ONCA 448
386 Andrews v Grand & Toy Alberta Ltd., [1978] 2 S.C.R. 229

377
Reliance loss gives innocent party compensation for expenditures made or
liabilities incurred “in reliance on” the contract’s being performed. Reliance
damages are limited to consequences that are reasonably foreseeable by the
parties at the time that they contracted. Where it is difficult to quantify the
position the claimant would have been in it may be possible to recover
expenses incurred in reliance of the contract.

In the case of Anglia Television v Reed387, the claimant, Anglia Television,

engaged Oliver Reed to play the leading role in a television play. Subsequently
Reed pulled out and Anglia was unable to find a replacement. They
abandoned the play but had incurred expenses amounting to £2,750.

The court held that whilst damages generally seek to put the parties in the
position they would have been in had the contract been performed, the parties
may elect to claim reliance loss and recover expenses incurred in an abortive
transaction. Thus Anglia was able to recover their expenses from the defendant.

(ii) Discomfort, disappointment

Damages to reflect discomfort and disappointment can only be claimed where

enjoyment was part of the bargain of the contract such as holidays or a meal
out or entertainment. This most commonly seen in holidays which fail to meet
the standard the holiday maker was lead to believe would be enjoyed.

In the case of Jarvis v Swan Tours388 Mr. Jarvis, a solicitor, booked a 15 day skiing
holiday over the Christmas period with Swan Tours. The brochure in which the
holiday was advertised made several claims about the provision of enjoyment
relating to house parties, a friendly welcome from English speaking hotel owner,

387 [1971] 3 All ER 690

388 [1972] 3 WLR 954
378
a variety of ski–runs, afternoon tea and cakes and a Yodler evening. Many of
these either did not go ahead or were not as described. Mr. Jarvis brought a
claim for breach of contract based on his disappointment. At trial, the judge
awarded him £30 damages on the basis that he had only been provided with
half of what he had paid for and that no damages could be recovered for
disappointment. Mr. Jarvis appealed.

The Court of Appeal held that where a contract is entered for the specific
purpose of the provision of enjoyment or entertainment, damages may be
awarded for the disappointment, distress, upset and frustration caused by a
breach of contract in failing to provide the enjoyment or entertainment.

(iii) Inconvenience

Where the claimant has been put to physical inconvenience rather than anger
or disappointment that the defendant has not met his contractual obligation,
the court may award a sum to reflect such inconvenience.

Section 73(4) of the Law of Contract Act 389 requires the court to take into
consideration of the inconvenience in estimating the damages. It enshrines that
in estimating the loss or damage arising from a breach of contract, the means
which existed of remedying the inconvenience caused by the non-performance
of the contract must be taken into account.

In the case of Bailey v Bullock390, a solicitor failed to take action to recover the
claimant’s house. As a consequence the claimant and his wife had to move in
with his in-laws for two years. It was held that he was entitled to recover
damages to reflect the inconvenience of having to live in overcrowded

389 Cap 345 RE 2018

390 [1950] 2 All ER 1167
379
circumstances. Barry J emphasised that there is a distinction between mere
annoyance and disappointment at the failure of the other party to carry out his
contractual obligation and actual physical inconvenience and discomfort
caused by the breach.

(iv) Expectation

This rewards him as if the contract had been fully performed. This includes profits
anticipated on the contract. Where a breach of contract adversely affects the
claimant's future prospects, for example a contract promising training and
qualifications, a sum can be awarded to reflect the loss.

In the case of Dunk v George Waller and Son391, the defendant engaged the
claimant under a four year apprenticeship to train him as an engineer. The
defendant terminated the contract before the completion of the contractually
agreed time. The claimant bought an action for wrongful dismissal.

The Court of Appeal held that the claimant had been wrongfully dismissed. He
was entitled not only to his wages for the remainder of the contractually agreed
period, but also a sum to reflect his lack of training and the loss of opportunities
that the completion of the contract would confer.

Assessment of Damages

Assessment of damages is the act of thus fixing the amount of damages. The
court creates an award for the non-breaching party that is the financial
equivalent of what the party would have received if the contract had been
fulfilled as promised. The courts are permitted to use some or all of these rules in
any order that they see fit.

391 [1970] 2 All ER 630

380
 (i) Reasonableness

The damages are awarded for the loss which naturally arose in the usual course
of things from such breach. Hence, when assessing an award, the damages
must be reasonable as a direct consequence of breach of contract.

Section 73(1) of the Law of Contract Act 392 entails this principle by stipulating
that where in a contract has been broken, the party who suffers by such breach
is entitled to receive, from the party who has broken the contract,
compensation for any loss or damage caused to him thereby, which naturally
arose in the usual course of things from such breach.

In the case of Hadley v Baxendale393, the crankshaft broke in the Claimant’s mill.
He engaged the services of the Defendant to deliver the crankshaft to the
place where it was to be repaired and to subsequently return it after it had
been repaired. Due to neglect of the Defendant, the crankshaft was returned 7
days late. The Claimant was unable to use the mill during this time and claimed
for loss of profit. The Defendant argued that he was unaware that the mill would
have to be closed during the delay and therefore the loss of profit was too
remote.

The Courts of Exchequer held inter alia that the damages available for breach
of contract include those which may fairly and reasonably be considered arising
naturally from the breach of contract.

(ii) Foreseeability

The damages can be awarded if at the time of making of contract, the loss was
foreseeable when the event of the breach will occur to the parties to the said

392 Cap 345 RE 2018

393 [1854] EWHC Exch J 70
381
contract. Hence, when assessing an award, the damages must be foreseeable
as a direct consequence of breach of contract.

Section 73(1) of the Law of Contract Act 394 entails this principle by stipulating
that where in a contract has been broken, the party who suffers by such breach
is entitled to receive, from the party who has broken the contract,
compensation for any loss or damage caused to him thereby, which the parties
knew, when they made the contract, to be likely to result from the breach of it.

In the case of Hadley v Baxendale395, the crankshaft broke in the Claimant’s mill.
He engaged the services of the Defendant to deliver the crankshaft to the
place where it was to be repaired and to subsequently return it after it had
been repaired. Due to neglect of the Defendant, the crankshaft was returned 7
days late. The Claimant was unable to use the mill during this time and claimed
for loss of profit. The Defendant argued that he was unaware that the mill would
have to be closed during the delay and therefore the loss of profit was too
remote.

The Courts of Exchequer held inter alia that the damages available for breach
of contract include such damages as may reasonably be supposed to have
been in the contemplation of both the parties at the time the contract was
made.

(iii) Damages should not exceed the total of the contract

The final rule in assessing damages is that the ultimate award should not exceed
the amount that the non-breaching party would have received if the contract
had been fully performed.

394 Cap 345 RE 2018

395 [1854] EWHC Exch J 70
382
Section 74(1) of the Law of Contract Act 396 lays down the principle that
damages cannot exceed the amount of innocent party would have received if
the contract was performed. It describes that where in a contract has been
broken, if a sum is named in the contract as the amount to be paid in case of
such breach, or if the contract contains any other stipulation by way of penalty,
the party complaining of the breach is entitled, whether or not actual damage
or loss is proved to have been caused thereby, to receive from the party who
has broken the contract reasonable compensation not exceeding the amount
so named or, as the case may be, the penalty stipulated.

In the case of A S Sajan v Cooperative And Rural Development Bank 397, the
court was of the view that the cardinal principle in awarding damages is
'restitutio in integrum' that is, the law will endeavor, so far as money can do it, to
place the injured person in the same situation as if the contract had been
performed.

(iv) Duty to Mitigate the Loss

The claimant is not permitted to allow their losses to mount up. They are under a
duty to take reasonable steps to reduce their loss. This demands that when a
contract is breached, the plaintiff must seek some alternative method of
disposing of the property.

In the case of Payzu v Saunders398, by the terms of the contract, the defendant
was to deliver goods to the claimant on a monthly basis and the claimant was
to pay for the goods within one month of delivery. The contract was to run for
nine months. The claimant received the goods at a discounted price because

396 Cap 345 RE 2018

397 1991 TLR 44 (CA)
398 [1919] 2 KB 581

383
he had committed to purchase from the supplier over the nine month period.
The claimant was late in making the first installment. This amounted to a breach
of warranty not entitling the defendant to repudiate the contract. The
defendant refused to continue with the original contract but told the claimant
that he would deliver the goods in future if the claimant paid cash on delivery
and would still let him have the goods at the discounted price. The claimant
rejected this offer and purchased the good elsewhere at a higher price. He then
sued the defendant claiming the difference between the contractually agreed
price and what he actually paid for them.

The court held that the claimant was not entitled to damages. He was given the
opportunity to purchase at the discounted price but rejected this. He was under
a duty to take reasonable steps to mitigate his loss. The offer was a reasonable
one and one which the claimant could easily have complied with.

(v) Causation

The loss can be awarded with damages to an innocent party to the contract if
the said loss was caused by the breach of the contract by another party. This
requires the connection between the breach of the contract and the loss
occurred due to such breach. It is a principle of proximity between the breach
and the loss.

In the case of Monarch Steamship Co Ltd v Karlshamns Oljefabriker399, the

claimant purchased a quantity of soya beans to be shipped on the appellant’s
vessel, The British Monarch (TBM), from Japan to Sweden. After the cargo had
been loaded and the journey commenced TBM developed problems with its
boilers which caused considerable delay in the shipment. By the terms of the

399 (A/B) [1949] AC 196

384
charter, the appellant was to provide a seaworthy vessel and thus the problems
with the boiler amounted to a breach. During the delay period the war broke
out and TBM was ordered to unload in Glasgow. The claimant arranged for the
cargo to be shipped to Sweden and brought a claim against the defendants to
recover the costs. The defendant claimed the outbreak of the war broke the
chain of causation.

The House of Lords held that the outbreak of war did not break the chain of
causation since the defendants should have foreseen the possibility of this
occurring and any delay of the voyage may result in diversion of the vessel.

Conclusion

Damages in contract law are a legal remedy available for breach of contract.
Damages are an award of money to compensate the innocent party. The
primary purpose of damages in contract law is to place the injured party in the
position they would have been in had the contract been performed.

Review Questions

1. Monica was employed as a manager by Kyte Financial Services Ltd. Kyte

Financial Services Ltd in breach of contract dispensed with his services
and replaced him with a new manager. Monica brought an action for
breach of contract claiming that the level of damages should reflect the
circumstances in which he was dismissed damaged her reputation and
ability to find suitable employment. As Judge, will you award damages for
her reputation and ability to find suitable employment?
2. Jamali purchased a quantity of soya beans to be shipped on Rashidi’s
vessel from Malawi to Tanzania. After the cargo had been loaded and
the journey commenced Rashidi’s vessel developed problems with its
boilers which caused considerable delay in the shipment. By the terms of

385
 the charter, the Rashidi was to provide a seaworthy vessel and thus the
problems with the boiler amounted to a breach. During the delay period
the war broke out and Rashidi’s vessel was ordered to unload in Glasgow.
Jamali arranged for the cargo to be shipped to Tanzania and brought a
claim against the Rashidi to recover the costs. Rashidi claimed the
outbreak of the war broke the chain of causation. Is the claim valid in
law? Argue authoritatively.
3. The crankshaft broke in Harry’s mill. He engaged the services of the James
to deliver the crankshaft to the place where it was to be repaired and to
subsequently return it after it had been repaired. Due to neglect of the
James, the crankshaft was returned 7 days late. Harry was unable to use
the mill during this time and claimed for loss of profit. James argued that
he was unaware that the mill would have to be closed during the delay
and therefore the loss of profit was too remote. Discuss whether the loss
was too remote to be awarded damages for such breach.
4. By the terms of the contract, Luhumbika was to deliver goods to Lusubilo
on a monthly basis and Luhumbika was to pay for the goods within one
month of delivery. The contract was to run for nine months. Luhumbika
received the goods at a discounted price because he had committed to
purchase from the supplier over the nine month period. Luhumbika was
late in making the first instalment (This amounted to a breach of warranty
not entitling the defendant to repudiate the contract). Lusubilo refused to
continue with the original contract but told Luhumbika that he would
deliver the goods in future if Luhumbika paid cash on delivery and would
still let him have the goods at the discounted price. Luhumbika rejected
this offer and purchased the good elsewhere at a higher price. He then
sued Lusubilo claiming the difference between the contractually agreed
price and what he actually paid for them. Is Luhumbika entitled to
damages? Support your answer with authorities.

386
 5. The Wasafi Television, engaged Zamaradi to play the leading role in a
television play. Subsequently Zamaradi pulled out and The Wasafi
Television was unable to find a replacement. They abandoned the play
but had incurred expenses amounting to 2,750,000/=Tshs. Can The Wasafi
Television be able to recover expenses from Zamaradi? Argue with
authorities.
6. Mr Jackson booked a 28 day holiday in Selous Hotel for himself and his
family through Summer Holidays. The hotel turned out to be unsatisfactory
for various reasons relating to cleanliness and provision of services. The trial
magistrate made an award for the disappointment suffered by Mr
Jackson, but stated he could not take into account the disappointment
suffered by his wife and children since they were not party to the
contract. Mr Jackson appealed. As appellate Judge, what is your ruling
on such appeal?
7. Isack engaged Lambert under a four year apprenticeship to train him as
an engineer. Isack terminated the contract before the completion of the
contractually agreed time. Lambert bought an action for wrongful
dismissal. What are the entitlements that Lambert may obtain in court?

References

Bray, S. L. Preventive Adjudication, University of Chicago Law Review. (2010), 77:

1275, 1281

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

Lee, H. G., and Clark, T. H. Impacts of the Electronic Marketplace on Transaction

Cost and Market Structure. International Journal of Electronic Commerce,
(1996). 1(1), 127-149

387
Lord Denning, the Discipline of Law. Butterworths. (1979)

Martin, E. A., A Dictionary of Law, 5th edition, Oxford University Press, United
Kingdom, (2003).

Thomas, T. A., Ubi Jus, Ibi Remedium: The Fundamental Right to a Remedy under
Due Process (July 2004). 41 San Diego Law Review 1633 (2004).

388
 LECTURE TWENTY-SIX

SPECIFIC PERFORMANCE

Introduction

When persons enter contract, they have expectations and interests. These
expectation and interests are the ones which motivated them to enter the
contractual relationships with other persons. The expectations and interests will
be fulfilled when the contract is performed as agreed between the parties.
When there is deviation in the performance, the expectations and interests
become in vain. This may lead to disappointments among the parties. The
disappointments cause the conflicts which if not resolved by the parties
themselves the courts of law can chip and assist the parties in resolving such
dispute. While resolving the disputes the parties convince the court to order
something for the violation of the contractual promises done by the parties
therein. The court inter alia can order specific performance of the contractual
obligations.

The specific performance is the order of court to the breaching party that he or
she is required to do as agreed. It is based on the concept of pacta sunt
servanda which denotes that the parties to the contractual arrangements have
to respect and honour the agreements and are required to perform the
obligations in good faith. It is in the intention of the parties to ensure what they
have agreed become fulfilled otherwise there is no essence of entering the
contract between them. The specific performance enforces the performance of
the contract despite the violation made by the party.

Therefore, if the victim party is sure that the other party to the contract is in
breach of covenant and he has told such party about the breach, he can ask
the court to grant specific performance. Should a party default on his

389
obligation, a court may issue an order for specific performance, requiring a
party to perform a particular action. The action is usually one that has been
previously detailed in a contract. While specific performance is technically the
performance of a contractual obligation, it is most commonly referred to in
relation to a court order to fulfill such an obligation. Hence, specific
performance is a court order to compel the party to the contract to carry out his
obligations.

This lecture shades understanding on the concept of the specific performance,

its characteristics, application and circumstances when the court of law can
order the specific performance in favour of the victim party to the contract. it
lays conceptual, theoretical and application foundation related to the remedy
of specific performance.

Specific Performance

Specific performance is a court order to a person to fulfil his obligations under a

contract. The remedy is a discretionary one and is not available in certain
cases.400 It is the right of a party to a contract to demand that a breaching
party be ordered in a lawsuit judgment to perform the contract. It may be
ordered instead of or in addition to a money payment if the contract can still be
performed and money alone is insufficient reward.

For example, a case where a party refuses to perform his or her part of a
contract involving real property or a work of art may be candidates for specific
performance. In addition, when contracts have been exchanged for the sale of
a house, the court may order a reluctant seller to complete the sale. Also, if a
defendant has breached a contract in which he agreed to deliver a Picasso

400 Martin, E.A, A Dictionary of Law, Fifth Edition, Oxford University Press, (2003), pg. 471
390
painting to the plaintiff, the court might in that case order specific performance;
that the defendant deliver forthwith to the plaintiff said painting.

In the case of Dhaliwal v ICBC401, the court observed that specific performance
implies an order compelling a party to perform some act or do something that is
required under the contract. It indicates that it is a remedy in the event of
breach of contract, whereby the Court orders a party found in breach of his/her
contractual obligations to perform their specific duty as set out in the contract.

Therefore, specific performance is equitable remedy that compels a party to

execute a contract according to the precise terms agreed upon or to execute
it substantially so that, under the circumstances, justice will be done between
the parties. In the case of Mohamed Idrissa Mohammed v Hashim Ayoub
Jaku402, the court was of the opinion that where a party to the contract has no
good reason not to fulfill an agreement, he must be forced to perform his part,
for an agreement must be adhered to and fulfilled.

Origin of Specific Performance

Insofar as the history of specific performance is concerned, such a remedy was

not initially permitted under common law. A litigant’s rights were limited to his
being able to collect damages for his loss or suffering.

However, the history of specific performance saw the courts of equity realizing
that real property made for unique cases. As such, damages were not always
adequate insofar as compensation for someone’s loss. Specific performance
was therefore established so as to guarantee a party the remedy of the right to
possession of the land.

401 2000 BCSC 60

402 1993 TLR 280 (CA).
391
The specific performance allowed the plaintiff in a case the right to take
ownership over the property at the center of the dispute. Insofar as
performance contracts are concerned, however, the threat of contempt of
court was sometimes used to enforce a party’s ownership, rather than specific
performance.

Therefore, specific performance is a directive ordered by a court wherein a

party to a contract must perform a specific action as outlined in an existent
contract. Specific performance can refer to any kind of forced action, though it
is usually enforced so as to complete a transaction that had been previously
agreed to.

Characteristics of Specific Performance

On one hand, specific performance is an attractive but exceptional remedy

when a unique thing has been sold and the other party refuses to honor his or
her end of the bargain. When the object of the contract is unique, readily
ascertainable or is an identifiable one-of-a-kind item such as a piece of real
property, the court will order specific performance.403

In the case of Cohen v Roche404, the claimant owned a furniture shop and
entered an agreement to purchase a quantity of Hepplewhite chairs to sell in his
shop. The defendant, in breach of contract, refused to deliver the chairs. The
claimant sued for breach of contract and sought specific performance for
delivery of the chairs.

The court refused to grant specific performance. The claimant would be

adequately compensated by an award of damages. The chairs were

403 Hill v Raffone, (2007) 930 A. 2d 788

404 [1927] 1 KB 169
392
considered 'ordinary articles of commerce and of no special value or interest'.
The claimant could have purchased the chairs elsewhere.

On the other hand, specific is not an attractive remedy for the court in the event
of a service contract as the defendant has already shown that he/she is
disinclined to perform and for services, the relationship between the parties
might not be conducive to that, as the defendant has already shown that he
won’t perform and the parties have engaged in adversarial judicial
proceedings.405

Also, specific performance is an equitable remedy available when legal

remedies i.e. damages are inappropriate or inadequate. Inadequacy of
remedies at law is presumed in an action for breach of a real estate purchase
and sale agreement due to the perceived uniqueness of land. The decision to
grant specific performance is within the court's discretion.406

In the case of Co-op Insurance Society v Argyll Stores 407, Co-op Insurance was
landlord of Hillsborough Shopping Centre in Sheffield which consisted of 25 retail
outlets. In 1979, Argyll Stores took a lease of one of the units for a period of 35
years for the purpose of operating a Safeway supermarket. The lease contained
a covenant by which Argyll agreed to use the outlet as a supermarket and
keep it open during the usual hours of business. However, in 1995, head office of
Argyll Stores took the decision to close 27 of their supermarkets including the one
at Hillsborough which was trading at a loss. Co-op Insurance sought specific
performance of the covenant, fearing the impact on other traders at the site if
the Supermarket was to close. Specific performance was refused.

405 Semelhago v Paramadevan, [1996] 2 S.C.R. 415

406 In re Korn (2006) 352 BR 228
407 [1997] 2 WLR 898

393
House of Lords opined that the purpose of the law of contract is not to punish
wrongdoing but to satisfy the expectations of the party entitled to performance.
A remedy which enables him to secure, in money terms, more than the
performance due to him is unjust. From a wider perspective, it cannot be in the
public interest for the courts to require someone to carry on business at a loss if
there is any plausible alternative by which the other party can be given
compensation. It is not only a waste of resources but yokes the parties together
in a continuing hostile relationship. The order for specific performance prolongs
the battle. If the defendant is ordered to run a business, its conduct becomes
the subject of a flow of complaints, solicitors' letters and affidavits. This is wasteful
for both parties and the legal system. An award of damages, on the other hand,
brings the litigation to an end. The defendant pays damages, the forensic link
between them is severed, they go their separate ways and the wounds of
conflict can heal

Moreover, specific performance presupposes the existence of a valid contract

between the parties to the controversy. The terms of the contract must be
definite and certain. This is significant because equity cannot be expected to
enforce either an invalid contract or one that is so vague in its terms that equity
cannot determine exactly what it must order each party to perform. It would be
unjust for a court to compel the performance of a contract according to
ambiguous terms interpreted by the court, since the court might erroneously
order what the parties never intended or contemplated.

Circumstances for Order of Specific Performance

The award of specific performance is never a guarantee. There exist

exceptional circumstances barring specific performance, which influence a
court’s decision Some examples of these exceptional circumstances barring
specific performance include: -

394
 (i) Equitable grounds

Specific performance is ordered only on equitable grounds in view of all the

conditions surrounding the particular case. The determining factor is whether, in
equity and good conscience, the court should specifically enforce the contract
because the legal remedy of monetary damages would inadequately
compensate the plaintiff for the loss.

In the case of Edwin Simon Mamuya v Adam Jonas Mbala408, the court
observed that mesne profits or damages are recoverable in addition to specific
performance when a party delays to perform his part of the contract without
reasonable cause.

(ii) Contracted in good faith

A party to the contract that seeks specific performance of a contract must

have contracted in good faith. If the party has acted fraudulently or has taken
unfair advantage of superior bargaining power in drafting extremely harsh
contract terms with respect to the other party, the party has thereby
contravened the doctrine of clean hands. Under that doctrine, the court will
deny relief to a party who has acted unjustly in regard to a transaction for which
that party is seeking the assistance of the court.

In the case of Walters v Morgan409, the defendant purchased some land. The
claimant wished to mine the land and produced a draft lease and pressured
the defendant into signing the lease before he realised the value of the land.
Once the defendant had discovered the true value, he refused to allow the
defendant to mine the land. The claimant sued for breach of contract and

408 1983 TLR 410 (HC)

409 (1861) 3 DF & J 718
395
sought specific performance. The defendant sought to have the contract
rescinded for misrepresentation.

The court held that there was no misrepresentation since the claimant had not
said anything to mislead the defendant as to the value of the land. Silence
cannot amount to misrepresentation. However, the court refused an order of
specific performance as the claimant had sought to take advantage of the
defendant’s ignorance by rushing him into signing the lease.

(iii) Actual bargain

Specific performance grants the claimant what he actually bargained for in the
contract rather than damages for not receiving it. By compelling the parties to
perform exactly what they had agreed to perform, more complete and perfect
justice is achieved than by awarding damages for a breach of contract.

In the case of Nutbrown v Thornton410, the claimant entered a contract to

purchase some machinery from the defendant. The defendant, in breach of
contract, refused to deliver the machines. The defendant was the only
manufacturer of this type of machinery. The claimant bought an action for
breach of contract seeking specific performance of the contract.

The court held that specific performance of the contract was granted. Whilst an
award of damages would ordinarily be given for non-delivery of goods,
damages would be inadequate to compensate the claimant because he
would not be able to buy the machines elsewhere.

Usefulness of Specific Performance

410 (1804) 10 Ves 159

396
An important benefit to specific performance is that, since it is an order of an
equity court, it is supported by the enforcement power of that court. If the
defendant refuses to obey that order, the defendant can be cited for civil
contempt for continuing to refuse to obey the order and can be incarcerated
until she agrees to obey it.

Therefore, the order of specific performance signifies that the defendant can
release himself or herself by complying with the court order. These enforcement
powers are one of the principal reasons why claimant seeks specific
performance of contracts.

Application of Specific Performance

The award of specific performance is never a guarantee. In considering whether

to grant specific performance the courts look to whether damages would be an
adequate remedy, the type of contract and whether equity requires such an
order

(i) Where damages are an inadequate remedy

If the claimant could adequately be compensated by an award of damages

for the breach of contract, the courts are unlikely to order specific performance.

In the case of Nutbrown v Thornton411, the claimant entered a contract to

purchase some machinery from the defendant. The defendant, in breach of
contract, refused to deliver the machines. The defendant was the only
manufacturer of this type of machinery. The claimant bought an action for
breach of contract seeking specific performance of the contract. The specific
performance of the contract was granted. Whilst an award of damages would

411 (1805) 10 Ves 159

397
ordinarily be given for non-delivery of goods, damages would be inadequate to
compensate the claimant because he would not be able to buy the machines
elsewhere.

On the other hand, in the case of Cohen v Roche412, the claimant owned a
furniture shop and entered an agreement to purchase a quantity of
Hepplewhite chairs to sell in his shop. The defendant, in breach of contract,
refused to deliver the chairs. The claimant sued for breach of contract and
sought specific performance for delivery of the chairs. The court refused to grant
specific performance. The claimant would be adequately compensated by an
award of damages. The chairs were considered 'ordinary articles of commerce
and of no special value or interest'. The claimant could have purchased the
chairs elsewhere.

(ii) Conduct of Applicant of Specific Performance

The conduct of the party applying for relief is always an important element for
consideration before the court can grant the order of the specific performance.
If the applicant is of clean hands, he can be granted with specific performance.
This is because he who comes to the equity must come with clean hands. The
claimant has “unclean hands,” meaning he has misbehaved in some way.

In the case of Lamare v Dixon413, the defendant wished to lease some cellars.
He went to view cellars owned by the claimant but saw that they were damp.
The claimant promised that he would make the cellars dry before the lease
commenced and the defendant agreed orally to take the lease. The claimant
did not keep his promise and the defendant refused to complete the lease. The
claimant bought an action for breach of contract seeking specific performance

412 [1927] 1 KB 169

413 (1873) LR 6 HL 414
398
of the lease agreement. Specific performance was refused due to the claimant
not keeping his promise in making the cellars dry.

(iii) Hardships

If the order of specific performance can cause hardships, the court may not
grant it. Hence specific performance can be ordered only when it will not cause
the defendant severe hardships

In the case of Patel v Ali414, Mr and Mrs Patel contracted to sell their house to Mr
Ali. Completion of the sale was delayed by Mr Patel’s bankruptcy. At the time
that they agreed to sell, Mrs Patel was healthy and had one child. However,
during the delay, Mrs Patel contracted bone cancer and had to have a leg
amputated. She also had to further children and she became heavily reliant on
friends and neighbours to assist her with day to day activities. Mr Ali sought
specific performance of the contract.

The court held that specific performance was denied on the grounds that it
would cause hardship on Mrs Patel if she was required to move out. Whilst the
hardship was not the fault of Mr Ali, Goulding J held that it would be ‘hardship
amounting to injustice’ if specific performance was ordered.

Conclusion

Specific performance is an equitable remedy available at the discretion of the

judge. It is an order by the court requiring one party to perform their contractual
obligation. It is a remedy sought in civil court, instead of money. It requires a
defendant to actually go through with a certain action he promised to do,
instead of just paying money for not keeping his promise. Specific performance

414 [1984] 1 All ER 978

399
is referred to under the law as an equitable remedy. Whilst it is often said that
contracts are made to be performed and parties should be held to their
contractual obligations, the courts are often reluctant to order a party to
unwillingly perform the contract and specific performance is only available in
limited circumstances. Specific performance is usually ordered in cases wherein
an award of damages would not be enough to remedy the situation, such as
cases involving the sale of real property. A specific performance remedy is up to
the discretion of the court. Therefore, its availability relies heavily upon whether
its award is appropriate when considering the facts of the case.

Review Questions

1. Salumu entered a contract to purchase some machinery from Alex. Alex,

in breach of contract, refused to deliver the machines. Alex was the only
manufacturer of this type of machinery. Salumu bought an action for
breach of contract seeking specific performance of the contract. Can he
succeed? Answer with authorities.
2. Raymond wished to lease some cellars. He went to view cellars owned by
Rashid but saw that they were damp. Rashid promised that he would
make the cellars dry before the lease commenced and Raymond agreed
orally to take the lease. Raymond did not keep his promise and the
defendant refused to complete the lease. Raymond bought an action for
breach of contract seeking specific performance of the lease agreement.
As judge of the case, can you grant specific performance under such
circumstance? Support your answer with relevant legal authorities.
3. Mr and Mrs Patel contracted to sell their house to Mr Ali. Completion of
the sale was delayed by Mr Patel’s bankruptcy. At the time that they
agreed to sell, Mrs Patel was healthy and had one child. However, during
the delay, Mrs Patel contracted bone cancer and had to have a leg
amputated. She also had to further children and she became heavily

400
 reliant on friends and neighbours to assist her with day to day activities. Mr
Ali sought specific performance of the contract. Can He succeed? What
authorities support your answer?
4. Co-op Insurance was landlord of Hillsborough Shopping Centre in Sheffield
which consisted of 25 retail outlets. In 1979, Argyll Stores took a lease of
one of the units for a period of 35 years for the purpose of operating a
Safeway supermarket. The lease contained a covenant by which Argyll
agreed to use the outlet as a supermarket and keep it open during the
usual hours of business. However in 1995, head office of Argyll Stores took
the decision to close 27 of their supermarkets including the one at
Hillsborough which was trading at a loss. Co-op Insurance sought specific
performance of the covenant, fearing the impact on other traders at the
site if the Supermarket was to close. Discuss whether specific performance
can be awarded.
5. Edwin owned a furniture shop and entered an agreement to purchase a
quantity of white chairs to sell in his shop. Kawonga, in breach of contract,
refused to deliver the chairs. Edwin sued for breach of contract and
sought specific performance for delivery of the chairs. Can the court
grant specific performance? Support your answers with relevant
authorities.
6. Tatuna purchased some land. Seif wished to mine the land and produced
a draft lease and pressured Tatuna into signing the lease before he
realised the value of the land. Once Tatuna had discovered the true
value, he refused to allow Seif to mine the land. Seif sued for breach of
contract and sought specific performance. Tatuna sought to have the
contract rescinded for misrepresentation. Was there misrepresentation? Is
the specific performance grantable? Support your answers with relevant
authorities.

401
References

Bray, S. L. Preventive Adjudication, University of Chicago Law Review. (2010), 77:

1275, 1281

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

Lee, H. G., and Clark, T. H. Impacts of the Electronic Marketplace on Transaction

Cost and Market Structure. International Journal of Electronic Commerce,
(1996). 1(1), 127-149

Lord Denning, the Discipline of Law. Butterworths. (1979)

Martin, E. A., A Dictionary of Law, 5th edition, Oxford University Press, United
Kingdom, (2003).

Thomas, T. A., Ubi Jus, Ibi Remedium: The Fundamental Right to a Remedy under
Due Process (July 2004). 41 San Diego Law Review 1633 (2004).

402
 LECTURE TWENTY-SEVEN

RESCISSION

Introduction

Sometimes parties to the contract may be induced to enter contract. They are
influenced to enter the contractual arrangements with the other parties. This
influence is made against the will of the parties in the said contractual
arrangements. Hence, the contractual arrangements have been made but the
other parties consent has been vitiated. This vitiation leads the contract to be
voidable at the option of the party that has been induced in the contract. The
remedy available for this party is rescission. The induced party seeks the court to
allow him or her to repudiate the contract. When the rescission has been
ordered, the parties are restored to the original position before the contract has
been formed.

The contract which allows the parties to the contract to repudiate their contract
must have been vitiated by the factors such as misrepresentation, undue
influence and duress. The rescission is allowed because the consent of the
parties in the contract has not be procedure fairly and legally while the consent
is very essence of the basic principle underlying the contract which is freedom
of contract. Also, under common law, if the parties to the contract were
incompetent because they are below age of majority and their minds are
unsound, these parties may be given opportunity to repudiate the contract
when they reach age of majority or they become of sound mind.

This lecture affords the opportunity to understand the concept of the rescission,
theoretical background, rationale, nature and circumstances under which this
remedy can be awarded by the court to the victim party. Moreover, the

403
limitations of the application of the rescission remedy are subject to discussion in
the lecture.

Rescission

Rescission is the annulment of a contract which returns the parties to the

relationship they had before the contract was made. This annulment can either
by agreement or by judicial order. It is the setting aside of a voidable contract,
which is thereby treated as if it had never existed. It is the right of an individual
involved in a contract to return to a state identical to that before he entered
into the agreement, due to courts not recognizing the contract as legally
binding.

In the case of Bickerton v Bickerton415, the court explained that to rescind a

contract is defined as to declare a contract void in its inception and to put an
end to it as though it never were and is further defined as being not merely to
terminate it and release parties from further obligations to each other but to
abrogate it from the beginning and restore parties to relative positions which
they would have occupied had no contract ever been made.

Features of Rescission

There are various unique characteristics of the rescission as remedy in case there
is breach of contract. The features are described hereunder: -

(i) Rescission is irrevocable

Rescission is an irrevocable step and can be effected by any clear indication of

intention to be no longer bound by the contract. This intention must be either
communicated to the other party or publicly evidenced in some way. Rescission

415 (1975)60 DLR 3d 389

404
can also be effected by a formal action of the court because this remedy has
developed by the courts of equity.

(ii) Rescission is a discretionary

Rescission is available at the discretion of the judge. It is not mandatory for the
court to grant rescission because it can be given according to their discretion.
However, the discretion must be exercised judiciously so as to bring about
fairness and justice to the parties.

Courts have much discretion when issuing equitable relief. They will consider
several different factors, including the prior business dealings of the parties and
the respective bargaining power of each party.

(iii) Rescission is equitable

Rescission is an equitable remedy. It is judicial remedy developed by courts of

equity from about the time of Henry VIII to provide more flexible responses to
changing social conditions than was possible in precedent-based common law.

It is equitable because it is said to operate on the conscience of the defendant,

so an equitable remedy is always directed at a particular person, and that
person's knowledge, state of mind and motives may be relevant to whether a
remedy should be granted or not.

In the case of Alati v Kruger416, the Plaintiff bought a fruit business from the
Defendant. During negotiations for the sale, the Defendant made several
misleading statements about the profitability of the business. Once the Plaintiff
had bought the business, he became aware that the business was not as
profitable as he had been lead to believe, and looked to rescind the contract.

416 [1955] HCA 64

405
However, the nature of the store meant that the parties could not be exactly
restored to their earlier positions.

The Court acknowledged that the Plaintiff could have sued for breach of
warranty or for fraud, but either of these would affirm the contract and leave
damages as the only remedy. Rescission was not available at common law,
because the parties could not be restored to their original positions. However, it
was available at equity, as equity can allow rescission provided that the parties
can be substantially returned to their earlier positions. Thus, the Plaintiff obtained
his desired remedy of rescission.

(iv) Rescission is available where contract is voidable

The agreement which is enforceable by law at the option of one or more of the
parties thereto, but not at the option of the other or others, is a voidable
contract.417 However, voidable contract entitles rescission when it is as a result
of a vitiating factor such as misrepresentation, undue influence or duress.

Section 19 of the Law of Contract Act 418 provides for effect of agreements
induced by coercion, fraud, misrepresentation or undue influence. It explicates
that where the consent to an agreement is caused by coercion, undue
influence, fraud, or misrepresentation, the agreement is a contract voidable at
the option of the party whose consent was so caused.

In the case of Abdallah, Inc. v Martin419, the court opined rescission allows a
contractual party to cancel the contract and parties may rescind if they are the
victims of a vitiating factor, such as misrepresentation, mistake, duress, or undue
influence.

417 The Law of Contract Act, s 2(1)(i)

418 Cap 345 RE 2018
419 (1954) 242 Minn. 416, 420, 65 N.W.2d 641, 644

406
In the case of Car & Universal Credit v Caldwell420, Mr Caldwell sold his Jaguar
car on 12th Jan to a rogue, Norris, who had paid £10 cash deposit and left
another car as security and gave a cheque for £965. The following day Mr
Caldwell went to cash the cheque and discovered it was fraudulent and the
car left as deposit turned out to be stolen. Mr Caldwell reported the incident to
the police and used his best endeavours to co-operate with the police to find
Norris in order to rescind the contract of sale. He also contacted the Automobile
Association to try to locate the car. Norris had acquired a voidable title to the
car as the contract was induced by fraudulent misrepresentation. Norris sold the
car on to a third party on 15th Jan. The question for the court was whether the
actions taken by Mr Caldwell were sufficient to avoid the contract.

The court held that Mr Caldwell had successfully rescinded the contract. He had
taken all steps possible to demonstrate that he no longer wished to be bound by
the contract. He should not be prejudiced by the fact that his endeavours failed
to locate Norris.

(v) Rescission does not prejudice other remedies

Rescission may be entitled together with the compensation. Section 75 of the

Law of Contract Act 421 enshrines party rightfully rescinding contract entitled to
compensation. It provides that a person who rightly rescinds a contract is
entitled to compensation for any damage which he has sustained through the
non-fulfilment of the contract.

(vi) Rescission may be unilateral or bilateral

420 [1964] 2 WLR 600

421 Cap 345 RE 2018
407
Rescission may be unilateral, as when a party rightfully cancels a contract
because of another party's material breach. Rescission can also be mutual, as
when the contracting parties agree to discharge all remaining obligations.
Finally, courts can use rescission as a synonym for voiding a contract, as for
reasons of public policy.

Circumstances through which the rescission may be lost

There are several circumstances through which the rescission may be

circumvented in the contract. The right to rescind may be lost if the claimant
affirms the contract, where a third party acquires rights in the goods, through
lapse of time or where restitutio in integrum is not possible.

(i) Where restitutio in integrum is not possible

Rescission cannot be exercised unless restitutio in integrum is possible, i.e. unless

it is possible to restore both parties to their original positions, and it cannot be
exercised if this would involve upsetting rights acquired by third parties. Thus, a
buyer of goods cannot rescind if he cannot return the goods, and a seller of
goods cannot rescind if they have been resold to a third party.

(ii) Where the party affirms the contract

The parties to the contract that has been influenced by the other parties against
their will and choice in the contract have option to affirm the contract. Affirming
the contract means to accept and be bound by the contract despite the
irregularities. However, the affirmation of the voidable contract has the
consequence upon the affirming party. The right to rescind is lost when the party
affirms the voidable contract.

408
In the case of Long v Lloyd422, the claimant purchased a lorry from the
defendant. The lorry was advertised in a newspaper which described the lorry as
being in exceptional condition. The claimant phoned the defendant to arrange
a viewing and was told it was in first class condition. He went to view it the
following day and was told it was capable of doing 40 mph and 11 miles to the
gallon. The claimant test drove it and found that the speedometre was not
working and he had to pull a wire for the accelerator as this was not working
also. The claimant still decided to purchase the lorry. On the first journey the
claimant noted certain faults with the lorry and contacted the defendant who
offered to pay half the repairs. The claimant accepted this. However, on a
further journey the lorry broke down completely and the claimant wished to
rescind the contract and brought an action against the defendant for innocent
misrepresentation.

The court observed and ruled that by accepting the offer of payment for half
the repairs when he became aware of the defects, the defendant had lost his
right to rescind as he had affirmed the contract.

(iii) Lapse of time

The right to rescind the voidable contract may be lost because the time for
rescission has been expired without doing so. Hence, the induced party in the
contract may be barred to rescind the contract if the time has expired. The time
starts to run from the date of the contract not the date of discovery.

For instance, section 130(3) of the Law of Contract Act 423 provides that the
pawnee acquires a good title to the goods when the contract has not been

422 [1958] 1 WLR 753

423 Cap 345 RE 2018
409
rescinded at the time of the pledge. This is possible due to lapse of time for
rescission of voidable contract.

However, this occurs where a pawnor has obtained possession of the goods
pledged by him under a contract voidable. In addition, the Pawnee acquires
good titled if he or she acts in good faith and without notice of the pawnor's
defect of title.

In the case of Leaf v International Galleries424, the claimant purchased a

painting from the defendant. Both parties believed that the painting was by the
artist Constable. In fact, 5 years later the claimant discovered the painting was
not a Constable. The claimant brought an action based both on
misrepresentation and mistake.

The claim based on misrepresentation was successful however, since it was an

innocent misrepresentation, the claimant had lost the right to rescind the
contract through lapse of time. With innocent misrepresentation the time starts
to run from the date of the contract not the date of discovery.

The claim based on mistake was unsuccessful as the mistake related to the
quality and did not render the subject matter something essentially different
from that which it was believed to be. He believed he was buying a painting
and he got a painting.

Effect of Rescission

Rescission has several legal implications when has been effected according to
the judicial order or agreement of the parties to the contract that is said to be
rescinded. The legal implications are accounted as hereby: -

424 [1950] 2 KB 86
410
 (i) Rescinded contracts need no performance

When the contract has been rescinded, the contract requires no performance.
Hence performance of contract needs not be done when the contract has
been rescinded successfully either by agreement or judicial order.

Section 62 of the Law of Contract Act 425 provides inter alia that the parties to the
contract may agree to rescind the contract. It makes available inter alia that
where the parties to a contract agree to rescind, the original contract need not
be performed.

In addition, section 64 of the Law of Contract Act 426 enshrines the

consequences of the rescission to the contract. It provides among other things
that the other party hereto need not perform any promise therein contained in
which he is promisor when a person at whose option a contract is voidable
rescinds it.

(ii) Restoration of benefits received

The party that rescinds the contract needs not to perform the contract however
if he or she has received any benefit before the rescission, the law requires him
or her to return the said benefit to the pother party in the contract.

Section 64 of the Law of Contract Act 427 provides the consequences of the
rescission of the contract. it elucidates that the party rescinding avoidable
contract shall, if he has received any benefit there under from another party to
such contract, restore such benefit, so far as may be, to the person from whom it
was received.

425 Cap 345 RE 2018

426 Ibid
427 Ibid

411
Conclusion

Rescission is the abrogation or cancellation of a contract or a court order

putting the parties in the same position they would have been in had there
been no contract. The purpose of contract rescission is to restore the parties to
their original status before the contract was made. The entire contract must be
cancelled, not just one part. If only a portion of the contract is to be cancelled,
this is usually accomplished under contract reformation laws, not rescission laws.
Rescission is often available as a remedy in cases where there are issues with the
way that the contract was formed. In order to rescind a contract, a judge must
determine that there is a valid basis to cancel the contract. A contract creates
a legal duty to act for both parties, and contracts cannot be rescinded simply
because the parties have changed their mind. Rescission is an equitable
remedy, meaning that it is discretionary or up to the judge’s decision. It is not an
immediate right and is only available under certain circumstance.

Review Questions

1. Mr Muganyizi sold his Jaguar car on 12th Jan 2019 to a rogue, Muyenjwa,
who had paid 100m TShs cash deposit and left another car as security
and gave a cheque for 96.5m Tshs. The following day Mr Muganyizi went
to cash the cheque and discovered it was fraudulent and the car left as
deposit turned out to be stolen. Mr Muganyizi reported the incident to the
police and used his best endeavours to co-operate with the police to find
Muyenjwa in order to rescind the contract of sale. He also contacted the
Automobile Association to try to locate the car. Muyenjwa had acquired
a voidable title to the car as the contract was induced by fraudulent
misrepresentation. Muyenjwa sold the car on to a third party on 15 th Jan
2019. Discuss whether the actions taken by Mr Muganyizi were sufficient to
avoid the contract.

412
2. Dina Marios purchased a lorry from Gea Habibu. The lorry was advertised
in a newspaper which described the lorry as being in exceptional
condition. Dina Marios phoned Gea Habibu to arrange a viewing and
was told it was in first class condition. Dina Marios went to view it the
following day and was told it was capable of doing 40 mph and 11 miles
to the gallon. Dina Marios test drove it and found that the speedometre
was not working and he had to pull a wire for the accelerator as this was
not working also. Dina Marios still decided to purchase the lorry. On the
first journey Dina Marios noted certain faults with the lorry and contacted
Gea Habibu who offered to pay half the repairs. Dina Marios accepted
this. However, on a further journey the lorry broke down completely and
Dina Marios wished to rescind the contract and brought an action against
Gea Habibu for innocent misrepresentation. Can Dina Marios succeed in
her action against Gea Habibu? Argue with authorities.
3. Mwinyi purchased a painting from Mutwa. Both parties believed that the
painting was by the artist Constable. In fact 5 years later Mwinyi
discovered the painting was not a Constable. Mwinyi brought an action
based both on misrepresentation and mistake. Discuss whether Mwinyi’s
claim can be successful.
4. Rescission has several legal implications when has been effected
according to the judicial order or agreement of the parties to the
contract that is said to be rescinded. Substantiate the truth of the
statement.
5. There are several circumstances through which the rescission may be
circumvented in the contract. Discuss the validity of the statement with
relevant authorities.
6. What do you understand by the term rescission? Explain its main
characteristics.

413
References

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brinkworth and Powell, ‘Contract and consideration: a new commercial reality?’

(1991) 12 Business Law Review 5

Brown, G. W., et al, Understanding Business and Personal Law, 9th Edition,
McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Dahiyat. E. R, “Intelligent Agents and Contracts: Is a Conceptual Rethink

Imperative?” 15 Journal of Artificial Intelligence Law. (2007). 375-390 at 383.

Garcia, D. L. Network Commerce: Public Policy Issues in a Deregulated

Communication Environment. The Information Society, (1997). 13, 17-31.

Gogan, J. L. The Web's Impact on Selling Techniques: Historical Perspective and

Early Observations. International Journal of electronic Commerce, (1997). 1(2),
89-108.

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Ismail, et al, Evaluation of Legal Risks for Ecommerce in Construction‟ Journal of

Professional Issues in Engineering Education & Practice, (2006). 355-360 at 358

414
Kaustuv. M. D, Forum-Selection Clauses in Consumer Click wrap and Browse
wrap Agreements and the Reasonably Communicated Test‟ (2002). 77 (2)
Washington Law Review, 481 at 499-500

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

Lee, H. G., and Clark, T. H. Impacts of the Electronic Marketplace on Transaction

Cost and Market Structure. International Journal of Electronic Commerce,
(1996). 1(1), 127-149

Martin, E. A., A Dictionary of Law, Oxford University Press, 5th Edition, New York,
(2003).

415
 LECTURE TWENTY-EIGHT

INJUNCTION

Introduction

Contracts when formed according to the essentials prescribed by the law, need
to be performed so as to achieve the very essence of its formation. However,
there may occur situations where the parties may be doing certain acts in
relation to the contract that debases the purpose of the contract. The other
party may seek remedy to prohibit such party from doing what he or she has
been doing. The remedy which involves court order of prohibiting the party to
the called from doing certain acts is called injunction. This can be done to save
the purpose of contract and fulfill the interests of the parties to the said contract.

Where a party to a contract has agreed not to do something, injunctions can

be granted by the court. An injunction can either restrain a party from
breaching a contract where there has been a threat of a breach, or restrain a
party from continuing or repeating a breach that has already occurred.

When a party seeks an injunction, the party files an action with the court stating
that the defendant's actions will result in serious and irreparable damage to the
plaintiff. Injunction is the court order to perform the contract by refraining from
doing certain acts as promised in the contract. The plaintiff asks the court to
order an injunction, which uses the court's power to stop the defendant carrying
out a specific action.

Henceforth, this lecture endeavours on the understanding of the concept,

nature and applicability of the injunction as remedy for breach of contract. It
lays out its unique features and describes the circumstances through which the
injunction can be awarded by the court to the party whose rights are in breach
in the contract.

416
Injunction

Injunction is the court order that prohibits a party to the contract from doing
something which does harm to the other party in the said contract. It is a stop
order against another party in the contract. A party to the contract is not
entitled to an injunction as of right. Every case must depend on its
circumstances.428

Injunction is a court order restraining a person from doing some act that lead to
breach of contract. The individual that fails to adhere to the injunction can face
penalties or damages for failing to follow the court’s instructions. When
damages are not an adequate remedy for the defendant, injunction will be
granted.429

Injunction as remedy is intended to make whole again someone whose rights

have been violated. Nevertheless, when deciding whether to grant an
injunction, courts also take into account the interests of non-parties. When
deciding whether to give an injunction, and deciding what its scope should be,
courts give special attention to questions of fairness and good faith. 430

In the case of Correctional Services Corporation v Malesko431, the court stated

that injunctive relief has long been recognized as the proper means for
preventing entities or parties to the contractual; arrangements from acting
unconstitutionally.

Nature of Injunction

428 Duhaime’s Law Dictionary, available at

http://www.duhaime.org/LegalDictionary/I/Injunction.aspx. (accessed on 30th March 2019)
429 https://www.coursehero.com/file/pjp8ed/Injunction-Injunction-is-a-court-order-restraining-a-
person-from-doing-some-act/. (accessed on 30th March 2019)
430 Spry, I., The Principles of Equitable Remedies, 6 th Ed. (London: Sweet & Maxwell, 2001), page

322.
431 534 U.S. 61, 74 (2001),

417
 (a) It is equitable remedy

An injunction is an equitable remedy because it is based on what is fair, or

seems right, in a particular situation. This remedy was historically designed so that
the courts don't have to follow precedent, or established common laws.
Instead, they are purposely intended to be a more flexible option that is used to
ensure justice in a particular situation.

(b) It is awarded upon inadequacy of damages

The injunction is awarded in circumstances where damages would not be

adequate remedy to compensate the claimant because the claimant needs to
restrain the defendant from starting or continuing breach of a negative
contractual undertaking or needs to compel performance of a positive
contractual obligation.

(c) It is granted at the discretion of the court

The injunction can be granted at the discretion of the court. In exercising its
discretion, the court will consider the various factors and will use the balance of
convenience test. An injunction will not be granted if its effect would be to
compel a party to do something which he could not have been ordered to do
by a decree of specific performance.

In the case of Alloys Anthony Duwe v Ally Juyawatu432, the court held that the
granting of a temporary injunction is a matter of discretion of the court. The
court should be satisfied that there is a serious question to be tried at the hearing
and that on the facts before it, there is a probability that the plaintiff is entitled
to a relief, but the test is whether there is a substantial question to be

432 (1969) HCD no. 268

418
investigated and whether matters should not be preserved in status quo until
that question can be finally decided.

(d) It is given in lieu of damages

Injunction remedy is frequently awarded in cases involving breach of contract

and are often given in lieu of monetary damages. The non-breaching party may
even be required to choose between a monetary damages award and an
injunction.

(e) Failure to comply injunction is contempt of court

If a party fails to follow the terms of an injunction order, they will face certain
consequences. In a contract case, this will usually be money damages. For
example, a party may be fined a set amount of money for each day that they
fail to follow the court order. A party could also be held in contempt of court.

(f) It can perpetual or interlocutory in nature

Injunctions can be perpetual or interlocutory in nature. Perpetual injunctions are

granted at the end of a hearing in final settlement of the parties’ dispute.
Interlocutory injunctions, on the other hand, are made before a final hearing
and are generally to be in force until the Court has made final orders in the
matter. An application for an interlocutory injunction is made on an urgent basis.

Considerations before Awarding Injunction

The court has broad discretion to award injunction and in exercising this
discretion it takes into account factors such as: -

(i) Delay in asking for the order

419
In the case of Lazard Brothers & Co. Ltd v Fairfield Properties co (Mayfair) Ltd 433,
the court considered the law of laches in its modern context, saying that if
between the plaintiff and the defendant it was just that the plaintiff should
obtain the remedy the court ought not to withhold it merely because the
plaintiff had been guilty of delay.

(ii) Whether the person seeking injunction is prepared to perform his side
of the contract

In the case of Chappell v Times Newspapers Ltd434, six employees asked for an
interim injunction to prevent their employers terminating their contracts of
employment in the context of an industrial dispute. Their union had been
threatening to take industrial action. The plaintiffs asserted that they should be
regarded as individuals, separate from their union but the respondents asserted
that the facts and circumstances showed that, in threatening to take industrial
action, the union was acting as their agent. The issue for the court was whether
or not interim injunction should be granted not whether or not the union was
acting as agent of the plaintiffs.

Stephenson LJ said that the argument that this second master of the men is also
in some respects their agent will need evidence to support it. In addition,
Geoffrey Lane LJ said that it is not possible, for instance, to say how far, if at all,
the union may have been acting as agent for individual members, in dealing
with the employers.

(iii) Whether the person against whom the order is sought would suffer
hardship in performing

433 [1977] 121 SJ793).

434 [1975] 1 WLR 482
420
In the case of Transgem Trust v Tanzania Zoisite Corp. Ltd 435, the court issued
injunction on the basis that it does not appear the injunction will cause the
defendants undue inconvenience providing it is conditioned on the plaintiffs
paying the defendants the amount owing for shipments already made and
upon placing a deposit in court sufficient to cover the defendants’ possible
damages if they succeed on the merits.

(iv) The difference between the benefit the order would give to one party
and the cost of injunction to the other

In the case of Tito v Waddell436, Banaba Island was a British settlement and the
land was owned by individual Banabans. The Crown granted a license to a
British company to mine the phosphate which had been discovered there. The
Banabans refused to sell or lease further land and the Crown compulsorily
acquired it. Monies paid were to be held ‘on trust’ for the Banabans and the
land was to be replanted to its former state after the mining. Some funds
purchased another island and the Banabans were relocated. They sought
damages for the ‘true’ value of the land, and an order for specific performance
for its restoration.

The Banabans were unsuccessful in their claim. Although the word ‘trust’ was
used within the agreements, there was no trust in the sense of imposing fiduciary
duties enforceable in the courts. The agreements imposed governmental
obligations upon the Crown which were unenforceable by the courts. The order
for specific performance was not granted because the relevant landowners did
not appear before the court.

Limitations of Injunctions

435 (1968) HCD no. 501

436 (No 2) [1977] Ch 106
421
There are various circumstances which when occur may limit the issuance of the
remedy of injunction to the victim party of the contract. They are hereby
accounted for: -

(i) Overlapping between mandatory injunction and specific performance

There is an overlap between mandatory injunctions and specific performance

which has been recognised by the courts. The courts will not grant an injunction
in circumstances that would in effect be an order for specific performance
where it would not generally be allowed.

In the case of Page One Records v Britton437, the claimant record company,
owned by Larry Page, was the manager of the pop group, The Troggs. By
contract, The Troggs agreed that Page One Records would be their manager
and sole agent for 5 years in return for 20% of their profits. By a term of the
contract The Troggs agreed not to appoint anyone else for the duration.
However, their relationship with Larry Page broke down and The Troggs wrote a
letter to the claimant seeking to terminate the contract. The claimant sought an
injunction to prevent The Troggs appointing a new manager.

The court refused to grant injunction. It stated that to grant an injunction would
be akin to ordering specific performance of a contract for personal services
since the effect of the injunction would be to compel The Troggs to continue to
employ the claimant or not work at all.

Nonetheless, just because there is overlap between mandatory injunctions and

specific performance which has been recognised by the courts, it does not
prevent the ordering of a prohibitory injunction which may be an indirect way of
ensuring compliance with contract.

437 [1968] 1 WLR 157

422
In the case of Lumley v Wagner438, the defendant Johanna Wagner, an opera
singer, was engaged by the claimant to perform in his theatre for a period of
three months. There was a term in the contract preventing her from singing for
anyone else for the duration of the contract. She was then approached by the
manager of Covent Garden Theatre, Frederick Gye, who offered her more
money to sing for him. The claimant sought an injunction preventing her from
singing at Covent Garden Theatre. The defendant argued that to allow an
injunction would in effect amount to specific performance of the contract in
circumstances where specific performance would not be available.

The injunction was granted despite it having the effect of forcing the defendant
to sing for the claimant. Lord St Leonards LC stated that wherever this Court has
not proper jurisdiction to enforce specific performance, it operates to bind
men's consciences, as far as they can be bound, to a true and literal
performance of their agreements; and it will not suffer them to depart from their
contracts at their pleasure, leaving the party with whom they have contracted
to the mere chance of any damages which a jury may give.

(ii) The court may sever terms and only order an injunction in respect of
partial obligations

An injunction can be granted but only in so far as it prevented party from acting
or performing for another. The term relating to no employment of any kind was
severed and did not form part of the injunction.

In the case of Warner Bros v Nelson439, by contract, the defendant actress Bette
Davis, agreed to act exclusively for Warner Bros for two years. The contract
stipulated not only that could she not act for another but also she could take no

438 (1852) 42 ER 687

439 [1937] 1 KB 209
423
employment of any kind. Bette Davis then moved to England and in breach of
contract entered an agreement to act for another. Warner Bros sought an
injunction to prevent her from doing so.

Branson J stated that the case before me is therefore one in which it would be
proper to grant an injunction unless to do so would in the circumstances be
tantamount to ordering the defendant to perform her contract or remain idle or
unless damages would be the more appropriate remedy. With regard to the first
of these considerations, it would, of course, be impossible to grant an injunction
covering all the negative covenants in the contract. That would, indeed, force
the defendant to perform her contract or remain idle; but this objection is
removed by the restricted form in which the injunction is sought. It is confined to
forbidding the defendant, without the consent of the plaintiffs, to render any
services for or in any motion picture or stage production for anyone other than
the plaintiffs.

Conclusion

Injunction is a remedy which occurs when one of the parties seeks to stop the
other party from doing something in relation to the contract entered between
them. The court will usually only award an injunction is the plaintiff has a
reasonable chance of success on the merits of the case; there will be
irreparable harm if an injunction is not ordered; the hardships are greater for the
plaintiff if the injunction is not granted; and granting the injunction is favoured by
public interest.

Review Questions

1. The WCB record company, owned by Diamond Plutnumz, was the

manager of the pop group, Yamoto. By contract, Yamoto agreed that
The WCB record company would be their manager and sole agent for 5

424
 years in return for 20% of their profits. By a term of the contract Yamoto
agreed not to appoint anyone else for the duration. However, their
relationship with Diamond Plutnumz broke down and Yamoto wrote a
letter to The WCB record company seeking to terminate the contract. The
WCB record company sought an injunction to prevent Yamoto
appointing a new manager. Is the injunction grantable? Support your
answer with authorities.
2. Barnaba, an opera singer, was engaged by Rugemalira to perform in his
theatre for a period of three months. There was a term in the contract
preventing her from singing for anyone else for the duration of the
contract. She was then approached by the manager of Covenant
Garden Theatre, Frederick Sky, who offered her more money to sing for
him. The Rugemalira sought an injunction preventing her from singing at
Covenant Garden Theatre. Barnaba argued that to allow an injunction
would in effect amount to specific performance of the contract in
circumstances where specific performance would not be available. Is
that argument tenable? Support your answer with authorities.
3. By contract, Bette Davis, agreed to act exclusively for Warner Bros for two
years. The contract stipulated not only that could she not act for another
but also she could take no employment of any kind. Bette Davis then
moved to England and in breach of contract entered an agreement to
act for another. Warner Bros sought an injunction to prevent her from
doing so. Can the court grant such injunction? Answer authoritatively.
4. Banaba Island was a British settlement and the land was owned by
individual Banabans. The Crown granted a license to a British company to
mine the phosphate which had been discovered there. The Banabans
refused to sell or lease further land and the Crown compulsorily acquired
it. Monies paid were to be held ‘on trust’ for the Banabans and the land
was to be replanted to its former state after the mining. Some funds

425
 purchased another island and the Banabans were relocated. They sought
damages for the ‘true’ value of the land, and an order for specific
performance for its restoration.
5. The court has broad discretion to award injunction and in exercising this
discretion it takes into account various factors. With relevant authorities,
describe the factors that the court take into account before awarding the
injunction.
6. Define the term injunction. Explain the chief characteristics of the
injunction as remedy in the breach of contract cases.

References

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brinkworth and Powell, ‘Contract and consideration: a new commercial reality?’

(1991) 12 Business Law Review 5

Brown, G. W., et al, Understanding Business and Personal Law, 9th Edition,
McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Dahiyat. E. R, “Intelligent Agents and Contracts: Is a Conceptual Rethink

Imperative?” 15 Journal of Artificial Intelligence Law. (2007). 375-390 at 383.

Garcia, D. L. Network Commerce: Public Policy Issues in a Deregulated

Communication Environment. The Information Society, (1997). 13, 17-31.

Gogan, J. L. The Web's Impact on Selling Techniques: Historical Perspective and

Early Observations. International Journal of electronic Commerce, (1997).
1(2), 89-108.

426
Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Ismail, et al, Evaluation of Legal Risks for Ecommerce in Construction‟ Journal of

Professional Issues in Engineering Education & Practice, (2006). 355-360 at
358

Kaustuv. M. D, Forum-Selection Clauses in Consumer Click wrap and Browse

wrap Agreements and the Reasonably Communicated Test‟ (2002). 77 (2)
Washington Law Review, 481 at 499-500

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

Lee, H. G., and Clark, T. H. Impacts of the Electronic Marketplace on Transaction

Cost and Market Structure. International Journal of Electronic Commerce,
(1996). 1(1), 127-149

Martin, E. A., A Dictionary of Law, Oxford University Press, 5th Edition, New York,
(2003).

427
 LECTURE TWENTY NINE

ELECTRONIC CONTRACTS

Introduction

Contracts have become so common in daily life that most of the time we do
not even realize that we have entered into one. Right from hiring a taxi to
buying airline tickets online, innumerable things in our daily lives are governed by
contracts. These contracts under traditional technology have been affected
much by the development of science and technology that necessitated the
moulding of the principles and rules to govern and regulate the electronic
contract.

In response to recent and anticipated future growth in long-distance commerce

using electronic media such as the internet, some commentators have
suggested that legal and economic institutions will have to change substantially
in response to new technologies of trade, in the same way that they did in
response to the major technological and organizational innovations of the 18 th
and 19th centuries. In the information age, the whole transaction can be
completed in seconds, with both parties simply affixing their digital signatures to
an electronic copy of the contract. There is no need for delayed couriers and
additional travelling costs in such a scenario.

This lecture discusses the concept of electronic contracts, their historical

background, their legal recognition and protection. It also discusses the
electronic contracts in line with the enactment of Electronic Transaction Act,
Act No. 13 of 2015. This law has been made to suit the changes of science and
technology in the contractual relations. It has recognised electronic contracts
without discouraging traditional contracts. It reflects technological
advancement and business activities through online means. The article

428
appraises the law and describes how it covers electronic transactions including
electronic contracts. It analyses the law on point of electronic contract
formation, communication, performance and enforcement.

Electronic Contracts

Electronic contracts are the contracts that are not paper based but rather in
electronic form. They can be defined as contracts created wholly or in part
through communications over computer networks. They are called web
contracts, cyber contracts or online contracts. They can be created entirely by
the exchange of e-mails where an offer and an acceptance are evident or
they can be made by a combination of electronic communications, paper
documents, faxes and oral discussions.

Electronic contracts are created during online buying and selling on electronic
markets. Electronic Markets are platforms, which offer support for market
transactions for online selling or buying of goods and services. Electronic
contracts document the expressions of willingness during market transactions.440
They are concluded online with variety of services suing internet standards. They
are born out of the need for speed, convenience and efficiency. They
constitute advanced form of contracts using information communication
technologies. In online contracts, automated offers and acceptances are valid.
An offer or acceptance made by an automated machine or system
programmed by any person or on his behalf binds such person.441

The formation takes place online but goods or services are delivered or
performed through other channels; sometimes both the formation and the

440 Boger, M et al (1999): Electronic Contracting im Internet. In: Kommunikation in Verteilten

Systemen (KiVS), Berlin, Heidelberg, New York: Springer-Verlag, p. 314 - 325, 1999
441 Winn. J K, (2001), “The Emperor‟s New Clothes: The Shocking Truth About Digital Signatures

and Internet Commerce” , Idaho Law Review, 353-388 at 367

429
performance take place entirely online (software download, access to
databases).442

Essentials of electronic contract

As in every other contract, an electronic contract also requires the following

necessary ingredients:-

a) An offer needs to be made

In a number of cases where a company is likely to enter into contracts over the
Internet, it will do so by way of an advertisement which, if worded correctly,
would amount to an ‘invitation to treat’. The visitor to the site or the buyer can
make an offer.

In many contractual transactions the offer is not made directly one-on-one. The
consumer ‘browses’ the available goods and services displayed on the
merchant’s website and then choose what he would like to purchase.

The offer is not made by website displaying the items for sale at a particular
price. This is actually an invitation to offer and hence is revocable at any time up
to the time of acceptance. The offer is made by the customer on placing the
products in the virtual ‘basket’ or ‘shopping cart’ for payment.443

b) Acceptance

Acceptance is usually undertaken by the business after the offer has been
made by the consumer in relation with the invitation to offer. An offer is
revocable at any time until the acceptance is made.

442 Salzano, G (2010), Internet Contracts: Formation of Online Contracts in the Italian Legislation
and Case Law.
443 Dellarocas, C. (2003). "The Digitization of Word of Mouth: Promise and Challenges of Online

Feedback Mechanisms." Management Science 49(10): 1407-1424

430
In online transaction, the visitor to the site or the buyer can either accept or
ignore the opportunity provided by the website to enter into the transaction with
him but not make a counter offer.

c) Lawful Consideration

Consideration is the price or the return for a promise that turns that promise into
a legally binding contract. Any contract to be enforceable by law must have
lawful consideration, i.e., when both parties give and receive something in
return.444

Therefore, if an auction site facilitates a contract between two parties where

one person provides a pornographic movie as consideration for purchasing an
mp3 player, then such a contract is void in the countries where pornographic
movies are illegal and prohibited by the law of that country.445

In electronic commerce, consideration does not pose any special concern

except, perhaps, for the risks associated with payment online or through
electronic means.446

d) Intention to create legal relations

If there is no intention on the part of the parties to create legal relationships,

then no contract is possible between them. Usually, agreements of a domestic
or social nature are not contracts and therefore are not enforceable, e.g., a
website providing general health related information and tips.

444 Gogan, J. L. (1997). The Web's Impact on Selling Techniques: Historical Perspective and Early
Observations. International Journal of electronic Commerce, 1(2), 89-108.
445 Burdett, D., Commerce One: Internet Open Trading Protocol – IOTP, Version 1.0; Internet

Engineering Task Force (IETF) Internet Draft, http://www.ietf.org/internet-drafts/draft-ietftrade-

iotp-v1.0-protocol-07.txt HYPERLINK, visited: Jan. 2000
446 Hoffman, D. L., Novak, T. P., & Chatterjee, P. (1995). Commercial Scenarios for the Web:

Opportunities and Challanges. Journl of Computer Mediated Communication, 1(3)

431
 e) Competency and identity of parties

Contracts by minors, lunatics, intoxicated or disqualified companies are void. All

the parties to the contract must be legally competent to enter into the contract.
The biggest concern in electronic communication is the identity and authority of
the person on the other side of the transaction.447

It is a simple matter for a person to adopt a fictitious name online or to send an

electronic message that appears to come from someone else. Parties to an
online contract must still exercise due diligence to ascertain whom they are
dealing with on the other side.448

A digital signature449 can provide assurance that the communication was sent
by a known party and not an impostor. Digital signatures are created and
verified by a special application that generates cryptographic messages.

The sender attaches the digital signature to the communication and sends both
electronically to the intended recipient. When the digitally signed
communication is received, the recipient’s computer runs a special program
containing the same cryptographic mathematical formula that the sender used
to create the digital signature.450

f) Free and genuine consent

447Herrmann, Gaby; Pernul, Günther (1998): Viewing Business Process Security from Different
Perspectives. In: International Bled Electronic Commerce Conference, Bled, Slovenia: p. 74 -89,
1998
448 Lee, H. G., & Clark, T. H. (1996). Impacts of the Electronic Marketplace on Transaction Cost

and Market Structure. International Journal of Electronic Commerce, 1(1), 127-149.

449 A digital signature is an electronic substitute for a manual signature and is generated by a

computer rather than a pen. It serves the same functions as a manual signature, and a lot more.
450 Neo, B. S. (1992). The implementation of an electronic market for pig trading in Singapore.

Journal of Strategic Information Systems, 1(5), 278-288.

432
Consent is said to be free when there is absence of coercion, misrepresentation,
undue influence or fraud. In other words, there must not be any subversion of
the will of any party to the contract to enter such contract. If the parties do not
understand the same thing in the same sense, there can no agreement or
contract.451

Usually, in online contracts, especially when there is no active real-time

interaction between the contracting parties, e.g., between a website and the
customer who buys through such a site, the click through procedure ensures
free and genuine consent.452

In website transactions it is very important for a website owner to ensure that the
consumer scrolls through the appropriate terms and conditions before clicking
the button for the purchase of goods or services.453

g) Lawful Object

A valid contract presupposes a lawful object. Thus a contract for selling narcotic
drugs or pornography online is void.

h) Certainty and possibility of performance

A contract, to be enforceable, must not be vague or uncertain and there must

be possibility of performance. A contract, which is impossible to perform, cannot
be enforced, e.g., where a website promises to sell land on the moon.454

451 Dahiyat. E. R, (2007), “Intelligent Agents and Contracts: Is a Conceptual Rethink Imperative?”
15 Journal of Artificial Intelligence Law 375-390 at 383.
452 Schmid, B. F. (1997): The Concept of Media; In: Workshop on Electronic Markets, ed. R. W. H.

Bons, 1997
453 Quelch, J. A., & Klein, L. R. (1996). The Internet and International Marketing. Sloan

Management Review (Spring), 60-75.

454 Reck, M. (1994, ). Types of Electronic Auction. Paper presented at the Conference

‘Information and Communications Technologies in Tourism’, ENTER'94 Innsbruck.

433
Formation of electronic contract

There is several number of ways through which the electronic contract can be
formed. There are discussed hereunder:-

(a) E-mail

Offers and acceptances can be exchanged entirely by e-mail, or can be

combined with paper documents, faxes, telephonic discussions etc. E-mail is
sometimes the method used to negotiate and agree on contract terms and to
send and agree to the final contract.455 Assuming that all of the elements to
establish a contract are present, an e-mail contract is valid and enforceable.

(b) Web Site Forms

The seller can offer goods or services such as air tickets, software to mention but
a few through his website. The customer places an order by completing and
transmitting the order form provided on the website. 456 The goods may be
physically delivered later e.g. in case of clothes, music CDs etc. or be
immediately delivered electronically e.g. e-tickets, software, mp3 etc.

A website acts as an advertisement, a display and a shop for sales. Bearing in

mind that an offer when accepted results in a binding contract, it is advisable to
design and arrange a website in such a manner as to avoid making an offer.457

455 Wigand, R. T. (1997). Electronic Commerce: Definition, Theory, and Context. The Information
Society, 13, 1-16.
456 Wigand, R. T., & Benjamin, R. I. (1996). Electronic Commerce: Effects on Electronic Markets.

Journal of Computer-Mediated Communication, 1(3),

http://shum.cc.huji.ac.il/jcmc/vol1/issue3/wigand.html.
457 Runge, Alexander (1999): The Management of Business Transactions through Electronic

Contracts. In: A. Camell; A. Min Tjoa; R.R. Wagner: Proceedings for the of the 10th International
Workshop on Database and Expert Systems Applications, Florence, Italy: IEEE Computer Society
Press, p. 824 - 831, 1999.
434
Website owner selects the territories he wants to serve, the customers he wants
to select and to avoid stock depletion and the risk of being sued for failure to
deliver.458

On the other hand, it is advisable to so arrange matters that it is the consumer or

visitor to the website who makes an offer to the website owner. This obviates
several risks and unintended consequences.

(c) Online Agreements

Users may need to accept an online agreement in order to be able to avail of

the services e.g. clicking on “I accept” while installing software or clicking on “I
agree” while signing up for an email account.459

Electronic contracts meet the writing requirements of the Statute of Frauds.

Electronically signed contracts cannot be denied effect because they are in
electronic form and are stored and delivered electronically.460

This was cemented in the case of R v. Moore; ex parte Myers461, where it was
stated that the object of all Statutes which require a particular document to be
signed by a particular person is to authenticate the genuineness of the
document.

458 Zwass, V. (1996). Electronic Commerce: Structures and Issues. International Journal of
Electronic Commerce, 1(1, Fall), 3-23.
459 Alba, J., Lynch, J., Weitz, B., Janiszewski, C., Lutz, R., Sawyer, A., & Wood, S. (1997). Interactive

Home Shopping: Consumer, Retailer, and Manufacturer Incentives to Participate in Electronic

Marketplaces. Journal of Marketing, 61(July), 38-53
460 Garcia, D. L. (1997). Network Commerce: Public Policy Issues in a Deregulated

Communication Environment. The Information Society, 13, 17-31.

461 (1884) 10 VLR 322

435
Forms of Online Agreements

Online agreements can be of various forms. Generally the basic forms of e-

contracts that a person comes across are.

(i) Click-wrap agreements

These are those whereby a party after going through the terms and conditions
provided in the website or program has to typically indicate his assent to the
same, by way of clicking on an "I Agree" icon or decline the same by clicking "I
Disagree".462

These types of contracts are extensively used on the Internet, whether it be

granting of a permission to access a site or downloading of software or selling
something by way of a website.

Konitz v. Rogers Cable Inc463 is a Canadian case dealing with the unilateral
amendment of an online service agreement. The customers of the
telecommunication company, Rogers, had agreed to a click wrap agreement
which included a term allowing Rogers to change or amend the agreement at
any time, providing that any such amendment would be posted on the Rogers
website. Rogers subsequently amended the agreement to include the provision
that all disputes would be settled by arbitration.

The court in Konitz concluded that the notice of the amendment was made in
accordance with the terms of the agreement, and that the effect of the
amending provision was to place an obligation on the user to check the
website from time to time. The court accepted the proposition that the service

462 Armstrong, A., & Hagel III, J. (1996). The Real Value of ON-LINE Communities, Harvard Business
Review, May-June, 134-141.
463 (2002), 58.O.R. (3d) 299 (Ont. Sup. Ct.)

436
subscribers continued use of the service after the posting of the notice and the
amendments constituted the requisite consent and acceptance of the
unilateral amendment.

In the United States, the court in Register.com v. Verio Inc464 upheld the
enforceability of the terms and conditions of a WHO IS database search web
service, which stated “by submitting this query, you agree to abide by these
terms.” The court noted that the terms of use in this case were clearly posted on
Register.com website, and that the defendants conduct in performing a search
inquiry constituted agreement to the terms.

(ii) Shrink-wrap agreements

The name was derived from the "shrink-wrap" packaging that generally contains
the CD Rom of Software's. The terms and conditions of accessing the particular
software are printed on the shrink-wrap cover of the CD and the purchaser after
going through the same tears the cover to access the CD Rom.465

Sometimes additional terms are also imposed in such licenses which appear on
the screen only when the CD is loaded to the computer. The user always has the
option of returning the software if the new terms are not to his liking for a full
refund.466

One problem with shrink-wrap agreement is that one party is denied an

opportunity to analyse the terms and conditions of the contract until the
contract has been formed and the product has been opened.

464 126 F. Supp. 2d 238 (S.D.N.Y. 2000); aff.d 2004 WL 103400 (2nd Cir. 2004)
465 Gogan, J. L. (1997). The Web's Impact on Selling Techniques: Historical Perspective and Early
Observations. International Journal of electronic Commerce, 1(2), 89-108.
466 Pistorius. T, (1993), “The Enforceability of Shrink-wrap Agreements in South Africa”, 5 South

African Mercantile Law Journal, 1-19

437
 (iii) Electronic Data Interchange (EDI)

Electronic Data Interchange or EDI is “the electronic communication between

trading partners of structured business messages to common standards from
computer application to computer application".467

They are contracts used in trade transactions which enables the transfer of data
from one computer to another in such a way that each transaction in the
trading cycle (for example, commencing from the receipt of an order from an
overseas buyer, through the preparation and lodgement of export and other
official documents, leading eventually to the shipment of the goods) can be
processed with virtually no paperwork.468

There is exchange of information and completion of contracts between two

computers and not an individual and a computer.

Phases of Electronic Contract Formation

There are various phases which electronic contract formation passes to its
finality. They are hereby described:-

1) Electronic contract conception

The process starts with the necessary information about the market in general.
Therefore the contract parties use information provided to them by suppliers. This
phase is based on information that are not an invitation to treat or an offer.469

467 Gregory J. D, (2005), Internet Jurisdiction: Where Are We Now? Presentation to the Toronto
Computer Lawyers, available at www.tclg.org/meetings/2005_nov.ppt
468 Julia Alpert Gladstone, Determining Jurisdiction in Cyberspace:The .Zippo. Test or the

EffectTest?
Bryant College, Smithfield, Rhode Island, USA available at http://www.informingscience.org/
proceedings/IS2003Proceedings/docs/029Glads.pdf
469 M Smith, (2000) “Facilitating Electronic Commerce through The Development of Laws to

Recognize
438
Because this information will not legally bind their originator this phase does not
have any legal consequences for the following contract phases.

2) Electronic contract preparation

This phase starts the real contracting process that will have legal consequences
for the
contract parties. At the beginning of this phase a document class called
“invitation to treat” is created.470

The invitation to treat does not legally bind the originator. He can revoke his
declaration of will at any time. Therewith the legislator created an instrument
that is suitable for a contract preparation where you want to find out the existing
possibilities in a market by gambling a little bit.471

The difference between an invitation to treat and the normal information in the
phase of contract conception is that the invitation to treat is already focused on
a more or less defined transaction the contract parties wants to generate while
during the contract conception generic information about markets, enterprises
or products are generated without the goal to create a transaction. 472

3) Electronic Contract Agreement

Electronic Documents and Transactions”, Available at http://dsp

psd.pwgsc.gc.ca/CollectionR/LoPBdP/BP/prb0012-e.htm
470 Chapter 8 of UNCTAD Information Economy Report 2006: The development perspective; Laws

and
Contracts in an Ecommerce Environment (2006) available at: http://r0.unctad.org/ecommerce/
ecommerce_en/ier06_en.htm
471 Weitzenboek. E. M, (2001), „Electronic Agents and Formation of Contracts‟, International

Journal of Law and Information Technology, 204-234 at P. 43

472 Ismail, et al, (2006), „Evaluation of Legal Risks for Ecommerce in Construction‟ Journal of

Professional Issues in Engineering Education & Practice, 355-360 at 358

439
The contract negotiation starts with an offer. This is the first legally binding
document in the process. The offeror has to settle the contract as described in
his offer if the offeree accepts it.473

This would be the shortest way of a contract negotiation and happens mostly
with consumer goods as for example food, books and so on. But contracting
about investment goods the buyer very often generates a counter offer. This
happens already when the offeree asks for a discount. 474

4) Electronic Contract Performance

After one party accepts the offer or the counter offer of the other party this last
declaration of will turns to a contract. Both parties have obligations.

Most common phase is the obligation of the seller to deliver a product and the
obligation of the buyer to pay for it. This exchange of goods happens during the
phase of contract fulfilment. The buyer mostly gets a receipt for the amount he
paid for the product.475 Such a receipt is the last document produced during
the process. Not very common are receipts for the seller that confirms that he
fulfilled his obligations of the contract.476

It is suggested that for Secure Electronic Contracts also a receipt for the vendor
is created. This has mainly two reasons.

473 Pacini. C, et al, (2002), “To Agree or not to agree: Legal Issues in Online Contracting”, Business
Horizon 43-52 at 43
474 Samelson A, et al, (2003), „The E-Sign Law: What does it mean for Government Contracting

Practices?, Journal of Contract Management 35-43 at 36

475 Mollel. A, et al, (2007), Electronic Transactions and the Law of Evidence in Tanzania, Peramiho

Printing Press
476 Kaustuv. M. D, (2002), „Forum-Selection Clauses in Consumer Clickwrap and Browsewrap

Agreements and the Reasonably Communicated Test‟ 77 (2) Washington Law Review, 481 at
499-500
440
 (i) The customer would not have paid if the vendor would not have
delivered will not be applicable because the exchange of the good
and the payment happens synchronous. At this point of time the
customer was not able to know if the ordered product was correctly
delivered.
(ii) Electronically produced goods can be destroyed after the use. So the
vendor has no way to proof that the product was delivered to the
customer because the authorities will not be able to find a product in a
legal procedure.

Electronic Contracts in Tanzania

The development of science and technology has also affected Tanzania as

other country in the world because the whole world is in the Information Age.
Globalisation and information technology has touched economic and social
activities of Tanzanians.

Interactions of Tanzanians with other nationals have been increased

tremendously. This has triggered the enactment of the law 477 which at least
recognises and enforces the admissibility of electronic contracts.

Recognition of Electronic Contracts

The law avoids the doubt among people who want to form their contract
electronically. Section 21 (1) of the Electronic Transaction Act 478 provides that
contracts can be formed electronically if the parties to such contract have
agreed so. The provision insists on the consensus ad idem on the electronic

477 Electronic Transaction Act, Act No. 13 of 2015

478 Act No. 13 of 2015
441
contract formation. Also, the contract enforcement cannot be denied just
because there was electronic record479 for the formation of such contract.480

Effectiveness of Electronic Communication

The law also addresses the issue of when communication of electronic

information is said to be complete. The information from originator is dispatched
when it enters computer system481 outside the control of the originator482 or the
person who send information on behalf of the originator.483

Also, electronic information can be said to have been communicated to the

addressee484 on the same computer system when it is capable of being
retrieved by him or her but when the addressee has designated a computer
system for receiving such information it is complete when the electronic
information enters the designated computer system.485

The law addresses circumstances when the information is sent to not designate
computer system, it can be said to be communicated when it becomes

479 Section 3 of the Act No. 13 of 2015 defines electronic record as a record stored in electronic
form
480 Section 21 (2) of the Act No. 13 of 2015
481 Section 3 of the Act No. 13 of 2015 defines computer system as device or combination of

devices including network, input and output devices capable of being used in conjunction with
external files which contain computer programmes, electronic instructions, input data and
output data that perform logic, arithmetic data storage and retrieval communication control
and other functions.
482 Section 3 of the Act No. 13 of 2015 defines originator as a person from whom the electronic

communication purports to have to have been sent or generated.

483 Section 22 (1) of the Act No. 13 of 2015
484 Section 3 of the Act No. 13 of 2015 defines addressee as a person or party who is intended by

the originator to receive and electronic communication but does not include a party acting as
an intermediary in respect of that electronic communication.
485 Section 22 (2) and (3) of the Act No. 13 of 2015

442
capable of being retrieved by addressee and the addressee becomes aware
that such information has been sent to that address.486

In an American case of Lucas v Western Telegraph Co.487 it was stated that

where the offer was sent by email and offeree replied by telegram that
acceptance would be of no effect until received by the offeror since the offeror
had not authorized such mode. Hence, it may be unreasonable to respond an
offer communicated via e-mail using the post.

Notwithstanding non-designation of information system, receipt occurs when

electronic information or communication is retrieved by the addressee or should
reasonably be retrieved by the addressee.488

Place of dispatch and receipt of communication

The law resolves the challenges of understanding the place where the originator
sends electronic communication as well as the place where the addressee has
received the electronic communication.

An electronic communication shall be deemed to dispatched and received at

the place where the originator and addressee has place of business. However,
both originator and addressee can agree otherwise.489

The principle was set out in the pre internet case of Calder v. Jones490 that the
fact that the action had an effect in the other jurisdiction was factored into the
equation in order to determine whether jurisdiction existed in that forum.

486 Section 22 (4), ibid

487 (1906) 131 Iowa, 669, 109 N. W 191
488 Section 22 (5), ibid
489 Section 24 (1),ibid
490 465 U.S. 783 (1984)

443
Under this effects test, jurisdiction is determined by analysing the effects
intentionally caused within the forum by a party’s online conduct outside the
forum or place of business.

This rule of place of dispatch and receiving of electronic communication shall

be applicable even if both originator and addressee were no at their place of
business as well as for the purpose of determination of tax liability. 491

However, if at all the addressee or originator has more than one place of
business, the place of business for this purpose shall be a place which has closest
relationship with underlying transaction known or contemplated by the parties
at the time of contract conclusion but where there is no underlying transaction,
the principal place of business shall be the one to be considered. 492

Nevertheless, where the originator or addressee has no place of business, the

place of business shall be his or her habitual residence.493 If the body corporate
has no place of business, the place of business shall be business address of the
body corporate or place of incorporation or where it is legally constituted. 494

This rule of place of dispatching and receiving electronic communication shall

be applicable notwithstanding the variation between the place where
computer system supporting an electronic address and place where electronic
communication is deemed to be dispatched or received.495

Time and place of contract formation

491 Section 24 (2) of the Act No. 13 of 2015

492 Section 24 (3) (a), ibid
493 Section 24 (3) (b), ibid
494 Section 24 (4), ibid
495 Section 24 (5), ibid

444
When parties conclude a contract electronically, the contract shall be formed
at the time and place where acceptance of the offer becomes effective.
Electronic offer becomes effective when at the time it is received. 496

Electronic Contracts with Interactive Systems

The law recognises the electronic contracts which have been formed by the
interaction of systems and persons or by interactive systems on the ground that
no person reviewed each of individual actions carried out by the interactive
systems.497

However, the interactive system under legal recognition must provide an

opportunity of a person to correct the error made in an electronic
communication exchanged with the interactive system of another party.498

When such interactive system does not provide the opportunity to correct errors,
the person has the right to withdraw the electronic communication in which
input error was made.499

In the case of Dell Computer Corp. v. Union des consommateurs500, the court
emphasized that the terms and conditions must be reasonably accessible and
was of the opinion that a hyperlinked document meets that standard.

However such right of withdrawal is exercisable only under three main

conditions. These conditions are:-

496 Section 25 of Act No. 13 of 2015

497 Section 26 (1), ibid
498 Section 26 (2), ibid
499 Section 26 (3), ibid
500 2007 SCC 34

445
 (i) Such person must notify the other party about error as soon as
practicable after having learned of the error and intends to correct
the error.
(ii) Such person has to take reasonable steps to comply with the
instruction by the other party to return goods or services received as a
result of the error.
(iii) Such person should have not received any material benefit or value of
goods or services or input error from the other party.

Also, the person who has paid for goods or services prior to exercise the right of
withdrawal of electronic communication is entitled to a full refund of such
payment within 30 days upon cancellation of the transaction.501

Yet, the law allows application of any other law in relation to consequences of
errors made during formation or performance of contract in question other than
input error that occurs in the electronic communication. 502

Online auctions

The law also recognise the online auctions however it gives rules to guide them.
It provides that when contract of sale is done by online auction, the requirement
of the fall of the hammer is met using the time at which electronic
communication is received as the time limit as the means of selecting the last
bidder.503

Conclusion

501 Section 26 (4) of the Act No. 13 of 2015

502 Section 26 (5), ibid
503 Section 27, ibid

446
Contracts are part and parcel of the human relations and socio-economic
activities. The law of contract was put in place to govern and moderate the
contractual relations so as they can produce what were intended and recover
the expectations of the innocent party. However, due to the development of
science and technology, contractual relations are now undertaken in
technological arena. Since the law of contract was based on the offline
contracts or traditional contracts, it cannot operate effectively in the
information age if at all no changes have been made in the law to suit the
changes of science and technology.

Review Questions

1. There is several number of ways through which the electronic contract

can be formed. With vivid examples, discuss the ways through which the
electronic contract can be formed.
2. There are various phases which electronic contract formation passes to its
finality. With relevant examples, describe the phases that electronic
contract passes to be formed accordingly.
3. Due to the development of science and technology, contractual
relations are now undertaken in technological arena. In the light of the
statement, are Tanzania’s laws recognise the electronic contracts? If yes
how?
4. The law recognises the electronic contracts which have been formed by
the interaction of systems and persons or by interactive systems. Describe
the position of the law on right to correct errors during the electronic
contract formation through interactive systems.
5. With the aid of decided case, discuss whether the acceptance can have
legal effect where the offer was sent by email and offeree replied by
telegram.

447
 6. James, the customer of Jumuika Telecom Company had agreed to a
click wrap agreement which included a term allowing Jumuika Telecom
Company to change or amend the agreement at any time, providing
that any such amendment would be posted on Jumuika Telecom
Company website. Jumuika Telecom Company subsequently amended
the agreement to include the provision that all disputes would be settled
by arbitration. Discuss whether such amendment has binding effect to
James.
7. Online agreements can be in different forms inter alia click wrap
agreement and shrink wrap agreement. How click wrap agreement is
different from the shrink wrap agreement?

References

Armstrong, A., & Hagel III, J. (1996). The Real Value of ON-LINE Communities,
Harvard Business Review, May-June, 134-141.

Boger, M et al (1999): Electronic Contracting im Internet. In: Kommunikation in

Verteilten Systemen (KiVS), Berlin, Heidelberg, New York: Springer-Verlag, p. 314 -
325, 1999

Burdett, D., Commerce One: Internet Open Trading Protocol – IOTP, Version 1.0;
Internet Engineering Task Force (IETF) Internet Draft, http://www.ietf.org/internet-
drafts/draft-ietftrade-iotp-v1.0-protocol-07.txt HYPERLINK, visited: Jan. 2000

Dahiyat. E. R, (2007), “Intelligent Agents and Contracts: Is a Conceptual Rethink

Imperative?” 15 Journal of Artificial Intelligence Law 375-390 at 383

Dellarocas, C. (2003). "The Digitization of Word of Mouth: Promise and

Challenges of Online Feedback Mechanisms." Management Science 49(10):
1407-1424

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Gogan, J. L. (1997). The Web's Impact on Selling Techniques: Historical
Perspective and Early Observations. International Journal of electronic
Commerce, 1(2), 89-108.

Hoffman, D. L., Novak, T. P., & Chatterjee, P. (1995). Commercial Scenarios for
the Web: Opportunities and Challanges. Journl of Computer Mediated
Communication, 1(3)

Herrmann, Gaby; Pernul, Günther (1998): Viewing Business Process Security from
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Bled, Slovenia: p. 74 -89, 1998

Ismail, et al, (2006), „Evaluation of Legal Risks for Ecommerce in Construction‟

Journal of Professional Issues in Engineering Education & Practice, 355-360 at 358

Kaustuv. M. D, (2002), „Forum-Selection Clauses in Consumer Click wrap and

Browse wrap Agreements and the Reasonably Communicated Test‟ 77 (2)
Washington Law Review, 481 at 499-500

Lee, H. G., & Clark, T. H. (1996). Impacts of the Electronic Marketplace on

Transaction Cost and Market Structure. International Journal of Electronic
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Mollel. A, et al, (2007), Electronic Transactions and the Law of Evidence in

Tanzania, Peramiho Printing Press

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Pacini. C, et al, (2002), “To Agree or not to agree: Legal Issues in Online
Contracting”, Business Horizon 43-52 at 43

449
Pistorius. T, (1993), “The Enforceability of Shrink-wrap Agreements in South
Africa”, 5 South African Mercantile Law Journal, 1-19

Quelch, J. A., & Klein, L. R. (1996). The Internet and International Marketing. Sloan
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Reck, M. (1994). Types of Electronic Auction. Paper presented at the

Conference ‘Information and Communications Technologies in Tourism’,
ENTER'94 Innsbruck.

Salzano, G (2010), Internet Contracts: Formation of Online Contracts in the

Italian Legislation and Case Law.

Samelson A, et al, (2003), The E-Sign Law: What does it mean for Government
Contracting Practices? Journal of Contract Management 35-43 at 36

Schmid, B. F. (1997): The Concept of Media; In: Workshop on Electronic Markets,

ed. R. W. H. Bons, 1997

Weitzenboek. E. M, (2001), „Electronic Agents and Formation of Contracts‟,

International Journal of Law and Information Technology, 204-234 at p.43

Wigand, R. T. (1997). Electronic Commerce: Definition, Theory, and Context. The

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Signatures and Internet Commerce”, Idaho Law Review, 353-388 at 367

450
 LECTURE THIRTY

CONSUMER CONTRACTS

Introduction

Normally the consumers can be at a disadvantage in contracting with

businesses. The courts began in 19 th century to imply terms into contracts,
especially those for the sale of goods, which made sure the buyer got a fair
deal, by, for example, requiring that the goods were fit for their purpose.

Unfortunately, the fact that businesses were richer and more powerful than their
consumers also meant that they had access to good lawyers, and as fast as the
courts found terms to imply into contracts, businesses found ways to draw up
contracts excluding themselves from those liabilities.

There are a lot issues related to the consumers contracts as well as consumer
protection. How and when a consumer contract is made, and how to be sure
the transactions are legal and fair are inter alia of the determinant points when
dealing with the consumers’ contracts and consumer protection.

Understanding of the issues is very important because to understand legal

responsibilities when selling to consumers, one is needed to know how and when
a contract with consumer is made. He or she also needs to have a broad
understanding of contract terms so that he or she can be sure they are fair to
consumers.

Consumer Contracts

Consumer contracts are those between traders and consumers, and require
agreement from at least two parties. They are legally binding agreements
between traders or service providers and the consumer concerning the sale of
goods or the supply of services with or without goods.

451
Regulation 3 of the Standard Form (Consumer Contracts) Regulations504 defines
consumer contract as standard form contracts concluded between a producer
of goods or services and a consumer.

Consumer contracts are more strictly regulated than normal contracts between
two merchants, who are usually more familiar with contracts than consumers.
The purpose of consumer contracts is to prevent abuses and make the
contracts more understandable for the reader.505

Parties to Consumer Contracts

Consumer contracts are contracts formed between Producer and consumers.

(a) Producer

Regulation 3 of the Standard Form (Consumer Contracts) Regulations 506 defines

producer to include manufacturers, suppliers, sellers, service providers and
operators. Hence, producer is any person who deals in goods of the kind of their
occupation, or has knowledge or skill related to the goods involved in the
transaction.

(b) Consumer

Regulation 3 of the Standard Form (Consumer Contracts) Regulations 507 defines

consumer as any person who purchases or offers to purchase goods or
services otherwise than for the purpose of resale but does not include a
person who purchases any goods or services for the purpose of using them in
the production or manufacture of any goods or articles for sale. Henceforth, a

504 GN 305 of 2014

505 Vukovic, A. Consumer Contracts, https://www.legalmatch.com/law-library/article/consumer-
contract-lawyers.html. (accessed 23/04/2019)
506 GN 305 of 2014
507 GN 305 of 2014

452
consumer is any person who purchases goods or services for personal use rather
than for other uses such as production or manufacturing.

Features of Consumer Contracts

It is generally assumed that merchants have more knowledge of economics

and commerce than the average citizen, and may be more “business savvy”
than consumers. Some unique features and protections of consumer contracts
involve:

a) Form of the Contract

Form of contract refers to the general structure and appearance of the

contract. Consumer protection laws often regulate the contract form so that it is
presentable to the reader. Certain portions or the entire document must be
printed in a certain font size i.e. no miniature font sizes. Copies must be provided
to the buyer. Also, laws may require payments to be itemized and prices
allocated to specific items such as the product, interest, insurance, etc.

b) Contractual Terms

Contractual terms means terms, conditions, agreement and consent, including

announcement and notice excluding or restricts liability. Parties are generally
free to agree upon any contract terms as they deem appropriate. However,
consumer laws often prohibit terms or provisions that are considered to be unfair
to the consumer, or may be potentially abused by the seller.

c) Price Overcharging

Price gouging occurs where a seller or supplier takes advantage of market

conditions in order to charge exorbitant prices. For example, after a natural
disaster, merchants may raise the prices of canned goods or bottled water.

453
Consumer contract laws prohibit contract prices which represent an
“unconscionably excessive” price.

d) Acceleration Clauses

An acceleration clause in contract requires the purchaser to pay the entire

remaining balance of instalment payments in the event of a default. For
example, if a consumer is making instalment payments on a car and fails to
make a monthly payment, an acceleration clause would require the buyer to
pay for the car in full after the default. Such clauses can financially devastate a
consumer. Therefore, many statutes prohibit or restrict the use of acceleration
clauses in a consumer contract.

Regulation of the Consumer Contracts

Regulations require seller or service providers to give certain information to

consumers who buy goods, services or digital content before the contract is
made. These information requirements form part of the contract that the
consumer has with you so if you do not provide the information, the consumer
can claim you have breached the contract and seek a suitable resolution.

The essence of the regulation of the consumer contract is to introduce the

notion of good faith to prevent imbalances in the rights and obligations of
consumers on the one hand and sellers and suppliers on the other hand. Also, to
ensure contract terms in consumer contracts to be drafted in plain and
intelligible language and states that ambiguities will be interpreted in favour of
consumers.

In consumer contracts, sellers and suppliers possess a considerable advantage

by defining the terms in advance that are not individually negotiated. However,
the regulation and standardisation of the contracts facilitates commercial

454
transactions and can also work to the advantage of consumers. Contract terms
define the rights and obligations of the parties.

If a seller or supplier violates consumer protection laws in the contract, it could

lead to several types of legal consequences. Depending on the type of
violation or breach, the contract could be declared “void”, which means that it
is immediately invalid without any further analysis required. Other types of
violations could render a contract “voidable”, which means it may be
invalidated after the court performs a thorough analysis of the contract and the
circumstances leading to contract formation.

Void or voidable contracts may result in the contract being cancelled and
rewritten in whole or in part. Additionally, the merchant may be required to
reimburse the consumer for any losses or injuries stemming from the contract
violation. Consumers can also be held liable for providing merchants with
fraudulent information in the contract. Criminal consequences may also result if
either party acted with criminal or illegal intent.

Consumer Protection in Tanzania

Consumer protection in Tanzania is a phenomenon associated with the

operation of markets. There are also non-market issues that concern or are
involved in consumer protection. Thus, consumer protection laws exist in order to
protect consumers. Many of these consumer protections apply to consumer
contracts, in order to protect the consumer from unfair or one-sided contracts.

Consumer contracts in Tanzania are standardised and regulated under the

Standard Form (Consumer Contracts) Regulations508 which is subsidiary

508 GN 305 of 2014

455
legislation made under the auspice of the Fair Competition Act. 509 These
Regulations shall apply to traditional and online Standard Form Consumer
Contracts involving business to consumer transactions.

(a) Incorporation of Standard Business Terms

Standard business terms include all contractual terms pre-established for a

multitude of contracts which one party presents to the other party upon the
conclusion of the contract.510 The parties may agree in advance that particular
standard business terms may apply to a particular type of legal transaction. 511

As a general rule, contractual term shall not constitute standard business terms if
there is an individual negotiation between the parties.512 However, the standard
business terms are incorporated into the contract if, during the conclusion of the
contract the producer513-

(i) expressly draws the attention of the other party or if, on account of the
way in which the contract is concluded, it is difficult to make express
reference to them;
(ii) draws his attention to them by means of a clearly visible sign at the
place where the contract is concluded ; and
(iii) gives the other party, in a reasonable manner that takes account of
any physical handicap of the other party, discernible by the producer,
the possibility of gaining knowledge of his content, if the other party
agrees to apply;
(b) Specific Requirements of the Standard Form of Consumer Contracts

509 Cap 285

510 The Standard Form (Consumer Contracts) Regulations, reg. 3
511 Ibid, reg. 4(3)
512 Ibid, reg. 4(1)
513 Ibid, reg. 4(2)

456
Consumer contracts are the standard form contracts. The standard form
contract means an agreement created by one party that employ standardized,
non-negotiated terms and conditions, usually in pre-printed forms.514

(i) Contents of Consumer Contracts

The consumer contract shall contain description of the applicable business,

system, trademark or any other intellectual property owned by the producer or
licensed to the producer which is, or may be used in the transaction and the
conditions under which they may be used; the effect of the termination or
expiration of the contract; a summary of the terms and conditions relating to
termination and renewal of the terms and conditions; and the name, identity
number, telephone contact number, e-mail address, town of residence, job
titles and qualifications of the supplier’s officers.515

In addition, the consumer contract shall contain specific information on the use
of goods or services and in accordance to available information and
instructions as well as take precautions.516

A contract shall be expressed to have effect for a definite period.517

(ii) Obligations of Producer

A contract shall specify the obligations of the producer with respect to supply of
goods or services.518 For instance, the producer shall state on the goods or

514 Ibid, reg. 3

515 The Standard Form (Consumer Contracts) Regulations, reg. 11(4)
516 Ibid, reg. 12(2)
517 Ibid, reg. 10
518 Ibid, reg. 11(1)

457
services the information such as nature of each good or service, way of
advertising, way of offering it and way of signing it. 519

Also, the producer shall specify on the goods or services such as name of the
good or service; country of origin; name of the producer, trade name, address
and trademark; production and expiry dates; conditions of distribution and
storage; kinds, features, dimensions, weights and ingredients; price display;
services to be performed with reasonable care; information about the trader or
service to be binding; reasonable price to be paid for a service ; service to be
performed within a reasonable time.520

In addition, the consumer contract shall prohibit the producer from supplying
goods or services under the cooling-off period unless the consumer requests for
supply of the said goods or services.521

Furthermore, in the consumer contract, the producer shall have the implied
obligation to notify the other party of any events which occurs beyond the
control of the producer or consumer.522

The producer shall not be required to perform his obligations if the event
continues.523 Notwithstanding, the producer shall notify the public on
occurrence of any event by television, radio, newspaper and any other
reasonable means.524

(iii) Obligations of Consumer

519 Ibid, reg. 11(2)

520 Ibid, reg. 11(3)
521 The Standard Form (Consumer Contracts) Regulations, reg. 15(2)
522 Ibid, reg. 14(1)
523 Ibid, reg. 14(3)
524 Ibid, reg. 14(2)

458
A contract to which a consumer is a party shall specify the obligations of the
consumer, including the requirement to pay for the goods supplied and services
provided under the contract.525

In addition to the above obligation, the consumer shall have the duty to notify
the producer or any other relevant authority, of the defect of goods or services
within fourteen days from the date of purchase.526

Moreover, the consumer contract shall require the consumer to pay the
producer for goods supplied or services rendered in connection with the supply
if at the request of the consumer, goods are supplied to the consumer during
the cooling –off period and goods are perishable in nature.527

Furthermore, the consumer shall have the right, at his discretion, to rescind a
contract within the period of ten days after the contract is entered into and this
right shall be specified in the standard form contract. 528

In addition, in the consumer contract, the consumer shall have the implied
obligation to notify the other party of any events which occurs beyond the
control of the producer or consumer.529 The consumer shall not be required to
perform his obligations if the event continues. 530

(iv) Registration

The consumer contracts must be registered. Hence, any person who uses the
standard business terms in a contract shall apply to the Commission for

525 Ibid, reg. 12(1)

526 Ibid, reg. 13
527 Ibid, reg. 15(3)
528 Ibid, reg. 15(1)
529 The Standard Form (Consumer Contracts) Regulations, reg. 14(1)
530 Ibid, reg. 14(3)

459
registration within twenty one days before conclusion of the contract. 531 Hence,
any Standard Form Contract shall be registered with the Commission. 532

(v) Review of Consumer Contracts

The Division responsible for consumer protection shall, within fourteen days after
receiving of a contract, review the contract and advise the Director General on
the unfairness of the terms and conditions that may be therein and make
recommendations on appropriate measures to be taken by the applicant.533

However, the division responsible for consumer protection may recommend

corrective measures or actions including removal, amendment, and
replacement of unfair terms or advise the applicant otherwise. 534

Unfair Terms in Consumer Contracts

In consumer contracts, there may be contract clause that directly or indirectly

limits the rights of a consumer protected under contract law, is held
unreasonable and/or liable to be void. Any clause that attempts to exclude
liability for injury or death is often automatically invalid.

(a) What are unfair terms?

Unfair terms are the contractual terms which cause a significant imbalance in
the parties’ rights and obligations arising under the contract. They are not
reasonably necessary to protect the legitimate interests of the producer. They
cause financial or non-financial detriment to a consumer.535

531 Ibid, reg. 16(1)

532 Ibid, reg. 20
533 Ibid, reg. 19(1)
534 Ibid, reg. 19(2)
535 The Standard Form (Consumer Contracts) Regulations, reg. 24(1)

460
 (b) Assessment of the Unfair Terms

The unfairness of a contractual term shall be assessed by taking into

consideration the nature of the goods or services for which the contract was
concluded and by referring, at the time of conclusion of the contract, to all the
circumstances attending the conclusion of the contract and all the other terms
of the contract or of another contract on which it is dependent.536

The plain language assessment of fairness of a term used by a producer shall not
relate to the definition of the main subject matter of the contract or the
adequacy of the price or remuneration, as against the goods or services
supplied in exchange.537

(c) Effect of Unfair Terms

Presence of unfair term in the consumer contract shall make it nullity that is an
unfair term in a contract concluded with a consumer by a producer shall be
void to the extent of unfair term.538

On the other hand, the consumer contract that contains unfair term shall
continue to bind the parties if it is capable of continuing in existence after the
exclusion of unfair term in the said consumer contract.539

Conclusion

There are contracts where one of the parties assumed to have the weaker
bargaining position is a consumer for use, rather than a business. There are
various protections including protection from certain exclusion and exemption

536 Ibid, reg. 25(1)

537 Ibid, reg. 25(2)
538 Ibid, reg. 27(1)
539 Ibid, reg. 27(2)

461
clauses. Hence, the consumer may be given enhanced legal rights often by
way of the inclusion of terms included in the contract by operation of law- terms
which may not be capable of exclusion. Rights in relation to remedies may be
enhanced as they are in relation to sales of goods.

Review Questions

1. What do you understand by the term consumer contracts? Describe the

important features of the consumer contracts.
2. What are the unfair terms of consumer contracts? Explain the principles of
the assessment of whether the terms are unfair or not as far as consumer
contracts are concerned.
3. Consumer contracts are the standard form contracts with specific legal
requirements. Taking Tanzania’s legal system as an example, enumerate
the specific legal requirements for the consumer contracts.
4. The parties may agree in advance that particular standard business terms
may apply to a particular type of legal transaction. With aid of relevant
legal authorities, discuss the rules governing the incorporation of standard
business terms in the consumer contracts.
5. Regulations of the consumer contracts require seller or service providers to
give certain information to consumers who buy goods, services or digital
content before the contract is made. In light of the statement, what is the
essence of regulation of the consumer contracts?
6. Consumer contracts are those between traders and consumers, and
require agreement from at least two parties. Discuss the parties to the
consumer contracts.

References

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

462
Brown, G. W., et al, Understanding Business and Personal Law, 9th Edition,
McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

463
 LECTURE THIRTY ONE

INTERNATIONAL CONTRACTS

Introduction

Through globalisation and development of science and technology, the world

has become a global village. People of different countries may interact with
people from other countries. The interactions can be social, political and or
economic. Economic interactions may involve the contractual relations
between the people of different countries on commercial or business issues that
they are interested. Hence, it is possible for people of different countries to enter
contracts at this age of information and technology. Therefore, the contract
entered by the people of different countries have international element therein.

International business transactions are described in the form of an international

contract, containing the objective and commitments of each of the parties
involved and the terms which govern the transaction. These transactions may
be governed by the national law the parties have chosen or international
contract law. Chosen national law are mostly laws based on the habitual
residence of the parties or place where the contract has been formed and
executed and others depending on the interests of the parties to the said
contract.

When parties from different countries enter into a contract, they are governed
by international contract law unless they agree to abide by the laws of one of
the countries. Hence, there is choice of law between the parties to the
international contract on which to apply when there is controversy between
them in relation to the said contract. However, there is international law in from
of convention which may be applied in the circumstances when the parties did
not choose the national law to be applicable in their contract.

464
This lecture endeavours on imparting general understanding of the international
contracts as well as the international laws which govern the international
contractual transactions. It also explores the trends and challenges related to
the enforcement of the international contracts in case there is breach by either
party. It is very important as far as understanding of the international laws and
contractual transactions are concerned.

International Contracts

International contracts are contracts which have been entered between the
parties of different countries. Nationals of the different states enter the
agreements for the particular commercial or business transactions. What make
the contract international are the nationalities of the parties to the contract. If
the parties are of different nationalities, their contract may be international. In
short, international contracts are cross borders contractual relationships.

In other words, international contract refers to a legally binding agreement

between parties, based in different countries, in which they are obligated to do
or not do certain things. International contracts may be written in a formal way.
Most businesses create contracts in writing to make the terms of agreement
clear, often seeking legal counsel when drawing important contracts.

What makes contract international

A contractual transaction will qualify to be international if elements of more than

one country are involved. Hence the contract may be considered international
if the parties are based, or hold significant assets, in different jurisdictions, or if
any of the parties' obligations are to be performed in different jurisdictions.

465
In the case of Arbitral Award - 00-00-2003 in the ICC International Court of
Arbitration 12174540, there was a dispute concerning a series of business
transactions one of the questions to be decided was whether the arbitral
proceedings was of an international or domestic nature.

The applicable law was Turkish law but the Arbitral Tribunal also referred to the
UNIDROIT Principles – namely to Comment 1 to the Preamble favouring a broad
interpretation of the notion of “international contracts” – in support of its finding
that in the case at hand the arbitral proceedings was to be considered of an
international nature.

In the case number 57/166-57/165 of Ukraine determined by Kyiv Commercial

Court of Appeal on 16-06-2011541, there was sales contract between two
Ukrainian companies

Claimant, a Ukrainian company entered into two contracts with Respondent,

another Ukrainian company, for the purchase of a certain quantity of malt (the
“Agreements”). Subsequently, Claimant asked Respondent to agree to
terminate the Agreements, alleging that due to negative developments of the
beer market and the consequent reduction of the malt price the performance
of the Agreement would cause it significant losses. Since Respondent did not
react, Claimant filed a suit seeking termination of the Agreements due to a
substantial change of circumstances.

The Court of First Instance rejected Claimant’s claim. The Court stated that
although Claimant had invoked in support of its claim the UNIDROIT Principles of

540E. Jolivet, L'harmonisation du droit OHADA des contrats: l'influence des Principes d'UNIDROIT
en matière de pratique contractuelle et d'arbitrage, in Unifrom Law Review, p. 127 et seq. (p.136
fn 24)}}
541 Original in Ukrainian available at the Unified State Register of Court Decisions:

http://www.reyestr.court.gov.ua/
466
International Commercial Contracts, they are not applicable to the dispute at
hand, since according to the Preamble they establish general rules for
international commercial contracts, while the Agreements were concluded
between two nationals of Ukraine. As a consequence, the Court based its
arguments only on Ukrainian law, in particular on Article 652 of the Civil Code of
Ukraine, on the change or termination of the contract due to a substantial
change of circumstances and concluded that the circumstances presented by
Claimant failed to satisfy the standard set therein.

The Court of Appeal rejected the appeal and reiterated the preceding Court’s
arguments regarding the inapplicability of the UNIDROIT Principles in the case at
hand as the Agreements were concluded between two Ukrainian nationals.

Contracts in International Transactions

The absence of a contract continues to be a regrettably common state of

affairs. Companies, believing them to be protected by a long-term commercial
relationship based on mutual trust, make no provision for a written statement of
each party’s obligations.

The contract may be incomplete or imprecise; in other words, one or more

essential clauses relating to matters such as payment deadlines and methods,
the applicable law or the court of jurisdiction may have been omitted.

Whether there is no contract or an incomplete contract, the consequences can

be very serious, possibly even compromising commercial relations between the
parties as well as having significant financial consequences.

Hence, contracts cannot be neglected in international transactions. This is

because contracts are essential means of guaranteeing compliance with
obligations and ensuring acceptance of them by both parties.

467
Considerations on Entering and Drafting the International Contracts

International contracts will require consideration of further issues in addition to

general commercial contract considerations. For instance, the parties should
consider:

a) Choice of Jurisdiction

Agreeing the chosen jurisdiction for resolution of any disputes under the
contract and including a specific jurisdiction clause in the agreement.

b) Choice of law

Parties to a contract are generally free to choose the law applicable to the
contract between them and that law will govern any disputes. If the parties fail
to choose a law or choose one which is prohibited, the applicable law is
determined in accordance with the relevant directive, convention or common
law rules.

Hence, the parties to the international contract have choose he governing law,
also known as applicable law to be used for resolution of any disputes under the
contract and whether to make specific provision for this in the agreement. The
choice of the applicable law should be based on looking at the pros and cons
of the applicable law to be chosen before choice of the said governing law.

c) Legal Regime

The parties to the contract with international element therein must consider the
legal regimes for determining the applicable law where the parties fail to reach
a valid agreement. For instance, the Rome Convention is applicable in legal
regimes determination.

The Rome Convention is used to determine the law applicable to contractual

obligations; also called the governing law. The Rome Convention provides that
468
any law specified by the convention by applied whether or not it is the law of a
contracting state, so that Japanese law for example, may, under the rules in the
convention, apply to the contract.

d) Potential Impact

The parties to the international contract ought not to neglect the potential
impact of the broader international landscape. By way of example, when a
Member State of the EU exits the Eurozone and abandons the Euro, can
creditors insist on payment in Euro from debtors resident in the exiting state? Or
are such creditors left with a claim for payment in the new (rapidly devaluing)
currency?

e) The Formalities

The parties have to determine and agree on the relevant formalities for
executing the agreement, which may involve notarisation and legalisation
depending on the relevant legal regimes involved.

f) Type of Contractual Arrangements

The parties to the contract should not forsake considering the particular type of
arrangement in question and the additional issues that require consideration
when entering such transaction in a multi-jurisdictional context.

g) Transport

Responsibility for arranging the carriage of goods should be specified in an

international contract for sale and purchase and will be provided by one or a
number of modes of transportation: sea, air, land or a combination. Each mode
of transportation is regulated by international transport conventions enacted
into national law, setting out the rights and obligations between the buyer, seller
and carrier.

469
For instance, the major conventions relating to the international carriage of
goods by sea are: The Hague Rules, Hague-Visby Rules and SDR Protocol
scheduled to the Carriage of Goods by Sea Act 1971.

h) Insurance

Insurance is important in international contracts as there is greater risk that the

goods will be lost or damaged in transit. Insurance is a specialist area and it may
be appropriate to consult your insurance broker to discuss the required cover.

i) Security

Cross-border transactions may involve a string of guarantees and indemnities.

For instance, the buyer may require a guarantee for obligations owed by the
seller under the contract. A performance bond, also called a performance
guarantee, is a bond issued by a bank whereby the bank assumes the
obligations to a buyer or other beneficiary analogous to those assumed by a
confirming bank to the seller under a documentary credit.

International Contract Law

Parties sometimes conclude an international agreement without including a

choice of law. If no general conditions apply, the law applicable to the
agreement is determined on the basis of international treaties

(a) United Nations Convention on Contracts for the International Sale of

Goods (CISG) of 1980.

470
The United Nations Convention on Contracts for the International Sale of Goods
is a treaty that is a uniform international sales law.542 It has been ratified by 90
states that account for a significant proportion of world trade, making it one of
the most successful international uniform laws. The Democratic People's
Republic of Korea was the most recent state to adopt the Convention, having
acceded to it on 27 March 2019.

The CISG was developed by the United Nations Commission on International

Trade Law (UNCITRAL), and was signed in Vienna in 1980. The CISG is sometimes
referred to as the Vienna Convention (but is not to be confused with other
treaties signed in Vienna). It came into force as a multilateral treaty on 1
January 1988, after being ratified by 11 countries 543.

The purpose of the CISG is to provide a regime for contracts for the international
sale of goods. The Convention is developed to promote commercial exchanges
between private parties. In history, merchants developed their own sort of
international contract law. Traders wanted to deal despite differences in
languages, culture and laws developed their own code for international
transactions. These rules have evolved into the contract laws of today.

The CISG has been regarded as a success for the UNCITRAL, as the Convention
has been accepted by states from every geographical region, every stage of
economic development and every major legal, social and economic system. It
arranges the law on contracts and any disputes that may arise. The Vienna
Sales Convention is seller-friendly. For instance, the Convention includes an

542 United Nations Convention on Contracts for the International Sale of Goods, Vienna, 11 April
1980, S. Treaty Document Number 98-9 (1984), UN Document Number A/CONF 97/19, 1489 UNTS
3
543 Argentina, China, Egypt, France, Hungary, Italy, Lesotho, Syria, the United States, Yugoslavia,

and Zambia
471
obligation for the purchaser to investigate, with a short time limit for lodging a
complaint.

(b) UNDROIT principles

UNIDROIT is International Institute for the Unification of Private Law. It is an

intergovernmental organization on harmonization of private international law; its
projects include drafting of international conventions and production of model
laws. As of 2018 UNIDROIT has 63 member states.

The UNIDROIT Principles are the principles set forth general rules for international
commercial contracts. They establish general rules applicable to commercial
contracts. They shall apply when the parties have agreed that their contract be
governed by them. They also may be applied when the Parties have not chosen
any law to govern their contract. In other cases they may be used to interpret or
supplement domestic law.

They shall be applied when the parties have agreed that their contract be
governed by them. They may be applied when the parties have agreed that
their contract be governed by general principles of law, the lex mercatoria 544 or
the like. They may be applied when the parties have not chosen any law to
govern their contract. They may be used to interpret or supplement international
uniform law instruments. They may be used to interpret or supplement domestic
law. They may serve as a model for national and international legislators.

In the case of Bottling Companies v Pepsi Cola Panamericana545, the case

concerned a contract between two Venezuelan companies which stipulated

544 The lex mercatoria has been described as “a synthesis of generally held and generally
accepted commercial principles that may be expected to be applied to contracts among the
major trading nations.
545 09-10-1997, Supreme Court of Venezuela

472
that any disputes which might arise should be submitted to arbitration in New
York under the ICC Arbitration Rules. When one of the parties invoked the
arbitration clause, the other party objected that it was invalid and insisted that
jurisdiction remained vested in the ordinary Venezuelan courts.

Confirming the decision of the Tribunal of Caracas, the Supreme Court of

Venezuela rejected the argument and upheld the validity of the arbitration
clause. Its decision was based on the 1958 New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards and on the 1975 Inter-
American Convention on Commercial Arbitration, both of which had been
ratified by Venezuela and expressly affirmed the binding nature of an
agreement whereby parties to an international commercial contract decide to
submit any dispute which might arise to arbitration.

While it was true that in the instant case the parties were both Venezuelan
companies, in the Court's view, the application of the two Conventions was
nevertheless justified as one of the companies was in fact a subsidiary of a
United States company. In support of this broad interpretation of the concept of
international contract in accordance with Article 1 of the 1975 Inter-American
Convention on Commercial Arbitration, the Court referred, among others, to the
Preamble, Comment 1 of the UNIDROIT Principles, which states that "[…] the
concept of 'international' contracts should be given the broadest possible
interpretation, so as to ultimately exclude only those situations where no
international element at all is involved, i.e. where all the relevant elements of the
contract in question are connected with one country only."

In the case number 57/166-57/165 of Ukraine determined by Kyiv Commercial

Court of Appeal on 16-06-2011, there was sales contract between two Ukrainian
companies

473
Claimant, a Ukrainian company entered into two contracts with Respondent,
another Ukrainian company, for the purchase of a certain quantity of malt (the
“Agreements”). Subsequently, Claimant asked Respondent to agree to
terminate the Agreements, alleging that due to negative developments of the
beer market and the consequent reduction of the malt price the performance
of the Agreement would cause it significant losses. Since Respondent did not
react, Claimant filed a suit seeking termination of the Agreements due to a
substantial change of circumstances.

The Court of First Instance rejected Claimant’s claim. The Court stated that
although Claimant had invoked in support of its claim the UNIDROIT Principles of
International Commercial Contracts, they are not applicable to the dispute at
hand, since according to the Preamble they establish general rules for
international commercial contracts, while the Agreements were concluded
between two nationals of Ukraine. As a consequence, the Court based its
arguments only on Ukrainian law, in particular on Article 652 of the Civil Code of
Ukraine, on the change or termination of the contract due to a substantial
change of circumstances and concluded that the circumstances presented by
Claimant failed to satisfy the standard set therein.

The Court of Appeal rejected the appeal and reiterated the preceding Court’s
arguments regarding the inapplicability of the UNIDROIT Principles in the case at
hand as the Agreements were concluded between two Ukrainian nationals.

(c) The Hague Principles on Choice of Law in International Commercial

Contracts

This instrument was approved on 19 March 2015. It is the first non-binding

instrument sponsored by the Hague Conference on Private International Law. It
sets forth general principles concerning choice of law in international
commercial contracts. They affirm the principle of party autonomy with limited

474
exceptions. They may be used as a model for national, regional, supranational
or international instruments. They may be used to interpret, supplement and
develop rules of private international law. They may be applied by courts and
by arbitral tribunals.

(d) Incoterms

Incoterms are a set of rules which define the responsibilities of sellers and buyers
for the delivery of goods under sales contracts. Shippers worldwide use standard
trade definitions (called Incoterms) to spell out who’s responsible for the
shipping, insurance, and tariffs on an item; they’re commonly used in
international contracts and are protected by International Chamber of
Commerce copyright.

Incoterms significantly reduce misunderstandings among traders and thereby

minimize trade disputes and litigation. Familiarize yourself with Incoterms so you
can choose terms that will enable you to provide excellent customer service
and clearly define who is responsible for which charges.

In the specific area of delivery of goods, the International Chamber of

Commerce (ICC) has developed a set of rules governing trade terms that
describe the obligations of buyers and sellers and supplement any other rules
governing the contract. The terms are three letter combinations.

One example is FOB, standing for “Free on Board”, and the Incoterms rules
cover who bears the risks and obligations when the seller has contracted to
deliver goods in this way, namely “on board the vessel nominated by the buyer
at the named port of shipment or procures the goods already so delivered.” The
Incoterms come with instructions as to how parties can incorporate them in their
contracts. There have been many versions of the rules, and the most recent are
the Incoterms 2010.

475
In 2010, the two main categories of Incoterms were updated and are organized
by modes of transport. Used in international as well as in domestic contracts for
the first time, the new groups aimed to simplify the drafting of contracts and
more clearly stipulate the obligations of buyers and sellers

(e) Lex Mercatoria

Lex mercatoria refers to a body of oral, customary mercantile law which

developed in medieval Europe and was administered quite uniformly across
Europe by merchant judges, adjudicating disputes between merchants.

In the contemporary world, some scholars believe that there exists a modern lex
mercatoria, defined to include certain transnational trade usages and
commercial customs recognized internationally by the mercantile community.

In addition, lex mercatoria also extends to certain international conventions and

even national laws pertaining to international economic relations. International
commercial arbitration is frequently cited as a field in which the modern lex
mercatoria is operative.

The term lex mercatoria or law merchant is used to designate the concept of an
a-national body of legal rules and principles, which are developed primarily by
the international business community itself based on custom, industry practice,
and general principles of law that are applied in commercial arbitrations (
Commercial Arbitration, International ) in order to govern transactions between
private parties, as well as between private parties and States, in transborder
trade, commerce, and finance. It is a reaction to the increased complexities of
modern.

476
In case of the Champion546, it was held that lex mercatoria is a part of the
common law, unless it be altered or controlled by parliament or the municipal
courts.

Conclusion

Agreements are concluded in all shapes and sizes. In the case of cross-border
contractual arrangements in particular, it is vital to determine which law applies
to the agreement. It is also important to investigate whether general conditions
also apply, and if so, which set will prevail if several sets have been declared
applicable. It is vital to clearly lay down a choice of law and the applicability of
general conditions in the agreement, so that no disputes may arise about this in
the future.

Review Questions

1. International contracts are contracts which have been entered between

the parties of different countries. With aid of relevant authorities, discuss
the circumstances that makes contract international.
2. International contracts will require consideration of further issues in
addition to general commercial contract considerations. What the parties
to international contract should consider on entering and drafting the
international contracts.
3. There are various laws that may be applied in the international contract
disputes such as incoterms and lex marcatoria. Discuss the differences
between the incoterms and lex marcatoria.
4. Parties sometimes conclude an international agreement without including
a choice of law, in case there is dispute between them there several laws
which may be applied. What are the general laws that may be applied if

546 1874 U.S. Dist. LEXIS 134 ( E.D. Mich. 1874),

477
 the parties to international agreement have not chosen the specific law
to be applicable in their dispute?
5. What do you understand by the phrase international contracts? What is
the relevance of the international contracts in the modern commercial
arrangements?
6. Write short notes on the following
a. UNDROIT principles
b. United Nations Convention on Contracts for the International Sale of
Goods
c. The Hague Principles on Choice of Law in International Commercial
Contracts.

References

Bradgate, R., Commercial Law, 3rd Edition, Oxford University Press, United States,
(2005).

Brown, G. W., et al, Understanding Business and Personal Law, 9th Edition,
McGraw – Hill Inc. United States of America, (1993).

Cartwright, J., Contract Law: An Introduction to the English Law of Contract for
the Civil Lawyer, Hart Publishing (1656), (2013).

Guest A. G., and Sir Anson, W., Anson's Law of Contract, Thirtieth edition, Oxford
University Press, United Kingdom, (2016).

Hodgin, R. W., Law of Contract in East Africa, East African Literature Bureau,
Nairobi – Kenya, (1975).

Nditi, N. N., General Principles of Contract Law in East Africa, Dar es Salaam
University Press, Dar es Salaam- Tanzania, (2004).

478
Kopel, S., Guide to Business Law, Fifth Edition, Oxford University Press Higher
Education Division, United Kingdom, (2012)

479