THE OPEN UNIVERSITY OF TANZANIA

COURSE MATERIALS FOR THE LL.B. DEGREE PROGRAMME

LAW OF CONTRACT

PART I

N.N.N. Nditi

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 CONTENTS

LECTURE NO. PAGE NO.

1.The institution of Contract.............................................................................................................2
2. Development of the Institution of
Contract in African Communities .........................................................................................7
3. Sources of the General Principles of
contract law in East Africa ................................................................................................. 17
4. Contracts and Agreements.................................................................................................. 22
5. Formation of an Agreement Proposal or Offer.................................................................... 26
6. Formation of an Agreement Acceptance ............................................................................ 40
7. Formation of an Agreement:
Termination of a proposal/offer...........................................................................................53
8. Intention to Create Legal Relations .................................................................................... 59
9. Capacity to Contract ...........................................................................................................70
10. Factors Vitiating Capacity ..................................................................................................74
11. Consideration: Importance and Definition .........................................................................82
12. Analysis of the definition of the word
consideration: Law of Contract Ordinance v.
The Common Law Position ............................................................................................... 88
13. Types of consideration ....................................................................................................... 99
14. Sufficiency of consideration .............................................................................................113
15. Part payment of a debt and the doctrine of
promissory estoppel ......................................................................................................... 138
16.Unenforceable, voidable, void and illegal
contracts (explained)......................................................................................................... 157
17. Illegal contracts and their consequences............................................................................ 164

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 PART ONE: FORMATION OF A CONTRACT

This part has three sections. The first is on Introductory considerations. In the second section
you will study how a contract is formed. The third section will cover essential elements of a contract.

SECTION I. INTRODUCTORY CONSIDERATIONS

(a) Objectives: (1)To introduce you to the historical background to an institution known as
contract.
(2)To make you learn sources of contract law of the East African countries of
Tanzania, Kenya and Uganda.
(b) Study strategy:Will be indicated in each lecture.
(c) Introduction: Will be covered in each lecture.

Lecture No. I: The Institution of Contract

(a) Objectives: (1)To define the term contract

(2)To introduce you to an historical backdrop to the institution of contract
(3)To explain to you the basic conceptions of contract

(b) Study strategy:Most of what you will read in this lecture is not necessarily legal material. It is
however extremely important for your understanding the law
of contract in its historical socio-economic context. So
carefully go through the lecture and understand it before you
proceed to the next one. You must also read the other
literature especially that which is in your casebook.

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(c) Introduction:This first lecture as pointed out already does not contain much legal content. It is
intended to let you understand how the institution of contract
arose and its importance in the economic life of societies.
1.1 What a contract is
The universal definition of a contract is that it is an agreement with legal force. So it is not all
agreements or undertakings which amount to contracts. The legal binding nature of an
agreement is necessary for there to be a contract.

1.2Historical socio-economic reasons behind the institution of contract

Tracing the historical development of mankind (See generally Engels, F. Origin of the Family,
Private Property and the State, Foreign Languages Publishing House, Moscow) one finds that
private arrangements between individual persons began to surface with the appearance of
surplus product. When man could produce necessary product only (i.e. that necessary to
enable him subsist) he had no option but to follow community rules, i.e. common ownership
of means of subsistence and reciprocal dependence. Togetherness was the tool to combat
famine, ferocious animals, bad weather, sickness, etc. The problem lay in the fact that
production of necessary product only, could not ensure an individual adequate and constant
food supply and the other amenities of life. Insecurity prevented man from developing
acquisitiveness and greed. Production of surplus product (i.e. over and above that which was
necessary for subsistence) ensured the individual adequate and constant food supply. The
surplus product he had could be exchanged for products he did not produce. With the
production of surplus product man found that he could live on his own provided he exerted his
labour power. Domestication of animals and in particular, cultivation of edible plants,
guaranteed man constant and adequate food supply and this made him decide to own his
means
of subsistence and break away from communality of ownership of property.
This development ushered in the need for exchange with a view to acquiring more and more
property. Acquisitiveness and greed became the order of the day, disrupted the old custom of
common ownership of property and led to creation of classes in the society. All class societies

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 - those in the Slave Mode of Production, Feudal Mode of Production and the Capitalist Mode
of Production - are characterised by the propertied classes' urge to acquire more and more
through exploitation of the labour of the non-propertied classes. Central to acquisition is
exchange of values. Less value for more value: buying cheap and selling dear, a month's work
for meagre wages, and it is contract which facilitated exchange of values.
In simpler or more primitive economies solidarity of relatively self-sufficient family groups
and the fear of departing from accustomed ways limit individual initiative as well as the scope
and importance of what can be achieved by deliberate agreements or bargains. In societies
where there
is production of not only necessary product but also surplus product rudiments of rules of contract
begin to surface.
The development of the institution of contract and the laws relating to it is closely linked up
with the development of commerce and industry. Extensive commerce involving travel and
contact with other peoples led to observation of habits and ideas which gave rise to a certain
amount of free individual thought and enterprise. Hebrew, Greek and Roman law of contract
grew due to the expansion of trade and commerce.
Commercial enterprises involve a greater anticipation of the future than is necessary in a
simpler or more primitive economy. It was the commercial revolution, even before the
industrial revolution, which served to transform a predominantly fixed land economy into a
more fluid and enterprising economy on the basis of money and credit. Commercial
transactions required a developed notion of binding nature of promises. The expansion of the
institution of contract since the 17th century was intimately related to the commercial
revolution in Northern Europe following trade with the East and America. The industrial
revolution which ushered in mass commodity production required a very developed
institution of contract and the laws relating to it (See generally, Havard Law Review 553).

1.3Basic conceptions of the institution of contract

The institution of contract carries with it certain basic conceptions. Firstly, whether or not a
society has a conception of the binding nature of contract depends upon the material

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 conditions in that society - on its mode of production (how in that society food, clothing and
shelter and all other products of labour are produced) and the relations of production (relations
between people resulting from their roles in the production process). Secondly, a developed
institution of contract carries with it two fundamental notions. These are freedom of contract
and sanctity of contract. Freedom of contract means persons are free to contract as they wish.
Once they have concluded a contract voluntarily that contract becomes sacrosanct in the sense
that nobody, not even the state, should interfere with it. The two fundamental notions are
features of a capitalist legal system and are necessary legal developments in that society,
based as it is upon the economic phenomenon of exchange of commodities, buying and
selling; and are also necessary legal features of societies developing towards capitalism, or
under the impact of capitalism introduced from without, societies in which some things
become commodities, i.e., are capable of being and are bought and sold in particular land and
human labour power.
Thirdly, the two fundamental notions, i.e., sanctity of contract and freedom of contract form
part of the bourgeois ideology and are "false consciousness". They do function not to describe
accurately the real relationships of bourgeois society. They do obscure the real relationships.
They are false in that their real function is to persuade people:
(a)that they are free when they are not free,
(b)that they are equal when they are not equal,
(c)that they enter into relationships of their own free will when in fact those
relationships develop independently of men's will.
It is necessary to persuade people into all these things in order that they accept to be exploited,
and minimise incidence of open conflicts arising out of the capitalist mode of production.
This persuasion helps the state in that conflicts are allowed only within the ambit of the legal
system. So that when a party breaches a contract the innocent party, instead of fighting, seeks
remedy in a court of law (see generally Lyall, A., "The changing Nature of Contract" and
Friedman Law in Changing Society, 2nd Ed., Stevens & Sons, 1972, chapter 4)

1.4Institution of contract and the place of contract law

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

1.5Exercises:Answer the two questions below. Then find an opportunity to have your answer read
and commented on by a fellow student or your tutor.
(a)What led to the rise and development of the institution of contract?
(b)Discuss underlying conceptions of the institution of contract.

1.6 Further readings:

(a)Engels, F: Origin of the Family, Private Property and the State, Foreign Languages
Publishing House, Moscow.
(b)Cohen, "The Basis of Contract", in 1933 Havard Law Review, 553.
(c)Friedman: Law in Changing Society, Stevens and Sons Chpt. 4.
(d)Your casebook.

Lecture No. 2:Development of the institution of contract in African Communities

Objectives:
(1)To explain to you that there are contracts which are based on customary practices
and rules.

(2)To show you that there has been a problem of recognizing customary contracts by
the courts.

Study strategy:After reading this lecture carefully you must read your casebook pp. ....

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Introduction:In this lecture we are going to look at the institution of contract in African communities.
The lecture is confined to the development of the institution in
basically subsistence economies. The approach is historical. In
addition in this lecture we are going to consider the problem of
recognition of customary contracts by courts of law.

2.1Customary contracts in African communities: An historical backdrop

Customary contracts means those contracts which are regulated or governed by customary
law. Among peasant communities one cannot rule out production of surplus product in terms
of food or other products of labour. So long as there is a surplus one would expect exchange.
And, exchange involves agreements, be they in terms of barter or sale or another type of
arrangement. Provided barter, sale or other type of exchange exist then one would expect
exchange of promises and their fulfilment or breach. Such arrangements or agreements may
be legally binding, i.e., binding according to customs, usage or rules of a given community or
tribe. The agreements may be enforceable in recognized state tribunals, in which case their
recognition is taken for granted. If they are not, then their very recognition becomes an issue.
The question as to the existence of customary contracts is curious because one would not
expect non-existence of exchange of goods and services in, say, African communities. The
fact, however, is that very little is known about customary contracts, apart from marriage
arrangements. Perhaps the problem lies in the tendency on the part of writers to ignore
researching and writing on customary contracts. Cotran and Rubin have this to say:
The law of contract does not appear to form a very substantial part of African customary law. It is not
entirely clear what the reason for this is. It may be the result of a tendency on the part
of writers to ignore this topic in favour of others; it may be that contractual relations
are not very elaborately developed in African Society; and that the writers were
therefore unable to discover very much material on the topic. In any event early
writers on customary law paid very little attention to contract, and it is only more
recently that the subject has been dealt with systematically (See E. Cotran & N.N.

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 Rubin (Eds.), Readings in African Law, Vol. I, African Publishing Corp. New York,
1970, p. 201).
A systematic treatment of the subject has shown that there are customary contracts in African
societies. I. Schapera who conducted research on "Contract in Tswana Law" from 1935 to
1940 says that a contract in Tswana Law is basically a voluntary agreement between two
parties, imposing obligations upon one (or both), and reciprocally conferring rights upon the
other (or both). The contracts are enforceable in Tswana tribal courts. (Read "Contract in
Tswana Law" in J.A.L. Vol. 9 No. 3 p. 142). Writing on contracts among the Barotse,
Gluckman says that agreements among the Barotse carry rights and obligations and are
binding. Each party must look to his obligations rather than to his gains (See M. Gluckman
Ideas in Barotse Jurisprudence Yale Univ. Press 1956, pp. 170-182). The agreements among
the Barotse suggest relationships of generosity and utmost good faith. The agreements are,
however, enforceable. Tabooes and special conventions of behaviour help in the fulfilment of
obligations and thus minimise breaches. T.O. Elias writing on the "Nature of African
Customary Law" points out that there are innumerable contractual relationships existing in the
so called simple African communities, at varying stages of economic development (Read T.O.
Elias, The Nature of African Customary Law Manchester Univ. Press, 1956).
Today one cannot imagine a community or tribe that does not know about contact. The
contracts may not be sophisticated. They include loans of money or property,
labour contracts, contracts of agistment, sale of goods, house building contracts and contracts for
services.

2.2Customary contracts and their recognition in Tanzania

The Tanganyika Order-in-Council, 1920, required the Governor, when making Ordinances,
to respect existing native laws and customs provided they were not opposed to justice or
morality (See s. 13(4) of the Tanganyika Order-in-Council, 1920). And, every court, was
called upon, in all cases to which natives were parties to be guided by native law so long as it
was applicable and was not repugnant to justice and morality or inconsistent with an
Order-in-Council or Ordinance or any Regulation or Rule made under any Order-in Council

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 or Ordinance. Moreover, the courts were required to decide cases to which natives were
parties, according to substantial justice without undue regard to technicalities of procedure
and without undue delay (See s. 24 of the Tanganyika Order-in-Council, 1920). Basing on the
Order-in-Council, 1920, one may argue that customary contracts were recognized and could
be enforced in the courts provided they did not go against the provisions of the existing law
and were not repugnant to justice or morality.
In 1963 under the Magistrates' Courts Act (MCA) primary courts were given general civil
jurisdiction over causes of action governed by customary or Islamic law, and certain other
matters in respect of which jurisdiction was specifically conferred by statute. Section 14
provided:

14.-(1) A primary court shall have and exercise jurisdiction-

(a) in all proceedings of a civil nature
(i)where the law applicable is customary law or Islamic law; ....
(ii)for the recover of civil debts, rent or interest due to the Republic, the
Government or any municipal, town or district council under any
judgement, written law (unless jurisdiction therein is expressly
conferred on a court or courts other than a primary court), right of
occupancy, lease, sub-lease or contract, if the value of the subject
matter of the suit does not exceed two thousand shillings, and any
proceedings by way of counter-claim and set-off therein of the same
nature and not exceeding such value. ....
Paragraph (ii) of section 14 (1) (a) did not cover private civil debts. Customary contracts
involving private civil debts could not be determined under it. Contracts regulated by
customary law could be determined under para (i). This, however, does not seem to have
covered claims arising out of private civil debts.
In 1968 referring to a case before him Georges, C.J. (as he then was) observed:
If persons of the same tribe enter into an agreement well known to tribal custom under which
terms are prescribed, these persons must in the absence of evidence to the

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 contrary, be understood to be contracting in accordance with these terms ....
(In such cases) relevant customary law must be applied if it is ... applicable
and is not repugnant to justice or morality or inconsistent with any written law
(Read Mtatiro Mwita v. Mwita Marianya [1968] HCD No. 82).
In that case the plaintiff received on bullock from the defendant in exchange for some finger
millet. The bullock died two months later of unknown causes. Both parties belonged to the
Kuria tribe and this type of contract was well known in tribal custom. The custom was that if
an animal so exchanged for millet died within a year the meat and skin could be returned to the
other party who would then be obliged to replace the animal. The plaintiff followed the
procedure and then instituted the suit for another bullock. The lower courts refused to follow
the custom on the ground that the dispute involved contractual rights and therefore the
primary court had no jurisdiction to hear it. On a second appeal the learned Chief Justice
allowed the appeal and found no reason why primary courts should not be able to hear cases
involving agreements well known to tribal customs (See Fadhili v. Lengipengi [1971] HCD
No. 31).
Other high court judges, however, either doubted or simply ruled out the existence of
customary contracts other than those of or relating to marriage, separation or divorce.
Mustafa, J. (as he then was) doubted whether under section 14 of the MCA a primary court
had jurisdiction to deal with an action arising out of an account for goods sold (See Gaudensia
Samwel v. Melchior Marcel, [1967] HCD No. 333). The judge decided not to clear his doubt
because neither party had raised the question. In another case involving recovery of a loan of
Shs. 250/= originally filed in a primary court the learned judge said:
The primary court had no jurisdiction to hear the case, as the law applicable was not
customary law or Islamic law, nor was this an action for the recovery of a civil
debt by the Government (S. 14(1) M.C.A., see also Edward Kalemela v.
Muyebe Rwenjege [1968] HCD No. 80)
The whole proceeding was declared a nullity. In a number of other cases judges did not
entertain the idea of existence of customary contracts (Read Ephraim Obongo v. Naftael
Okeyo [1968] HCD No. 288). In a case involving a claim for goods delivered, the judge was

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 not prepared to treat it as a case arising out of contract. He said that it was not established to
his satisfaction that such a claim could not be brought under customary law. His reason was
that the case was simple involving a claim for goods delivered, "not ... for breach of contract
as such" (Read Ephraim Obongo v. Naftael Okeyo [1968] HCD No. 288).
Had the high court recognised the existence of customary contracts there would be no bar to
primary courts entertaining private civil debts arising out of arrangements known to the
communities. There were many cases involving private civil debts brought before primary
courts, which the courts, notwithstanding want of jurisdiction on their part, heard and
determined. In Walimu Jilala v. John Mongo (See 1968 HCD No. 81), Mustafa, J. (as he then
was) admitted that it was the practice of primary courts to hear cases involving private civil
debts. He went on to remark, "the Court" is aware of this practice. By "the Court" he meant
the High Court.
The question which taxed the courts is whether a suit arising out of a contractual arrangement
was a civil proceeding entertainable by primary courts. The problem may, perhaps, be
appreciated if it is asked as to whether in peasant communities there were contracts other than
those of or relating to marriage, separation or divorce. If there were such contracts, could they
be regulated by customary law? If it is argued that there were no contracts in peasant
communities other than those of or relating to marriage, separation or divorce then it can be
said that the legislators did not need to provide for non-existent contracts. Sir Kenneth
Roberts-Wray, an eminent English lawyer, defending the whole-sale importation of English
commercial law to Africa argued that indigenous law did not cover commercial law save in a
very rudimentary form. He lamented:
One cannot hope to find commercial customs, such as those from which Lord Mansfield
moulded a segment of the Common Law in a community in whose philosophy
the transactions to which they relate are undreamed of (In "The Need for study
of Native Law" in (1975) 1-2 J.A.L., p. 82 at 84).
This line of argument suggests that proceedings of a civil nature from peasant communities do
not include proceedings relating to business transactions, e.g. loan agreements.

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It may be argued, on the other hand, that there were business transactions among the peasant
communities. Contractual rights or obligations arising out of such business transactions did
not differ from those under English law (the imported law). As such the imported law
governing contracts was to be applied. Since the law relating to contracts is technical, primary
courts were not allowed to hear and determine contract cases. This line of argument boils
down to this: that a customary contract is, nevertheless, a contract; being a contract it is
technical and, therefore, primary courts should have no jurisdiction to entertain such cases;
these were to be instituted in district or higher courts. This line of thinking played down
customary contract rules in favour of the imported rules and forbade primary courts to hear
civil suits arising out of contract because these were not governed by customary law.
As shown above until 1968 the courts in Tanzania were of the view that a civil suit arising out
of contract could not be heard by a primary court because the law applicable was not
customary law. There were doubts cast here and there which were cleared by amending the
Magistrates Courts Act, 1963 by the Written Laws (Miscellaneous Amendment) Act, No. 50
of 1968.
It is submitted that the problem was one of interpretation despite some clear guiding statutory
provisions which could be called in aid. Section 9 (1) of the Judicature and Application of
Laws Ordinance, as amended by the Magistrates' Courts Act, 1963 allowed customary law to
be applicable to, and courts to exercise jurisdiction in accordance therewith, in matters of a
civil nature where rules of customary law relevant to the matter were in existence and
acceptable by the members of the community (See Schedule IV - provisions relating to the
civil jurisdiction of primary courts). The Customary Law (Limitation of Proceedings) Rules
1963 recognized proceedings for damages for breach of contract or to enforce a contract, other
than contracts of or relating to marriage, separation or divorce (See 5th item of GN. 311 of
1964 which set a limitation period for contracts in writing as 3 years). Item No. 2 of the above
Customary Law rules gave a limitation period of three years within which to institute
proceedings for money lent or money due for property sold and delivered. By paragraph (3)
(1) (a) of the 4th Schedule to the Magistrates' Courts Act, 1963 a primary court was
empowered, in proceedings of a civil nature, to order the specific performance of any contract.

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 One wonders, therefore why the courts were reluctant to interpret section 14 (1) of the MCA
as conferring jurisdiction upon primary courts to hear contract cases provided the law
applicable was customary law. This reluctance necessitated amendment of the MCA, 1963
by adding paragraph (iii) to section 14 (1) (a) which conferred jurisdiction on primary courts
in cases involving civil debt arising out of contract but put a pecuniary limit (Read Hansard
1-3 October, 1968, p. 53). Section 14 (1) reads:
14.-(1) A primary court shall have and exercise jurisdiction-
(a)in all civil proceedings of a civil nature:
(i) ....
(ii) ....
(iii)for the recovery of any civil debt arising out of contract, if the value of the subject
matter of the suit does not exceed one thousand shillings, and
any proceedings by way of a counter-claim or set off therein of
the same nature and not exceeding such value (See Act No. 50
of 1968).
Amendment of s. 14(1) of the MCA necessitated amendment of the Law of Contract
Ordinance cap 433. Sub-section (3) was added to section 1 of the Ordinance. The sub-section
provides:
Nothing in this Ordinance other than section 23 hereof, shall affect any customary law and in
relation to any matter in which the law applicable is customary law, the
provisions of the said section 23 shall be in addition to any relevant rule of
customary law and the references to a law in the said section 23 shall be
deemed to be references to the Ordinances and Acts of Tanganyika and the
Acts of the Common Services Organisation (See Act No. 50 of 1968).
The effect of s. 1(3) of the Law of Contract Ordinance is to exclude application of the
provisions of the Contract Ordinance, except section 23, in contract cases governed by
customary law. In Joseph Constantine v. Losilale Ndaskoi (See [1968] HCD No. 381), Platt,
J., after finding that the dispute was governed by Arusha law (on the grounds that the plaintiff
based his claim upon it and not upon the Law of Contract Ordinance; that both parties had

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 accepted that the agreement was governed by customary law and that the defendant's claim for
title of the land had been governed by customary law), held that since the agreement was
governed by customary law, the Law of Contract Ordinance was excluded by section 1(3) of
that Ordinance. The proceedings were referred to the primary court. (See also eg. Bicoli v.
Mahemba [1971] HCD No. 420). The Magistrates' Courts Act, 1963, was repealed and
reenacted by the Magistrates' Courts Act, 1984 (No. 2 of 1984). The pecuniary jurisdiction of
primary courts in cases arising out of contract is now ten thousand shillings (See s. 18(1)(a)(iii)
of Act No. 2 of 1984).

2.3 Exercises:
(i)What were the reasons which gave rise to the development of the institution of contract
among African communities?
(ii)Do the courts in Tanzania recognize customary contracts?

2.4 Further readings:

(i) Your casebook.

Lecture No. 3:Sources of the general principles of contract law in East Africa
Objectives:
(i)To explain the various sources of contract law in East Africa.
(ii)To point out the difference between the applicable contract laws of Tanzania on the
one hand and Kenya and Uganda on the other.

Study strategy:Carefully read this lecture with a view to know

(i)the various sources of contract law in Tanzania.
(ii)the sources of contracts law of Kenya and Uganda (common law).

Introduction:

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

3.1 Sources of customary contract law

Customary contract laws are not codified. The rules are traceable in customs and usages of
the given communities. Some customary contract rules can be found in the writings of some
scholars (e.g. Cory & Hartnoll, Customary Law of the Haya Tribe (1945), Cory, Sukuma Law
and custom, 1953, Hydon, Law and Justice in Buganda).

3.2 Sources of non-customary contract law

3.2.1 The background
Non-customary contract law which constitutes a vast body of contract law in East Africa
traces its origin from England either directly or indirectly due to the colonial connection.
England colonized India in the mid 19th century. By that time, the law relating to contract in
England, known as the common Law of Contract, had very much developed and could be
found in decided cases. It was not codified. However, it was thought proper to codify the law
of contract for the colony of India. This led to the passing of the Indian Contract Act, 1872
which codified the English common Law of Contract as it stood in the middle of the 19th
century with some modifications to suit the circumstances of the colony of India (The Indian
Contract Act, 1872 was the work of the famous draftsman called Sir James Stephen)
When the East African countries became colonies of Britain it was decided to apply the Indian
Contract Act, 1872 in East Africa because it had worked reasonably satisfactorily in India.
All the three East African Countries (Kenya, Uganda and Tanganyika, also Zanzibar)
imported the Indian Contract Act, 1872 as an Applied Act. (In the case of Tanganyika see
Application of Laws Ord., 1920).
The Indian Contract Act, 1872, applied in the East African countries was not intended for the
indigenous inhabitants - the natives. In all the East African countries the courts were directed
in all civil cases to which natives were parties to be guided by native law "so long as it is

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 applicable and is not repugnant to justice and morality or inconsistent with any Order - in -
Council or Ordinance"(See Tanganyika Order-in-Council, 1920).
Where the Indian Contract Act, 1872 could not provide an answer the East African courts
resorted to the Law of Contract as it was applied in England.

3.2.2Sources of the general principles of contract law in East Africa today

(a) Local Statutes
(i) Tanzania (Mainland)
Most of the general principles of contract law are contained in the Law of Contract Ordinance,
1961, Cap. 433. The Ordinance follows very closely the Indian Contract Act, 1872, which
was dis-applied here in 1961(See L.C.O. cap. 433, s. 227). There are some minor differences
between the Law of Contract Ordinance and the Indian Contract Act.
(ii) In Zanzibar the Contract Decree (Laws of Zanzibar, Rev. Ed. 1959, cap. 149) carries the
general principles of contract law. Like in Tanganyika, the Decree follows very closely the
Indian Contract Act, 1872, with a few modifications. It should be noted that the Zanzibar
Contract Decree incorporates the portion of the Indian Contract Act dealing with sale of goods
which portion was repealed in India itself in 1930(In Tanganyika sale of goods is governed by
the Sale of Goods Ordinance, cap. 214 (1931)).
(b) English common law of contract
(i) Kenya and Uganda
Unlike in Tanganyika and Zanzibar, Kenya and Uganda do not have local statutes containing
the general principles of contract law. Before 1962 the Indian Contract Act, 1872, was
applicable. This Act was disapplied in both Kenya and Uganda by acts of Parliament(Cap. 23
Kenya and cap. 75 Uganda) which provide, inter alia:
... Save as many be provided by any written law for the time being in force, the common law
of England relating to contract, as modified by the doctrines of Equity, by the
Acts of Parliament applicable by virtue of sub-section (2) of this section and
by Acts of Parliament specified in the Schedules to this Ordinance, to the

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 extent and subject to the modifications mentioned in the said schedule shall
extend and apply ....
So, in Kenya and Uganda English common law of contract as modified either by equity or by
Acts of Parliament, is applicable.

(ii) Tanganyika and Zanzibar: Where the Contract Act or Decree is silent on any
particular aspect of contract law English common law of contract as modified by equity and
Acts of Parliament is applicable. In Tanganyika Garage Ltd. v. Marceli G. Mafuruki ([1975]
LRT 23) it was said:
where the circumstances of a contract are not provided for in the codified law of contract in
Tanzania, one must fall back on the English common law.
Where the circumstances of a contract are covered by the Contract Ordinance, English cases
may be persuasive in the interpretation of the Ordinance(See Alidina v. Globe Mercantile
Corporation Ltd. [1968]E.A. 114(T)).
(c) Case law as developed in East Africa, text-books and writings of eminent lawyers,
may also be sources of contract law in East Africa.
(d) By virtue of s. 1(2) of the Law of Contract Ordinance the following may also be sources of
contract law:
(i)provisions of any written law in force in Tanganyika before enactment of the
Ordinance provided they were not expressly disapplied or repealed by
the Ordinance;
(ii)any usage or custom of trade;
(iii)any incident of any contract not inconsistent with the provisions of the Ordinance.
3.3 Exercise:
(a)Discuss the various sources of contract law comparing and contrasting the
position in Tanzania and Kenya.
(b)To what extent is customary law a source of contract law in Tanzania?
3.4 Further readings:
(a)Your casebook

17
 (b)Relevant statutes providing for sources of contract law of the East African
countries.

SECTION 2: HOW A CONTRACT IS FORMED

(a) Objectives: (1)To explain and discuss the modalities of concluding a contract.
(2)To enable you to understand and appreciate the characteristics of various
components which constitute a contract.
(3)To introduce you to the law relating to formation of an agreement
especially the provisions of the Law of Contract
Ordinance, Cap. 433.
(b) Study strategy:
In order to be able to understand this section you will need to consult a copy of your Law of
Contract Ordinance , cap. 433. Provisions in the Contract Ordinance which we are
going to cover in this lecture are tricky and you must concentrate and go through them
slowly. Note that due to some technical aspects in this lecture if you are not careful
you may not be able to answer questions set.
(c) Introduction:
In the first section we examined the history of the institution of contract and looked at the
development of the rules and laws governing contracts.

In this section we are going to show you how a contract is formed. And, this section is divided
into four lectures. Lecture 5 is intended to teach you what contracts and agreements are and
differences between the two. Lectures 6, 7 and 8 dissect an agreement and lay bare to you the
essential components which constitute an agreement. It has been necessary to cover the
essential components in 3 separate lectures because of the importance attached to each one of
them. Do you know the essential elements of an agreement? They are Offer and Acceptance.
They are covered in lectures 6 and 7. Lecture 8 deals with termination of offer.

Lecture No. 4 Contracts and Agreements

18
 (a) Objectives: (1)To explain to you the meaning and differences between contract
and an agreement.
(2)To introduce to you the essential elements of any contract.

(b) Study strategy:

You need to have a copy of your Contract Ordinance Cap. 433. You should also read
other relevant materials especially from the case-book.
(c) Introduction:
In this lecture, which is but a part of section 2 which is on How a Contract is Formed,
you are going to learn the meanings of a contract and an agreement. Have you ever thought
there is a difference between an agreement and a contract? In daily life we use the two terms
as if they mean one and the same thing. In law they are not.

4.1 Meaning of an agreement

An agreement is made up of an offer made by one person and an acceptance of that offer by a
person to whom the offer is made. Once an offer has been accepted, the offer and the
acceptance change their characters and become promises. According to section 2(1)(e) of the
Contract Ordinance:

every promise and every set of promises, forming the consideration for each
other, is an agreement.
Let us illustrate what we have said above. Say Adam has set his eyes on Eve and wants to
marry her. Adam will approach Eve and make a proposal or offer to marry her. If Eve loves
Adam she will accept the offer. At that stage Adam and Eve have reached an agreement.
Or consider a situation where Seller wants to dispose of his car to Buyer. Let us say Buyer
approaches Seller and intimates his intention to buy the car. That intimation of intention to
buy the car is called an offer. If Seller agrees to sell the car to Buyer than we say Seller has
accepted Buyer's offer. Seller and Buyer have reached an agreement.
Is the agreement between Adam and Eve or Seller and Buyer a contract?

19
4.2.1 Meaning of a contract
A contract must be an agreement. However to qualify as a contract an agreement must meet a
number of tests. The main test you should look for is whether or not the agreement is
enforceable by law. Note that not all agreements are enforceable by law.

4.2.2 Essential ingredients of a contract

To be enforceable by law an agreement must have the following elements which are stated in
section 10 of the Law of Contract Ordinance:
All agreements are contracts if they are made by the free
consent of parties competent to contract for a lawful
consideration with a lawful object ....
Let us now enumerate the essential ingredients which must be present in order to make an
agreement a contract.
These are:
(i)free consent
(ii)competency or capacity to contract
(iii)lawful consideration or object
Section 10 of the Contract Ordinance does not say whether or not intention to create legal
relations is also an essential element of a contract.

The three elements listed above and the element of intention to create legal relations will each
be discussed in Section 3.
Would you now answer whether Adam and Eve's agreement is a contract? How about Seller
and Buyer's agreement?

4.3 Exercises:
Answer the following two questions and then discuss your answers with your fellow student
or get your tutor to mark them.

20
 Q.1Why is an agreement not necessarily a contract?
Q.2When can one say an agreement has been reached?

4.4 Further readings:

(a) Cheshire and Fifoot: Law of Contract pp. ...
(b)Beale, Bishop &Furmston: Contract cases and Materials pp. ....

Lecture No. 5:Formation of an Agreement: Proposal or Offer

(a) Objectives: (1)To explain to you in detail one essential ingredient of an agreement
called proposal.
(2)To make you understand the characteristics of a proposal.
(3)To enable you to distinguish a statement which is a proposal from other
types of statement.
(b)Study strategy:You must read relevant provisions of the Law of Contract Ordinance. In
addition you need to study the cases we are going to
cite. In this lecture cases are treated in brief. Make
sure you read the cases in full. Consult your case book
and other relevant literature.

(c) Introduction:In lecture No. 4 we looked at how a contract is formed. You learned that
for there to be a contract there must be an agreement in the first
place. In this and the following lectures we are going to
dissect an agreement and see what it is made of and what must
be done in order to strike an agreement.

5.1 Meaning of offer (or proposal)

In this work the word offer is used synonymously with the word proposal. Section 2(1)(a) of
the Contract Ordinance defines the term proposal thus:

21
When one person signifies to another his willingness to do or to abstain from doing anything,
with a view to obtain the assent of that other to such act or abstinence, he is
said to make a proposal.
In other words the word proposal means a signification by one person to another of his willingness to
do or abstain from doing anything with a view to obtain the assent of that other to such act or
abstinence.
A proposal is made up of a term or terms. For example when Buyer makes a proposal to
Seller to purchase, say, a motor cycle the offer of Buyer would be like: Seller I want to buy
you motor cycle at Shs. 1.5 million: Here Buyer has signified to Seller that he (Buyer) is
willing to be bound by the terms he has proposed to Seller should Seller accept or assent to the
offer. The terms of Buyer are (a) to purchase motorcycle (b) at Shs. 1.5 million.
Note that Buyer will be bound only if Seller assents or accepts the offer. You must also note
that the statement of Buyer to Seller which we term a proposal must have a number of
characteristics.

5.2 Characteristics of a proposal

(a)Must be made willingly. For a proposal to be effective it must have been made willingly,
that is, the proposer must be willing to be bound by the terms he has stated.
(b)The terms must be clear and certain. Clarity and certainty of an offer/proposal are essential
because the person to whom the offer is made should be in a position to know what the
offer is. Is a statement like "Seller I want to buy you goat" an offer? The statement
looks clear and certain. But is it? Has Buyer specified the price which he is willing to
pay Seller? So is the statement still clear and certain? If your answer is that the
statement is not certain then section 29 of the Contract Ordinance becomes relevant. It
states:
Agreements, the meaning of which is not certain, or capable of
being made certain, are void.
Where 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.

22
In two cases Alfi E.A. Ltd. v. Themi Industries and Distributors Agency Ltd. (C.A.T. DSM
Civil Appeal 28 of 1984) and Nitin Coffee Estates Ltd. and others v. United Engineering
Works Ltd and another (C.A.T. Arusha, Civil Appeal 15 of 1988) the parties concluded
agreements of sale although the price was not stated. The first case involved sale of
machinery and the second concerned sale of shares. In both cases the Court of Appeal of
Tanzania stated that since price is a fundamental term in a sale agreement if it is not mentioned
the agreement becomes uncertain. In law uncertainty renders the agreement void.
You may want to note that the terms of the contract are usually contained in the offer/proposal.
So when one talks about uncertainty of the terms of the agreement, he really is referring to
uncertainty in the terms of the proposal.
(c) Final expression
One other characteristic of a proposal is that it should be a firm and final expression by the
proposer of his willingness to be bound should his offer be accepted. Where the proposer
keeps on changing the terms of his statement then in law such statement cannot be regarded as
a proposal.

23
5.3 Making of proposal under various situations
(a)In unilateral contracts
A unilateral contract is a one sided contract! Let us explain. Consider an
advertisement in one of the daily papers which reads:

┬────────────────────────────────────────────┐
│ MISSING ACCOUNT BOOKS │
│ │
│ The General Public is hereby informed │
│ that the below mentioned account books │
│ have been stolen from our truck TZ │
│ 77118 hijacked on 8/5/88 at Ruvu │
│ Bridge: Cash books, Ledgers, Debt │
│ Note, Credit Notes, Payment Vouchers │
│ and Income Tax file period 1978/86. │
│ Finder report nearest Police Station │
│ or ring phone No. 311-465 Songea or │
│ 37121 DSM Ruvuma Distributors (T) Ltd. │
│ │
│ │
│ REWARD T. SHS. 20,000/= │
│ │
└────────────────────────────────────────────┘

24
Can it be said that the advertisement is an offer? The answer would depend on whether or not it meets
the characteristics we have explained in para 6.2. The statement is made by Ruvuma
Distributors (T) Ltd. to the general public. Ruvuma Distributors are saying that their account
books are lost and that any person who finds the books and reports to the nearest police station
or Ruvuma Distributors will be rewarded Shs. 20,000/=.
Now, can you say that the statement has been made willingly? Are the terms certain and clear?
Is the statement a firm and final expression of willingness by Ruvuma Distributors that any
finder will be rewarded Shs. 20,000/=? Each of these questions attracts a "Yes" answer. So it
is an offer by Ruvuma Distributors to pay Shs. 20,000/= to any person who finds the books.
Suppose you find the books. Will you be entitled to claim the reward of Shs. 20,000/= from
Ruvuma Distributors? The answer is "Yes", because Ruvuma Distributors made a
categorical promise to give the reward to any finder. This means that once you find the books
you will have done your part of the contract as required by Ruvuma Distributors. And note
that you need not tell Ruvuma Distributors in advance that you will look for the books.You do
not promise anything to Ruvuma Distributors. It is only Ruvuma Distributors which has
made a promise. It is a one sided promise. Even if you see the advertisement and you know
the whereabouts of the books you have no obligation to find them. That is why we say the
advertisement leads to formation of a unilateral contract, i.e., only one party assumes an
obligation. Only one part promises to do something. The other does not make any promise at
all.
The most famous case you should read on unilateral contracts is that of Carlill v. Carbolic
Smoke Ball Co. ([1892]2Q.B.484 also reported in [1893]1Q.B.256). The Company
manufactured what it considered to be a perfect prevention of the common cold. So confident
was the Company that it advertised as follows:
£ 100 reward will be paid by the Carbolic Smoke Ball Co. to any person who contracts the
increasing epidemic influenza, colds, or any disease cause by taking cold, after
having used the ball three times daily for two weeks according to the printed
directions supplied with each ball. £ 1,000 is deposited with the Alliance
Bank, Regent Street, showing our sincerity in the matter.

25
 The advertisement continued to state that during the last epidemic of influenza many
thousands of carbolic smoke balls were sold as preventives against the disease and that the
company knew of nobody among the users who contracted the disease. The company further
stated that the carbolic smoke ball was selling at 10s, could be refilled at 5s., and it would last
the family several months. The plaintiff, a lady, on the faith of the advertisement bought one
of the balls, used it as instructed but contracted influenza. She sued the company to recover
£100 as advertised.
One of the arguments advanced in favour of the defendant company was that "It is
unreasonable to suppose (the advertisement) to be a definite offer, because nobody in their
sense would contract themselves out of the opportunity of checking the experiment which was
going to be made at their own expense". The company contended that the advertisement was
a mere puff and not a promise or an offer. In deciding for the plaintiff the Court stated:
The advertisement says that £1000 is lodged at the bank for the purpose.
Therefore, it cannot be said that the statement that £100 would be paid
was intend to be a mere puff. I think it was intended to be understood
by the public as an offer which was to be acted upon.
(b) In auction sales
In a sale by auction the bidder is the person who makes the proposal. The proposal is made
when he states the price he is willing to pay for the particular item. Once a higher proposal or
bid (higher price) has been made the previous bid ceases to have effect, in other words it
lapses. This is so even if the higher bidder withdraws his proposal before the fall of the
hammer or any other manner of

accepting the bid. (See s.59 of the Sale of Goods Ordinance cap. 214).
(c) Proposal in tenders
A person may advertise that he will sell certain goods by tender, or he may invite
tenders to execute some

26
works. The advertisement or the invitation does not amount to an offer. It is merely an invitation to
the general public to make offers. The persons invited to tender may make tenders. To make
a tender is to state the terms of the offer by which one is willing to be bound.
The one who invites may accept or reject any tender unless it is expressly stated that
the highest offer will be accepted. The person who invited tenders may require the tenders to include
certain terms, e.g., that the person making the tender will supply goods as and when required. This
term means that the tender will be a standing offer ready to be accepted by orders made from time to
time (See Howard Co. (Africa) Ltd. v. Burton [1964] E.A. 540 (K)).

5.4 Proposals and Invitation to Treat

Unlike an offer which is the final, firm and clear expression of willingness by the offeror to be
bound an invitation to treat does not express final willingness by the one who invites to be
bound in those terms. The invitor merely proposes certain terms on which he is willing to
negotiate. He invites any person to make an offer in the terms he has proposed. He may
accept or reject the offer.
In bilateral contracts where both parties make promises and assume obligations you have to be
careful whether or not a statement made amounts to a proposal or merely invites other persons
to make offers. Let us have some illustrations.
(a) Where goods are displayed for sale
The law says that display of goods in shop windows or on shelves in a self-service store even
with the price marked, does not amount to a proposal. Rather the intention is to invite persons
to come forward and make offers/proposals to buy.
The position under the Common Law has been established by case law. Let us look at some of
the cases
(i)Fisher v. Bell ([1961]1Q.B. 394 or [1960]3 All E.R. 731).
Bell was charged with offering for sale a flick knife (a knife which opens by pressing a button)
in violation of the Restriction of Offensive Weapons Act, 1959, the relevant provision of which
provided 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

27
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, the words were to be construed as they are in the
law of contract. The court observed:
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.
(ii)Pharmaceutical Society of Great Britain v. Boots Cash Chemists Southern Ltd
([1953]1Q.B.401).
Boots Co., operated a self-service shop in which certain drugs specified under the
Pharmacy and Poisons Act, 1933 were displayed with prices attached. It was charged
with selling drugs in contravention of the laid down procedure. The law required the
sale of the drugs to take place under the supervision of a registered pharmacist. The
defendant company had devised a procedure which customers had to follow. A
customer, having selected articles which he wished to buy, and placed them in a wire
basket, had to pass by one of two exits, at each of which was a cash desk where a
cashier was stationed who scrutinized the articles selected by the customer, assessed
the value and accepted payment. In every case involving sale of a drug a pharmacist
supervised that part of the transaction which took place at the cash desk and was
authorized by the defendant company to prevent, if he though fit, any customer from
removing any drug from the premises.
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 registered pharmacist who was placed at the cash desk did not,
therefore, supervise the sale. The Court observed that the self-service system was a
"convenient method of enabling customers to see what there is and choose, and
possibly put back and substitute, articles which they wish to have, and then to go up to
the cashier and offer to buy what they have so far chosen". That being the case, it held

28
 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 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.
The importance of the distinction between an offer and an invitation to treat can be
appreciated if freedom of an individual to deal with his property is taken into account. A
person is free to deal with his property in the manner he likes. He may dispose of his property
by way of sale or as a gift to a person of his choice. In countries where hoarding is allowed he
may hoard his goods as he wishes. One writer has this to say:
... a more natural interpretation of the display of goods in a shop with a marked
price upon them would be that the shopkeeper impliedly reserves to
himself a right of selecting his customer. A shop is a place for
bargaining, not for compulsory sales. Presumptively, the importance
of the personality of the customer cannot be eliminated. If the display
of such goods were an offer, then the shopkeeper might be forced to
contract with his worst enemy, his greatest trade rival, a reeling
drunkard, or a ragged and verminous tramp. That would be a result
scarcely likely to be countenanced by the law.
In some countries the law relating to invitation to treat is restrictively applied. For
example in Egypt and Switzerland display of goods in a shop window with a marked price upon them
amounts to an offer to sell which the intending purchaser may accept. The shopkeeper may, however,
instead of giving the customer the article displayed, give him a similar article from the shop. This
approach seem to be more realistic because to any reasonable person display of an article with a price
marked would appear to be an offer.
(b) Advertisements
Partridge v. Crittendem ([1968]2 All E.R. 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.

29
 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 more invitation to treat.
The appeal court held 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.
You may ask yourself the distinction between the above cases and that of Carlill v. Carbolic
Smoke Ball Co. in 6.3. You find that the statement in Carlill's case was sufficiently specific
and it would be reasonable to think that the Company was willing to be bound by any and
every acceptance.
(c)Request for information
A person may request for supply of information. What is the legal effect of supplying
information in the cause of negotiations? The case of Harvey v. Facey ([1893] A.C. 552) may
help us answer the question.
The appellant sent a telegram to the respondent asking: "Will you sell us Bumper Hall Pen?
Telegraph lowest cash price, reply paid". The respondent replied simply: "Lowest price of
Bumper Hall Pen £900". The appellants then purported to accept this `offer'. The respondent
denied that his reply was an offer. The Court (Privy Council) held that no offer had been made
which the appellants could accept. The reason given by the Privy Council 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".
The words Bumper Hall Pen need not confused you. Bumper Hall Pen was the name
given to a piece of land.
What in your view was the reason for not holding the reply by respondents an offer? To help
you answer the question consider: Was the statement of the respondents specific and comprehensive

30
offering to sell Bumper Hall Pen? Did the respondents intend to be bound by the statement the lowest
price of the land was £900?

(d) Contracts by tender

You have already learned that in contracts by tender offers are made by those tendering.
Suppose the person inviting tenders puts conditions which must be fulfilled before a tender is
considered. Suppose further that tenderer fulfils those conditions. Can any liability arise out of such
a tender?
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 the other tenders.
The basis of this legal position is that there is an intention on the part of the person inviting
tenders that if and when a tender is submitted in accordance with the terms of the tender a
binding contractual obligation arises. The obligation is that a tender submitted in accordance
with the terms and within time must be opened and considered along with the other tenders.

But note: this does not mean that the person who invited tenders must accept the tender. The
right is limited to the tender being opened and considered. (See Blackpool & Flyde Aero Club Ltd. v.
Blackpool Borough Council [1990] All E.R. 25).
Having looked at the position at Common Law let us now examine the position under the Law
of Contract Ordinance. The Contract Ordinance is silent on the issue of invitation to treat.
However if you read s.2(1)(d) carefully statements which are not clear and certain, firm and
final expression of willingness to be bound, would fall under invitation to treat.
At any rate as you learned according to the case of Mafuruki if the Contract Ordinance
cannot provide an answer then you fall back on the Common Law position.

5.5 Mode and Communication of a proposal

An offer or proposal may be made either expressly or impliedly. Since a proposal has to be
communicated to the person for whom it is intended, then its communication may be made
either expressly or impliedly. The communication of a proposal is deemed to be made by an

31
 act or omission of the party proposing and which has the effect of communicating it(s.3
L.C.O.). Where the proposal is made in words it is said to be express, and where it is made
otherwise, it is said to be implied(s.9 L.C.O.). Proposals are made either in writing or by way of
speech or by conduct. Proposals by town or city buses are usually made by implication.
A proposal may be made to a definite person, to some definite class of persons or to the world
at large. Where an offer has been made to X, Y cannot accept it. If an offer is made to a class
of persons, only a member of that class may accept it. A prize offer to the overall best first
year LL.B. student cannot be accepted by an overall best second year LL.B. student. A
proposal may be made to the world at large, in which case anybody may accept it. A good
example of this type of offers are reward advertisements for performing a condition or
conditions, e.g., finding and returning lost property. In Carlill v. Carbolic Smoke Ball Co. the
Court made it very clear that it is possible to make an offer to the world at large, and that the
contract is then made with anyone who accepts the offer but not with all the world. The Court
pointed out that:
It is an offer made to all the world; and why should not an offer be made to all
the world which is to ripen into a contract with anybody who comes
forward and performs the condition? It is an offer to become liable to
anyone who, before it is retracted, performs the condition, and
although the offer is made to the world, the contract is made with that
limited portion of the public who come forward and perform the
condition on the faith of the advertisement.
Communication of an offer becomes effective when it is complete, i.e. when it comes to the
knowledge of the person to whom it was made (Read, s.4(1) L.C.O.).

5.6 Exercise:
Answer the following two questions and then discuss your answers with your fellow student or get
your tutor to mark them.
(a)What distinguishes an offer from an invitation to treat?
(b)The following advertisement appeared in the Daily News:

32
 ┬─────────────────────────────────────────┐
│ FOR SALE │
│ │
│ Nissan Sunny, 1981, reconditioned. │
│ Excellent condition & TV/Video, music │
│ system etc. Phone: 21527 (Evening) │
│ │
└─────────────────────────────────────────┘

Juma approaches you for advice as to the legal status of the advertisement. Advise Juma.

5.7 Further readings:

(a) Your casebook
(b) Cheshire & Fifoot: Law of Contract
(c) Beale, Bishop & Furmston: Contract cases and Materials.

Lecture No. 6:Formation of an Agreement: Acceptance

(a) Objectives: (1)To further explain and discuss the modalities of concluding a contract.
(2)To explain to you in detail one essential ingredient of an agreement called
acceptance.
(3)To make you understand the characteristics of an acceptance.
(4)To enable you appreciate the rules governing acceptance of a proposal.
(b) Study strategy:You must read the relevant provisions of the Contract Ordinance. You
also have to read cases in full. Study carefully the
rules governing communication of acceptance.
(c) Introduction:
In Lecture No. 5 we looked at a proposal as an element of an agreement. In this lecture
we look at the other element called acceptance. Remember that once a proposal has

33
 been accepted an agreement is reached. You will need to pay special attention to rules
governing communication of acceptance because the position under the Law of
Contract Ordinance is different from that at Common Law.

6.1 Meaning
According to s.2(1)(b) of the Contract Ordinance acceptance is defined as signification of assent to the
proposal by the person to whom it was made. This signification of assent must be a firm and
final expression of assent to the terms of the proposal as communicated by the proposer.

6.2 Characteristics
Section 2(1)(b) provides in part that "a proposal, when accepted, becomes a promise". And,
s.2(1)(c) says that once a proposal has been accepted the person making the proposal becomes
the "promisor" and the person accepting the proposal becomes the "promisee". In law the
promisor and the promisee are referred to as parties to the agreement.
You may ask. What is the relevance of what has been stated above in relation to
characteristics of acceptance? This is a valid question. It is important to introduce the element
of promise before we proceed because it is an essential ingredient of an agreement. Breach of
a promise gives rise to liability in law.
So what is the nature of acceptance which may give rise to legal liability? In order to
constitute an agreement.
(i)the acceptor must signify his assent to the proposal as made to him. In other words the
acceptance must be absolute and unqualified (See s.7(a) L.C.O.).
(ii)if the acceptance is qualified it ceases to be acceptance instead it becomes a counter offer
to the original proposal. The original proposer would be free to accept or
reject the counter offer.
We can now state that to constitute acceptance the offeree's signification of assent to the
proposal must.
(i)be made in response to the offer.

34
 (ii)exactly match the terms of the offer.
The matching acceptance must be communicated to the offeror.

6.3 Rules governing acceptance

Let us now deal with points (i)-(ii) enumerated above in detail. Communication of acceptance
will be covered under 6.4.
(i)That acceptance must be in response to, and in exchange for, the proposal.
(a) In response to the proposal
The offeree must be aware of the proposal. So knowledge of the existence of
the proposal is necessary. Where a person is not aware of the offer/proposal
he cannot be said to respond to it.
Examples:
-Where A has knowledge of B's offer of reward for recovery of lost goods. A finds the goods.
The finding of the goods is here in response to B's offer.
-Where A is not aware of B's offer of reward. A finds the goods and takes them back to B.
What A has done is not in response to B's offer. Here what A has done
is not acceptance of B's offer of reward. So B is not bound to give A
the reward promised.
-A is in Dar es Salaam and B is in Moshi. A offers to purchase B's books. At
the same time B offers to sell his books to A. Both offers are sent by
post and they cross each other. These offers are known as cross offers.
Neither is an acceptance of the other. After getting the offer then
either A or B may accept it after which an agreement will have been
reached.
(b) In exchange for the offer/proposal
A person may have knowledge of the offer but may accept it not in exchange for the offer. If
this be the case then there is no acceptance of the offer.
Let us illustrate what we have said with the case of R. v. Clarke ((1927) 40C.L.R. 227). An
offer of reward was to be given to any person who volunteered information leading to

35
 the arrest of certain murderers and a pardon to an accomplice who gave the
information. Clarke, an accomplice, volunteered information which led to the arrest
of the murderers. He did give the information, as he himself confessed, not because of
the offer of reward but because he wanted the pardon so as to clear himself of the
charge of murder. Later on, he claimed the reward. His claim failed because he had
given the information not in exchange for the offer of reward. In other words the
information given by Clarke was not an acceptance of the offer of reward.
(ii)That the acceptance must exactly match the terms of the offer (the mirror image
rule).
The offeree must accept the terms as offered. If he makes any changes he cannot be
said to have accepted the offer. Section 7(a) puts it very clearly that in order to convert
a proposal into a promise the acceptance must be absolute and unqualified.
In Hyde v. Wrench ((1840)3 Beav. 334) the facts were as follows:
June 6.The defendant wrote to the plaintiff offering to sell his farm for £1,000. 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.
June 27.The defendant wrote to say that he could not accept the offer of £ 950.
June 29.The plaintiff wrote "accepting" the offer of June 6. The defendant refused to
sell his land to the plaintiff at £1,000.
The plaintiff filed a case asking the Court to order the defendant to sell him the farm at
£1,000.
The Court ruled that the plaintiff's offer of £950 had the effect of making the June 6
offer to lapse. So when the plaintiff purported to "accept" the June 6 offer, in fact
there was no such offer at all, it having lapsed. So there was no offer on the 29th June
by the defendant to sell the farm to the plaintiff at £1,000 unless the defendant
expressly revived it.

36
Matching of the terms of the offer is at times referred to as the "mirror image" rule.
When you look at a mirror what do you see? Yourself? The offeree has to accept the
offer as put to him, nothing more and nothing less.
In the business world parties may not be particulary concerned about the details of
ancillary terms. They may fail to notice discrepancies between the offer and the
purported acceptance. Indeed the parties may go on with the performance as agreed.
In such cases courts have upheld the agreements as contracts in order to give business
efficacy to the transactions. (See the case of Brodgen v. Metropolitan Rly Co.).
You may have noted that businessmen use printed contract forms which contain terms
and conditions. It happens that the offeror may use his own printed form and the
offeree may purport to accept by using his own printed contract form. Note that the
terms and conditions in the offeror's form may not be the same as those of the offeree.
What is the legal effect of using such forms?
Example I:
B offers to purchase goods from S. S replies that he is willing to supply the goods on
his "usual conditions". Is S's reply an acceptance of B's offer? Prima facie (i.e., on the
face of it) S's reply is a counter offer which B is free to either accept or reject.
Alternatively B may accept S's counter offer by accepting the goods. Should B accept
the goods then one may say a contract has been concluded between S and B. (Here S's
counter offer has been accepted by conduct).
Example II:
S has got standard terms of sale. B has got his own standard terms of purchase. S's
and B's terms conflict. What is the legal consequence of such conflict? Let us have an
illustration from the case of B.R.S. v. Arthur V. Coutchley Ltd. ([1967]2 All E.R. 285).
The plaintiff delivered a consignment of goods to the defendants for storage. The
delivery note purported to incorporate the plaintiff's "conditions". The delivery note
was stamped by the defendants "Received under (the defendant's) conditions". The
plaintiff handed over the goods.

37
Was a contract concluded between the plaintiff and the defendant? If yes, under
whose conditions? The court held that the defendant's statement amounted to a
counter offer which the plaintiffs accepted by handing over the goods. The contract
was made under the terms and conditions of the defendants and not those of the
plaintiff.
Now we can look for a rule. The rule is this: Where conflicting communications are
exchanged each being a counter offer, but ultimately a contract results (e.g. from an
acceptance by conduct) it must be on the terms of the final document in the series.
The rule we have stated is known as the "last shot" doctrine. The doctrine was
developed in order to find a solution to the "battle of the forms", i.e., where each party
wants to use his own forms.
However the case of Butler Machine Tool Co. Ltd. v. Ex-Cell-O Corp. (England) Ltd.
([1979] 1W.L.R. 401) seems to call for a modification of the "last shot" doctrine. It is
not necessary that he who shoots last has the contract formed under his terms and
conditions. In Butler's case S offered to supply a machine at a specified price. The
offer was expressed to be subject to certain terms and conditions including a
"price-escalation clause". According to this clause the price payable by B would
depend on "prices ruling on date of delivery". B replied. He placed an order for the
machine on his own terms and conditions which differed from those of S in containing
no price-escalation clause and also in various other respects. In addition the reply
contained a "tear-off slip" to be signed by S and returned to B. The slip stated that S
accepted the order "on the terms and conditions stated therein". S did sign the slip and
returned it to B with a letter which said that they were entering the order in accordance
with their original offer.
This last communication by S was held to be an acceptance of B's counter offer. So
the resulting contract was on B's terms and conditions.
Who shot last? S. why then was the contract based on B's terms? The answer is this:
S's reply to B's order did not prevail (though it was the "last shot" in the series) because
the reference in it to the original offer was not made for the purpose of reiterating all

38
 the terms of that offer, but only for the purpose of identifying the subject matter. (See
Treitel: Law of Contract, p. 17).
Note that had S insisted on all their original terms this would have amounted to a
counter offer.

6.4 Communication of acceptance:

The matching acceptance must be communicated to the offeror.
In Household Fire Insurance Co. v. Grant ((1879)41 LT 289) the court said that an acceptance
which only remains in the breast of the acceptor without being actually or by
legal implication communicated to the offeror is no binding acceptance.
You must always remember that an acceptance must be communicated. In addition you
should always bear in mind that communication of acceptance must be complete.

(a) Communication to an agent

Where an agent is authorised to receive acceptance, then communication to the agent
is as good as communication to the principal. But where the agent's authority is
merely to transmit the acceptance to the principal, there is no acceptance until it is
actually transmitted to the principal.
(b) Conduct of offeror
Where by his conduct the offeror fails to see the notice of acceptance of the offer he
cannot disclaim liability on the ground that the acceptance was not communicated to
him. (See Brodgen v. Metropolitan Railway Co. (1877)2 App. case 666).
(c) Terms of the offer
In some cases the offeror may either expressly or impliedly intimate the mode of
acceptance of his offer. In such cases the offeree need only follow the indicated
method of acceptance. In unilateral contracts no advance communication of
acceptance is required. Performance of the required act or service is sufficient
acceptance of the offer. (See Carlill's case, see also s.8 of the L.C.O.).
(d) Communication of acceptance by post

39
 (i) The position at common law
Communication of acceptance by post poses a problem as to when it can be said to be
complete and thus a contract concluded. In 1818 in Adams v. Lindsell ((1818) 106
E.R. 250 (K.B.)) the Court said that where acceptance is communicated by post a
contract arises on the date when the letter of acceptance is posted in due course. To
the argument that there was no contract until the letter of acceptance actually reached
the offeror the court remarked:
If that were so, no contract could ever be completed by the
post. For if the defendants were not bound by their
offer when accepted by the plaintiffs till the answer
was received, then the plaintiffs ought not to be bound
till after they had received the notification that the
defendants had received the answer and assented to it.
And so it might go on ad infinitum.
The rule in the above case was further rationalized by Thesiger, L.J., in 1879 when he said:
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 the offer and to receive the acceptance .... The
acceptor, in posting the letter has "put it out of his
control and done an extraneous act which clinches the
matter, and shows beyond all doubt that each side is
bound". (See Household Fire and Accident Insurance

40
 Co. v. Grant (1879) L.R. 4 Ex. Dv. 26 (C.A.). cf. s.4
L.C.O. - so as to be out of the power of the acceptor).
The posting rule was consolidate in Bryne v. Van Tienhoven ((1880) 5 C.P.D. 344)
and Henthorn v. Fraser ([1892]2 Ch. 27). In the former case the court pointed out that
a contract is complete on posting the letter of acceptance even though the letter may
not reach the offeror (its destination). In the latter case Lord Herschell refined the rule
thus:
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.
According to this common law rule once a letter of acceptance has been posted a
contract is formed and both parties become irrevocably bound. This rule appears not
to give any opportunity to the acceptor to revoke his acceptance by a speedier means,
say, by telephone.
(ii) The position under the L.C.O.
Section 4(2) provides as to when communication of acceptance is complete:-
4.-(2)The communication of an acceptance is complete-
(i)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;
(ii)as against the acceptor, when it comes to the knowledge of the proposer.
The Ordinance does not provide for a posting rule as such. But 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. That is to say a contract has been concluded in as
far as the proposer is concerned. The acceptor is not bound until his acceptance comes
to the knowledge of the proposer. This provision affords an opportunity to the
acceptor to revoke his acceptance by a speedier means.

41
 An acceptance may be revoked at any time before the communication of its
acceptance is complete (s.5(2)L.C.O.). And, the communication of acceptance is complete as against
the acceptor, when it comes to the knowledge of the proposer.
Revocation of an acceptance is not effective until its communication is complete. The
communication of a revocation is complete -
(i)As against the person who makes it, when it is put into a course of transmission to
the person to whom it is made, so as to be out of the power of the
person who makes it:
(ii)As against the person to whom it is made, ... when it comes to his knowledge (s.4(3)
L.C.O.).
An acceptor who revokes his acceptance becomes bound by his revocation once he
cannot recall his revocation. A proposer or offeror becomes bound only after he has
knowledge of the revocation. Since the acceptor is not bound by his letter of
acceptance until it comes to the knowledge of the proposer (s.4(2)(ii)L.C.O.) he can
revoke it. But, this revocation will be effective only if it reaches the proposer before
the acceptance. An acceptor who has revoked his acceptance cannot again revoke his
revocation (s.4(3)L.C.O.).
To sum up, section 4(2) LCO marks a difference between the position in
England and Tanganyika as far as the acceptor is concerned. While in England when a letter
of acceptance is posted, both the offeror and acceptor become irrevocably bound, in
Tanganyika the acceptor does not become bound by merely posting his acceptance. He
becomes bound only when his acceptance "comes to the knowledge of the proposer".
The rule in s.4(2) seems to be anomalous in that it suggests that there can be a one
party contract.
(e) Instantaneous communication5
Where a telephone or telex is used to communicate acceptance, the acceptance
becomes complete when the offeror receives notification of the acceptance; and the
contract is made at the place where the acceptance is received. (See Entores Ltd. v.
Miles Far East Corp. ([1955]2 All E.R. 493).

42
6.5 Exercise:
1.When can an offer be said to have been accepted
(a) at Common Law
(b)under the Law of Contract Ordinance
Explain the rationale behind whatever contrasts there may be.
2.On the 1st of March Diki gave Jaja a written offer to sell a house for Shs. 500,000/=, the
offer to remain open for acceptance till 4 p.m. on the 4th of March. On the 3rd of
March Diki sold the house to Bahati for Shs. 600,000/= and immediately thereafter
posted a letter to Jaja revoking the offer. On the 3rd of March Jaja posted a letter of
acceptance. On the 4th of March Diki received Jaja's letter of acceptance at 12.00
noon. On the same day Jaja received Diki's letter of revocation at 9.99 a.m.
Examine and decide whether there was a concluded contract between Diki and Jaja,
or not.

6.6 Further readings:

(a) Your casebook
(b) Cheshire & Fifoot
(c) Treitel: Law of Contract

Lecture No. 7:Formation of an Agreement:

Termination of a proposal

(a) Objectives: (1)To appraise you with the rules relating to termination of a proposal.
(2)To make you understand under what circumstances it can be said the offer/proposal
has come to an end.

43
 (b) Study strategy:You will have to read provisions of the Contract Ordinance, relevant
cases cited in this lecture and also additional literature
on termination of offer.
(c) Introduction:In lectures 5 and 6 we dissected an agreement and laid bare its
component parts. We also examined rules relating to proposal
and acceptance. While in lecture No. 6 we saw how an
acceptance can come to an end in lecture No. 5 we did not look
at how a proposal can be terminated. We did that deliberately
as we intended that it be covered after examining acceptance
and rules relating to it. In this lecture we now look at
termination of proposal.

7.1 When a proposal can be terminated

An offer or proposal may be terminated at any time before its acceptance is complete. (See
Payne v. Cave (1789) Tenu Rep. 148). Once an offer has been accepted a binding contract is
formed. In the words of Anson:-
Acceptance is to an offer what a lighted match is to a train of gunpowder. It
produces something which cannot be recalled or undone. But the
powder may have laid until it has become damp, or the man who laid
the train may remove it before the match is applied. (See Anson: Law
of Contract, 23rd Ed. p. 55).
Provided an offer has not been accepted it may be terminated for any of the following reasons:
(i)Lapse for want of acceptance
(ii)Revocation
(iii)Death
(iv)Failure of a condition subject to which the offer was made.
Let us now examine each one of the reasons given above in turn.

7.2 Lapse for want of acceptance

44
 An offer may provide that it will remain open for a specified period of time. In such a case
acceptance must be effected within the time limit. The offer lapses after the fixed period of
time. Where no time limit is given an offer must be accepted within a reasonable time. What
is a reasonable time is a question of fact depending on the circumstances of each case. The
test is not whether the delay before communication of acceptance is unreasonable or not, but
whether a reasonable time has lapsed between the date of the offer and the communication of
acceptance. (See the C.A. Industries Ltd. v. Powysland B.E.A. Ltd. (1953) E.A.P.L.R. 121).
Where acceptance has to be communicated by wire (telegraph) the existence of a public
holiday (and possibly a Sunday) is to be taken into consideration. In Chatur and Lollehand v.
Allibhai Rahimtulla ((1914) 5EAPLR 156) the court held that in considering the promptness
of an acceptance sent by telegraph, the existence of a public holiday is to be taken into
consideration.

Under the Law of Contract Ordinance a proposal may terminate by the lapse of time
prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of a
reasonable time, without communication of the acceptance (See s.6(b) L.C.O.).

7.3 Revocation:
An offer can be revoked at any time before its acceptance (See Payne v. Cave). This is the
case even where the offeror has stated that his offer is open for a specified period of time.
Provided his promise to keep the offer open is not supported by consideration, it does not bind
him and as such he can revoke his offer even within the period when the offer is open (See
Anson: p. 56).
Revocation of an offer must be communicated to the offeree and it becomes effective when it
comes to the knowledge of the latter. In Byrne v. Van Tienhoven ((1880)5C.P.D. 344) the
defendants posted a letter in Cardiff on 1st October, addressed to the plaintiffs in New York,
offering to sell 1,000 boxes of tinplates. On 8th October they posted a letter revoking the offer.
On 11th October the plaintiffs telegraphed their acceptance and confirmed it by a letter posted
on 15th October. On 20th October the letter of revocation reached the plaintiffs. The Court

45
 held that the revocation was inoperative until 20th October when the notice of revocation
came to the knowledge of the plaintiffs.
Where acceptance of an offer is to be by performing an act, it is not clear whether or not, and
if so, at what point in time, the offeror may revoke his offer. It has been suggested that the
answer will depend on the circumstances of each case:
In some cases the parties may well understand that the offeror reserves a right
to revoke at any time until performance is complete, while in others it
may be proper to hold that he cannot revoke once the promisee has
started performance. There may well be intermediate cases where the
promisor can revoke after performance has started but is obliged to
compensate the offeree for his trouble. (See Daulia Ltd. v. Fous
Mullbank Nominees Ltd. [1978]2 All E.R. 557).
In Tanzania one of the ways of terminating a proposal is by communication of notice of
revocation by the proposer to the other party. (See s.6(a)L.C.O.).

7.4 Death:
Where the offeror dies before the offer is accepted and the offeree is aware of the death it
would seem the offer lapses and becomes incapable of acceptance. (See Coulthart v.
Clementson (1870) 5Q.B.D. 42). There may be instances where the offeree accepts the offer
in ignorance of the fact that the offeror is dead at the time of acceptance. In such instances it
has been suggested that:
An offeree who does not know of the offeror's death should be entitled to
accept the offer, unless the offer on its true construction indicates the
contrary, e.g. where the offeror's personality is a vital element in the
transaction. (See Anson: p. 56).
The death of the offeree determines the offer and the personal representatives cannot accept
the offer on behalf of his estate. (See Re Cheshire Banking Co. (Duff's Executor's Case)
(1886)32 Ch.D. 901).

46
 Under the Law of Contract Ordinance a proposal is revoked by the death or insanity of the
proposer, if the fact of his death or insanity comes to the knowledge of the acceptor before
acceptance. (See s.6(d)L.C.O.). The provision seems to suggest that if the fact of the death or
insanity of the proposer is not known to the offeree at the
time of acceptance then he should be entitled to accept the offer.

7.5Failure of a condition subject to which the offer was made

Where, for example, the subject matter of the offer is destroyed or is no longer in existence
before acceptance the offer lapses. Or, where an offer is subject to the fulfilment of a
condition precedent by the offeree before acceptance, failure to fulfil the condition precedent
causes the offer to lapse.
Section 6(c) of the Contract Ordinance provides that a proposal is revoked by the failure of the
acceptor to fulfil a condition precedent to acceptance.

7.6 Exercises:
(a)Describe the various ways of terminating an offer.
(b)Examine whether there is a concluded agreement between the parties in the following case:
On March 1 firm DARCO of Dar es Salaam posted a letter to firm DODOCO of Dodoma offering to
supply certain goods and asking for an acceptance "by return of post". This letter was
received by DODOCO on the 4th. Immeidately thereupon DODOCO booked a long distance
telephone call to DARCO and spoke their acceptance into the telephone. The telephone line
was in sound working condition, but the assent was not heard by DARCO due to some loud
explosion just outside their office at the time. They, however, did not ask DODOCO to repeat
and DODOCO therefore believed that their assent was duly heard by DARCO. The same
evening DODOCO sent a telegram to DARCO revoking their acceptance which was received
by DARCO the next morning.

7.7 Further readings:

(a)Your casebook

47
 (b)Anson: Law of Contract
(c)Treitel: Law of Contract

SECTION 3: ESSENTIAL ELEMENTS OF A CONTRACT

You will recall that the first section was on introductory considerations and the second
examined formation of a contract. In this third section we are going to look at the essential elements
of a contract. These are intention to create legal relations, contractual capacity, consideration and free
consent. Except for the element of intention to create legal relations section 10 of the Law of Contract
Ordinance provides for the other three. The section provides:
10.All agreements are contracts if they are made by the free consent of the
parties competent to contract, for a lawful consideration and with a
lawful object, and are not hereby declared to be void:
Provided that nothing herein-contained shall affect any law in force, and not hereby
expressly repealed or disapplied, by which any contract is required to be made in
writing or in the presence of witnesses, or any law relating to the registration of
documents.
In the following lectures of this Section we are going to examine each of the essential
elements.

Lecture No. 8:Intention to create legal relations

Objectives: (1)To make you understand the importance of intention to create legal relations.
(2)To let you know whether or not intention to crete legal relations is an essential element in a
contract in Tanzania.
(3)To explain under what factual situations or circumstances the element of intention
to create legal relations will be presumed.
Study strategy:After carefully studying this lecture read the relevant cases reproduced in your
casebook. Also read the relevant chapters in the basic textbooks.

48
Introduction:This lecture deals with intention to create legal relations as an essential ingredient in a
contract. It should be noted from the very start that while the position
at common law (and therefore in Kenya and Uganda) is clear in that
intention is an essential element, the position in Tanzania is not spelt
out in the Contract Ordinance. As such whether or not intention is an
essential element of a contract in Tanzania must based on residual law.
In this lecture you will study why intention to create legal relations is
an essential element both at common law and under the contract law in
Tanzania. In addition you will also study circumstance which are
consistent and those which are inconsistent with legal intention.

8.1 The principle:

As we have seen there is A provision in the Law of Contract Ordinance requiring that an offer
or its acceptance should be made with the intention to create legal relations. However in
English law it is a settled principle (stated by Atkin, J. in Rose & Frank Co. v. J.R. Crompton
& Bros [1923]2K.B. 261) that to create a contract there must be a common intention of the
parties to enter into legal relations. The rationale behind this principle is that contracts should
not be the sports of an idle hour, mere matters of pleasantry and badinage, never intended by
the parties to have any serious effect whatsoever (See Darlymple v. Darlymple (1811)161 E.R.
665). As such despite the fact that there may be evidence of an offer that has been accepted
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. In other words the parties must be shown to have intended that legal consequences
should result in their contractual dealings.

8.2Intention in domestic arrangements

You know that in everyday life people enter into many types of agreement. Of the many types
two divisions of agreement can be made. The first division is of agreements which are social
or domestic in nature. These include arrangements between husband and wife, family

49
members and friends. The second division covers arrangements which are commercial in
nature.
There is a presumption that social or domestic arrangements do not give rise to legally
enforceable contracts even though they may have the outward appearance of a contract.
The case of Balfour v. Balfour ([1919]2K.B. 571) illustrates the position. The facts are simple.
H went to work in India leaving W in England for health reasons. H promised to pay W £30
per month for her maintenance. W later divorced H. H then refused to pay the £30. W, the
wife, sued and failed.
One of the judges explained:
There are agreements between parties which do not result in
contract within the meaning of that term in our law.
The ordinary example is where two parties agree to
take a walk together, or where there is an offer and
acceptance of hospitality. Nobody would suggest in
ordinary circumstances that these arrangements result
in what we know as contracts, and one of the most
usual forms of agreement which does not constitute a
contract appears to be the arrangements which are
made between husband and wife. The arrangements
do not result in a contract at all, even though there may
be what would constitute consideration for the
agreement. They are not contracts because parties did
not intend that they shall be attended by legal
consequences. (See pp. 578-9).
On the basis of the above case it can be said that in the case of arrangements regulating social
relations it follows almost as a matter of course that the parties do not intend legal
consequences to follow.
This does not, however, mean that in family or social matters there cannot be a legally
binding contract. What the law requires is that the parties must intend legal consequences to

50
follow. The case of Jones v. Padavatton ([1969]2 All E.R. 616) illustrates what we have said
above. A divorced woman was living in Washington with her son. In Washington she was
employed as an assistant accountant in the Indian Embassy on attractive terms. Her mother
was in Trinidad and wished her daughter to be near her. She was particularly attached to the
grandson. The mother persuaded her daughter, much against her will, to leave service, take
legal education in England and finally come back to Trinidad as a practising lawyer. The
mother promised to foot the expenses and give the daughter a monthly allowance. The mother
later moved to London, bought a house there and the daughter lived in part of it and this was to
count towards part of the monthly allowance. For five long years the daughter could not
complete her education. She also remarried in the meantime. Sometime later the two
quarrelled and the mother sought possession of the house. The daughter resisted the claim on
the ground that the agreement was in fact a contract giving her legally enforceable rights.
This was a difficult case to decide. One of the Lords said:
There is no doubt that this case is a most difficult one, but ... is one of those family
arrangements which depend on the good faith of the promises which
are made and are not intended to be rigid, binding agreements (at p.
620).
Another Law Lord was of the view that the agreement was a contract as the parties intended
that legal consequences should follow. He, however, decided in favour of the mother on the
ground that the agreement could last only for a period reasonably sufficient for the daughter to
complete her education and the period of five years was more than sufficient for the purpose.
His lordship said that the daughter could not have expected her mother to support her, her son
and husband in perpetuity.

Let us consider another case. It is Merrit v. Merrit [1970]1W.L.R.1211. H had left W and was
living with another woman. He agreed to pay W £40 a month and signed a written agreement
that, in consideration of W's paying off the mortgage on their jointly owned house, he would
then transfer it to her sole ownership. W paid off the mortgage. H refused to transfer the
house to W. She sued H who argued that there was no contract between himself and W

51
because the arrangement was a social one and not intended to be attended by legal
consequences. The Court decided that the presumption that agreements between husband and
wife are not intended to create legal relations does not apply when they are not living in amity
but are separated or about to separate. So given the circumstances of this case the
presumption was rebutted.
In addition to the surrounding circumstances the words used must be clear in order for the
presumption to be invoked. In Gould v. Gould [1970]1 Q.B. 275, in deciding whether there
was an intent to create legal relations the court had regard to the uncertainty of the words. H
on leaving W promised orally to pay her £15 per week "as long as he had it" or "as long as
business was O.K.". or "as long as I can manage it". The uncertainty of the words used made
the court to conclude that there was no intent to create legal relations.
Before we wind up this part let us have a look at one case which was decided by the High
Court of Tanzania. The case is Bi Khadija Kilumanga v. Bi Peris Misso ([1982]T.L.R. 266).
The plaintiff and the defendant were close friends. They had exchanged various gift and other
valuables to consolidate their friendship. In the course of their friendship the plaintiff
promised to buy a car and give it to the defendant. The plaintiff bought the car in Holland and
shipped it to Dar es Salaam in the defendant's name. The defendant incurred expenses in
clearing the car from the port. Before actual physical delivery of the car by the plaintiff to the
defendant the former revoked her offer of gift of the car.
The court was of the view that for a gift to be valid one of the prerequisites is that there must
be intention to give and an intention to take. The court found that mere delivery of documents
of title to the car did not constitute the defendant owner of the car. In other words the court
was of the view that the intention of the plaintiff to give the gift had to be evidenced by
physical delivery of the car itself and not the documents of title. In short the court was saying
that given the circumstances of this case the plaintiff did not intend that the arrangement
between herself and the defendant should be attended by legal consequences.
In the course of his judgment the learned judge did not refer to s.25(2) of the Contract
Ordinance which says that the validity of any gift actually made as between the donor and
donee shall not be affected because of failure to comply with the requirements spelt out under

52
 section 25(1). (Section 25(1) provides for exceptions to the requirement of consideration in
simple contracts and what conditions must be complied with in order to make an agreement
without consideration a contract). A number of questions may be asked. When is a gift
actually made? Suppose a car is delivered without documents of title does ownership pass?
Suppose documents of title are delivered but not the car, has ownership passed?
All we can say at this stage is that the judgement has left many questions unanswered.

8.3Intention in business/commercial arrangements

We have already seen that in case of social or domestic arrangements there is a presumption
that the parties did not intend legal consequences to result from their agreement.
In the case of agreements regulating business relations it follows almost as a matter of course
that the parties intend legal consequences to follow.
A contrary intention may, however be proved in which case the presumption becomes
rebutted. The case of Rose & Frank Co. v. J.R. Crompton ([1923]2K.B. 261) is usually cited
to show that even in business matters parties may intend to rely on each other's good faith and
honour and not on legal consequences. The facts of the case cited were as follows.
An exhaustive agreement was drawn between one American and 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 the U.S. 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 affect legal relations.

8.4 The test of contractual intention

The intention of the parties must be ascertained from the terms of the arrangement and the
surrounding circumstances. It is for the Court in each case to find out whether the parties must
have intended to enter into legal obligations. (See A. Singh: Law of Contract (1980) p. 6).

53
 The court employs an objective test not subjective. What is important is not what was in the
minds of the parties rather what a reasonable person would say, in the circumstances, their
intention to be.
Note that since a contract is a freely negotiated agreement then the parties have a right to say
that although it is their agreement they do not want it to be subject to the court's jurisdiction
should anything go wrong. (See Hodgin: Law of Contract in East Africa (1975) p. 63).

8.5Intention: Its applicability in East Africa

We pointed out in the introduction to this lecture that at common law (Kenya and Uganda) the
element of intention to create legal relations is an essential ingredient in a contract. We also
saw that the position in Tanzania is not expressly provided for in the Law of Contract
Ordinance.
It can now be stated that for Kenya and Uganda the element of intention in a contract is
essential. As for Tanzania an examination as to the place of the element of intention must be
made.
Although there is no express provision in the Contract Ordinance that intention is an essential
element a close examination of the definition of the word proposal seems to show that the
element is, by necessary implication, essential. A person who makes a proposal signifies his
willingness to be bound according to the terms contained in the proposal. And, an acceptor
signifies his willingness to be bound according to the acceptance terms. One could read the
word willingness to mean intention to be bound according to the terms of offer or acceptance.
Another argument which you may advance is that the Contract Ordinance does not cover all
areas of contract law. The Ordinance defines and amends certain parts of the law relating to
contracts.
So there are areas of contract law which are not covered by the Ordinance. In such cases one
has to fall

54
back on the common law of contract (See Tanganyika Garage Ltd. v. Marceli G. Mafuruki, [1975]
LRT 23).

8.6 Exercise:
(a)Discuss the presumptions relating to intention to create legal relations.
(b)Do you think intention to create legal relations is an essential element of a contract
in Tanzania?

8.7 Further readings:

(a) Your casebook
(b)Avtar Singh: The Law of Contract
(c)Treitel: Law of Contract

Lecture No. 9:Capacity to contract

Objectives: (1)To introduce you to this other essential element of a contract
(2)To define what is meant by capacity to contract
(3)To let you understand why capacity to contract is an essential element.

Study strategy:Read this lecture carefully. Then study the legal provisions mentioned in this lecture.
In addition you have to read cases cited in this lecture. And, of course,
you have further readings which you should go through.

Introduction: Capacity to contract is treated in two lectures, i.e., 9 and 10. Lecture 10 is devoted to
factors vitiating capacity to contract and as such examines varies types
of person who are declared not to be competent to contract.
This lecture introduces you to the meaning of capacity to contract and the
importance of this element.

55
9.1 Meaning:
Capacity to contract refers to competence to contract. You know that in our daily lives every person
enters into a contract of some sort everyday. Children, old people, drunken persons
sell and buy goods. It is not uncommon to find that some groups, e.g., children do not
know exactly what they are doing when buying, say, kerosine. If short measure is
given the child cannot stand up and defend herself. A person of unsound mind may
also not know the nature of the transaction he enters and may not be capable of
protecting his economic interests. As such the law recognizes certain groups of
person as not being capable to contract and protects them.
As a general rule only sane, sober persons of contractual age are capable of making valid
contracts. (See Hodgin: Law of Contract, p. 66).
In our Contract Ordinance there is a requirement that parties to a contract must be competent.
(See s. 10). Section 11 defines the word competence. It says:
11.-(1) 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.
Competence is thus defined in terms of persons who are not competent to contract.
These are minors, persons of unsound mind and persons who have been disqualified
by law to which they are subject.
A minor is a person who has not attained the age of majority according to the law to
which he is subject. In East Africa statutes have been passed to provide for the age of
majority.
In Tanganyika the Age of Majority Ordinance Cap. 431 (Revised Laws) declares the
age of majority to be 18 years. In Zanzibar by virtue of the Laws of Zanzibar, Cap. 53,
the age of majority is 18 years. In Kenya according to the Age of Majority Act 1974
one attains majority when he reaches 18 years. In Uganda the age of majority is 18
years according to the Uganda Contract Act Cap. 75. In England before 1969 the age

56
 of majority was 21 years. In 1969 the Family Law Reform Act was passed, according
to which now the age of majority is 18 years.
A person of unsound mind is that one who is not of sound mind. A person of sound
mind is that who, at the time of making the contract should be (a) capable of
understanding it, and (b) capable of forming a rational judgment as to its effects upon
his interests.

9.2 Importance and rationale

The importance and rationale behind the law relating to capacity to contract is not far to seek.
As a rule a person without capacity to contract lacks intellectual maturity, lacks experience to
exercise sound judgment and in addition he may not know or appreciate the effects of the
agreement upon himself. This being the case he cannot protect himself. It follows he needs
the protection of the law.
The law, however, in some cases tries to strike a balance. The law does not allow persons
without capacity to use their position to defeat with impunity the economic interests of
persons with capacity to contract. So as we shall see in the following lecture the protection
offered by the law is not always absolute.
The minor or infant participates in the adult world. Contractual relationships are an essential
part of his environment (See Hartwing, "Infants' Contracts in English Law: With
Commonwealth and European Comparison" in 15 International and Comparative Law
Quarterly 780 (1966).

9.3 Exercises:
(1)What do you understand by a person who lacks capacity to contract?
(2)Why does the law protect persons who lack capacity to contract?

57
9.4 Further readings:
(1)Your casebook
(2)A. Singh: Law of Contract

Lecture No. 10: Factors vitiating capacity

Objectives: (1)To let you understand the effect of age, unsoundness of mind and other types of
incapacity on formation of a contract.
(2)To survey the various types of persons who are not capable to contract.
Study strategy:Read this lecture carefully. Note in particular the legal effect of contracts by persons
who have been declared incompetent to contract.
Introduction:This lecture is a follow up of lecture No. 9. It examines factors vitiating capacity to
contract which are age, unsoundness of mind and legal incapacity of
corporations. In this lecture the legal effect of an agreement by a person who
has no capacity is looked at in detail.

10.1 Age
Age is one factor which may vitiate a person's capacity to contract. As we have seen section
11(1) of the Law of Contract Ordinance states that a minor is not competent to contract. And
section 11(2) says in effect that an agreement by a minor is void, i.e., is no agreement at all in
the eyes of the law.
Does section 11(2) mean that minors cannot contract at all? We know that minors deal with
majors everyday and indeed enter into agreements. We have to go into some detail, therefore
to see the import of section 11(2).
The law on minors'/infants' contracts is based on two principles. First, the law is there to
protect minors from their inexperience, hence to invalidate agreements which are unfair to the
minor or which are improvident
(wasteful). Secondly, the law is not to cause unnecessary hardship to adults who deal fairly with
minors.

58
 Under the second principle the law recognizes some contracts with minors as valid and others
as voidable. In addition a minor may also be liable in quasi-contract and in equity where he is
found guilty of fraud.
(a) Valid "contracts"
(i)"Contracts" for necessaries
A minor's agreement for necessaries is valid and enforceable against him. This is the position
at common law as well as under contract law of Tanzania. In Tanzania the general law of
contract based on the Contract Ordinance is silent on the contractual liability of a minor.
However the Sale of Goods Ordinance Cap. 214 provides in section 4 that a minor may be
held liable for necessaries. A minor may also be held liable in quasi-contract under section 68
of the Contract Ordinance.
Let us reproduce the two sections for ease of reference. Section 4 of the Sale of Goods
Ordinance provides:
Capacity to buy and sell is regulated by the general law concerning capacity to
contract, and to transfer and acquire property: Provided that where
necessaries are sold and delivered to an infant, or minor, or to a person
who by reason of mental incapacity or drunkenness is incompetent to
contract, he must pay a reasonable price therefor. Necessaries in this
section means 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.
Section 68 of the Contract Ordinance provides:
If a person incapable of entering into a contract, or any one who 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.
Section 4 of the Sale of Goods Ordinance does not seem to impose contractual
liability on the minor. Rather the section requires a minor who has enjoyed some

59
 benefit which is a necessary to him according to his station in life to pay, not the
contractual price but a reasonable price for the goods already delivered.
Section 68 of the Contract Ordinance deals with relations which resemble those
created by contract. So it does not deal with contractual relations. The section says
that a person who supplies necessaries to say, a minor or incapable person becomes
entitled to be reimbursed from the property of such minor or incapable person. Two
examples can be given here. First, A supplies B, a minor, with necessaries suitable to
his life. A is entitled to be reimbursed from B's property. Second, A supplies the wife
and children of B, a lunatic, with necessaries suitable to their condition in life. A is
entitled to be reimbursed from B's property.
The liability is only for necessaries. Unfortunately there is no definition of the term
"necessaries" in the Contract Ordinance. The definition in section 4 of the Sale of
Goods Ordinance may not be satisfactory. One may say that necessaries are things or
services without which an individual cannot reasonably exist. Food, clothing and
shelter are necessaries. In addition education and medical services may be included in
the list of necessaries.
You should also 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 conveniences or
matters of taste, may in the case of another be considered necessaries.
Let us reiterate that agreements for supplied/offered goods/ services which are
necessaries will not be treated as void. However no contractual liability will be
imposed on the minor. The person supplying the goods or offering the services
becomes entitled to either a reasonable price or reimbursement from the property of
the minor if he has any.
(b) Voidable contracts
As pointed out earlier section 11(2) of the Contract Ordinance says clearly that an
agreement by a minor is void. The subsection does not mention valid or voidable contracts.
However at common law a contract with a minor may be declared voidable.
Such a contract binds both parties until such time when the minor repudiates it.

60
 Agreements relating to land, shares in companies, partnerships and marriage
settlements may be treated as voidable contracts. In such cases the minor/infant is
allowed to call the contract to an end. The law requires such minor to do so during
infancy or within reasonable time after attaining majority (See Minors Contract Act
1987, England).
(c) Void contracts
Section 11(2) of the Contract Ordinance, as we have seen provides that an agreement with
a minor is void. As we have said section 11 makes it essential that all contracting parties
should be competent to contract. It expressly provides that a person who by reason of infancy
is incompetent to contract cannot make a contract within the meaning of the Ordinance. Since
the question whether a contract is void or voidable presupposes the existence of a contract
within the meaning of the Ordinance, it cannot arise in the case of a minor/infant.
Again as we have shown minors do appear in public life frequently. a minor has to
travel, to get her dresses tailored or cleaned, to visit cinema halls, etc.
Now, a minor's agreement being void, ordinarily it should be devoid of all effects.
If there is no contract, there should, indeed, be no contractual obligation on either side.
Consequently all the effects of a minor's agreement must be worked out independently
of any contract. (A. Singh: Law of Contract pp. 97 et seq.).

10.2 Unsoundness of mind

According to section 11(1) a person who is of unsound mind is incompetent to contract. The
definition of a person of unsound mind is given in comparison to one who is of sound mind.
section 12(1) of the Contract Ordinance says:
12(1) 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 judgement as to its effect
upon his interests.
The law allows a person who is usually of unsound mind, but occasionally of sound mind, to
make a contract when he is of sound mind (S.11(2)). The law forbids a person who is usually

61
 of sound mind, but occasionally of unsound mind, to make a contract when he is of unsound
mind (S.11(3)).
Apart from what we have explained above, an agreement of a person of unsound mind is, like
that of a minor, void.
According to Avtar Singh, Law of Contract, 1980, in English law a person of unsound mind is
competent to contract, although he may avoid his contract if he satisfies the Court that he was
incapable of understanding the contract and the other party knew it. The contract is voidable
at his option. It becomes binding on him only if he affirms.

10.3 Corporations
A corporation or company which is duly registered under the Companies Ordinance is
regarded as a legal person. It is capable of concluding contracts in its company name. It does
so through its duly authorised agents.
A company cannot, however make whatever contract it likes. the contractual capacity of a
corporation or company is limited. A company can enter into those contracts which the
Memorandum of Association of the company allows. The Memorandum of Association is a
document which sets down the various functions and purposes of the company.
If a company concludes a contract which is within its objects such contract is described as
being intra vires and is valid. If a contract is made outside the objects of the company it is
referred to as being ultra vires i.e., beyond the powers of the company to do and it becomes
void.

10.4 Exercises:
(i)What do you think is the rationale behind the law governing infants' contracts?
(ii)Can (a) drunken persons (b) mentally disordered persons conclude contracts?

10.5 Further readings:

(1) Your casebook
(2) A. Singh: Law of Contract, 1980

62
 (3)Hodgin: Law of Contract in East Africa
(4)G.H. Treitel: The Law of Contract, 1979.

Lecture No. 11: Consideration - Importance and definition

Objectives: (1)To explain to you the importance and rationale of consideration in a
contract.
(2)To give a general definition of the term consideration.
Study strategy:After carefully reading this lecture make sure you read the literature which
defines and gives the importance and rationale of a
consideration in a contractual setting.
Introduction:This lecture is but a start of a number of lectures on consideration. Lectures
12-15 will also be on consideration. It has been necessary to devote
enough time to consideration because it is one of the very essential
elements of contract both at Common Law and under the contract law
of Tanzania.
11.1 Importance and rationale
The element of consideration is vital to the English conception of contract (See
Thomas v. Thomas [1842]2Q.B.851). It traces its history to before the 16th Century.
According to English law for an agreement to have legal force it must either be under
seal or must be supported by some consideration. In modern English law, i.e. since
the 16th century, the crucial factor is the presence or absence of consideration (See
Furmston, M.P.: Cheshire and Fifoots Law of Contract 10th Ed., p. 10).
One of the problems surrounding the development of the doctrine of consideration
was its definition. The other problem was one of recognizing consideration as an
essential element of a contract. When Lord Mansfield became Chief Justice of the
Kings Bench he challenged the need for consideration as an essential ingredient in a
contract. He decided to treat consideration as merely evidence of the parties intention
to create legal relations. He asserted, therefore, that if such intention could be
ascertained by other means, e.g. presence of writing, then consideration was

63
unnecessary to make the agreement binding. In Pillans v. Van Mierop (1756)3 Burr
1663) he held that consideration is only one of several modes of supplying evidence of
the promisor's intention to bind himself; if the terms of the contract are reduced into
writing by reason of commercial custom, or in obedience to statutory requirement,
such evidence dispensed with the requirement for consideration.
This legal proposition by Lord Mansfield survived for 22 years. In 1778 in Rann v.
Hughes (H.L. 1778 7T.L. 346) the House of Lords repelled Lord Mansfield's assault
on the doctrine of consideration pointing out that all simple contracts, [i.e. contracts
not under seal whether written or not] must be supported by consideration. The Court
pointed out that:
All contracts are by the laws of England distinguished into
agreements by speciality and agreements by parol; nor
is there any such third class ... as contracts in writing.
If they be merely written and not specialities, they are
parol, and a consideration must be proved .
After Rann's case consideration became an essential ingredient of a
simple contract. Lord Mansfield accepted this legal position, but then he sought to
define consideration in terms of moral obligation. His approach amounted to this
example: if a man is under a moral obligation to pay money, and subsequently,
promises to pay, the pre-existing moral duty furnishes consideration for the promise.
He rationalized moral obligation as consideration by asserting that the ties of
conscience upon an upright mind are a sufficient consideration. Lord Mansfield's
equation of consideration with moral obligation survived for 60 years: it was thrown
overboard in 1840 in Eastwood v. Kenyon (113E.R.482).6 In this case the Court held
that moral obligation to fulfil a promise was insufficient where consideration was
wholly past. Lord Danman said in delivering judgement: "the doctrine would
annihilate the necessity for any consideration at all, in as much as the mere fact of
giving a promise creates a moral obligation to perform it".

64
 The place of consideration in the English common law of contract today was
enunciated during the capitalist perfect competition era in Rann v. Hughes. The Court
said:
It is undoubtedly true that every man is by the law of nature bound to fulfil 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.
According to contract law in Tanzania as a general rule, an agreement made without
consideration is void (See s. 25 L.C.O.). This means consideration is an essential
ingredient in all simple contracts concluded in Tanzania.

11.2 Definition of considerations

(a) At Common Law
The definitions of the word consideration at Common Law revolves around exchange
of values embedded in goods or services. A person who parts with value must be
given some value in return. Nothing should go for nothing. Quid pro quo.
The definitions of consideration being polished with time reflect the basic requirement
of exchange of values. One of the earliest definitions of consideration was that it was
a recompense given by the party contracting to the other. In 1842 in Thomas v.
Thomas [1842] 2Q.B.8518 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. A more explicit definition was given in Currie v. Misa (1875)L.R. 10 Ex.
153) It was said that a valuable consideration in the sense of the law may consist
either in some right, interest, profit or benefit accruing to the one party, or some
forbearance, detriment, loss or responsibility given, suffered or undertaken by the
other.
Sir Frederick Pollock simplified the definition of consideration. He defined it as the
price for which the promise is bought. This description of consideration got the

65
 approval of the House of Lords in Dunlop Pneumatic Tyre Co. Ltd. v. Self-fridge Ltd.
([1915]A.C. 847).

(b) Under the Law of Contract Ordinance

In Tanzania there is a statutory definition of the term consideration. Section 2(1)(d)
defines consideration as follows:

When at the desire of the promisor, the promisee or any other

person has done or abstained from doing, or does or
abstains from doing, or promises to do or to abstain
from doing something, such act or abstinence or
promise is called a consideration for the promise.
This definition suggests that a consideration is for the promise given. And, a
consideration may be in the form of an act, an abstinence or a promise. The
consideration for the promise may be executed, or executory. It is not clear whether
the consideration for the promise may be past.
The definition of consideration in s.2(1)(d) needs some analysis because, first, a
consideration for the promise must be furnished at the desire of the promisor, secondly,
consideration must move from either the promisee or any other person, and thirdly
consideration may have been executed already or in the process of execution or to be
executed in future.

11.3 Exercises
Now you are in a position to do the following exercises:
(a)What do you think underlies the definition of consideration?

(b)What in your view is the importance of consideration in a contract?

11.4 Further readings:

66
 (a)A. Singh: Law of Contract
(b)Treitel: Law of Contract

Lecture No. 12:Analysis of the definition of the word consideration: Law of Contract
Ordinance vs. The Common Law Position.

Objectives: (a)To give an analysis of the definition of consideration.

(b)to point out to you the differences which exist in defining
consideration at Common Law and under the contract law of
Tanzania.
Study strategy:Do not start reading this lecture unless you have understood lecture 11. Go
through this lecture slowly and carefully.
Introduction:This lecture is a followup of lecture 11. While the previous lecture dealt with the
definiton and importance of consideration this lecture concentrates on
analysing the definition. Each essential element of the definition is
explained in such a manner as to make you understand and enjoy the
lecture.

12.1 That consideration must be given at the desire of the promisor

Let us start by stating that apart from the statutory provision that consideration must
be furnished at the desire of the promisor, there is no other authority in Tanzania
dealing with this legal proposition.
In India, however, a similar legal provision has been dealt with in a number of cases.
We are going to use those cases to illustrate what is meant by the phrase "... at the
desire of the promisor".
The first case is that of Durga Prasad v. Baldeo ([1880]3A.I.R. 221). In this case the
plaintiff was ordered to build certain shops in a bazaar at his own expense. Some of
the shops came to be occupied by the defendants. In consideration of the plaintiff
having built the shops at his own expense the defendants promised to pay him some

67
commission on the goods they sold. The defendants did not honour their promise.
The plaintiff sued them.
In dismissing the suit the court pointed out that the plaintiff's building of the shops at
his own expense was not done at the desire of the defendants and therefore it could not
constitute consideration.

The second case is that of Kedar Nath v. Gorie Mohamed ((1886)I.L.R. 14 Cal.64).
This case illustrates the proposition that an act done at the desire of the promisor
constitutes consideration; and that is so even if it is of no significance or personal
benefit to him.
In the Kedar Nath case the defendant had promised to subscribe Rs.100 for erecting a
town hall. On the faith of the defendant's promise and other subscription promises the
plaintiff engaged a contractor to build the hall. The defendant failed to pay the Rs.100.
He contended that there was no contract between him and the plaintiff there being no
consideration for his promise. The court held him liable. It observed:
Persons were asked to subscribe knowing the purpose for
which the money was to be applied, they knew that on
the faith of their subscription an obligation was to be
incurred to pay the contractor for the work. The
promise is: In consideration of your agreeing to enter
into a contract to erect, I undertake to supply money
for it. The act of the plaintiff in entering into a contract
with the contractor was done at the desire of the
defendant (the promisor) so as to constitute
consideration within the meaning of section 2(d). (See
also Doraswami Iyer v. Arunachala Ayar AIR 1936
Mad. 135).
Now you understand the meaning of the phrase "... at the desire of the promisor ...".
We have looked at Indian cases to illustrate the phrase.

68
 The legal position is not unique to India or Tanzania. It has its root in the Common
Law of Contract. At Common Law an act done at the desire of the promisor
constitutes consideration. The case of Lampleigh v. Brathwaite (80E.R. 255) is
relevant. The defendant, after killing Patrick Mahume, asked Lampleigh to do all he
could to get a free pardon for him from the King. Lampleigh incurred expenses and
got the pardon for the defendant. Then the defendant promised the plaintiff £100 for
his trouble which amount he failed to pay.
The Court decided in favour of the plaintiff on the ground that the services were
rendered at the desire of the promisor (defendant).
The reason for holding the promisor liable seems to be hinged on estoppel. The legal
position may be posited like this. Since the promisor made a promise on the faith of
which the promisee acted thereby altering his position the promisor should be
estopped from denying the fact that the promisee acted on the faith of his promise
which by implication amounted to a request that the promisee should act. Essentially
the promisor's promise is unilateral because all that the promisee is required to do is to
act in accordance with the desire of the promisor. The promisor's promise amounts to
his desire and request that the promisee should act accordingly.

12.2 Who may furnish consideration

(a) The position at Common Law
The English Common Law of Contract requires that consideration must be furnished
by the promisee and the promisee only. This legal position began to hold sway after
mid 19th Century. Before that time it appears what mattered was the main object of
the arrangement. In Dutton v. Poole ((1667)83 E.R. 523) a contract was entered into
by a father and a son for the benefit of a daughter. In consideration of the father not
selling a piece of forest to provide the daughter with a marriage portion the son
promised the father to pay his sister £1000. The father abstained from selling the
forest. The brother did not give his sister the amount as promised. The sister was not
a party to the contract nor did she furnish consideration for the brother's promise. The

69
 daughter was, however, successful in the suit on the ground that the object of the
contract was to benefit the daughter. The court was prepared to hold that if the
daughter were a party to the contract with the brother, the consideration furnished by
the father would be sufficient to entitle her to sue the brother.
In 1861, in the case of Tweddle v. Atkinson (123E.R. 762). The court of the Queen's
Bench refused to follow the principle in Dutton v. Poole. In Tweddle's case, in
consideration of an intended marriage between the plaintiff and the daughter of one G,
the plaintiff's father and G entered into a written agreement that each was to pay the
plaintiff a sum of money. G failed to do so and the plaintiff sued. The court held that
it is an established principle that no stranger to the consideration can take advantage of
a contract although made for his benefit. This principle was affirmed by the House of
Lords in Dunlop Preumatic Tyre Co. v. Selfridge & Co. ([1915]A.C.847) in which
Lord Viscount Haldane declared that:
In the law of England certain principles are fundamental. One
is that only a person who is a party to a contract can sue
on it .... A second principle is that if a person with
whom a contract not under seal has been made is to be
able to enforce it

consideration must have been given by him.

The second principle in the case requires a party to a contract to furnish consideration
himself. If consideration is furnished by a third party, the party to the contract who
has not himself furnished consideration cannot enforce the contract.

(b)The position under the Law of Contract Ordinance

While at common law consideration must move from the promisee who is, ipso facto,
a party to the contract, s.2(1)(d) provides that consideration may be furnished either by
the promisee (a party to the contract) or "any other person" (one who is not a party to
the contract). That consideration must be furnished is a legal requirement since

70
section 25(1) provides as a general rule that an agreement made without consideration
is void.
Now let us explain what is meant by "any other person". We are going to use Indian
and East African cases to illustrate the point. First is the Indian case of Chinaya v.
Ramaya ((1882)4 Mad. 137). The plaintiff was a sister of an old lady who used to pay
a sum of Rs. 653 every year to the plaintiff. The defendant was a daughter of the old
lady. The old lady gave as a gift her landed property to the daughter. A deed of gift
was drawn. There was a term in the deed which required the donee daughter to
continue paying the plaintiff the sum of Rs. 653 every year. The daughter did not pay
the amount as promised in the deed of gift to the plaintiff. The plaintiff sued to
recover the money.
The plaintiff was the promisee and was thus a party to the contract. The plaintiff
however could not prove that she gave any value to the defendant for the promise to
pay the annuity. The Court was of the view that by missing payment of the annuity the
plaintiff suffered loss. And, that loss was sufficient consideration in the eye of the
law.
Note that the Court did not decide the case on the ground that consideration was
furnished by "any other person", in this case, the old lady by giving the landed
property to the defendant.
In East Africa the question as to who may furnish consideration was discussed in the
case of Tarlock Singh Nayar & Another v. Sterling General Insurance Co. Ltd.
([1966]E.A.144(k)). The case was from Kenya. When it was instituted the law
applicable in Kenya and the rest of the East African countries was the Indian Contract
Act of 1872 (as an applied statute). The relevant facts of the case are that the first
plaintiff insured his car with the defendant insurance company. The policy was
comprehensive and covered the first plaintiff and "authorized drivers". The second
plaintiff was an authorised driver. He borrowed the car, was involved in an accident
injuring a passenger in the car. The Court ordered the driver to pay Shs. 47,006/50 as

71
 damages to the injured passenger. The second plaintiff (driver) wanted the defendant
insurer to indemnify him for the amount awarded to the passenger.
Let us establish who were parties to the contract. These were the insurer (Insurance
Company) and the insured (first plaintiff). So the authorized driver was not a party to
the insurance contract. He was, however, a beneficiary under the contract. One of the
questions before the Court was whether the second plaintiff, the claimant, who had
incurred liability, was covered under the policy but was not a party to the contract
could sue the defendant insurer in his own name.
From the facts we know that the driver was not a party to the contract. Assuming he
was a party could he sue on the contract? This question is asked because the driver did
not give consideration, instead it was furnished by the insured, i.e., the first plaintiff.
The Court said that had the driver been a party to the contract, that he did not furnish
consideration would not have barred him from suing on the contract in his own name.
According to s. 2(d) (which is similar to our s.2(1)(d)) the promisee need not furnish
consideration himself. What matters is whether the promisor has received value or not.
In the case at hand the court said that had the driver been a party to the contract he
could have sued because consideration had been furnished by a third person (any other
person).
Note that a person who is not a party to the contract cannot sue on the contract even
though he may have furnished consideration. In other words furnishing of
consideration by itself does not entitle a person to sue on the contract. In order to be
able to sue one must show that he is a party to the contract.

12.3 Exercises:
(a)"In the law of England certain principles are fundamental. One is that only a person who is
a party to a contract can sue on it. Our law knows nothing of a jus quaesitum tertio
arising by way of a contract". (Lord Haldane in Dunlop v. Selfridge (1915) A.C. 847).
The other principle is that only a person who has furnished consideration can sue on it.

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 Discuss and state whether the above-mentioned English principles have a place in the
Tanzania Mainland contract law.
(b)The Umoja wa Wanawake Tanzania (U.W.T.) University of Dar es Salaam branch wishes
to rebuild its nursery school which has recently been demolished by a fire. The
nursery school committee invites subscriptions from the general public for that
purpose. In a fit of generosity, Ali, the Chief Catering Superintendent of the Students
Cafeteria, whose three children attend the nursery school promises to donate Shs.
5,000/=. On the strength of such promises and gifts already received the U.W.T. has
engaged a contractor to rebuild the school. When Ali is approached for Shs. 5,000/=
he backs and flatly refuses to pay.
Can the U.W.T. successfuly sue Ali?

12.4 Further readings:

(a)Your casebook
(b)A. Singh: Law of Contract

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Lecture No. 13: Types of Consideration

Objectives:At the end of this lecture you should be able to:

(a)Understand the various types of consideraiton.
(b)Appreciate the weight of each type.
(c)Underscore the place of past consideration in contractual
transactions.
Study strategy:It will be useless to start reading this lecture before fully understand lectures 11
and 12. This is so because lecture 13 is a follow up to lecture
12. The cases cited in the lecture are important. You may
want to read as many as possible.

Introduction: As pointed out above this lecture is a follow-up to lecture 12. It is dedicated to
a discussion on the three types of consideration i.e., executory,
executed and past consideration. In this lecture the positions at
Common Law and the Law of Contract Ordinance are covered
distinctly for the sake of clarity.
13.1 The Position at Common Law
One of the celebrated principles in English law is that consideration should be
contemporaneous 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 given in
response to a promise may be executory or executed. An act or abstinence done or
abstained from, not in response to/or as an inducement for the promise is known as
past consideration.
At common law consideration may be either executory or executed or past. 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.
(i) Executory consideration

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It is not uncommon in commercial transactions for contracts to be concluded by a
mere exchange of promises. The promise of one of the parties is bought by the
promise of the other. Consideration for the promise is executory in that liability to
perform is outstanding in the case of both the parties. The promise by A is
consideration for the promise of B. A contract of sale of goods may be a good
illustration. The seller and the buyer may conclude a contract by a mere exchange of
promises. The seller promises to sell certain goods and the buyer promises to pay the
price for the goods to the seller. A contract has been concluded, delivery of the goods
and payment of the price will take place in future.
A bigger part of commerce takes the form not of physical exchange of things but of
exchange of promises. A promise to pay money against a promise to deliver goods.
Roscoe Pound once said that in a commercial age wealth is largely made up of
promises (11 Jurisprudence 163, 1959).
(ii) Executed Consideration
As opposed to an executory consideration which comprises a promise to be performed
in future, an executed consideration consists of an act which has been done in
response to a promise. 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. B's act of finding and returning the article to A amounts to not only
acceptance of the offer 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. It remains executory.

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 (iii) Past Consideration
Past consideration comprises 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. An authority
for this legal proposition is the case of Roscorla v. Thomas ([1842]3Q.B.284). After
completion of the sale of a horse the seller promised the buyer that the horse was
sound. In fact the horse was vicious. The buyer sued the seller on the promise arguing
that the buying of the horse constituted consideration for the seller's subsequent
promise. The court held that since buying of the horse was past in relation to the
seller's promise, the buying of the horse amounted to past consideration which could
not support the seller's promise. Re McArdle ([1951]Ch.669) is another authority for
the general proposition that past consideration cannot support a promise.

The general rule as to past consideration admits a number of exceptions.

(a) Past service rendered at the promisor's request
A past act or service rendered at the request of the promisor constitutes consideration
for a subsequent promise by the promisor. This exception to the general rule as to past
consideration is well rationalised by case law. As far back as 1615 in Lampleigh v.
Brathwaite ((1615) Hob.1052) the court recognized the exception. Brathwaite killed
Patrick Mahume. Then he asked Lampleigh to do all he could to get a free pardon for
him from the King. Lampleigh incurred expenses and got the pardon for the
defendant. Then the defendant promised the plaintiff £100 for his trouble which
amount he failed to pay. It was argued in favour of the defendant that the
consideration furnished by the plaintiff was past and therefore was no consideration at
all. The Court decided in favour of the plaintiff holding that the services rendered
though past were rendered at the defendant's request, that both parties assumed
throughout that the services would ultimately be paid for and that the services were
performed by way of business.

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 In 1892 in Re Casey's Patents, Stewart v. Casey ([1892]Ch.104) Bowen, L.J.
rationalized past service at request as sufficient consideration on the following
grounds:
the fact of a past service raises an implication that at the time it
was rendered it was to be paid for, and if it was a
service to be paid for, when you get in a subsequent
document a promise to pay, that promise may be
treated as an admission which evidences, or as a
positive bargain, which fixes the amount of that
reasonable remuneration on the faith of which the
service was originally rendered.
And, in Pao On v. Lau Yiu Long ([1979]3W.L.R.435) the Privy Council was of the
view that an act done before the giving of the promise could be valid consideration if:
(i)the act had been done at the promisor's request;
(ii)the parties had understood that the act was to be remunerated either by payment or
conferment of a benefit; and
(iii)the payment or conferment of a benefit would have been enforceable had it been
promised in advance.
(b) Time-barred debts
Acknowledgement of a time barred-debt is sufficient to make such debt enforceable.
According to the English Limitation Act, 1980 there need not be any promise, express
or implied by the debtor to pay the creditor. No consideration need be sought; the
acknowledgement is enough (Furmston: Cheshire & Fifoot Law of Contract, p. 66).
The acknowledgement must (a) be in writing (b) be signed by the person making it (c)
admit legal liability to pay the sum claimed by the creditor (d) relate to a debt or other
liquidated sum.
Note that expiry of the statutory period does not extinguish the debt it merely
renders the debt unenforceable in a court of law. The debt is still payable and the creditor may
use any other method to obtain satisfaction. (See Busch v. Stevens [1963]Q.B.1).

77
 (c) Negotiable Instruments
There is a statutory exception to the rule that past consideration is no consideration at
all. S.27(1) of the Bills of Exchange Act, 1882 provides that an antecedent debt or
liability may constitute valuable consideration for a bill.

13.2 The position under the Law of Contract Ordinance

(a) Executory and executed consideration
The wording of section 2(1)(d) of the Law of Contract Ordinance does provide for:
(i)executory consideration, in that a person may promise to do or to abstain from
doing;

(ii)consideration which is in the process of being executed in that a person may be

doing or abstaining from doing; and
(iii)executed consideration, in that a person may already have done or abstained from
doing something.
It is doubtful whether the words "has done or abstained from doing" suggest that past
consideration is good under the Law of Contract Ordinance.
In as far as the two types of consideration, executory and executed are concerned, the
position under the Contract Ordinance is not different from that at Common Law.
However, the law relating to past consideration requires some discussion.

(b)The status of past consideration under the Contract Ordinance.

Two sections of the Law of Contract Ordinance are relevant for this discussion. These
are sections 2(1)(d) and 25(1).
Section 2(1)(d) provides in part:
When at the desire of the promisor, the promisee or any other
person has done or abstained from doing ... such act or
abstinence ... is called a consideration for the promise.

78
 And, s.25(1) provides that an agreement made without
consideration is void unless -
(a) ...,
(b)it is a promise to compensate, wholly or in part, a person who has already voluntarily done
something for the promisor, or something which the promisor was legally
compellable to do;

(c)....
In India there are similar provisions. And, the question as to whether past
consideration is good consideration for a promise has attracted different conflicting
views. Professor Ponnuswami writes:
.... It is still controversial whether a past act or abstinence is
good consideration for a promise and different
conflicting views have been expressed. The more
common view seems to be that "past consideration is
good consideration" under our law [and he cites
Namberumal v. Veeraperumal, 59 M.L.J. 596: A.I.R.
1930 Mad. 956 at p. 960 per Ramesam, J., "In Indian
Law past consideration is good consideration, etc. ...".
T.S. Vanketesa The Law of Contract, 2nd Ed. p. 90, 91]
and that the Contract Act has departed from English
law in this respect as in others. This view would
appear to proceed from the words "has done or
abstained from doing" used in the definition of
consideration which is said to give recognition to past
consideration as good under our law. It is also argued
that the cumulative effect of the definition in section 2,
clause (d) read with section 25, clause (2) would be to
render all past acts and abstinences good consideration

79
 of a promise under our law. The opposite view has
also been expressed, [Rao's Commentaries on the
Indian Contract Svy Z(1965) pp. 27 and 28] that past
consideration is no consideration in our law as in the
English law, that the framers of the Act who were
familiar with the English law had a "partiality" for that
law and that the provisions of the Act do not warrant a
conclusion that they intended to admit as good
consideration what had been in toto rejected as no
consideration in the English law. (See K. Ponnuswami
"Past consideration: A Note" in the Supreme Court
Journal, Vol. XX, 1958).
The above quotation shows that the law as to past consideration in India is not yet
settled. Since the provisions under the Law of Contract Ordinance are similar to those
in the Indian Contract Act, 1872 it is tempting to say that the law as to past
consideration in Tanzania is not yet settled. The Indian position, however, need not
influence the position in Tanzania.
It can strongly be argued that there is no general rule in Tanzania that a past act or
abstinence is good consideration to support a subsequent promise. Section 2(1)(d)
uses present perfect tense, "has done or abstained from doing"; not past tense. The use
of present perfect tense, it is submitted, suggests that the act done or abstained from
being done is not independent of the promise. They form one and the same
transaction. Here the act done is executed consideration and not past consideration.
Section 2(1)(d) does not import any rule that past consideration is good to support a
subsequent promise.
Section 25(1)(b) provides for an exception to the general rule requiring consideration
for an agreement which is intended to have legal force. The provision is to the effect
that a promise to compensate wholly or in part a person who has already voluntarily
done something for the promisor, or something which the promisor was legally

80
 compellable to do is legally enforceable. From the wording of section 25(1) one can
argue that the question of consideration does not arise in the excepted instances i.e.
under (a), (b) and (c). Should one argue on the basis of the past voluntary act as
constituting consideration then it is submitted that such consideration would be past.
Since s.25(1)(b) is excepted from the requirement of consideration, it can be argued
that s. 25(1) does not recognize past consideration as good, otherwise the legislature
would have said so expressly.
The provisions of the Law of Contract Ordinance do not recognize past consideration
as good, otherwise the legislature would have said so expressly.
The provisions of the Law of Contract Ordinance do not render it safe to propose as a
general rule that past consideration is good consideration under the Ordinance. It
would, perhaps, be safe to adopt the general rule in English law that a past act or
forbearance does not constitute consideration for a subsequent promise.

To the general rule that past consideration cannot support a subsequent promise
exceptions may be admitted.
(a)A past act (or abstinence) done at the desire of the promisor
A past voluntary act at the request of the promisor may constitute good consideration
for a subsequent promise to pay. The rationales in Lampleigh v. Brathwaite, Re
Caseys Patents, ([1892]1 ch. 104) and Pao On v. Lau Yiu Long ([1979]3WLR 435)
are relevant. A past voluntary act should be distinguished from a past gratuitous act
which was done at the desire of the promisor, or not
at his desire, but with no intention of being recompensed.
(b) A promise to compensate for a past act
A promise to compensate a person for a past act voluntarily done for the promisor is
enforceable under s.25(1)(b) and no consideration need be proved. The promisee will
however have to prove that first, he voluntarily did something for the promisor
himself or that which the promisor was legally compellable to do, and secondly, the
promisor subsequently promised to compensate him wholly or in part.

81
 The basis for the promisee's claim will be the past voluntary act, which one may call
past consideration. S.25 (1)(b) could, therefore, be considered as an exception to the
rule that past consideration is no consideration.
The subsequent promise is one to compensate the promisee. To compensate
presupposes that in doing the act the promisee suffered some loss or injury. It is
submitted that if the promisee, in performing the act suffered no loss, incurred no
liability or suffered no injury then s. 25(1)(b) cannot be invoked in his favour.

(c) A promise to pay a time-barred debt

S. 25(1)(c) provides that where a debtor promises, in writing and under his signature
or that of his authorized agent to pay his time-barred debt, then the creditor may
enforce the promise and proof of consideration for the promise is not necessary. In
actual fact the past debt would constitute past consideration, which as a general rule is
no consideration. The legislators, instead of providing for an exception (in this case)
to the general rule, chose to treat an agreement to pay a time-barred debt a contract
even though there is no consideration for the promise. The rationale for allowing the
promisee to enforce a time-barred debt seems to be that the debt is not destroyed only
that the legal remedy is lost. So a new promise to pay the debt should logically be
enforceable.
(d)Antecedent liability or debt in relation to negotiable instruments
An antecedent debt or liability constitutes valuable consideration for a bill.(See s.
27(1)(b) Bills of Exchange Ordinance cap. 215). An antecedent debt or liability
constitutes past consideration, which in this case is valuable consideration.

13.3 Exercises:
(a)Distinguish between an executory and an executed consideration.
(b)What do you understand by past consideration? Under what circumstances is past
consideration good?
13.4 Further readings:

82
 (a)Your casebook
(b)A. Singh: Law of Contract
(c)Treitel: Law of Contract

Lecture No. 14: Sufficiency of consideration

Objectives:(a)To make you understand the difference between adequacy and sufficiency in as far as
consideration is concerned.
(b)To let you know what the law considers as sufficient consideration.
(c)To show you reactions by some judges on the question of importance of consideration in a
contract.

Study strategy:You may not read this lecture before understanding the contents of lecture No. 13
because again this is a follow up lecture.

Introduction:This lecture discusses, from a legal point of view, what consideration is sufficient to
make a contract binding. You will note that courts are not much interested in
adequacy of consideration. Anything valuable may constitute sufficient
consideration.

14.1 Sufficiency and adequacy of consideration

A contract is a consensual agreement. The parties themselves agree as to what each of
them has to do under the contract. So 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.
Where the parties have freely fixed the amount of consideration the Courts will not
interfere even though the amount may not be of equal value with what the other party
has obtained under the contract. What matters is that some value has been given for
the other party's promise. The courts will not ask whether adequate value has been

83
 given for a promise. (See Treitel: Law of Contract, 5th Ed. p. 56). The rationale for
this seems to be that the parties are presumed to be capable of appreciating their own
interests and of reaching at their own equilibrium. (See Furmston: Cheshire & Fifoots
Law of Contract, p. 71).
In Tanzania the Law of Contract Ordinance provides:
An agreement to which the consent of the promisor is freely
given is not void merely because the consideration is
inadequate; but the inadequacy of the consideration
may be taken into account by the Court in determining
the question whether the consent of the promisor was
freely given (s. 25(3)).
So, both under the English common law of contract and under the Tanzania contract law
consideration for a promise need not be adequate. The consideration, however, must
be sufficient to support the promise. Sufficiency of consideration is measured in
terms of its value. The courts will have to be satisfied that the consideration given is
valuable. In Thomas v. Thomas ([1842]2 Q.B. 851) the court defined consideration as
something which is of some value in the eye of the law.

14.2 Factors guiding courts in determining sufficiency of consideration

(a)Nominal consideration
Nominal consideration is that consideration which is of token value only in relation to
the performance promised in return. For example, a consideration of Shs. 100/= as a
price for a house. Shs. 100/= is valuable consideration and therefore sufficient
consideration even though it is grossly inadequate. The rationale for nominal
consideration may be found in the need to evade the doctrine of consideration, and
make otherwise gratuitous promises legally enforceable.
(b) Things with no economic value

84
 Sentimental motives, e.g. natural affection and love are of no economic value. As
such these cannot suffice as consideration. In Tanzania an agreement made on
account of natural love and affection between parties standing in a near relation to
each other is enforceable and no consideration need be proved provided it is in writing
and is duly registered (s. 25(1)(a) L.C.O.).
A promise not to bore somebody has no economic value and thus cannot support a
promise. In White v. Bluett ((1853)23 L.J. Exch. 36) Pollock, C.B. said that "it would
be ridiculous to suppose that such promises could be binding. In reality there was no
consideration whatsoever". In an Australian case Dunton v. Dunton ((1892) 18 V.L.R.
114) in consideration for the husband's promise to make provision of £6 monthly to
his divorced wife, the latter was to conduct her-self with sobriety and in a respectable,
orderly and virtuous manner. The Court had to decide whether the wife's forbearance
to behave in an unbecoming manner constituted consideration. The Court held this
kind of consideration to be illusory and thus could not support a promise.
(c) Trivial acts
On the ground that consideration need not be adequate, acts, or omissions of very
small value may constitute sufficient consideration. Chappel & Co.Ltd. v. Nestle' Co.
Ltd.,([1960] A.C. 87 (H.L.)) illustrates this proposition. Nestle'Co. were
manufacturers of milk chocolate. In order to increase sales of their chocolate bars the
company ordered 3000 gramophone records of the famous hit "Rockin' Shoes" from
Hardy Company, the manufacturers. Nestle'Co. advertised to sell each record at 1s 6d.
plus three wrappers of their 6d. milk chocolate bars. The copyright of the music
vested in Chappel & Co. Ltd., and according to the Copyright Act 1956, s.8(1)
Nestle'Co. had to pay the copyright owners royalty of 6¼% of "the ordinary retail
price". One of the issues the Court had to decide was whether the three wrappers of
the chocolate bars, which Nestle'Co threw away after receiving them, formed part of
the consideration (i.e. the price) for a gramophone record. The Court held that the
wrappers formed part of the consideration (the other part being the 1s 6d.) because the
sale of the records was intended to attract increased sales of their milk chocolate bars.

85
 The wrappers were of benefit to Nestle'Co. because in order to have them one had to
buy Nestle' chocolates. Since the Court held that the use-less wrappers (since they
were thrown away) formed part of the consideration, on the ground that consideration
need not be adequate, then the wrappers could form the whole of the consideration. A
promise to give a record could therefore be supported by delivery of three useless
chocolate wrappers.
In the Nestle'Co. case the consideration seems to lie in the company's inducement of
the general public to buy their chocolates.
(d) Forbearance and compromise
(i) Forbearance
A party may forbear to sue or to enforce a claim or a right. Can it be said that such
forbearance constitutes consideration for a promise?
- Forbearance to sue
Where A has a cause of action against B and B promises A something should A
forbear to sue B, A's forbearance to sue will constitute consideration for B's promise.
A's forbearance to sue will be a benefit to B and a detriment to A.
The position at common law is not different from the Tanzanian position. Section
2(1)(d) does not use the word forbearance, instead the word abstinence is used. In
Patel Bros. v. Hasmani (19 EACA 170) the Court held that a promise to forbear to sue
is good consideration and that actual forbearance at request, express or implied, of the
defendant, is good consideration.
For forbearance to constitute consideration the plaintiff must have a right of action
against the defendant. Where the plaintiff's claim is invalid forbearance to file such a
claim cannot constitute consideration.

- Forbearance to enforce a claim or a right

Where a debtor cannot pay the creditor on the due date and promises the creditor to
pay him a higher interest if he does not enforce his right on the due date, then the
creditor's promise not to enforce his right on the due date or his actual forbearance to

86
enforce his claim on the due date constitutes consideration. The creditor's promise
may be express or implied. Actual forbearance may be evidence of an implied
promise not to enforce a claim. In Alliance Bank v. Broom ((1864) 62 E.R. 631) the
defendant owed £22,000 to the plaintiff bank. The bank pressed the defendant to give
some security for the amount. The defendant promised to give security but the bank
did not promise not to sue him. The defendant did not give the promised security.
When sued he argued that for his promise to give some security the bank furnished no
consideration. It was held that there was consideration on the part of the plaintiff bank
in that the bank did actually forbear to sue. In contrast to the decision in the Alliance
Bank case is the decision in Miles v. New Zealand Alford Estate Co.((1866)32 Ch. D.
267). In this case S sold land to B. After the sale B showed dissatisfaction with the
purchase. S fearful B might institute proceedings to rescind the contract promised to
make some payments to B. S did not honour his promise. It was argued in favour of S
that his promise to make the payments was not supported by consideration because B
had never intended to institute proceedings. For B it was contended that his
forbearance to take legal proceedings to rescind the contract was consideration for S's
promise. Evidence showed that no proceedings to rescind were ever intended by B. B
lost the case.

(ii) Compromise
A compromise, i.e. an agreement between parties to a dispute to settle it out of court,
constitutes good consideration. There must be a dispute or the parties must believe
there is a bona fide dispute. Mohamedali Virji Walji v. Shinyanga African Trading
Co. Ltd.([1968] H.C.D. No. 401) illustrates this proposition. The defendant company
had been formed by the plaintiff and another group to distribute beer. Afterwards
disputes arose between the plaintiff and the other group. All the directors agreed to
authorise a firm of accountants to audit the books and records of the Company to
ascertain the amounts due to the plaintiff and his controlled companies by the
defendant. The accounting firm found that the plaintiff was entitled to Shs. 23,695/25.

87
 The defendant refused to pay this amount to the plaintiff for various reasons one of
which was that the account stated by the accounting firm was not binding because at
the time the firm was authorized to audit the books and records the defendant was not
aware of facts constituting fraud by the plaintiff. The court held that the agreement to
submit the dispute to the accounting firm was binding because consideration was
supplied by the mutual and reciprocal promises by each party to forego their claims
and accept the account to be stated. The Court cited s. 2(1) of the Contract Ordinance
(Cap. 433).
S. 2(1)(f) provides that promises which form the consideration or part of the
consideration for each other are called reciprocal promises.

(e) Performance of an existing duty

The legal position as to whether performance of an existing duty constitutes sufficient
consideration to support a promise does not seem to be settled. There is a view that a
promise to pay for performance of an existing duty may be enforced on the basis of
public policy, but not because the performance itself constitutes consideration. Lord
Denning thinks that performance of an existing duty or a promise to perform an
existing duty constitutes good consideration.
A. Performance of a public duty imposed by law
A person who by his official status or through operation of the law is under a public
duty to act in a certain way cannot be taken as furnishing consideration merely by
promising to discharge or even by discharging that duty. The reason for this
proposition appears to be that if we regard consideration as the price for the
defendant's promise, then merely performing a duty one is bound to discharge seems
to offer nothing at all. It is suggested, therefore, that the plaintiff, in order to succeed,
must do something more than what he is legally bound to do. In Collins v. Godefry
((1831) 109 E.R. 1040) the plaintiff was subpoenaed to give evidence on the
defendant's behalf. The defendant promised to pay him 6 guineas for his trouble. The
plaintiff sued him for the money. The court held that if it is a duty imposed by law

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upon a party regularly subpoenaed to attend from time to time to give evidence, such
attendance does not constitute consideration for a promise of a renumeration. In this
case the plaintiff was legally bound to attend, therefore his attendance did not
constitute consideration.
The decision in Collin's case was based on the fact that the plaintiff did no more than
the law required of him. In Glasbrook Bros. Ltd., v. Glamorgan City
Council([1925]A.C. 270) mine owners who feared violence from strikers asked for
extra police protection than ordinarily given to them. The mine owners promised to
pay for the extra protection which the police provided. They refused to pay the
promised amount on the ground that the City Council police furnished no
consideration for their promise in that they performed a public duty which they were
legally bound to perform. The Court was of the view that the police did more than
they were required to do and held that the extra protection offered was good
consideration for the mine owner's promise to pay.
Pronouncements by their lordships in Ward v. Byham ([1956]1W.L.R. 495) do not
seem to agree on the question as to whether, and if yes, on what grounds performance
of an existing duty constitutes consideration. In that case the parties were parents of
an illegitimate child. After the parties had separated the father paid a neighbour £1
weekly to take care of the child. Later the mother got a housekeeping job. She then
asked the father to let her live with the child and be paid £1 weekly. The father agreed
provided she could prove that she would look after the child well and also that she
would allow the child to decide for herself whether or not she wanted to live with the
mother. The mother lived with the child and was getting £1 weekly. Then she
married her employer. The father then stopped payment of the £1 weekly allowance
whereupon the mother sued him. One of the issues before the court was whether the
mother furnished consideration for the father's promise. The trial court decided that
the mother furnished consideration. The father appealed and the following
pronouncements are traceable in their lordships' speeches.

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 Denning, L.J. said:
... in looking after the child the mother is doing what she is
legally bound to do [s.42 of National Assistance Act
1948 provided that a mother of an illegitimate child is
bound to maintain it]. Even so, I think that there was
sufficient consideration to support the promise. I have
always thought that a promise to perform an existing
duty, or the performance of it, should be regarded as
good consideration, because it is a benefit to the
person to whom it is given.
Referring to the case before the Court he said that it was as much a benefit for the father to
have the child well looked after by the mother as by a neighbour.
Morris, L.J. said:
The father was saying in effect:
'Irrespective of what may be the strict legal position, what I am
asking is that you shall prove that the child will be well
looked after and happy ... the child is to be allowed to
decide for herself whether or not she wishes to come
and live with you'.
His lordship was of the view that if those terms were fulfilled then there was sufficient
consideration for the father's promise to pay £1 weekly to the mother.
Lord Morris' decision which was shared by Parker, L.J. was grounded on his finding
that the mother had performed the duty cast upon her by law in that she promised in
accordance with the terms of the defendant's letter both to look after the child well,
satisfy the defendant that the child was happy and allow the child to decide which
home she preferred. According to Treitel the decision of Lord Denning was not based
on legal consideration but on grounds of public policy (See Treitel: Law of Contract,
pp. 77).

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 Perhaps the interesting aspect of the speeches is that all their Lordships had to find
consideration to enable the mother enforce the defendant's promise. Lord Denning, a
bold spirit, was prepared to assault the well established English principle that
consideration is an essential element in every simple contract by finding a
consideration where there was none. Lord Morris on the other hand found
consideration in the mother's exceeding her legal duty. It is doubtful if the mother
exceeded the duty imposed by the law by doing exactly what the law required from
her. The statement that judges are ready to find a consideration if this be humanly
possible (See Furmston: Cheshire & Fifoot, p. 78) seems to have some truth.
The pronouncement by Lord Denning that performance of an existing duty constitutes
sufficient consideration was repeated in the case of Williams v. Williams ([1957] 1
All E.R. 305). A husband promised to pay his wife who had deserted him 30s. a week
if she would maintain herself and undertake not to pledge his credit. He was sued by
the wife when he fell into arrears with the payments. For the husband it was argued
that there was no consideration for the promise in that being in desertion she was
bound to maintain

herself and could not pledge her husband's credit in any way. Lord Denning said:
... in promising to maintain herself whilst she was in desertion,
the wife was only promising to do that which she was
already bound to do. Nevertheless, a promise to
perform an existing duty is, I think, sufficient
consideration to support a promise, so long as there is
nothing in the transaction which is contrary to the
public interest.
The words "so long as there is nothing in the transaction which is contrary to the
public interest" is an addition to what Lord Denning said in Ward v. Byham.
Consideration was also found in that the wife who had wrongfully deserted her
husband did not lose her right to be maintained, she merely suspended it. She could

91
 go back to her husband and be maintained. Her promise to maintain herself therefore,
constituted sufficient consideration for the husband's promise to make the payments.
On this ground Lord Hodson agreed with Lord Denning. Lord Morris found
consideration in that:
... apart from any question of an offer by the wife to return,
while she was still in desertion, there might have been
trouble, expense or embarrassment if the wife had
incurred debts.
So the promise by the wife to maintain herself and not to pledge her husband's credit
constituted sufficient consideration.
Again, as in Ward v. Byham the judges were ready to find consideration even where
there was none so long as it was humanly possible. A wife who is in desertion has no
right to maintenance and if she pledges her husband's credit that amounts to obtaining
credit by false pretences. It is doubtful that a promise to do what one is legally bound
to do constitutes sufficient consideration(See Horrocks v. Forray [1976]1 All E.R.
737).
B. Performance of a contractual duty
Pre-existing contract with the promisor
Where the promisee is under a contractual obligation to perform his part such
performance does not constitute consideration for a new promise by the the promisor.
For example a taxi driver agrees to take a passenger to an agreed destination for an
agreed amount of money. On the way the driver sees his girl friend and decides not to
proceed with the trip. The passenger promises an extra amount of money whereupon
the driver takes him to the agreed destination. Should the passenger pay the extra
amount of money he promised? The taxidriver in this case, performed what he was
contractually bound to do. It appears, therefore, that for the passenger's promise of
extra money the taxi driver did not provide consideration.
To illustrate the legal position there is the case of Stilk v. Myrick (1809)170 E.R. 94).
In the course of a voyage from London to the Baltic and back two seamen deserted,

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 and the captain, being unable to supply their place, promise the rest of the crew that, if
they would work the vessel home, the wages of the two deserters should be divided
amongst them.
The promise was held not binding for want of consideration. The Court said at page 319:
The desertion of a part of the crew is to be considered an emergency of the voyage as
much as their death; and those who remain are bound by the terms of
their original contract to exert themselves to the utmost to bring the
ship in safety to her destined port.
The rationale behind this decision appears to be based on public policy in that enforcement of
such promises would lead to extortion. But where there is change of circumstances
the decision may be different. In Turner v. Owen ((1862)3 F & F 176) a seaman had
signed articles of agreement to help navigate a vessel home from the Falkland Isles.
The vessel proved to be unseaworthy. A promise of extra reward to induce him to go
on with his agreement was held to be binding. Or, where sailors refused to complete a
voyage because of war risks not originally contemplated a promise of extra reward to
induce them remain on duty was held to be binding (Lisbon v. Owners of S.S.
Carpathian [1952]2 K.B. 42, See also Williams v. Roffey Bros & Nicholls
(Contractors)Ltd. [1990]1 All E.R. 515).
Where the promisee has done, does or promises to do more than he is contractually
bound to do that would constitute sufficient consideration for the promisor's promise.

(ii)Performance of an existing contractual duty with a third party

The question is whether performance of or a promise to perform an existing contract
with a third party constitutes consideration. Divergent views have been expressed. In
Shadwell v. Shadwell ((1860) 9C.B. N 5159) of where an uncle promised to pay his
nephew £ 150 yearly during his life-time or until the nephew got a substantial income
from his profession, if he married Miss N to whom he was engaged, the Court differed
as to existence of consideration for the uncle's promise. Two of the three judges
thought that there was consideration because the marriage of the nephew to Miss N

93
was a benefit to the uncle since it was an object of interest to a near relative. The two
judges also thought the marriage was a detriment to the nephew as it might have made
a substantial change in his way of living. The other judge, Byles J., dissenting, held
that the plaintiff, nephew, had done no more than he was legally bound to do. His
marriage to Miss N. was, therefore, no consideration for the uncle's promise.
And in Scotson v. Pegg ((1861)158 E.R. 121)
S promised to deliver to a third party X, or to his order, a cargo
of coal then on board a ship belonging to himself. X
made an order in favour of P. P made an agreement
with S that if S would deliver the coal to him, he would
in return unload and discharge the coal at a fixed rate
each day from the date when the ship was ready to
discharge. This he failed to do, and when sued by S,
pleaded that S was already under contract with X to
deliver the coal so that he had promised no more than
he was bound to perform in any case. There was
therefore no consideration for his promise to unload in
the manner specified.
The Court held Pegg liable. Martin, B. found consideration in the possibility of there
being some dispute as to the defendant's right to have the coals or that the plaintiffs
might have a right to detain the goods for demurrage. In either case he said, there
would be good consideration that the plaintiffs, who were in possession of the coals,
would allow the defendant to take them out of the ship. Wilde, B. said:
If a person chooses to promise to pay some money in order to
induce another to perform that which he has already
contracted with a third person to do, I confess I cannot
see why such a promise should not be binding.

94
 Both the above cases seem to establish that the performance of an existing contractual
duty to a third party is a good consideration (See Pao On v. Lau Yiu Long [1979]3
W.L.R. 435).

(e) Rescission, variation and Waver

(i) Rescission
Parties to a contract are free to rescind, waive or vary the terms of the contract.
Rescission is aimed at releasing the parties from the contract. The law requires the
parties to agree on the rescission. The rescinding agreement based on reciprocal
promises generates its own consideration. Where the rescinding agreement does not
generate its own consideration then it must be supported by a separate consideration.
There must be not only accord (i.e. agreement to rescind) but also satisfaction (i.e. the
deserving party to get what is due to him). For example where B agrees to release S
who has liability in damages for non-delivery if he pays a specified amount of money,
the agreement to release amounts to an accord and the payment of the amount a
satisfaction.
(ii) Variation
Variation involves a definite alteration, as a matter of contract, of contractual
obligations by the mutual agreement of both parties. In most cases consideration for
the variation can be traced in the mutual undertaking by both parties to perform the
contract as varied (See Anson: Law of Contract, p. 447) Variation may take the form
of rescission of the old contract. There may also be a simple variation, for example,
agreement to vary the currency of payment.
(iii) Waiver
Where for the convenience and at the request of one party, the other forbears to insist
on the precise mode of performance or time of performance fixed by the contract, this
does not constitute variation because the contract itself remains unaffected; there is
merely a waiver by the party who accedes to the request (See Anson: pp. 447-448). In

95
 W.J. Alan & Co. Ltd. v. El Nasr Export and Import Co ([1972]2 All E.R. 127). Lord
Denning, M.R. explained the principle of waiver thus:
if one party, by his conduct, leads another to believe that the
strict rights arising under the contract will not be
insisted on, intending that the other should act on that
belief, and he does act on it, then the first party will not
afterwards be allowed to insist on the strict legal rights
where it would be inequitable for him to do so ....
There may be no consideration moving from him who
benefits by the waiver. There may be no detriment to
him by acting on it. There may be nothing in writing.
Nevertheless, the one who waives his strict rights
cannot afterwards insist on them. His strict rights are
at any rate suspended so long as the waiver lasts. He
may on occasion be able to revert to his strict legal
rights for the future by giving reasonable notice in that
behalf, or otherwise making it plain by his conduct that
he will thereafter insist on them.66
His lordship went on to point out that there are cases where withdrawal is not possible either
because it is too late to withdraw or that withdrawal cannot be done without injustice
to the other party. In both these cases a person will not be allowed to revert to his strict
legal rights.

(iv)Rescission, variation and waiver under the Law of Contract Ordinance

The Ordinance by its section 62 provides that where parties to a contract agree to
substitute a new contract for it or to rescind or alter it, the original contract need not be
performed. And section 63 provides that every promisee may dispense with or remit,
wholly or in part, the performance of the promise made to him, or may extend the time
for such performance, or may accept instead of it any satisfaction which he thinks fit.

96
 A party who rescinds a contract has to restore any benefits received thereunder from
the other party (S. 64 L.C.O.). And, where a party has waived his rights the Court will
not allow him to enforce the waived original terms of the contract. In Nanji Trading
Co. Ltd. v. Survakant & Bros ([1967]H.C.D. No. 427) the appellant required large
amounts of petrol every month. The respondent agreed that the appellant should have
a discount of 20% on every gallon he purchased from the plaintiff provided each
month's account was settled by the 10th of the succeeding month. After slightly less
than a year, the respondent ended the agreement and sought to recover the discount for
each month in which the defendant had failed to pay by the 10th of the next month.
Saidi, J. (as he then was) held that the respondent by accepting payment as made (i.e.
with 20% subtracted from the usual retail price of petrol) after the 10th of several
months, had thereby waived the original terms of payment. The appellant was held
entitled to his discount despite the late payment in earlier months.
On the other hand a person who rightly rescinds a contract is entitled to compensation
for any damage which he may have sustained through the non-fulfilment of the
contract (See s. 75 L.C.O.; Joseph Marco v. Pascal Rweyemamu [1977] L.R.T. 59).

14.3 Exercise:
(a)Supposed Matsushita Electric Co. (T) Ltd. advertised as follows:
Yours for Shs. 2,500/= only - Dudu Proof National Radio set 1
Band. Offer open to anyone who has bought 10
dry-cells of National make. To prove one qualifies he
has to submit to Matsushita specially designed
wrappers of the dry cells. Ten wrappers of dry cells
plus Shs. 2,500/= can buy a Dudu Proof radio set.
Could the wrappers without the money constitute
sufficient consideration?
14.4 Further readings:
(a)Your casebook

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 (b)Treitel: Law of Contract
(c) A. Singh: Law of Contract

Lecture No. 15:Part payment of a debt and the Doctrine of Promissory Estoppel

Objectives: (a)To explain an intricate aspect of consideration relating to part payment of a

debt which gives rise to a general rule.
(b)To discuss exceptions to the general rule.
Study Strategy:Read the lecture with utmost care and concentration. Read it through again
and again until you get some light. If you cannot start by
reading some cases.
Introduction:This lecture is again a follow up to lectures on consideration. It deals with one
aspect of consideration. And this is whether pact payment of a
debt can amount to sufficient consideration. The lecture also
covers exceptions to the general rule that pact payment of a
debt cannot constitute consideration for full settlement of it.

15.1 The rule in Pinnel's case

The general rule at Common Law is that a creditor is not bound by an undertaking to
accept part-payment in full settlement of a debt. This rule, enunciated in earlier years,
was adopted in 1602 in Pinnel's case ((1602)5 Co. Rep. 117a). Pinnel sued Cole in
debt for £8 10s due on a bond on 11 November, 1600. Cole's defence was that, at
Pinnel's request, he had paid him £ 5 2s 6d on 1 October and that Pinnel had accepted
this payment in full satisfaction of the whole. The Court ruled that payment of a lesser
sum on the day in satisfaction of a greater was no satisfaction of the whole because by
no means can a lesser sum be a satisfaction for a greater sum. The debtor would not be
allowed to enforce the creditor's undertaking to accept part-payment in full settlement
of debt because he furnished no consideration for the creditor's promise.

98
In 1884, in Foakes v. Beer ((1884) 9 App. Cas. 605). the House of Lords considered
whether or not to reject the rule in Pinnel's case. They decided to uphold it as it "has
been accepted as part of the law of England for 280 years now". The facts of Foakes v.
Beer are as follows: Mrs. Beer had obtained a judgement against Dr. Foakes for £
2,090. Dr. Foakes asked for time to pay. The parties agreed in writing that Dr. Foakes
was to pay £ 500 at once and the balance by instalments. They further agreed that Mrs
Beer was not to "take any proceedings whatever on the judgment". The agreement did
not mention payment of interest customarily paid on a judgment debt. After Dr.
Foakes had paid the debt Mrs. Beer claimed interest on the judgment debt which Dr.
Foakes refused to pay. When sued he pleaded the agreement whereupon Mrs. Beer
replied that for her promise not to sue on the judgment he furnished no consideration.
The House of Lords, upholding the rule in Pinnel's case decided in favour of Mrs. Beer
on the ground that payment of a lesser sum on the day in satisfaction of a greater sum
cannot be any satisfaction for the whole.

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15.2 Exceptions to the rule
(i) Doing something different
The general rule in Pinnel's case admitted exceptions from the date of its adoption. In
Pinnel's case the Court pointed out that the gift of a horse, hawk or robe, etc. in
satisfaction is good because the thing given might be more beneficial to the plaintiff
than the money in respect of some circumstance. It followed that payment and
acceptance of part of the money before the day of satisfaction would be good
consideration for the promise to discharge the debt. On this ground Pinnel should
have failed in the suit. He won, however on a technical ground of pleading. Payment
of a lesser sum at a different place amounts to doing something different and may
satisfy the whole debt. Giving of a negotiable instrument does not amount to doing
something different. In D. & C. Builders Ltd. v. Rees ([1966] 2 Q.B. 617) Lord
Denning remarked:

.... No sensible distinction can be taken between payment of a

lesser sum by cash and payment of it by cheque. The
cheque, when given, is conditional payment. When
honoured, it is actual payment. It is then just the same
as cash. If a creditor is not bound when he receives a
payment by cash, he should not be bound when he
receives payment by cheque.

Lord Denning's remarks were directed at two previous cases which had decided that payment
by a negotiable instrument amounted to doing something different. One of the
decisions was by the Court of Appeal in Sibree v. Tripp ((1846) 15 M & W 23) and the
other by a divisional court in Goddard v. O'Brien ((1882) 9 Q.B.D. 37). The Court of
Appeal in D. & C. Builders Ltd. case overruled the decision in Goddard's case and
distinguished the Court of Appeal decision in Sibree v. Tripp on the ground that in that
case the promissory notes were taken in absolute discharge of the debt.

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 (ii) Application of the doctrine of promissory
estoppel
Promissory estoppel as an exception to the Rule in Pinnel's case was suggested by
Denning, J. in 1947 in Central London Property Trust Ltd. v. High Trees House Ltd.
([1947] K.B. 130). He said:
... a promise to accept a smaller sum in discharge of a larger
sum, if acted upon, is binding notwithstanding the
absence of consideration, and if the fusion of law and
equity leads to this result, so much the better. That
aspect was not considered in Foakes v. Beer.
In September 1939 the plaintiffs leased a block of flats to the defendants so that they could let
them. The rent agreed upon was £ 2500 a year. In January 1940, due to war
conditions there were many vacancies in the flats. The plaintiffs agreed in writing to
reduce rent, by half, to £ 1250 per annum. The agreement did not set the time limit for
the operation of the reduction. From 1940 until 1945 the defendants paid the reduced
rent. In 1945 the flats were full again. The receiver of the plaintiffs then decided to
claim full rent both retrospectively and for the future. They tested the claim by suing
for rent at the original rate for the last two quarters of 1945 when the flats were full.
Denning, J. was of the view that the January, 1940 agreement was intended as a
temporary expedient only and that it had ceased to operate early in 1945 when the flats
were full. He decided, therefore, that the rent originally fixed was payable and gave
judgement for the plaintiffs in the sum of £ 625 being arrears of rent for the last two
quarters of 1945. The learned judge was also of the view that had the plaintiffs sued
for arrears of rent from 1940 to 1945 the agreement made in January 1940 would have
operated to defeat their claim. His reasoning needs some consideration.
For the plaintiff's promise to reduce rent the defendants furnished no consideration.
Since the defendants had furnished no consideration for the plaintiff's promise the
(defendants) could not enforce it. But the defendants did not seek to enforce a contract

101
 and, therefore, they did not need to prove consideration. The judge then considered
whether there is a rule in common law which could prevent the plaintiffs from
enforcing their claim of arrears of rent from 1940-1945. He first examined the
doctrine of estoppel:
If a person makes to another a clear and unambiguous
representation of fact intending that other to act on it, if
the representation turns out to be untrue, and if that
other does act upon it to his prejudice, the presenter is
prevented or "estopped" from denying its truth. He
cannot, as it were, give himself the lie and leave the
other party to take the consequences".
The judge could not invoke this doctrine given the facts of the High Trees case because in
1854 in Jorden v. Money ((1854)5 H.L. cas. 185) the majority of the House of Lords
held that estoppel could operate
only on misrepresentation of an existing fact. In the High Trees case the promise was as to the
future.
Having failed to find a rule at Common Law he looked for authority from equity. He
considered Hughes v. Metropolitan Railway Co. ((1877) App. Cas. 439) whose facts
were as follows. In October 1874 a landlord gave a tenant a six months' notice to
repair the premises, and if he failed the lease was to be forfeited. In November 1874
the landlord and the tenant started negotiations in which the landlord was to sell the
reversion to the tenant. In December,1874 the negotiations broke, the tenant had done
nothing to repair the premises. On expiry of the six months, from October, 1874, the
landlord claimed to treat the lease as forfeited. The House of Lords observed that the
opening of negotiations amounted to a promise by the landlord that so long as they
(the negotiations)continued he would not enforce the notice, and, that the tenant had
remained quiescent on reliance upon this promise. The House of Lords decided that
the six months' notice was to run from the date the negotiations broke. The House of

102
Lords suspended, but did not extinguish, the landlord's right to enforce his notice to
repair the premises.
On the strength of Hughes case the decision in the High Trees case would be that the
landlord suspended payments from 1940 to 1945; that the tenant's obligation to pay
the balance was not extinguished, but that the landlord was to give the tenant more
time within which to pay the arrears of rent. But Denning, J. said he would be
prepared to hold that the landlord's balance of the rent was extinguished. By doing
that the judge sought to take the principle in Hughes case a step further. The principle
suggested by Denning J. came to be known as promissory estoppel, and applies
whenever a representation is made, whether of fact or of law, present or future, which
is intended to be binding, intended to induce a person to act on it and he does act on it.
The judge was prepared to hold in the High Trees case that the promise by the
landlords to accept a smaller rent in discharge of the larger rent was binding
notwithstanding absence of consideration because that promise was intended to be
acted upon and was in fact acted upon by the tenants.

The principle of promissory estoppel operates only by way of defence, and this was
made clear in Combe v. Come. ([1951]2 K.B. 215) A wife started divorce
proceedings and obtained a decree nisi against her husband. The husband then
promised her £ 100 per annum tax free as permanent maintenance. As a result,
although not requested by the husband the wife did not apply to the divorce court for
maintenance. Then the decree was made absolute. The husband did not make the
annual payments and the wife sued him on the promise. The trial judge decided in
favour of the wife on the ground that although for the husband's promise the wife
furnished no consideration, the principle in the High Trees case enabled the wife to
succeed because the husband made an unequivocal promise to pay the annuity
intending the wife to act on it and the wife did in fact act on it. The decision of the trial
judge meant that the principle in the High Trees case could be used as a cause of
action and not as a defence. The principle thus extended would ignore the necessity of

103
consideration. When this case reached the Court of Appeal Lord Denning used the
opportunity to restate the principle. He said:
The principle in the High Trees case ... does not create new
causes of action where none existed before. It only
prevents a party from insisting upon his strict legal
rights, when it would be unjust to allow him to enforce
them, having regard to the dealings which have taken
place between the parties.
Brikett and Asquith, L.JJ. stated that the principle must be "used as a shield and not as
a sword".
The above position seems to suggest that only defendants may be availed of the
principle. A contrary view has also been suggested to the effect that there is no reason
why a plaintiff should not rely on the principle provided he has an independent cause
of action. "So, if upon the facts of Hughes v. Metropolitan Railways Co. the landlord
had gone into possession, putting the tenant into the position of the plaintiff, the result
would surely be the same" (See Furmston: Cheshire & Fifoot, p. 87).
The doctrine of promissory estoppel has some of its aspects settled and others are not
yet settled. It is settled that there must be a promise, either by words or by conduct,
and that its effect must be clear and unambiguous (Woodhouse v. Nigeria Produce
[1972] A.C. 741)
Some aspects of the doctrine are not yet settled. Firstly, it is not settled whether or not
the doctrine has the effect of merely suspending or completely extinguishing an
obligation. In the High Trees case Denning, J. thought the doctrine would operate to
extinguish the landlord's right to the balance of the rent. In Tool Metal Mfg. Co. Ltd.
v. Tungsten Electric Company Ltd. ([1955] 2 All E.R. 657)the House of Lords felt
that estoppel only serves to suspend and not wholly to extinguish the existing
obligation. The promisor may, on giving due notice, resume the right which he
suspended and revert to the original terms of the contract. The Privy Council shared
the views of the House of Lords in Emmanuel Ayodeji Ajayi v. R.T. Briscoe (Nigeria),

104
 Ltd. ([1964]3 All E.R. 553). Lord Hodson stated that the doctrine of promissory
estoppel was subject to qualifications one of which is that the promisor can resile from
his promise on giving reasonable notice, which need not be formal notice, giving the
promisee a reasonable opportunity of resuming his position. The promise becomes
final and irrevocable only if the promisee cannot resume his position. Despite
pronouncements by the House of Lords, in 1966 Denning, L.J. repeated his view that
promissory estoppel can operate to extinguish a debt after part payment (in D & C.
Builders, Ltd. v. Rees [1966]2 Q.B. 617).
Secondly it is not settled whether or not the promisee must have acted to his detriment.
In the Common Law doctrine of estoppel the representee must have acted on the
representation to his detriment. In promissory estoppel two views have been
expressed on this aspect. In some cases it has been pointed out that the representee
must have acted on the representation to his detriment. See Hughes v. Metropolitan
Railways Co. (1877) 2 App. Cases 439; Marrow v. Carty [1957] N.I. 174; Emmanuel
Ayodeji Ajayi v. R.T. Briscoe (Nigeria) Ltd. [1964]3 All E.R. 556. In two cases Lord
Denning maintained that there need be proved no detriment on the part of the
promisee; what is required is that the promisee must prove he has been led to act
differently from what he otherwise would have done. (W.J. Allan & Co. Ltd. v.
ElNasr Export & Import Co. [1972]2 W.B. 189 and Bricom Investments Ltd. v. Carr
[1979]1 Q.B. 467.

15.3 The Doctrine of Promissory Estoppel in East Africa

The doctrine of promissory estoppel was imported into East Africa in 1963 by virtue
of the case of Nurdin Bandali v. Lombank Tanganyika, Ltd. ([1963] E.A. 304). In
importing the doctrine the Court of Appeal for Eastern Africa had to interpret section
115 of the Indian Evidence Act. (Than an applied Act. The relevant sections now are:
s. 123 Evidence Act (T); s. 120 Kenya Evidence Act and s. 113 Uganda Evidence Act).
The Court did not consider the provisions of the Contract legislation.

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Nurdin Bandali (of Njombe) entered into a hire purchase agreement with Lombank
Tanganyika, Ltd. (of Dar es Salaam) to purchase a Mercedes Benz truck. He paid a
down-payment of Shs. 14,300/= and was to pay the balance of Shs. 46,008/= in 17
equal instalments plus the last instalment which included Shs. 20/= payable on
exercise of option to purchase. The agreement contained the following terms, among
others: Clause 4 provided that if Nurdin Bandali made any default in the due or
punctual payment of any instalment, Lombank was entitled to terminate the hiring and
repossess the vehicle without notice. By clause 7 the vehicle was to remain the
property of Lombank until all sums due were paid and an option to buy was exercised.
Clause 9 was to the effect that no forbearance, indulgence or relaxation shown or
granted to Nurdin Bandali was in any way to affect, diminish, restrict or prejudice the
rights and powers of Lombank or constitute a waiver of any breach of the agreement.
Nurdin took possession, and had use, of the truck. Out of 16 instalments Nurdin was
late and paid in arrears 14 instalments. In all the 14 instalments Lombank used to send
Nurdin reminders, notice to terminate and repossession of the vehicle. The 17th
instalment fell due on 17/10/1961. Nurdin was reminded as usual. The last instalment
(i.e. 18th) fell due on 17/11/1961. On 18/11/1961 Lombank sent a letter of
termination to Nurdin stating the amount due as Shs. 5,132/= (i.e. two instalments plus
Shs. 20/= option to purchase. On 29/11/1961 Lombank saw the truck in Dar es
Salaam, seized it and instructed the driver to tell Nurdin to pay the amount due. On
being informed Nurdin, by telegram, instructed his agent in Dar es Salaam to send
Lombank a cheque for Shs. 2,500/= and to tell him that he himself had posted a
cheque for Shs. 2,500/= on 30th November, 1961. The agent wrote a note on the
telegram and sent it to Lombank saying, "Lombank can I send you a cheque for Shs.
2,500/=?" Lombank replied, "Yes, please do". When, on the same day the agent sent
the cheque Lombank refused it and the agent was informed that Lombank had already
sold the vehicle. When Nurdin was informed about the sale he filed a suit alleging
fraud, waiver and estoppel. He lost in the lower court and appealed. One of the
grounds of appeal was that Lombank by its conduct estopped itself from asserting its

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 right to repossess because Lombank by its conduct made a representation that time
was not of the essence of the contract by accepting payments in arrears.
The Court of Appeal for Eastern Africa having ruled out the application of the English
doctrine of estoppel because Lombank's representation was not as to a matter of fact
but one of legal relationship, considered whether or not the doctrine of equitable or
promissory estoppel could be invoked to prevent Lombank from enforcing his strict
legal rights. The doctrine, the Court noted, has three elements which must be present.
First, a clear and unequivocal representation; secondly, an intention that it should be
acted upon; and thirdly, action upon it in the belief of its truth. Having failed to find
authority of the application of the doctrine in Tanganyika the court sought assistance
from section 115 of the Indian Evidence Act which provided:
When one person has, by his declaration, act or omission,
intentionally caused or permitted another person to
believe a thing to be true and to act upon such belief,
neither he nor his representative shall be allowed, in
any suit, or proceeding between himself and such
person or his representative to deny the truth of that
thing.
Because the word representation did not appear in the provision the Court interpreted the
word "thing" as capable of embracing either an existing fact or a present or future
relationship. This broad interpretation of the word "thing" engulfed a representation
as to a legal relationship. Reading through section 115 the Court felt the English
doctrine of equitable estoppel could fall within its ambit.

The Court then considered, given the facts of the case, whether the doctrine of
promissory estoppel could be invoked to prevent Lombank from denying the truth of
his representation that he would not enforce his strict legal rights - demand punctual
payment and repossession of the truck on default (See Clause No. 4). On as to
whether Lombank's representation was clear and unequivocal and intended to be

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acted upon by Nurdin the Court held that in the light of clause 9 and Nurdin's previous
experience (when serving as Lombank's agent to repossess vehicles from those who
delayed payments) the representation was clear and unequivocal, but that there was
nothing which could have induced Nurdin to believe that Lombank would not enforce
his rights. The doctrine could not be invoked in favour of Nurdin Bandali because the
Court found that there was no intention on the part of Lombank that Nurdin should
rely and act on it.
Nurdin's case was applied in Century Automobiles v. Hutchings Biemer Ltd.
([1965]E.A. 304). In that case an agreement had been made between the parties to
lease premises, the lease being terminable with three months' notice. No alterations
were to be made without the prior permission of the respondent - landlord. Alterations
were proposed and shown to the managing director of the respondent company who
said that he had no objection to the proposed alterations provided that it was done at
the appellant's expense, that the tenancy would not be disturbed unless plans for
building a supermarket on the site were successful, and that it would take three or four
years to obtain permission from the City Council. Relying on this the alterations were
made, to be followed shortly by a notice to quit and deliver vacant possession, which
the appellant refused to do. Invoking the doctrine of equitable estoppel the Court held
that the remarks made by the managing director of the respondent company amounted
to a sufficiently clear and unequivocal assurance as between businessmen that the
appellant company could regard itself as secure for three years except in the event of
the supermarket project materializing at an earlier date; and the assurance was
intended to be acted upon. The appellant company acted on the faith of it.
It appears that in Tanzania the legal problems relating to part-payment of a debt and
the doctrine of promissory estoppel are taken care of by section 63 of the Law of
Contract Ordinance which provides:
Every promisee may dispense with or remit, wholly or in part
the performance of the promise made to him, or may

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 extend the time for such performance, or may accept
instead of it any satis-faction which he thinks fit.

A similar provision in the Indian Contract Act has illustration to the effect:
(a)A owes B Shs. 5,000/=. A pays to B and B accepts, in satisfaction of the whole debt, Shs.
2,000/= paid at the time and place at which the Shs. 5,000/= were payable. The whole
debt is discharged.
(b)A owes B Shs. 5,000/=. C pays to B Shs. 1,000/= and B accepts them, in satisfaction of his
claim on A. This payment is discharge of the whole claim.
(c)A owes B under a contract, a sum of money, the amount of which has not been ascertained.
A, without ascertaining the amount gives to B and B, in satisfaction thereof, accepts
the sum of Shs. 2,000/=. This is a discharge of the whole debt whatever may be its
amount.
(d)A owes B Shs. 2,000/=, and is also indebted to other creditors. A makes an arrangement
with his creditors, including B, to pay them a composition of 50 cents in a shilling
upon their respective demands. Payment to B of Shs. 1,000/= is a discharge of B's
demand.

15.4 Exercises: (a)What is "promissory estoppel"? What bearing does it have on the doctrine
of consideration? Is it necessary to invoke such an estoppel in
view of section 63 of the Contract Ordinance?

15.5 Further readings:

(a)Your case book
(b) Treitel: Law of Contract
(c) A. Singh: Law of Contract

LECTURE NO. 16 :UNENFORCEABLE, VOIDABLE, VOID AND ILLEGAL

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 CONTRACTS (EXPLAINED)

Objectives:(1)To define terms often used to connote certain types of contract but whose meaning may
be confusing;
(2)To briefly state the legal effect of each of the contracts so defined.

Study Strategy:You need to be careful when reading this lecture so that you do not end up by
confusing use of the terms.

Introduction: This lecture is confined to defining often used terms in contract: unenforceable,
voidable, void and illegal contracts. The effects of each of these types of
contract will be mentioned briefly. As for illegal contracts the next chapter
will cover them in detail. Note that the intention of the parties to a contract is
to perform it according to the terms as agreed. Most contracts end up in their
due performance. Some contracts, however, give rise to problems and the
assistance of courts of law may be sought. In examining the contract the court
may find that, for one reason or another, it is either valid but unenforceable, or
voidable or void or illegal.
16.1 UNENFORCEABLE CONTRACTS
There are some contracts whose enforceability is conditional upon fulfilment of certain
requirements. Failure to comply with a requirement may render the contract, which is
otherwise valid, unenforceable; that is to say the court will not call upon a party or the parties
to fulfil his or their obligations under the contract. For example section 6 of the Sale of Goods
Ordinance (Cap. 214 (T) provides:
6.-(1)A contract for the sale of any goods of the value of two hundred shillings or
upward shall not be enforceable by action unless the buyer shall accept
part of the goods so sold and actually received the same, or give
something in earnest to bind the contract or in part payment, or unless

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 some note or memorandum in writing of the contract be made and
signed by the party to be charged or by his agent in that behalf.
You need to note, therefore, that enforceability by action of a contract of sale of goods of the
value of Shs. 200/= or above is conditional upon either
(i)acceptance and actual receipt by the buyer of part of the goods so sold; or
(ii)giving something in earnest to bind the contract or in part-payment; or

(iii)the contract be evidenced in writing.

The effect of unenforceability by action of a contract may be to render it void. Section 2(1)(g) and (j)
of the L.C.O. provides that an agreement not enforceable by law is void. Section 2(2),
however, is a saving provision in that it provides that not all unenforceable contracts are void.
The sub-section provides:
2.-(1)Notwithstanding the provisions of paragraphs (g) and (j) of sub-section (1) of
this section, where any written law in force in Tanganyika on the date
on which this Ordinance comes into operation provides that an
agreement (howsoever described), of the kind specified therein, shall
not be enforceable by action unless or until certain requirements
therein specified are complied with, or certain consents are obtained,
no such agreement shall be void by reason only that it is not
enforceable by action under the provisions of that law for want of
compliance with any such requirement or of the obtaining of any such
consent.
The effect of s.2(2) is to render certain contracts whose requirements have not been fulfilled simply
unenforceable and not void. This means:

(i)as between the parties to the contract it remains valid, only that they cannot seek
assistance of the court unless and until the requirement has been met;

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(ii)the party or parties after meeting the requirement may seek the assistance of the
court, e.g. after obtaining the requisite consent;
(iii)the court may be willing to assist the parties even if it means stretching the law.
(See Kanti Printing Works v. Tanga Municipal Council [1970] HCD
253).

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16.2 ILLEGAL CONTRACTS
To qualify as contracts agreements must be made for a lawful consideration and with a lawful
object, (s.10 L.C.O.). Where the object or consideration of a contract is unlawful or is
contrary to public policy it will be declared illegal. The effect of illegality is to render the
contract void. Section 23(2), L.C.O. provides that every agreement of which the object or
consideration is unlawful is void. As a general rule a contract which becomes void for
illegality becomes unenforceable by action.

16.3 VOIDABLE CONTRACTS

A voidable contract is an agreement which is enforceable by law at the option of one or more
of the parties thereto, but not at the option of the other or others (s.2(1)(i)L.C.O.).

A voidable contract is, therefore, 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 party entitled to rescind the
contract has an option either to rescind or affirm the contract. The right to rescind, however,
has got limitations: a party must exercise his right within a reasonable time otherwise estoppel
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 third parties have acquired rights under it, the
right to rescind ends.
The Law of Contract Ordinance touches on instances where a contract may be treated as
voidable. for example where consent of a party was not given freely the contract becomes
voidable at the option of the party whose consent was not freely given (See ss. 15-19 L.C.O.).

16.4 VOID CONTRACTS

An agreement not enforceable by law is said to be void (s.2(1)(g)L.C.O.). The term void
connotes that the agreement is of no legal effect. A void contract is, therefore, an agreement
which the court holds to be no contract at all, a nullity from the beginning. The Ordinance
expressly declares certain types of agreement to be void (e.g.,ss.2(1)(g); 2(1)(j); 11(2); 20;
23(2); 24, 25, 26, 27, 28, 29, 30, 32, 35, 36, 56, 57).

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 The effect of declaring a contract as void is to make it unenforceable, being a nullity from the
beginning. Since there was no contract at all no property would pass under such a contract.
And, if money was paid in pursuance of a void contract it becomes recoverable. The parties
are restored to their original positions. Courts will not enforce a void contract but may assist
the parties to revert to their original positions. In a case where a contract has been declared
void for illegality, as a general rule, no suit may be brought for the recovery of any money paid
or thing delivered or for compensation for anything done under any such agreement
(s.23(2)L.C.O.). There are exceptions which shall be examined later. In the case of wagering
contracts which are declared void under s.30 (of the L.C.O.) no suit may be brought to recover
whatever has been won or deposited.

16.5RATIONALES 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 two divergent types of interest:
(a)proprietary interests of an owner of property. No one can acquire a better title than
that of the owner.
(b)proprietary interests of a bonafide purchaser for value without notice of any defect
in the seller's title. Commercial transaction have to be protected.

As between two innocent parties who is to bear the loss?

16.6 EXERCISES:
(a)What is the difference between a voidable and a void agreement?
(b)What is the legal effect of an unenforceable contract?

16.7 FURTHER READINGS:

(a)Your casebook
(b)A. Singh: Law of Contract

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 (c)Treitel: Law of Contract
(d)Furmston: Cheshired & Fifoots Law of Contract

LECTURE NO. 17:ILLEGAL CONTRACTS AND THEIR CONSEQUENCES

Objectives: (1)To discuss what factors make contracts illegal.

(2)To explain the consequences of illegal contracts.

Study strategy:Read the lecture and cases cited in it. Then supplement what you have read with
further readings on illegal contracts.

Introduction:This lecture is supposed to be a follow up to the previous lecture in as far as it touches on

illegal contracts. It explains what contracts will be declared illegal and for
what reasons. You will also learn the consequences of illegality in a contract.

17.1 ILLEGAL CONTRACTS

Parties to a contract are free to agree on whatever terms they please subject to certain
limitations. One of such limitations is that consideration for the promise must be lawful and
the object of the contractual arrangement must also be lawful.
In some cases both the consideration for and the object of the contract are unlawful. For
example, where A employs B to kill Y for a consideration of Shs. 20,000/=. The object of the
agreement is to kill Y and B's consideration for the Shs. 20,00/= is the killing of Y. If B kills
Y and A refuses to pay the Shs. 20,000/= then B cannot enforce the agreement because both
the object and the consideration, that is the killing, are unlawful.
There are instances where the object may be lawful but the consideration unlawful and vice
versa. For example where S sells to B three bags of sugar at a lawful price so that B may sell

115
the sugar in contravention of the Regulation of Prices Act (No. 19 of 1973) by hiking the
prices, consideration for the contract is lawful but the object is not lawful.
Some contracts may be said to be contrary to public policy. Treitel writes;
Contracts are said to be contrary to public policy when they have a tendency to bring about a
state of affairs which the law regards as harmful. (See Treitel: An Outline of the Law
of Contracts 1984 p. 151).
What the law regarded as harmful some fifty years ago may not be so regarded today; and
what may be said to be against public policy today may be an acceptable way of doing things
in future. The doctrine of public policy, therefore, admits much flexibility and as a result it is
a source of uncertainty. Some judges, therefore, take a restrictive view of the doctrine. Their
attitude was summed up long ago in the statement that public policy is "a very unruly horse,
and when once you get astride it you never know where it will carry you". Other judges are of
the view that the courts should adopt a creative role to accommodate and reflect changing
social attitudes and economic conditions. Their attitude may be summed up in the statement
that "With a good man in the saddle the unruly horse can be kept in control". (See Endby
Town Football Club Ltd. v. Football Association Ltd. [1971] Ch. 591 at p. 606).
So contracts may be declared illegal either because they are contrary to law or because they
are contrary to public policy (See s. 23(1)(a)L.C.O.).

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I.CONTRACTS WHICH ARE CONTRARY TO LAW
(a)Where making of the contract is forbidden by law
The law may expressly prohibit making of certain types of contract. The credit to Natives
Restriction Ordinance (which was repealed in 1961) prohibited making of a credit contract
between a non-native and a native. The Law of Marriage Act prohibits making of marriage
contracts between close blood relatives (Act No. 5 of 1971). Section 20 of the Regulation of
Prices Act (Act No. 19 of 1973) by implication prohibits making of contracts of sale of goods
or services above the maximum price or charge. But an agreement for the sale of goods is not
rendered illegal by the fact that it is entered into on unlicensed premises, (Jiwan Singh v.
Rugnath Jeram (1945012 EACA 21 (C.A.). Securities given for money lost at dice would be
deemed to have been for an illegal consideration and, therefore, rendered void (See Muhuri v.
Kiriu [1969] EA 232). A contract which is not prohibited, but simply declared by statute to be
void or voidable or unenforceable, is not illegal (e.g. ss. 11(2); 25; 56 L.C.O.).

(b)Where the object of the contract is contrary to law

[s.23 (1)(b) L.C.O.]
A contract may be illegal because its object is contrary to law. For example, where S sells to
B twenty bags of rice (which is a scare but essential commodity) with the knowledge that B is
intending to hoard the rice, the contract becomes illegal because its object is to defeat the
provisions of the law relating to hoarding of goods (Act 13 of 1984).
A contract will be declared illegal if lawfully 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
([1956]2Q.B. 490) 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 (at pp.
514-515). In Foster v. Driscoll ([1928]All ER Rep. 130) the parties entered into a sale
agreement whereby whisky was to be bought in Britain and smuggled into the United States
of America against the law of that country. The Court of Appeal held the agreement illegal

117
 because it involved commission of an offence in a foreign and friendly country and so a
breach of international comity.

(c)Where the agreement may cause injury to the person or property of another
[s.23(1)(d)L.C.O.]
Agreements to commit crimes or torts against other persons are illegal because they
may cause injury to the person or damage to his property. Such agreements are conspiratorial, e.g., an
agreement to kill or injure another person, steal, defame, maliciously prosecute or unlawfully
imprison another person.

(d)Where the agreement is for a fraudulent purpose

[s.23(1)(c) L.C.O.]
Parties may conclude a contract with the intention of defeating lawful claims of a third person.
Such a contract is illegal. For example where a debtor enters into an agreement with one of his
several creditors in order to defeat the lawful claims of such creditors.

II.Contracts which are immoral or contrary to public policy [s.23(1)(e)]

(a) Immoral contracts
Some contracts may be regarded as tainted with immorality. What is immoral is against
public policy. Immorality of something depends on the cultural values of a given society as
such what is immoral to one society may not necessarily be immoral to another society. Or
what is immoral today may not necessarily be immoral in the years to come. There are certain
things, however, which are universally regarded as immoral. For example dealings with
prostitutes are regarded as immoral. An agreement to pay a prostitute for her services cannot
be enforced by action on the ground of immorality. Agreements to sell or hire articles to
prostitutes to enable them carry on with their profession are immoral; neither the price of the
article nor rent for the hire is recoverable, ((1866)L.R.I. Ex. 13).

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 (b) Contracts which are contrary to public policy
(i) Interference with marital relations
An agreement to marry after a married woman procures a divorce against her husband
is immoral. In like manner an agreement to marry after the husband's death is
immoral. An agreement between husband and wife providing for terms of a possible
future separation is invalid; and the same is true where such an agreement is made
before marriage (See Treitel: Outline p. 154).

(ii) Contracts which pervert the course of justice

The State enforces criminal law. Where a person has committed a crime against
another and they compromise by a private agreement between them so that the
criminal may not be prosecuted, the agreement is against public policy because it is
contrary to public interest.
There are many other types of contract which are contrary to public policy such as (iii)
contracts to deceive public authorities (they also amount to criminal conspiracies), (iv) trading
with an enemy, (v) undue restrictions of personal liberty, (vi) contracts in restraint of trade
(See Giella v. Gassman Brown & Co. Ltd. [19...] EA 358 (U).

17.2 CONSEQUENCES OF ILLEGAL CONTRACTS

The most common effect of illegality is to prevent the enforcement of the contract, either
wholly or in part. It may also prevent a party who has transferred money or property under the
contract from getting it back; it may invalidate collateral transactions. Under certain
circumstances illegal contracts may be enforced. The law relating to enforcement of illegal
contracts is, however, in a complex and not very satisfactory state, (Treitel: Outline p. 168).
Under the Law of Contract Ordinance consequences of illegal contracts are provided for
under section 23(2) which states:
23.-(2) .... Every agreement of which the object or
consideration is unlawful is void; and no suit shall be
brought for the recovery of any money paid or thing

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 delivered, or for compensation for anything done,
under any such agreement, unless -

(a)the court is satisfied that the plaintiff was ignorant of the illegality of the
consideration or object of the agreement at the time he paid the money
or delivered the thing sought to be recovered or did the thing in respect
of which compensation is sought, and that the illegal consideration or
object had not been effected at the time when the plaintiff became
aware of the agreement; or

(b)the court is satisfied that the consent of the plaintiff to the agreement was
induced by fraud, misrepresentation, coercion or undue influence, or

(c)the agreement is declared to be illegal by any written law with the object of
protecting a particular class of persons of which the plaintiff is one.

And, Section 24 provides:

24.If any part of a single consideration for one or more objects, or any one or any part
of any one of several considerations for a single object, is unlawful, the
agreement is void.
These provisions are, in substance, common law principles developed through case law. In
examining the principles three factors will be taken into account:
1.The state of mind of the parties
2.Illegality of a contract when formed
3.Illegal performance of a contract lawfully concluded
1. The State of mind of the parties
In determining consequences of illegality the state of mind of the parties is relevant:
(i)where a contract is illegal in its inception to the knowledge of both parties or where
the contract is prohibited by statute or at common law [everyone is

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 presumed to know the law - ignorantia juris haud (neminem) excusat]
no allowance is made for innocence.
(ii)where the contract is, on the face of it [ex facie] lawful but both parties intend to
exploit if for an illegal purpose it becomes illegal in its inception
despite its innocuous appearance. Both parties become remediless.
For example letting a house to a woman who intends, to the
knowledge of the landlord, to use it for immoral purposes.
(iii)where the contract is lawful in its inception but one of the parties, without the
knowledge of the other, intends to exploit it for illegal purposes,
innocence of the other party becomes relevant. The innocent party is
not to be adversely affected by the guilty intention of the other. The
test of innocence is whether or not a party is himself implicated in the
illegality or has participated in furtherance of the illegal intention.
Evidence has to be led to that effect. In Pearce v. Brooks ((1886)LR I
Ex. 213) the plaintiffs agreed to supply the defendant with a new
miniature brougham on hire until she paid the purchase money by
instalments within twelve months. The defendant was a prostitute.
She undoubtedly intended to use the carriage as an attraction to
hesitant clients. One of the two plaintiffs was aware of the mode of
life of the defendant but there was no direct evidence that either of the
plaintiffs know to what use the defendant intended to put the carriage.
The court observed that the plaintiffs knew that the defendant was a
prostitute and applying an objective test held that the woman hired the
carriage for the purpose of display, that is, for the purpose of enabling
her to pursue her calling, and that the plaintiffs knew about it (Note:
Even a prostitute has a right to a home. What is forbidden is the use of
the house for immoral purposes).

2. Illegality of the Contract when formed

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Where a contract is illegal in its inception then the Latin maxim "Ex turpi causa non oritur
actio", which means no action can arise out of an illegal cause, applies. The court will not
offer its assistance to either party. The court may know about the illegality from whatever
source including the defendant who may plead illegality.
There are consequences running with the rule ex turpi causa non oritur actio.
(a) No title can pass. A contract which is illegal in its inception becomes void ab initio. No
action can be brought to enforce such a contract. Nor will the court lend its assistance to set
aside an illegal contract. In one case the court held that the plaintiff could not rely on illegality
of his own conduct as a ground for setting aside an illegal transaction to which he himself was
a party unless he proved pressure or undue influence (See Nathalal R. Lakhani v. H.J. Vaitha
([1965] E.A. 452 (U)).
Because the contract is treated as void ab initio no title can pass under it. In sales contracts this
means title will not pass from the seller to the buyer. Before the case of Belvoir Finance Co.
Ltd. v. Stapleton ([1971]1Q.B.210) the legal position was this: since an illegal contract is
totally void, the inescapable conclusion would seem to be that the ownership of movables
cannot pass by virtue of the contract itself if this arises ex turpi causa and if both parties to it
are in pari delicto (i.e. they are equally to blame). Nil posse creari de nilo (i.e. it is not possible
to create a thing out of nothing) (See Furmston: Cheshire & Fifoot p. 332). In 1971 the
Stapleton case threw doubts into the above legal position. In that case the plaintiffs bought
three cars from dealers, paid for them and let them on hire-purchase terms to Belgravia Car
Company (B.C.Co.) who kept a fleet of cars for letting out on hire to the public. The plaintiffs
never took delivery of the three cars in question, which went directly from the dealers to B.C.
Co. Both the contract of sale between the dealers and plaintiffs and the hire-purchase
contracts between the plaintiffs and B.C. Co. were illegal to the knowledge of all the three
parties as contravening statutory regulations. B.C. Co. fraudulently and in breach of the
hire-purchase contracts sold the three cars to bona fide purchasers. One of these sales was
effected by the defendant, an assistant manager of B.C. Co. The plaintiffs sued him
personally in conversion. the trial court made the following findings: (i) that the
hire-purchase agreements for the cars were illegal having contravened a statutory order; (ii)

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that the contracts of sale by the dealers to the plaintiffs were tainted with illegality; and (iii)
that the contracts of sale were executed and carried out. On the basis of finding (iii) the court
held that since the contracts of sale were executed and the plaintiffs had a right to possession
of the cars when the defendant sold them, subject only to hire-purchase agreement, the
defence of illegality failed. The defendant was held liable for conversion of the car. He
appealed. Dismissing the appeal the Court of Appeal held that since the contracts were fully
executed the title to the cars had passed to the plaintiffs. Accordingly B.C. Co. were bailees of
the cars and the defendant as their agent was liable in conversion for their sale. Lord Denning,
M.R. observed that the court will look into an illegal contract whenever it is just and proper to
do so.
Perhaps the rationale behind the decision in the Stapleton case is the need to protect bonafide
purchasers of goods. If the court decided that no title passed to the plaintiffs then the ultimate
purchasers could not get legal title to the cars (Note: to maintain a case in conversion the
question of ownership is immaterial. What is material is possession, or right to possession, of
goods).

(b)Money paid and chattels or land transferred are irrecoverable

The general rule is that what has been given under an illegal contract cannot be
recovered if in order to substantiate the claim one has to disclose the illegality. This
general rule presupposes that both parties are equally guilty and that the claim cannot
be substantiated except by disclosing the illegality of the transaction ([1965] E.A. 452
(U)). For example, S has sold goods and delivered them to B under an illegal contract.
B has refused to pay the price. S can recover neither the goods nor the price if the
basis of his action is the illegal contract. This rule means that gains and losses lie
where they have accrued or fallen. The rule was rationalized in Singh v. Ali
([1960]A.C. 167 (P.C.) (from malaya)) by Lord Denning who said:
... the transferor having fully achieved his unworthy end,
cannot be allowed to turn round and repudiate the
means by which he did it, he cannot throw over the

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 transfer. And the transferree, having obtained the
property, can assert his title to it against all the world,
not because he has any merit of his own, but because
there is no one who can assert a better title to it. The
court does not confiscate the property because of the
illegality - it has no power to do so.
So, the party who is in possession of the goods or the money is in a better position. In pari
delicto potior est conditio possidentis (defendentis).
To the general rule there are exceptions.
(i)Property or price becomes recoverable where the plaintiff need not base his claim on the
illegal contract.
Where money or chattel or land transferred under an illegal contract is to be recovered at all
then the claim should not be based on the illegal agreement. In Amar Singh v.
Kulubya ([1964]A.C. 143, see also Harji v. Harji [1971] HCD No. 104) there was a
statutory prohibition of sale or lease of `mailo' land by an African to a non-African
without a written consent of the governor. In contravention of the law Kulubya, an
African, leased his `mailo' land to Amar Singh, an Asian. When the Asian was given
notice to quit he refused. Kulubya sued him to recover the land. He could not base his
action on the lease agreement because it was, to his knowledge, illegal. He based his
claim on the ground that he was the registered owner of the land and succeeded.
The basis for recovery of property, subject matter of an illegal contract, provided the
claim does not disclose illegality was stated by Parcog, L.J.:
... prima facie a man is entitled to his own property, and it is
not a general principle of our law (as was suggested)
that when one man's goods have got into another's
possession in consequence of some unlawful dealing
between them, the true owner can never be allowed to
recover those goods. The necessity of such a principle
to the interests and advancement of public policy is

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 certainly not obvious. (See Bowmakers Ltd. v. Barnet
Instruments Ltd. [1943] K.B. 65).
(ii)Money or chattle or land is recoverable even on the basis of the illegal contract under two
circumstances

(A) Where the parties are not in pari delicto

Parties to an illegal contract may differ in the extent of blameworthiness. First, where a party
has been a victim of fraud, duress or oppression at the hands of another the parties are
not in pari delicto, the less blameworthy may recover what he may have transferred to
the other (See Nathalal v. Vaitha, above).

(B)Where a party to an executory contract repents before performance

The law allows locus poenitentiae, i.e., time for repentance. A party to an illegal contract
which is still executory may repent before performance. If he repents he becomes less
blameworthy compared with the other party and he may recover what he has
transferred under the illegal transaction.

(iii) Severance
In some cases an agreement may be partly lawful and partly unlawful. Where it is
possible to severe the lawful part from that which is unlawful, the court will enforce
the lawful part of the agreement. Section 27(1) L.C.O., for example, provides that
every agreement in restraint of trade will be void to that extent. So where one of the
clauses in the agreement restrains a party from exercising a lawful profession, trade or
business that clause will be struck off and the remaining part of the agreement will be
enforced. (Nordenfelt v. Maxim Nordfelt Guns & Ammunition Co. Ltd.
[1894]AC.525).

(C)A subsequent or collateral contract which is founded on or springs from an illegal

transaction becomes illegal and void

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 The subsequent or collateral contract may be innocuous but in the eye of the law it will be
illegal because it is linked with the illegal contract. For example, A has borrowed Shs.
20,000/= from B and has given a promissory note as security. If the loan contract is
illegal the collateral contract, i.e., the security agreement becomes illegal as well (See
Fisher v. Bridges (1854)3 E & B 642).

3.Illegal performance of a contract lawfully concluded

Where a contract was lawfully formed but later one of the parties exploits if for an
unlawful purpose the following consequences follow. To the guilty party the rule ex
turpi causa non oritur actio will apply with full force. He will be remediless. To the
innocent party his rights will not be affected, but only before he becomes aware of the
illegal design of the other party. If after he has acquired knowledge of the illegality he
continues with the contract he will not be protected.

17.3 Exercises:
(a)Explain the maxim in pari delicto potior est conditio defendentis and state the
exceptions to it, if any.
(b)Can a prostitute conclude a contract to rent a room for her residence?
(c)The Contract Ordinance declares an agreement to be unlawful if the consideration
for, or the object of, the agreement is opposed to public policy in the opinion
of the court. The Ordinance, however, gives no guidance to the court as to
when it should regard a consideration or object as opposed to public policy.
Some judges have warned that public policy is "a very unruly horse, and when
once you get astride it you never know where it will carry you". Others have
cautioned that the courts ought only to expound the doctrine and not expand it
by recognising new heads of public policy. Yet others have exhorted that
"With a good man in the saddle, the unruly horse can be kept in control. It can
jump over obstacles".

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 What is public policy? What is the controversy about its application? Illustrate how
the courts have in fact applied the doctrine.

17.4 Further readings:

(a) Your casebook
(b) Treitel: Law of Contract
(c) A. Singh: Law of Contract

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