Business Law Notes

NIT - BUSINESS LAW Notes LEVEL 6 AND 7 By: Advocate KISUKA FABIAN
INTRODUCTION TO LAW
What is Law?
There is no generally accepted definition of law, Different schools of law define it in different
ways. Some important definition of law are given below
a) Woodrow Wilson has defined law as ‘‘that portion of the established thought and habit
which has gained distinct and formal recognition in the shape of uniform laws, backed by
authority and power of Government.’’
b) According to Holland; ‘A law is the general rule of external human action enforced by a
sovereign political authority.’’
c) In the word of Salmond, ‘‘the law is the body of principals recognized and applied by the
state in the administration of justice.’’
Law may also be defined as the as the rule of human conduct recognized and applied by
the state in the administration of human conduct
NOTE; from the above definition we can notice the following point
i. Set of rules
Law is a set or body of rule. There rule may originate from customs, act of parliament
court cases or some other acceptable sources
ii. Guidance of human conduct
These rules are enforced for the guidance of the human conduct. Human being
follows these rules for their own safeguard
iii. Applicable to community
These rules apply to a specific community. This community may be a sovereign state
or a business community
iv. Enforcement
The law must be enforced. The enforcing agencies include police and court of law
Purpose of Law
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Each community or state has it is laws which regulate the mutual relations and
conduct of its members. These laws are enforced to ensure that the member of the
society may live or work together in an orderly and in peace manner. Thus the
purposes of law are
i. To regulate the conduct or behavior of the member of the society
ii. To provide justice to the member of the society
iii. To maintain the political and economic stability
iv. To protect the fundamental rights and freedom of the individuals
v. To maintain peace and security in the society
Classification of Law
Law may be classified in different ways. The main kinds of law are;
a. Public Law
Public law is the law that governs the relations between the state and its citizens. Public
law consists of constitution law, administrative law and criminal law. Constitution law
consists of rules which regulate the relationship between different organs of the state.
These organs of the state are Legislature, Judiciary and Executive.
Administrative law is the law which relates to the actual functioning of the executive
instrument of the government. Criminal law consist of wrong committed angriest the
state
b. Private Law
Private law is that part of law which is concerned with rights and duties of persons
towards persons. Private law consist of civil law .civil law is that law which govern the
relations of individuals among themselves. These include the law of contract, land law
the law of torts etc,
c. Procedural Law
Procedural law consist of the rules which determine the manner in which the court
proceeding are required to be conducted. These law guides how a right provided under
substantive law can be obtained
d. Substantive law
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Substantive laws are laws which provides for the rights of individual. These law define
criminal and civil wrong and provide remedies for the offence
e. International Law
International laws are laws which regulate the relations between the states. International laws
can be classified into public international law and private international law. Public
international law consist of rules which regulate the relations between states eg treaties,
convections. The dispute between states can be settled by the International Court of Justice.
Private international law on the other hand is law which regulate the relation between citizens
of different nations. Private law determine which national law govern a case of a foreign
element.
SOURCES OF LAW
Like any other law .business law in Tanzania has got several sources as shown herein under
(a) Constitution of the United Republic of Tanzania
Constitution is the supreme law of the land that sets the pillars of the government
meaning the Executive, the Judiciary and the parliament. It also defines the relationship
between the state and its citizens in term of rights and obligations. Being the supreme law
of the land, each and every law is to drive its validity from the constitution no law is valid
if it is contravenes the constitution.
The Constitution is a basic law of the land. It does not necessarily have directly to relate
to business law but it lays down the general and basic legal framework and standards
within which other arms or organs of the state must operate. It establishes the legislature
that is responsible for making laws, the executive and its powers and the judiciary which
interpret law and in a way make law as it will be seen shortly. Article 64(1) vests
legislative powers in relation to all union matters and also in relation to all other matters
concerning mainland Tanzania in the Parliament. Legislative powers in Tanzania
Zanzibar for over all matters which are not union matters are vested in the House of
Representatives by article 64(2) of the Constitution of URT.
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In addition to laying down of the basic state structure the constitution also contains
specific provisions which are relevant to business law. These include duty of every
individual and state organizations to abide by the laws of the land. Article 26(1) provides
that every person has the duty to observe and to abide by this Constitution and the laws of
the United Republic of Tanzania, Article 26(2) provides further that every person has the
right, in accordance with the procedure provided by law, to take legal action to ensure the
protection of this Constitution and the laws of the land. Also article 24(1) provides for
the right of every individual to own property and to the protection of his lawful. Article
24(2) prohibits deprivation of one's property for any purpose except in accordance to the
law which provides for the procedure for fair and adequate compensation.
Moreover article 23 provides for the right of every individual without discrimination of
any kind to just remuneration commensurate with his work and in accordance with one's
ability, measure and qualification for the work. This right is provides alongside the right
to work which is provided for by article 22 of the Constitution.
More importantly is a supreme law of any country from which other laws whether written
or unwritten derive their validity. This means that, no law is valid if it contravenes the
provisions of the constitution. This principle is not vivid under the Constitution of the
United Republic of Tanzania of 1977 but it is a worldwide principle of constitutional law.
The principle has also been included in the first draft Constitution of the URT of 2013
under article 24(3).
(b) Statutes
Statutes are pieces of legislation enacted by the parliament or under it is authority through
delegated re powers. Statutes enacted by the parliament are known as principal legislation
while those enacted through delegated powers are known as subsidiary legislation. Both
principal and subsidiary legislation are good sources of law. A good example of these
statutes are the law of contract Act Cap 345 RE 2002, the sale of goods Act.
Statutes are those pieces of legislation which are enacted or made under the authority
of Parliament. Each law that is made by the Parliament is codified into a single
document know as a statute or an Act of Parliament. These are legislations passed by
the Parliament since independence to-date. Examples include Law of Contract Act,
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Cap.345 2002 R.E; The Companies Act Cap 212 2002 R.E, The Age of Majority Act
Cap. 33 2002 R.E Tanganyika Rev Laws, Cap.431 (Supply.1960) In Zanzibar, it is
the Contract Decree, Cap. 149 Rev Edition 1959. It should be noted that this Decree
also incorporates the Sale of Goods law.
The enactment of a statute or an Act of Parliament takes a long process including
preparation of a Bill which has to be tabled before the National Assembly. Once
submitted the members of Parliament will discuss it. It may be tabled to the National
Assembly three times before it is passed and once passed it does not become a law until it
is assented to by the other party of the Parliament that is the President. After the President
assents to it for it to be operational it must be gazetted by the Minister responsible in the
Government Gazette whereas the Minister will state the effective date of the said statute.
For example the Employment and Labour Relations Act, no 6 of 2004 was passed by the
National Assembly in 2004 but became operational in December 2006. The legislative
procedure of Acts of Parliament is briefly elaborated under article 97 of the Constitution
of URT as follows:
a) Legislative Procedure of a Statute
(i) Subject to the provisions contained in this Constitution, the Parliament shall exercise
its legislative power through the process of debating and passing Bills which eventually
shall have to be assented to by the President, and a Bill shall not become law unless it is
so passed by the National Assembly and assented to by the President in accordance with
the provisions of this Article.
(ii) After a Bill is presented to the President for his assent, the President may either assent
to the Bill or withhold his assent, and in the event the President withholds his assent to a
Bill, he shall return it to the National Assembly together with a statement of his reasons
for withholding his assent to the Bill.
(iii) After a Bill is returned to the National Assembly pursuant to the provisions of this
Article, it shall not be presented again to the President for his assent before the expiration
of six months since it was so returned, except if at the last stage in the National Assembly
before it is again presented to the President, it is supported by the votes of not less than
two-thirds of all the Members of Parliament.
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(iv) If a Bill is returned to the National Assembly the President, and it is then supported
in the National Assembly by not less than two-thirds of all Members of Parliament as
provided in sub article (3) and it is presented a second time to the President for assent
within six months of its being so returned, then the President shall be obliged to assent to
the Bill within twenty-one days of its being presented to him, otherwise he shall have to
dissolve Parliament.
(v) The provisions of this Article or Article 64 of this Constitution 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.
Section 4 of the Interpretation of Laws Act Cap. 1 2002 R.E defines the term 'Act' which
is the same as Statute or legislation as follows:
"Act" when used with reference to legislation means any Act, Decree or Ordinance
passed by the Parliament of the United Republic or, as the case may be, the House of
Representatives of Zanzibar, or by any Council previously having authority or power to
pass laws in Tanzania or, as the case may be, Zanzibar, such Act,
Decree or Ordinance having been assented to by or on behalf of the President or other
proper legislative authority but does not include an Act of the Community'
(b) Delegated Legislation Article 97(5) of the Constitution of the URT which is part of
the quotation in ‘Legislative Procedure of a Statute’ above provides as follows:
The provisions of this Article or Article 64 of this Constitution 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.
The essence of this sub article is to allow the Parliament to confer legislative powers on
some persons or department of Government to make regulations which have force of law
just as any other Act of Parliament which has been made through a procedure described
above. For the Parliament to do so (that is to delegate its legislative powers) it must pass
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an Act of Parliament (also known as a Parent Act or Principal legislation) with a

provision for such regulation.
Laws made under such a procedure are known as delegated legislation or subsidiary
legislation. For subsidiary legislation to be legally acceptable they must cover only a part
or apply to a specific area mentioned in the Principal legislation to be regulated by the
relevant subsidiary legislation. The regulation must also be made by the authority
specifically mentioned in the Parent Act and nothing else. Failure to comply with this
principle the other authority purporting to make such a subsidiary legislation will be said
to be acting ultra vires (that is outside or beyond its powers). The subsidiary legislation
purportedly made by the authority acting ultra vires is null and void and therefore has no
any legal force. However for practical purposes an interested party who is negatively
affected by the subsidiary legislation so illegally made must apply to the court so that
such a delegated legislation may be declared by a competent court as void. Finally the
delegated legislation must be consistent with the Parent Act in its totality and the
enabling provision failure of which it shall be void to the extent of inconsistency.
Section 4 of the Interpretation of Laws Act Cap 1 2002 R.E define subsidiary legislation
as 'any order, proclamation, rule, rule of court, regulation, notice, by-law or instrument
made under any Act or other lawful authority'. In practice, powers to make delegated
legislation are delegated to Ministers, Local Government Authorities such as town and
municipal Councils, Heads of Departments and other public bodies such as the President
or the Chief Justice.
There are factors which necessitate delegating the legislative powers of the Parliament to
other bodies or persons. These include: limited time of the Parliament, lack of technical
expertise on some issues by parliamentarians, emergency situations which require urgent
interventions, administrative convenience and sometimes political strategies. Delegated
legislation being a special mechanism of making laws, a function which is ordinarily of a
legislature (Parliament) suffers from certain setbacks. These include: undemocratic
making of laws since they are made by persons and authorities that are not democratically
elected, lack of popularity to the community since they are made without sufficient
publicity as their counterparts (Acts of Parliament) and the fact that they are in sheer
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volume and hence it is practically impossible for the public to keep abreast of all of the
delegated legislation and hence leading to complexity in understanding and using them.
(c) Precedents
Precedents are judgments or decisions of court of law cited as authority for deciding
similar sets of fact because of the legal principal embodied in them. The doctrine
propound that each court in the judicial hierarchy is bound by the principles established
by prior decisions of court above it in the hierarchy
Case Law, This is law laid down in course of deciding cases at the level of High Court or
Court of Appeal. It is obtained on interpreting a statute or other precedents. It is binding
like a statutory law; but it is always repealed by an enactment of the Parliament or by a
decision of a superior court expressly or impliedly. It is found in law reports like,
Tanzania Law Report (TLR), Law Report of Tanzania (LRT); and the High Court
Digests.
Case law as a source of business law should be understood as part of colonial legacy in
the former colonies of Britain including Tanzania. When we were discussing the
development of common law in the courts in England we mentioned about the system of
judicial precedent whereby courts decide case before them with references to previous
decisions technically known as ratio decidend or principles of law established in a
particular case.
As it was observed above, the function of the judiciary is to interpret the legislation or
law generally. In the course of interpreting laws and by applying different methods of
statutory interpretation judges make law. This is because judges are endowed with the
power and skills of attaching special meaning to certain provisions of the statute than any
other person would do. This is carefully done within the confines of judicial internal
controls such as a right of appeal of litigants, judicial review and revision as well as
established rules of statutory interpretation. Because of these internal controls judges do
not enjoy unlimited freedom in attaching meaning to statutory provisions.
Case law is based on the common law principle of the doctrine of judicial precedent. By
the doctrine of judicial precedent (also known as Stare Decisis) lower (subordinate)
courts are obliged to follow principles established in decisions of judgements made by
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higher courts (courts of record) when deciding cases of a similar nature to that decided by
the higher court. The lower courts are required to make their decisions in conformity with
the principles (ratio decidend) established by the higher court. Ratio decidend can be
defined as a principle or principles of laws applied by the court to the facts of the case in
order to reach its decision. A ratio decidend must be understood in the context of three
factors:
A statement of the material (relevant) facts of the case. These are important for
comparison purposes in order to determine whether the circumstances of a present case
and those of the former are similar or different.
An account of the way in which the decision was reached, for instance, the cases and the
statutes that were referred to as judicial precedent (authority), their analysis and
application to the facts. This looks at the reasoning of the judge.
The decision of the judge resolving the case.
It is such a basis of the decision which relates to the material facts before the court rather
than the final determination of a case which is important in future cases. Remarks which
the judges may make in presumption of non existing facts are only persuasive in future
relevant cases (i.e. where presumed facts in a former case exist in a future case. Such
comments not based on relevant present facts are known as obiter dictum (obiter dicta for
plural).
However, the doctrine of precedent operates within some specific rules. For example in
Tanzania, the decisions of the Court of Appeal are principally and generally binding on
itself. The Court of Appeal can only depart from its own previous decision if the decision
was decided per incuriam (that is in forgetfulness or ignorance of the law). The Court of
Appeal must be sitting as a full bench for it to be able to depart from its previous
decision.
On the other hand, the decisions of the Court of Appeal are binding on High Court under
any circumstance unless and until a decision of the Court of Appeal is reversed by the
Court of Appeal itself as described above.
However, the High Court is not bound by its own previous decisions. In order to
understand this concept it is important to remember our discussion under the judicial
system above. The High Court of Tanzania which has jurisdiction over Tanzanian
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Mainland is just one but with different (about 13 at the time of writing) registries
scattered all over the country. Thus a decision made by one high or more judges sitting in
one of the registries or centre of the High Court is not binding on other judges of the High
Court. Yet the decisions of High Court are binding on lower courts, that is, RM's Courts,
District Courts and Primary Courts.
From the above explanation, it is clear, that there is a possibility of having conflicting
decisions existing for a number of years in the high Court. This is because High Court
judges are allowed under the doctrine of precedent to make conflicting decisions since
the decisions of the High Court are not binding on itself as does the decisions of the
Court of Appeal. Also it should be noted that under normal circumstances cases decided
by lower courts go to the higher court such as from the High Court to the Court of Appeal
by way of an appeal. If no such appeal is preferred by the parties to the case, the position
of the high court may remain as part of case law for so long. In such state of affairs as the
one described above, the lower courts (subordinate courts) will be bound not to make
decisions against all of the positions existing in the high Court. That is to say, subordinate
courts have option to follow either of the position of the High Court but not to ignore all
of them all together.
The Doctrine of Precedent, The doctrine is also known by a latin word 'Stare decisis'
meaning let the decision stand. It is the policy of courts to abide by or adhere to
principles established by decisions in earlier cases. This system distinguishes the
common law system from the civil law system (considered below) in that under the
common law system courts have traditionally adhered to the precedents of earlier cases as
sources of law (through case law). The common law system gives great weight to codes
of laws and the opinions of scholars (judges) explaining them. Under stare decisis, once a
court has answered a question, the same question in other (future) cases must elicit the
same response from the same court or lower courts in that jurisdiction. Thus through the
doctrines of precedent it becomes possible especially for lawyers to predict the outcome
of a case beforehand which is also one of the principles of rule of law.
Originally the doctrine of stare decisis was not always applied with uniform strictness. In
medieval England, common-law courts looked to earlier cases for guidance, but they
could reject those they considered bad law. Courts also placed less than complete reliance
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on prior decisions because there was a lack of reliable written reports of cases. Official
reports of cases heard in various courts began to appear in the United States in the early
1800s, but semi-official reports were not produced in England until 1865. When
published reports became available, lawyers and judges finally had direct access to cases
and could more accurately interpret prior decisions. For stare decisis to be effective, each
jurisdiction must have one highest court to declare what the law is in a precedent-setting
case. For the case of Tanzania the Court of Appeal and the High Court serve as
precedential bodies, resolving conflicting interpretations of law or dealing with issues of
first instances or impressions. Whatever these courts decide becomes judicial precedent
that is law in a particular jurisdiction under the same judicial hierarchy.
Therefore under the common law system, courts seek to follow precedent whenever
possible, seeking to maintain stability and continuity in the law. Devotion to the doctrine
of precedent or stare decisis is considered a mark of judicial restraint, limiting a judge's
ability to determine the outcome of a case in a way that he or she might choose if it were
a matter of first impression.
Precedents are of two types. There are binding precedents and persuasive precedents. By
a binding precedent it means courts are obliged to follow them in appropriate cases
whereas for a persuasive precedent courts can only be persuaded by them.
Binding precedents: in the case of Tanzania these are the decisions of the courts of
record. The courts of record are the Court of Appeal and the High Court. The High Court
and the subordinate courts are bound to follow decisions of the Court of Appeal. The
High Courts and the Subordinate courts will however not be bound to follow the decision
of the Court of Appeal which have been overruled in a latter case by the Court of Appeal
itself.
Persuasive Precedents: these are generally decisions which are not of the higher Court
from the same judicial hierarchy. In the case of Tanzania we could say they are decisions
which are not of the High Court or the Court of Appeal in respect of the subordinate
courts or not of the Court of Appeal in respect of the High Court. Traditionally, they are
the decisions of the foreign courts which follow the common law system, which would
especially be persuasive if they were dealing with the interpretation of a statute or
addressing a question similar to a local statute or issue before the judges. A persuasive
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precedent may also arise from an obiter dictum (explained above). These are statements
of law made by a judge when giving judgement which are not relevant to the issue before
the court. For example a judge may presume facts which when existent in a latter case,
the statement made by a judge in an earlier case in connection with such facts may be
considered a persuasive precedent.
However in practice, the Court of Appeal will consider decisions of the High Court as
persuasive or decisions not from common law system are more than often also considered
as persuasive.
Writings of prominent lawyer or experts

These are authoritative works written by legal experts in this field of law. They interpret
the law putting it in the correct perspective. Because of this function, courts refer to them
when seeking an interpretation on certain areas of law;
(d) Common Law

Common law briefly means un enacted part of England law which evolved from English
customs and practice. Under common law the sole source of the rights and obligations
between the contracting parties is the contract. In Tanzania common law applies where
there is a lacuna in our law meaning where our legislations are silent
(e) International Convention
An international convention takes the form of conventions and recommendations. When a
member state ratifies a convention it become subject to the legally binding international
obligation
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THE COURT SYSTEM IN TANZANIA
In 1964 Tanganyika and Zanzibar formed the united republic of Tanzania. After the treat on the
union the two countries continued to remain with their own legal system including court
structure’
In Tanzania mainland the court structure is as follows
(a) Primary Court

Primary courts were established under by section 3 of the magistrate court Act. Every
district has a primary court. The jurisdiction of a primary court is within the district they
established
The composition of a primary court usually a magistrate sits with not less than two
assessors when hearing the case. Assessors give an opinion in the final determination
which is binding on the magistrate
(b) District Court
District courts were established under section 4 of the magistrate court Act. The
jurisdiction of district court is within the district it is established. They also have power to
try all criminal offence covered under the penal code
Composition of district court is usually presided over y a single magistrate when hearing
cases
(c) Resident Magistrate Court
Resident magistrate courts are established under section 4 of the magistrate court Act.
The powers of this court are similar to those of district court except where stated
otherwise. In civil matter the court has wider jurisdiction than the district court. In
practice the territorial jurisdiction of a resident magistrates court is within the region it is
established
Composition of resident magistrate is usual composed of a single magistrate there are 2
assessors
(d)High Court of Tanzania
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High court of Tanzania was established under article108 0of the constitution of Tanzania.
The territorial jurisdiction of the high court is limited to Tanzania mainland. The term
territorial extend to vessels and aircraft registered in Tanzania and the premise of a
Tanzania embassy abroad. The high court also is the court of first instance for offence
like murder and treason. Is also has power to hear appeal review and revision
Composition of the High Court.
Usually a judge sit with assessors whose opinion are not biding
(e) Court of Appeal

The court of appeal is the highest and final court appellate court in Tanzania. The court
has jurisdiction both in Tanzania mainland and Zanzibar .However the court has no
jurisdiction to hear appeal from Zanzibar originating from kadhi court
The court of appeal also has revision power over the decision of the high court.
Judicial System of the Revolutionary Government of Zanzibar

The High Court of Zanzibar has exclusive original jurisdiction for all matters in
Zanzibar, as is the case for the High Court on mainland Tanzania. The Zanzibar court
system is quite similar to the Tanzania mainland system, except that Zanzibar retains
Islamic courts. These adjudicate Muslim family cases such as divorces, child custody and
inheritance. All other appeals from the High Court of Zanzibar go to the Court of Appeal
of Tanzania. Diagram : Structure of the Zanzibar legal system
The structure of the Zanzibar legal system is as follows:

1. Court of Appeal of Tanzania
The Court of Appeal of Tanzania handles matters from the High Court of Zanzibar
except those involving Islamic law.
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2. High Court
The High Court of Zanzibar is structured with the same structure as the High Court
of Tanzania Mainland and it handles all appeals from the lower subordinate courts.
3. Magistrate’s Court
These Courts have jurisdiction to entertain cases of different nature, except for cases
under Islamic law, which they have no jurisdiction to try which are tried in the
Kadhi’s courts.
4. Kadhi’s Appeal Court

The main role of the Kadhi’s Appeal Court of Zanzibar is to hear all appeals from the
Kadhi’s court, which adjudicates on Islamic law.
5. Kadhi’s Courts
These are the lowest courts in Zanzibar which adjudicate all Islamic family matters such
as divorce, distribution of matrimonial assets, custody of children and inheritance but
only with Muslim families.
6. Primary Courts
These have the same rank as the Kadhi’s Courts and they deal with criminal and civil
cases of customary nature.
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ETHICAL DIMENSIONS OF BUSINESS

LAW
(i). Law of contract
Introduction:
The law of contract is a foundation upon which the superstructure of

modern business is built. In business transactions quite often
promises are made at one time and performance follows later. It
follows therefore that the law of contract lays down the legal rules
relating to promises, their formation, their performance and their
enforceability.
Law of contract defined:
Law of Contract may be defined as:-
A set of rules made by the people themselves to govern their contract relations.
An authority, say parliament, may have made rules to provide for general
principles/guidelines to give the scope and limits within which private persons
may make their own rules;
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Sources of Contract Law

- Law of Contract Act, [L.C.A] 1961 Cap. 345 closely
follows the Indian Contract Act 1872
- Common law, principles of equity and statutes of
general application
- Customary law
- Courts – judge - made law - precedent
CLASSIFICATION OF CONTRACTS
There are several classifications:
1. Oral and written contracts:

Oral: Made by word of mouth
Written: Terms are put into writing.
2. Executed and executory

Executed: When one or both of the parties have done all that
the contract requires
Executory: when the obligations of one or both of the parties

remain to be carried out.
3. Specialty and simple contracts

Specialty contracts: Also called contracts under seal or
deeds. All terms of these contracts are reduced into writing
and then the contract is signed, sealed, attested. (witnessed
and delivered.
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Simple contracts: Sometimes called parole contracts. This

includes all contracts not under seal and for their
enforcement they require consideration. They may be made
orally or in writing, or they may be inferred from the conduct
of the parties. There must be an offer and acceptance.
4. Unenforceable, voidable, void and illegal contracts

This is a classification of contracts with regard to their status
owing to their respective defects.
(this will be clarified clearly later)
THE FORMATION OF CONTRACT
Basic concepts
Promise, Agreement, Contract
Promise: Offer + Acceptance. s. 2(1) (b) L.C.A.
Agreement: Promise or set of promises forming consideration for
each other. S. 2(1) (e) L.C.A.
Contract: An agreement enforceable by law. S. 2(1)(h) L.C.A.
Essentials of a Contract:
To be enforceable by law an agreement must have the following
elements:
1. Parties
2. Offer and Acceptance
3. Lawful Object
4. Capacity
5. Intention to create treaty
6. Lawful consideration
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7. Free consent
NB: Some of these elements are enumerated under s. 10 of the

Law of Contract Act.
What is the effect of lack of either one or more of these

elements?
The effect is the formation of a defective contract namely void contract,
voidable contract, unenforceable agreement and illegal agreement.
Unenforceable contracts
An enforceable contract is valid in all respects except that it cannot be
enforced in a court of law by one or both of the parties should the
other refuse to carry out his obligations under it.
This is because the enforceability of these contracts is conditional

upon fulfillment of certain requirements. Thus failure to comply with
such conditions makes the contracts to be unenforceable. ss 2(1) (g)
and 2 (i) (j) L.C.A provides that unenforceable contracts are void but
s.2 (2) provides that there may be contracts which are unenforceable
but not void.
Illegal contracts
These are contracts whose object or consideration is unlawful or is
contrary to public policy. The effect of illegality is to render the
contract void. s.23 (2) L.C.A provides that every agreement which the
object/consideration is unlawful is void.
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Voidable contracts
These are agreements which are enforceable by law at the option of
one or more of the parties thereto, but not at the option of the other or
others.
A voidable contract is a contract with full legal force unless and until
one of the parties, who is entitled to bring it to an end does bring it to
an end.
The right to rescind the contract has got limitations, a party must
exercise his right within reasonable time otherwise estoppels may
apply; where the entitled party has taken a benefit under the contract
and he cannot return it then he may not avoid the contract; and where
the third parties have acquired right under it, the right to rescind
ends.
Void contracts
The term void connotes that the agreement is of no legal effect. A void
contract is an agreement which the court hold to be no contract at all,
a nullity from the beginning.
ss. 2(1) (g), 2(1)(j), 11 (2), 20, 23 (2), 24-30, 32, 35, 36, 56, 57 of the
Law of Contract Act, refer to void contracts.
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Rationale for treating certain contracts as unenforceable,

illegal, voidable or void
1. To limit enforceability of actions with a view to ensuring fair play

in contractual transactions.
2. To protect:
a) the proprietary interests of an owner of property.

No one can obtain better title than owners.
b) The proprietary interests of a bonafide purchaser for value without notice

of any defect in the seller’s title. Commercial transactions have to be protected.
PARTIES TO A CONTRACT
In every contract there must be two parties. These parties may be
natural persons or artificial persons. Natural persons are the
individuals. For instance Neema, Juma, Rose etc. Artificial persons are
persons created by law such as corporate bodies. For Example
companies, corporations and other 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.
OFFER/ PROPOSAL
An offer may simply be defined as a set of terms moving from one
party to another.
An offer or proposal is defined under s. 2(1)(a) of the Law of
Contract Act as a signification by one person to another of his
21
willingness to do or abstain from doing anything with a view of

obtaining the assent of that other to such act or abstinence. A
contract therefore is an agreement and it comes into existence
when one party makes an offer which the other accepts.
The person making the offer/proposal is called the offeror/
proposer and the person to whom it is made is called the offeree/
proposee.
Example: Suppose X says to Y “ I will sell you this watch for 5/=”
and Y says “I agree.” An express offer and acceptance have been
made; X is the offeror and Y is the offeree.
Characteristics of an offer
1. It must be made willingly: ie. The offeror must be willing to be
bound by the terms he has stated.
2. It must be clear and certain: ie. Clarity and certainty of an offer

are essential because the person to whom the offer is made
should be in a position to know what the offer is. If the terms of
the offer are not certain yet the offeree accepts the offer the
agreement reached will be treated by the law as no agreement at
all. Under s. 29 of the Law of Contract Act, agreements, the
meaning of which is not certain or capable of being made certain
are void.
3. Final Expression: an offer must be firm and final expression by

the offeror of his willingness to be bound should his offer be
accepted.
To whom can offer be made?

An offer can be made to specific persons or group of persons or to
the world at large.
22
In Carlill v. Carbolic Smoke Ball Co., (1893) 1 QB 256

The defendants were proprietors of a medical preparation called “the
carbolic smoke ball.” They inserted advertisements in various
newspapers in which they offered to pay £100 to any person who
contracted influenza after using the ball three times a day for two
weeks. They added that they had deposited £1000 at the Bank for
that purpose. The plaintiff, a lady, used the ball as advertised, and
was attacked by influenza during the course of treatment. She sued for
£100.
The Company raised the following defences to which the court held as
follows:
a) The company argued that the offer was too vague since no time
limit was stipulated in which the user was to contract influenza.
To this the court held: that it must have been the intention that
the ball would protect its user during the period of its use.
b) The Company suggested that the matter was an advertisement

“puff” and that there was no intention to create legal relations. To
this the court held: that the deposit of £1000 at the bank was
clear evidence of an intention to pay claims.
c) It was further suggested that this was an attempt to contract the

whole world and this was not possible in English law. To this the
court held: that the advertisement was an offer to the whole
world and that, by no analogy with the reward cases, it was
possible to make an offer of this kind.
d) The Company claimed that the plaintiff had not supplied

consideration. To this the court held: that using this inhalant
three times a day for three weeks or more was sufficient
consideration.
23
e) The defendant suggested that there had been no communication

of acceptance. To this the court held: that looking at reward
cases, contracts of this kind, acceptance may be by conduct.
Making of offers under various situations
Offer/proposal vs. Invitation to treat

Sometimes what looks like an offer may be no more than an
invitation to make an offer, or as it is sometimes called an
invitation to treat.
The invitation to treaty unlike proposal is not final, clear in expression
but merely an invitation to be bound in those terms. The inviter
process certain terms on which he is willing to negotiate.
He invites any person to make an offer which he may accept or reject.
Common cases for invitation to treat
(a) Where goods are displayed for sale: This is merely invitation to
treat even if they bear price tags in a self service shops/stores.
Re: Fisher v.Bell (1961) 1 Q.B. 398,

In this case Bell was charged with offering for sale a flick knife
in violation of the Restriction of Offensive Weapons Act, 1959,
the relevant provision which read in part “ any person who
manufactures, sells, or hires or offers for sale or lends or gives
to any person …a flick knife shall be guilty of an offence.”
The trial court decided that there had not been an “offer for sale”
of the flick knife. On appeal to the Queens Bench it was held
that in the absence of a definition of “offer for sale” in the Act,
24
the words were to be construed as they are in the law of

contract.
The court observed that it is clear that according to the ordinary

law of contract, the display of an article with a price on it in a
shop window is merely an invitation to treat. It is in no sense an
offer for sale the acceptance of which constitutes a contract.
Also see Pharmaceutical Society of Great Britain v. Boots Cash

Chemists
(Southern) Ltd. (1953) 1 QB 401
The defendants’ branch was adapted to the self service system.
Customers selected their purchases from shelves on which the
goods were displayed and put them into a wire basket supplied
by the defendants. They then took them to the cash desk where
they paid the price. In every case involving sale of a drug a
pharmacist supervised that part of transaction which took place
at the cash desk and was authorized by the defendant company
to prevent, if he thought fit, any customer from removing any
drug from the premises. One section of shelves was set out with
drugs included in the poisons list under the Pharmacy and
Poisons Act, 1933 which were required to be sold in the
presence of a qualified registered pharmacist. These drugs had
price tags.
The plaintiffs which was a body empowered to enforce that law

sued the defendants for infringing the provisions of the said law
by selling drugs in contravention of the laid down procedure.
25
The plaintiff Society argued that by their deliberately devised

self-service system, the defendant was making an offer to sell
and the customer accepted the offer when he picked an article
from the shelf and put it in the basket and the contract of sale
was concluded.
The court held that the self-service system did not amount to an
offer by the defendant company to sell but merely an invitation
to the customer to offer in case of a drug, to buy; that such an
offer was accepted at the cashier’s desk under the supervision of
the registered pharmacist; and that there was, therefore, no
infringement of the section.
(b) Advertisements: These are mere invitations to treat.
In Patridge v. Critendem (1968) 2ALLER 421

The appellant had placed an advertisement indicating that he
had certain wild birds for sale. The advertisement did specify the
price but gave no details about delivery or quantities available. It
was an offence to offer such birds for sale. In order to prove the
offence it was necessary to prove that the advertisement was an
offer.
The trial court was satisfied that the advertisement was an offer
and thus convicted the accused. On appeal it was argued that
the advertisement was not an offer but a mere invitation to treat
because, first, the advertisement was not sufficiently specific to
amount to an offer. Secondly the court said that it would not be
reasonable to think that the appellant was willing to be bound
by any and every acceptance made.
26
(c) Request for information: A request for information is an

In Harvey v. Facey (1893) AC 552
The appellant sent a telegram to the respondent asking “will you
sell us Bumper Hall Pen? (this was a piece of land) telegraph
lowest cash price, reply paid.” The respondent replied simply “
lowest price of Bumper Hall Pen £900.” The appellant then
purported to accept this offer. The respondent denied that his
reply was an offer. The Court held that no offer had been made
which the appellants could accept. The reason given by the
court for its decision is that the respondents did not reply to the
first part of the question “ will you sell us Bumper Hall Pen?”
Rather that the reply was limited to the second part of the
question “ telegraph the lowest cash price”
(d) Contracts by tender: In contracts by tender offers are made by

those tendering. The law is to the effect that where a person is
invited to tender under certain conditions and he complies then
he acquires a right to have his tender considered along with
other tenders. But it should be noted that a person who invited
tenders must accept the tender. The right is limited to the
tender being opened and considered. Thus this is a mere
(e) Auction sales: The Advertisement of an auction is an invitation

to treat. At an auction a bid is an offer, the auctioneers request
for bids is an invitation to treat. The sale is complete when the
hammer falls.
27
ACCEPTANCE
Once an offer is proved it must be satisfied that the offeree has
accepted the offer for there to be a contract. Thus the person who
accepts the offer must be aware that the offer has been made.
Under the Law of Contract Act s.2(1)(b) – Acceptance is defined as an

assent to the proposal by the person to whom it was made.
Acceptance must be firm and final: The signification of acceptance

must be a firm and final expression of assent to the terms of the
proposal as communicated by the offeror/proposer.
Conditional acceptance: An acceptance must be absolute and

unconditional. If the acceptance is qualified it ceases to be accepted
instead it becomes a counter offer to the original proposal. The original
proposal would be free to accept or reject the counter offer.
One form of conditional assent is an acceptance “ subject to contract.”

The law has placed a special significance on these words, and they are
always construed as meaning that the parties do not intend to be
bound until a formal contract is prepared.
In Winn v. Bull (1877) 7 Ch. D. 29

The defendant had entered into a written agreement with the plaintiff
for lease of a house, the term of the lease and the rent being agreed.
However, the written agreement was expressly made “ subject to the
preparation and approval of a formal contract.” It appeared that no
other contract was made between the parties. The plaintiff sued for
specific performance of the agreement.
28
It was held that the written agreement provided a memorandum under

law (s.4 of the Statute of Frauds, 1677) but there was no binding
contract between the parties because, although certain covenants are
normally implied into leases, it is also true that many and varied
express covenants are often agreed between the parties. That words “
subject to contract” indicated that the parties were still in a state of
negotiation and until they entered into a formal contract there was no
agreement which the court could enforce.
But there is a different position if the statement is qualified and the

terms of a proposed contract can be identified. In this case the court
will enforce it.
In Filsby v. Hounsel (1896) 2 Ch. 737

Property had been offered for sale by auction but had not been sold.
An offer was then made to buy the property, stating that if the offer
was accepted the purchaser would sign a contract “on the auction
particulars.” This offer was accepted “subject to contract as agreed.”
It was held that the parties were bound by a contract drafted on the
auction particulars, although they had not signed a formal contract.
Counter offer: A counter offer is a rejection of the original offer and in

some cases has the effect of canceling it. Where the counter offer
introduces a new term, the original offer is cancelled.
Hyde v. Wrench (1840) 3 Beav. 334

In this case the defendant offered to sell his farm at £1000 to the
plaintiff on June 6. The plaintiff’s agent immediately called on the
defendant and made an offer of £950 which the defendant wished to
have a few days to consider.
29
On June 27 the defendant wrote to say that he could not accept the
offer of £950 . On June 29 the plaintiff wrote “ accepting” the offer of
June 6. The defendant refused to sell his land to the plaintiff at £1000
The plaintiff filed a case asking the court to award an order of specific
performance. Ie.
To order the defendant to sell him the farm at £1000.
The court held that the plaintiff could not enforce this “acceptance”
because his counter offer of £950 was an implied rejection of the
original offer to sell at £1000 (of June 6). So when the plaintiff
purported to “accept” the June 6 offer, in fact there was no such offer.
Rules governing acceptance
To constitute acceptance the offeree’s signification of assent to the

proposal must:
(a) Be made in response to the offer
(b) Exactly match the terms of the offer

(c) The matching acceptance must be communicated to the
offeror.
Communication of Acceptance
Acceptance may be made in various ways. It may be made in
writing or orally, but it must in general be communicated and
communication must be made by a person authorized to make it.
In Powell v. Lee (1908) 99 L.T. 284
The defendants were managers of a school and wished to appoint a
headmaster. They passed a resolution appointing the plaintiff (Powell)
among other two applicants to be the headmaster but gave no
30
instruction that this decision was to be communicated to him. One of

the managers was instructed to inform one of the candidates (Parker)
that he had not been selected. This manager without authority also
informed Powell that he had been selected.
Later the matter was reopened and Parker was properly appointed. Lee
then informed the plaintiff that this appointment had been made. The
plaintiff sued the six managers for damages for breach of contract.
The court held that there was no contract because there was no
authorized communication of the intention to contract by the
managers. See also Felthouse v. Bindley (1862), 11 C.B. (N.S.) 869
Principally, acceptance must be communicated to the offeror. However,

it can also be communicated to an agent of the offeror who is
authorized to receive acceptance. Thus, where the authority given to
the agent is merely to transmit no acceptance is complete until it
reaches the principal.
However, there are some cases in which the offeror is deemed to have
waived communication of the acceptance. This most often occurs in
the case of unilateral contracts such as a promise to pay money in
return for some act to be carried out by the offeree. Performance of the
act operates as an acceptance, and no communication is required. Re.
Carlill v. Carbolic Smoke Ball Co. Ltd. (supra)
The mode of communication of acceptance

Under common law communication of acceptance is normally by post
either through a letter or a telegram. The main issue has always been
31
“when is communication of acceptance complete?” Due to this the

courts have developed the postal rule. The postal rule states that once
a mail is correctly addressed, a proper stamp put on it and put in right
hands of the postal officer, that is effective communication unless
expressly excluded by the offeror.
Therefore, on correctly posting the letter of acceptance both parties

become irrevocably bound. However the same rule applies to
acceptance by telegram. A better view is that under Common Law an
acceptance cannot be recalled once it has been posted even though it
has not reached the offeror.
Despite all this position, the offeror may signify the mode of
acceptance which is different from the use of post eg telex, email, fax
etc. But under common law sometimes the court may refuse to
recognize some modes of acceptance. For instance in Entores v. Miles
Far East Corporation (1955) 2Q.B. 327 the plaintiff a London company
and the defendants, an American Coreporation with agents in
Amsterdam made an offer by telex to the defendants’ agents who
accepted also by telex. When the dispute arose the Court of Appeal of
England held that the parties were in the same position as if they had
negotiated in each other’s presence, thus no binding contract was
created until the plaintiffs in London had received acceptance.
With regard to e-mail services, the European Union Parliament passed

a rule that a contract is formed when acceptance is confirmed.
Some important authorities on posting rule

Adam v. Lindsell (1818)
In this case it was held that where acceptance is communicated
by post a contract arises on the date when the letter of
acceptance is posted.
32
Household Fire and Accident Insurance Co. Ltd. v. Grant (1879)
Here it was held that “ an acceptance which only remains in the

breast of the acceptor without being actually and by legal
implication communicated to the offeror is no binding
acceptance… But if the post be treated as agent of both parties,
then as soon as the letter of acceptance is delivered to the post
office, the contract is made as complete and final and absolutely
binding as if the acceptor had put his letter into the hands of a
messenger sent by the offeror himself as his agent to deliver by
the offer and to receive the acceptance…”
Bryne v. Van Tienhoven (1880)
It was held that a contract is complete on posting letter of acceptance

even though the letter may not reach the offeror (its destination).
Henthorn v. Fraser (1892)
It was held that where circumstances are such that it must have
been within the contemplation of the parties that, according to
the ordinary usage of mankind, the post might be used as a means
of communicating the acceptance of an offer, the acceptance is
complete as soon as it is posted.
Communication of Acceptance under the L.C.A.

Mode of communication
There is no an express rule governing postal services under the Act
but the s.4(2) reads:
“Communication of an offer is complete:
33
(a) as against the proposer, when it is put in the course of

transmission to him so as to be out of the power of the acceptor.
(b) as against the acceptor, when it comes to the knowledge of the
proposer.”
Therefore, the parties are bound at different times. Unlike the position
under the Common Law in which after the acceptor has put the
acceptance into the mode of transmission both parties are irrevocably
bound. Thus under the Act, the rule is that where an acceptor posts
his letter of acceptance so that the letter is out of his power, then the
proposer is bound but not the acceptor himself. The acceptor is bound
when his acceptance comes to the knowledge of the proposer.
As far as the other modes such as telex, fax, and e-mail there is no
authority at the moment in Tanzania but the English authorities are
persuasive.
Revocation
Revocation means to withdraw or to recall. The offeror may revoke his
offer, but to be effective, this must be done before the acceptor has
parted with his acceptance. This is a position under both the Common
Law and the L.C.A. Thus under s.5 (1) An offer may be revoked at any
time before the communication of its acceptance is complete as
against the proposer but not afterwards.
In the same way under the L.C.A. the acceptor may revoke his
acceptance but also this must be done before his acceptance comes to
the knowledge of the offeror. Thus s.5 (2) provides that “an acceptance
may be revoked at any time before the completion of its
communication.” This position is not the same under the Common
34
Law where the rule is that once the acceptance has been duly posted it
cannot be revoked by a faster means because both parties are
irrevocably bound.
Thus for example under Common Law if X has posted an acceptance

to Y, he cannot withdraw the same by telephoning Y and asking him to
ignore the letter of acceptance when it arrives. And Y can hold X
bound by the contract if he wishes to do so.
If successful, the revocation has an effect of nullifying the offer (if

it is a revocation of an offer) or acceptance (if it is a revocation of
acceptance).
Note: -The L.C.A. position is more favourable to the acceptor than the
common law position as regards revocation.
- Revocation of an acceptance is not effective until its
communication is complete.
-Revocation discussed above is a revocation done by the

offeror sending a notice of revocation to the offeree. (S.6 (a)
Revocation of proposal / termination of an offer

Under the L.C.A there are many other circumstances in which a
proposal can be revoked. These are provided for under s. 6. These
include:
1. Revocation by notice: As discussed above

2. Lapse for want of acceptance
35
An offer may provide that it will remain open for a specified

period of time – This acceptance must be effected within times
limit. Where time is not indicated the offer must be accepted
within a reasonable time.
3. Death/insanity of the offeror

Death/insanity renders the offer to be incapable of acceptance.
Under the L.C.A this happens where the fact of death/insanity
is known to the acceptor before acceptance – S.6 (d). The law
seems to suggest that if the fact of death is not known to the
acceptor at the time of acceptance then he should be entitled to
accept the offer.
4. Failure of the acceptor to fulfill conditions:

This happens when the acceptor has failed to fulfill the
conditions precedent to acceptance.
Formation of an Agreement
Once an offer has been accepted a binding contract is formed:

Anson holds that an acceptance to an offer is what a lighted match is
to a raining of gunpowder; It produces something which cannot be
recalled or undone. In other words when the offer is accepted, both the
offer and acceptance are terminated / they come to an end and in
their place a contract comes to existence.
LAWFUL OBJECT
The object of the contract must be lawful or legal. An agreement in
which the object is unlawful is void. s.23 (2)
For instance the agreement to carry out an act which is forbidden by

public law is void.
36
The same applies to an agreement which is contrary to public policy.
CAPACITY 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.
Under s.11 of the L.C.A refers to competency. Thus minors, persons of

unsound mind, and person disqualified by law cannot qualify to make
contracts.
Factors Vitiating Capacity

There are factors which vitiates / negatives the capacity to contract.
These factors include age, soundness of mind and disqualification by
law.
Age
A minor or an infant is not competent to contract as a general rule.
(see s. 11(1). Minors or infants are persons who have not attained the
age of majority. The age of majority is mature age. Sometimes this age
is referred to as being the contractual age. The age of majority is
determined by laws, to which a particular person is subject.
Such an age therefore may differ from one country to another.
37
In Tanzania mainland the Age of Majority Act, Cap.431 and the Laws of
Zanzibar Cap.53, provide that the age of majority is 18 years.
In Kenya – Age of Majority Act 1974 – 18 years

In Uganda – Uganda Contract Act Cap.75 – 18 years
In England before 1969 – It was 21 years but The Family Law Reform
Act established 18 years.
Why is age competence important in contracts?
A person without capacity lacks intellectual maturity, lacks experience

to exercise sound judgment and as a result he may not know or
appreciate the effects of the agreement upon himself. Thus, since he
cannot protect himself then he needs the protection of the law.
Note: The protection by law in some cases is not absolute. There are
circumstances where the legal protection can be waived.
But despite the above legal position, the true fact remains that
minors / infants enter into agreements with majors every day.
How is the conflict resolved?

Two principle ideas are advanced concerning the law on minors /
infants.
1. That the law protects minors from their inexperience, hence to
invalidate agreements which are unfair to the minors or which are
wasteful.
2. The law is not to cause unnecessary hardship to adults who deal
fairly with minors.
38
It is under the second principle idea that the law recognizes some
contracts with minors as being valid and others as voidable.
Additionally a minor may be liable on quasi-contract and in equity

where he is found guilty of fraud.
Therefore contracts by a minor may be valid, voidable or void

depending on the principles explained above.
(a) Valid contracts by a minor:

The Common Law position
The position under the Common Law is that all agreements for
necessaries and beneficial contracts of service with a minor are valid.
It should be borne in mind that the latter category (ie. Contracts for
the benefit of a minor) apply only to the contracts of the nature of
apprenticeship, education or analogous contracts.
The Tanzanian position

The Law of Contract Act provides that the effect of incapacity is to
render the contract to be void. It is silent on the issue of contractual
liability of a minor. The Act however regards some agreements entered
into by a minor as being “relations which resemble those created by a
contract.” Thus s. 68 provides:
“If a person incapable of entering into a contract, or any one

whom he is legally bound to support, is supplied by another
person with necessaries suited to his condition in life, the person
who has furnished such supplies is entitled to be reimbursed from
the property of such incapable person”
39
Therefore it can be seen that a contract with a minor is not recognized

as a contract but as a relation resembling a contract and where a
person has supplied necessaries to a minor he is entitled to
reimbursement from the property of the minor.
Also the Sale of Goods Act, a minor who has been supplied with
necessaries must pay a reasonable price.(s. 4 proviso Cap. 214)
What are necessaries?

Necessaries are not defined under the L.C.A. but the Sale of Goods
Act, defines necessaries as:
“goods suitable to the condition in life of such infant/minor or

other person and to his actual requirement at the time of sale and
delivery.” (see s.4
proviso, Cap. 214)
This definition may not be satisfactory. One may say that necessaries
are things or services without which an individual cannot reasonably
exist. Thus food, shelter and clothing are necessaries and in addition
education and medical services may be included on the list of
necessaries. One ought to note that what is or is not a necessary will
depend on the condition in life of the minor. As such articles that to
one person might be mere convenience or matters of taste, may in the
case of another be considered necessaries. The agreements for
supplied / offered goods / services which are necessaries will not be
treated as void. On the other hand no contractual liability will be
imposed on the minor. The person supplying the goods or offering the
40
services becomes entitled to either a reasonable price or

reimbursement from the property of the minor if he has any.
NB: The general test of necessaries is that of utility and in this

connection the minors condition in life together with the supply of
such goods which he already has, become relevant.
Reference cases
Nash v. Inman (1908) 2 KB 1

The plaintiff was a tailor and the defendant was an infant
undergraduate of Cambridge. The plaintiff sent his agent to Cambridge
because he had heard that the defendant was spending money freely
and might be sort of a person who would be interested in high class
clothing.
As a result, the plaintiff supplied the defendant with various articles of

clothing to the value of £145 during the period of October 1902 to
June 1903. The clothes included eleven fancy waist coats.
The plaintiff sued the infant for the price of the clothes. The evidence
showed that the plaintiff’s father was in good position and it could be
said that the clothes supplied were suitable to the defendant’s position
in life. However his father proved that the defendant was amply
supplied with such clothes when the plaintiff delivered the clothes in
question.
Thus it was held that the plaintiff’s claim failed because he had not
established that the goods supplied were necessaries.
41
Elkington v. Amery (1936) 2 All ER 86

The defendant was an infant and the son of a former minister. He
purchased from the plaintiff an engagement ring and an eternity ring,
the court treating the latter as a wedding ring.
He also purchased a lady’s gold vanity bag.

The court treated the two rings as being necessaries but did not accept
that the vanity bag was a necessary because there was no evidence to
show that it was purchased in respect of the engagement.
Robberts v. Gray (1913)

The defendant wished to become a professional billiards player and
entered into an agreement with the plaintiff, a leading professional to
go on a joint tour. The plaintiff went to some trouble in order to
organize the tour, but a dispute arose between the parties and the
defendant refused to go. The plaintiff sued for damages of £6000.
The court held that the contract was for the infant benefit being in
effect for his instruction as a billiard player. Therefore the plaintiff
could sustain an action for damages for breach of contract, and
damages of £1,500 were awarded.
Merchantile Union Guarantee v. Ball (1937) 2 KB 498

The purchase on hire purchase terms of a motor lorry by an infant
carrying on business as a haulage contractor was held not to be a
contract for necessaries but a trading contract by which the infant
could not be bound.
De Franceso v. Barnum (1890) 45 Ch. D. 430
42
Two infants bound themselves in contract to the plaintiff for seven

years to be taught stage dancing. The infants agreed that they would
not accept any engagements without his consent. They later accepted
an engagement with Barnum and the plaintiff Barnum for interfering
with the contractual relationship between himself and the infants, and
also to enforce the apprenticeship deed against the infants and to
obtain damages for its breach.
The contract was prima facie for the benefit of the infants and so
would be binding on the infants.
But the court considered the contract further in detail, and it found up
some erroneous terms: eg. The infants bound themselves not to marry
during the apprenticeship; they were paid very poorly; the plaintiff did
not undertake to maintain them during unemployment and did not
undertake to find them engagements; the plaintiff could terminate the
contract if he felt that the infants were not suitable for the carrier of
dancing.
Thus it appeared from the contract that the infants were at the
absolute disposal of the plaintiff.
The court therefore held that the contract was unreasonable one and
was therefore unenforceable against the infants. Thus Barnum
couldn’t be liable.
NB: A contract is not binding on a minor merely because it is proved to

be for the minor's benefit; but a contract which would otherwise be
binding as a contract for necessaries is not so if it contains harsh and
onerous terms: Fawcett v. Smethurst (1914) 84 LJKB 473, (Atkin J).
43
(b) Voidable contracts by minor
Under the Common Law all agreements by which the minor acquires
an interest of a permanent nature in the subject matter of the
agreement e.g. lease of premises, a partnership contract, holding of
shares in a company may be treated as voidable. They are voidable at
the option of the minor. So a minor is allowed by law to call to an end
such contracts during his minority or within reasonable time after
attaining the age of majority.
Reference case Steinberg v. Scala (Leeds) Ltd. (1923) 2 Ch.

452
The plaintiff purchased shares in the defendant company and paid
certain sums of money on application, on allotment and on one
call. Being unable to meet future calls, she repudiated the
contract whilst still an infant and claimed for the removal of her
name from the register to relieve her from liability to future calls
and also the recovery of money already paid.
It was held that she could succeed to remove the name from the
register but the claim for recovery failed because there had not been a
total failure of consideration. That is; the shares had some value and
gave some rights even though the plaintiff had not received any
dividends.
(c) Void Contracts by minor
Under the Common Law all other contracts with a minor which do not
fall within (a) or (b) are void.
44
In Tanzania, the L.C.A elaborates clearly that the general rule is that
contracts with a minor are void.(s. 11(2). Thus the contracts which do
not fall under s. 68 of the L.C.A or s. 4 of Cap. 214 are void.
For instance the following contracts entered into with a minor are
declared to be absolutely void.
- Contracts for the repayment of money lent or to be lent
(loan contracts) - contracts for goods supplied or to be
supplied other than necessaries
2. Soundness of mind
A) LUNATICS
Another factor which vitiate capacity is the soundness of mind. A
person of unsound mind is incompetent to contract. (s.11(1) A person
of sound mind is defined as:
“a person who is capable of understanding the contract during

the formation of a contract and who is capable of forming a
rational judgment as to its effect upon his interests.” (s. 12)
SS.12(2) & (3) provides on the ability to contract by a person who is of

always sound mind who sometimes becomes of unsound mind and a
person who is always of unsound mind and sometimes sound mind
that such persons may only contract when they are of sound mind. In
Tanzania a contract with a person of unsound mind is void unless it
falls within the ambits of section 68 of the L.C.A or s. 4 of the Sale of
45
Goods Act where the liability of such a person is reimbursement and

reasonable price respectively.
Under the Common Law, a person of unsound mind can make

voidable contracts only if the other party knew of his unsoundness of
mind. The contract is voidable at his option (the person of unsound
mind).
Thus in Moulton v. Camroux, 2 Ex 487, it was held that:

"the rule concerning unsoundness of mind has in modern times
been relaxed, and unsoundness of mind would now be a good
defence to an action upon a contract, if it can be shown that the
defendant was not of the capacity to contract 'and the plaintiff knew
it."
Read also: Imperial Loan Co. v. Stone [1892] 1 QB 599, CA.
B) INTOXICATED PERSONS
The authorities are scanty; but in Gore v. Gibson (1845) 13 M & W

621; 153 ER 260, 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, for it
was held in Matthews v. Baxter (1873) LR 8 Ex 132 that if the drunken
party, upon coming to his senses, ratifies the contract, he is bound by
it.
46
3. Persons disqualified by law

Sometimes persons may be disqualified by law from contracting
generally or from entering into certain types of contracts.
For instance: a) Bankrupt Persons:
The bankrupt persons are disqualified by law from entering into any
type of contracts and whosoever enters into a contract with a
bankrupt does so at his own peril.
b) Unincorporated bodies and Corporations

Unincorporated bodies eg. Clubs, associations and societies are not
capable to enter into contracts. This is because they have no separate
existence in law. However, these bodies contract through agents and
persons authorizing these agents (members of such bodies) are
personally liable on such contracts. If a member of a club for instance
enters into contract with outsiders for the club; the contract will bind
the club members personally if they authorized such a member to
contract for them but if the member was not authorized then the
contract can not bind the members but it will bind such a member
personally.
As for Corporations/Companies these are legal persons: A company

for instance is capable of concluding contracts in its own name
through its duly authorized agents ie. Directors. Such contracts will
bind the company but not members personally. But the contractual
capacity of a company is limited i.e It can only enter into those
contracts which the Memorandum of Association of the company
allows. This capacity is found in the objects clause. If the company
contracts within the powers stipulated in the objects clause it acts
intra-vires and such contracts are valid contracts. But if a company
47
contracts outside this clause it acts ultra-vires/beyond its powers and

so the contract becomes null and void.
Reference Case
In Ashbury Railway Carriage and Iron Co. v. Riche (1875)
The company bought a concession for the construction of a railway
system in Belgium and entered into an agreement whereby Riche were
to construct a railway line. After the commencement of work, the
company ran into difficulties and the shareholders wished the
directors to take over the contract in a personal capacity and
indemnify the shareholders. The directors thereupon repudiated the
contract on behalf of the company and Riche sued for breach of
contract.
The objects clause of the company’s memorandum stated that it was

established
“ To make or sell or lend on hire railway carriages, wagons and all

kinds of railway plant, fittings, machinery and rolling stock, to carry
on the business of mechanical engineers and general contractors, to
purchase and sell as merchants timber, coal, metal and other
materials and to buy and sell such materials on commission or as
agents”
The court held that the purchase of the concession to build a complete
railway system was ultra-vires and void because it was not within the
objects of the company. The contract with Riche was therefore void
and the directors were entitled to repudiate it.
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INTENTION TO CREATE LEGAL RELATIONS

This is also referred to as an intention to create treat..
Under Common Law it is a settled principle that there must be a
common intention of the parties to enter into legal relations for there
to be a contract.
What is the importance of intention to create treat?

The importance of the intention to create treat lies on the fact that
contracts should not be spots of idle hour or mere matters of
pleasantry never intended by the parties to have any serious effect
whatsoever.
Thus under the English law although there may be an evidence of offer
and acceptance, the courts may not recognize the agreement as a
legally binding contract if they feel that there was no intention on the
part of the persons involved that a contract should result from their
dealings. The intention to create legal relations may be categorized into
two groups namely the domestic arrangements and the business or
commercial arrangements.
Intention in domestic arrangements

The presumption is that social or domestic arrangements do not give
rise to legally enforceable contracts even if they look like one. This is a
general rule. Domestic or social arrangements include arrangements
between a husband and wife, family members or friends.
The agreements between a husband and wife are difficulty to decide

whether the intention was there or not especially when they are living
in amity. It is easy to infer the intention when the parties to an
agreement are not living in amity.
49
Reference case: Balfour v. Balfour (1919) 2 K.B. 571
Balfour went to work in India leaving his wife in England for health
reasons. He promised to pay his wife £30 per month for her
maintenance. The wife later divorced her husband. Then his husband
refused to pay as promised. The wife sued and it was held that this
was not a contract because the parties did not intend that they should
be attended by legal consequences.
In Merrit v. Merrit (1970) 2 All E. R. 760 it was held that the agreement
which had been made when the parties were not living together in
amity was enforceable as there was an intention to create legal
relation.
NB: This does not mean that in family or social matters there cannot
be a legally biding contract. What the law requires is that the parties
must intend legal consequences to follow.
Intention in business/commercial arrangements
The general presumption here is that in such agreements are intended

by the parties to carry legal consequences or to be followed by legal
consequences.
50
This presumption may be rebutted where parties intend to rely on

each others good faith and honor and not on legal consequences.
Reference case: Rose & Frank Co. v. J. R. Crompton & Brothers Ltd.,
(1925) AC 445
In this case an agreement was drawn between one American & two
English firms for their dealings in paper tissues. The agreement
contained the following clause: This arrangement is not entered into
as a formal legal agreement and shall not be subject to a legal
jurisdiction in the law courts either in US or in England.
The agreement was terminated by one of the parties contrary to its

terms. The American firm brought an action for breach. The Court
held that the document did not constitute a binding contract as there
was no intention to effect legal relations.
Test for Contractual Intention
The intention of the parties must be ascertained from the arrangement

& the surrounding circumstance. It is the duty of the court to find out
whether the parties intended to enter into legal obligations.
The court employs an objective test: i.e what a reasonable person

would say in circumstance.
CONSIDERATION
51
The meaning of consideration revolves around exchange of values

embedded in goods or services. That is, a person who parts with value
must be given some value in return. This is according to the maxim
“Quid pro quo” which means “something for something and nothing for
nothing.”
Consideration is a vital element in some contracts but not in all

contracts. Thus contracts under seal need no consideration. For an
agreement to have legal force it must either be under seal or must be
supported by some consideration.
Under the Common law

Consideration is an important ingredient in all contracts which are not
made under seal.
Thus in Rann v. Hughes (1778) it was held that all simple contracts (ie.
Contracts not under seal whether written or not) must be supported
by consideration. It was held further that the law of the country
supplies no means, nor affords any remedy to compel performance of
an agreement made without sufficient consideration.
What is consideration?
There have been various definitions on the concept. But the most
celebrated definition was given in the case of Currie v. Misa (1875) LR
10 Ex.153. In this case consideration was defined as:
52
“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”
From here we can see that consideration comprises of both positives

or negatives to a party. But payment of money is a common form of
consideration.
In Dunlop v Selfridge Ltd [1915] AC 847, it was held that:
"An act or forebearance of one party, or the

promise thereof, is the price for which the
promise of the other is bought, and the
promise thus given for value is enforceable
Simply stated therefore, consideration is a detriment to the promisee

or benefit to the promisor bargained for, and given in exchange for a
promise.
Under the L. C. O
Consideration is an essential element in all simple contracts
concluded in Tanzania as opposed to contracts under seal.
The L.C.A. defines consideration as:
“When, at the desire of the promisor, the promisee or any other

person has done or abstained from doing or does nor 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” (s. 2 (d).
53
From this definition the following things can be deduced:
1. that consideration must be given when the promisor has

expressed a desire and not otherwise.
2. that consideration consists of both an act or omission and a

promise to act or to omit.
Contracts without consideration are generally void. However there are

exceptions in the L.C.A which includes the following:
a) an agreement expressed in writing and registered under

the existing law for the registration of documents which is
made on account of natural love and affection between
parties standing in a near relation.
b) A promise to compensate a person who has already

voluntarily done something for the promisor or something
which the promisor was legally compellable to do.
c) A promise made in writing and signed by the person to be

charged therewith, or by his authorized agent to pay a
debt which the creditor might have enforced payment but
for the law of limitation of suits (see s.25)
Who can furnish consideration?
Under the Common Law consideration must be furnished by promisee

and promisee only.
In Tanzania consideration can be furnished by the promisee or any

other person who is not the promisee.(s.2(d)
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Adequacy and sufficiency of consideration
The price fixed by the parties out of their own free will or consent is
what in law is termed as sufficient consideration. However, the kind of
consideration agreed upon by the parties may not be based on the
market value but only on the wishes of the parties. The law only
requires there to be a sufficient consideration hence the rule that
consideration needs only to be sufficient but not adequate. This is
because parties themselves agree as to what each of them has to do
under the contract. The rationale for this is that parties are presumed
to be capable of appreciating their own interests and of reaching their
own equilibrium. The court will only interfere where it proves duress,
fraud, mistake under influence or misrepresentation.
Consideration must have economic value

In determining sufficiency of consideration one has to consider
whether or not the consideration has economic value. Sentimental
motives such as natural love and affection have no economic value
and therefore they cannot qualify as good consideration. (White v.
Bluett (1853)
On the other hand nominal consideration and trivial acts of very small
value may constitute sufficient consideration in law.
Consideration must be Legal

The law requires that consideration must be lawful.
Illegal consideration renders the whole contract to be illegal and hence
void.
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Types of Consideration
(a) Executory consideration: This results from an exchange of

promises to perform acts in the future. E.g. “A promises to
deliver goods to “B” and “B” promises to pay for the goods. In
Tanzania the definition of consideration under S. 2 (1) (d) – The
phrase “….. a person may promise to do or to abstain from
doing” – Reflects executory considerations.
(b) Executed consideration: This happened where one party

promises to do something in return for the Act of another, rather
than for the mere promise of future performance of an act. Here
performance of an act is required before there is any liability on
the promise. E.g. Where “A” offers a reward for return of his lost
dog, A is buying the Act of the finder and will not be liable until
the dog is found and returned.
(c) Past consideration: Comprises of an act (abstinence) which was

done before the promise was made and not in response to or
induced by subsequent promise.
Re McArdle [1951] 1 All ER 905.
Past consideration is no consideration at all under English law. In Tanzania
the phrase “…. Has done or abstained from doing something…. Are
questionable as to whether they suggest past consideration is good
consideration in Tanzania. However it is argued that the use of the word “has
done” is not of past tense but of present perfect tense and therefore the act of
doing is not independent of the promise. Therefore it is not past consideration.
On the other hand there are exceptions to the general rule that past
consideration is not consideration at all which include:
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i. an agreement expressed in writing and registered

under the existing law for the registration of
documents which is made on account of natural
love and affection between parties standing in a
near relation.
ii. A promise to compensate a person who has already

voluntarily done something for the promisor or
something which the promisor was legally
compellable to do.
iii. A promise made in writing and signed by the

person to be charged therewith, or by his
authorized agent to pay a debt which the creditor
might have enforced payment but for the law of
limitation of suits.
(see s.25)
FREE CONSENT / REALITY OF 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 is a reflection of the underlying
assumptions of a contract namely the freedom of contract and
sanctity of contract.
By freedom of contract it means that every person is free to enter into

any contract. A person may enter into employment contract as an
employer or employee and change as he may wish. He has the freedom
to bargain the terms of the contract. Principally freedom of movement
and freedom of will presuppose equality, that parties bargain the terms
of the contract on equal footing and so they enter into contract freely.
57
Meanwhile sanctity to contract means no one other than the parties to

a contract who can interfere with a contract validly concluded. This
means that it is only the parties to a contract who have the rights and
duties under a contract.
However, the concept of the freedom to contract has been eroded by

the coming of the standard form contracts. This is because the
formation of a standard form contract is based not on free consent but
rather on the relationships which develop independent of men’s will.
Under the L.C.A the concept of free consent is reflected under s.10 as
an essential ingredient of a valid contract. On the other hand,
although consent may be given by a party to a contract, it may not be
real but rather a vitiated or undermined consent.
Therefore consent may be undermined by the following factors as

discussed hereunder.
Factors which undermine / vitiate consent
(a) Coercion / Duress
Coercion or duress means– committing, threatening to commit any act

forbidden by the penal code or unlawful detaining / threatening to
detain any property, to the prejudice of any person whatever: With
intention of causing any person to enter into an agreement. (s.15)
58
It must be proved that the other party actually committed/threatened

to commit the forbidden act or he unlawfully detained/threatened to
detain some property in order to obtain such consent.
The effect of coercion is to make the contract voidable at the option of

the party whose consent was so improperly obtained.
(b) Undue influence
This involves improper use of power to affect somebody’s character,

beliefs or actions through fear, administration etc. In contract undue
influence means improper use of power to obtain consent.
The relations between the parties must be 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.
S.16 (2) L.C.A. gives situations whereby there is a decreed position of

one person to dominate the will of the other. These include:-
i) Holding a real / apparent authority over the other or where

there is a fiduciary relationship.
Eg. Real authority – A magistrate holds a real authority over a
person charged with an offence before him; a director has a real
authority over a secretary etc Apparent authority/ implied
authority: A dismissed police officer or a dismissed agent has an
apparent authority.
59
Fiduciary relationship: a husband and wife; A parent and child;

A doctor and a patient; etc
ii) Making contract with persons with temporary or permanent

incapacity by reason of age, illness, mental or bodily distress.
The effect of undue influence is to render the contract voidable at

the option of the party whose consent was so caused by undue
influence. (s.19)
(c) Misrepresentation /Representations
Representations are factual statements which are pre-contractual. The

pre-contractual statements are statements made to induce a party to
enter into a contract. They may be written or spoken or made by
conduct. They do not become terms of the contract. These may be
true or untrue. They also may be untrue although the maker believes
them to be true. If they are untrue they are called Misrepresentations
or misstatements. A false statement as to the law cannot be a
misrepresentation since everyone is presumed to know the law.
The maker of such statements may have been negligent or not in

making these statements. If the maker was not negligent in making
them they are called innocent misrepresentations / innocent
misstatements while if the maker was negligent in making them they
are called negligent misstatements or negligent misrepresentations.
The statements may be untrue to the knowledge of the maker but he

proceeds to make them. In this case they are called fraudulent
misrepresentations. In Derry v. Peek (1889) fraud was defined as a
60
false statement made, knowingly, or without belief in its truth or

recklessly, i.e without caring whether it be true or false.
Under section 18 enumerates three types of misrepresentations

namely:-
i. Unwarranted statements ii. Breach of duty to speak
iii. Inducing mistake about the subject matter of the
agreement.
Remedies under Common Law:

Innocent misrepresentation: The party so misled can rescind the
contract. The effect of rescission is to restore the parties to their
original positions. Status quo ante. So that each party become entitled
to be relieved of the obligations created by the contract and to recover
any benefit which he may have conferred upon the other.
Fraudulent misrepresentation: The injured party may either affirm

the contract and sue for damages or rescind the contract and sue for
damages for any loss suffered.
Under L.C.A
Both Innocent & fraudulent misrepresentation: The contract
become voidable.
d) Mistake
In the law of contract the word mistake applies to two situations:
61
i) Where the contracting party or parties believe that a present or

past fact which is material to their transaction exists when it
not; or
ii) Where the contracting party or parties believe that a present

fact which is material to their transaction does not exist while it
does.
Mistake of fact and mistake of law

The mistake which affect the contract must be a mistake of fact as
opposed to a mistake of law. The reason is that everyone is presumed
to know the law. (s. 21)
Operative and non-operative mistake
The mistake which affects the validity of a contract is called operative

mistake and it must be a mistake of fact and not of law. Operative
mistake can be classified into the following categories:-
a) Mistake as to the nature of the contract itself

b) Unilateral mistake
c) Bilateral mistake
A. Mistakes as to the Nature of the contract itself.

The General rule is that a person who signs a contractual document is
bound by its terms whether he has read it or not. But under certain
circumstances if a person signs a contract in the mistaken belief that
he is signing a document of a different nature, there will be a mistake
which avoids the contract. Thus mistake as to the nature of the
contract itself renders the contract to be void.
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B. Unilateral mistake
This happens when one of the parties to a contract is mistaken as to
some fundamental fact concerning the contract and the other party
knows, or ought to know this. This is mainly concerned with the
mistake on the identity or attributes of the other party. E.g.
An offer made to A by C, is accepted B. who pretends to be A.

The effect here is that the contract becomes void.
C. Bilateral mistake
This happens when both parties to a contract are mistaken. They are
of two types:- 1. Common or identical mistake: This occurs when both
parties make an identical mistake as to some fundamental fact
concerning the contract. In absence of fraud or misrepresentation
where there is a common or identical mistake in a contract the parties
are bound except in cases of Res extinata and res-sua which renders
the contract void.
Res extincta: Mistake as to the existence of the thing contracted for

e.g. parties agree to sell a car which is destroyed by fire at the time of
sale unknown to them both.
Res Sua: Occurs when a person makes a contract to buy something

which already belongs to him.
2. Mutual or non-identical mistake:
This occurs when the parties are both mistaken as to a fundamental

fact concerning the contract but each party has made a different
mistake: The contract does not necessarily become void if the court
63
can find a sense of promise in it under common law under the law of
Contract. Therefore there are circumstances where it may not become
void.
See s.20 – Mutual mistakes in which consent may not be defeated but
nullified.
See also s. 13 – Mutual mistake in which consent may be defeated or

rendered unreal and negatived. Here each of the parties to an
agreement is mistaken as to the intention of the other and each does
not know that he has been misunderstood. The parties make different
mistakes. Parties were not ad idem as such there was no consent.
The Plea of Non Est Factum (It is not my act)

Under Common Law
The apparent signed contract will be regarded as void if a party can
successfully plead the defence of non est factum. Under this plea a
person disowns his signature and the document, that he never
consented to the terms appearing in the document.
However to succeed under this defence three things must be proved:
a) that the signature must have been induced by fraud
b) that the document must be fundamentally different from that

thought to be signed. But a mistake as to the contents is not
sufficient to allow non est factum to be raised.
c) That the writing fails to express the agreement of the parties.
Reference cases:
Lewis v. Clay (1897)
64
In this case a party who was induced to sign promissory notes by the
fraudulent misrepresentation that his signature was required as a
witness successfully pleaded non est factum. Here the rest of the
document apart from the space for signature was covered by blotting
paper having being told that this was a document of a private nature.
It was held by the court that the defence of non est factum applied even
though the plaintiff could not say precisely what type of the document
he thought he had signed.
In Tanzania
There is no provision in the L.C.A. which covers the plea of non-est
factum but it is traced from the Common Law precedents.
An authority for this position is found in the case below:-
Sluis Bros (EA) Ltd. v. Mathias & Tawari Kitomari (1967) H.C.D. 425
The appellant is a Tanzania registered Company affiliated to a Dutch
Co. The appellant had entered into a standard form contract with the
respondent farmers for the business of growing, buying and exporting
seed beans. The company supplied stock seeds to farmers and
peasants and then the appellant would buy the harvested seed beans
and export them.
The standard contract contained “terms and conditions of agreement

written in English. The terms spelt out the rights of the appellant on
the one hand and the obligations of the peasants/farmers on the
other.
65
The peasants did not understand English and they believed they were
dealing in a joint venture with the appellant in which they would
contribute their farms, energy and time while the appellant would
contribute seeds, fertilizers, insecticides and cost of labour.
Meanwhile the contract provided that what was given to the peasants
farmers was by the way of loan deductible at the time of the sale of the
produce.
The appellants sued the respondents claiming 48,007/25 as an

outstanding on the contract.
The Respondents raised a defence of non-est factum The respondents

won the case.
On further appeal to the CAT the decision of the high court was
upheld.
PRIVITY OF CONTRACT
Privity of contract is the relation while exists between the parties to a
contract which is necessary to enable one person to sue another on it.
The Common Law doctrine of Privity

This is noted from the Common Law doctrine that no one can sue or
be sued on a contract to which he is not a party. Therefore it is only
the parties to a contract who acquires rights and incur liabilities under
it. It is only a person who made promise or consideration has rights
and liabilities. A stranger can neither sue or be sued on the contract.
Reference cases
Scruttons v. Midland Silicones (1962)
66
In this case a shipping company agreed to carry drums of chemicals

belonging to P from America to England, the contract limiting their
liability to $ 500 per drum. The shipping company hired a firm of
stevedores to unload the ship and due to the stevedores negligence the
chemicals were damaged to the value of $ 1,800 per drum. P were
successful in their tort action against the stevedores, recovering their
full loss.
The court held that the stevedores could not rely on the exemption
clause in the contract between P and the shipping company because
they were not a party to this contract, nor were they protected by a
similar exemption clause in their contract with the shipping company
because P was not a party to this contract.
Beswick Beswick (1867)

Mr Beswick entered into an agreement with his nephew, whereby the
nephew was to take over Beswick’s business in return for a payment of
£6.50p per week to Beswick during his life and after his death £5 per
week to his widow. When Beswick died the nephew stopped the
payments. Beswick’s widow sued the nephew both in her personal
capacity and in her capacity as an administratix of his estate. She
failed in her personal capacity but succeeded as administratix and was
awarded a decree of specific performance against the nephew.
The Tanzanian Position

In Tanzania the Law of Contract Act is silent on the principle of privity
of contract.
67
S.2 (1) (d) permits a 3rd person to furnish consideration but doesn’t
allow him to sue on the contract on the ground that although he
furnished consideration he is not a party to a contract.
In Ephraim Obongo v. Naftael Okeyo (1968) HCD 288 it was held that
the principle of privity of contract should not be applied in customary
contract cases.
But the doctrine applies in non-customary contracts. In Tarlock Singh

Nayar v. Sterling General Insurance Co. Ltd. (1966) EA 144 the
claimant who was not a party to the insurance contract was held
unable to sue in his own name because he was a stranger to the
contract.
Exceptions to the privity rule
1. Negotiable instruments: The Bills of Exchange Act cap.215

empowers a holder of a bill to sue in his own name.
2. Agency: Contracts entered into through an agent may be

enforced in the same manner, and will have the same legal
consequences as if the contracts had been entered into and
the acts done by the principal in person.
3. Arrangements creating trust: When a trust has been created

and proved, then the beneficiary third party, may sue on the
contract in his own name.
THE CONTENTS OF CONTRACTS

A contract is made up of terms or clauses which shows what the
parties have undertaken do, and the manner of performing the
68
agreement. Depending on the nature of a particular contract; a

contract may contain three types of clauses namely express terms,
implied terms and exemption clauses.
1. Express terms: They can be deduced from the following:

i. Statements of the parties: In order to decide upon the express terms of
the contract it is necessary to find out what was said or written by the parties.
This is because contracts may be oral or written, or partially oral and partially
written.
ii. Representations and terms: Having ascertained what the parties said
or written it is necessary to decide whether the statements are representations
or terms.
Representations: These are statements which

merely induce a party to enter into contract.
Terms: These are party of the contract itself and

make up its contents.
How can you distinguish a term from a

representation? Certain tests are applied to decide
whether a statement is a representation or a term:
1. Intention of the parties: If the parties have indicated by their words a

particular provision to be a term the court will follow the intention. Therefore it
will be a term.
2. A statement is likely to be a term if it is made with intention of

preventing the other party from finding any defects and succeeds in doing so.
69
On the other hand a statement is not likely to be a term if the person making it
asks the other party to check or verify it.
3. If the statement is such that the aggrieved party would not have made
the contract without it, then the statement will be a term of the contract.
4. The statement made during preliminary negotiations tend to be pre-

contractual.
iii. Collateral contracts/ collateral warranty: This is a concept used by

court to provide a remedy for what was in effect on non-fraudulent
misrepresentation such as a statement by the defendant which could not be
regarded as a term of the main contract. This is construed as a separate and
parallel contractual obligation the breach of which damages can be awarded.
iv. Conditions and warranties:
There are two basic types of express terms. They

carry different weights in as far as the obligations
that they create. The contractual terms which cover
vital or fundamental obligations are called
conditions while the terms which cover the less
vital obligations are called warranties.
Condition: A vital term which goes to the root of

the contract. It is an obligation which goes directly
to the substance of the contract. Its non-
performance, or its breach normally entitles the
innocent party to treat the contract as at an end.
I.e. It entitles the innocent party to repudiate the
contract.
70
Warranty: A subsidiary to the main purpose of the

contract breach of which only entitles the innocent
party to damages. Here there is no right on the
injured party to repudiate the contract; there is only
an action for damages. A failure to perform it does
not go to the substance of the contract.
Whether a stipulation is a condition or a warranty is

a question of the intention of the parties and this is
deduced from the circumstances of the case.
- Where the parties state the effect of the breach, it

becomes clear whether a condition or warranty was
intended. - Where there is a breach of a condition
the injured party may elect either to repudiate the
contract of claim damages.
v. Standard Form Contracts

Many agreements are not individually negotiated,
indeed it would be impossible for business to cope if
every agreement had to be negotiated by the parties.
Standard form contracts are normally used by large
organizations in their contracts with individuals.
They are also used in commercial transactions. Here
only one party makes the terms while the other
party has to accept or to reject. This is mostly used
in employment contracts.
71
2. Exception, Exemption or Exclusion clauses
This forms part of express terms. An exemption clause is a term

in a contract which seeks to exempt one of the parties from
liability or which seeks to limit his liability to a specific sum if
certain events occur, such as a breach of warranty, negligence
or theft of goods.
These terms are effective provided that they are communicated

to the other party.
Thus a party is bound by an exemption clause by signature or

by notice.
Signed documents
A person who has signed a document is bound by an exemption
clause there in because in absence of fraud/misrepresentation,
a person is not excused from liability if he does not read a
written contract.
Documents other than signed documents

Where an unsigned document sets out the terms of the contract
or says where they may be found, then the acceptor may have
constructive notice of the terms and conditions, so long as the
ticket or there document adequately draws the attention of a
reasonable person to the existence of such terms and
conditions. This often occurs where ticket or other document
containing terms of contract or an indication as to where they
may be found, is delivered to the acceptor but is not read by
him.
72
Where the communication of the terms is by constructive notice

the other party has the right to assume that the conditions are
reasonable and the court will presumably strike out an
unreasonable clause which had been communicated solely by
constructive notice. On the other hand any condition attaching
to the offer must be notified at the time when the offer is made,
since a belated notice is valueless.
The doctrine of fundamental breach:

Where a person has committed a fundamental breach of his
contract he could not rely exemption clauses introduced into the
contract for his benefit. However, there is no breach of contract
more fundamental than the breach of a condition.
Conditions for a valid exemption clause
i. The exemption clause should be brought to the attention

of the other party before or at the time of entering to a
contract
ii. The exemption clause must be contained in the

contractual document or in the document forming part of
the contract, of which reasonable notice must have been
given to the other party before the contract was made. A
document issued after the contract is made is a mere
receipt or acknowledgement of payment, it is not a
contractual document and therefore any exemption clause
contained in it is devoid of any legal effect.
73
iii. Under contra preferentem rule exemption clauses are read

strictly against those wiling to rely on them.
iv. A court will either strike out or modify an exemption

clause only to protect a party when he is acting within the
four corners of the contract, deviation from the contract is
regarded as a fundamental breach.
Some cases on Exemption clauses

Chapelton v. Barry UDC (1940)
The defendang provided deck chairs for members of the public who
wished to hire them for use on the beach. The plaintiff hired two
chairs and the attendant gave him two tickets after he had paid. He
put the tickets in his pocket without reading them. When he sat in one
of the chairs the canvas gave way and he was injured. On the back of
the ticket issued to the plaintiff it was printed that: “The Council will
not be liable for any accident or damage arising from hire of
chairs.” When the plaintiff sued, the defendant purported to rely on
the exemption clause.
It was held that Since the ticket was issued after the contract was
made they were to be regarded as a mere receipt and not contractual
documents; and consequently the plaintiff was not bound by the condition
printed on the back of the receipt and was entitled to recover damages for
injuries.
Olley v. Marlborough Court, Ltd (1971)

A couple paid for a weeks accommodation in the defendant’s hotel. After
paying they went to the bedroom where they found on one of the walls a
notice that “the proprietors will not hold themselves responsible for
articles lost or stolen unless handled to the managers for safe
custody.”
74
Certain items belonging to the wife were stolen from the bedroom. The
defendants purported to rely on the exemption clause. It was held That the
contract was completed before the couple went to their room and no
subsequent notice could affect their rights.
The defendants were made liable to make good the loss suffered by the wife.
Thornton v. Shoe Lane Parking Ltd. (1971)

The plaintiff wished to park his car in the defendants’ automatic car park. At
the entrance was a notice which contained the charges and further stated:
“All cars parked at owner’s risk”. The plaintiff inserted a coin in the
automatic ticket but did not bother to read the other words on it. These other
words on the ticket referred to conditions displayed on the premises one of
which exempted the defendants from liability for damages to the cars
and injury to customers while on the park by whatever cause. When he
returned to collect his car there was an accident in which the plaintiff
sustained severe injuries. The defendants purported to rely on exemption
clause. It was held that the plaintiff could only be bound if he knew that the
ticket was issued subject to the exemption clause or if the defendant did
what was reasonably sufficient to give him notice of it; but since the plaintiff
had no such knowledge and since the contract was concluded by the time
the ticket was issued, no reasonable notice had been given to the plaintiff of
the exemption clause and it could not therefore apply so as to exempt the
defendants from liability for personal injury.
NB: as to the notice on the entrance, the defendant could not recover
damages in respect to the damage to his car because it was reasonably
brought to his attention before the contract was made.
L’Estrange v. Graucob Ltd. (1934)

The plaintiff bought an automatic cigarette vending machine from the
defendants under a Sales Agreement. She signed the agreement without
reading it and paid a deposit. A clause in the agreement provided: This
agreement contains all the terms and conditions under which I agree to
75
purchase the machine specified above, and any express or implied condition,
statement or warranty, statutory or otherwise, not stated herein is hereby
excluded.”
The machine turned out to be totally defective and the plaintiff sought to
recover her deposit. The defendants pleaded the exemption clause. It was
held that the plaintiff had voluntarily signed the agreement without being
induced by any fraud or misrepresentation; she was therefore by the terms of
the agreement, notwithstanding that she never read it.
Curtis v. Chemical Cleaning and Dyeing Co. Ltd. (1951)

The defendants agreed to clean the plaintiffs white satin wedding dress
trimmed with beads and sequins. The plaintiff was asked to sign a document,
but she asked why she had to do so. The defendant’s servant informed her
that the document exempted the defendants from liability for damages to the
beads and sequins on the dress. In fact the document contained a clause to
the effect that the dress “ Is accepted on condition that the company is not
liable for any damage howsoever arising”. The plaintiff signed the document
without reading the whole of it. The dress was returned with a stain on it and
the defendants, when sued pleaded the exemption clause.
It was held that the defendants were liable for the damage to the dress. They
were not protected by the exemption clause because they had (through their
servant) misrepresented the extent of its application.
3. Implied Terms
These are in addition to the Express terms. Such terms are derived
from customs or statute. A term may also be implied by court.
(i) Customary implied terms: A contract may be subject to

customary terms not specifically mentioned by the parties. But
if the parties expressly through express terms of a contrary
intention, the customary terms will not be implied.
76
(ii) Statutory implied terms: Certain laws such as the Sale of

Goods Act provide for implied terms which relate to title,
description, fitness for the purpose and quality and certain of
them cannot be excluded.
(iii) Judicial implied terms: Court may imply a term into a contract
whenever it is
necessary to do so in order that the express terms decided
upon by the parties shall have the effect which was presumably
intended by them. The judge regards himself as doing what the
parties would have done in order to cover the situation.
DISCHARGE OF A CONTRACT
A contract is discharged when the obligation created by it ceases to be

binding on the promisee who is then no longer under a duty to perform his
part of the agreement.
Discharge may take place in various ways:
(a) Discharge by agreement: Parties can decide to discharge the contract

by mutual agreement. This can either be by way of a waiver,
accord and satisfaction or by a novation.
i. Waiver
This is applicable to executory contacts where a contract has
been performed partly as the case of executed contracts, a
party with a right to demand performance many agree to waive
his rights. Thus the other party is discharged by a waiver.
ii. Satisfaction and accord

Accord refers to agreement and satisfaction refers to
consideration that is to provided to a party who has performed
77
partly at the time of the agreement to discharge the contract.

This therefore happens in circumstances where one party will
have performed some part of the contract while the other will
have not.
iii. Novation:
This happens where there is a contract in existence and a new
contract is substituted for it. This must take place with the free
consent of all parties concerned.
(b) Discharge by performance
This happens where all parties fulfill their obligations in the

contract. The contract then comes to an end.
(c) Discharge by breach
Breach doesn’t actually discharge a conduct, but it may in some

circumstances give the innocent party the right to treat it as
discharged if he so wishes. This can take several forms:-
i. Express repudiation/renunciation before the time

set for performance.
ii. Failure to perform a contract. This is the most

usual form
e.g. a seller failing to deliver goods on appointed time.
iii. Some action of one party may make performance

impossible e.g. A agrees to marry B but before he
marries C.
(d) Discharge by subsequent impossibility (or Frustration)
78
A contract my become impossible to perform because of certain circumstances.
1. Intervention of law: A law may be passed which renders

performance of contract illegal
2. Destruction of subject matter.

3. Death, Insanity, incapacitating illness. This apply to contracts
for personal services.
REMEDIES FOR BREACH OF CONTRACT
Where a party breaches the contract, the other party may invoke one of the
following remedies depending on the nature of the breach.
(i) Damages: The party whose rights have been violated may claim
compensation in money form to cover the damage suffered due to
the breach. The object is to put the injured party as near as
possible in the same position, so far as money can do, as if he had
not been injured. Damages may be liquidated, unliquidated,
special, nominal, special or compensatory. The damages
recoverable for breach of contract are governed by the rule in
Hedley v. Baxendale (1854) which states that:-

“where two parties have made a contract which one of them has
broken, the damages which the other party ought to receive in
respect of such breach of contract should be, either such as may
fairly and reasonably be considered arising naturally, ie. According
to the usual courser of things, from such breach of contract itself or
such as may reasonably be supposed to have been in the
contemplation of both parties at the time they made the contract as
the probable result of the breach of it.”
79
This is the general rule. The plaintiff can only recover for loss
arising naturally from the defendant’s breach or for such loss as
was in the contemplation of both parties at the time when the
contract was made. In this was it is sought to do justice to both
parties.
In Hedley v. Baxendale (1854)

A miller sent a broken crankshaft by a carrier to deliver to an
engineer for copying and to make a new one. The miller informed
the carrier that the matter was urgent and that there should be no
delay. The carrier accepted the consignment on those terms. The
miller did not inform the carrier that the mill would be idle and
unable to work. The carrier had no reason to believe that the
crankshaft was an essential mechanism of the mill. The carrier
delayed delivery of the crankshaft to the engineer, and as a
consequence, the mill was idle for longer than it need to have been.
It was held that the carrier was not liable for the loss of profits
during the period of the delay.
(ii) Restitution: This is a remedy available to an innocent party who

has performed part of the contract. Here the innocent party
claims back his performance or its reasonable value.
(iii) Specific Reliefs (Equitable Reliefs)
These include:
- Specific performance: Here the innocent party ask the court

to order the breaching party to do according to the terms of
the contract. It is a discretionary remedy. This remedy will
not be granted if damages would be an adequate remedy. It
80
is not available in respect of contracts requiring personal

services.
- Injunction: The court will be asked by the innocent party to

order the breaching party to undo a breach of contract. Eg.
He may be ordered to remove an advertisement erected in
breach of a contract. Injunction can be granted prevent the
breach of a reasonable restraint of trade clause.
In Warner Brothers v. Nelson (1936), an Actress agreed to act

for the Company and undertook that she would not act for
anyone else during the period of the agreement without the
company’s written consent. It was held that she could be
restrained by an injunction from breaking this undertaking.
This did not force her to work for the company nor did it
prevent her from obtaining different types of work.
- Rescission: The party may seek to rescind the contract.

This will be granted only if the party seeking to rescind was
not at fault and provided justice can be done to the other
party by imposing conditions.
- Rectification: This remedy will be granted where there has

been a mistake not in the actual agreement, but which come
into existence when the agreement is put into writing. Here
equity will rectify the written document so that it coincides
with the true agreement of the other parties. For this to
apply three things must be satisfied: that the terms were
clearly agreed between the parties; that the agreement
continued unchanged up to the time it was put into writing;
81
and that the writing fails to express the agreement of the

parties.
(iv) Quantum Meruit (so much as is deserved)
This means payment of so much as the party doing the service

deserves.
This is based on the implied condition that a party deriving benefit
from a service agrees to pay for it. Such cases are common in quasi-
contracts. This is can be claimed where either work has been dine or
accepted under a void contract or where one party abandons a
contract. The injured party, instead of claiming damages, may claim
for what has been done under the contract. The claim is not based on
the original contract, but on an implied promise by the other party
arising from the acceptance of executed consideration.
CONTRACT OF SALE OF GOODS
82
Law relating to Sale of Goods
The law relating to sales of goods in Tanzania is the Sale of Goods Act [Cap 214 R.E
2002]. The general principals of the law of contract such as offer and acceptance,
consideration, capacity to contract, legality and others apply to a contract of sale of
goods and the parties are free to agree on the terms which will govern their
relationship.1 Sale of Goods Act governs rights and liabilities relating to parties
involved in the sale of goods contracts.
Nature and definition of a contract for the sale of goods
Under the Sale of Goods Act, a contract of sale of goods is defined as a contract
whereby the seller transfers or agrees to transfer the property in goods to the buyer for a
money consideration, called the price.2 From the given definition there emanates two
types of sale contract;
i. A contract of sale
ii. An agreement to sell
A contract of sale
Property in the goods, which means the title or ownership, is transferred immediately
upon the contract being made.3 This happens when you buy goods over the counter in
a shop: you immediately become the owner in possession of the chocolate bar,
sandwich or socks handed to you by the sales assistant. It is also defined as where the
property in the goods is transferred from the seller to the buyer the contract.4
This nature of contract exists if the goods needed are already in existence and they are
in the possession of the seller, and they are offered in the contract. Such goods must
be specific, identified and agreed upon at the time of the sale.5
1
Ferdinand, M. T, Sales of Goods: An overview of the Law in Tanzania, in Massawe M. P &
Ombella, J. S (Edts), Basics of Commercial Law in Tanzania: Universities’ Tailored Handbook
for Students, (2012), p. 140
2
S. 3 (1) of Sale of Goods Act, [Cap 214 R.E 2002]
3
Alix, A, Law for Business Students, (2011), p. 218
4
S. 3 (3) of Sale of Goods Act
5
ibid
83
An agreement to sell
This is where the transfer of the property in the goods is to take place at a future time
or subject to some condition to be fulfilled after the transfer. 6 An agreement to sell
becomes a sale when the time elapses, or the conditions are fulfilled, subject to which
the property in the goods is to be transferred.7
In other words, this contract becomes a contract of sale once the goods exist and are
specific in the eyes of the law so that the ownership of them is capable of being
transferred. The buyer does not obtain ownership of the goods immediately upon
agreeing to buy them this is because;
- The transaction concerns future contract

- The goods have not yet been specific
Distinction between sale and an agreement to sell
The distinction between the two is of prime importance as they have different legal
repercussion.8 The rights and obligations of the parties vary with the fact whether the
transaction is an actual sale or an agreement to sale.
No Sale Agreement to sell
.
1. It is an executed contract It is an executory contract
2. A sale creates a right in rem An agreement to sell creates a right in

personam
3. In case of loss of goods, the loss will The loss in this case shall be borne by
fall on the buyer even though the the seller, even though the goods are in
goods are in possession of the seller the possession of the buyer
4. When the seller becomes insolvent Buyer cannot claim the goods but only a
after payment of price, the buyer can reteable dividend for the money paid
claim the goods from the official
receiver or assignee
6
S. 3(3) of the Sale of Goods Act [Cap 214 R.E 2002]
7
S. 3(4) of the Sale of goods Act [Cap 214 R.E 2002]
8
Gulshan, S. S and Kapoor, G. K, Business Law including Company Law, 16th ed. (2013), p.
156
84
5. When the buyer becomes insolvent The seller can refuse to deliver the goods
without paying the price, ownership to the official assignee or receiver
having passed to the buyer, the seller
shall deliver the goods to the official
receiver or assignee
Essential Characteristics of Sale of Goods
i) Parties
There must be two distinct parties to a contract of sale of goods, that is, a buyer and a
seller. Parties need be distinct because a person cannot buy his own goods. But there
are certain exceptions to the rule that the same person cannot be both the seller and
the buyer, as follows;
- A partner may buy goods from the firm and may sell goods to the firm in which
he is a partner
- An agent may purchase his own goods for his principal by the principal’s
consent
- A person may buy his own goods where they are sold in execution of decree by
the court
ii) Transfer of ‘property’ in goods
Property here means ownership, thus property refers to the title to the goods and not
the goods themselves. With sale of goods there is transfer of owner’s absolute legal
interest in the goods, where the transfer is of something less than the seller’s full legal
interest the same does not constitute a sale.
iii) Subject matter of the sale must be ‘goods’
This includes all chattels personal other than things in action and money,
emblements, industrial growing crops, and things attached to or forming part of the
land, which are agreed to be severed before sale or under the contract of sale. 9 The
definition covers contract of sale in which property is transferred instantly, a contract
9
S. 2(1) of the Sale of Goods Act
85
to sell in which property passes in future or on fulfillment of a future condition. 10 It

also includes all personal property (chattels) capable of physical possession and
control, but not property interests like shares in a company, or intellectual property
such as trademark or copyright.11 Thinks like goodwill, copyright, trademark, patents,
water, gas, electricity are all goods and may be subject matter of a contract of sale. 12
Land (real property) is not goods; its transfer is governed by an entirely distinct set of
rules. However, crops and other things attached to the land which are to be severed
before sale or under the contract of sale come within the definition of ‘goods’.13
Goods may either be specific goods, future goods, or unascertained goods. Goods
agreed upon at the time a contract of sale is formed are specific goods, goods to be
manufactured or acquired by the seller after the making of the contract of sale are
future goods, and goods defined only by a description applicable to all goods of the
same class or goods forming part of a larger consignment are unascertained goods. 14
This distinction of goods is important because the rules governing the passing of
property are different.
iv) Price
Here the consideration provided by the buyer must be money. Under s. 10 of the Sale
of Goods, the price in a contract of sale may be fixed by the contract or may be left to
be fixed in a manner thereby agreed or may be determined by the course of dealing
between the parties.
v) Involves a sale or an agreement to sell
Where the property in the goods is instantly transferred from the seller to the buyer,
the contract is sale but where the transfer of the property is to take place subject to
10
Ferdinand, M. T, Sales of Goods: An overview of the Law in Tanzania, in Massawe M. P &
Ombella, J. S (Edts), Basics of Commercial Law in Tanzania: Universities’ Tailored Handbook
for Students, (2012), p. 143
11
Alix, A, Law for Business Students, (2011), p. 219
12
Gulshan, S. S and Kapoor, G. K, Business Law including Company Law, 16th ed. (2013), p.
157
13
ibid
14
Keith, A, Norman, P, Kevin,W, Business Law, 8th ed. p. 262
86
fulfillment of the condition or to take place in a future time, then the contract is an
agreement to sell.
Terms of a contract of Sale of Goods
Just like other contracts, contract of Sale of Goods contains several terms regarding
quality, price and mode of payment. These terms differ in terms of their importance,
which divides the terms into two, that is conditions and warranties.
Conditions
Fletcher Moulton L.J in the case of Wallis v. Pratt defined the term conditions and
warranty as follows;
Condition is an obligation which goes so directly to the substance of the

contract, or in other words, is essential to its very nature that its non
performance may fairly be considered by the other party as a substantial
failure to perform the contract at all.15
In that sense a condition is a major term in a contract which goes to the roots of that
contract, if breached the contract will come to an end. Under sale of goods an example
of a condition is given hereunder;
i. an implied condition on the part of the seller that in the case of a sale he
has a right to sell the goods, and that in the case of an agreement to sell he
will have a right to sell the goods at the time when the property is to pass;
Warranties
Warranty means an agreement with reference to goods, which are not the subject of a
contract of sale, but collateral to the main purpose of such contract, the breach of
which gives rise to a claim for damages, but not a right to reject the goods and treat
the contract as repudiated.16 It further means an obligation, which though it must be
performed, is not so vital that a failure to perform it goes to the substance of the
contract.
Warranties under sale of goods contract are as follows;
15
Walis v. Pratt, (1910) 2 K.B 1012
16
S. 2(1) of the Sale of Goods
87
i. an implied warranty that the buyer shall have and enjoy quiet possession of
the goods;
ii. an implied warranty that the goods shall be free from any charge or
encumbrance in favour of any third party, not declared or known to the
buyer before or at the time when the contract is made.
Implied terms in Sale of Goods contracts
In every sale contract there are terms which are automatically implied and regulated
by the Act. The seller is required by the statute to promise that;
- The seller has lawful authority to transfer ownership of the goods;

- The goods will match their description;
- The goods will be of satisfactory quality;
- The goods will be suitable for any purpose specified by the buyer;
- The goods will match any sample shown to the buyer prior to the contract being
made.
Breach by the seller of any of these terms puts the buyer in a strong position because;
i. These terms all impose strict liability on the seller, here the buyer has no
duty to prove that the seller is at fault.
ii. All of these terms are defined by the Act as being conditions of the contract
Terms implied by description
In most cases, all goods are sold by description, and the seller is in breach of contract
if this is inaccurate. S.15 of the Sale of Goods Act, states as follows;
Where there is a contract for the sale of goods by description, there is an

implied condition that the goods shall correspond with the description;
and if the sale is by sample, as well as by description, it is not sufficient
that the bulk of the goods corresponds with the sample if the goods do
not also correspond with the description.
From the above provision of the law, where sale is made by description the same forms
an implied condition the breach of which repudiates the contract. In Arcos v.
Ronaasen,17 an order was placed to buy wooden staves, described by the seller as ‘half
17
(1933) A.C 470
88
an inch thick’, when delivered the width of the staves varied from between half an inch
to nine-sixteenths of an inch. It was held that the goods could be rejected as they did
not match their description.
In Beale v. Tailor,18 where a car was described in good faith as a 1961 triumph Herald
convertible, but turned out later to be two halves of two different cars welded together.
Only the real half conformed to the seller’s description. It was held that the sale was
by description and the words ‘1961 Herald’ formed party of the contractual
description, the seller was bound to sell goods fitting the description, and the fact that
the buyer has examined the goods will not affect his right to reject them, if the
deviation of the goods from the description is such which could not have been
discovered by casual examination.
TRANSFER OF PROPERTY IN GOODS or PASSING OF PROPERTY IN GOODS
Here property in goods means ownership (a legal right over a certain thing) distinct
from possession. Determining the time when the property passes is important because
it tells to whom the risk falls, who can pass good title by resale/any other dealing, to
whom the goods belongs. Under S. 2(1) of the Sale of Goods Act contract of sale of
goods is said to involve ‘specific goods’ 19 or ‘future goods’20 and he law lays down rules
for determining when property passes from the seller to the buyer in each of the
contract of sale of goods.
Rules governing transfer of property in goods
The general rule in this regard is that unless otherwise agreed, the goods remains at
seller’s risk until the property therein is transferred to the buyer, whereupon the goods
are at the buyer’s risk whether delivery has been made or not. With transfer of
property there are two important concepts i.e unascertained property and specific or
ascertained property. If the goods are unascertained the property in the goods is
transferred to the buyer when they are ascertained, whilst if goods are specific or
18
(1967) 1 W.L.R 1193
19
Goods identified and agreed upon at the time a contract of sale is made, under s. 2 (1) of the
Sale of Goods Act
20
Goods to be manufactured or acquired by the seller after the making the contract of sale,
under s. 2 (1) of the Sale of Goods Act
89
ascertained, the property in them passes to the buyer at such a time as the parties to
the contractintend it to be transferred. These rules are as follows;
RULE 1; ASCERTAINED GOODS IN A DELIVERABLE STATE, (s. 20 (a) of the Act)
where there is an unconditional contract for the sale of specific goods, in

a deliverable state, the property in the goods passes to the buyer when
the contract is made, and it is immaterial whether the time of payment or
the time of delivery or both be postponed;
This rule entails that where the goods in a deliverable state are identified and
ascertained by the buyer and the transaction is unconditional the property in goods
passes to the buyer. This was stated in the case of Sadru H Said C/O Sidi V R 21. In this
case the appellant sold the car to the complainant and after the payment of the price
was completed the motor vehicle remained at the premises of the seller who in turn
shifted the motor vehicle to the other place. The court held that The appellant was
liable of theft against section 265 of the Penal Code as the property in goods had
passed to the buyer pursuant to section 20 (a) of Cap 214.
Also in Tarling v. Baxter22 B purchased a haystack and before he took it away the same
was destroyed by fire. B was held liable to pay for the haystack because the property
passed when the contract was made. Under this rule if the contract has been made, it
is ineffective that the parties agree that the property will pass at certain time.
RULE II; SPECIFIC GOODS NOT IN A DELIVERABLE STATE, (s. 20 (b) of the Act)
where there is a contract for the sale of specific goods and the seller is
bound to do something to the goods for the purpose of putting them into
a deliverable state, the property does not pass until such thing is done
and the buyer has notice thereof;
The above rule is to the effect that the title or property in goods will not pass in some
cases unless the seller first fulfills some conditions agreed by the parties and thus
anything that happens there after will be at the sellers risk unless the conditions are
fulfilled.
21
[1980] TLR 265
22
(1827)
90
In Carlos Federspiel & Cosa v. Charles Twigg & Co Ltd23 the court held that where the
risk is still on the seller this may be evidence that the property has not passed.
Blackburn J, in the case of Allison v. Bristol Marine Ins. Co Ltd 24 stated that an
obligation to insure placed upon one party by the contract is also an indication that he
bears the risk and it has been said that this is an indication that he also has the
property.
However, in the case of Underwood v. Burgh Castle Brick & Cement Syndicate 25 where
the claimant agreed to sell a horizontal condensing engine to the defendants, to be
delivered free on rail. The machine was attached to the floor by its own weight and it
was to be taken from floor and dismantled before it could be derived free on rail. The
machine was damaged while it was being loaded on the railway wagon. The court held
that the agreement between the parties had was with intention that the engine was
not to pass until the same was loaded onto the train.
RULE III; SPECIFIC GOODS IN A DELIVERABLE STATE NOT PRICED, s. 20 (c) of

the Act
where there is a contract for the sale of specific goods in a deliverable

state, but the seller is bound to weigh, measure, test or do some other
act or thing with reference to the goods for the purpose of ascertaining
the price, the property does not pass until such act or thing is done and
the buyer has notice thereof;
For example, where John purchases a sack of potatoes from Moses, the price of
potatoes is 2500 shillings per kilogram but the total weight of the sack is not known. If
it is agreed that the seller will weigh the potatoes to ascertain the total price payable
does not pass until this is done and the buyer has notice of it.
RULE IV; SALE OR RETURN, s. 20 (d) of the Act
when goods are delivered to the buyer on approval or “on sale or return”
or other similar terms the property therein passes to the buyer;
(i) when he signifies his approval or acceptance to the seller or
does any other act adopting the transaction;
23
[1957] 1Llyod’s Rep 240 at 255
24
[1876]1 App case 209, at 229
25
[1922]1 K.B
91
(ii) if he does not signify his approval or acceptance to the seller

but retains the goods without giving notice of rejection, then, if a
time has been fixed for the return of the goods, on the expiration
of such time if no time has been fixed, on the expiration of a
reasonable time; and what is a reasonable time is a question of
fact;
Subsequent dealing with goods in such a manner as would be inconsistent with the
seller’s title signifies approval by the buyer of the transaction of sale and effectively
results in transfer to him of the property in them. 26 In Poole v. Smith’s Car Sales
(Balham) Ltd,27 P left his car with D on sale or return’ terms in August 1960. After
several requests D returned the car in November 1960 in a badly damaged state due
to use by D’s employees. It was held that since the car had not been returned within
reasonable time the property in the car had passed to D and accordingly he was liable
to pay the price agreed.
Where the goods sold on sale or return terms are specific, and the buyer elects to
return them, the general rule is that he is bound to retun them in the state as when
they were bought, but subject to any incident to which the goods may be liable, either
from their inherent nature or in the course of the exercise by the buyer of those rights
over them which the contract gives.28 Similary, if the goods are damaged due to a trial
necessary to the test the warranty the test they were told under, the buyer’s right to
return them remains.29
RULE V; FUTURE GOODS BY DESCRIPTION AND IN A DELIVERABLE STATE, s. 20

(e) of the Act
where there is a contract for the sale of unascertained or future goods by

description and goods of that description, and in a deliverable state, are
unconditionally appropriated to the contract, either by the seller with the
assent of the buyer or by the buyer with the assent of the seller, the
property in the goods thereupon passes to the buyer and that assent may
be express or implied, and may be given either before or after the
appropriation is made;
26
Kibaya, I. L, Principles of Commercial Law, (2006), p. 138
27
(1962)
28
Ibid, Kibaya
29
Per Bramwell, B in Head v.Tattersall 1871 7Exch 7 at 11 and 12
92
This is to the effect that generally a person cannot make a present sale of non-existent
or future goods or goods not owned, a person can make a contract to sell such goods
at a future date but not having the title, and hence no sale. For example, an
agreement made today that all fish caught on a fishing trip tomorrow shall belong to a
particular person does not make that person the owner of those fish today.
Duties of the buyer
i. Pay for the goods

ii. Accept delivery
iii. Pay compensation in case he wrongfully refuses to accept delivery
Duties of the Seller
i. Deliver goods to the buyer

ii. Supply goods which comply with terms of the contract
Rights of the buyer
i. Right to reject the goods and refuse payment

ii. Right to specific performance
iii. Right to claim for damages (compensation)
Rights of the seller
i. Right to resale
ii. Right to take possession of the goods
iii. Right to claim for compensation
iv. Right to stop goods in transit
REFERENCES
Alix, A, (2011), Law for Business Students, 6th ed. My Law Chamber
93
Cavendish Lawcards Series, (2004), Contract Law, 4th ed. Cavendish Publishing
Limited; London
Elliot, C, & Quinn, F, (2009), Contract Law, 7th ed. Pearson Education Limited; London
Ferdinand, M. T, (2012) Sales of Goods: An overview of the Law in Tanzania, in Massawe M. P

& Ombella, J. S (Edts), Basics of Commercial Law in Tanzania: Universities’ Tailored
Handbook for Students.
Guest, A. G, (1982), Anson, Law of Contract, 25th ed. Oxford University Press; London
Laibuta, K. I, (2006). Principles of Commercial Law, Law Africa Publishing (K) Ltd;
Nairobi
McConnell, J. P, (1970). Law and Business; Patterns and Issues in Commercial Law,
The Macmillan Company; Toronto
Mwakajinga J. E. A, (2005), Business Law, Vol. 1,
Whitman, D & Gergacz, J. W, (1988). The Legal Environment of Business, 2nd ed.
Random House Business Division; New York
LAW OF AGENCY
94
Agency is the contract or relationship which subsists between the principal

and the agent. The agent is the person employed to do any act on behalf
another, the principal on the other hand is the person on whose behalf the act
is done. This is provided for under section 134 of the Law of Contract Act.
The contract which creates the relationship of principal and agent is called
the agency. Thus if A appoints B to buy ten bags of sugar on his behalf, A
is the principal, B is the agent, and the contract between A and B is the
agency
Capacity of Agent
An agent is supposed to create contractual relations between his principal
and a third part. The principal and a third part must possess contractual
capacity and it is not necessary whether the agent himself has contractual
capacity or not. It means even a minor can be appointed as an agent and he
can bind his principal in a contract with a third part
Classes of Agent
Agency may be classified into the following classes
(a) General agent. A general agent is the one who is employed to do all acts
connected with a particular business on behalf of the principal. He can
bind the principal by doing anything which fall within the ordinary scope
of the agent
(b) Special agent. Special agent is the one employed to do a particular act or
represent his principal in some particular transaction. As soon as the act
is done the authority of that agent comes to an end
(c) Universe agent. A universal agent is the one whose authority is
unlimited, thus he is authorized to do all act which the principal can
95
lawful do. He has extensive powers to transact every kind of business on

behalf of his principal
(d) Brokers. A broker is an agent who represents a buyer or a seller in
negotiating a purchase or sale with ought physical handling the goods
involved. He does not sale the goods on his own name and has no
authority to receive payment
(e) Factors. A factors is the one who sale the goods in his possession or
under his control on behalf of the principal. He sale goods on his own
name and has authority to receive payment
(f) Del credere agent. A del credere is the agent employed t sale the goods
of his principal He gives an undertaking to make good the loss that may
arise from eth failure of the parties to whom he sale goods under the
agency
(g) General agent. A general agent is the one who is employed to do all acts
connected with a particular business on behalf of the principal. He can
bind the principal by doing anything which fall within the ordinary scope
of the agent
Duties of Agent
An agent has the following duty toward the principal
i. duty to follow principal’s direction
The first duty of every agent is to act within the scope f the authority
conferred upon him and performs the agent work according to the
directions given by the principal. When the agent acts otherwise, if any
los sustained, he must make it goods to the principal and if any profit
accrued he must account for it.
ii. duty to carry out the work with reasonable care and diligence,
96
an agent must conduct the business of agency with much as much skill
as is generally passed by persons engaged in similar business , unless
the principal has notice of his want of skill . If the agent does not work
with reasonable care and skill he must make compensation to his
principal
iii. Duty to render accounts
It is the duty of an agent to keep proper accounts of his principal’s
money or property and render them to him on demand or on
periodically if so provided in the agreement
iv. Duty to communicate
It is the duty of an agent in case of difficulty, to use all reasonable
diligence in communicating with his principal and in seeking to obtain
his instruction, before taking any step in facing the difficulty or
emergence
v. Duty not to deal with his own account
An agent must not deal with his own account in the business of agent.
It means he must not himself buy or sell goods to his principal without
obtaining the consent of his principal after disclosing all material fact
to him
Vi. Duty not to make any profit out of his agency except his
remuneration
An agent must not make any secrete profit out of his agency. He must
pay to his principal all moneys received by him on principal account
vii. Duty on termination of agency by principal’s death or insanity
When an agency is terminated by the principal’s death or becoming of
un sound mind, the agent must take, on behalf of his representatives
97
all reasonable steps for the protection and preservation of the interest
intrusted to him
Rights of Agent
An agent has the following rights against the principal
i. Right to receive remuneration
The agent is entitled to receive his agreed remuneration, or if
nothing agreed, to reasonable remunerations. In the absence of
any special contract, the right to remuneration arises only
when the agency has done what he is obliged to do. And it is
important that the agent can claim remuneration once he has
completed his work. But an agency who is guilty of any
misconduct s not entitled to any remuneration in respect of
that part of business which he has misconduct. In addition he
is liable of compensating the principal for any loss caused by
the misconduct
ii. Right of retainer
An agent has the right to retain out of ant sum received on
account of principal, all money due to him in respect of his
remuneration.
iii. Right of lien

An agent has right to retain goods whether movable or
immovable of the principal received by him, until the
amount due to him has been paid to him
iv. Right to be indemnified
98
An agent has the right to be indemnified against the

consequences of all lawful act and act done in good
faith done to him in exercise of the authority conferred
upon him
v. Right to compensations
An agent has the right to be compensated for injuries
sustained by him due to the principal’s negligent
Right and Duties of Principal

The duties of an agent are indirectly the rights of the principal and the rights of an
agent are indirectly the duties of a principal. The rights and duties of an agent have
already discussed in this chapter
Termination of Agency
An agency may be terminated in any of the following ways
i. An agreement
An agency like any other contract, can be
terminated at any time by the mutual agreement
between the principal and the agent
ii. Revocation by the principal
The principal can revoke the authority at any
time before the agent has exercised his authority
so as to bind the principal e.g if A empowers B
to let A’s house and afterward let the house
himself, it is an implied revocation of B’s
authority
iii. Renunciation by the agent
99
An agency also may be terminated by express

renunciation by the agent because a person
cannot be compelled to act as agent against his
will. But he must give a reasonable notice to the
principal, unless he will be liable to compensate
the principal for any damage resulting thereby
iv. Completion of the business agency
An agency automatically comes to an end when
the business of agency is completed e,g an
agency for the sale of property terminates on the
completion of the sale
v. Expiry of time
Is the agent is appointed for a fixed term, the
expiration of the term puts to an end an agency
even though the business of agency may not have
been completed
vi. death of the principal or agent
An agent is terminated automatically on the death
of the principal or the agent. After becoming
aware of the principal’s death although the
agency terminates, but the agent must make all
reasonable steps for the protection of the interest
of the late principal entrusted to him
vii. insanity of the principal or agent
An agent also is terminated when the principal
becomes of unsound mind . Likewise when the
agent become insane during the agency, his
100
authority terminate at once and the agency comes

to an end
viii. dissolution of a company if the principal or agent
is an incorporated company, the agent
automatically cease to exist on dissolution of the
company
ix. principal or agent become alien enemy
if the principal and agent are nationals of two
different counties and a war break out between
the two country, the contract of agency is
terminated
HIRE PURCHASE
The hire purchase Act Cap 14, define hire purchase agreement as
101
‘’ an agreement for the bailment of goods under which the bailee may buy the
goods or under which the property in the goods will or may pass to the bailee
Nature of the hire purchase agreement
Under the hire purchase agreement, the buyer agrees to pay for the goods in
installment. On signing the agreement, the buyer can take possession of
commodity and use it. But the ownership remains with the seller until the buyer
pays the final installment. If the buyer fails to pay any installment, the seller is
entitled to take back the commodity and the buyer will have no claim he has
already paid. The amount paid will be traded as a hire charges. Thus the sale
becomes complete only when the buyer pays the final installment. On payment of
the final installment, the ownership of the commodity passes from the seller to the
buyer
Credit sale is different from hire purchase agreement. Credit sale arises when there
is an agreement for the sale of goods in credit basis. In credit sale, the purchase
price may be paid in future either by installment. In credit sale the goods become
the property of the buyer upon paying the first installment. If the buyer fails to pay
any installment, the seller cannot take back or repossess the property but may sue
the buyer in court for unpaid amount
Requirement of the hire purchase agreement
i. Statement of cash price

The owner shall, before any hire purchase agreement is entered into in
respect of any goods, states in writing to the prospective hirer, a price
at which the goods may be purchased for cash, s.6
102
ii. a note or memorandum of the agreement is made and signed by the

hirer and by or on behalf of all other parties to the agreement;
iii. the note or memorandum contains a statement of the hire purchase
price and of the cash price of the goods to which the agreement relates
and of the amount of each of the installments by which the hire
purchase price is to be paid and of the date, or the mode of
determining the date, upon which each installment is payable, and
contains a description of the goods sufficient to identify them;
iv. the note or memorandum contains a notice relating to the rights of the
hirer which is at least as prominent as the rest of the contents of the
note or memorandum, in the prescribed form; and
v. a copy of the note or memorandum, which if not written in Kiswahili,
together with an accurate translation in Kiswahili, has been delivered
or sent by registered post by the owner to the hirer within twenty-one
days of the date of the agreement
vi. registration of hire purchase agreements
Every hire purchase agreement shall be delivered for registration to
the Registrar.
On registration of a hire purchase agreement the Registrar shall
deliver to the owner a
Certificate of registration which shall be accepted by the court as
prima facie proof of the facts stated.
Implied terms of hire purchase agreement
The following are the implied term of the hire purchase agreement
(1) In every hire purchase agreement there shall be–
103
(a) An implied warranty that the hirer shall have and enjoy quiet
possession of the goods;
(b) An implied condition on the part of the owner that the owner shall
have a right to sell the goods at the time when the property is to pass;
(c) An implied warranty that the goods shall be free from any charge or
encumbrance in favour of any third party at the time the property is to pass;
(d) The goods shall be of merchantable quality. except where the goods
are let as second-hand goods, and the note or memorandum of the agreement made
in pursuance of section 6 contains a statement to that effect, there is an implied
condition that goods shall be of merchantable
Provided that no such condition shall be implied by virtue of this paragraph

as regards defects of which the owner could not reasonably have been aware at the
time when the agreement was made, or, if the hirer has examined the goods or a
sample, as regards defects which the examination revealed or ought to have
revealed.
104
105

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NIT - BUSINESS LAW Notes LEVEL 6 AND 7 By: Advocate KISUKA FABIAN

an Act of Parliament (also known as a Parent Act or Principal legislation) with a

Writings of prominent lawyer or experts

(d) Common Law

THE COURT SYSTEM IN TANZANIA

In Tanzania mainland the court structure is as follows

(a) Primary Court

(c) Resident Magistrate Court

(d)High Court of Tanzania

(e) Court of Appeal

Judicial System of the Revolutionary Government of Zanzibar

The structure of the Zanzibar legal system is as follows:

4. Kadhi’s Appeal Court

ETHICAL DIMENSIONS OF BUSINESS

The law of contract is a foundation upon which the superstructure of

Law of contract defined:

Law of Contract may be defined as:-

Sources of Contract Law

There are several classifications:

1. Oral and written contracts:

2. Executed and executory

Executory: when the obligations of one or both of the parties

3. Specialty and simple contracts

Simple contracts: Sometimes called parole contracts. This

4. Unenforceable, voidable, void and illegal contracts

(this will be clarified clearly later)

THE FORMATION OF CONTRACT

Contract: An agreement enforceable by law. S. 2(1)(h) L.C.A.

2. Offer and Acceptance

NB: Some of these elements are enumerated under s. 10 of the

What is the effect of lack of either one or more of these

This is because the enforceability of these contracts is conditional

Rationale for treating certain contracts as unenforceable,

1. To limit enforceability of actions with a view to ensuring fair play

a) the proprietary interests of an owner of property.

b) The proprietary interests of a bonafide purchaser for value without notice

willingness to do or abstain from doing anything with a view of

2. It must be clear and certain: ie. Clarity and certainty of an offer

3. Final Expression: an offer must be firm and final expression by

To whom can offer be made?

In Carlill v. Carbolic Smoke Ball Co., (1893) 1 QB 256

b) The Company suggested that the matter was an advertisement

c) It was further suggested that this was an attempt to contract the

d) The Company claimed that the plaintiff had not supplied

e) The defendant suggested that there had been no communication

Making of offers under various situations

Offer/proposal vs. Invitation to treat

He invites any person to make an offer which he may accept or reject.

Common cases for invitation to treat

Re: Fisher v.Bell (1961) 1 Q.B. 398,

the words were to be construed as they are in the law of

The court observed that it is clear that according to the ordinary

Also see Pharmaceutical Society of Great Britain v. Boots Cash

The plaintiffs which was a body empowered to enforce that law

The plaintiff Society argued that by their deliberately devised

(b) Advertisements: These are mere invitations to treat.

In Patridge v. Critendem (1968) 2ALLER 421

(c) Request for information: A request for information is an

(d) Contracts by tender: In contracts by tender offers are made by

(e) Auction sales: The Advertisement of an auction is an invitation