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BASIC ELEMENTS OF CONTRACT- RFL 101

HANDOUT FOR FOUNDATION COURSE STUDENTS

TOPIC ONE

GENERAL INTRODUCTION & AGREEMENT

Meaning of Contract

Contract is legally binding agreement i.e. a valid agreement between the parties.
In other words you need to have agreement between the parties and that agreement
must be capable to be enforceable by the law there to be a contract.

How can we obtain legality of a contract?

For an agreement to be enforceable/ valid it must have basic elements which are:
a) Agreement
b) Intention to create legal relations
c) Consideration
d) Legal capacity
e) Consent
f) Legality
A contract which passes all above requirements is said to be valid and enforceable.

Absence of the basic element will render the contact void or unenforceable. Read section
10 of the Law of Contract Act.

Agreement

An agreement is made up of an offer made by one person and acceptance by another

person.

Example: sell of shoes

A is a seller of shoes B is a buyer. B asked ‘what is the price of shoes’. A reply ‘10,000/-.’
B said ‘I will buy them for 10,000’. A said okay and sell the shoes to B.

Statement of B ‘i will buy them (shoes) for 10,000 is an offer; and

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Statement of A ‘okay’ is acceptance to the offer of B

Once the proposal has been accepted they change their character and become promise.
Read section 2(1) (e) of the Law of Contract Act.

How agreement is formed?

Agreement is formed when an offer by one party is accepted by the other party.

What is an OFFER?

A proposal is made up of a term or terms. Therefore an offer is a definite promise to be

bound, provided the terms of the offer are accepted. Read section 2(1)(a) of the Law of
Contract Act

Example: where there is a sell of book.

Buyer makes a proposal/offer to the seller to buy a book. Buyer offer could be; seller I
want to buy a book of Contract at shillings 15,000/.

➢ From the statement the buyer signify his willingness to be bound by the terms he
has proposed.

What are the terms from the above proposal?

i. That I want to buy a contract book.

ii. That at shillings 15,000

The seller can either accept or reject the offer. Therefore the buyer will be bound by
those terms only if the seller accepts the offer.

The Characteristics of an Offer

a) Offer must be made willingly

That is the one who is making an offer should do so willingly, and should know
that he is ready to be bound by the proposal he has made if accepted.

b) The term of the proposal must be clear and certain

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Example the statement like; ‘I want to buy a book’; is it clear and certain?
The answer is NO because;
i. The buyer is not specific as to which book he wants to buy.
ii. There is no mentioning of price.

If you read section 29 of the Law of Contract Act it states; where the terms of the
proposal are not certain, yet the offeree accepts the proposal the agreement reached will
be treated by the law as no agreement at all.

Read also the case of Alfi E.A Ltd v Themi Industries and Distributors Agency Ltd, [1984]
TLR 256. Where there was non-mentioning of price and therefore the agreement
becomes uncertain- void.

c) Final expression
It should be a firm and final expression, that is should not be changed every now
and then.

Communication of an offer

A proposal may be made either expressly or impliedly. Where it is made in words it is

said to be express. Where it is made otherwise, it is said to be implied. Read section 9 of
the Law of Contract Act

The proposal must be communicated to the person for whom it is intended whether by
expressly or impliedly.

How can offer be communicated?

Section 3 of the Law of Contract explained the manner of communication that, the
communication of proposals is deemed to be made by any act or omission of the party
proposing, by which he intends to communicate such proposal and which has the effect
of communicating it.

When communication is complete?

This is provided by section 4 of the Law of Contract Act that the communication of a
proposal is complete when it comes to the knowledge of the person to whom it is made.
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To whom an offer can be made?

An offer need not be made to a specific person. It may be made to a person, a class of
people, or to the whole world.

Revocation of an offer
A person can withdraw the offer that has been proposed before that offer is accepted.
For withdrawal to be effective, the person who has proposed the offer must
communicate to the other party that the offer has been withdrawn.

What is ACCEPTANCE?
Acceptance occurs when the party answering the offer agrees to the offer by way of a
statement or an act. Read section 2(1) (b) of the Law of Contract.

Characteristics of acceptance

a) The acceptance must be made in respond to and in exchange for the proposal.
- In response to the proposal;
The offeree must be aware of the offer section 2(1) (c). Where a person is not
aware of the proposal he cannot be said to respond to it.
- In exchange for the proposal
A person may have knowledge of the proposal but may accept it not in
exchange for the proposal.
If that happens then there is no acceptance rather a counter offer.

Example in R v Clarke, (1927) 40 C.L.R.227

Clarke sued the Crown to recover a reward of £1000 for giving information
that led to the arrest of persons who murdered two police officers. It was
found as of fact that Clarke was not acting in reliance of the reward when he
gave the information “but exclusively in order to clear himself from a false
charge of murder. Did the information supplied by Clarke amount to
acceptance of the offer of £1000 by the Crown? The intention of the offeree
to consistently/unwaveringly desire a reward is necessary to be sufficiently
'aware' of the reward when giving the information to meet the condition of
the reward. If the purpose of giving the information is for a purpose or goal
that is not specifically to accept the reward, no contract is made and the
reward cannot be claimed. Information was exclusively given in response to or
as an incidence of specific criminal charge against the respondent and not
regarding the reward. Clarke did not seem to have any thoughts of the offer at
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the time he gave the information. Therefore, even though he knew about the
reward, He did not act in any sense in reliance on the offer of £1000.Because
the Plaintiff was so concerned about his criminal charge; his intention to give
the information was regarding the criminal charge and not to accept the offer.
Clarke had neither a legal nor a moral claim to the reward.

b) The acceptance must exactly match the terms of the proposal

This means that there must be acceptance of precisely what has been offered or in
other words we could say the offeree must accept the term as proposed.
Therefore in order to convert a proposal into a promise, the acceptance must be absolute
and unqualified.
Read Stella Masha v Tanzania Oxygen Limited, (2001) TLR

Communication of acceptance
The acceptance to be completed must be communicated to the offeror.

In Household Fire Co v Grant, (1879) 41 L.T 289 the court stated that;
“an acceptance which only remains into he breast of acceptor without being actually or
by legal implication communicated to the offeror is no binding acceptance.”

Different ways in which acceptance can be communicated

a) Communication to an agent
Where the agent is authorized to receive acceptance then communication to an
agent is good as communication to the principal.

b) Conduct of proposer
Where by his conduct the proposer fails to see the notice of acceptance of the
proposal he cannot disclaim liability on the ground that the acceptance was not
communicated to him.

c) Communication in accordance with the terms of the proposal

In some cases the proposer may either expressly or impliedly intimate the mode of
acceptance of his proposal.
- In such a case the offeree need only follow the indicated method of
acceptance.
- Performance of the required act or service is sufficient acceptance of the
proposal.
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d) Communication of acceptance by post

- Position at common law
According to common law rule, once a letter of acceptance has been posted a
contract is formed and both parties become irrevocably bound.
Read Adams v Lindsell, (1818)106 E.R 250

By this rule it means, the acceptor cannot revoke his acceptance by a speedier
means, say by telephone or email.

- Tanzanian Position
Section 4(2) of the law of contract provides the position as far as
communication of acceptance by post is concerned that; The communication
of an acceptance is complete–
(a) as against the proposer, when it is put in a course of transmission to
him, so as to be out of the power of the acceptor;
(b) as against the acceptor, when it comes to the knowledge of the
proposer.

That means impliedly;

The proposer is bound but not the acceptor himself. That is to say a contract
has been concluded to the part of proposer.
The acceptor will be bound by his acceptance when it comes to the knowledge
of proposer.

Therefore, s 4(2) given an opportunity to the part of acceptor to formally

cancel his acceptance by a speedier means
Revocation of an acceptance is not effective until its communication is complete. Read
section 4(3) and 5(2) of the Law of Contract Act.
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TOPIC TWO

INTENTION TO CREATE LEGAL RELATIONS

General Introduction

A contract does not exist simply because there is an agreement between people. The
parties to the agreement must intend to enter into a legally binding agreement. This will
rarely be stated explicitly but will usually be able to be inferred from the circumstances in
which the agreement was made. To create a contract there must be a common intention
of the parties to enter into legal obligations, mutually communicated expressly or
impliedly.

The rule/principle is that, the parties can use express language to indicate intent or lack of
intent to impose legal obligations on each other. However, this intention can be
impliedly from the circumstances.

Read Rose & Frank Co. v JR Crompton & Bross Ltd (1925) AC 445

How can the court determine intention of the parties?

The courts use an objective test in making a determination about the intention of the
parties.

The court will look at the surrounding circumstances and ask if a reasonable person
would regard the agreement as intended to be binding.

Authority on the Intention to Create Legal Relation

This element is covered by common law rules.

In English law it is a settled principle form the case of Rose & Frank Co. v J.R. Crompton
& Bross that; ‘To create a contract there must be a common intention of the parties to
enter into legal relation.’

Why is it important?

This is to make the parties legally responsible for their action and not a mere matter of
pleasantry.

Therefore; even where there is an evidence of proposal and acceptance; the court may
not recognize the agreement as legally binding contract if there is no any intention
between the parties involved, that the contract should result their dealing.
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The nearest the court can get to discover this intention is to apply an objective test and
judge the situation by what was said and done.

To DETERMINE legal intention the law divides agreement into different groups;

1. Social and domestic relationship

2. Commercial agreement
3. Government activities
4. Voluntary associations

1. Domestic and Social Relationship

Presumption (legal inference): the presumption is that domestic and social agreements
are not intended to have legal force.

Rebutting (deny) the presumption; the presumption can be rebutted if:

i. The parties who are in familiar relationship are contracting in a business context.
ii. If a husband and wife enter into an agreement in circumstances in which they are
no longer living in harmony;
iii. If the words in the contract indicate a legal intention;

the presumption that may otherwise have arisen may be rebutted.

Examples:

Husband and wife

Parties intended involved in a domestic relationship, will generally not have intended
legal consequences to follow their agreement thus a contract will not be enforceable.

Given many couples now choose to cohabit without marrying the same presumption
should apply where an agreement is entered into between couple living in a de facto(in
fact) relationship. Read: Balfour v Balfour, [1919] 2KB 571

Other familiar relationship

Parties in other familiar relationship are considered the same as married de facto couples.

It is presumed that they do not intend to create legal relationships as the agreement is
made in this context are base on natural love and affection.

The bond of natural love and affection is likely to weaken according to the remoteness
of the tie and will subsequently be easier to rebut.
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One or more of the following factors are often relevant:

i. The seriousness of the conduct involved eg: moving countries a giving up full time
employment.
ii. The expense involved; especially if the relevant party is not wealthy.
iii. The closeness of family ties.
iv. Whether the subject matter of the agreement is business or commercial in nature.

Read Jones v Padavalton, [1969] All ER 616

Social relationships

The presumption of lack of legal intent can extend beyond familial relationship to
agreement entered into in a social context, or agreement made between friends.

E.g. in Heslop v Burns

The deceased allowed his friend to stay in a house owned by him free of charge. In an
action for possession by the deceased’s estate the friends argued they were in possession
as tenant at will but were unsuccessful. The court finding that in the circumstance in
which possession was given the parties cannot enter into legal relations.

2. Commercial agreement

Presumption: where parties negotiate and agree in a business setting, it is assumed that
the parties intended the agreement to have legal consequences.

The party alleging that an agreement relating to business matter is of no legal effect has a
heavy owns of proving that to be the case.

Read: Esso Petroleum v Customs & Exercise, [1967] 1 ALLER 117

Rebutting the presumption:

Where the agreement may contain an express clause that no legal consequences flow
from the document,

Where the overall tenor of the particular document may indicate that the parties had no
intention to enter into legal relations

Read: Rose & Frank Co v JR Crompton, [1925] A.C. 445

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3. Government Activities

Commercial agreements

Increased formality may be required to demonstrate the necessary legal intent where one
of the contracting parties is the government

If a government contract arises out of the commercial need for the operation of
government for example the order of stationary a contracts to purchase vehicles, the
usual contract principles apply to determine whether a contract has been formed.

Policy Initiatives

Where the government activity relates to a policy initiative, a court may be less likely to
find that the parties intended to enter contractual relations.

4. Voluntary Association

Rules/constitutions of voluntary association do not constitute a binding legal contract

between parties, unless there was some clear positive indication that the members
contemplated the creation of legal relations inter see (between themselves)

The rules adopted for their governance would not be heated as amounting to an
enforceable contract. The parties could possess requisite legal intent if the member has a
proprietary interest in the club.

Read: Cameron v Hogan, 51 CLR 358

Circumstances Indicating Absence of Intent

Letter of intent

This is a device tool by which one person indicates that he is likely to place a contract
with him, but is not yet ready to be bound.

Collective agreements

This is an agreement between a trade union and an employer regulating rates of

payment and conditions of work.

Such agreements are not intended to be legally enforceable unless they are written and
expressly affirm that they are to be binding.

Whether Intention is an essential element in a contract in East Africa

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At common law (including Kenya & Uganda) the element intention to create legal
relations is an essential ingredient in a contract.

However in Tanzania that is not expressly provided by the law of contract Act.

A close examination of the definition of the word proposal and acceptance seems to
show that the element is by necessary implication, essential S.2 (1) (a) (b) LCA

One could read the word WILLINGNESS to mean intention to be bound according to the
terms of the proposal a acceptance.

Finally it can be argued that the law of contract Act does not cover each and every
aspect of contract law. In such case one has to fill back on the common law of contract.

Read: Tanganyika Garage Ltd v Mercel G. Mafuruki [1975] L.R.T 23

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TOPIC THREE

CONSIDERATION

Definition:

Consideration revolves around exchange of value embedded in goods or services.

A person who parts with value must be given some value in return.

In Thomas v Thomas, (1842) 2 Q.B 851 consideration was defined as ‘something which is
of some value in the eye of law. It may be some benefit to the plaintiff or detriment to
the defendant.

Under the law of contract Act

In Tanzania we have statutory definition of the term consideration provided under

section 2(1)(d) of the Law of Contract Act:

The definition suggests that a consideration is for the promise given and it may be in
form of

➢ An act
➢ Abstinence
➢ A promise

That means consideration must be given at the desire of the promisor.

In Tanzania; it is only statutory provision which provide that consideration must be

furnished at the desire of the promisor.

Who may furnish Consideration

Position at Common Law

The English Common Law of Contract requires that consideration must be furnished by
the promisee and the promisee only see the case of Dunlop Pneumatic Tyre Co. v
Selfridge & Co [1915] A.C. 847

Position Under the Law of Contract Act

S. 25 (1) provides that an agreement made without consideration is void.

While at common law consideration must move from the promisee who is in fact a party
to the contract. Section 2 (1) (d) provides that consideration may be furnished either by
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the promisee (a party to the contract) or any other person (one who is not party to the
contract).

i.e. Furnishing of consideration by itself does not entitle a person to sue on the contract.

In order to sue, one must show that he is a party to the contract.

Types of Consideration

Consideration should exist with the promise given. The rationale for this principle seems
to be that since consideration is the price for the promise it should be given in response
to and as an inducement for the promise.

An act or abstinence or a promise in response to a promise may be executor or executed.

An act or abstinence done or abstained from not in response to a or as an inducement

for the promise is known as past consideration

Therefore, consideration may be either executory or executed or past.

However, past consideration does not meet the test of contemporaneity and as such as a
general rule English law treats past consideration as no consideration at all.

Executory Consideration

In commercial transaction it is common for contracts to be concluded by a mere

exchange of promises i.e. the promise of one party is bought by the promise of another.

Here the promise by A is consideration for the promise of B.

Eg. The seller promises to sell certain goods and the buyer promises to pay the price for
the goods to the seller. A contract is concluded, delivery of the goods and payment of
the price will take place in future.

Read section 2(1)(d)of the LCA

Executed consideration

An executed consideration consists of an act which has been done in response to a

promise.

e.g. where a promises a reward to anyone who finds and returns to him his lost article
he does not expect those who intend to look for the lost article to promise him that they
are prepared to find the article. B may find the article and take it back to A.
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Because act of finding and returning the article to A amounts to not only acceptance of
the proposal made by A but also to a consideration for A’s promise.

The consideration in this case has already been executed by B; A on his part has yet to
perform his promise by giving the reward to B. A’s consideration for B’s already
performed act is yet to be executed.

Therefore it remain executor on part of A while B’s is executed consideration

Past Consideration

It comprised an act or abstinence which was done before the promise was made and not
in response to or induced by the subsequent promise.

According to English law past consideration cannot support a promise.

Roscorla v Thomas, (1842) 3 Q.B 234 read pg. 74

Exception to the General Rule

➢ Past Service Rendered at the Promisor’s Request

A past act or service rendered at the request of the promisor constitute consideration for
a subsequent promise by the promisor.

Lampleigh v Brathwaite (1951) ch.669 read pg. 74

Also in Pao Qn v Lau Yiu Long (1979) 3 W.L.R. 435 read pg. 75-76

Read section 25(1)(b) LCA

➢ Time barred Debt

Acknowledgment of a time barred-debt is sufficient to make such debt enforceable

In English limitation Act, 1980 there need not be any promise express or implied by the
debtor to pay the creditor.

The acknowledgment must

i. Be in writing
ii. Be signed by the person making it
iii. Admit legal liability to pay the sum claimed by the creditor
iv. Relate to a debt or other liquidated sum
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Read also section 25(1)©

Expiry of the statutory period does not extinguish the debt, merely rendered the debt
unenforceable in a court of law.

The debt is still payable and the creditor may use any other method to obtain satisfaction
from the case of Busch v Stevens [1963] Q.B. 1

➢ Negotiable instrument

In the English Bills of Exchange Act, 1882 has a statutory exception to the rule that past
consideration is no consideration at all.

Section 27 (1)(b) of Tanzania Bills of Exchange Act, Cao 215 and section 27(1) of the
English Bills of Exchange Act provides that an antecedent debt or liability may constitute
valuable consideration for a bill.

Importance and Rationale of Consideration

i. Is to ascertain that the parties to a contract honour what they are promise they
have made to each other.
ii. More especially in simple contracts where it is not written consideration stands as
moral obligating by asserting that the ties of conscience upon an upright mind
iii. And that every man is by the law of nature bound to fulfill his engagements. It is
equally true that the law of the country supplies no means, nor affords any
remedy, to compel performance of an agreement made without sufficient
consideration.
iv. According to LCA as a general rule an agreement without consideration is void S.
25 this means consideration is an essential ingredients in all simple contracts
concluded in Tanzania.

Sufficient of consideration

Sufficiency and adequacy of consideration

In contract parties agrees as to what each of them has to do under such contract. As well
what consideration a party has to furnish for the promise of the other is supposed to be
fixed by the parties of their own free consent. The court will not interfere even though
the amount may not be of equal value.

In Tanzania relevant provision is section 25 (3) LCA

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Therefore the consideration for a promise need not be adequate but consideration must
be sufficient to support the promise.

The courts will have to be satisfied that the consideration given is valuable.

In Thomas v Thomas [1842] 2 Q.B. 851 Consideration was defined to mean something
which is of some value in the eye of law.

It could be; things with nominal value, things with no economic value, trivial acts,
forbearance and compromise, performance of existing duty etc.
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TOPIC FOUR

CAPACITY TO CONTRACT

Not all people are completely free to enter into a valid contract. The contracts of some
of groups of people involve problematic consent, and are dealt with separately.

Meaning:

Capacity to contract refers to competence to contract, i.e. ability (legal ability) to be

involved in contractual relationship.

Who has capacity?

As a general rule only sane (mentally balanced) sober (not intoxicated) person of
contractual age are capable of making valid contracts.

However that does not mean children old people drunken person does not involved in
any way in contractual transaction, eg. Selling and or buying things. What the law does is
to protect that group if anything happen that involve law.

As such the law recognize certain group of persons as not being capable to contract and
protect them.

Requirement of the law

It is a requirement by the law that, parties to a contract must be competent to contract

to make it enforceable section 10 LCA.

Legal Definition of Competence

According to S. 11 (1) of the law of contract Act every person is competent to contract
who is;

➢ Of the age of majority according to the law to which he is subject, and

➢ Who is of sound mind, and

➢ Is not disqualified from contracting by any law to which he is subject.

Person who are not competent therefore are:

i. Minor: a person who does not attain the age of majority

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- In EA specifically Tanzania age of majority is 18 years – Age of Majority Act

Cap 431

- In Zanzibar 18 years – Laws of Zanzibar, Cap 53

- In Kenya 18 years – Age of Majority Act 1974

- In Uganda 18 – Uganda contract Act Cap 75

ii. Person of unsound mind: insane, ill person, drunken person

iii. Person disqualified by the law to which they are subjected

- married person

- Corporation

- Association

- Clubs

- Partnership

Importance and Rationale Behind Capacity in Contractual Arrangement

As a rule a person without capacity to contract cannot protect himself and therefore
needs the protection by the law. This is because he lacks:

a) Intellectual maturity,

b) Lacks experience in exercise sound Judgment,

c) He may not know or appreciate the effects of the agreement upon himself.

At the same time the law does not cast a blind eye where minors concluded arrangement
with adults. Where appropriate it balance in order to protect the interest of adults

Persons who are not competent to enter into contractual arrangements

Minors

Age is a factor which may vitiate a person’s capacity to contract.

Section 11 (1) LCA states that; a minor is not competent to contract; for that matter, an
agreement by a minor is void, S. 11(2) LCA. That means there is no agreement at all in
the eyes of law.
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The law on minors’ contract based on two principles

i. The law is there to protect minors from their inexperience, hence to invalidate
agreement which are unfair to the minor or which are wasteful.

ii. The law is not to cause unnecessary hardship to adults who deal fairly with
minors.

Therefore, under second principle the law recognize some contract with minor as valid
and others as voidable.

In Tanzania the general rule of contract based on the contract Act expressly provides for
the contractual liability of a minor that;

a) A minor has no liability in contract.

b) A minor may however be held liable in quasi contract for necessaries under S. 68
LCA and S. 4 of Sale of Good Act.

Necessaries mean goods suitable to the condition in life of such infant or minor or other
person and to his actual requirement at the time of sale and delivery.

To that extent Liability is only for necessaries. However, there is no definition of

necessaries in the LCA. The definition in S. 4 of sale of Goods Act may not be satisfactory.
And therefore it depends on material condition.

Unsound Mind

It is expressly provided by the law that, a person who is of unsound mind is incompetent
to contract. S. 11(1) LCA

The definition of unsound mind is given in comparison to one who is of sound mind

Illustration: S. 12(1) gives the following definition

“A person is said to be of sound mind for the purpose of making a contract

if, at the time when he makes it, he is capable of understanding it and of
forming a rational judgment as to its effect upon his interests.”

Further, the law allows a person who is usually or unsound mind, but occasionally of
sound mind to make a contract when he is of sound mind. S. 12 (2) LCA
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Again the law prohibits a person who is usually of sound mind, but occasionally of
unsound mind to make a contract when he is of unsound mind S. 12 (3) LCA e.g.
drunken person, illness person and contemporary insane.

The contract of mentally disordered or drunken person is binding upon him unless it can
be shown that at the time of making contract he was wholly incapable of understanding
what he was doing and that the other party know of his condition.

The principles was established in the case of Imperial Loan v Stone [1892] 1 QB 559

If these conditions are satisfied he can elect either to avoid the contract or to affirm it, in
which case it is binding on him.

Thus, in Mathew v Baxter (1873) L.R 8 Ex 132 Therefore if property is transferred as the
result of such a contract and subsequently passed to a bonafide purchaser for value, it
seems that the innocent purchaser would acquire a good title.

Apart from what we have explained above, an agreement of a person of unsound mind
is void.

Persons Who are not Qualified from Contracting by Law

Married Persons

At common law, married women had no capacity to contract

However by S. 12of the Married Women’s Property Act, 1882 married woman own
property and use in their own names.

S.11 of the same Act, empowers married woman insure her life for her benefit of her
family. She may also insure the life of her husband for her own benefit.

In Tanzania: S. 56 of Law of Marriage Act 1971, a married woman has the same right as a
man to acquire, hold and dispose of the property whether movable or immovable and
the same right to contract, the same right to sue and the same liability to be sued in
contract or in tort or otherwise.

S. 76 (2) (c) & 98 of the Insurance Act, of 2009 a wife has an insurable interest in the life
or a husband.

Corporate Personalities

Companies, corporation and the like, have capacity to contract depending on the
instrument establishing them. That is the companies Act.
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Through it duly authorized agents, as regarding to a legal person, they are capable of
concluding contract using it name.

However, the company cannot make whatever contract it so wish. This is because the
contractual capacity of a corporation is limited. I.e. a company enters into those
contracts which the memorandum of association of the company allows, (memorandum
of association is a document which sets down the various objects, functions and purpose
of the company) therefore, if a company is made a contract outside the objects of the
company it becomes void.

Association and Clubs

These entities do not have legal personality unless established by a statute by appointing
trustees it incorporated under the Trustee incorporation Ordinance Cap 375

Partnership

Partnership has no legal status; this is a kind of relationship which rose from contract

S. 190 (1) defines partnership 191 (1) explains.

Each partnership has power over the other, i.e. is an agent of the firm and his other
partner S. 201 (1)
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TOPIC FIVE

CONSENT

Entering into a contract must involve the elements of free will and proper understanding
of what each of the parties is doing. In other words, the consent of each of the parties to
a contract must be genuine. Only where the essential element of proper consent has been
given is there a contract that is binding upon the parties.

The classical concept of free consent is reflected in the Law of the Contract Act that; for
an agreement to be a contract it must be made by the free consent of the parties section
10 the Law of Contract Act.

That is to say, two or more persons are said to consent when they agree upon the same
thing in the same sense. Section 13 LCA

Consent need not necessary to be free, according to section 14 consent is said to be free
when it is not caused by:

a) Coercion as defined by S. 15
b) Undue influence as defined by S. 16
c) Fraud as defined by S. 17
d) Misrepresentation as defined by S. 18 or
e) Mistake, subject to the provision of sections 20,21, and 22

A: Coercion or Duress
Coercion: is defined as the committing or threatening to commit, any act forbidden by
the Penal Code, or the unlawful detaining or threatening to detain, any property to take
prejudice of any person whatever with the intention of causing any person to enter into
an agreement S. 15
Burden of proof: in order to prove that consent was caused by coercion one must prove
either
a) That the other party actually committed or threatened to commit an act
forbidden by the Penal Code or
b) That the other party unlawfully detained or threatened to detain some
property in order to obtain the consent

Effect: when consent to an agreement is caused by coercion the agreement is a contract

voidable at the option of the party whose consent was so caused. S. 19 (1)
 23

B: Undue Influence

Meaning: undue influence involves improper use of power to affect somebody’s

character beliefs or actions through example fear, admiration etc. In contract undue
influence means improper use of power to obtain consent.

Circumstances a contract can be said to be induced by undue influence section 16 of LCA

A contract is said to be induced by undue influence where the relations subsisting

between the parties are such that one of the parties is in position to dominate the will of
the other and uses that position to obtain an unfair advantage over the other section 16
(1) Law of Contract Act.

Section 16 (2) provides situation under which a person will be deemed to be in a

position to dominate the will of another.

➢ Where he holds a real or apparent authority over the other, or where he stands in
a fiduciary relation to the other.

Example doctor and patient, religious or spiritual adviser and devotee, bank and its
customer, husband and wife or magistrate and civilian

➢ Where he makes a contract with a person whose mental capacity is temporarily or

permanently affected by reason of old age, illness, or mental or bodily distress

Othman Kawila Matata v Grace Titus Matata [1981] TLR 23

C: Misrepresentation

There are serious false statements and minor false statements that might be made by
parties contracting with each other. Different consequences flow, depending on the
seriousness of the false statement made.

False statements might be made where either:

• The parties come to agree and contract because one of them has been motivated
to agree by a statement of fact (something said or written) that is not true.
Commonly, these types of statements have not actually been included in the
contract itself but were an encouragement to enter into the contract. For this
reason, they are viewed as though they were part of the contract; and/or
 24

• The parties have agreed and there is a contract, but the statements or terms in the
contract exist only because one of the parties has made a false statement.

False statements affect the question of whether or not a contract exists. Very serious false
statements mean a court would view the contract as void and unenforceable. The
consequence is that monetary damages sufficient to place the wronged party back to
their original position must be paid.
In other (less serious) instances, the court will find the contract valid but the wronged
party will be entitled to reject the contract or to treat it as at an end. Here, monetary
damages sufficient to place the wronged party in the position they would have been in,
had the contract been properly completed, must be paid.

Types of Misrepresentation:

Innocent misrepresentation

When a maker makes a statement believing to be true but is not true S. 18 LCA

Negligent Misrepresentation

When the maker negligently make a statement

Fraudulent Misrepresentation

When at the knowledge of the maker knows for sure the statement is not true and he
makes it section 17 LCA

Remedies

At common law

The injured party may either affirm the contract or sue for damages or rescind the
contract and sue for loss suffered.

Under the Law of Contract Act

➢ It becomes voidable S. 19 (1)

➢ Can claim for compensation for any loss he has suffered due to the fraudulent
misrepresentation S. 19 (3)

➢ No award of damage unless is the case of tort

➢ If have the means to discover cannot avoid the contract S. 19 (1) Proviso
 25

➢ If fraud does not cause his consent the party may not avoid a contract S. 19 (2)

D: Mistake

Under LCA & Common Law

Mistake can take any of the following forms:

a) Mutual mistake in which consent may not be defeated but nullified section. 20
b) Mutual mistake in which consent may be defeated or rendered unreal and thus
negative S. 13
c) Unilateral mistake in which may be defeated or render unreal and thus negative S.
2 (1) (a) (b)
d) Documents mistakenly signed [the Plea of non est factum]

1. Mutual Mistake Which May Nullify Consent

Under common law

Valid contract has been made; on the face of it there appear to be no problem at all with
the contract. What remain in the performance of the contract. It is later found that the
contract is not capable of performance on the ground of mistake in relation to the
subject matter of the contract.

Under LCA – Mutual Mistake which may nullify consent is provided by section 20 (1) (2)

(1) Where both the parties to an agreement are under a mistake as to

a matter of fact essential to the agreement, the agreement is void.

(2) An erroneous opinion as to the value of the thing which forms

the subject matter of the agreement is not to be deemed a mistake as
to a matter of fact.

Effect is to nullify consent

i. Mutual mistake nullified free consent a necessary ingredient of a contract under S.

10
ii. In this case, mutual mistake rendered the contract incapable of performance it is
therefore void under S. 56 (1) as well
iii. The effect of S. 20 is to render a contract void. Once a contract has been so
rendered S. 65 comes into play.
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2. Mutual Mistake which may negative consent

Section 13LCA provides that two or more person are said to consent when they agree
upon the something in the same sense. If parties do not agreed on the something in the
same purpose they said to cross purpose one another. This means that there is no consent
to the agreement on.

There are two types of such mistake

a) Mistake relating to the subject matter
b) Mistake relating to the terms of the contract

3. Unilateral Mistake
Is a one sided mistake. Most of unilateral cases involves mistake on identity.

Example: A enters into an agreement with B who pretends to be C and A believes him to
be C. Later A alleges that she would have held her consent to the agreement
had she not been mistaken as to B’s identity.

In such case there is a prima facie (on the face of it) that despite the mistake a contract
has been concluded between parties.

The burden of rebutting this presumption lies on A (a party who plead mistake).

The authority for mistake is sections 21 & 22 and 14 of the LCA.

The contract can be valid when the other party makes a mistake when he/she does not
have the intention to fraud.

4. Document mistakenly sign (Non est fractum- it is not my deed )

This is an exception to the common law, because for them the rule is when you sign you
sign and this exception is for the blind, insane, sick, illiterate e.g. Foster v Mackinon,
(1869) LR 4 CP 704

In Thorough goods Case, (1582) 2 Co Rep 9

T could neither read nor write, he let some land to William Chicken who later failed in
arrears with his rent. William tendered a deed to T to sign. When T asked what it was
about a by stander told him the effect of the deed was to relies William form all the rent
arrears and then T would get his land back.

T said that if it will be no otherwise I am content and T then sign the deed and delivered
it to W.
 27

In actual sense the reality was that, the deed was to the W was relieved from all demand
what so ever. It was held that the deed was not T’s as he had been deceived being a
person who could not read.

No provision to that effect provided by the Law of Contract Act but the Court of Appel
in Tanzania has applied this doctrine in the case of Slusi Brothers E.A Ltd v Mathias and
Tawari Kitomari (1967) HCD 42 J
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TOPIC SIX

ILLEGAL CONTRACTS

Parties have the right to enter into any kind of agreement they are please but subject to
limitation.

➢ Consideration for the promise must be lawful; and

➢ The object of the contractual agreement must be also lawful.

Agreement must be made by lawful consideration and lawful object section 10 LCA.
When the object or consideration or both are unlawful render the contract to be illegal.

The effect to it renders the contract void section 23 (2) LCA and therefore unenforceable
by action.

Example: An agreement to rape another person for consideration of 10,000

The object - rape is unlawful but the consideration - money is lawful

Another situation is where the contracts to public policy are said to be illegal. That means
contracts are said to be contrary to public policy when they have a tendency to being
about a state of affairs which the law regards as harmful.

Therefore contracts may be declared illegal either because they are contrary to laws or
because they are contrary to public policy S. 23 (1) (a) LCA

A: Contracts Which Are Contrary To Law

i. Where making of the contract is forbidden by law S. 23 (1) (a) Example;

- The credit to Natives Restriction Act (which repealed in 1961) prohibited

making of a credit contract between a non-native and a native.

- The law of Marriage Act-prohibits marriage contracts between close blood

relatives

- Securities given for money lost at dice would be deemed to have been for an
illegal consideration and therefore, rendered void. Jiwan Singh v Rugnath
Jeram (1945) 12 EACA 21

A contract which is not prohibited but simply declared by statute to be void or voidable
unenforceable is not illegal. Muhuri v Kirio, [1969] EA 232
 29

ii. Where the object of the contract is contrary to law S. 231 (b) Law Contract Act

Example: The sale of Bhangi

You may read S 11 (2), 25, 56 of the Law of Contract Act

Example: A contract may be declared illegal if lawful concluded in one country but
intended to be executed in another country contrary to the laws of that country.

In Regazzoni v K.C. Sethia, Denning L.J. said that;

“if two people knowingly agree together to breach the laws of a

friendly country or to procure someone else to break them or to
assist in the doing of it, then they cannot ask this court to give its
aid to the enforcement of their agreement”.

iii. Where the agreement may cause injury to the person or property of another S. 23
(1) (d) LCA

Agreements to commit crimes or torts against other person are illegal because they may
cause injury to the person or damage to his property.

Like conspiratorial agreement eg agreements to kill or injure another person, steal,

defame, maliciously prosecute or unlawfully imprison another person

iv. Where the agreement is for fraudulent purpose S 23 (1) © contract to bribe a
judge with the intention of defeating lawful claims of a third person

B: Contracts which are Immoral or Contrary to Public Policy S. 23 (1) (e)

i. Immoral Contracts

What is immoral is against public policy.

Example: prostitution is regarded as immoral in Tanzania

ii. Contracts which are contrary to public policy

a. Interference with marital relations

- An agreement to marry after a married woman procures a divorce against her

husband is immoral.

- An agreement to marry after the husband death is immoral.

 30

- An agreement between couples providing for terms of a possible future

separation is invalid the same if they did before marriage.

b. Contracts which pervert the course of justice

- Agreement that criminal may not be prosecuted is contrary to public policy

because it is against public interest.

- Trading with enemy

- Undue restriction of personal liberty

- Contracts in restraint of trade

Consequence of Illegal Contracts

i. The most common effect of illegality is to prevent the enforcement of the

contract, either wholly or in party.

ii. It may also prevent a party who has transferred money or property under the
contract from getting it back and it may invalidate collateral transaction,

iii. Under the law of contract consequences of illegal contracts are provide for under
S. 23 (2) (a) (c) and S. 24

These provisions are in substances common law principles developed through case law,
and there are three factors that will be taken into account.

a. State of mind of the parties

b. Illegality of a contract when formed

c. Illegal performance of a contract lawfully concluded.