Introduction
LAW AND BUSINESS
One
Legal Writer states that:
“
The law affects us all from the moment we are born…we live in a society that is
bound by rules”
Yet
another writer has this to say :
“
Many of the things people do day in day out, obligate them to contracts without
them realising”.
Think
of when you go for shopping in a supermarket, or when you drive, sign an employment
contract etc. all these acts involve legal issues, more so if these are carried
out by a firm, company, or partnership.
The
world of business is full of such terms as Partnerships, companies, contracts, accounts,
auditing and many other related terms to mention a few All these terms suggest
a long list of things that can be found in business practices in our daily
lives. All of these need to be legally valid and therefore enforceable so that
they be of value to the general goodwill of the particular business.
The
law is important to any business because it governs its various aspects such
as:
i.
Its establishment
ii.
Mode of running it
iii.
The mode of winding up etc.
Any
person involved in operation of business needs to content himself with the
range of rights, powers, privileges and responsibilities of the owners,
managers and employees. To rightly operate all these things so that one’s acts
may not at the end of the day be nullified, there is a need to have a clear
understanding of the law so that one becomes confident in his acts.
Without clear knowledge of the law the business establishments would repeatedly
suffer loss, if any profitable business ventures its owners undertake was done
without abiding to legal requirements set for it and at the end of the day the
undertaking was nullified.
Law of Contract
Meaning and Nature of Contract
The
second part of our post deals with the Law of contract. Contracts do touch on every
aspect of human life i.e. the contract is everywhere; more often than not every
human act would involve a contract or series of contracts. Due to its
omnipresent nature of contracts, there is an arbitrary consensus on the
contention that it is a “Mini legal system”
The
content of this area mainly revolves around matters concerning the following:
2.1
Meaning and nature of contract
2.2
Formation of contract
2.3
Elements of legal contract
2.4
Reality of consent
2.5
Consideration
2.6
Standard form contract and exemption
clauses
2.7
Discharge of contract
It
is my hope that you remember and thus you have a clear picture of the nature of
the laws that apply in Tanzania. Just to refresh your mind and be specific to
this topic the sources of contract law in Tanzania are:
Customary laws:
will apply to customary contracts,
Legislation:
the principle legislation that provides for the general principles of contract law
in Tanzania is the Law of Contract Ordinance, Cap 433 or as renamed in the revised
laws as the Law of Contract Act, Cap 345 of 2002.
Case laws:
cases that have been decided by the Supreme Courts of Tanzania; the High Court
and the Court of Appeal and which have established various principles on
contract law are also sources of contract law.
Common law:
the substance of the Contract Act occasions a number of lacunas on some aspects
of contract law i.e. it means it does not provide for any principles for some
of the matters relating to contracts and when this happens the applicable law
would be the common law of England on contracts.
Prof.
Nditti, an expert in contract law of East Africa has this
to say about the application of English common laws to Tanzania. “Where the
contract ordinance is silent on any particular aspect of contract law, English common
Law of contract as modified by equity and acts of parliament is applicable”
He further states,
and I agree with him, that English cases which, substantially, have been decided
on common law may be used in interpreting the matters provided in the contract Ordinance
BUT WHAT IS A CONTRACT?
The
word contract refers to an agreement which can be enforced by law between one person
and another. The two words: “agreement” and “enforced by law” which are found
in the definition are fundamental to the validity and thence presence of any contract.
It follows therefore, if any purported contract cannot be enforced by law it is
not a legally valid contract. A contract needs to be binding to be legally
useful and it cannot be binding unless it is enforceable.
Consider the following examples:
Juma
promised to take her girl friend to some zoo on every weekend, but he usually refuses
at the on set of the weekend. Can she enforce this agreement? Or A wife
confides to her husband that if he promises to love her whole heartedly he
would buy him a car. Can he enforce this agreement?
Are
these two agreements contracts?
All
of these are agreements but they are not contracts because they are lacking in
one important feature which goes to the substance of the whole nature of all
contracts which is: they are incapable of being enforced. Enforceability
(bindingness) of an agreement, therefore, is the condition precedent before the
same can be established as a valid contract.
FORMATION OF A CONTRACT
We
have seen that a contract is pre-existed by an agreement. In the formation of a
contract the law provides for a minimum number of prerequisites or sometimes
are referred to as essentials of a contract, before an agreement can be a
contract. Some of these are expressly stipulated in the Law of Contract Act, Cap 345 and those which are not provided can
be implied from the English common law of contract.
THOSE WHICH ARE MENTIONED BY THE
LCO, CAP 433
S.
10 provides that:
All agreements are contracts if they are made by the free consent of parties
competent to contract, for a lawful consideration and with a lawful object, and
are not hereby expressly declared to be void.
An
analysis of this section brings up three of the essential of a contract as
follows:
• Free consent of the parties
The
principles of contract law require that parties enter into the contracts out of
their own free will, without being forced or influenced by any person.
According to s.14 of the LCO free consent is that which is not caused by such
vitiating factors as coercion, undue influence, fraud, misrepresentation and
mistake.
•
Competency (sometimes is referred to
as capacity) to contract
Here
the parties must be legally capable of entering into the contract. A person for
instance may not be competent to contract if he falls under one of the
following groups:
Is
of under the age of the majority age.
•
Lawful consideration
•
Lawful object (sometimes referred to as
legality)
THOSE WHICH HAVE BEEN IMPLIED FROM
THE ENGLISH COMMON
LAW OF CONTRACT
The
most familiar essential of a contract that has been implied to our law from the
English common law of contract is intention to create legal relation.
HOW IS AN AGREEMENT MADE?
Since
agreement is the beginning point in the making of a contract, the validity of
the latter will depend largely on the preciseness of the former. An agreement
is therefore one of the fundamentals of a valid contract.
An
agreement is made by two things:
•
Offer/ proposal
•
Acceptance
The
party who makes the offer or proposal is referred to as the “offeror” and the
party who accepts the offer is referred to as the “offeree”
Offer/ Proposal
The
meaning of the word proposal is provided by s. 2(1) (a) of the LCO. Any person
will be said to have made an offer/ proposal if:
He
has signified to another person his willingness to do or to abstain from doing anything,
with the view to obtaining the assent of that other person to such act or abstinence.
The proposal usually contains of a number of terms, which would either take an
oral or written form depending on the nature of a particular contract. Some
contracts must be made in writing only e.g. Bills of exchange, insurance
contracts, hire purchase contracts etc.
Instances of a proposal
1.
A calls B and tells him, “I would like to sell to you my plot located at
Tengeru” or
2.
C writes a letter to D telling him that he wants to buy D’s cow at Tshs. 7500/=
Instances
number one and number two above are examples of how offers/ proposals are made
as done by A and C respectively. We will use these examples later.
THE LEGAL ENVIRONMENT OF OFFER/ PROPOSAL
To
be proper a proposal must conform to legal requirements and the following
factors are essential to make a proposal apposite. There are two bases to
classify these requirements as follows:
i.
On the basis of the terms of the
proposal made
(a)
The terms must be certain
It
means the terms making the proposal must be self explanatory; they should not
leave a question to the (offeree), the person to whom the offer is made. This
person must understand correctly the content of the offer and such things as:
1.
Is the offer for selling or purchasing?
2.
What is the item, subject to that sale?
3.
What is the price?
The
terms are clear and certain if the parties will be in a position to be able to
say exactly upon what is their agreement founded.
Q.
Do the examples of the proposals given
above meet these tests?
Answer
Every
proposal must contain terms which are certain e.g. In example number one the
terms
that are contained therein are:
Selling
a plot only and there is no any other term. Is there certainty to this
proposal? No it is not certain since B would not know how much is the plot
sold.
In
example number two, the terms are:
1.
Buying D’s cow and 2. The price is mentioned at Tshs. 7500/=.
This
is a certain offer since it defines in precise terms what C is willing to do;
it also mentions the price for the same. Offers of this kind do not leave any
questions to the persons to whom the offer is made (offeree)
In
law uncertain agreements are not legally recognized agreements. S. 29 of the
LCO
provides
that:
“An
agreement, the meaning of which is not certain, or capable of being made
certain, is void”
There
are a number of cases decided in Tanzania to this effect: See Alfi E. Africa Ltd v Themi Industries and
Distributors Agency Ltd 1984 TLR 256
See
also Nitin Coffee Estates Ltd and 4
others v United Engineering Works Ltd And
another 1988 TLR 203 (CA)
In
these cases there was a conclusion of the agreement, which did not disclose the
price. Price in a contract of sale was held to be a fundamental term and non
disclosure of which renders the agreement uncertain.
(b)
The terms of a proposal must be a final
expression
The
maker of the proposal must not change the terms and his willingness to be bound
by the terms of the proposal he has made otherwise this would change the
subject and the essence of their agreement.
However,
if a contract is in writing, its content can only be varied (changed) in writing
and there must be a separate agreement whose function is to change that contract.
This agreement must be supported by consideration. These words are the decision
of Lugakingira J., in Edwin Simon Mamuya
v. Adam Jonas Mbala 1983 TLR 410 (HC)
ii.
On the basis of the state of the mind of
the maker of such proposal
•
Here I refer to the willingness of the proposor/offeror to be bound by the
terms he has made since an offer, after it has been made, should be an
expression of willingness to contract made with the intention that it shall
become binding on the person making it as soon as it is accepted by the person
to whom it is addressed.
By
making and signifying the terms of the proposal A and C in our examples above
have shown that they are willing to be bound by their own terms that they have
made to which they expected B and D would assent to. We will have a deeper
discussion on terms of contract later in this work.
ACTS BEARING A RESEMBLANCE TO OFFERS
An
offer should be a firm promise and a final expression to do or to refrain from
doing something as explained earlier. Some acts when done appear like
offers/proposals but in real sense they are not; these acts are such as the
following:
(a)
A mere supply of information
Usually
a person may seek information from another concerning something he wishes to buy
probably for the purpose of acquiring sufficient knowledge about it prior top
such buying. This request for information does not amount to an offer. The
following case illustrates this point.
Harvey v Facey [1893] AC 552
In
this case one Harvey sent a telegram, which I will refer to as telegram number
1, to one Facey in these words; “Will you sell us Bumper Hall Pen? Telegraph
the lowest price”. This means Harvey just sought to know whether or not Facey
would be willing to sell the property.
Reply
by Facey: Telegram number 2.
“Lowest
cash price for Bumper Hall Pen is 900 pounds”
Harvey’s
further response: Telegram number 3.
“We
agree to buy Bumper Hall Pen for 900 pounds asked by you…”
Later
Facey refused to sell Bumper Hall Pen and Harvey went to court.
The court held that:
There
was no contract because of two reasons;
i.
Telegram number two was not an offer but rather a mere supply of information;
it merely supplied the price at which if there was an offer, Facey would be
willing to sell.
ii.
Telegram number three was a true offer but not an acceptance. This true offer
is
no where accepted in their telegram communication.
Due
to this you must know how to distinguish when a person makes an offer and when
he merely seeks a supply of information as to the subject matter of the
contract.
(b)
Invitation to treat
An
invitation to treat happens to be done when a person proposes certain terms for
which he is ready to enter into negotiation but by which he is not willing to
be bound. In other words these are terms that the maker merely intends to
invite an offer and set in motion negotiations with any one who would be
interested.
Examples of invitation to treat are:
i.
Display of goods for sale
When
goods are displayed in a shop for sale together with its price ticket attached
to it, this act does not amount to an offer. By so displaying, the law presumes
that this person only meant to invite offers from the interested persons.
This
was held in a famous English case of:
Fisher v. Bell [1960] 3 All E.R.
731 or reported also in [1961] 1 Q.B. 394
Simple
facts of the case were:
Bell,
displayed in the window of his shop a flick knife on which he attached a price
tag bearing description of the knife and the price which was set at 4s. It was
illegal to offer a flick knife for sale under the English law. So he was sued
for so offering such a knife.
The issue before the court was:
Does
the display of goods for sale in a shop amount to an offer?
Lord
Parker delivered a judgment which resolved this issue in the following
statement:
“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”.
Lord
Parker, further disputing the contention that display of goods constitutes and offer,
observed that:
“I find it quite impossible to say that an
exhibition of goods in a shop window is itself an offer for sale”.
In
an earlier case, Pharmaceutical Society of Great Britain v Boots cash chemists Southern
Ltd [1953] 1 Q.B. 401; also [1953] 1 All E.R. 482 which has more or
less similar facts to Fisher V Bell the court of appeal of England opined that
the display of products in a store is not sufficient to constitute an offer;
and the judges, Somervell,
Birkett
and Romer, L.JJ. referred to this act as a mere invitation to treat.
Simple
facts of this case:
Boots
Cash was what I would call a kind of a drugs Super market in which a buyer moved
around with a basket picking whatever drug he wanted presented it at the
cashier’s desk and paid for them.
The
law in England made it illegal to sell drugs without supervision of a
registered pharmacist. In this store there was a registered pharmacist but he
was usually seated at the cashier’s desk where the buyers paid for their drugs.
The Pharmaceutical Society argued
that:
i.
That by displaying the drugs Boots Cash offered them for sale.
ii.
That by placing the drugs in the basket, the customer accepted the offer.
iii.
That a sale was effected between Boots Cash and the customer, by the obove
two
acts, and for this sale Boots Cash violated the law which prohibited
selling
of drugs without supervision.
WHEN THEN IS THE OFFER MADE IN SUCH A
SITUATION?
The
offer is instead made when the customer presents to the cashier the item
together with payment for such an item and the acceptance will be presumed to
done when the cashier accepts the payment.
ii.
in tenders
Advertisements
that call for tenders are mere invitation to treaty but they are not offers. The
person who tenders is the one who makes an offer. Acceptance of this offer is
done by the person advertising tenders by considering and accepting one of
them.
Other less common instances are:
(a) Declaration of intention
A
person may declare an intention to do or to abstain from doing something; this declaration
is not an offer and so is separate from the contract which would result from
it.
In
Harris v Nickerson (1873) L.R. 8 Q.B.
286
Nickerson
placed an advertisement in newspapers to the effect that he would put up for auctioning,
among other things, some office furniture. The auction was later cancelled.
Harris
sued Nickerson for damages because he had traveled from a distant place to come
to the advertised auction. He argued that the advertisement constituted an
offer and by traveling that far he had accepted it. The court held that the
advertisement was not an offer, thus it could not be accepted by making such a
journey.
The
principle established in this case:
The
three Judges Blackburn, Quain and Archibald, JJ. Who presided over this case established
that an act of advertising that items will be placed up for auction does not constitute
an offer to any person that the goods will actually be put up. The person who placed
the advertisement may withdraw the items for the auction at any time before the
auction.
(b) Mere “puff or boast”,
Some
commercial advertisements when made can not be taken seriously and thus they can
not be regarded as offers. These are referred to as “mere puffs or boasts”.
These are common in business world especially when a new product is introduced
in the market.
Instances of these are a phrase
like:
“Tigo,
Mtandao unaokupa zaidi” or “Celtel, makes Life better” you can not claim that this
is an offer for which you can sue the company when you do not find any thing special
in its services. However some of these advertisements can not be categorized as
“mere puffs or boasts”. These are those which take the form of promises which a
sensible person may take into account. An illustration of promises which might
be taken seriously is as it happened in the following case:
Carlill v Carbolic Smoke Ball Co. 1
QB 256
Carbolic
Smoke Ball Co. was the company specialized in the manufacture of a drug which
was famed for curing and preventing influenza. They placed an advertisement in
the newspapers that they would pay 100 Pounds to any one who caught influenza after
using their drug. The ad is in the following words:
“£100
reward will be paid by the Carbolic Smoke Ball Company to any person who
contracts the increasing epidemic influenza, colds or any disease caused by
taking cold, after having used the ball three times daily for two weeks
according to the printed directions supplied in each ball. £1000 is deposited
with the Alliance Bank, Regent Street, showing our sincerity in the matter”.
Mrs.
Carlill trusted the makers of the promises contained in the advertisement,
bought and used their smoke balls after which she still contracted influenza.
She sued the company.
The
court held that the advertisement
was a valid offer.
The
words “£1000 is deposited with the Alliance Bank, Regent Street, showing our sincerity
in the matter”. Show that these were rigid promises by which the maker of these
words intended to be bound. Any reasonable man would take them seriously like
Mrs. Carlill did.
VARYING MODES OF MAKING PROPOSALS
There
are various ways of making an offer depending on circumstances; for instance it
can either be made to the general public, a particular person or to a class of
persons.
Offers
can be to these persons through various situations as follows:
(a)
In Unilateral contracts:
Illustration
of an offer made to the whole world is if the offer is advertised and intended that
some one from the public should fulfill it. These are called offers of
unilateral contracts. They are so called because a promise is made by only one
party; there is no reciprocity of promises. This one party would guarantee to
do or not to do something for another party in absence of that other party’s
agreement to that effect.
In
this kind of offers if any one person from the public happens to respond to it,
he will be said to have accepted the offer, by his conduct.
EXAMPLE
If
a company wants to maximize sales for its products and in an advertisement in a
news paper gives a promise in the following words:
“Anyone
who buys more than one of our product X at one time will be given one free
Nokia 3310 cell phone on the spot”
This
advertisement is a valid offer and the person placing such advertisement has expressed
his willingness to be bound by the terms he has advertised.
If
any person buys product X and he is not awarded the promised free Nokia 3310
cell phone on the spot he has the right to sue the company for breach of a
contract.
What
distinguishes it from other kinds of contracts is that there is no preceding negotiations
between the two parties prior to acceptance of the offer like there is in other
contracts.
(b)
In auctions
The
practice in auctions as to how and who makes an offer is that; contrary to what
most people think, an offer in a n auction is made by any party who bids and
the auctioneer, the person who is in control of the auction accepts the highest
offer by the fall of his hammer.
(c)
In tenders
An
advertisement that there will be a tender of any kind does not amount to an
offer; it is just an invitation to treat. Instead the offer is made by the
parties who respond to this advertisement by sending in their tenders in which
are contained the specific terms relating to that particular tender by which he
is ready to be bound.
This
offer by the person responding to the advertised tender may or may not be
accepted by the advertiser for the law does not compel him to accept it, it
does not also blame him for not accepting that offer. It is upon him to decide
whether or not to accept it.
However
if it was advertised that the highest tender would be the one accepted, the
party inviting the tenders has no option but to accept the same.
In
Gbl & Associates Ltd v Director Of
Wildlife Ministry Of Lands, Natural Resources And Tourism And Two Others (1989)
TLR 195 (HC)
In
this case the Central Tender Board for the government of Tanzania advertised in
the Daily News Paper of February 09 1988 inviting tenders for the sale of
elephant ivory. Various persons sent in their offers and the offer made by the
plaintiff Co. was accepted.
The
terms which the advertisement specified for the tenderers to include in their
offers was that payment and collection of the ivory must be done within 30
days. Rubama J. held in this case that:
(i)
The advertisement by the Secretary of the Central Tender Board calling for the purchase
of elephant ivory was not an offer but an invitation to treat. Each of the tenderers
offered to buy at his quoted price and it was upon the government of the United
Republic of Tanzania to accept an offer or reject it;
(ii)
...Central Tender Board was not obliged to accept the highest bid or any of the
tenders…
PROPOSALS HOW COMMUNICATED
To
be effective an offer must be communicated by the person making it to the
offeree. An
offer
can only be accepted after it has come to the knowledge of the person to whom
it is
made.s. 4(1) of the LCA provides that:
“communication
of an offer is deemed to be complete when it comes to the knowledge of the
person to whom it is made” It does not matter therefore, whether communication
is made orally or in writing, it must come to the knowledge of the offeree.
Any
one who purports to accept the offer while he has been unaware of its
existence, his acceptance is not legally accepted. This situation has happened
in the following case: R v Clarke (1927)
Simple facts of this case:
It
was advertised by the government of Australia that if any accomplice of a
specified syndicate of murderers furnished evidence that would help to arrest
the murderers, he would be offered a free Pardon by the government.
One
Mr. Clarke gave the information while he was unaware that there was such a
pardon by the government. He only realised later after he gave the information
and claimed that he be given a pardon because he had accepted the offer.
The
court held that:
Mr.
Clarke could not benefit from the reward because he was not aware of the offer.
It appears therefore that if Mr. Clarke had a knowledge of the offer before he
tendered the information to the government, his acceptance would have been
valid and he would have been entitled to benefit from the free government
pardon.
Remember
therefore that knowledge of the offer is necessary to make ones acceptance effective.
TERMINATION OF THE OFFER
An
offer does not stay valid for ever; there is always a point in time when the
offer comes to an end. Usually, before it is accepted, an offer is valid as
long as nothing happens that brings it to an end. There are a number of events,
in daily life and as far as principles of contract are concerned, whose effect
is to end the offer. Generally Such events are as follows:
i. if the offer is revoked by the offeror
ii. if the offer is rejected by the offeree
iii. if the time set for the offer lapses;
for offers which are limited by time.
iv. If the offeror dies or becomes insane.
v. If there is a failure to fulfill a
condition; for offers which are contingent upon fulfillment of such a
condition.
vi. If the offer is properly accepted.
vii. Intervening illegality
Termination
of an offer is referred to by s. 6 of the Law of Contract Act under one general
word as revocation of a proposal. More or less of the events mentioned above
are enumerated under this section as acts which when done would occasion
revocation.
S.6 of the LCA
reads as follows:
A
proposal is revoked
(a)
by the communication of notice of revocation by the proposer to the other
party;
(b)
by the lapse of the time prescribed in such proposal for its acceptance, or, if
no time is
so
prescribed, by the lapse of a reasonable time, without communication of the acceptance;
©
by the failure of the acceptor to fulfill a condition precedent to acceptance;
or
(d)
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. Out of all the events
that I have mentioned above only two events are not mentioned in this section;
rejection and acceptance of the offer.
REVOCATION
To
revoke an offer is simply to cancel it. You are now aware that one of the acts
that cause an offer to terminate is its revocation. An offer must be revoked by
the person who has made the offer or it may be revoked by the person who is
authorized to act on his behalf.
REVOCATION MUST BE COMMUNICATED
Revocation
of a proposal is effected by doing any act that has an effect of communicating it
to the offeree.
By
communicating it, it implies that revocation of a proposal must come to the knowledge
of the offeree, otherwise it is ineffective.s. 3 of the LCA, provides that: The communication of proposals, the
acceptance of proposals, the revocation of proposals and acceptances,
respectively, are deemed to be made by any act or omission of the party
proposing, accepting or revoking, by which he intends to communicate such proposal,
acceptance or revocation, and which has the effect of communicating it.
This
section can be analyzed as follows:
The communication ofi. proposals
ii.
the acceptance of proposals
iii.
the revocation of proposals and
iv.
acceptances
respectively
are deemed to be made by-
any act or omission of the party proposing, accepting or revoking,
by which he intends to communicate such-
(a)
proposal,
(b)
Acceptance or
(c)
Revocation, and
which
has the effect of communicating it.
From
this thus, the communication of the revocation of the proposal is deemed to be done
when there is any act or omission of the person who revokes. This act or
omission should not only be intended to communicate such revocation but also
must have the effect of communicating it (it must actually come to the
knowledge of the offeree).
Case illustration:
In
Byrne v Tienhoven [1880] 5 CPD 344
Simple
facts of the case:
The
facts would be understood well if evaluated in terms of dates specific events happened
as follows:
On
October 1st 1880:
Vantienhoven,
from England by post, sent an offer to sell tin plates to Byrne in New York
On
October 8th 1880:
Vantienhoven
posted a letter of revocation of offer.
On
October 11th 1880
Byrne,
telegraphed acceptance
On
October 15th 1880:
Byrne,
confirmed his acceptance by letter
