TOPIC TWO

Topic content
CONTRACT
• Define contact and Law governing

• Types of contract

• Formation of contract

• Basic elements of a valid Contract

• Terms of contract

• Privity to contract

• Discharge of contract

• Remedies for breach of Contract

Meaning and Law governing
• Law governing contracts in Tanzania is Contract Act Cap
345 R.E 2019
• What is contract
An agreement enforceable by the law or agreement
which is legally enforceable
• Section 2(1)(h) – agreement enforceable by the law is
contract
• The law provides two basic ingredients of a contract
1. Must be an agreement
2. Must be enforceable by the law
Elements of a Contract
1. Agreement
s.2(1)(e) of the LCA
– agreement mean promise or set of promises forming
consideration of each other
s. 2(1)(b) of LCA Defines Promise
- Signification of the proposal
- Acceptance of the proposal
s. 2(1)(a) of LCA Defines Proposal
- One signifies to another his willingness to do or abstain
from doing
- View of obtain assent/acceptance
Social agreements vs. Commercial
agreement
• Parties might have an agreement which can not form a contract
• For agreement to be contract, must be enforceable by the law
and 2ndly promises forming to agreement must have
consideration to each other.
• Simply means promises must have value within it and failure to
do so the agreement can not be enforceable as a contract.
• Contract being a business law, shall cover agreements which have
commercial value
• There can be social agreements and commercial agreements
• Consideration for social agreements generally is love and
affection ie agreement between Husband and wife, parents and
children of friendship agreement.
• Consideration under commercial agreement is said to be anything
which have value in the eyes of the law.
Formation of a contract
• How can a contract be formed?
• Is it necessary for parties to discuss their contractual
rights and responsibility before concluding a contract?
• In forming a contract there is
(a)offer/ proposal
(b)Acceptance
S 2(1)(a) defines a proposal
Proposal usually contains a number of terms which are
suggested to another person awaiting for his acceptance.
Qualities of a good offer
1. Must be certain
• Self explanatory
• Not to leave question or doubts to the person who is
suppose to assent/ accepts
• Must be understood
• Price is essential element of a valid offer, failure to
establish proper price the agreement becomes void.
According to the case of Nittin Coffee Estate Ltd & 4
Others v. United Engineering Works Ltd and Another.
(1988) TLR 203 also case of Alfi E. Africa Ltd v. Themi
Distributors Agency Ltd (1984) TLR 256
• S. 29 of the LCA provides to the effect that, Agreement
which is uncertain is void.
Cont: Good offer
2. Proposal must be final expression
Once a proposer express his willingness he is made
liable to be bound by such terms of the proposal
Once a proposal is accepted it becomes a promise
and can be enforceable.
3. Offer must be communicated. S 4(1) of LCA
Generally section 38(2) provides for other qualities
of a good offer.
Offer v. Invitation to Treaty
• Proposals and Invitations to treat
• Distinguished from ‘invitation to treat’ or preliminary
negotiations/enquiries
• ‘Invitation to treat’ = general expression of
willingness to enter into a contract i.e. not definitive
• Generally, advertisements are ‘invitations to treat’
• Unlike a offer which is final, firm and clear expression
of willingness by the offeror to be bound an invitation
to treat does not express final willingness 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.
• Partridge v Crittenden [1968] 1 WLR1204
• Adverts are generally invitations to treat and not
offers
• • Display of Goods in Shop Window
A display of goods in a shop window or on shelves in a
self service store even with a price marked, does not
amount to a proposal. Rather, the intention is to invite
people to come forward and make offers/ proposal to
buy.
• Fisher v Bell [1961] 1 QB 394
• Advertisements
Some advertisements can qualify as invitation to
treat and not offers
Acceptance
• • Acceptance – ‘a final and unqualified expression of
assent to the terms of an offer’
• Acceptance is a signification of willingness by the
offeree to accept the offer. S. 2(1) b and a proposal
once accepted it becomes a promise.
• In order to covert a proposal into a promise, the
acceptance must ( s.7(a)-(b) of LCA)
– Must be both final(Absolute) and unqualified
– As a general rule, must be communicated or be
expressed in some and reasonable manner, unless the
proposal prescribes the manner in which it is to be
accepted.
– May be made in writing, orally or by conduct
Discussion Point
• Mirror Image Rule
• Counter Offer
Basic elements of a Valid Contract
• Section 10 of LCA provides basic elements of a valid
contract.
1. Offer and acceptance – Agreement
2. Free consent – s. 14 of LCA
Willingness of the party to be bound by the
contractual terms
3. Competency of Parties – S. 11 of LCA
a) Age of Majority
b) Soundness of Mind
Elements
4. Lawful Consideration
According to the case of Thomas v. Thomas (1842)2QB 851
Consideration means something is of same value in the eye of
the law
The exchange of promises must have value inorder for them
to form part of the agreement
S. 2(1)(d) defines what is Consideration
Types of Consideration
Executory Consideration – Future Consideration
Executed Consideration – Present Consideration
Past Consideration
Cont Basic Elements of Contract
5. Lawful Object
The subject matter of the contract must be lawful/legal/not
forbidden/doesn’t cause harm to property or person/not
against public policy
If it’s the contract of buying any product the seller must be
the legal owner or someone with authority to conduct such a
sale or business.
See further S. 23 of LCA for a Lawful Object and Lawful
Considerations.
6. Not expressly declared to be void.
No any order which states to the effect that such agreement is
not allowed ie. Currently Tz government declares no any can
sale food products outside country boundaries
Terms of Contract
• Depends with the perspective on how one tries to explain
1st perspective
Express Terms – Expressed by the parties while forming a
contract.
Can be Oral express Terms or Written
Expressed Terms
Implied Terms – Not expressed by the parties but they bind
the parties
To such agreement
- Parties are bound to follow them though they did not state
- Terms can be implied by usage of the business, Court or by
law.
Terms of Contract/Contractual
Terms
• 2nd Perspective
a) Conditions – essential Main of a contract, goes to the
route of the contract, breach of the contact entitles
the innocent party to end the contract and claim for
Damages
b) Warranties – Mainers terms in a contract, Secondary
intention if a contract, breach of it gives the innocent
party right to claim damages but not to end the
contract
c) Innominate – terms which are not named or classified.
Court have jurisdiction to introduce them
Doctrine of Privity to Contract/3rd
Party Rule
• Common law rule – only parties to a contract
parties to a contract may enforce the terms of said
contract.
• An individual who is not privy (party) to a contract
can not benefit from the contract nor be liable
under the contract.
• Contract can not confer rights or impose
obligations upon any person who is not a party to
the contract.
• Parties to contract should be able to sue and being
sued to enforce the rights and claims
Doctrine of Privity to Contract
• Two general rule
1. A person can not acquire and enforce rights under
a contract to which he is not a party
2. A person who is not party to contract can not be
made liable under it
Case of Tweddle v. Atkinson (1861) 1B & S 393
No stranger to the contract could take advantage of
the contract though made for his benefits
Exceptions to the Rule
• Sometimes even if party is not involved in a
contract, he can sue and being sued over the
contract/ can enforce the contract.
a) Contract of Trust
b) Family settlement
c) Covenants/ arrangements running with land
d) Contracts through an agent
e) Acknowledgement of the debt or estoppel
Discharge of Contract
• What is discharge?
• Implies termination of the contractual obligations
• Contract is discharged when its no longer binding
• Contract is discharged when it ceases to operate
and parties can no longer be questionable by the
contract.
• When contract is created rights, duties and
obligations are also created, when rights, duties
and obligations come to an end it is said the
contract is discharged.
Methods of discharging a contract
• By agreement/consent
• By performance
• By breach
• By frustration
By agreement/consent
• The way parties agreed to enter into a contract, they
can also agree to end their contractual relationship.
• Discharge by agreement may be expressed or written
• The rule governing discharge by agreement
“Eodem modo quo quid constituitur eodem modo
destruitur” meaning “a thing may be destroyed in the
same manner in which it is constructed”

See Section 62 of the LCA

Types of Discharge by Agreement
1. Novation
• New contract is substitutes an existing contract but
parties remain the same
• Novation takes place before expiry of the time of
performance of the original contract
• For Novation to apply there must be a mutual or
tripartite consent of all the parties in the contract.
Types of discharge by agreement
2. Alteration
When one or more of the terms of the contract is altered
by mutual consent of the parties to the contract.
The old contract is discharged
3. Rescission
Parties to the contract choose to forget the contract and
agree to not bring a new contract into existence to
replace it.
A promise not to demand performance from each other
becomes the mutual consideration for discharge of
contract.
Novation and Alteration.
• Novation takes place when a new contract is
substituted for an existing one between the same
parties.
• Novation takes place before the expiry of the time
of performance of the original contract.
• Alteration may take place when one or more of the
terms of the contract is altered by mutual consent
of the parties to the contract.
• An old contract is discharged
Difference between Novation and
Alteration
• In novation the change in the existing contract is
substantial and in alteration it is less than that.
• Novation parties may change but in alteration parties
remain the same
Discharge by performance
• Performance means doing that which was required by
the terms of the contract.
• When a party to the contract delivers the objectives of
the contract he will be released from performing the
same contractual obligations arising from the contract.
• You do what you was required to do. You perform your
contractual obligations.
• Fulfilling the contractual obligations within the time
and manners prescribed
• If only one party performs the contract, he alone shall
be discharged
• Section 37(1) of the LCA
Ways of Discharging by
performance
1. Actual performance/ subsequent performance
When both parties perform their contractual
promise the contract is discharged.
Performance should be precise, complete and
according to the terms of the agreement.
2. Partial performance
This is a common law doctrine. Looks on the fairness
when a party to the contract performance but not
exactly as what was agreed during the negotiating
the contractual terms
Discharge by frustration
• Sect. 56(2) of LCA
• Frustration is when a contract becomes impossible to
be performed
• Discharge by impossibility of performance is founded in
two rules
a)The law does not recognize what is impossible
b)What is impossible does not create an obligation

In frustration neither of the party is responsible for non

performance of the contract therefore both parties are
innocent.
Ways in how contract can be
discharged by frustration.
• Destruction of the subject matter of the contract
• Non-occurance or non-existence of the stipulated
event
• Death or incapacity
• Changing of law/ government interventions
• Outbreak of war.
Discharge by breach
• One person fails to perform his contractual obligations
without legal justification.
• When a person by his own acts makes impossible to
perform the contractual obligations
• Braking of contractual obligations
• Breach may be
a)Actual breach
When performance is due, one party fails or refuses to
perform his obligations under the contract
b) Anticipatory or constructive breach
One party to the contract declares his intention of not
performing the contract before the performance is due
Discharge by Breach
• In breach, there is always an innocent party who
expected to receive the benefits of the contract.
• Failure to perform the contractual obligations
without legal justification entitles the innocent
party who surfers loss/damages to claim for
Remedies.
Remedies for the Breach of
Contract
• Remedies are legal relieves given to an innocent party
to the contract when there is a breach of the contract.
• Possible Remedies available
1. Recession of contract
When one of the parties to a contract does not fulfil his
obligations, then the other party can rescind the contract
and refuse to perform his contractual obligations.
Party who rescinds the contract is entitled to receive
damages and/or compensation for such recession.
See Section 75 of LCA
Remedies for Breach
2. Damages
Provided under Sect. 73
A person who has suffered due to non performance of
other person obligation can claim compensation for loss
or damage caused to them in the normal cause of
business
Damages can not be paid if the loss is abnormal in nature
or the loss is not in the ordinary course of business
Two types of Damages
Liquidated Damages
Unliquidated Damages
Remedies for the Breach of
Contract
3. Specific Performance
The party who is in breach will be ordered to carry out his
contractual obligations and duties according to the contract.
In special occasions courts my insist that the party to perform the
agreement.
Specific performance is granted instead of Damages/compensation.
There are cases where a decree of specific performance can not be
given
a)When monetary compensation is sufficient redressal
b)When the court can not oversees the performance or execution
of the contract
c)When the contract entered into is of personal services
d)One of the party to the contract is minor
Remedies for the Breach
4. Injunction
An injunction is a court order restraining a person
from doing a particular act.
Court grant an injunction to stop a party to the
contract from doing an act which he promised not to
do or if he does the said act there will be a breach of
contract and the innocent party will suffer loss
Review Questions
• NB: these questions intends to test individual understanding on the topic.
• Content of the question asked might not be found in the outline but discussed in class.
• Students are encouraged to do further research when attempting these questions.
1. Discuss the assertion which says “All Contracts are Agreement but not all Agreements are
Contracts”
2. Explain the formation of an agreement
3. What do you understand by the term Considaration
4. Differentiate between social agreements and contractual/commercial agreements
5. Explain basic elements of a contract
6. Differentiate between offer and counter offer.
7. Discuss discharged of a contract by Agreement and Frustration
8. What are the possible relieves which can be given to an innocent party when there is a breach