BLaw Notes

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These Lecture notes have been prepared by: Kisilwa, Zaharani, Business Law Instructor
at the Institute of Accountancy Arusha
2007
Prelude
This work presents the lecture notes on all the relevant Business Law topics as indicated
in the course outline and which the students, subjects to this course, are intended to learn
over the stretch of the respective semesters and it is intended to aid students to avail
themselves of the guidelines to this course, usefulness of which it is assumed, would help
them create a definite scope on what they have to learn when they do their library
materials exploration. In no way is this work destined to be an exhaustive and all-in-one
facility for every matter in Business Law required of students to gain knowledge of in
this course. Students are called upon to refer to the Library Materials cited by the
Instructors in the class as well as those provided in the course outline for a better
understanding and an ever lasting, well packed satisfaction.
Kisilwa, Zaharani
2007
According to the course outline, the first part of our course will deal with the
conceptualization of the term law reduced in the words Introduction to General
Principles of Law in which case the following elements will be discussed;
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Definition and nature of law
Genesis and development of law
/1
Classification of law
Sources of law
Law and business
1.1 DEFINITION AND NATURE OF LAW

In the realm of the legal theory, the word law is a complex term which is capable of
multiple definitions and has for a long time been subject of legal writers arguments.
However simply stated, the term law presupposes presence of rules that affect the daily
lives and activities of peoples.
These rules emerge in different ways, though in most cases there must be a consensus, as
to whether or not such rules are desirable. On being widely accepted this rule will
become law when a class of persons who are in power (the government, for instance in
present day societies) in any given society enforces it.
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The enforcement of a rule makes it a legal rule which status is a condition precedent
before it gains the title of law in its real sense. It follows therefore that not every rule that
has been consented to by the members of a particular society is legal; many of these rules
fall way short of being legal rules. Paul Denham (see references at p.g. 17 of this work)
furnishes an instance of these non -legal rules which he names as conventions and in his
own phraseology he states as follows:
It is a convention that a man will normally take his hat off in a church. But it is a legal rule that
one person shall not hit another. Or that it is just a convention that the young will normally
respect the elders. But it is a legal rule that the young or any other person should not
abuse another.
You should be able to distinguish between legal rules and non-legal rules. Non legal
rules, when they are breached there may never be enforcement.
Due to this, then, the law may be defined as:

The complete body of all those individual rules that bind the society together
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The definition of law may also include the process by which these rules are created and
applied
Collectively, the development of these rules, their substance (content), and the
application together make up a legal system [Denham]. This includes the process of
making of these rules by the relevant organs, interpretation of the rules by courts of law
and enforcement by the police and other organs charged with that duty; all of these are
subject to presence of the rules. If there were no rules what would the courts interpret or
the police enforce?
1.2 GENESIS AND DEVELOPMENT OF LAW

Genesis
How did the law begin for the first time? Who brought it? When was it and why?
These are the basic questions one might ask himself.
As it has been shown above, law began as a rule (s) set by people in a given society to
govern their conducts. The law becomes more important when the relations between
persons in a given society are complicated. Usually as the society develops the relations
of production turn out to be more or less of conflicting interests . To understand better
this statement I would , by way of illustration, adopt the desert island analogy given
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by Gregory Allan in his article titled , The origin of law [refer to pg. 17 for full
reference]
He states with my own emphasis that :
if one man lives alone on a desert island, he has no use for any law to guide his conduct in
which case he can do whatever he pleases without causing any injury to any other soul. He
thus needs no law.
The situation would be different if another man showed up on the same island. There
would be the two of them now. When two persons live together, it is certain that there
will be disagreements on certain matters and they will always have arguments. It is likely
that the stronger man will take advantage of his strength to dominate the weaker man
who in turn will be submissive. This delicate situation entails requirement of law to guide
them so that no one of them may be disadvantaged.
Whatever the case Gregory Allan states:

In the end they will either agree on certain rules of behaviour or conduct. These rules of
behaviour become customarily binding to the present as well as the men who later
become the members of that society.
If there was this agreement, why is that only a section of the members of the public
become the makers and enforcers of the law?
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This has to do with the influence the development of a society has had on the
development of the law. In its development the human society has passed through five
stages namely, communalism, slavery, feudalism, capitalism and socialism.
During the era of communalism the nature of life the members of these societies were
leading was such that they worked together and shared out the fruits of their labour on
equitable basis. During this time technology was rudimentary (low) and man only
struggled to produce for his subsistence.
Later better technological tools were discovered and those who seized the early
advantage of the advent of this technology began to produce enough food not only for
subsistence but also for surplus. The power of surplus food made them prominent and
superior over others. It was the powerful that later dominated the less powerful, it was
them who later made the rules and the weaker followed.
That was the beginning of the so called centralized governments which later turned out to
be the makers and enforcers of the laws they made. This is the reason why it is the
governments that make law to day.
You will agree with me that it takes one to have enough resources to gain power.
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DEVELOPMENT OF THE LAW IN TANZANIA
In Tanzania, like it is in most of the Common Wealth Countries, the original law is
customary law which developed from rules of conduct set by the indigenous societies to
govern their behaviors such as marriage, contracts inheritance etc. There are about 120
tribes in Tanzania; every one of them had a set of its own customary rules necessary to
govern their way of life.
However the dominant law in Tanzania is not customary law, why is this so? The answer
is simple: because our country has been, at some time, the subject of colonial rule.
Though there were two colonial masters in our country namely Germans and the British I
am inclined to discuss the latter (British) only since their influence in country is greater
than that of the former (Germans).
The British who ruled Tanganyika from 1818-1961 imposed the nature of their Legal
System to Tanganyika which we still use to day. Before going further into the effect of
this imposition to Tanzanian Law let me offer an insight into the English Legal System,
in brief so that you may know what kind of system Tanzania has adopted and what is the
extent of this adoption.
NATURE OF THE ENGLISH LEGAL SYSTEM
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The laws which were applicable to England before it was brought to Tanganyika was
based on two major sources, namely Judicial Precedent and codification (acts of
parliament/ statutes)
1. Judicial precedent:
This refers to application of a decision by judges, reached in a particular case to a similar
case that arises later, if the facts of the two cases are materially the same.
What law did the judges in English Courts apply in deciding these cases?
They applied common law [comprises of a body of customary laws of England,
similar to customary laws of Tanganyika before the coming of the British] and
Equity [a body of rules devised by the English courts on the basis of fairness and
good conscience to remedy the short comings of the common law]
These two laws i.e. Common law and equity were, before 1873, administered by
different courts namely Courts of Common law of England and Courts of Equity
respectively. In 1873 a law was passed; the Judicature Act of 1873. This law united the
two courts and created the Court of Appeal and the High Court of Justice which could
apply both Common Law and Equity.
2. Codification (Acts of Parliament/ Statutes)
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Codification refers to the process where by the various rules of law are created by the
parliament and laid down in books of law called statutes.
This is the model of English Law which was imposed on Tanganyika during the British
rule. I hope you have gained a clear insight into the kind of legal system that our country
has adopted.
THE EXTENT OF APPLICATION OF ENGLISH LAWS TO TANZANIA

Before the coming of the British, the indigenous population as it has been illustrated
above, mainly used customary laws. When the British came these customary laws began
to apply subject to English law highlighted above which was dominant then. This means
the English Law was received in Tanganyika.
July 22nd 1920 is a very important date in Tanzania. It is referred to as the reception
date. It was the date on which the extent of application of English Law to
Tanganyika was declared by the British Colonial Government by the Tanganyika
Order in council of 1920 which met at the Court of Buckingham Palace.
THE TANGANYIKA ORDER IN COUNCIL OF 1920
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This is an order which defined the scope of application of English laws as well as
laws of other countries to our country:
WHAT WAS THIS DECLARED LAW?

The Colonial Government on behalf of his majesty King of England declared
1. The substance of Common Law (that which used to be applied by the courts of
law in England as shown above)
2. Principles of Equity (that which was applied by the courts in England as shown
above)
3. Statutes of General Application.
As the laws that would apply to Tanganyika.
OTHER LAWS WHICH WERE DECLARED APPLICABLE TO TANGANYIKA

By s. 13 (a) (9) the Tanganyika Order in Council declared that any Ordinance which by
s. 13 (a) (1) the governor of the Tanganyika territory is allowed to pass may apply to the
territory (i.e. Tanganyika) any Act or law of the United Kingdom, or of any legislature of
India, or of any Colony or Protectorate, subject to any exceptions and modifications
which may be deemed fitting.
WHAT IS THE IMPLICATION OF THIS APPLICATION?
It implies that English laws would, by this declaration, apply to Tanganyika as they were
standing by 22nd July 1920 and other laws adopted from other countries would apply
subject to modification, so that they suit the local environment. This means all cases
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decided by the Common Law and Equity Courts before 1920 apply to Tanganyika and all
those which were decided by the English courts above 1920 are persuasive to local
courts.
WHAT ARE OTHER LAWS APPLICABLE TO TANGANYIKA APART FROM

THE ENGLISH LAW?
By s. 13 (a) (1), the governor of Tanganyika acquired a legal authority to apply to
Tanganyika the Indian Contract Act of 1872 whose application to Tanganyika ended in
1961 and its place was taken by the Law of Contract Ordinance of 1961, Cap 433
hereinafter called the LCO.. Therefore with minor modifications this Act has, since its
application, been the relevant Act directly providing for the matters pertaining to
contracts in Tanzania. The substance of this act is the same as that of its counter part, The
Indian Contract Act of 1872. In law they are called statutes in parimateria. The LCO,
1961, with the general revision of the laws in Tanzania, is now referred to as the Law of
Contract Act, Cap 345 of 2002.
In 1961, a Law known as the JUDICATURE AND APPLICATION OF LAWS

ORDINACE [JALO] was passed with the view to restrict application of customary laws
in Tanganyika. By s. 11 this law declared that these customary laws would only apply
when they did not conflict with the general laws of the land.
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And in 1963 two years later most of the customary Laws that were still applicable to
Tanganyika and which were thought to be not able to conflict with the general law were
codified under a statute known as the Local Customary Law (Declaration) Order of
1963.
Therefore customary laws apply to Tanganyika subject to such limitations underscored

above. Due to the effects of the imposition and adoption of the English Law to
Tanganyika, development of our Law is largely through judicial precedent and
codification by the parliament just like in the English Legal System. Law made by the
parliament is largely characterized by public opinion rather than customary
practices.
You will, thus, notice later that all the laws in Tanzania that relate in one way or
another to business have a more or less direct relation to the English law and
Practices. Judicial Precedents from English courts will, by and large, be of that
inevitable significance to this course. Indian cases might be of some use in the
general understanding of some issues especially in contract cases for we share with
them common matters in various aspects of contract law and due to the fact that
some part of their law has at some point in time been imposed on our legal system.
Therefore this account, in short illustrates the development of the law in Tanzania.
CLASSIFICATION OF LAW
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There are various ways of classifying laws; thus it may be classified as one of the
following groups:
Public/ Private
Civil/Criminal
Substantive/ Procedural
International/ Municipal
Common Law/ Equity
However, to simplify the classification, as the legal systems develop the rules of law
it tend to fall into two major groups[Soulsby] i.e. criminal law and civil law
CRIMINAL LAW
This deals with the relationship between the individuals and the state. That is why you
might have seen criminal cases being referred to as R v. Cash Book, the letter R refers to
the Republic (the government of Tanzania)
CIVIL LAW
This deals with the relationships between individual persons. Instances of this law are
company law, contract law, banking Law, business law etc. the cases under this law are
cited as: Yahoo.Com v. Hotmail.Com, IAA v. NBC.. You might be wondering why it is
said that the law governs relationships between individual persons and a case has its
parties as IAA v. NBC. In law there are two kinds of persons; natural persons, you and I
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for instance, and legal persons, those which are established by law like the IAA, the
NBC, and the STUDENTS LOANS BOARD. You shall encounter a lot of these as you
move forward in this course.
FUNCTION OF CIVIL LAW

Since civil law involves individual persons, its main function is to protect these
individual persons against the wrongful acts or omissions of other persons. A simple
instance of a wrongful act is breaching a contract.
A person who suffers loss due to a wrongful act of another may open up a civil case
before a court of law [after opening that case he will be called a plaintiff] and if he
proves to have actually suffered that loss, the person who caused such loss [the
defendant] is said to be liable and the court may order him to indemnify the victim.
Upon proving that he has suffered a particular loss, the remedies that may be awarded by
the court into which he has filed the case are of two kinds:
1. Common law remedies e.g. Damages
2. Equitable remedies e.g. Specific performance or rescission of a contract, Courts
injunction
This is how the rules of law are being enforced. One thing worth noting, is that to get
benefit of the remedies above and many others you should be able to prove that you
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actually suffered a loss and that it was caused by your adversary. In Criminal as well as in
Civil Law there is one legal duty known as the burden of Proof [it refers to the duty to
prove your claim before a court] is upon the Plaintiff in Civil Matters and in the
Prosecution in Criminal matters.
SOURCES OF LAW
The sources of law in Tanzania are as follows:
i.
The Constitution of the United Republic of Tanzania of 1977
This is the Highest Law of the Land, all other laws must be made subject to this law. In
more precise terms other laws of the land must not contravene the provisions of the
constitution, if they do the constitution will prevail and the other law will be declared
null and void [treated as no law].
ii.
Legislation: statutes/ Acts of Parliament
A great majority of laws are made through the parliament which is the only organ vested
with that duty by the constitution. The process is that, the government must show an
intention to have a particular law in place bringing a bill to the parliament for the
proposed law on which the parliament will debate and decide if it is a suitable law. The
response of the interested parties would be sought before passing the law. To become the
law the president must assent to it and the same must be advertised in the gazette. A law,
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once established, remains in force until it is repealed [shorn of its legal force by another
law made by the parliament].
iii.
Delegated Legislation
Though the supreme law making body of the country is the parliament, it usually
delegates [assigns], its power to make the law through the laws it has made to specific
authorities in charge of that law. This authority to which power to make law is delegated
by the parliament will make a valid and enforceable law only when it does not exceed the
powers granted to it. The laws made by delegated power are known as by-laws,
regulations and circulars.
iv.
Customary and Islamic Laws
You already know what are customary laws, these together with the Islamic laws, apply
subject to the limitation that they should not infringe the general law of the land.
Remember s. 11 of the Judicature and Application of Laws Ordinance of 1961
v.
English Law subject to Reception Clauses, 22nd July 1920
vi.
Case Laws and Precedents, decided by the higher Courts of the land i.e. The High
Court and The Court of Appeal.
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You already know what is and how judicial precedent applies to the courts. However to
consolidate your understanding, the courts in Tanzania use the principles established in
the already decided cases to future cases whose facts are materially the same as of those
cases.
LAW AND BUSINESS

One Legal Writer states that:
The law affects us all from the moment we are bornwe 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.
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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 ones 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.
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GENERAL REFERENCES UNDER THIS TOPIC
ACCA (2004)., Corporate and Business Law, Foulks Lynch Ltd, UK. pp. 1-5
Denham P., (1999), Law: A modern Introduction, 4th Ed.., Redwood Books, UK. pp. 114
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Gregory
A.,
The
Origin
of
Law,
available
at:
http://www.lawfulpath.com/ref/laworigin.shtml as visited on 3rdmarch 2007. pp. 2-6
Marsh S.B and Soulsby J. (1992), Business Law, 5th Ed., McGraw-Hill Book Company,
UK. pp. 1 21
Nditi N.N.N (2004)., General Principles of Contract Law in East Africa, DUP, Dar es
salaam pp. 5-13
The Tanganyika Order in Council, 1920
Kisilwa, Zaharani
2.0 Law of Contract

2.1 Meaning and Nature of Contract
The second topic of our course deals with the Law of contract. Contracts do touch on
every aspect of human life i.e. the contract is every where; 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
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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.
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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 applicable1
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
Ordinance2.
2.2 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 can not be enforced by law it is
Nditti, NN (2004), General Principles of Contract Law in East Africa, DUP, DSM. Pg 12. See also
Banana R.S, Business Law Manual, Institute of Accountancy Arusha p.g. 3
2
Ibid pg. 13
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not a legally valid contract. A contract needs to be binding to be legally useful and it can
not 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.
2.3 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 some times are
referred to as essentials of a contract, before an agreement can be a contract. Some of
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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)
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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.
2.4 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:
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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 Ds 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.
2.5 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:
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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 Ds 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)
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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)
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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.
2.6 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.
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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
Harveys 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.
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(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:
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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 cashiers
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 cashiers desk where the buyers paid for their drugs.
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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.
2.7 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
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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
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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.
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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.
2.8 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:
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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 partys 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.
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(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)
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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
2.9 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
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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)
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.

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.
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Remember therefore that knowledge of the offer is necessary to make ones acceptance
effective.
2.9.1 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
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(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;
(c) 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.
2.9.2 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.
2.9.3 REVOCATION MUST BE COMMUNICATED

Revocation of a proposal is effected by doing any act that has an effect of communicating
it to the offeree.
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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
of the party proposing, accepting or revoking,
!!/ omission
by which he intends to communicate such(a) proposal,
(b) acceptance or
(c) Revocation, and
which has the effect of communicating it.
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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

Byrne, confirmed his acceptance by letter
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The revocation letter which was sent by Vantienhoven on October 8th to Byrne reached
him.
When van Tienhoven refused to sell the tin plates relying on his revocation, the
court held that there was a valid contract made between them because the revocation
letter had not been effective until it was actually communicated which was after the
acceptance had already arrived.
If you look at the dates carefully you will realize that the revocation was sent earlier (8th
October) than the acceptance (11th October); under normal circumstances you would
expect the revocation to take priority over the acceptance but the law does not lay
emphasis on time but rather on knowledge of the particular information required to be
known.
2.9.4 REVOCATION MUST BE DONE BEFORE OFFER IS ACCEPTED

To be effective such communication of revocation of an offer must be done at any time
before the same has been accepted.
This is the import of s. 5(1) of the LCA, which reads as follows:
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A proposal may be revoked at any time before the communication of its acceptance is
complete as against the proposer
2.9.5 REJECTION
Another way in which an offer can be terminated is if the offer is rejected by the offeree
by any of the following acts:
i.
if he turns down the offer
here the offeree can simply state that he does not need it.
ii.
If he makes a counter offer
A person will be said to have made a counter offer if his acceptance contains new terms
which are different from those which are contained in the original offer.
In Hyde v Wrench [1840]

i.
Wrench offered to sell a farm to Hyde at 1000
ii.
Hyde, in his purported acceptance, was willing to buy it at 950 . Wrench

rejected
iii.
Then Hyde accepted to buy at 1000
iv.
Wrench rejected. Hyde sued him.
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Held: Hydes acceptance was a counter offer and wrench was not obliged to accept
it.
LAPSE OF TIME
Certain offers do stipulate the specific duration of time beyond which an offer ceases to
be valid i.e. this offer will expire after that time and for offers of this kind any acceptance
after which expiry will be ineffective.
For offers which do not provide for a specific time frame, they will lapse after a certain
period of time referred to as reasonable time.
s. 6 of the LCA provides that:

A proposal is revoked(a) by the lapse of time prescribed in such proposal for its acceptance, or, if no time is
prescribed, by the lapse of a reasonable time, without communication f the acceptance;
The statute just mentions the phrase reasonable time without providing for its meaning.
The question is:
What constitutes reasonable time in law?

The reasonable time will be deduced from the circumstances of each particular case. It is
the court that normally decides if there was reasonable time from the facts of a particular
case that have been tendered before it.
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The case of Ramsgate Victoria Hotel Co. v. Montefiore [1866] illustrates the instance
where the court construed reasonable time.
In June
Montefiore offered to buy shares from Ramsgate Victoria Hotel. The offer did not set the
time limit for its acceptance.
In November
In this month Ramsgate accepted this offer being five months later. But by this time
Mr. Montefiore did not need the shares any more.
Ramsgate sued him, claiming that he breached the contract since they accepted his offer
while Montefiore maintained that his offer had expired and could no longer be accepted,
so his was not an acceptance in the eyes of the law.
Held: Where an offer is stated to be open for a specific length of time, then the offer
automatically terminates when that time limit expires. Where there is no express time
limit, an offer is normally open only for a reasonable time.
Thus the court was of the view that the company accepted the offer as of too late
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DEATH OR INSANITY OF THE OFFEROR/ PROPOSER

The death of the offeror, as long as it has come into the knowledge of the offeree, will
have an effect of terminating the offer.
s. 6 (d) of the LCA provides that:

A proposal is revoked(d) by the death or insanity of the proposer, if the fact if his death or insanity comes to the
knowledge of the acceptor before acceptance.
According to this section, in either case, whether it is death or insanity, knowledge of it is
an important element.
What if the offeree does not know of the death of the offeree?
If the offeree does not know of the death of the offeror he is entitled to accept the offer,
nonetheless, despite this death except when identity or personality of the deceased
offeror is vital i.e. the offeree will not, under this situation, be entitled to accept the offer.
This contention is illustrated by the following example.

An offer that has been given by a professor of Law the University of Dar es salaam,
who happens to die before it is accepted, can not be accepted by the offeree who does not
know of this death, if his identity as the professor of Law the University of Dar es
salaam is vital to the contract.
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This means that if the offer was for a performance of something that could be done by
any person other than the professor in his professional capacity, then his personal
representatives can act on his behalf.
FAILURE TO FULFIL A CONDITION:

Some offers are coupled with a condition(s). Offers of this kind are valid only as long as
these conditions are fulfilled.
The nature of these conditions:

The conditions may be of two kinds:
i.
express terms- made orally or in writing
ii.
implied-these are neither made orally nor in writing. They are inferred
from studying each particular situation
In Financing Ltd v Stimson [1962]

Stemson offered to buy a car on a hire purchase arrangement from Financing Ltd. prior
to acceptance of this offer the car was stolen. Uninformed of this theft Financing Ltd
accepted this offer.
Held: it was held that the company could not accept the offer as they did, since the offer
was subject to the implied condition that the car would there prior to acceptance
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See also s. 6 (c) of the LCA.

A proposal is revoked(c) by the failure of the acceptor to fulfill a condition prece4dent to acceptance
ACCEPTANCE OF AN OFFER: Its meaning and nature.

General meaning of acceptance
An acceptance is an unconditional assent to the terms of the proposal. The word
unconditional means that the terms of the acceptance must not set new conditions apart
from those stated in the offer. If the acceptance does so it is termed a counter offer.
Statutory meaning:
S. 2(1) (b) of the LCA states
(b) When the person to whom the proposal is made signifies his assent thereto, the proposal
is said to be accepted, and a proposal, when accepted, becomes a promise;
The legal environment of acceptance:

a. An acceptance has to meet certain legal aspects before it becomes an effective
acceptance. The general rule is that an acceptance is supposed to reflect the terms of the
offer as it has been made. In other words the acceptance must match or reflect those of
the offer. This in contract law is called the mirror image rule.
E.g. If the offer is for sale of a motor cycle at Tshs. 2/=, the acceptance must not be
for buying a car at Tshs 3/=
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However there are exceptions to this general rule that the acceptance must match
the proposal. It is under very limited circumstances to have a contract even without
matching the offer and acceptance.
See the following cases:

Brogden v Metropolitan Railway Co. (1877) 2 App Cas 666 nditi pg29
Lord Denning in Gibson v Manchester City Council [1979] above
Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd'
s Rep 25.
b. an acceptance must be absolute and unqualified i.e. The acceptor must accept an
offer as it has been made to him3
EFFECT OF CHANGING THE TERMS OF THE OFFER

Usually this will result in one or more of the following:
i.
Counter offer
I hope you remember what a counter offer is; this happens when the offeree in his
acceptance of the offer either introduces a new term or varies the existing terms of
the offer.
When this case happens the original offeror may or may not accept the counter offer.
Nditti p.27
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A counter offer has two effects:
a. It amounts to rejection of an offer. See Hyde v Wrench Refer to pg. 46 of this work.
b. It cancels the original offer, in which case it is useless even if you accept it later on the
original terms.
ii.
Conditional assent
If the offeree places any condition in his acceptance, the acceptance will be shorn of its
central feature which is it should be an unconditional assent to the terms of the
proposal.
EFFECT OF THE ACCEPTANCE WHEN IT IS PROPERLY MADE

i.
Refer back to s. 2(1) (c) that a proposal when accepted becomes a promise
ii.
According to s. 2(1) (c) the maker of the proposal becomes the promisor
iii.
The acceptor of the proposal becomes the promisee
The promisor and the promisee are the parties to an agreement.
Therefore in order to form an agreement the acceptance is supposed to change the

proposal into the promise.
According to s. 7 (a) (b) of the LCA in order that acceptance changes a proposal into a
promise, it must have the following features:
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(a) it must be absolute and unqualified

(b) i. if the proposal does not prescribe the manner in which it is to be accepted,
the acceptance must be expressed in some usual and reasonable manner.
- ii. . if the proposal prescribes the manner in which it is to be accepted, and the
acceptance does not follow this manner, the proposer must insist that his proposal be
accepted in the manner prescribed and only that. If he fails do so he is deemed to have
accepted that acceptance.
COMMUNICATION OF ACCEPTANCE
To be effective, acceptance must be communicated to the offeree. If the offeror does not
specify any special mode by which acceptance should be carried out, it may done by any
normal method such as: by oral means, written means, by phone, by fax or even by
conduct4. Not only must it be communicated but also the communication must be
complete.
Communication of acceptance of the proposal how made:

Remember s. 3 of the LCA
It is deemed to be made if the offeree does any act or omission by which he intends to
communicate such acceptance and the act or omission must have the effect of
see Paul Denham, op cit pg.418
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communicating it. Only when this has been done can we say that communication of
acceptance is effective. Without this no contract can be formed.
The general rule in contract law is that an acceptance must be communicated. Silence
does not amount to acceptance.
Illustration:
Felthouse v Bindley [1862] 11 CB (NS) 869, or 142 ER 1037
Felthouse offered in writing to buy a horse from his nephew John in which he sated that:
If I hear no more about him, I consider the horse is mine at 30 15s. There was no
reply form his nephew. Later the uncle claimed that there was a binding contract between
the nephew and him.
The court held that there was no contract because acceptance did not amount to
acceptance.
The fact that an acceptance must be communicated to make it effective is only a general
rule; there are exceptions to this general rule as in the following two circumstance:
i. When the offeror dispenses with acceptance.

There are two ways this can be done by the offeror;
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(a) Dispensation done expressly i.e. [made orally or in writing]
This is when the offeror states in the terms of the offer to the offeree that, if the latter
wishes to accept this offer he may just undertake to do what it is there in offered without
any prior information to the offeror.
Illustration;
The president of the student organization at IAA offers to hire As mini bus on
Tuesday Morning October 2nd 2007 to take ADA I A to Muccobs, for Tshs. 7500/=, if
you wish to accept the offer bring over your bus on the time and specified day. A
may accept the offer by bringing the bus to IAA on that morning.
(b) Implied
The offeror need not always expressly prompt the offeree to accept the offer as
illustrated above; Sometimes dispensation of acceptance can be inferred from the nature
of the offer itself. Offers that are made in terms of advertisements are the ones which fall
under this category. The offeree only needs to do the act that has been asked and he will
have formed the contract thereat.
Illustration:
If A advertises that I have lost my passport and that any one who finds and brings it to me
will be rewarded 1 million Tshs.
The acceptor need not tell A he has accepted the offer, he will be deemed to have
accepted the offer only by bringing the lost passport to him.
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i.
When communication is done by post [application of post rule]
The post rule was developed in an English case of Adam v Lindsell [1818] 1B & Ald 681
or 106 ER 250

On September 2
By post, Lindsell made an offer to sell some wool to Adam. He asked Adam to reply in
course of post.
On September 5
The letter of offer reached Adam, and he immediately sent his acceptance as asked. By
the time this letter of acceptance arrived Lindsell had sold the wool to another person; he
thought the offer had been rejected.
On a claim by Adam that there was a breach of contract;

The court held that: The contract was made at the time the letter of acceptance was
posted by Adam.
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This means that once the letter of acceptance has been sent whether or not it reaches
the offeror a binding contract is formed and both the proposer and the acceptor
therefore are bound on that spot.
Exceptions: there are a number of circumstances in which though post is used, post
rule may not apply.
i. It applies only when the parties contemplated it as a means of communication of
acceptance. For instance if all the negotiations have taken place by telephone post rule
may not be said to have been contemplated by the parties.
ii. You know that, in common law, once the letter of acceptance is posted it binds both
the offeror and the offeree; this will not apply if the offeror states clearly that he is ready
to be bound only if he knows of the acceptance.
Eg. If the offeror states that acceptance be made by notice in writing to him5. If this
notes does not reach him there will be no contract.
iii. Post rule applies exclusively to acceptance of an offer.
Note: Remember our earlier discussion that letters of offer, revocation of offers and
rejection of an offer are not governed by post rule. Remember on these three knowledge
is central and can not be done away with. Refer to s. 3 of the LCA.
5
see Holwell Securities Ltd v Hughes [1974] 1 All ER 161. in this case Hughes made an offer to sell in
which he stated that an acceptance to this offer should be made by notice in writing to him [emphasis
mine]. Holwell Securities, who sought to find cover under post rule, had posted their acceptance by the
prescribed mode but it did not reach Hughes. The court held that there was no contract since Hughes
expressed a clear intention to be bound after he received the notice in writing.
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Discussed above is the position at common law. Let us delve into the legal stance on
field in Tanzania.
POST RULE IN TANZANIA

s. 4 (2) of the LCA slightly modifies the post rule. This section suggests that, unlike in
common law, the proposer and the acceptor will be bound by the contract at different
points of time once the letter of acceptance has been posted.
The section reads as follows:

The communication of an acceptance is complete
(a) as against the proposor, when it is put in a course of transmission to him, so
as to be out of the power of the acceptor;
(b) as against the acceptor, when it comes to the knowledge of the proposer.
This section implies that once the acceptance has been posted and the letter of acceptance
is out of the power of the person sending the acceptance, only the proposer will be bound
but not the acceptor and the acceptor will be bound when it comes to the knowledge of
the proposer.
Q. What do you think is the significance of this slight departure from the common
Law to the proposer and the acceptor?
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A. If they change their minds on the contract they revoke the offer or the acceptance
within legal limits.
INSTANTANEOUS COMMUNICATION
Instantaneous communication is done when the speedier means of communication, than
the post office, are employed; such means are like fax, telephone, mobile phones or the
internet.
When electronic approach is used the post rule can not apply and under this
situation a contract is formed only when the acceptance is received by the offeror.
The courts in England have developed the principles regarding this kind of
communication in the famous English of case of:
Entores Ltd v Miles Far East Corporation [1955] 2 All ER 493 or [1955] 2 QB 327

In London
Entores made an offer by Telex to the agents of Miles Far East Corporation [New
York]; who were in Holland. The acceptance of the offer was communicated to the Telex
machine of Entores Ltd in London.
Offeror
offer by Telex
Acceptor
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Entores [London]
Agents [Holland]
Acceptance by Telex
Agency
Miles Far East Corporation [New York]
The issue that was to be resolved was whether the contract was made in England or
Holland?
The court held that: The postal rule does not apply to instantaneous communications.
The contract was only complete when the acceptance was received by the offeror.
Q. What if the acceptor has sent his acceptance by say e-mail or fax and the offeror
has not seen it?
Answer.
The answer to this legal issue was provided in the same case by Lord Denning in an
extensive obiter dictum, in which he opined that under this situation a contract can be
formed even if the offeror (through his own fault) does not actually receive the
acceptance.
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Application of Lord Dennings obiter dicta was done in the following case:
The Brimnes: Tenax Steamship Co Ltd v The Brimnes (Owners) [1975] QB 929 (CA)
The Brimnes (Owners) hired a ship from the plaintiff Co.
Their agreement was such that The Brimnes (Owners), the plaintiffs, could terminate the
agreement if the defendants defaulted in payment of the regular hire charge.
The defendants failed to pay and the plaintiffs sent them a telex to terminate the
contract.
The telex was sent during normal office hours, but the defendants did not see it until the
next day.
It was held that: the termination Telex was effective from the time it arrived, not
the time it was read. Note that this was a case relating to withdrawals of offers, not
acceptances, but it is a useful analogy.
Another case is:

Brinkibon Ltd v Stahag Stahl [1983] 2 AC 34 (HL)
Where a telex of acceptance was sent from London to Vienna, it was held that the
contract was concluded where the telex arrived, not where it was sent from.
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Lord Fraser expressly approved the decision in Entores as it seems to have worked
without leading to serious difficulty or complaint from the business community.
To this point you should be able to distinguish between the communications of an

acceptance by post rule from that which is done by instantaneous means.
REVOCATION OF ACCEPTANCES
Generally the revocation of an acceptance can be done at any time before it binds
the acceptor.
Section 5 (2) reads as follows:
An acceptance may be revoked at any time before the communication of the acceptance
is complete as against the acceptor, but not afterwards.
Remember by s. 4 (2) (b) of the LCA, The communication of Acceptance is complete

as against the acceptor when it comes to the knowledge of the proposer.
Therefore, in other words, an acceptance can be revoked at any time before it comes
to the knowledge of the proposer.
ELEMENTS (ESSENTIALS) OF LEGAL CONTRACTS
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It has been illustrated earlier in this work that a contract is made up by fulfillment of a
number of legal tests without which a contract becomes unenforceable. These tests are
such as: Free consent, Competency or capacity to contract, Lawful consideration and
object and lastly intention to create legal relation.
I will discuss them, lightly, in order of their appearance.
FREE CONSENT:
To consent to something, generally, means to agree to it. Remember s. 10 of LCA free
consent is an important element to contract.
S. 13 of the LCA defines consent as follows:
When two or more persons are said to consent when they agree upon the same thing in the same
sense
The following example illustrates the statement above

A has two cars both of them are Nissans (one is pick up and the other is a saloon). A
makes an offer in the following words: I wish to sell you my car at Tshs. 2/-. B
accepts this offer in the following statement: I accept to buy your car at Tshs. 2/-
The two persons will not be said to have agreed upon the same thing and in the same
sense If A while making the offer has pick-up in mind and B while accepting the offer
has saloon; there will be no consent between them.
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This is the import of this section.
Free consent has its special meaning in the law of contract. S. 14 defines it as follows:
(1) Consent is said to be free when it is not caused by coercion, fraud, misrepresentation,
or mistake.
Contracts which are made with taints of the above factors are voidable contracts i.e. the
affected party known as the innocent party may avoid it if he wishes see s. 19 (1).
However according to the same section the contract is not voidable if the innocent
party had the means to discover the truth by due diligence.
Let us examine each one of t hem.
(a) Coercion,
According to s. 15 of the LCA coercion exists when:
One person commits or threatens to commit
i. any act forbidden by the penal code or
ii the unlawful detaining or
iii threatening to detain any property
With the intention of causing any person to enter into contract
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Example:
The Regional Traffic Officer made an offer to buy Ds car at Tshs 1/= to which D did not
accept. He then tells him I will make sure I always find faults in your car and detain it
until you sell it to me.
(b) Undue influence,

According to s. 16 undue influence exists between two persons when:
The relationship between them is such that
i.
one of them is in a position to dominate the will of the other
ii.
and he uses that position to obtain an unfair advantage over the other
Q. When can a person be said to be in a position to dominate the will of another?

The answer is provided by subsection (2) of the same section as follows:
A person is deemed to be in a position to dominate the will another if:
i. Where he holds a real or apparent (ostensible) authority over the other, or

a person has apparent authority if for example he had power at one point of time and he
no longer has that power but the person with whom he deals does not know of this.
Or, when a person in power does any thing which suggests to the public that the person
under him may do the responsibilities of this person in power.
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ii. Where he stands in a fiduciary relation to the other [eg. Doctor and patient, teacher and
student, father and son etc] or
iii. Where he makes a contract with a person whose mental capacity is temporarily or
permanently affected by reason of age, illness, or mental or bodily distress.
(c) Fraud,
According to s. 17 fraud exists when one or more of the following acts:
(a) The suggestion, as to a fact, of that which is not true by one who does not believe it to
be true;
(b) The active concealment of a fact by one having knowledge or belief of the fact;
(c) Promise made by the without the intention of performing it;
(d) Any other act fitted to deceive
(e) Or any such act or omission as the law specially declares to be fraudulent
To constitute fraud these acts must have been committed either;
i. by a party to a contract, or
ii. (by any person but) with his connivance (participation/involvement)
iii. Or by his agent
the intention of the party doing these acts must be directed to either;
i. deceive that other party (i.e. to the contract) or his agent, or
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ii. induce him to enter into the contract.
The mind of the High Court of Tanzania represented by Msumi J, in Joseph Mapama v.
Republic (1986) at pg. 155, on the meaning of the word deceive concurred with that of
Buckley, J. in Re London and Globe Finance Corporation [1903], in which the meaning
of the mentioned word was referred to as:
to induce a man to believe that a thing is true which is false, and which the person
practicing the deceit knows and believes to be false
Having put forward a variety of authorities as to the meaning of fraud, it is sensible at this
juncture, to bring forth the meaning of forgery.
(d) Misrepresentation
At the time when the parties to contract are negotiating so much is spoken. Some of these
statements which make part of contract will be termed as misrepresentation if they are
intended to induce the other to enter into a contract and they are not but false.
There are two types of misrepresentation at common law

i. innocent misrepresentation: when one gives a statement which is false but you
believe it to be true. One usually does not intend to do this. This kind of
misrepresentation can not render a contract voidable.
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ii. Fraudulent misrepresentation: when one gives a statement which is not true, or
he does not believe it to be true or recklessly, carelessly as to whether it is true or
not; and he knows it6. This is the kind of misrepresentation which renders a
contract voidable.
In both the above types a misrepresentation should be of fact and not of law or opinion.
Example
For instance you are about to enter into contract to sell chicken and you tell your
offeree that: This specie of chicken lays five eggs per day. While they only lay two. If
you make this statement and it ultimately induces another party to enter into
contract, it is misrepresentation.
If what is said is not true but you believed it to be true, it is innocent

misrepresentation and if it is not true and you knew it, then it falls under fraudulent
misrepresentation.
The LCA is a bit more specific on the meaning of misrepresentation.

The import of s. 18 of the LCA is that misrepresentation may mean any one of the
following:
This definition was provided in Derry v Peak [1887]
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(a) Positive assertion (statement of fact) of any thing that is not true but which the
person making it believes it to be true. These statements are usually unwarranted by the
information of the person making it. This is innocent misrepresentation.
See the example given by Nditti at pg. 1167

O who is the owner a cow tells S to sell it for him and in doing so he confides that the
cow gives a lot of milk. S on selling it to B tells him the gives more than 30 litres.
Nditti says the statement by S is not warranted by the information that was given to
him.
(b) breach of duty [falls under fraudulent misrepresentation]

An instance of breach of duty is when there is a breach of duty to speak which may arise
in the course of negotiations.
Generally silence can not amount to misrepresentation. S. 17 (2) of the LCA

provides:
..mere silence as to facts likely to affect the willingness of a person to enter into a
contract is not fraud unless the circumstances of the case are such that regard being had to
them it is the duty of the person keeping silence to speak, unless his silence is, in itself,
equivalent to speech.
When a duty to speak arises silence can be a misrepresentation.
Nditti, opcit 116
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This duty may arise in the following circumstances:
i. If you later discover that the statement you have made is not true, though when you
gave it, it was true. You have the duty to say the truth.
ii. When you have made a true statement but later circumstances make it false.
iii. When the nature of contract requires utmost good faith eg. Insurance contract.
One who takes life insurance must disclose if he has aids.
iv. When there is a fiduciary relationship eg. Lawyer-client

This is when one party is in a position of trust with regard to the other8.
The lawyer, on being asked for legal advice must disclose every thing to his client.
v. when you have given half truth.
Example
You are selling a car whose engine you are expecting to break down any time for
some problem, the buyer asks if the car is running perfectly you say yes. Here you
have given a half truth and under this circumstance you are supposed to tell him
that though it is running the engine has problems.
Denham,475
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According to s. 18 the breach of duty to be effective must be such that
i. it benefits either the person who commits it or any one under him
ii. the benefit is gained by misleading another either to his prejudice, or to the prejudice
of any one claiming under him.
(c) Causing however innocently, a party to an agreement to make a mistake as to the

substance of the thing which is the subject of the agreement.
This is when you induce a mistake to the other party about the subject matter of the
contract.
Here the words the thing which is the subject of the agreement refers to the thing for
which the parties enter into contract. It is sometimes referred to as subject matter of
the contract.
If a party to contract does not disclose one or more facts about the subject matter so much
so that the other party thinks the subject matter is what it is not.
Here the party must actually have been induced and must have acted on that
inducement to his detriment.
Illustration:
Bugerere Tea Estates v Waljis Ltd [1967]
Simple facts
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Walji made representations which induced a mistake to bugerere about a building which
they said was a lease for 3 years renewable while it was a lease for 2 years non
renewable. Walji wished to exchange this building for Bugereres tea estate.
The court held that there was inducement.
(e) Mistake, subject to s. 20, 21, 22.

Mistake happens if both the parties had not entered into an agreement except for a
mistake as to a matter of fact that is essential to an agreement.
MISTAKE GENERALLY
A mistake of fact occurs when a person believes that a condition or event exists when it
does not.
Mistake when existent makes a contract void. BUT For a mistake to affect the validity of
a contract it must be an "operative mistake", i.e., that which operates to make the
contract void.
The effect of a mistake is: At common law, when the mistake is operative the contract
is usually void ab initio i.e. void from the beginning.
Types of mistakes:
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There are three types of mistake.
i. common mistake
ii. mutual mistake and
iii. Unilateral mistake.
COMMON MISTAKE
A common mistake happens when both parties to an agreement make the same error with
regard to a matter of fact that is essential to the agreement.
Common mistake is provided by section 20 (1) of the LCA.

Where both parties to an agreement are under a mistake as to a matter of fact essential to the
agreement, the agreement is void
Mistake as to a matter of fact essential to agreement can be illustrated by cases as

follows:
(A) RES EXTINCTA (situation where both parties do not know that the subject
matter does not exist)
A contract will be void at common law if the subject matter of the agreement is, in fact,
non-existent. See for example:
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Couturier v Hastie (1856) 5 HL Cas 673
Facts of this case:
The case concerned the contract to sell a cargo of wheat/maize which did not at the time
of this contract exist.
Parties entered into contract for sale of maize. Both the parties knew the maize was on a
ship from a place called Solaninka to England where they were. In fact, before they so
made the agreement, the maize had began to deteriorate and so it had been unloaded and
sold at Tunis.
The issue was whether the seller was entitled to recover the purchase price of the maize
from the buyer as agreed in the contract.
The court held that since both parties had contemplated the existence of the subject
matter (maize) to be sold and bought respectively; the seller had nothing to sell and the
buyer had nothing to buy. Thus the contract was held to be void ab initio.
In addition, s. 8 of the Sale of Goods Act Cap 214 provides that:
Where there is a contract for the sale of specific goods, and the goods without the
knowledge of the seller have perished at the time when the contract is made, the
contract is void.
Other relevant cases include:
Griffith v Brymer (1903) 19 TLR 434
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At 11am on 24 June 1902 the plaintiff had entered into an oral agreement for the hire of
a room to view the coronation procession on 26 June. A decision to operate on the King,
which rendered the procession impossible, was taken at 10am on 24 June. Wright J held
the contract void. The agreement was made on a missupposition of facts which went to
the whole root of the matter, and the plaintiff was entitled to recover his 100.
McRae v The Commonwealth Disposals Commission (1950) 84 CLR 377

Read some of these cases in Nditti at page 123-124 visit also your portal, I have sent a
collection of cases on mistakes.
(B) RES SUA (common mistake as to title in the subject matter of the contract)
Where a person makes a contract to purchase that which, in fact, belongs to him, the
contract is void. This usually when both parties are mistaken on the fact that ownership of
the goods is to the seller. For example see:
Cooper v Phibbs (1867) LR 2 HL 149
An uncle told his nephew that he owned a fishery. The nephew believed him and after his
uncles death, he entered into an agreement to rent the fishery from the uncle'
s
daughters. However, the fishery actually belonged to the nephew himself, it had only
been left in the uncles custody after the boys father died.
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Lord Westbury said:
"If parties contract under a mutual mistake and misapprehension as to their relative and
respective rights, the result is that that agreement is liable to be set aside as having
proceeded upon a common mistake"
(C) MISTAKE AS TO QUALITY

A mistake as to the quality of the subject matter of a contract has been confined to very
narrow limits. According to Lord Atkin: "A mistake will not affect assent unless it is the
mistake of both parties, and is as to the existence of some quality which makes the thing
without the quality essentially different from the thing as it was believed to be." See:
Bell v Lever Bros Ltd [1931] All ER 1.
In cases since Bell v Lever Bros the courts have not been over-ready to find a mistake as
to quality to be operative.
See: Solle v Butcher [1949] 2 All ER 1107
Leaf v International Galleries [1950] 1 All ER 693
Harrison & Jones Ltd v Bunten & Lancaster Ltd [1953] 1 All ER 903
Associated Japanese Bank Ltd v Credit du Nord [1988] 3 All ER 902
BCCI v Ali and others [1999] 2 All ER 1005
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EFFECT OF COMMON MISTAKE TO TANZANIA
When it is evident that there has been a mutual mistake between the parties to contract s.
20 states that the contract is void.
s. 65 of the LCA requires the party who gained advantage under that void contrtact
to:
i. to restore that advantage
ii. or to compensate the innocent party for it
EFFECT OF A VOID CONTRACT AT COMMON LAW

Where a contract is void for identical mistake, the court exercising its equitable
jurisdiction, can:
i. Refuse specific performance
ii. Rescind (cancel/ annul) any contractual document between the parties
iii. Impose terms between the parties, in order to do justice.
Relevant cases include:
Cooper v Phibbs (1867) LR 2 HL 149
Solle v Butcher [1949] 2 All ER 1107
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Grist v Bailey [1966] 2 All ER 875
Magee v Pennine Insurance [1969] 2 All ER 891
Rescission for mistake is subject to the same bars as rescission for misrepresentation.
UNILATERAL MISTAKE
Unilateral mistake is said to be present where only one party to the agreement is
mistaken. The categories of mistake may be as follows:
(A) MISTAKE AS TO THE TERMS OF THE CONTRACT (nature of the contract)
Where one party is mistaken as to the nature of the contract and the other party is aware
of the mistake, or the circumstances are such that he may be taken to be aware of it, the
contract is void.
For the mistake to be operative, the mistake by one party must be as to the terms of the
contract itself.
See the following case:
Hartog v Colin & Shields [1939] 3 All ER 566
The defendants, Colin & Shields, were London hide merchants who were sued by a
Belgian furrier, Herr Hartog. They had discussed selling him 30,000 Argentinian hare
skins at 10d per skin (which would have come to 1,250), but when they put the final
offer in writing they mistakenly wrote 30,000 skins @ 10d per lb. As hare skins weigh
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around 5oz, this was a third of the price previously discussed and orally agreed upon.
Hartog tried to hold them to it.
A mere error of judgement as to the quality of the subject matter will not suffice to render
the contract void for unilateral mistake.
See for instance:
Smith v Hughes (1871) LR 6 QB 597
REMEDY
Equity follows the law and will rescind a contract affected by unilateral mistake or refuse
specific performance as in:
Webster v Cecil (1861) 30 Beav 62
(B) MISTAKE AS TO IDENTITY

s. 2 (1) (a) and (b)
Here A, one party makes a contract with a C, second party, believing him to be A, third
party (ie, someone else). If you refer to s. 2 (1)(a) and (b) of the LCA there will be no
contract between A and C since his acceptance has no effect in law. The law makes a
distinction between contracts where the parties are inter absentes and where the parties
are inter praesentes.
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Contract made inter absentes

Where the parties are not physically in each others presence, eg, they are dealing by
correspondence, and one party is mistaken as to the identity, not the attributes, of the
other and intends instead to deal with some identifiable third party, and the other knows
this, then the contract will be void for mistake. Usually this happens when there is a thief
who poses as a different identity. See:
Cundy v Lindsay (1878) 3 App Cas 459
The rogue here was a man called Blenkarn. He sent an offer to buy some thing from
Cundy which was accepted. The name that appeared in the offer was Blenkiron and
Co., 37 Wood Street. There existed in the same street, a famous a company known as
Blenkiron & Co.
Blenkanrn received the goods and quickly sold them to Lindsay. Having discovered the
trick Cundy sued Lindsay for recovery of goods. He argued that he made a mistake as
to the identity of the person with whom they were dealing.
Held: since the plaintiffs never knew Blenkarn before, they never intended to deal with
him and between them there is no contract since there was no consensus ad idem
(meeting of the minds)
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Mistake as to attributes of a person does not render the contract void but voidable.
King's Norton Metal Co Ltd v Edridge Merrett Co Ltd (1897) TLR 98
The rogue under this case was one Mr. Wallis. He sent an offer to buy some goods in
which he described himself as the owner of a very reputable company going by the
name of Hallam & Co. in fact there was no Co. in the area with that name. Having
believed him King's Norton Metal Co Ltd accepted his offer and sent him goods.
Hallam sold the goods to Edrige Merret Co Ltd.
The plaintiffs claimed that there was no contract since they dealt with Hallam and
Co. under a mistake as to identity.
The court held that: There was a contract between kings and Hallam; this decision was
based on the following two conclusions by the court.
Two conclusions are commonly drawn from these two cases:
i. that to succeed in the case of a mistake as to identity there must be an identifiable
third party with whom one intended to contract; and (here there was none: if you
can not prove there was an identifiable third party with whom you intended to deal
then you are presumed to have intended to deal with this rogue)
ii. the mistake must be as to identity and not to attributes. (Kings here were so
impressed by the attribute)
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Contract made inter praesentes
Where the parties are inter praesentes (face to face) there is a presumption that the
mistaken party intends to deal with the very person who is physically present and
identifiable by sight and sound, irrespective of the identity which one or other may
assume. For such a mistake to be an operative mistake and to make the agreement void
the mistaken party must show that:
(i) he intended to deal with someone else apart from the one present;
(ii) the party they dealt with knew of this intention;
(iii) he regarded identity as a matter of crucial importance; and
(iv) he took reasonable steps to check the identity of the other person
(see Cheshire & Fifoot, Law of Contract, p257-263).
Even where the contract is not void, it may be voidable for fraudulent misrepresentation
but if the goods which are the subject-matter have passed to an innocent third party
before the contract is avoided, that third party may acquire a good title. The main cases
are as follows:
Phillips v Brooks [1919] 2 KB 243
Ingram v Little [1960] 3 All ER 332 (a controversial case)
Lewis v Avery [1971] 3 All ER 907
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The exception to the above rule is that if a party intended to contract only with the
person so identified, such a mistake will render the contract void:
Lake v Simmons [1927] AC 487
A more recent case is:
Citibank v Brown Shipley [1991] 2 All ER 690
MUTUAL MISTAKE
A mutual mistake is one where both parties fail to understand each other. This is provided
by s. 13 of the LCA.
Two or more persons are said to consent when they agree to the same thing and in the
same sense.
When two persons do not agree to the same thing in the same sense they are said to
be at cross purposes and this is what is referred to as mutual mistake.
WHERE THE PARTIES ARE AT CROSS PURPOSES
In cases where the parties misunderstand each other'
s intentions and are at cross
purposes, the court will apply an objective test and consider whether a 'reasonable
man'would take the agreement to mean what one party understood it to mean or
what the other party understood it to mean:
Here there are two effects.
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i. If the test leads to the conclusion that the contract could be understood in one sense
only, both parties will be bound by the contract in this sense.
ii. If the transaction is totally ambiguous under this objective test then there will be no
consensus ad idem (agreement as to the same thing) and the contract will be void:
see these cases in the uploaded document on cases on mistake.
Wood v Scarth (1858) 1 F&F 293
Raffles v Wichelhaus (1864) 2 H&C 906
Scriven Bros v Hindley & Co [1913] 3 KB 564
REMEDY
If the contract is void at law on the ground of mistake, equity "follows the law" and
specific performance will be refused and, in appropriate circumstances, the contract will
be rescinded. However, even where the contract is valid at law, specific performance will
be refused if to grant it would cause hardship. Thus the remedy of specific performance
was refused in Wood v Scarth (above).
A recent case is:
Nutt v Read (1999) The Times, December 3.
MISTAKE RELATING TO DOCUMENTS

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NON EST FACTUM (it was not my deed)
As a general rule, a person is bound by their signature to a document, whether or not they
have read or understood the document: L'Estrange v Graucob [1934] 2 KB 394.
However, where a person has been induced to sign a contractual document by fraud or
misrepresentation, the transaction will be voidable.
Sometimes, the plea of non est factum, namely that 'it is not my deed'may be available.
A successful plea makes a document void. The plea was originally used to protect
illiterate persons who were tricked into putting their mark on documents. It eventually
became available to literate persons who had signed a document believing it to be
something totally different from what it actually was. See, for example:
Foster v Mackinnon (1869) LR 4 CP 704
The use of the rule in modern times has been restricted. For a successful plea of non est
factum two factors have to be established:
(i) the signer was not careless in signing; and
(ii) there is a radical (fundamental) difference between the document which was
signed and what the signer thought he was signing.
The following decision of the House of Lords is the leading case on this topic:
Saunders v Anglia Building Society (Gallie v Lee) [1970] 3 All ER 961
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Note: Because of the strict requirements, it may be better for the innocent party to bring a
claim based on undue influence.
CAPACITY TO CONTRACT/ COMPETENCY TO CONTRACT

See s. 10 of the LCA. See also s. 11 of the same law.
According to section 11 a person who is legally allowed to enter into a contract is he who
belongs to the age of majority and who is not insane.
In Tanzania, the age of majority Ordnance, cap 431 age of majority is 18 years.
Q. Who is the person of an unsound mind?
According to s. 12 (1) of the LCA describes a person of unsound mind by way of
syyllogism.
The section provides specifically that:
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;
i. Understanding it
ii. capable of forming a rational judgment to its effect upon his interests.
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If this is the fact then, the person who is not of sound mind and does not belong to the age
of majority is not competent to contract.
EFFECT IF MINOR OR INSANE ENTERS INTO CONTRACT

By s. 11(2) if the minor or the insane has entered into contract the contract is void.
Though the law restricts these persons to enter into contracts, in the present life situation
we are living, the matter of entering into contracts is unavoidable. People of all walks of
life do get themselves bound in contracts; majors as well as minors, sane as well as the
insane. Think of a man who is mentally challenged who goes to a shop offering to buy
something. Think too of a small boy who buys an exercise book for school.
This does not end with the practices of buying only; in present day desperate life situation
where killer diseases such as AIDS leave children orphaned, we see a lot of them
roaming the streets selling various items to elders etc.
The ultimate question is:
WHAT IS THE LEGAL EFFECT OF THESE CONTRACTS?
By s. 11(2) of the LCA the simple answer would be that they are void. But taking a
more concerned look into the matter you may find that, this kind of contracts have a
greater effect just as much as they are irresistible in our daily life. Since the minors and
the insane are not legally allowed to contract, when there is a dispute, the adults who deal
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with them would then be economically the losers. The business activities would always
be at this risk of losing when they deal with the forbidden groups.
See for instance in Cowern v Nield (1912) 2 KB 419
Nield was minor who sold hay and straw. He received cash from Cowern in consideration
for his promise to deliver to him the hay and straw but he subsequently failed to so
deliver the goods. Cowern sued him for recovery of the purchase price from the minor for
the goods he failed to deliver.
The court held that: the minor was not liable to repay the money
Q. Should the owners of the shops opt for an absolute refusal to dealing with them?
The law provides for this situation.
On minors:
Though the minor is completely not liable on contracts, he is, both at common law and
under the law in Tanzania, liable if he enters into the so called arrangements resembling
contracts known as quasi-contracts.
This liability is only when the minor enters into contracts for necessaries (goods suitable
to the condition in life of an infant or minor or other person an to his actual
requirement at the time of sale and deliver y 9) and not other wise.
s. 4 of the Sale of Goods Ordinance provides, among other things, as follows:
9
see s. 4 of the Sale of Goods Ordinance.
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where necessaries are sold and delivered to an infant, or minor, or to a person by
reason of mental incapacity or drunkenness is incompetent to contract, he must pay a
reasonable price therefore
This section does not mean the minor is liable on contract. It only imposes a liability on
the minor to pay a reasonable price for goods he has enjoyed. And by s. 68 of the contract
Act another liability to reimburse the provider from the property of the minor or any
person, is imposed.
This means the person who supplies the goods to the minor is entitled to two things;
i. The reasonable price or
ii. Reimbursement form the property of the minor (if he can not pay the reasonable price
and has this property).
The condition here is that the goods must be necessaries and must be provided when the
minor is actually in requirement of them.
In Nash v Inman (1908) 2 KB 1
Inman the minor, whose father was reach, ordered expensive clothes from Nash the tailor.
Held: The court held that, though the clothes were suitable to the minors condition in
life, these goods were not necessaries because the minor was well provided with clothes
by his rich father.
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Therefore according to s. 4 of the sale of goods and s. 68 of the LCA provide a separate
set of liabilities on the minor apart from contractual liability. However always remember
to answer the following things before you decide to deal with a minor;
i.
Are the goods or services necessaries?
In order to be necessaries they should be:

(a) suitable for his condition in life
(b) he must be in actual requirement of them at the time you deal with him.
On the insane:
s. 12(2), the law partly allows a person of an unsound mind to enter into contract in that;
i. if he usually is of unsound mind, but occasionally, of sound mind i.e. for some insane
persons there are times when they are sane, it is during this time that they are allowed to
enter into contract.
ii. the person who is most of the time of sound mind, at a time when he is of unsound
mind the law does not allow him to enter into contracts. See s. 12(3)
CONSIDERATION: its meaning

Make reference to Ss. 2(1)(d) s.10 as well as to s. 25 (1) of the same law.
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Meaning:
General meaning:
It is the price for the promise. Every simple contract must be supported by consideration
and under common law the basis of consideration lies in the legal maxim known as
QUID PRO QUO [nothing should go for nothing].
To understand it better see the following illustration

If A has promised to sell an item to B, B must give or promise to give something (this
something is what is known as consideration) for this promise.
These two promises given by each one of them form a consideration for each others
promise.
The most recent English to have given the most appropriate definition of the term
consideration is the Dunlop v Selfridge [1915] in which consideration was defined as :
an act or forbearance or the promise of an act or forbearance by one party to the
contract as the price of the promise made to him by the other party.
By s. 2 (1)(d) consideration is defined as:

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When at the desire of the promisor10
i the promisee or
ii any other person
(a) has done or abstained from doing
(b) does or abstains from doing
something
(c) promises to do or to abstain from doing
such an act or abstinence is called consideration for the promise.
TYPES OF CONSIDERATION
There are two types of consideration:
i.
executed consideration
This denotes the completed performance by one party to the agreement. This is usually
given when the promise is made in return for such performance of an act. Note the
present perfect tense used in s. 2 (1)(d) of the LCA, .has done or abstained form
doing
10
Its meaning is given by S. 2(1)(c) of LCA
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The act of buying and using the smoke balls by Mrs. Carlill, for instance, in the case of
Carlill v Carbolic Smoke Ball Co. is an example of executed consideration.
ii.
executory consideration
Consideration is executory when there is an exchange of promises to do or abstain from

doing some thing in future. Note the wording of s. 2(1) (d) of LCA, promises to do or
to abstain from doing
Illustration:
Juma offers to sell and deliver goods on 5th of July 2007 and Anthony promises to pay
when these goods are delivered.
RULES PERTAINING TO CONSIDERATION

i. Consideration need not be adequate (plenty) but it should be valuable (money or its
worth no matter how insignificant) and sufficient (in the eyes of the law: ie it should
be legal)
This means consideration need not be enough, it should only be sufficient before the law.
It must be something whose worth can be measured against money. In this case it does
not matter how small this value is.
If you have promised to give your house, which you bought for 2 million shs just for
2000 shs. It does not matter. The 2000 shs is enough for a consideration.
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In Chappel & Co v Nestle Co Ltd (1960)
Nestle who were specialists in making chocolates, among other products, offered to sell
some records to the public for 1.6 shillings + three wrappers of their chocolates for
each record.
Held: the chocolate wrappers despite their inferior value formed part of the
consideration for the records, the other part being made by the 1.6 shillings.
ii. Things of no value do not amount to consideration

If consideration can not be measured in terms of its value it can not amount to
consideration:
See the case of White v Bluett (1853) 23 LJ Ex 36
In this case a son promised to stop complaining to his father. This was held to be no
consideration because it could not be measured in value.
iii. Performance of an existing duty imposed by law does not amount to

consideration
When a person has a duty under the law to do or to abstain from doing something, he can
not be said to have furnished consideration when he does that duty.
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E.g. If you promise a police officer that you will give him some money if he arrests a
person who has committed an offence against you. Your promise to give him some
money can not be a consideration in exchange for the arrest he has done because he has
done what he was legally required to do.
See the case of Collins v Godfrey (1831) 1 B & Ad 950.
Godfrey promised to pay Collins, a witness, who was legally required by court to give
evidence if he so gave that evidence. Collins gave the evidence and sued Godfrey for the
promised money.
Held: the court held that he provided no consideration since what he did was done
under the requirement of law
iv. Performance of an existing contractual duty by one party in a contract can not be
consideration.
Under this arrangement there are two persons
A
E.g. Mary and Maria entered into contract in which Mary has to build Marias house for
one week. When only 2 days remain and the work does not seem to end, Maria promises
to give Marry extra money to finish the job on time and she so does finish on time.
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Her finishing the job in time is not consideration, since she had that duty under the
contract.
See Stilk v Myrick (1809) 2 Camp 317
Some sea men deserted a ship. The Captain promised the remaining men an extra
pay if they finished the journey. They were not given the extra pay and they sued
The court held that: they could not be paid the extra money since they did nothing more
than what they were legally required to do.
However, if there was practical benefit on the party offering the money, the act of
building on time by Marry and that of completing the journey by the sea men would be
consideration sufficient in the eyes of the law.
Illustration:
In Hartley v Ponsonby (1857) 1 QB 1 (CA)
Unlike in Myrick, here a number of sea men left the ship so many in number that the ship
was on the brink of subsiding. The remaining crew were offered extra pay if they did not
follow the others who deserted.
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Held: when the journey was completed the seamen could recover extra pay because they
did more than they were contractually obliged to do. Their act was consideration for the
promise of extra pay.
v. Performance of an existing contractual duty owed to a third party, is

consideration
Shadwell v Shadwell (1860) 9 CB NS 159 (Court of Common Bench)
Lancey Shadwell, who was engaged to be married to Ellen Nicholl, was promised a
payment by his uncle Charles Shadwell if he went through with the wedding. When the
uncle died, the executor stopped the payments on the grounds that Lancey, since he was
engaged with Ellen, he was contractually bound to marry her anyway, thus he had
provided no consideration to the late uncle for his promise only by doing so.
The court held that: the act of promising a third party that you will go through with the
contract is good consideration.
In Scotson v Pegg (1861) 6 H & N 295. the judges applied the principle in Shadwell.
New Zealand Shipping Co Ltd v A M Satterthwaite, The Eurymedon [1975] AC 154

(PC)
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A was bound under a contract with B to unload goods from Bs ship. Some of the goods
belonged to C, who promised not to sue A if the goods were damaged during the
unloading. It was held that this promise was bound to unload the goods under his contract
with B.
vi. consideration must not be past i.e. past consideration

Acts or promises by both parties must be exchanged at one time and must form the same
transaction. If Mammilla does an act now and after finishing Alice promises to give her
some money, the act by mammilla does not constitute consideration for Alice promise
since they happened at different times. This is what is referred to as the past
consideration.
The general rule is that past consideration is insufficient in the eyes of the law.
Illustration:
See Re Mc Ardle (1951)
A man and his brothers and sisters were the owners of a building. The man made some
improvements on the building and after he completed his brothers and sisters promised to
repay the costs he had incurred which they did not; the man sued them
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Held: Since the work had been undertaken before the promise was made it was past
consideration and past consideration is no consideration.
That past consideration is no consideration is a general rule. There are some exceptions to
it as follows:
i. The rules of past consideration do not apply to Bills of exchange e.g. negotiable
instruments usually a negotiable instrument is issued after a work has been done.
ii. Where the act done has been requested by the promisor.
This is the essence of s. 2 (i) (d) when at the desire (request) of the promisor the
promisee or any other person has done (these words suggest that the act has already been
done at the promisors request)
See ampleigh v Brathwait [1915] Hob 105
vii. consideration must move from the promisee.

Any person who seeks to enforce a contract must establish that he personally furnished
consideration to the other in that agreement. This suggests that, though consideration can
be given by a third party on behalf of a party to the contract, this consideration can not be
effective. See illustration below:
Legally effective consideration:
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A repairs Bs house in exchange for Bs promise to pay for As son college fees for one
year.
There are three parties involved here; A, B and C. the party who has furnished
consideration here is A and it is him only who can sue B for his failure to honour his
promise and not As son. This is what it means by the consideration must move
from the promisee. See the following case:
Tweddle v Atkinson (1861) 1 B & S 393
There were a couple who intended to marry. Their fathers promised each other to pay the
bridegroom (the husband to be) an amount of money. When the brides (wifes to be)
father died without paying the money he promised, the groom sued his executors for
recovery of the money.
The court held that: the groom was unable to enforce the promise since he had not
furnished consideration, even though the promise was made for his benefit.
THE DOCTRINE OF PRIVITY OF CONTRACT

The rule that consideration must move from the promisee, goes hand in hand with
another legal doctrine known as The doctrine of privity of contract. The privity doctrine
concerns the rights the parties under a contract have of suing and being sued on the
contract. Just like in consideration in which a person who has not provided consideration
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can not sue, the person who is not part to the contract (a stranger to the contract) can not
sue also.
The following cases illustrate how the doctrine works:
Beswick v Beswick [1968] AC 58 (HL)

By a written agreement, a nephew contracted with his uncle to pay his aunt 5 a week
after the uncles death. When he refused to pay the aunt sued, and The House of Lords
decided the case in favour of the aunt, on the grounds that she was the administratrix of
her husbands estate. It follows therefore that, if she had not been the administatrix of her
husband estate she would not have won the case i.e. if she had sued as wife of the uncle,
since she was not party to contract.
INTENTION TO CREATE LEGAL RELATION

S. 10 of the LCA does not provide for intention to create legal relation so as we saw
earlier the rules of law employed under this part are coined from common law. An
intention to enter legal relation is one of the elements that mark the nature of the binding
contract. For the purposes of the discussion under this party agreements are classified
under two groups namely;
i.
Domestic and Social arrangements and
ii.
Commercial arrangements
A. Domestic and social arrangements
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These arrangements are usually done by family members and extend to friends. The law
generally presumes that in agreements of this kind there is no, between the parties, any
intention to make a binding contract. To be a contract, an agreement must be made with
the intent that it be legally enforceable
See illustrations below:

Balfour v. Balfour, [1919] 2 K.B. 571 (Engl. C.A.).
There was husband and wife. The husband promises the wife an allowance (in amity), in
his absence to Ceylon (Sri Lanka). When the wife divorced the husband, he stopped
effecting further payment and the wife sued him.
The court was primarily concerned with the issue as to whether the promise of the
husband was intended to create legal relations.
It was held that: promises between wife and husband, alongside others, are not intended
to result into the contract, even though they may constitute consideration because the
parties did not intend that they be attended by legal consequences.
Comment: Any thing done out of Natural love and affection (i.e. when a couple is at
happy times) can not be said it was intended to make the parties legally bound.
Jones v Padavatton [1969] 2 All ER. 616
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It was between mother (Mrs. Johns) and her daughter (Miss Padavatton). The daughter
used to work abroad before the mother called her to return to Trinidad and Tobago and
asked her to pursue bar examinations in England on consideration that the mother would
pay her a monthly allowance during the whole course of her studies there. The daughter
failed and the mother stopped paying the allowances but instead she bought a house in
London and told the daughter to stay therein and collect rent from the tenants.
After sometime the mother took back her house and the daughter sued for the allowances
that the mother had promised but failed to pay.
The court held that: the mother could recover the house because the arrangement was
one falling within the category of domestic arrangements.
The presumption that domestic arrangements are not intended to create legal relation is in
law referred to as a rebuttable presumption i.e. it can be defeated by the following acts
i.
If the court has a reason to believe that the circumstances and the words
used in the domestic or social arrangement are to the effect that this
intention was intended by the parties.
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To be effective the circumstances and or the words must be that clear and unambiguous
so that the court can clearly read from them if there was any intention couched in them.
See the following case:

Parker v. Clark [1960] 1 All ER. 93
Mrs. Clarke asked in writing her niece Mrs. Parker to sell her matrimonial home and go
to live with Mrs. Clarke and her husband which was big enough to accommodate the two
families. The letter carried with it a promise that the Clarks would prepare a will which
would devise the house to Mrs. Parker who accepted the offer in writing also. They later
quarreled and the Parkers left. They sued for the promises
Although this was one of domestic arrangements the court held that:
(a) There was intention to form legal relation evidenced by the act of the Parkers
selling their home while relying on the enforceability of the promises.
(b) The changing of their will by the Clarks had an effect of intending the agreement
to be legally binding.
ii.
If there is reliance on and formalization of the arrangement between the

parties i.e. put the arrangement in writing.
Like the Clarks did by offering in writing and the Parkers who had relied on their promise
to do what they had done accepting in writing in the above case.
iii.
When a couple are about or have separated.
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See Merrit v Merrit [1970] 1W.L.R 1211
The couple had separated while there was an outstanding debt arising out of mortgage on
their matrimonial home. The husband told the wife if she discharged this debt he would
transfer the house to her. When the wife was done with discharging the debt the husband
refused to transfer the house to her as he had promise; he claimed theirs was a domestic
arrangement thus there was no intention to create legal relations.
The court held that: there was this intention to create legal relations since the general
presumption that there is no this intention is not available for spouses who are not living
together peacefully or are about to separate or have separated already.
iv.
where there is evidence of joint enterprise (activity) between the parties.
See Simpkins v pays [1955] 3 All ER. 10

There was an old woman who shared a house with her grand daughter and a lessee. They
collectively entered into a competition in some Sunday news paper using the name of the
old woman. Later when the name of the old woman won she refused to share out the
prize to others. Then the daughter and the lessee sued;
The court held that; the rest were too entitled to share the prize since their agreement
was intended to be legally binding, regard being had of the circumstances of the case.
B. IN COMMERCIAL AGREEMENTS
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Unlike in domestic and social arrangements where the law generally, presumes absence
of intention to create legal relation, the parties in commercial arrangements are presumed
to have intended the legal consequences unless the court finds that the terms of a
particular contract suggest otherwise.
See the following cases:
Rose and Frank Co. v. J.R. Crompton and Bros. Ltd., [1923] 2 K.B. 261 (Engl. C.A.).
In this case an English company entered into an agreement to sell carbon paper to a firm
in New York. The agreement, inter alia, expressly provided that:
This arrangement is not entered intoas a formal or legal agreement, and shall not
be subject to legal jurisdiction in the law courts
later J.R Crompton, the English Company withdrew from the contract and Rose and
Frank sued them for breaching the contract.
The court: the issue which the court dealt with was whether the parties in a
commercial agreement can expressly agree not to form legal relations for business
purposes?
The answer to this question was provided by the court thus:
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An Intent to form legal relations is implied in business matters, unless expressly
otherwise. In the present case the wording of the agreement made it clear that it was
not intended to be binding. It is thus un enforceable.
How ever if before the breach of the contract there were goods that were ordered and
supplied according to the terms of the contract, the ordering and subsequent delivery are
regarded by law as separate enforceable contracts of sale.
STANDARD FORM CONTRACTS AND EXEMPTION / EXCLUSION CLAUSES

In all simple contracts it is possible for the parties thereto to negotiate as to what should
be the terms of a particular contract.
The negotiation is however not possible when one party is economically stronger than the
other. The chances that there may be a fair negotiation and bargaining is so very
diminished.
For instance in the following situations:
i.
When the one party has a strong monopoly over supply of goods and
services. Take an example of any mobile telephone companies in Tanzania. It may not
be simple for an ordinary citizen to negotiate the terms with them.
ii.
Paucity in suppliers may cause the same situation.
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iii.
The party who needs to borrow money and the lender. Like the banker and his
customer.
Since there is no chance for a fair bargaining with these big, well established economic
ventures the ordinary or less strong folks find themselves entering into contracts based on
the terms that are set by them. You have either to accept or to reject them. These are what
are called standard form contracts.
Usually in these standard form contracts the maker may couple it up with conditions
whose effect may be to:
i. Exclude his liability (e.g. the company will not be liable)
ii. Partly accept liability while limiting damages
iii. Exclude or restrain remedies (e.g. the money is not refundable)
or any other condition to which the party wishing to enter into contract with them has no
say. These conditions are what are termed as Exemption clauses.
LEGALITY OF THE EXEMPTION CLAUSES

Originally the legality of exemption clauses is based on two common law tests as
follows:
(a) The clause must have formed part of the contract before it was signed and not
thereafter. If the terms are contained in the contract later they are not effective.
See Olley v Marlborough Court [1949]
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Olley lodged a room in a hotel. As he entered into the room fixed for him he found a
notice on the wall posted by the management in which they excluded liability arising out
of loss or damage to guests belongings. When his property was stolen he sued the hotel.
The court held that: the exclusion clause was ineffective because the contract between
them had been made at the reception desk.
(b) the clause must be clear and unambiguous, in any case it is ambiguous it will be
interpreted against the person who created it; this approach of the courts is what is known
as contra proferentem rule (in the manner that guards most the interests of the
victim not the maker)
One can face these terms under the following ways:
(i) if he enters into contract by signing a document in which the terms are contained, the
party signing is bound by every thing in it whether or not he read it. See
LEstrange v Graucob Ltd (1934)
She bought a machine by signing a document in which the vendors of the machine stated
in very small print that, any express or implied condition, statement or warrantyis
hereby excluded
The court held that by signing she was bound by these terms.
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NOTE: but if her signing was induced by fraud she would not have been bound.
See Curtis v Chemical Cleaning co. [1951]
Miss. Curtis took a wedding dress to the defendant Co. for cleaning. She was required to
sign a document which contained an exclusion clause which read the company is not
liable for any damage howsoever. The makers of the document told her that it only
excluded liability for damage to beads. When in the process of cleaning the document
was stained she sued.
The court held that the company misrepresented and the woman won.
(ii) if the terms are in a document that the party affected need not put his signature e.g. if
he is given a bus ticket, or receipts after buying something.
In this case the maker of the terms in that document must prove the following if he wants
them to bind the other party that he (the other party):
i. knew about these terms or
ii. should have known
that the document could be expected to contain such clauses
iii. He must prove that he has done everything possible to bring those terms to the
knowledge of the party he wished the terms to bind.
See Thomson v LMS Railway (1930)

Mrs. Thomson bought a train ticket on which there was a notice directing passengers to
the Railway company travel conditions on the companys timetable. One of the
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conditions excluded the company from liability arising out of injuries to passengers. Mrs.
Thomson could not read, when she was injured she sued the company.
The court held that: a ticket is one of those documents which should be expected to
contain terms and the company had taken reasonable steps to bring the terms to Mrs.
Thomsons notice by making the terms form part of the document i.e. on the back of the
ticket.
The requirement of doing every reasonable thing to bring the terms to the notice of the
other party is presumed not to exist if the parties have dealt on usual terms for over a
period of time (legally termed as a course of dealing) in which there is a similar
exclusion clause. In this case the other party as well as the maker of the clause are
presumed to know its existence thence there is no need to give prior notice.
DISCHARGE OF A CONTRACT
Once it has been made the contract is not infinite: it can be brought to an end by various
ways. This is what is referred to as discharge of a contract. In more explicit terms
discharge of a contract happens when the rights and obligations accrued under a contract
are extinguished. There are, thus, various ways by which the contract can be discharged.
i.
by performance (part V of the LCA)
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The general rule of contract law is that parties must completely and precisely perform
what they have undertaken to do (promises) or not to do under a particular contract,
unless there is a reason not to so perform it (s. 37 (1) of the LCA).
The parties to a contract must perform their respective promises, unless such performance is
dispensed with or excused under the provisions of this Act or any other law
If the party performs a contract in a different way from that by which he promised
to perform, the contract will not be discharged. Performance must be complete and
precise.
See also Re Moore & Co. and Landauer & Co. (1921)
The agreement was to deliver a consignment of canned fruits in cases of 30 tins each.
The seller delivered instead mixed cases packed in 30 tins and others in 24 tins.
The court held that: the buyer was entitled to reject the whole consignment. If it is
rejected, a contract is not discharged.
Death of the promisor does not excuse him from performance unless the contract
itself suggests so; otherwise his representatives will have to finish up his obligations
(see s. 37 (2) of the LCA). Only once a contract is performed correctly the parties are
thus discharged from their liabilities under such contract.
The words performance must be complete and precise mean that:

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The act you promised under a contract must be done at the right time and place as
agreed , short of that the contract of this kind is voidable at the option of the
promisee and the promisor will not be discharged.
See s. 55 (1) (2) of the LCA. See analysis of this section below
Subsection 1
When a party to a contract promises to do
a. a certain thing at or before a specified time or
b. certain things at or before specified times (series of events)
and fails to do any such thing at or before the specified time the contract, or so much of it
as has not been performed, becomes voidable at the option of the promisee if the
intention of the parties was that time should be of essence to the contract .
Subsection 2
If it was not the intention of the parties that time should be of essence of the contract
i. the contract does not become voidable at the failure to do such thing at or before the
specified time; but
ii. the promisee is entitled to compensation from the promisor for any loss occasioned to
him by such failure.
However, if a contract is comprised of a series of minor contracts (see s. 55 (1); the

words certain things at or before specified times, suggest a series of contracts promised
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to be done at specified times), each contract is discharged separately (at the time it was
discharged) e.g. delivery by phases, or construction of buildings by phases. Each phase is
discharged if accomplished completely and precisely.
See Ritchie v Atkinson (1808)

The contract of carriage was designed in such a way that the Mr. Ritchie, the transporter
was to carry goods and get paid per ton. When he failed to finish the rest of the goods Mr.
Atkinson refused to pay him claiming that he had breached their contract. Ritchie sued
him.
The court held: that he could recover the money for that part of the contract he had
performed.
Under the law in Tanzania (s. 55 (2)) Mr. Atkinson would be entitled to compensation for
any loss occasioned by Mr. Ritchie.
ii.
Discharge by breach
Breach of a contract happens when one side repudiates (rejects) his liabilities under that
contract. There are two types of breach classified according to the time the liabilities are
repudiated.
(a) if the repudiation is done at the time when performance of such liabilities is due it is
referred to as actual breach and
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(b) if the repudiation is done at the time before performance of such liabilities is due it is
referred to as Anticipatory breach
The innocent party under an anticipatory breach has two courses of action
i. he may treat the contract as at an end and claim for damages for breach or for
compensation for the party he has performed
see Hochster v De La Tour (1853) All ER Rep 12

Simple facts of this case
When De La Tour who had promised to employ Hochster with effect from 1st june
repudiated the agreement in May, the court held that Hochster had the right to sue from
the date the repudiation was done i.e. from May.
ii. he may continue to press for its performance until the due date arrives, if it passes
without such performance he may sue for damages
see the consequences of breach of contract at s. 73-s. 75 of the LCA.
iii.
Discharge by frustration
The contract can be discharged if it is frustrated; by frustration it means it is physically

impossible for a party under the contract to perform his obligations. It is physically
impossible for a party to perform his obligations under a contract if there is an
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occurrence of an outside event not caused by any party and which renders the
original agreement radically different from what it was agreed.
s. 56 (2) of the LCA incorporates the doctrine of frustration; it reads

A contract to do an act, which after the contract is made, becomes impossible, or, by reason of
some event which the promisor could not prevent, unlawful, becomes void when the act
becomes impossible or unlawful.
The events which may possibly frustrate contract are as follows:

i. if there is a subsequent physical impossibility
see Taylor v Caldwell [1863]
a music hall which was hired for music shows was burnt, it was held the contract was
frustrated.
ii. Subsequent illegality

see Chandler v. Bowden [1855]
iii. If the basis of the contract does not occur (if performance of a contract depends
on some event)
see Chandler v. Webster [1904]
The basis of contract was the coronation of the queen; it did not happen thus it was held
the contract was frustrated
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iv. Radical change in the commercial purpose of the contract
This is when there is an event which is such that because of which the parties are forced
to perform something that is different from what they originally intended.
See Metropolitan Water Board v Dick, Kerr & Co. [1918]
There was a contract of construction of a dam; the Government ordered them to
stop. The court held that there was frustration of the contract
How ever according to
Tsakiroglou Ltd v Noblee & Thorl [1962]

A contract is not frustrated merely because it is made more difficult to perform it
FRUSTRATION: ITS EFFECTS

A frustrated contract is a void contract; thus frustration brings a contract to an end.
The general rule is that, once a contract is frustrated
i. All the sums paid by both parties before the frustration are recoverable
ii. All the sums not yet paid should not be paid
See s. 65 of the LCA provides for the effects of frustration.

When an agreement is discovered to be void, or when a contract becomes void, any
person who has received any advantage under such agreement or contract is bound to
i. restore it or
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ii. Make compensation for it
to the person under the agreement from whom he received it. Provided that
where a contract becomes void by reason of the provisions of subsection 2 of s, 56 and a

party thereto incurred expenses before the time when that occurs in , or for the purposes
of the performance of the contract, the court may if it considers it just
i. allow such part to retain the whole or any part of any such advantage as aforesaid
received by him or
ii. Discharge him whole or in part from making compensation therefore or
iii. may make an order that such party recover the whole or any part of any payments or
other advantage which would have been due to him under the contract if it had not
become void.
The advantage or the payment should not be greater than the expenses incurred by that
part.
Read, Business Law, by Marsh & Soulsby (5th edition) Pg. 168-169
iv. Discharge by agreement

There are two ways by which a contract can be discharged by agreement in one of
the following ways:
i. by inclusion of a clause in the contract to that effect
For instance parties may agree that if either of them wishes to terminate the contract he
may do so within an advance of a stipulated time. Take an example of leases.
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ii. If there is a new contract entered by the same parties which is to the effect that it
discharges the former contract. This other contract must, however be supported by
consideration. Discharge of this kind is called discharge by accord and satisfaction
(accord refers to agreement and satisfaction refers to consideration)
See D&C Builders Ltd v Rees [1966]

Rees was under an obligation to pay some money to D&C for the construction work
carried out by him. When Rees refused to pay D&C accepted less amount of the money
owed in full satisfaction of the whole debt. Later D&C claimed the arrears and Rees
relied on the agreement by D&C accepting the lesser some in satisfaction of the whole
debt.
The court held that: since the agreement was not supported by consideration D&C could
claim the arrears.
See also s. 62 of the LCA

If the parties to a contract agree to
i. substitute a new contract for it or
ii. to rescind (cancel/ annul) or
iii. alter (change) it
the original contract need not be performed.
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3.0 SALE OF GOODS

Introduction to sale of goods law in Tanzania
The law of sale of goods in Tanzania is a slightly modified replica of the English law. All
the principles pertaining to sale of goods in Tanzania are reduced to one statute known as
The Sale of Goods Ordinance (Laws of Tanganyika, Revised Laws, 1955 Cap 214.)
However the application of this Law applies only to mainland Tanzania, in Zanzibar
the law applicable is the Contract Decree (Laws of Zanzibar, Revised Edition, 1959,
Cap 149). The sale of Goods Ordinance, Cap 214 came into being as a result of
application, in Tanzania, of The English Sale of Goods Act, 1893, Cap 71 which was a
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statute of general application in England as at the date of passing of the Tanganyika
Order in Council, 1920.
Due to this reason there is a little insignificant difference in the two statutes. The cases
decided in England basing on the English Act are useful in under this part.
3.1 Meaning and Nature of Sale of Goods Contract
By s. 3 (1) of the Sale of Goods Ordinance, a contract of sale of goods is defined as:
A contract of sale of goods is a contract whereby the seller

i. transfers or
ii.agrees to transfer the property in goods to the buyer for a money consideration, called the
price. There may be a contract of sale between one part owner and another
Thus the central feature marking the contract of sale of goods, according to this section,
is the transfer or agreement to transfer his property by the seller to the buyer.
Since the contacts for sale of goods, as the name it self suggests, are contracts, they are
also subject to the general principles of the law as provided by the Law of Contact Act.
Thus the legal principles which are provided by the Law of Contract Act are also
applicable in a contract of sale of goods; these principles are as follows:
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i. Free consent
ii. Capacity to contract
iii. Lawful consideration and object and lastly
iv. Intention to create legal relation.
The unique aspect as regards capacity to contract under the sale of goods contract can be
traced at S. 4 of the Sale of Goods Ordinance which reads as follows:
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 therefore.
Necessaries in this section mean goods suitable to the condition in life of such infant or
minor or other person, and to his actual requirements at the time of the sale and
delivery.
However, a contract for sale of goods has certain unique features (that are not provided
in the law of contract Act) such as,
i. transfer of title (ownership) to the goods,
ii. delivery of goods
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iii. Rights and duties of the buyer and seller,
iv. Remedies for breach of contract of sale,
v. conditions and warranties implied under a contract for sale of goods, etc.
These unique features are what form the substance of the provisions of the Sale of Goods
Ordinance, Cap 214.
THE EFFECT OF PASSING THE PROPERTY FROM THE SELLER TO THE

BUYER IN A CONTRACT OF SALE
Once the property has passed the contract is known as a sale. If
i. The transfer of such property is to take place later or
ii. If it is subject to some conditions which have to be fulfilled later the contract is called
an agreement to sell.
According to s. 3 (4) the agreement to sell will become a sale once the time elapses or
the conditions have been fulfilled.
s. 3(3) of the Sale of Goods Ordinance provides that:

Where under a contract of sale the property in the goods is transferred from the seller to the
buyer the contract is called a sale; but where the transfer of the property in the goods is to take
place at a future time or subject to some condition thereafter to be fulfilled the contract is called
an agreement to sell
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Since, according to the above sections it is evident that a sale is a contract just like any
other except for a few unique features; most of the legal tests necessary for a contract to
meet in order that it becomes valid will also apply to sales and agreements to sell.
FORMATION OF A CONTRACT OF SALE

Just like an ordinary contract, a contract of sale can be made by the following ways:
i. it can be made in writing with or without seal or
ii. The whole of it may be made orally or
iii. Part of it may be made orally and another part may be made in writing or
iv. It may be implied from the conduct of the parties
See s. 5 of the Sale of Goods Ordinance.
THE CONSIDERATION OF THE CONTRACT OF SALE

The definition of consideration is that provided under s. 2(1) (d) of the contract
ordinance. However, the specific name for a consideration under the current law is
provided under s. 3 (1) as a money consideration, otherwise known as the price.
HOW IS THE PRICE FIXED AND WHO FIXES IT?

According to s. 10 (1) and (2) of the Sale of Goods Ordinance
There are various ways by which a price can be fixed
i. by the contract or
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ii. may be left to be fixed in the manner there by agreed (eg. by valuation of a third party)
iii. may be determined by the course of dealing between the parties (in the usual way they
do business)
Subsection 2 provides another way in which price can be fixed if the above three are not
used;
The buyer must pay a reasonable price, and what is a reasonable price is a question of
fact depending on circumstances of each particular case.
This is how the consideration in a contract of sale of goods can be fixed.
NATURE OF GOODS SUBJECT TO A CONTRACT OF SALE

According to s. 7 (1) & (2),
The goods which form the subject of a contract of sale may be
i. existing goods that are owned or possessed by the seller or
ii. goods to be manufactured or acquired by the seller after the making of the contract of
sale (future goods)
3.2 CONDITION AND WARRANTIES

A contract of sale is usually present with a number of terms some of which are set in by
the parties to such contract while others are implied by the law.
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The word condition refers to any one of these terms which is fundamental to that contract
so that if it is breached the right to repudiate (reject) the contract and claim for
damages accrues to the promisee
Warranties: these are ancillary (supplementary) terms in the contract which if they are
breached only the right to claim for damages accrues to the promisee.
See the definition as provided by s. 2 the sale of goods act of Tanzania.

A warranty means an agreement with reference to goods which are the subject of
contract of sale, but collateral to the main purpose of that contract, the breach of
which gives rise to a claim for damages, but not a right to reject the goods and treat a
contract as repudiated.
WARRANTIES
S. 14 (b) and (c) of the SGA implies warranties as follows;
In a contract of sale, unless the circumstances of the contract are such as to show a
different intention, there is (b) An implied warranty that the buyer shall have and enjoy quiet possession of the
goods:
(c) An implied warranty that the goods shall be free from any charge or encumbrance
in favour of any third party, not declared or known to the buyer before or at the
time when the contract is made.
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All these warranties are concerned with the importance of the seller to have a good
title to the goods he is selling.
OTHER WARRANTIES under

Apart from the above two warranties mentioned by section 14, other warranties are
provided by s. 13 of SGA.
By subsection 1 warranties mentioned under this part are originally conditions to a

contract but they become warranties if the buyer either
i. Waives (puts them aside/ ignores) them or
ii. Decides to treat the breach of such condition as the breach of warranty (remember
when there is a breach of a warrant one can only claim damages; he can not repudiate the
contract)
CONDITIONS IN A CONTRACT OF SALE OF GOODS

Under the Sale of Goods Act of Tanzania, there are certain conditions implied by Ss. 15
17 and part of s. 14.
Section 15 (deals with implied conditions as to description of goods)

S. 15 reads thus:
Where there is a contract for the sale of goods by description, there is an implied
condition that the goods shall correspond with the description; and if the sale be by
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sample, as well as by description, it is not sufficient that the bulk of the goods
corresponds with the sample if the goods do not also correspond with the description.
If, according to the contract of sale, the goods ordered were to be of a particular
description the goods delivered must not be otherwise than described.
Illustration:
i. If, say you ordered a black car and red was delivered; or
ii. Seven cars and six were delivered or
iii. 1000 bags of maize of, say 100 kgs each, and 600 bags of maize weighing 100 kgs
and 400 bags weighing 80 kgs each were delivered.
Under this circumstance if what is delivered is does not correspond with the
description it is a breach of an implied condition (as per s. 15) therefore, you may
repudiate the contract.
SECTION 16 (PROVIDES FOR AN IMPLIED CONDITION AS TO QUALITY

OR FITNESS OF THE GOODS)
The general rule as to quality or fitness of goods under a contract of sale is that; the
seller does not have any obligation regarding the quality of the goods he sells except
under specified circumstances.
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According to this section any implied condition as to quality or fitness of the goods for
any particular purpose is limited only to the following conditions:
s. 16 (a) there will be an implied condition that the goods shall be reasonably fit for a
particular purpose only if
The buyer expressly, or by implication makes known to the seller that particular purpose
for which the goods are required, so as to show that
i. the buyer relies on the sellers skill of judgement

For this implied condition to exist the buyer must make known to the seller Expressely
or impliedly the purpose for which he requires the goods and not other wise.
Note, however that, when the purpose for which a particular product is required is
apparent, the purpose is implied. (there is no need for the buyer to provide it expressly)
The essence of this statement is that some goods do not have many uses so it is not
difficulty to know what their specific use is eg.
A lorry
Catapult
Clothes etc
In Godley v Perry [1960] 1 ER 36
A small child bought a toy plastic catapult which broke as he used it causing him to lose
his eye. He sued the seller and the court held that there was no need for the boy to
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make known to the seller the purpose for which he required the catapult because it
could simply be implied.
Grant v Australian Knitting Mills [1936] AC 85

The buyer bought underpants the use of which caused him dermatitis. The pants
contained a chemical substance which the manufacturers were supposed to wash away.
The court held that the buyer had impliedly made known to the seller the purpose for
which he bought the underpants (i.e. It was intended to be worn), the pants was held
to be not reasonably fit for that purpose.
s. 16 (b) there will be an implied condition that the goods shall be of merchantable
quality if the goods are bought by description from a seller who deals in goods of that
description (whether he manufactures them or not).
Simply merchantable quality mean , as fit for purpose or purposes for which goods of
that kind are commonly bought as it is reasonable to expect having regard to
i. any description applied to them
ii. the price if it is relevant and
iii. any relevant circumstances see Marsh and Soulsby pg. 188
The obligation that the goods shall be of merchantable quality does not bind the
seller if
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i. he brought the defects in the goods into the notice of the buyer before the contract is
concluded
see Bartlett v Sidney Marcus Ltd [1965] All ER 753
a car which was sold with a defective clutch, of which the seller informed the buyer,
was held to be of merchantable quality , though it cost the buyer more than he had
contemplated only
ii. if the buyer examines the goods before the contract is made as regards defects which
that examination ought to reveal.
Note if he does not examine the goods, the buyer according to this section will be bound
by the obligation that the goods will be of merchantable quality.
S. 16 (c) there may be implied conditions as to quality or fitness that are annexed by
usage of trade11
Note: section 16 en bloc is a sweeping provision; it includes all the goods that form the
basis of the contract as well as those which are supplied together with those goods under
the same contract of sale.
11
Any system, custom, or practice of doing business used commonly in a given place so that an
expectation arises that it will be observed in a particular transaction. The concept of trade usage
recognizes that words and practices in that area have specialized meanings in different areas of
business. Though these common understandings may not be set out explicitly in a written sales or
service agreement, the courts will generally employ them when construing a commercial contract.
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This means the implied conditions will include these other goods too.
See the following illustrations:
The soda companies usually supply soda in bottles which the buyer is supposed to return
to the company later, unless he buys them too. In this case the company is said to supply
soda and the bottles though the bottle is just used to simplify the delivery of soda which
is the subject matter of the contract of sale.
If the bottle is defective there can be breach of a contract, despite the fact that the soda is
just in good order.
See the case of Geddling v. Marsh [1920] 1 KB 668
Mineral water was sold to the buyer so that the buyer was required to return the bottles to
the manufacturer. When one of the bottles was defective (it burst) the buyer was injured.
He sued the manufacturers
The court held that the buyer could recover damages under s. 14 of the Sale of Goods
Act of England, 1893 (equivalent to s. 16 of the Sale of Goods Act of Tanzania) the
contract even though the bottle was not sold under the contract of sale.
See also Wilson v Rickett &Co. [1954] 1QB 598

In this case a bomb was supplied together with goods delivered under a contract of
sale of goods. When the bomb exploded the buyer sued the suppliers for damages.
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Suppliers: claimed that they supplied the bomb by mistake, since it was not part of the
goods sold.
The court held that the bomb had been supplied under that very contract, no matter how
erroneously.
Section 17 provides for a number of implied conditions under a contract of sale by

sample.
The section provides as follows
A contract of sale is a contract for sale by sample where there is a term in the contract,
express or implied, to that effect.
According to subsection (2) of this section, when there is a contract for sale by sample
there are the following implied conditions:
(a) There is an implied condition that the bulk (the whole mass of goods) shall
correspond with the sample in quality;
(b) There is an implied condition that the buyer shall have a reasonable opportunity of
comparing the bulk with the sample;
(c) There is an implied condition that the goods shall be free from any defect,
rendering them unmerchantable, which would not be apparent on reasonable
examination of the sample.
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In Godley v Perry [1960]1 All ER 36

A boy bought a catapult which snapped and took out his eye on his first use. The
shopkeeper from whom the boy bought the catapult had purchased the bulk by
sample from a whole seller, before he bought he had tested the sample, there was no
defect.
i. the boy could recover damages from the retailer for breach of ss. 14 (2) and (3) of
the Sale of Goods Act of England (equivalent to ss. 16 (b) and (c) in our Act.)
ii. also the court held that the retailer could recover damages from the wholesaler
for breach of s. 15 (2) (equivalent to s. 17 (2) of our Act)
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3.3 Transfer of Property in Goods

As it has been noted earlier that the contract of sale of goods is a contract by which the
transfer of property in the goods is effected from the seller to the buyer. This part
therefore is intended to establish the moment when this transfer of ownership happens in
a contract of sale of goods.
For this purpose the goods are categorized into two groups and thus the transfer shall be
discussed under those groups:
i. transfer of property in specific goods12 The general rule as to how this transfer is
done is provided by s. 19 of the SGA
According to this section
Where there is a contract for the sale of specific or ascertained goods, the property in
them is transferred to the buyer at such time as the parties to the contract intend it to be
transferred.
12
These are goods which at the time the contract of sale is made the buyer has seen and on which he has
agreed to buy.
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Subsection 2 of the same section states the factors that are useful in determining the
intention of the parties; these are terms of the contract, the conduct of the parties and
the circumstances of the case.
There are times when the parties do not, in the contract of sale, show at which time they
wish ownership in the goods to pass, when this happens s. 20 of the SGA becomes
useful. It provides rules which are useful to determine their intention
s. 20 (a) provides for the first rule
Rule I: When the goods are in deliverable state (when they are ready to be delivered to
the buyer)
Here the property will pass to the buyer at the time the contract is made
The rule reads:
Where there is an unconditional contract for the sale of specific goods, in a deliverable
state, the property in the goods passes to the buyer when the contract is made, and it is
immaterial whether the time of payment or the time of delivery, or both, be postponed.
S. 20 (b) provides the second rule
Rule II: when goods have to be made into deliverable state.
Here the property will not pass until some thing is done to put the goods in a
deliverable state.
Note: any time such thing is not done yet the goods will remain at the sellers risk until the
thing is done.
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The rule thus reads
Where there is a contract for the sale of specific goods and the seller is bound to do
something to the goods, for the purpose of putting them into a deliverable state, the
property does not pass until such thing be done, and the buyer has notice thereof.
S. 20 (c) provides the third rule

Rule III: When the seller is bound to weigh, measure, test or do any thing to the
goods for determining the price of them
The property does not pass unless such thing has been done.
The rule thus reads:
Where there is a contract for the sale of specific goods in a deliverable state, but the seller
is bound to weigh, measure, test, or do some other act or thing with reference to the
goods for the purpose of ascertaining the price, the property does not pass until such act
or thing be done, and the buyer has notice thereof.
s. 20 (d) provides for the fourth rule

IV Rule: When goods are delivered to the buyer on approval
This happens when the buyer wants to see first if the goods are suitable to his needs i.e.
wishes to approve them first.
In this case the property will pass only when the buyer
i. The buyer so approves or does any act that has the effect of adopting the goods.
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ii. has not approved and keeps retaining the goods, beyond the time allowed for him to
approve, without giving notice of rejecting them to the seller. If the seller had not allowed
him a fixed time for his approving the goods then the property will pass on the expiration
of reasonable time.
The section thus reads

When goods are delivered to the buyer on approval or "on sale or return" or other similar
terms the property therein passes to the buyer:(i) When he signifies his approval or acceptance to the seller or does any other act
adopting the transaction;
(ii) If he does not signify his approval or acceptance to the seller but retains the goods
without giving notice of rejection, then, if a time has been fixed for the return of the
goods, on the expiration of such time, and, if no time has been fixed, on the expiration of
a reasonable time. What is a reasonable time is a question of fact.
ii. Transfer of property in unascertained goods13

According to s. 18
13
These are those goods which the buyer has not seen and agreed on at the time when the contract of sale is
made.
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Where there is a contract for the sale of unascertained goods no property in the goods is
transferred to the buyer unless and until the goods are ascertained.
s. 20 (e) provides for Rule V

Rule V: Passing of property in unascertained goods.
Property can pass only when the goods are appropriated to the contract14
Read s. 20 (e)
TRANSFER OF RISK IN THE GOODS

At any time the property in the goods has never been transferred to the buyer the goods
remain at the sellers risk. This means that when the property has been transferred, it
passes with the risks.
The word risk may mean any of the following
i. theft
ii destruction
ii damage etc
There are three possible times the mentioned risks may happen:
a. if it happens before the contract is made:
The risk falls upon the seller and the buyer may recover damages if he fails to deliver
unless when the goods have perished and the seller is unaware of it.
See s. 8 of SGA
14
By appropriating gods to the contract it means setting aside or naming the goods after the buyer or do any
thing that will single out the goods as covered by the contract.
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Where there is a contract for the sale of specific goods, and the goods without the
knowledge of the seller have perished at the time when the contract is made, the contract
is void.
b. if it happens when the contract has been made but before the property passes
The risk falls upon the seller and the buyer may recover damages if the goods are not
delivered
How ever there is protection granted to seller by s. 9 of SGA

Where there is an agreement to sell specific goods and subsequently the goods, without
any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the
agreement is thereby avoided.
Rules of frustration apply to these two situations
c. if it happens after the property has been passed

According to s. 22 (1) the risk falls upon the buyer even when they are still in the
possession of the seller i.e. they have not been delivered. Unless under the following
circumstances:
i. 22 (2) if delivery was delayed by fault of either party; the risk will lie with such
party responsible for such delay
TRANSFER OF TITLE
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Title is only transferable to the buyer by the owner of the goods and if the seller is
not the owner then for title to pass he must have sold the goods either
i. under the authority of the owner or
ii. with the consent of the owner
Short of this the buyer can not gain a better title than the person who gave him.
This is a common law principle imbedded in the legal maxim nemo dat quod non
habet.
See s. 23 of SGA
Subject to the provisions of this Act, where goods are sold by a person who is not the
owner thereof, and who does not sell them under the authority or with the consent of the
owner, the buyer acquires no better title to the goods than the seller had, unless the owner
of the goods is by his conduct precluded from denying the seller'
s authority to sell.
3.4 Performance of Contract of Sale of Goods

Performance of a contract of sale of goods is effected by delivery of the goods by the
seller and acceptance and payment for the goods by the buyer. Delivery and acceptance
and payment for goods are duties of the seller and buyer respectively. See s. 29 of SGA
DELIVERY
i. Where are goods to be delivered?
The place of delivery is the sellers place of business See s. 31 of SGA
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ii. What if the seller delivers goods in wrong quantity or description?
Read s. 32 of SGA
The buyer shall either reject the whole of it or accept the whole of it. If it is in excess he
may accept the amount he ordered and reject the rest.
iii. can the goods be delivered in installments?

Read s. 33
The buyer is not bound to accept the goods delivered in installments unless they so
agree.
ACCEPTANCE
Read s. 37 of SGA
the goods are accepted by the buyer if
i. he intimates to the seller that he has accepted them or
ii. the goods have been delivered to him and he does any thing to the goods such that the
act is inconsistent with the ownership of the seller or
iii. when after the lapse of time he retains the goods without intimating to the seller that
he has rejected them.
Any thing beyond this is not deemed on the part of the buyer as acceptance.
RIGHTS OF UNPAID SELLER (s. 41 (1) (a) and (b))
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As long as the seller is not yet paid he has two rights arising out of the contract of sale of
goods; these rights are follows.
i. s. 41 (1) (a) right of lien on the goods;
This is the right to retain the goods for the price while he is in possession of them.
ii. s. 41 (1) (b)

The right to stop the goods in transitu (the seller has handed over the goods to a
transporter to take them to the buyer) after he has parted with possession of them.
iii. s. 41 (1) (c)

the right to resell the goods
iv. s. the right to repossess the goods

if there are Romalpa clauses
These were established in the case of Aluminum Industrie Vaasen BV v Romalpa
Aluminum LTD [1976] 1 WLR 676 CA.
These clauses are to the effect that, the supplier of goods on credit may express in
the contract of sale that title to the goods will not pass to the purchaser until they
are fully paid for.
This means that as long as the goods are not paid for, they remain the property of
the supplier despite the fact that they are in the possession of the company.
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AGENCY
NATURE AND PURPOSE OF AGENCY:
Agency relations are, generally, covered by Part X of the Law of Contract act, Cap 345.
Agency is not defined any where in the Act but s. 134 defines an agent as;
A person employed to do any act for another or to represent another in dealings

with third persons.
The word another in this section means the principle.
And the principle by the same section is defined as;

The person for whom such act is done or who is so represented.
From the above definitions of agent and principal, then, An Agency can be defined as:
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A legal relationship in which one person (agent) acts for another (principal) in a
business dealing with a third party.
CREATION OF AGENCY
One person can not act for another unless he has been given an authority to so act for
him. Thus, an agency is created by the principal giving an authority to an agent to do an
act or acts in business dealings with third parties.
Formation: An agency is a consensual relationship that may be formed by agreement,

by contract, or by law.
REQUIREMENT FOR THE FORMATION OF AN AGENCY

i. No formalities are required
ii. No consideration is required s. 137 of the LCA
iii. Consent of the parties is required
iv. Legal capacity.
The principle
The principle must have a legal capacity.
(a) If the principal lacks capacity the agency agreement is void or voidable. See s. 135 of
the LCA.
The section reads:
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Any person who is of the age of majority according to the law to which he is subject,
and who is of sound mind, may employ an agent.
(b) The agent too must have a legal capacity but only in as far as the principle and
agent are concerned; but to the third party any person even a minor can be an
agent.
See s. 136 of LCA
This means that an agent does not have to have legal capacity, since the act of an agent
is held to be the act of the principal. But this is true as long as it is between the principal
and third persons i.e. to third party a minor can be an agent. Otherwise an agent must be
of the age of majority and of sound mind. See s. 136 of the LCA.
Legal significance of this authority

Once an authority has so been granted, the acts of the agent can bind his principle. This
means that everything that the agent does within the authority granted are counted to have
been done by the principle himself and the principle will be liable for them.
The nature of authority

There can be an authority arising out of two different situations as follows:
i. Actual Authority (As between the principle and agent)
According to s. 138 of the LCA
The authority of an agent may be express or implied
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This is when the principle expressly or impliedly gives the agent the right to do an act
on the principles behalf.
Implied authority is also referred to as usual authority. This happens when it is

usual for a particular type of agent to carry certain functions, if the principle
appoints an agent of this type he is taken to have authorised such acts.
Illustration
For instance when you appoint a lawyer to represent you in a court of law, you are
considered to have authorised him to do any act associated with such representation
unless you expressly restrict him to do them.
ii. Apparent or ostensible Authority (as between the principle and third party)
Ostensible authority arises when at any time the principle gives the agent the
appearance of authority.
Thus there will be an apparent/ ostensible authority when an agent appears to the third
party to be acting within his authority. The act of the agent done in this situation will bind
the principle even if he is actually exceeding his authority.
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The following situation shows an example of the circumstances in which an agent may
appear to the third party to have power in respect of some things and thus appear to be
acting within his authority.
For instance
When the principle did not want the agent to act on usual authority but he has not
openly restricted him not to act on them. The restriction can be done by the principle
telling the agent simply not to do certain acts which if he does the agent will be liable to
the principle.
Effect of restriction
If this restriction is not known to the third party who acts in good faith the principle
will be bound by the third party.
See Folkes v King [1923]

The agent was given an authority to sell a car for the price not below
575. when he
sold it at less than the price, the buyer obtained good title because the agent
appeared to the buyer to have authority to sell that car at such price.
Why?
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Because the type of agency in which the principle put the agent to act usually, in the eyes
of the public, carries with it the powers to do the main act plus certain other associated
acts too.
The principle would not be bound if he disclosed to the world at large his restriction so
that every body has knowledge of it.
CLASSES OF AGENTS:
(1) Universal Agents/ General Agent (GA):
These are those who are authorized to transact every kind of business for the principal.
They usually hold a broad authority to act, e.g. they may hold a power of attorney (also
known as a mandate in civil law jurisdictions) or have a professional relationship, say, as
lawyer and client.
(3) Special agent:

Are authorized to conduct either only a single transaction or a specified series of
transactions over a limited period of time.
(4) Gratuitous agent:

One who is acting without compensation
(5) Del credere agent:
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One who agrees to guarantee the obligations of a third party (or parties). Example an
agent who sells products for a principal to a third party undertakes to guarantee to
principal that this third party will pay for the goods. In other words it can be said that a
del credere agent, besides acting for the principal, he also acts for the third party but as
his guarantor.
(6) Employee:
Agent whose actions are under the direct control of the principal (employer).
Traditionally known as a "servant."
(7) Independent contractor:

Agent who is only liable for delivering a finished product to the principal
MODES OF FORMATION OF AN AGENCY
1. Agency by Agreement:
An agency relationship based on an express or implied agreement that the agent will act
for the principal.
2. Agency by Ratification:
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This happens when the principal confirms an act or contract performed or entered into by
another person on his behalf, without his authority, to act as his agent. See s. 148 of the
LCA.
This implies that when an agent does an act without authority, the Principal may ratify
the transaction and accept liability on the transactions as negotiated. Ratification may be
express or implied (see s. 149 of the LCA) from the Principal'
s behavior, e.g. if the
Agent has purported to act in a number of situations and the Principal has knowingly
acquiesced, the failure to notify all the concerned of the Agent's lack of authority is an
implied ratification to those transactions and it is regarded also as an implied grant of
authority for future transactions of a similar nature.
3. Agency by Estoppels:
If a principal holds out to a third party that another is authorized to act on the principals
behalf and the third party deals with the other person accordingly, the principal may not
later deny that the other was the principals agent for purposes of dealing with that third
party.
4. Agency by Operation of Law: this is when the law presumes that a certain
relation is that of agency.
Agencies recognized by courts e.g., family relationships, Emergency situations in the
absence of any formal agreement, confirmation, or act or omission by the principal that
implied the agents authority
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5. Agency by necessity
Any person may be an agent by acquiring an authority from the pressure arising out of
necessity. This usually happens when the agent has been put in control of other persons
property. There are four conditions to it
i. The agent must have been placed in control of principals property.

ii. There must be a situation which puts the property in danger.
Eg for instance, when a person who has been put in control of the property is a
transporter and the property is perishable goods.
iii. it must be impossible for the person in control to seek instructions from the
owner in time.
iv. If the person in control of the property does any thing, he must do it in good faith
and it must be done in an attempt to protect the property.
RELATIONSHIP BETWEEN PRINCIPAL AND AGENT

Their relationship is founded on the obligations that each one of them has to the
other. The obligations of the agent are the rights of the principle and vise versa.
AGENTS DUTIES TO THE PRINCIPAL

i. Performance:
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An agent implicitly agrees to use reasonable diligence and skill (except for a specialist,
who is held to a higher degree of skill) in performing the task in its entirety. See s. 164 of
the LCA.
ii. Notification:
An agent must notify the principal of all matters that come to the agents attention
concerning the subject matter of the agency when ever he faces any difficulty. See s. 166
of the LCA.
iii. Loyalty:
An agent must act solely for the benefit of his or her principal, and not in the interest
of the agent or a third party. Moreover, any information or knowledge obtained in the
course of the agency is confidential.
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iv. Obedience:
An agent must follow all lawful and clearly stated instructions of the principal. See s.
163 of the LCA
an agent is bound to conduct the business of his principal according to the

directions given by the principal or, in absence of any directions , according to the
custom which prevails in doing business of the same kind at the place where the
agent conducts such business. When the agent acts otherwise, if any loss be
sustained, he must make it good to his principal, and, if any profit accrues, he must
account for it.
Analysis of this section:
1. An agent must follow his principals instruction while doing the business of the
agency. If there is no such instructions then,
2. He must abide by the custom of his area with regard to the type of business he is
doing (this means he must follow what other people usually do while conducting
business of the same kind)
3. The effects when the agent acts otherwise than provided by this section.
(a) if in so acting otherwise, the agent incurs loss he must make it good to his
principal.
(b) if in so acting otherwise, the agent makes profit, he must account for (give an
explanation of) such profit to his principal.
iv. Accounting:
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Unless otherwise agreed, an agent must keep and make available to the principal an
account of all property and money received and paid out on the principals behalf,
including gifts received from third persons. See s. 165 of the LCA, see also s. 170.
and s. 170 reads

the agent is bound to pay to his principal all sums received on his account
PRINCIPALS DUTIES TO THE AGENT

i. Compensation:
When a principal requests certain services from an agent, the principal must pay the
agent, in a timely manner, for those services rendered. See s. 175 of the LCA.
ii. Reimbursement:
Whenever an agent disburses sums of money to fulfill the principals request or to pay for
necessary expenses incurred in the reasonable performance of his or her duties, the
principal must reimburse the agent.
iii. Indemnification:
Subject to the terms of the agency agreement, the principal must compensate, or
indemnify, the agent for liabilities arising from the agents lawful and authorized acts on
the principals behalf. Indemnification can only be done if the agent does in good faith
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lawful acts whose consequences he suffers. It does not matter if the act causes
consequences to third persons. See s. 174 and 175 of the LCA.
And s. 175 reads
iv. Cooperation:
A principal must cooperate with the agent and assist the agent in performing his or her
duties.
Safe Working Conditions: A principal must:

(a)
Provide its agents and employees with safe working premises, equipment, and
conditions, and
(b) Inspect working conditions and warn agents and employees of unsafe areas.
If the agent sustains any injuries at the place of work and in respect of the whole
agreement of agency the principal is liable for neglect to compensate him. See s. see s.
177 of the LCA.
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The principal must make compensation to his agent in respect of injury caused to
such agent by the or want of skill.
AGENTS REMEDIES
Most principal-agent relationships are governed by some actual or implied contract;
therefore, most of the remedies available to an agent are the same available to any
plaintiff in a breach of contract case. See part VII of the Law of Contract Act on
consequences of breach of contract (s. 73-s.75)
Additionally, in the event that the principal violates a duty owed to the agent, the agent
may
(1) withhold further performance, and

(2) demand an accounting.
PRINCIPALS REMEDIES
In the event that the agent violates her fiduciary duties to the principal, the principal may,
in addition to any remedies provided for in his contract with the agent, seek:
Constructive Trust:
Anything an agent obtains by virtue of the agency relationship belongs to the principal;
therefore, a principal may sue to recover any benefits retained by the agent.
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Avoidance:
In the event that the agent breaches her contract with the principal, the principal may
elect to avoid any contract he entered into with the agent. S. 180 LCA when the principal
declines to recognize the agents unpermitted act.
Indemnification:
To the extent that the agents breach causes harm to some third party, who then sues the
principal, the principal may seek indemnification from the agent. See s. 184 of the LCA.
in cases where the agent is personally liable, a person dealing with him may hold either
him or his principal, or both of them, liable.
This section is subject to s.185 which bars a person who induces either the principal or
the agent that he will not sue him but the other from suing he whom he so induces.
RELATIONSHIP OF THE PRINCIPLE AND THIRD PARTIES

For the purpose of this discussion, principals can be categorized into
i. Disclosed and
ii. Undisclosed Principals
(1) Meaning and liability of the disclosed principal

The disclosed principal is the principal whose existence and identity is well known to
third party.
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A disclosed principal is liable to third party on contracts entered into with authorized
agent as if the contract had been entered into and the acts had been done by the principal
in person. See s. 178 of the LCA.
Contracts entered into through an agent, and obligations arising from acts done by
an agent, may be enforced in the same manner, and will have the same legal
consequences as if the contracts had been entered into and the acts done by the
principal in person.
(2) Meaning and liability of an undisclosed principal see. S. 183 (1) of the LCA.
Undisclosed principal is he who the third party, while entering into contract with
the agent, neither knows of his existence nor his identity. Under this circumstance both
the principal and the agent are liable to this third party on contracts. See s. 183 below.
Upon learning of principals existence and identity, third party must elect whether to hold
principal or agent liable.
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LIABILITY OF AN AGENT ON CONTRACTS WITH THIRD PERSONS
The agent is not normally liable since his acts are presumed to be those of the principal as
long as he acts within the authority granted except under the following circumstances;
(1) Where the principal, third party and agent intend agent to be a party see s. 183
(2) of the LCA. This can happen when a third party has entered into a contract with the
agent not knowing that he is neither an agent nor the principal i.e. the third party just
thought he was contracting with an ordinary person in his individual capacity, and the
principal discloses himself before the third party has fulfilled the contract, this section
allows the third party to refuse to fulfill the terms of the contract if he can show that he
would not have entered into the contract had he known that the agent was not the
principal, or rather had he known earlier who was the principal.
Impliedly, the provision suggests that if the agent does not refuse to fulfill the terms
of the contract despite his lack of knowledge of the principal, or even after the
principal has disclosed himself, then he has intended the agent to be a party to that
contract.
An analysis of this section is that:
The third party must enter into contract with the agent.
The third party must not have known that the person with whom he entered
into the contract was neither an agent nor the principal.
The principal must disclose himself after the contract has been signed
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The third party may refuse to honour the terms of the contract.
(2) Where agent acts beyond authority of his principal.

Under this circumstance, there are two or more situations;
(a) when an agent does more than his principal authorizes him to do, if the whole of
the act he has done (which includes that part which is authorized together with the
unauthorized part), is in such a way that the authorized part of the act can be
separated from the unauthorized part, the authorized part that the agent has done binds
between him and his principal. See s.179 of the LCA. The authorized part will be the
act of the principal and the principal will be liable.
(b) When the agent does any act or omission beyond the authority of his principal
and circumstances are such that the whole of the act comprises of permitted and an
unauthorized act, if the permitted act can not be separated from the unauthorized act, the
principal is not bound to recognize the transaction. This means if the principal declines to
recognize it the agent will personally be liable. See s. 180 of the LCA.
TERMINATION OF AGENCY
Either party may terminate the agency relationship at any time, even if this breaches a
contract between them.
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A. The circumstances that may cause an agency to terminate are as provided by s.
153 of the LCA as follows:
s. 153 of the LCA provides circumstances under which an agency can be revoked;
An agency is terminated by the principal revoking his authority; or by the agent

renouncing the business of the agency; or by the business of agency being completed;
or by either the principal or agent dying, becoming of unsound mind or being adjudged
bankrupt under the provisions of any law for the time being in force relating to
bankruptcy
An analysis of this section discloses the following circumstances which terminate the
agency:
a. Revocation of an agents authority by the principal (by the principal revoking his
authority). After the principal has revoked his authority he must compensate the
agent for such revocation.
Note: that revocation of an authority granted to the agent can not be done when the
agent has exercised the authority in partly, see section 156 of the LCA.
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b. Expiration of the term of the agency. This is true for agencies that have been created
for a specified period of time.
c. Fulfillment of the purpose of the agency (by the business of agency being
completed)/performance
d. Renunciation (rejection or abandonment) of authority by the agent (by the agent

renouncing the business of the agency)
Renouncing the business of agency refers to a breach of the agency contract and if it is
done prior to the expiration of its term or contrary to its provisions.
Effect of this breach: the no breaching party has remedies provided by contract law; see
section 157 of the LCA (it provides for compensation for revocation by the principal
or renunciation by the agent.)
REQUIREMENT OF NOTICE BEFORE REVOCATION OR REJECTION
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Both revocation and renunciation require the giving of a reasonable notice other wise
the party that renounces or revokes must make good the damages that may be caused by
his act to the other.
e. Death of the principal or agent (by either the principal or agent dying)
f. Insanity of the principal or agent (by either the principal or agent becoming of
unsound mind)
According to s. 161 LCA When an agency terminates by the death or insanity of the
principal a duty is placed upon the agent to take reasonable steps to protect and
preserve, on behalf of his principals representatives, all the interests of his principal
that were entrusted to him.
OTHER CIRCUMSTANCES ARE AS FOLLOWS:
a. Loss or destruction of the subject matter of the agency.
b. Change in business conditions that would make an agent believe that the principal
would want the agency terminated.
c. Change in the law that makes the agency relationship illegal.
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d. Disloyalty of the agent if an agent breaches his duty of loyalty to the principal, by
acquiring, for example, interests adverse (unfavourable) to the principal without the
principals knowledge, the agency is terminated.
e. War between the principals and agents countries.
f. Impossibility of performance, Frustration.
AGENCIES WHICH CAN NOT BE TERMINATED

Some agencies can not be terminated by the causes that have been mentioned above,
unless there is an express agreement to that effect. These are called Interminable
agencies or agencies coupled with interest. Usually interminable agencies are those
agencies in whose property (the subject matter of agency) the agent has some
interest.
The interest of an agent generally can be either specific or beneficial.
An agency of this type can not be revoked or be terminated by the principal or by

the principals death or incapacity.
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This is the kind of agency provided under s. 154 of the LCA.
s. 154 reads:
Where the agent has himself an interest in the property which forms the subject
matter of the agency, the agency can not, in the absence of an express contract, be
terminated to the prejudice (unfairness) of such interest.
Comment:
The section protects the rights of the person whose interest in the subject matter of
agency is likely to be affected by the termination of such agency. But the law does
not bar such termination only in as far as the parties (principal and agent) have,
prior to termination, entered into an express contract allowing such termination,
under this circumstance it does not matter whether or not such termination will
affect the interests of the agent in the subject matter.
An interminable agency or agency coupled with an interest in a simple analysis,

therefore, has the following elements:
(i)
It is first of all a special type of agency relationship.
(ii)
This type of agency is irrevocable by the principal.
(iii)
Not terminated by the death or incapacity of either the principal or the agent.
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(iv)
Terminates only when the agents obligations are performed or if the agent
and principal had drawn up an agreement permitting termination despite the
nature of the agency.
D. Effect of Termination
1. Actual authority of the agent ceases. While actual authority ceases apparent authority
may or may not cease on termination of the agency depending on the nature of such
termination as explained below.
2. Apparent authority:
(a) Where apparent authority ceases: it will come to an end if the agency is terminated
by death, insanity, or bankruptcy of the principal or destruction of the subject
matter.
(b) Where apparent authority continues: apparent authority will continue if the
agency is terminated by any other means (besides those mentioned in (a) above) until
the third party receives notice of the termination. As long as the principal has
terminated the agent but he has not brought notice to third parties the agent will continue
to be so (his authority will be known as ostensible or apparent authority) See s. 160 of
the LCA.
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The termination of the authority of an agent does not, so far as regards the agent, take
effect before it becomes known to him, or so far as it regards third persons, before it
becomes known to them.
See also M/S SOUTHERN HIGHLAND v M/S TANZANIA OXYGEN LIMITED

(1989) TLR 187 (HC) it was held in this case that:
In terms of section 160 of the Law of Contract Act, Cap. 345 termination of the
authority of an agent does not so far as regards the agent, take effect before it
becomes known to him. The onus of proving that such notice of termination of the
agency had come to the knowledge of the agent, in this case the plaintiff company, rests
with the principal, in this case the defendant company;
In another case; MERALI HIRJI AND SONS v GENERAL TYRE (E.A.) LTD (1983)
TLR 175 (HC)
In this case the respondent had entered into an agency contract with the appellant for sale
of motor vehicle tyres. This relationship persisted for five years but then abruptly, the
respondent, unilaterally terminated the five-year-old commercial relationship without
notice and without giving any reason for doing so.
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Makame J. held that, so long as the appellant was not a commission agent, he was
entitled to a reasonable notice of the termination of the contract and that the
respondent was legally obliged to give such notice.
Therefore notice to the agent when the principal terminates the agency is very
important. This notice must come to the knowledge of the agent and in case of any
dispute the principal will be required to prove that this knowledge really came to
the notice of the agent.
(1) Actual notice is required for creditors and persons who have at some time dealt
with the agent. Actual notice is that which in order to be properly given a person is
notified by letter or in person.
2) Constructive notice is required for other third parties (besides creditors or those
who have at some time dealt with the agent). For them notice in a newspaper or
public record is presumed to be legally sufficient notice.
Conclusively these are the general principles relating to agency, therefore when the
bank acts as an agent for the customer he must observe the same principles
otherwise they be liable in each circumstance under which the principal in an
agency relationship is liable.
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5. COMPANY LAW
5.1 Definition and Nature of the Company
An organization of individuals conducting a commercial or industrial enterprise. A
corporation, partnership, association, or joint stock company
In order for a company to operate legally it must be registered (incorporated)

according to the law of a particular country relating to companies.
The law relating to companies in Tanzania is THE COMPANIES ACT, CAP 212
OF 2002
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According to s. 2 of this law a company is defined as:

A company formed and registered under this Act or an existing company.
The company under this Act can be formed by the existence of the following facts
i. There must be two or more than two persons who wish to establish a company
ii. These persons must subscribe their names to a memorandum of Association of the
company
iii. They must, by following the requirement of the Companies Act, register the company.
Thus s. 3(1) of the Companies Act provides that:

Any two or more persons, associated for any lawful purpose may by subscribing their
names to a memorandum of association and otherwise complying with the requirements
of this Act in respect of registration form an incorporated company, with or without
limited liability.
After it has been registered a company is issued with a special certificate known as
certificate of incorporation and after this the company is considered incorporated
and it is ready to do business.
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Though a company is established by people, it is actually a different and separate entity
from the persons responsible for its establishment. This is what is known as the concept
of corporate personality of a company. This is the effect of incorporating a company and
in company law is known as the veil of incorporation
5.2 Promotion and Registration of Company (s. 450----of companies act.)

A. Promotion
The concept of promotion of a company is not provided for in the companies Act, 2002.
However, the meaning can be obtained from various case laws in terms of the person who
is responsible for such promotion; this person is called a promoter
In the case of Twycross v Grant (1877)

A promoter was defined as a person who undertakes to form a company with
reference to a given project and to set it going and who takes the necessary steps to
accomplish that purpose.
This necessarily implies that, before a company is registered, there are a number of tasks
related to such establishment and thus the people who set them going and who render
them accomplished are the ones referred to as the promoters .
s. 50 (7) of the Companies Act, excludes from the definition of promoters such
persons who act in professional capacity for the persons who are engaged in
procuring the formation of a company (i.e. the promoters).
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The contribution of these people is just in helping the main actors who are the actual
promoters in the whole process of forming a company. These people are like the
lawyers who give counseling on the relevant laws, or the accountants who advise
them on matters pertaining to accountancy.
DUTIES OF PROMOTERS
It should be understood that the position of a promoter in relation to promotion of a
company is not one of trustee, agent, and employee nor is it one of independent
contractor.
The promoter in any thing and at any time he deals with the company he stands in a
fiduciary relationship15 with that company.
The nature of Fiduciary relationship.

The fiduciary relationship between the promoter and the company requires the promoter
while dealing with the company to observe the following:
i. He must, always, act in the best interest of the company and not to his own interests. In
what ever he does the welfare of the company must be prioritized.
15
Is a position which entails utmost trust and competence.
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ii. Though the promoter, in the whole activity of promotion, is not prohibited from
making and retaining profit, he must not make a secret profit from offering for sale to
the company, his own property.
iii. if a promoter has any interest or makes any profit out of any business transactions has
engaged himself with the company, he has one principle duty to disclose to the
independent board of directors and or members of the company such interest or profit.
The disclosure must be such that the promoters every interest is made known to the
company.
If the directors or the members complete the purchasing of that property, the law relating
to companies presumes that the company has agreed that the promoter gain profit from
the sale.
NATURE OF DISCLOSURE
i. it must be a full disclosure of interests including the direct and the indirect
interests.
In Gluckstein v Barnes (1900)
A promoter had two interests out of selling a property to the company. He had once
purchased this property from the same company. While it was in his possession
By reselling it to the company he gained two profits
i. The principal profit arising out of resale at a higher price than he had previously
obtained it.
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ii. Additional profit arising out of the mortgage that was to be repaid by the
company (i.e. the property passed to the company subject to this mortgage).
The promoter only disclosed the first interest and nothing was disclosed of the
second interest.
The court held that: the promoter failed to make proper disclosure of his interests
by hiding the second interest.
ii. Disclosure of profit does not mean to account for the profit.
The promoter is not required by law to account for his profit but merely to disclose it.
This was held in the case of Omnium Electric Palaces v Baines (1914)
In this case the promoter wished to sell a property to the company. The company
was of the view that the promoter in such sale was duty bound to account for the
profit which he would make.
The court refuted this argument and held that:

The duty of the promoter is only to disclose, he can keep the profits after this
disclosure.
iii. Disclosure is required only if the property was acquired during the period of
promotion.
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This duty binds the promoter only when he is selling to the company a property which he
has obtained after the promotion has begun. The promoter is not bound to disclose if he
obtained the property any time before the promotion and the company is, in this situation,
not entitled to claim for disclosure.
It was held in the same case of Omnium Electric Palaces v Baines as cited above that:
If the profit which the promoter gains was made out of selling a property which was
acquired before the promotion began the company can not claim this profit even if the
promoter does not make proper disclosure.
CONSEQUENCES OF NON DISCLOSURE

At any time the promoter fails to make proper disclosure of his interests to the
company the company may have the following remedies.
i. Claim damages
A claim for damages would only possible if the promoter sold the property at a price that
is more than or above its real value. More over the company has to prove their claim that
it actually suffered a loss due to the act of the promoter selling at that price.
See the case of Re Leeds & Hanley theatres of Varieties (1902)
ii. Rescind (annul/cancel) the contract for purchase of the property

Rescission must be done before third parties have gained any interest in the property.
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iii. Retain the contract and recover any profit made by the promoter during the
currency of his promotion
The company has to prove the following in order to recover the profit made by the
promoter.
i. That the promoter concealed it; i.e. he failed to make proper disclosure to the
company.
ii. That the profit that needs to be recovered was obtained by the promoter during
the time of promotion. Refer to the case of Omnius discussed above
B. Registration of Company
Meaning:
To register a company and to incorporate a company mean the same thing; they refer to
the act whereby one or more business men would wish to legally formalize their activities
into the form of a company. In short registering a company or incorporating a company
refers to everything done with the view to forming a company.
HOW TO REGISTER/ form an incorporated company:
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Registration is usually done by the person wishing to register a company delivering to the
registrar of companies a specified number of documents plus paying some necessary
registration fees.
In order to form a company the following documents have to be delivered to the registrar
of companies.
i. Memorandum of Association
This is one of the documents, created by the persons who wish to form a company, which
is referred to as the constitution of the company. This document governs the relationship
between the company and the third parties in business dealings.
The memorandum of association has to be signed by at least two persons known as
subscribers. Their signatures have to be witnessed by a third person (a lawyer). These
persons are called subscribers because they are required to subscribe for one or more of
the shares of the company they wish to establish.
The contents of the Memorandum of Association

According to s. 4 (1) of the Companies Act, the memorandum of Association is
required to be printed in English Language and must contain the following clauses:
i. By s. 4 (1) (a) NAME CLAUSE.

The name of the proposed company with the words public limited company or in
short plc. If it is a public company.
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The name must end with the word limited if the company is limited by shares or
guarantee.
ii. The location of the company; THE REGISTERED OFFICE CLAUSE

here the memorandum must state that the registered office is situated say in Tanzania.
this clause establishes the nationality of the companies. as you already know that
companies are persons, they have personality of their own. where their offices are
established is where they are said to have been born and that is where their nationality is .
iii. THE OBJECTS CLAUSE

by s. 4 (1) (b)
The memorandum must contain the objects of the company. This is the most important
part of the memorandum since it sets out in express terms the business or businesses of
the company. The objects clause of the memorandum restricts the company from doing
any business which is not therein mentioned.
iv. LIABILITY CLAUSE

by section 4 (2) of the Companies Act
Any company whose members liability is limited by shares or by guarantee the
memorandum of Association must so state that the liability of members is so limited
s. 4 (2) provides
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see also s. 4 (3)
v. CAPITAL CLAUSE
If the company has a share capital, under its capital clause, the memorandum of
Association is supposed to state, in respect of the shares the following things;
(a) The total amount of share capital of that company
(b) division of the total share capital into share units of specified value. E.g. Total share
capital is T shs. 500/= is divided into units of 500 shares, each of which has nominal
value of Tshs 1/=
see s 4 (4) (a) of the companies Act
For a company limited by guarantee must state that each member of the company
guarantees to contribute to a certain amount not exceeding a mentioned value to the
companies assets when it is wound up while he is still a member or one year after he has
ceased to be a member.
See section 4 (3)
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vi. THE ASSOCIATION CLAUSE/ SUBSCRIPTION CLAUSE
For a company limited by shares the memorandum must show against the name of each
subscriber the amount of shares he takes. The subscribers are not allowed to take less
than one share.
See s. 4 (4) (b) and (c)
ALTERATION OF THE MEMORANDUM

After it has been made the memorandum of Association can not be altered unless by the
procedures stated by the Companies Act, which is only by special resolution of the
company.
See generally s. 8 of The Companies Act
Alteration envisaged in this section allows for instance a private company to be
changed into a public company by altering its memorandum and vise versa.
ii. ARTICLES OF ASSOCIATION

Is another constitution of the company which regulates relations between the company
and its members in dealings between themselves.
Articles of Association usually outline the duties, rights and powers of the governing
body as between themselves and the company at large, and the mode and form in which
the business of the company is to be carried on and in which changes in its internal
regulations may be made.
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Every company must have a memorandum and articles of association. These are prepared
by the company and are delivered to the registrar when the company applies for
registration.
However, companies limited by shares (private or limited), may not have to prepare
articles of association and instead adopt Table A which is provided by the
companies Act.
The articles must contain the regulations of the company.
See s. 9 (1) of the companies Act.

There may in the case of a company limited by shares, and there shall in the case of
a company limited by guarantee or unlimited, be registered with the memorandum
and articles of association, which shall be signed by the subscribers to the
memorandum and shall contain the regulations for the company.
FORM OF THE ARTICLES

Unless the company adopts table A for its articles, the articles of association must be in
the following form:
(a) in the English Language
(b) must be printed
(c) divided into consecutively numbered paragraphs and lastly
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(d) signed by each subscriber to the memorandum of association in the presence of
at least one witness, who shall attest the signature and add his occupation and postal
address.
THE LEGAL EFFECT OF ARTICLES OF ASSOCIATION

The articles after registration have the effects of a valid contract that binds between the
company and its members (whether or not they signed).
See s. 18 (1) of the companies Act
Subject to the provisions of this Act, the memorandum and articles shall, when registered,
bind the company and the members thereof to the same extent as if they respectively had
been signed and sealed by each member, and contained covenants on the part of each
member to observe all the provisions of the memorandum and of the articles.
The section implies that:
i.
The matters therein included can be enforced by the company against its
members
ii.
The company can enforce them against the members of the company.
iii.
They can be enforced by members between themselves
Note: the company acts as a contract only as between the company and members. The
articles can not be enforceable by any person who is not a member (e.g. lawyers,
accountants, directors if they are not members etc.) This is so even when these persons
have been named and their rights have alongside their names been mentioned.
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Eley v Positive Government Security Life Assurance [1876]
Eley sought to rely on articles of association of a company which had named him as a
lawyer of that company, to enforce his professional services.
Held: it was held that, the mention of his name as a lawyer in the articles did not give
him the right to be a member of the company.
Therefore the same principle applies to every person who is not a member.
ALTERATION OF ARTICLES AND RESTRICTIONS THERETO

Articles of association can only be altered by the company passing a special
resolution for that effect. See s. 13 (1) of the companies Act.
RESTRICTIONS AS TO ALTERATION OF THE ARTICLES

The alteration should not authorise the following things:
i. should not require members to subscribe for more shares than he held before the
alteration was made
ii. should not increase liability of the members to contribute to the share capital to the
company.
See section 20 of the Companies Act
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Notwithstanding anything in the memorandum or articles of a company, no member of
the company shall be bound by an alteration made in the memorandum or articles after
the date on which he became a member, if and so far as the alteration:(a) requires him to take or subscribe for more shares than the number held by him at the
date on which the alteration is made, or
(b) in any way increases his liability as at that date to contribute to the share capital of, or
otherwise to pay money to, the company:
iii. Any alteration must be made in good faith for the benefit of the company as a whole:
This was held in the case of Sidebottom v Kershaw, Leese & Co [1920] 1 Ch 154, CA.
See also the following cases
i. Greenhalgh v Arderne Cinemas [1951] Ch 286 at 291 or [1950] 2 All ER 1120.
ii. Allen v Gold Reefs of Africa [1900]
These cases suggest that any alteration must be done in good faith and for the
benefit of the company as an entity or the company as an individual hypothetical
member
iv. The articles should not conflict with the memorandum of association
In Guinness v Land Corporation of Ireland Ltd (1882) 22 ChD 349 at page 376 it was
held that
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The articles are subordinate to the memorandum; any clause in them which is
inconsistent with the memorandum, is overruled
iii. DECLARATION OF COMPLIANCE

This is an evidence to the registrar that the company complied with all the requirements
before it is registered. This declaration of compliance should be prepared by either:
i. an advocate of the High Court engaged in the formation of the company, or

ii. by any person named in the articles as a director or secretary of the company,
This document has to be delivered to the registrar of companies together with the
memorandum and articles of association.
See s. 16 (2) of the Companies Act

A statutory declaration by an advocate of the High Court engaged in the formation of the
company, or by a person named in the articles as a director or secretary of the company,
of compliance with all or any of the said requirements shall be produced to the registrar,
and the registrar may accept such a declaration as sufficient evidence of compliance.
iv.
PARTICULAS
OF
THE
FIRST
DIRECTORS,
SECRETARY
AND
REGISTERED OFFICE
S. 190 of the companies Act requires the director to either himself or through his agent to
deliver to the registrar his consent in writing to act as a director of that company.
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s. 210 (1) of the companies Act requires the company to keep a register of directors
and secretaries at its registered office.
The nature of the content of the register is based on two cases
ON THE CASE OF INDIVIDUALS (director and secretaries)

By s. 210 (2) (a) the register should contain such things as;
i. his present name and surname,
ii. any former name or surname,
iii. his usual address,
iv. his nationality of origin
v. his business occupation, if any,
vi. particulars of all other directorships held by him and
vii. the date of his birth;
ON THE CASE OF THE CORPORATION

s. 210 (2) (b) according to this section the register should also contain the
i. corporate name and
ii. registered office
On top of keeping the record of these particulars, the company is under a duty placed on
it by s. 210 (4) to deliver a return that contains these particulars to the Registrar for
registration.
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Subsection 4 reads as follows:
S 452 of Companies Act
requires payment of necessary fees for registration
purposes. Once these fees have been paid the registrar then can go forward to
register the company.
See s. 15 of the Act

On the registration of the memorandum of a company the Registrar shall certify under his
hand that the company is incorporated and, in the case of a limited company, that the
company is limited, and, in the case of a public company, that the company is a public
company.
EFFECT OF REGISTRATION / INCORPORATING A COMPANY

The doctrine of incorporation
Generally the company once incorporated gains a corporate personality. The doctrine of
incorporation of companies states that, once a company is incorporated becomes a legal
person independent from its members.
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This doctrine was established in the case of Salomon v Salomon & Co Ltd [1897] AC
22
Facts of Solomons case are as follows:

Mr. Solomon had owned a business which he later turned into a company in which
he held more shares. The rest of the shares were owned by his family. Each member
of his family held one share. He loaned some money to the company on the security
of the assets of the company, thus becoming one of the creditors of the company.
When the company was wound up, the other creditors claimed that they be treated
with preference over Mr. Solomon in repayment of their money from the assets of
the company, because Mr. Salomon was the owner of the company and thus he and
his company were one thing.
The court held that Mr. Salomon could have preference because he and the
company were different persons. Each one of them could have liabilities of ones own
and none of them is responsible for anothers liabilities.
THE EFFECTS OF THE DOCTRINE OF INCORPORATION ARE

i. Perpetual succession
Existence of the company does not depend on the life of the members to say that if the
members die the company will also die. What ever happens to members will not affect
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existence of the company. So the management may be changed, so may the members but
these do not affect the company.
ii. Property ownership

The property of the company belongs to it. It is in no way owned by the members of the
company. Even the person who established it may be convicted of theft of the companys
property.
Macaura v Northern Life Assurance [1925]
A man sought to claim on an insurance policy cover he had applied in his name for a
property which he sold to a company. He insured the property against fire.
The court held that: he could not claim on it because it was not his property but that
of the company.
iii. Liability
The liabilities of the company are its own. The members will not be liable to pay for the
companys debts or the company, the members debts.
iv. Separation of ownership and management

The owners are the shareholders; these are separate from the company which is
represented by the corporate board. See s. 15 (2) of the Companies Act.
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v. Gains capacity to sue and be sued in its own name

When a wrong act has been done against the company it is only the company which can
sue. This is decided by a simple majority of the company. No individual member of the
company may sue for the company.
This rule that only the company through simple majority may sue for it was established in
the case of
Foss v Harbottle [1843], 2 Hare 461, 67 ER 189
LIFTING THE VEIL OF INCORPORATION

Usually a company once incorporated is supposed to act within the powers granted
to it by the objects clause of its memorandum of association. If in any way it acts
beyond those powers the act becomes ultra vires and void.
The doctrine of ultra vires

This doctrine only requires that the actors for the company do only that which falls
within the scope of powers of the company as per the memorandum. The company
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acts through the board of directors. Usually what the directors do is regarded to have been
done by the company itself. However there are situations when the acts of these persons
will not make the company liable if they act against the provisions of the memorandum
of association and the Companies Act.
The following acts may make the actors of them personally liable instead of the
company:
Statutory illustrations
i. When company operates with less than minimum number of members

s. 26 creates a several liability for all the members if the company operates with the
number of members below two for a period of more than six months. If the company
enters into any contracts after the six months the members will personally be liable.
Read the section
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ii. Misuse of the company name and seal
s.112 (4) (a) (b) and (c) provides for other circumstances in which members may be
personally liable thought they act for the company, as follows:
If an officer of a company or any person on its behalf

(a) Uses or authorises the use of any seal purporting to be a seal of the company without
its name;
or
(b) issues or authorises the issues of any business letter of the company or any notice or
other official publication of the company, or signs or authorises to be signed on behalf of
the company any bill of exchange, promissory note, endorsement, negotiable instrument
or order for money or goods wherein its name and registered office are not mentioned in
manner aforesaid; or
(c) issues or authorises the issue of any invoice, receipt or letter of credit of the company
wherein its name and registered office is not mentioned in manner aforesaid,
he shall be liable to a fine and shall further be personally liable to the holder of the
bill of exchange, promissory note, negotiable instrument or order for money or
goods for the amount thereof unless it is duly paid by the company.
These are given just as examples
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LIABILITIES DEVELOPED BY CASE LAW
i. during wars it is not allowed to trade with the enemy country
5.3 TYPES OF COMPANIES

Generally s. 3 of the Companies Act provides for types of companies
A. COMPANIES MAY BE FORMED WITH OR WITHOUT LIMITED

LIABILITY; companies with a limited liability may either be:
(a) Companies limited by shares

According to s. 3 (2) (a) these are companies having the liability of its members limited
by the memorandum to the amount, if any, unpaid on the shares respectively held by
them.
This means that if a shareholder has taken shares of nominal value of 30,000/= and has
paid only 20,000/=. His liability will be only as to the amount he has not paid in case a
company is wound up. The share holder will have to pay up his capital to contribute to
the assets of the company. If you pay for all the shares at the time you took them you will
generally not be liable to the company at winding up.
(b) Companies limited by guarantee
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According to s. 3 (2) (b) these are companies having the liability of its members limited
by the memorandum to such amount as the members may respectively thereby undertake
to contribute to the assets of the company in the event of its being wound up. This in
most cases are those companies which are formed for non profit purposes. See paragraph
(b) of this section
B. Unlimited Companies
According to s. 3 (2) (c), these are companies that do not have any limit on the liability
of its members. This means there is no limit on liability of the members to contribute to
the assets of the company on winding up. An unlimited company must be a private
company.
C. Public Companies
According to s. 3 (3), a public company is a company limited by shares or limited by
guarantee and having a share capital, being a company the memorandum of which states
that it is to be a public company,
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iv. Private Companies

According to s. 27 (1)
A private company means a company which by its articles
(a) restricts the right to transfer its shares; and
(b) limits the number of its members to fifty, not including persons who are in the
employment of the company and persons who, having been formerly in the employment
of the company, were while in that employment, and have continued after the detercommination of that employment to be, members of the company, and
(c) Prohibits any invitation to the public to subscribe for any shares or debentures of the
company.
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5.6 Provision of Share Capital, Dividends, Transfer of shares and Registration of

Charges
Introduction
Usually companies have one or more definite sources of capital. Some may raise their
capital through issuing of shares and yet others through loan capital or even both. The
shareholder is required to pay to the company for each share that has been allotted to him.
This part shall deal with shares and matters relating thereto only.
\WHAT IS A SHARE?
Generally
A share is a unit of the total initial capital of the company. It usually does have a specific
value expressed in terms of money. This is to say a companys capital is built up on these
shares.
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According to Farewell J in the case of Borlands Trustee v Street (1901) 1 Ch 279 at
288 a share was defined as
"A share is the interest of a shareholder in the company measured by a sum of money, for
the purpose of liability in the first place, and of interest in the second. A share is not a
sum of money but is an interest measured by a sum of money and made up of various
rights contained in the contract (the effect of articles is a contract between shareholders
and a company), including the right to a sum of money of a more or less amount."
HOW CAN A PERSON BECOME A SHAREHOLDER OF A COMPANY?

There are three ways in which a person may become a shareholder.
i. by being a subscriber to the memorandum of association every person is required to
take not less than one share.
ii. the company, after the memorandum has been registered may issue more shares and
the person who takes these shares becomes a shareholder.
iii. by acquiring shares from another holder through transfer.
How shares are issued

The public companies will usually invite the buying of shares through a document known
as an offer document whose meaning is provided by section 2 of the companies Act as:
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any document, prospectus, notice, circular, advertisement, or other invitation, offering
to the public for subscription or purchase any shares or debentures of a company or any
interest therein, or any right to acquire any shares or debentures or any interest therein;
Procedure relating to offer documents

i. an offer document must be dated, and the date is taken as the date of publication of that
offer document. See section 46 of the Act.
ii. Before an offer document is issued it must be delivered to the registrar for registration
on or before the date of its publication. See s. 49 (1) of the Act.
iii. Before such registration a copy of offer document has to be delivered and approved by
the Capital Markets and Securities Authority. See s. 49 (3) of the Act. And the offer
document must so state that the copy was so delivered see. s. 49 (2) (a) of the Act.
iv. It must be signed by every person who has been named therein as the director, or his
agent who has been authorised in writing. See s. 49 (1) of the Act.
v. it must contain reports as required by the minister of finance from time to time, or by
the Capital Markets and Finance. See section 47 (1) of the Act.
Only after the above requirements have been met and the offer document registered
then it can be issued to the public to apply for shares in a particular company.
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The shares offered to the public must not exceed the capital authorised by the capital
clause in the companys memorandum of Association.
FORMS OF SHARES
A share capital can be expressed in any of the following categories as per each
transaction of issue.
a. authorised share capital (nominal capital)

this is the amount of share capital which the memorandum of association authorises the
company to issue.
b. issued share capital

this is the amount of the companys share capital which has been so farissued to the share
holders.
Illustration
A nominal capital (authorised capital) of a company is, say, 500 shs divided into 500
shares of shs 1 each. If the company, out of 500 shares, issues 250 shares of 1 sh. each,
this is what is called issued share capital.
c. paid up capital
once the shares have been issued to a shareholder he may not be required to pay for them
to their full value. E.g. if he has subscribed for 20 shares @ 2 shs, he may pay initially 1
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sh. fore each share he has taken and he may pay for the rest later. Thus he may pay only
20 shs instead of 40.
d. uncalled share capital / reserve capital

this is the amount of share capital which has so far been issued but the share holder has
not paid for it. It is the part remaining unpaid of the total shares allotted to a share holder.
The company has the right to call it up (require payment) at any time.
The uncalled share capital is the liability on the part of the share holder to contribute to
the assets of the company in case it is being wound up. If the share capital is called at the
time of winding up it is referred to as reserve capital and in any other circumstance it is
known as the uncalled share capital.
NATURE OF SHARES
i. a share as an expression of interest of shareholder
Every share represents the interests of its holder (shareholder) in the company which
issued the share or shares. The reason why a share is defined in terms of money is two
fold:
i. for the purpose of establishing liability of that member to that particular company
ii. for the purpose of defining the shareholders rights in the company.
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Refer to Borlands case discussed above.
ii. Usually shares carry with it some rights which a member can enforce against a
company. These rights may vary from one share holder to the other depending on their
classes of shares they belong.
iii. a share is transferable
SHAREHOLDERS RIGHTS
You should understand that class rights and shareholders rights are two different rights of
members in a company.
There is a general presumption of company law subject contrary provision in the

memorandum or articles of association that the rights of shareholders are as
follows:
a. equal rights to receive dividend attached on that class of shares.

b. equal rights to vote unless that right is restricted. Usually a certain number of votes
will equal 1 share. Example one vote for each ten shares.
c. equal rights to transfer shares
d. equal right to receive surplus assets
e. equal rights to attend meetings and vote
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These rights are equal to all share holders only if there is only one class of shares and in a
situation where there are in a company more than one class of shares, there could
possibly be varied rights of shareholder determined by a particular class of shares that
they belong to.
So the rights to vote, to dividends and attend meetings will automatically differ from one
class to another. These are what are known as class rights.
CLASS RIGHTS
Class rights, as distinguished from shareholders rights, are derived from different types of
shares a company can offer. Shareholders who take a particular type of shares will belong
to that particular group and automatically the rights obtaining there under are the rights
he can enjoy under his class of shares.
CLASSES OF SHARES
There can be issued by the company, the following types of shares but such provision
must be guided by the memorandum and articles of association.
1. Ordinary shares/ Equity shares

These are the type of shares which only carry normal rights such as the right to vote at
company meetings. The holders of this type of shares are not entitled to dividends unless
otherwise stated in the articles of association.
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2. Preference shares
These are types of shares whose holders enjoy preference over all the ordinary
shareholders. These are entitled to a fixed rate of dividends that is only payable out of
earned profits of the company. Preference shareholders have no voting rights.
Preference is in respect of the following:

i. dividends and
ii. return of surplus capital
A. Dividends
Dividends are calculated out of the paid up share capital e.g. If a shareholder paid up for
250 shares, a percentage for dividend is fixed o n this amount; it may be 10% of the paid
up capital that is 25 shs will be preferential dividend which will be paid out of profit
before any shareholder is paid.
B. return of capital on winding up or when there is a reduction of capital

Here there are two situations:
(a) If priority on preference shares is conferred by the articles of association in respect

of return of capital, such priority is said to be exhaustive in the sense that the holders of
preference shares will enjoy only that priority; they will not participate in any surplus
assets.
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(b) If priority is not conferred by the articles (i.e. the articles is silent on such
priority) the preference shares will not have any priority over ordinary shares in return of
capital.
Note: so the test is if the priority is conferred by the articles of association to the
preference shareholders. Silence of the articles implies no such right.
Consider the following example

For a company which has two classes of shares:
i. Ordinary share capital of 1000 shs.

ii. Preference share capital of 500 shs
If the articles confer on the preference shares the priority on winding up, how much will
each class receive if the company has assets amounting to:
(a) 450 shs
(b) 3000 shs.
Solution:
(a) Preference shareholders= 450
Ordinary shareholders= nil
(b) preference shareholders =500/=
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Ordinary shareholders = 2500/=
In addition if articles do not say anything on the priority of preference shares then
each of the two cases the assets will be returned on equal basis.
VARIATION OF CLASS RIGHTS

You already know now what class rights are, class rights can not be varied in any way to
the detriment of the share holders who constitute that class.
According to Pender v Lushington [1877] 6 Ch.D 70 , a member is entitled to enforce
these rights as personal rights against the company even if the decision to so alter has
been made by the majority members of the company.
Categories of preference
Preference shares may be in any of the following forms:
i. they may be participating, if its holders are also entitled to participate in ordinary
dividend, in cases where it exists.
ii. they may be non-participating; these are those whose shareholders, in addition to
preferential dividends, are restricted to participate in ordinary dividends. As a general
rule preference shares are always non-participating unless they are expressed by the
articles to be participating.
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iii. They can be cumulative, in the sense that, if dividends on preference shares are at
any given time not declared and paid, they will accumulate and be given later and
alongside all the other preference dividends before they are shared out to any ordinary
share holders.
If the dividends have accumulated but not yet paid and the company is liquidated, the
arrears will not be paid unless they had been declared or it is provided in the articles
of association that the arrears can be paid out of existing assets at winding up.
3. REDEEMABLE SHARES
These are the shares to which the right to redeem (buy back) by the company is attached.
Redeemable shares can be made out of ordinary or preference shares, of importance is
that the articles must authorise the issuing of such type of shares.
4. DEFERRED / FOUNDERS SHARES

These are those which stand in priority after ordinary shares. They have more voting
rights than ordinary shares.
REGISTRATION OF CHARGES
Introduction
Capital of the company is not only raised by shares but also by other means. When there
is need to raise money more than by shares the company subject to powers granted to it
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by its articles can borrow some money from banks or any other financial institutions. The
borrowing may be done through loans, overdrafts, debentures etc.
A bank can not give an advance unless it is dead sure that the borrower has sufficient
security to offer to the bank. Bankers securities take many forms but under this part only
a charge as a security is discussed.
Meaning of a charge
This is an interest that a company creates on its assets in favour of any lender of money to
secure the latters loan to the company. To charge is to create a claim (interest) against
ones property in favour of a particular person to secure a loan, which that other person (a
banker or any other person) advances to you.
Therefore a can be defined as a form of security which gives a creditor the right to
receive payment from a specific fund or from the proceeds of the sale of a specific
property or assets of a business, upon default by the borrower.
When the lender has a charge over an asset of a company, he may have the power to sell
that asset and recover his debt upon the borrowers default on a repayment of such debt.
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A charge may be created out of a mortgage of any property of the company, say, land or
even shares. See s. 97 (5) of the companies Act, it reads
Types of companies charges

Fixed charge
A fixed charge attaches to the specific intended assets upon its creation. A fixed charge is
mostly used for fixed assets that a company retains for a lengthy period of time.
Under a fixed charge the company remains in possession of the companys assets but it is
restricted by the terms under which the charge was created to be specific the company
can not deal with the charged property in any way unless with the lenders consent.
The most important characteristic of a fixed charge is that it attaches to the property once
it has been created.
Floating charge
Any charge is a floating charge if it has the following characteristics:
(i) It is a charge created on a class of assets of a company (both present and future
assets);
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(ii) That class of assets should be one which, in the ordinary course of the business of the
company, would be changing from time to time; and
(iii) The company is free to deal with the assets in the ordinary course of its business until
some further step is taken by or on behalf of those in whose favour the charge was
created.
These characteristics were laid down in the milestone case of; Re Yorkshire
Woolcombers Association [1903] 2 Ch. 284
Subsequent cases have determined that the third characteristic is the most
significant feature of a floating charge and which distinguishes a floating charge
from a fixed charge.
Usually, while the company goes on dealing with the assets in their business; buying and
disposing of them, a floating charge does not attach to relevant assets until the charge
crystallizes.
Meaning of crystallization
It refers to a point at which a floating charge can be treated as if it had been created as a
fixed charge, in other words, a floating charge at this point is turned into a specific
charge.
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When does crystallization occur?
(i) When the company ceases to carry on its business
(ii) When the company is liquidated (is wound up)
(iii) When a creditor enforces his security by the appointment of a receiver
(iv) When the holder of the charge acts with authority from the contents of the debenture
to convert the floating charge into fixed charge.
Registration of charges
A charge whether fixed or floating that has been created in Tanzania to be effective it
must be registered with the registrar of companies within 42 days of its creation.
S. 96(1) of the companies Act reads; every charge created by a company registered
in Tanzania shall, so far as any security on the company'
s property is conferred
thereby, be void against the liquidator or administrator and any creditor of the company,
unless the prescribed particulars of the charge, together with the instrument, if any, by
which the charge is created or evidenced are delivered to or received by the Registrar for
registration within forty two days after the date of its creation.
S. 97-(i) identifies charges which may be registered as follows:
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For the purposes of companies Act, the intellectual property is defined at s. 97 (5) (c) as
follows:
Who has the duty to register charges, the company or the chargee?
By s. 100 the duty to register a charge is placed upon the company but in casse the
company fails to so register any interested person may do so with the consequences upon
the company.
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however if any person who is interested applies to register himself the company will be
liable to pay him the charges he incurred in respect of such registration see s. 100 (2).
Effect of non registration of charges

See s. 100 (3) of the Act
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1. This section creates liability on the part of any person who has been part to that default
to pay a fine.
2. According to s. 96 (1) the charge becomes void against any creditor whatsoever of the
company.
3. Once a charge is declared void by subsection (1) of s. 96 the money secured
immediately becomes payable. See s. 96 (2)
DUTY TO KEEP REGISTER OF CHARGES BY THE COMPANY

The company after registration of every charge is supposed to keep a register of charges
at its registered office. All the charges that have been created on the assets of the
company must therein be recorded. See the following section of the Act.
These must be made available at any time to creditors of the company as well as
members. Usefulness of this practice is that a lender can know his position in respect of
that property if he decides to give a loan to the company.
5.7 ACCOUNTS, AUDITING AND ANNUAL RETURNS
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The company after registration always operates under the philosophy of disclosure of
information. The rationale behind this philosophy is to protect the rights of the third
parties who deal with the company such as the creditors to the company.
The company to serve this purpose is required to keep statutory registers at its registered
office so that every person can access them. These registers are such as the following:
i. Register of all members of the company as required by s. 115 of the Act.

ii. Register of debenture holders as required by section 88 (1) of the Act
iii. Register of charges as discussed above, see s. 108 (1) of the Act
iv. Register of directors and secretaries see s. 210 (1) of the Act
v. Register of directors share holding see s. 205 (1) of the Act
vi. Accounts and audit records see chapter V of the companies Act.
These records are subject of this part of the course
Every company is supposed to keep proper books of account in either English or Swahili.
According to s. 151 (4) the period in which the company is so supposed to keep these
books of account is six months after the have been prepared.
According to s. 151 (3) the directors usually determine whether the records have to
be kept at the registered office of the company or any other place but within
Tanzania.
BOOKS TO BE PREPARED BY THE COMPANY
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The duty to prepare books of accounts is two fold, if a company is only one it should
prepare its accounts known as individual accounts. If it is a parent company with
subsidiary company (ies) then group accounts involving all companies must be prepared.
The company must prepare the following books of account:

i. the profit and loss Account
ii. An income and expenditure Account for a company not trading for profit.
iii. The balance sheet as at the end of accounting period
iv. A cash flow statement.
By s. 158 (7) these books are also known as Annual Accounts of the company
THE NATURE OF THESE BOOKS

These books are supposed to disclose and explain such things as:
i. the companys transactions
ii. accurate financial position of the company
These records must be capable of helping the directors of the company ensure that the
prepared
i. Companys balance sheet
ii. Profit and loss account
iii. Cash flow statement
Have complied with the provisions of this Act
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See s. 115 (1) of the Act, it provides as follows:
PARTICULAR CONTENTS OF THE BOOKS OF ACCOUNT OF A COMPANY

The books of account of the company must contain, on daily basis, the following:
(a) Every transaction involving money, whether received or expended together with the
facts explaining how the money has been received or so expended.
(b) all the sales of the company
(c) all purchases of the company
(d) all liabilities of the company.
See section 151 (2) (a) (b) (c)
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APPROVAL OF ANNUAL ACCOUNTS BY THE BOARD OF DIRECTORS

Once the accounts have been prepared, they are required to be approved by the Board of
Directors and signed on behalf of the board by any director, the signature must be on the
balance sheet of the company. See section 158 (1) and (2) of the Act
STATUTORY REPORTS
There are two types of reports, relating to affairs of the company during the accounting
period, the company is supposed to prepare:
i. The Directors Report

This report is supposed to give an insight into the general affairs of the company. It must
also be approved by the board of directors and signed by any director on behalf of the
company. After approval it shall also be delivered to the registrar of companies for
records.
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Read sections 159 and 160 of the Act.
ii. Auditors Report

The companys auditors are also required to prepare reports on all companys annual
accounts.
CONTENTS OF THE AUDITORS REPORTS

According to s. 161 (1) and (2) (a)(b)(c)(d)
i. An opinion on compliance with the Companies Act
The auditors are supposed to establish their opinion as to whether the annual accounts
have been prepared properly in accordance with the Companies Act
ii. An opinion on whether a true and fair view of:

(a) the state of the affairs of the company at the end of the accounting period is
reflected in the balance sheet
(b) the profit or loss of a company is reflected in the profit and loss Account
(c) the cash flow of the company for the accounting period is reflected in the cash
flow statement.
iii. The auditors must also consider in their report if the report of the directors for the
accounting period is consistent with these accounts s. 161 (3)
The directors have a duty to make investigation to help them get facts to prepare a fair
report. See s. 163.
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s. 162 (1) requires the auditors report to bear their names and signatures.
THE COMPANYS RETURNS

Read generally about annual returns at chapter III, s. 128.
5.8 Companys meetings

Introduction
The meetings of a company are very essential to the company and the members
generally. This is a platform where various affairs of the company are discussed.
The meetings of a company to the member are an apparatus by which the members
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of the company control their company by way of voting on various resolutions of the
company.
Types of company meetings

There are generally two types of meetings of a company as follows:
1. ANNUAL GENERAL MEETING - AGM

A compulsory yearly meeting of shareholders that allows stakeholders to stay informed
and involved with company decisions and workings.
An Annual General Meeting (commonly abbreviated as AGM) is a meeting that official
bodies, and associations involving the public (including companies with shareholders),
are often required by law or articles of associations to hold.
An AGM is generally held every year to inform their members of previous and future
activities.
When should it be called.

This meeting is supposed to be called every year and no period of more than fifteen
months may pass between one annual meeting and another. See s. 133 (3) of the Act
Business to be conducted at the meeting
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The same section, i.e. s. 133 (1) paragraphs (a)(b)(c)(d)(e) lists a number of businesses
which a company can transact at any general meeting as follows:
Effect if the company does not call an annual general meeting

i. By s. 133 (4), any member may apply to the minister responsible for companies to
call or direct that the meeting be called in such a manner that the director may see
fit.
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ii. failure to call a meeting as directed by section 4 creates a liability on the company
and every officer of the company who was responsible for calling the meeting, to pay
a fine.
S. 133 (1) of the companies Act requires a company to hold an annual General Meeting
in addition to any other meeting.
2. EXTRAORDINARY GENERAL MEETING - EGM

An Extraordinary General Meeting, commonly abbreviated as EGM, is a meeting of
members of a company, shareholders of a company, or employees of an official body,
which occurs at an irregular time.
The term is usually used where the company would ordinarily hold an AGM, but where
an issue arises which requires the immediate attention of the entire membership and is too
serious or urgent to wait until the next AGM.
Sometimes an EGM is referred to as a Special General Meeting or an Emergency
General Meeting.
Who can summon an extraordinary meeting?
i. Directors
Usually the directors are responsible for calling meetings of the company.
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ii. Directors on requisition by members
According to s. 134 (1) a duty is placed upon the directors of a company to call a meeting
at any time members of the company have requested such meeting. This is a compulsory
duty and it does not matter if the articles of association of the company provides
against it.
Qualification of members for calling meetings

Not any bunch of members may require the directors to call a meeting. To qualify for this
the members must be such that:
i. For the company having share capital: at the time they deposit the requisition for a
meeting, the members must be holding not less than 1/10 of all the paid up share capital
and their shares must carry the right of voting at general meetings of the company. See s.
134 (2) (a)
ii. For a company not having a share capital: at the time they deposit their request for a
meeting, the members must be representing not less than 1/10 of the total voting rights of
all members having the right to vote at the general meetings of the company. See s. 134
(2) (b)
iii. Auditors of the company when they resign
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Auditors may also call an extra ordinary meeting (by filing a signed requisition for a
meeting (s.178 (2)) when they have deposited notice at the companys registered office
for that purpose as required by section 177 (1).
iv. The court

If the company for any reason has failed to call a meeting at the time when it was
supposed to have called one, the courts of law have powers to convene a meeting upon
application either by the directors or by any member of the company. See s. 137 (1) of
the Act.
Content of the Requisition

The requisition must state the objects of requiring such meeting be called. It must also be
signed by all the members of the company who required such requisition and be
deposited at the registered office of the company. See subsection (3) f the same section.
Duty of the directors after deposit of requisition

They are supposed to call the demanded meeting within a period of 21 days after deposit
of the requisition and if they fail the members (either all of them or those who represent
more than of all the voting rights of all the requisitionists) who required the meeting
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may proceed to call the meeting on their own within a period not exceeding three months
after the 21 days.
Note: of importance is that you should always note that any meeting can not be called
unless sufficient notice has been given to all the members of the company. The length of
notice for calling meetings should always be not less than 21 days. See s. 135 (1) of the
Company Act.
RESOLUTIONS OF THE COMPANY MEETEINGS

There are three types of resolutions that a company can arrive at in any meeting be
it an AGM or EGM.
The resolutions are:
i. Ordinary resolution
Is the resolution which can be passed by a simple majority (more than half of the valid
votes cast but less than ) of the members having voting rights. Usually every one
share carries one vote.
ii. Extraordinary resolution
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iii. Special resolution
According to s. 142 (1) of the Companies Act a resolution is special if it has been passed
by a majority of not less than of member having voting rights.
The voting must be done at the general meeting whose notice contained an intention to
propose the resolution as a special resolution.
5.8.1
WINDING UP OF COMPANIES
A process that entails selling all the assets of a business entity, paying off creditors,
distributing any remaining assets to the principals, and then dissolving the business.
There are two types of winding up

i. voluntary winding up
ii.compulsory
iii. Winding up by court
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6.0
Law of Partnerships
Definition and Nature of Partnership

See section 190 for the definition of partnership
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As stated earlier, a partnership is an association of two or more persons to carry on as coowners a business for profit. From this definition, it follows that the essential elements of
a partnership are:
(1) It is a business carried on in common
A business can be any form of activity which involves buying, producing and selling. It
is not necessary that it should be a permanent activity; it may be only a single business
transaction. Always remember that it should be a business. The moment such business
transaction takes place marks the beginning of the partnership.
In Keith Spicer Ltd v Mansell the court defeated a purported partnership because there
was no evidence that there was a business carried on in common with the view of making
profit. So there was no partnership.
(2) With the view of profit
The members must be doing the business with the view to sharing profits, and it should
not be for any other purpose.
Formation of Partnership
The partnership is usually created by agreement among the prospective partners.
The agreement can either be
i. oral or
ii. written
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if the agreement of partnership is in writing the partners must do it by preparing a

document known as a partnership deed
CONTENTS OF A PARTNERSHIP DEED

i. name of the firm
ii. area of operation
iii. duration of such partnership
iv. provision of capital
v rights and limitations
vi. name of bank account
vii. duties of partners
viii. methods of dispute settlement
ix. methods of dissolution of such partnership
NAMING A PARTNERSHIP
In the formation process partners decide on a name for partnership. They can use
the collective surnames or other name.
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If they use any other name they must make sure that the names of all partners and
an address for legal correspondence is quoted on all stationery and displayed
prominently at the business address of the partnership.
However it is not mandatory to use a business name but a business license is.
6.2 CLASSIFICATION OF /TYPES PARTNERS

i. General partners,
This is the type of partnership in which each partner has the right to participate in the
management of the partnership and a right to share its profits. In general partnership
the general partner is liable up to the full extent of his personal assets
ii. Limited partners,
A limited partner has the right to share the profit, but has no right to participate in the
management of the firm. His liability is limited to the amount of capital he originally
agreed to contribute.
iii. Sleeping partner (dormant partner)
According to Mercantile Credit Ltd v Garrod a sleeping partner is a general partner who
wishes to have no active role in the management of the firm. However he has a right to a
share of profits and responsible for liabilities of the firm.
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iv. Salary/ salaried Partner
This is a kind of partner who contributes nothing to the capital of the firm and has no
right to a share of profits but only entitled to a fixed amount of wages or salary.
According to the case of Stikel v Ellice this partnership is only for professional parties
such as accountants and solicitors (lawyers)
v. Quasi partner/ partner by holding out / by estoppels
If a person either by words spoken or written or by conduct represent6s himself, or who
knowingly suffers himself to be represented as a partner in a particular firm, is liable as a
partner to any one who has been on the faith of such representation given credit to
the firm, whether the representation has or has not been made or communicated to
the person so giving credit
See Tower Cabinet Co. Ltd v Ingram
See also the following section of the LCA
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6.3 RELATION OF PARTNERS TO ONE ANOTHER/
RIGHTS AND
LIABILITIES OF PARTNERS
The relationship between partners entails fulfilling certain duties to one another; section
194 of the LCA, it enumerates rights and obligations of partnership.
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By section 193 of the LCA, the partners may by mutual consent may vary these
rights whether as described under this Act or partnership deed. When these are
varied it is when then we get different types of partnerships in which partners may
not enjoy some of the partnerships.
6.4 PARTNERSHIP PROPERTY

Read section 195 (1) (2)(3) of LCA
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6.5 RELATIONSHIP BETWEEN PARTNERS AND THE THIRD PARTIES

A. POWERS
At any time any partner enters into contracts intended to undertake a firms business, each
partner is acting as an agent of the firm and all the partners and his acts will bind them.
Conditions for a partners acts to bind the firm and other partners
i. His act must be intended to carry on a business in the usual way as the firm and its
partners would usually do it.
s. 201 (2) outlines businesses which can not be carried by a partner in any kind of
partnership, in absence of any express provision in the partnership deed, or usage of trade
or custom.
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ii. He must have authority to so act for the firm in that particular matter
See s. 201 (1)
In absence of the above conditions the firm and the partners will not be bound by acts of
individual partners.
B. LIABILITIES OF PARTNERS
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Usually each partner is fully responsible for all of the firms liability. A third party may
sue either any single partner or all of them. In what ever case all the partners have to
contribute to debts of partnership.
i. partners liabilities on debts and contracts

see s. 203
ii. Partners liability on torts
iii. Liability of incoming and outgoing partners

The liabilities of partners will depend on the time a particular partner joined the firm. See
the following section of the LCA.
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6.6 PARTNERSHIP DISTINGUISHED FROM COMPANIES

You have read about company law, how would you distinguish between the two?
6.7 DUTIES OF PARTNERS

In conduct among partners, generally, each partner owes the other partners about the
following obligations:
i. Fiduciary duty: the duty to act with the utmost good faith and loyalty.
Partners are not considered to be merely individuals transacting with one another at arm'
s
length, but rather to be fiduciaries of one another. Therefore, the duty among partners
involves a very high standard of conduct for the best interest of the firm.
ii. Duty to disclose each and every material fact affecting the partnership
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iii. Compete with the partnership, or engage in conduct that is detrimental to the best
interest of the partnership. In conducting business with individuals who are not partners,
every partner is an agent of the partnership. Therefore, the acts and words of a partner
may be imputed to the partnership.
iv. Duty to account
Every partner has a duty to render true account to other partners or in their place, to their
legal representatives.
Read section 192 of the LCA
How many duties can you see under this section?
6.7.1
DISSOLUTION OF PARTNERSHIP
There are various modes of dissolving partnerships as follows

i. Dissolution by expiration or notice; see section 212 of the LCA
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ii. Dissolution by death, bankruptcy or charge; see section 213 of the LCA
iii. Dissolution by illegality of partnership; see section 214 of the LCA
iv. Dissolution by court; see s. 215 of the LCA
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The end
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7.0 LAW OF INSURANCE
Whenever there are human beings, there are various risks associated with their productive
activities since the day to day activities of human beings necessarily involve risks. In
better words we can say that these risks are inherent in the society; i.e. they are part and
parcel of a human society.
Usually the nature of productive activities a particular society engages itself in will
determine the extent of risks inherent in that society and these risks usually develop in
direct proportions to the development of this society.
It follows therefore that the risks that were common during the communalism period are
in no way similar to those that are in present day society. In the primitive societies they
used traditional methods of handling the risks, but to day, the modern insurance employs
economic devices to handle risks.
The law of insurance is all concerned with providing rules and principles on how risks in
the society can be handled.
7.1 NATURE OF THE CONTRACT OF INSURANCE

A Contract of insurance has been given a number of meanings by various writers, of
these writers, Vance W.R, (1930) Vance on Insurance, 3rd Ed. The West Publishing
Company, Washington at pg. 82 a contract of insurance has been defined as follows:
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Any contract, by which any party, for a valuable amount known as premium, assumes
risks or liabilities that rest upon the other pursuant to a plan for the distribution of such
risks, is a contract of insurance, what ever the form it takes or the name it bears.
CHARACTERISTICS OF AN INSURANCE CONTRACT
i. General characteristics
ii. Special characteristics
GENERAL CHARACTERISTICS
A contract of insurance bears all essential elements of a binding contract such as offer,
acceptance, competence, consideration, legality and free consent. The contract of
insurance also has some features additional to the mentioned ones, which distinguish it
from any other contracts as it will be shown hereunder on the presumption that you are
conversant with the essentials of a valid contract:
i. Offer; in an insurance contract is made by filling out standard forms prepared by an
insurance company. In this form the insured will specify the subject matter he wishes to
insure and he must also specify the risk.
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ii. Acceptance;
Acceptance of the above mentioned offer is done by the insurance company after the
insured has submitted the forms and the company has had enough time to assess the
information therein presented and agreed to them.
iii. Consideration
The consideration for an insurance contract is a premium.
SPECIAL CHARACTERISTICS
The following features are said to be special to a contract of insurance.
i. The insurance contract is an aleatory contract
This means it is not a commutative contract (that which the parties exchange equal
values to each other). In an aleatory contract of insurance the contracting parties are
aware that each party will not give equal sums of money; in this contract the insured pays
premium in expectation that if he suffers loss he may receive a much larger amount from
the insurer than he paid in the premium and if he does not suffer any loss, that he will get
nothing. There is therefore in the contract of insurance an element of chance; chance to
get something or nothing (to lose the premium)
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There is also an element of chance when loss is suffered by insured that he may not
recover because of non observance of the conditions stated in the policy or because
the policy does not cover the loss that he has suffered.
ii. An insurance contract is a contract of adhesion (i.e. a standard form contract: one
which an insured person either takes it or leaves it) and therefore distinguishable from a
bargain contract. An insurance contract provides no room for the insured to bargain on
the terms and conditions stated therein. The insured can not make a counter proposal or
even suggest that the document of insurance should be altered in certain aspects.
There is a reserved right to alteration of a contract of insurance for the insurer only. The
insurer may alter the terms of this contract by way of indorsement, meaning that the
insured has no room to negotiate.
The need to interpret the contract
In case there is any dispute between the parties as to the meaning of the content of the
contract, the court will usually apply the contrapreferentum rule; this rule is applicable
generally to contracts and it states as follows:
where a contract is drawn up by a party, to the exclusion of the other party, it shall
be construed against the other party that has drawn it where it is vague, i.e. capable
of more than one meaning.
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What is the rationale behind this?
Because an insurance contract is a risk distributive device which is based on strict
calculation. The insurance company has to do this in order to be sure how much funds
should be set aside for the insured risks.
iii. A contract of insurance is an executory contract

An insurance contract by its nature is always an executory contract, in the sense that,
once the insured has paid his premium he is counted as having done his part and on the
part of the insurer the contract will remain executory until loss occurs or the contract
expires.
iv. An insurance contract is a unilateral contract

Unlike in a bilateral contract which binds both parties to the contract and which creates
reciprocal rights and obligations, an insurance contract is a unilateral contract and it binds
only the insurer; i.e. for the insurer it creates obligations and for the insured it creates
rights or privileges.
v. A contract of insurance is a conditional contract
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It usually loaded with a lot of conditions and implied warranties. The insurer has to
include these because these conditions are the only means by which the insured risks are
defined.
EXAMPLES OF THESE CONDITIONS ARE AS FOLLOWS:
(a) The policy shall only run from the time the premium is paid.
(b) The condition that notice of loss by the insured must be given forthwith/
immediately/ or as soon as possible to the insurer.
The law has interpreted the words forthwith, immediately and as soon as possible, to
mean within reasonable time. The question as to what is reasonable time is a question of
fact in each particular case.
EXAMPLES OF THESE IMPLIED WARRANTIES ARE AS FOLLOWS:

(a) There are various terms which are implied by statutory law, common law, doctrines of
equity etc.
There is an implied term that an insurance contract does not cover certainty of events. It
only covers losses. Due to this therefore if:
Goods insured against a risk are transported on board a ship, the seaworthiness of the
vessel is presumed to exist.
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In this case if the ship causes the cargo to be destroyed because of defects in the ship
it will not be the problem of the insurer but that of the shipping company.
The same presumption will be applied if the goods are transported by lorry in which case
the road worthiness of the same will be presumed, by rail; the railworthness and by air
the airworthiness etc.
(b) There is an implied warranty that the insured must have in the property he insures
against a risk an interest known as insurable interest.
An insurable interest is a very basic doctrine to insurance.
HOW IS INSURABLE INTEREST TESTED IN AN INSURANCE POLICY
An insurable interest is an objective value in the property and not subjective
For a person to establish he has insurable interest in a given property or in case of a life
insurance in a given life, or venture or any other thing he must show the following three
things:
1. That there is a direct legal or equitable relationship between the insured person and
the property, subject matter of the insurance
See Macaura v. Northern Assurance Company [1925] AC 619
In this case Macaura who insured timber against fire was not entitled to benefit from the
insurance when he had sold the property to his company. The court held that, Macaura
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ceased to have an insurable interest in the property he had transferred to the company
since he and the company had separate personalities.
2. This legal or equitable relationship mentioned under number 1 above must be one that
gives rise to either a legal or equitable right or liability in favour of or against the
person claiming to have an insurable interest in the property.
3. The said right or liability must be capable of economic or monetary evaluation. The
explanation fore this was given by Lord Mansfield in the case of Lucena v Grauford in
which he stated that:
the continued existence intact of the property, person or venture would
economically benefit the claimant thereof in one way or another, while its
destruction or damage would economically inconvenience or give rise to a direct
economic loss to the said claimant
INSTANCES OF INSURABLE INTERESTS IN TERMS OF RELATIONSHIPS:
i. Ownership:
Is there a direct legal or equitable ownership? If the insured has a legal ownership then he
is said to have a right in rem, and if he has an equitable ownership then he has a right
in personam.
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ii. Possession:
If the insured has a possession based on a rightful claim, he has an insurable interest
in what he possesses, since loss in possession would be a loss in an advantage. Like
the cases of hirer, builder or contractor.
In the case of North British and Mercantile Insurance Company v Moffat [1871] LR 7
CP 25)
It was held that, possession even when it is improper supports existence of insurable
interest; however in this case possession must be associated with some sort of
responsibility.
iii. Presence of a contract:
Presence of a contract is a good basis for insurable interest. Thus a creditor can claim
insurable interest in any property given to secure a loan.
iv. Equitable relationships:
These relationships can also give rise to insurable interest e.g. trustee vis--vis trust
property, or beneficiary vis--vis trust property. The cases of bailor and bailees also
apply.
See the case of Waters v Monarch Fire & Life Assurance Company [1856] 5 EL & BL
and Co.
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This case made it possible for bailors and wharfingers to insure goods they keep against
any loss since they have an insurable interest in the goods by keeping them.
Not only is this an implied warranty but also a statutory requirement. S. 108 (1) of the
Tanzania Insurance Act, 1996.
This section is to the effect that an insurance made without an insurable interest is null
and void ab initio
vi. An insurance contract is a personal contract of utmost good faith

i. Personal contract
A contract of insurance is personal since it binds and it is enforceable by the two parties
to it.
In Ryner v Preston [1881] LR 18 CH pg. 1, it was held that:
An insurance contract is essentially personal, each party having in view, the character ,
credit and conduct of the other..it should be noted that performance of the insurers
promise does not in a normal face affect the insured persons legal relations with the
subject matter of the insurance, i.e. the thing in respect of which the policy is taken up.
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In other words the risk only attaches to the insured party and not to the insured
subject matter; it does not run with the subject matter, but it runs with the insured
person.
This being the fact an insurance policy of fire insurance for example can not pass
either expressly or impliedly or by assignment to any transferee except by the
consent of the insurer.
ii. a contract of utmost good faith
An insured person is bound to disclose all material facts relating to the subject matter of
insurance and not to misrepresent in so doing. The insurer has to know this so that he
may be able to asses the risk against which a party seeks to insure his property. Under
this duty the law presumes that the insurer knows nothing about the subject matter that is
why it has to be disclosed.
In the case of Rozanes v Bowen [1928] 32 LL.L.R.98, Lord Scrutton stated that;
it is the duty of the assured, the man who desires to have a policy to make a full
disclosure to the underwriter without being asked of all the material circumstances
because the underwriter knows nothing and the assured knows everything
vii. An insurance contract is a contract of indemnity
s. 76 of the LCA defines what a contract of indemnity is as follows:
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The principle of indemnity embraces such doctrines as, insurable interest, subrogation,
contribution and abandonment and salvage.
Every property insurance contract is presumed to be one of indemnity unless the
contrary is proved, except life assurance contracts which are not contracts of indemnity.
Compensation for loss. In a property and casualty contract, the objective is to restore an
insured to the same financial position after the loss that he or she was in prior to the loss.
But the insured should not be able to profit by damage or destruction of property, nor
should the insured be in a worse financial position after a loss.
PARTIES TO A CONTRACT OF INSURANCE

There are four questions which have to be dealt with under this party;
i. who may insure or may be an insurer in Tanzania?
ii. who may take out an insurance contract/ be insured?
iii. Who may enforce an insurance contract?
iv. who may benefit under an insurance contract?
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WHO MAY INSURE (BE AN INSURANCE COMPANY) IN TANZANIA?/
INSURANCE BUSINESS AND REGULATION
At a general level, one may observe that the legislation in Tanzania is characterized by a
number of factors revolving around registration and regulation of the insurance
business under the conditions including:
(a) Legal personality requirement
For a company to qualify to be an insurance company in Tanzania it must be
incorporated. The issue of legal personality of an insurance company is combined with
the issue of residency.
s. 8 of the Insurance Act, 1996 requires that for an insurer to operate legally he must
be a body corporate incorporated under the Companies Act of Tanzania.
(b) Regulations relating to capital base requirement; (margin of solvency and

security deposit)
An insurer must have a certain amount of capital money to support business locally. The
underwriting business involves paying off of premiums. The margin of solvency is the
amount of money which must be maintained in the business. The company can not
operate below this amount.
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The security fund ought to secure the payment of premiums if there are more claims in a
year than the company planned.
The capital of the insurance companies is set by the Minister of finance.
See s. 11 of the Insurance Act, it provides a formula by which a capital can be
determined. To know it you have to go to regulation 13 of the Insurance Regulations of
1998, Part V which deals with the capital requirements for insurers and brokers.
s. 12 of the Insurance Act deals with the margin of solvency and regulation 16 and
17 shows how to calculate it.
(c) Local participation requirement

Since most of insurance business is managed by foreign insurance companies, there is a
danger that capital may heavily be repatriated; due to this the law requires foreign
investors to have partnership in business with the local companies which is the effort to
minimize the impact of foreign investment.
(d) Accounting and reporting requirements
Legislation requires that insurance companies must keep books of accounts plus having
them audited every year.
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There are two principles involved in this requirement:
i. the principle of accountability; in order to help the taxing authorities to accurate the
levy of taxes
ii. The principle of transparency; that which requires the accounts to be audited.
See sections 24 which deals with records and perseveration of records
s. 25; provides for procedure for amendment of accounts
s. 26; provides for auditing of insurers accounts
s. 30; provides for a duty to furnish annual returns to the commissioner
See also s. 31.
Part VI of the Insurance regulations deals with accounts and returns
Regulation of insurance brokers and agents

See s. 46-64 and part V of the regulations.
(e) Regulations relating to the requirement of general observance of the laws of the
country.
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If at any time insurance company does not follow the law of the country, license may be
withheld or not granted at all.
See. S. 20 (f) of the insurance Act, 1996. The commissioner may give a notice to the
insurer expressing his intention to cancel his registration certificate.
These are the regulations which govern insurance business in Tanzania.
WHAT IS THE REGULATORY AUTHORITY
The law governing insurance business in Tanzania is centered on a regulatory
authority. The law sets a regulatory legal regime the centered of which is the chief
executive officer of the authority who is known as the Insurance commissioner who
is appointed by the state. On top of the commissioner is the minister for finance.
WHO MAY BE INSURED?

Only those with requisite insurable interest. The insurable interest has already been
discussed above
WHO MAY ENFORCE AN INSURANCE CONTRACT?
This is primarily a question of privity of contract. The general answer would be:
i. The parties to the contract of insurance or
ii. Their agents or legal representatives
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iii. or guardians of those who are parties to the contract
iv. Also executors, trustees, assignees or indorsees of a policy of insurance provided that
such assignment is proper.
iv. Also the beneficiary third parties who have expressly mentioned in the policy
through the party who can enforce it (a policy of this kind is known as third party
insurance policy).
THIRD PARTY INSURANCE

Third party insurance in Tanzania is expressed in terms of a compulsory third party
motor insurance. The law in Tanzania makes it mandatory that every owner of a motor
vehicle must take out this insurance policy in favour of third parties.
The law that governs the third party motor insurance is known as the Motor Vehicles
Insurance Ordinance, Cap.169.
According to section 4 (1) of the ordinance, there is a duty to every person who owns a
motor vehicle in Tanzania to insure his car. Exceptions are stated in this law as all the
cars belonging to the government of the united republic of Tanzania as well as the
Tanzania Railways Corporation.
The section in particular reads as follows:
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... it shall not be lawful for any person to use, or to cause or permit any other person to
use, a motor vehicle on a road unless there is in force in relation to the use of the vehicle
by that person or that other person, as the case may be, such a policy of insurance or such
a security in respect of third party risks as complies with the requirements of this
Ordinance.
This means a third party can enforce this contract.
Who is a third party?
Generally section 5 of the ordinance provides for the categories of third parties who are
the third parties as follows:
i. All users of roads
ii. All persons who get in or out of the vehicle
iii. Those are inside the vehicles which are habitually used for hire.
The injuries covered are, according to s. 5 are fatal injuries and personal injuries.
How can a third party enforce a contract of insurance?

Where he is expressly declared to be beneficiary, usually the third party will not recover
payment directly though he is entitled to the same. He has two options:
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i. either to sue the holder of a policy of insurance who in turn will sue the insurance
company or
ii. To team up with the owner of the motor vehicle and sue the insurance company.
See the case of Tarlock Singh Nayar & Another v Sterling General Insurance Co. Ltd
[1966] E.A 144
In this case Tarlock Singh Nayar had taken an insurance policy in which the authorised
drivers were covered. The second plaintiff was the authorised driver who was involved in
accident injuring the passengers; one of the passengers sued the driver in which case the
driver paid damages for such injuries. The driver wanted the insurance company to
indemnify him for the damages he had paid the passenger. As a beneficiary under the
contract, he could not be said to be a party to that contract of insurance.
The court said that the driver could not sue in person; however he could sue if teamed up
with the holder of the policy who is Mr. Tarlock.
DISCHARGE OF CONTRACT OF INSURANCE

A contract of insurance can be discharged most commonly by the following means:
i. By performance when loss occurs/ or risk attaches
At any time the insured risk occurs the insured is supposed to give immediate notice of
such loss to the insurer and the insurer is supposed to compensate the insured. However
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the insurer, prior to compensation studies if the loss is that which had been insured. Due
to this not every loss will be covered by an insurance policy.
CATEGORIES OF RISK
i. ORDINARY WEAR AND TEAR
Ordinary wear and tear is one of the risks that are not covered by an insurance policy.
Instances of wear and tear are not covered because they are not contingent events in the
sense that they occur in the ordinary course of things.
Under common law the reason given for non coverage of wear and tear is that under a
contract of insurance:
the casualty must be a fortuitous one, and not damage such as could be expected to
occur in normal circumstances such as ordinary wear and tear through normal use
(emphasis mine)
In Kant & Co. v British Traders Insurance Co. [1965] E.A 108
The insurance contract was one termed as an all risks policy i.e. which could cover
all risks; however the court did not imply wear and tear as one of the risks.
An example of all risks policy is a comprehensive motor vehicle insurance policy. As
the name suggests, this policy is supposed to cover all risks except the following;
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Lord Herschel in The Xantho [1887] App. CAS. 503 at pg. 509 stated that:
The purpose of a policy is to secure an indemnity against events which may happen
and not against events which must happen. Wear and tear must happen
(depreciation)
Along those lines it has been held in Hunter v Potts [1815] 4 Camp 203 that, damage to
a ship by rats is not covered by a marine insurance policy. Or
In Austin v Drewel [1814] 4 Camp 360 and in Harris v Poland [1941] 1 K.B 462 that:
Damage of property by smoke and heat as distinct from flames is not included in the
risks covered by a fire insurance policy.
ii. INHERENT VICE

Inherent vice is not covered by insurance contract.
Lord Sumner in British Marine Insurance Co. v Gaunt [1921] AC 41 pg 51, stated
that:
The risk must be something that happens from without
INSTANCES OF INHERENT VICE
The following are instances of inherent vice as held by various cases:
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(a) In Taylor v Dumbar [1869] L.R 4 CP 206 putrescence of meat through delaying was
held to be an inherent vice which can not be covered by an insurance contract.
(b) In Winspear v Accident Insurance [1880] 6 QB 42 Death by natural disease in
respect of a personal accident policy as opposed to an ordinary life policy was held to
be inherent vice and that not covered by an insurance policy.
See also Issilt v Railway Passengers Association [1889] 22 QB 504
iii. RISKS THAT ARE NOT LAWFUL TO COVER

iv. INTENTIONAL LOSS OR RISKS
Are not covered
v. LOSS OF PROFIT
Unless specifically provided in the policy, loss of profit is not covered by an insurance
contract. However loss of value (cost price of goods) can be covered.
In Shelbourne Co. v Law Investment & Insurance Co. [1898] 2 QB 626 where the
insured claimed for loss of profit in a goods policy was informed by the court that
loss of profit is not covered under such a policy.
If loss of profit is mentioned in the policy it is then covered by that policy.

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In Brunton v Marshall [1922] KB 10 LL. L.L L.R 689 and in City Taylors v Evans
[1921] 91 L.J 379; 38 T.L.R 230 loss of profit was specifically mentioned in the policy
thus the applicants won.
vi. Consequential Loss

As a general rule, losses which are not direct and therefore proximate to the loss of
property are regarded as consequential losses. Consequential loss is not covered unless
specifically mentioned in any policy.
In Pyralli v Kuverji an insured claimed to recover from the destroyed lorry as well as
the loss he incurred due to the fact that the lorry had not generated money.
In Re Wright and Pole [1834] 1 Ad. & El. 621 where an insured pub was burnt down
the court held that consequential losses such as rent during all the time while the
pub was rebuilt were not recoverable.
ATTACHMENT OF RISK AND RECOVERY OF THE POLICY MONEY

There are two rules or principles as regards attachment of risk and recovery of insurance
money as follows:
(a) Application of the proximity rule (causes and effect)
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When loss is suffered and the insured claims to recover from an insurance company a
very basic issue arises; the questions such as
i. What is the cause of the loss?
ii. Is that cause the risk covered under the policy of insurance?
In determining these two questions the rule used states: causa proxima non remota
spectatur which means that only the proximate cause of a loss is relevant for
consideration and not any remote cause of such a loss.
IMPLICATION OF THE RULE

This is a practical and a discriminatory rule between the losses that are capable of
compensation and those which are not. All losses which are remote or indirect to the
risk insured against are not recoverable.
WHAT IS THE PROXIMATE CAUSE OF ANY LOSS?

The meaning of the term proximate cause has been given by decisions made in various
cases. The combination of these cases gives us the following characteristics of a
proximate cause as follows:
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i. it should be a direct cause as per Lord Sumner in Becker & Gray v London Assurance
[1918] A.C 101
ii. it must be a dominant cause as per Lord Dunedin in Leyland v Norwich Union
[1918] A.C 350 363
iii. It must be an operative and efficient one as per Viscount Cave in Samuel v Dumas
[1924] A.C
Celebrated writers on insurance by the names Preston and Collinvaux have summed up
these characteristics in one sentence as follows:
By proximate cause is not meant the latest, but the direct, dominant, operative and
efficient one. If this cause is within the risks covered, the insurers are liable in respect of
the loss; if it is within the perils excepted the insurers are not liable.
See it in their book titled:
Sidney Preston and Raoul P. Colinvaux, (1950) The Law of Insurance, Sweet &
Maxwell, Ltd, London. At pg. 74
According to Preston and Colinvaux a loss may have two proximate causes.
THE GENERAL GUIDING RULES REGARDING PROXIMITY OF CAUSES

i. the risk must actually operate
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This means that if the risk insured against is fire, fire must have actually started and the
loss must have been caused by that fire and not other reason. Due to this all losses that
have been suffered because the insured has had to take preemptive measures to avoid loss
due to occurrence of risk insured against are not recoverable because the approximate
cause in this case would not be the risk insured against but the fear of its
occurrence.
ii. Once the risk operates, damage to the subject matter due to efforts to check the
progress of the casualty, is covered. Here the proximate cause is the risk insured
against
In Symington v Union Insurance of Canton [1928] 97 L.J.K.B 646, efforts were made
to restrain spread of fire by throwing cork, the subject matter of the insurance policy, into
the sea because fire had already broken out. Loss of cork by throwing into the sea was
held to be compensable.
The test here is:

Is it the fear of something that will happen in the future or has the danger already
happened?
If it has happened, is it so imminent that it is immediately necessary to avoid the danger

by action?
The insurer will be liable if the second question is satisfied.
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iii. An accident facilitating the loss must be distinguished from an accident causing
the loss.
iv. Novus Actus Interverniens (intervention of human acts)

Where after the occurrence of the risk that is insured against, human action intervenes
and causes the loss, such intervention is the proximate cause and not the risk (unless
it was done to mitigate the loss)
In Lawrence v Accidental Insurance [1881] 7 QBD 216, it was held that:
The running down of a man in a fit of death was a proximate cause of his loss of life and
not the fit itself.
WHERE A NATURAL CAUSE AND A HUMAN INTERVENTION ARE

COMPETING
According to Liverpool and London v Ocean S.S. Co. [1948] A.C. 243 it was stated that:
There is a wider rule that where a cause brought about by a human agency is
competing with a cause brought about by a natural cause; the one brought about by
human agency is dominant and therefore the proximate cause since man by his will
dominates the world.
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v. The death- blow cases
The death-blow cases are a reverse of the principle of novus actus interverniens. Under
the death-blow cases where a casualty due to human agency is followed by natural
causes which contribute to the loss, the chain of causation is not broken i.e. it is the
human agency and the natural cause together that are the proximate cause, with the
one completing the loss dominating.
In Leyland v Norwich Union [1918] A.C. 350, therefore, where a ship which was
capsizing due to a storm was hit by a torpedo (a very fast boat) thus facilitating the
destruction it was held that the torpedo gave the boat her death blow i.e. the torpedo
was the proximate cause of the loss boat.
(b) Application of the principle of indemnity (nature of the loss) and the rule of
thumb
Once the loss has been proved to be proximate the insurance company will apply the
principles of indemnity before compensation of the loss.
WHAT IS COMPENSABLE IN THE LOSS?
According to Aubrey Film Productions v Graham [1960] 2 Lloyds Rep. 101
The measure of indemnity in respect of the loss of any property is not determined by
its cost but by its value at the date and at the place where loss occurred.
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The indemnity grows in a direct proportion to the increase in value of the subject matter.
All indemnity contracts operate under the following principles
i. insurable interest
The law requires that the insured person must have in the subject matter of insurance an
insurable interest at the time of the loss. No recovery of insurance money if the
insured at this time does not have the interest.
ii. The salvage principle (abandonment principle)
An insured person is entitled only the value of the injury done to the insured property. If
he wants to recover the full value he is supposed to surrender the remains of the subject
matter destroyed to the insurer. The salvage principle runs solely with property.
According to the case of Rankin v Potter [1873] L.R, 6 H.L. 83, the assured must
agree to treat the subject matter, in cases it is not whole destroyed, as whole
destroyed other wise he can not claim the whole value of it from the insurance
company.
According to Brett L.J. in Kaltenbach v Mackenzie [1878] 3 C.P.D 467, this principle
applies to any contract of indemnity and in his own phraseology he said that:
abandonment is part of every contract of indemnity. Whenever, therefore, there is a
contract of indemnity and a claim under it for an absolute indemnity (claim for full value
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of the property insured), there must be abandonment on the part of the person claiming
indemnity of all his right in respect of that for which he receives indemnity
iii. Subrogation
Under this principle the insured person is supposed to relinquish every right he has
against third parties to the insured company after he has been compensated.
This usually happens when the risk has been caused by a third party which means the
insured party has the right to claim damages from this third party. The fact that he may
claim from the insured company does not bar him from claiming from this third person;
under this circumstance he has two rights but once the company has paid him he is
supposed to relinquish his rights in respect of the third party to the insurer. This goes with
every other right the insured has from the third party.
Why?
Because the aim of insurance is not to make any person richer than he was before the loss
occurred or to make him any poorer than he used to be prior to such loss.
THE RULE OF THUMB

The insurance company will employ the rule of thumb principle to measure recovery of
money by the assured.
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The rule of thumbs states that:
The measure of recovery is the actual loss suffered or the insured sum whichever is the
less.
An insurance contract can be any of the following;
(a) Over insurance: this is the situation where an insured person insures his property at a
more sum than the actual value of the same example when a house of 5 shs/= is insured
against fire at 10/= shs; therefore if there is an over insurance and the property has been
totally destroyed the insurance company will compensate for the actual value and not the
insured sum.
This will neither make the insured gain more nor lose.
(b) The reverse of over insurance is underinsurance: this is a situation where the
insured sum is less than the actual value of the subject matter. If an application of rule of
thumb is done the insurer will only pay the insured sum.
Under insurance and average clause policies: some policies especially of marine
insurance and fire insurance, usually, contain clauses known as average clauses
under this kind of policy
i. if there is a total loss of the subject matter, the insured will be paid the whole of the
value insured and the remaining part will be a responsibility of the insured person.
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ii. If there is partial loss of the subject matter: the rule of thumb will apply the
implications of the average clause, where by the following formula is employed
Insured sum
Actual value of the subject matter
(d) Full insurance: this is a situation when the value of the subject matter insured is
equal to the insured sum.
i. If there is a total loss, the insurer applying the rule of thumb will pay the 2 million
ii. if there is partial loss the insurer will pay only that part which is equal to the loss
sustained.
ii. Discharge by expiry of the insurance contract if time set for it lapses
an insurance contract will valid only within the time prescribed for its validity. If
this time expires then any loss that is sustained thereafter is not compensable.
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8.0 Negotiable Instruments

Introduction
The payment system the world over is usually featured with three agents of payment as
follows:
(a) Payment by cash
(b) Payment by paper (paper base payment)
(c) Electronic transfer of fund.
Negotiable instruments law deals with paper base payment.
8.1 Meaning and types of negotiable instruments

Negotiable instruments: are instruments which can be negotiated.
Instrument: is a document which entitles someone to the payment of money
To negotiate in the legal sense means: to transfer a title in the document from one person
to the other. Such transfer can be done either by mere delivery (handing over the
instrument to another) or by indorsement and delivery.
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To indorse means: to write the name of a person (other than the original owner of the
instrument) to be paid at the back of the instrument and sign it.
The general definition of a negotiable instrument:

Is the instrument whose full and legal title is transferable by mere delivery or
endorsement of the instrument with the legal result that the complete ownership of the
instrument and all the properties it represents passes free from equity to the transferee
providing that the latter takes the instrument in good faith and for value.
8.2 Nature of Negotiability

Negotiability of bills of exchange
Negotiability of a negotiable instrument refers to the effective transfer of a negotiable
instrument to a third party so as to enable him to enforce it in his own name. s. 31(1)
of the BEO is to this effect in that; a bill is negotiated when it is transferred from one
person to another in such a manner as to constitute the transferee the holder of the bill.
Therefore negotiability has to do with transferability of negotiable instruments from
the payee of that negotiable instrument to a third party, in this sense there is no
negotiation between the drawer of the negotiable instrument and the payee of the
same.
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For a negotiable instrument to be fully negotiable the following features have been noted:
i. It must be such that a complete transfer of it can be made by its mere delivery with or
without endorsement although by the transferor may be necessary.
ii. A full and a legal title in the instrument must pass with such transfer; this implies
that the transferee can sue in his own name as possessing all the rights to the instrument
and to the property it represents.
iii. The title must pass to the transferee, who takes the instrument for value and in good
faith16, free from all equities (interests).
In conclusion these are features that distinguish a negotiable instrument from other
instruments; no need of drawing up a deed or registration of the same to render the
passing of title in a negotiable instrument and other negotiable instruments
Forms of negotiations
(a) It may be by way of indorsement (signing or initialing at the back of the negotiable
instrument) and delivery used in respect of order negotiable instruments.
16
According to s. 91 of BEO a thing is deemed to be done in good faith, where it is infact done
honestly If he takes it honestly and in complete ignorance of any equity affecting the title of the
transferor,it does not matter, according to this section that the thing is done negligently.
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Types of endorsement
s. 34of the BEO provides two types of endorsement:
(a) S. 34(1) an endorsement in blank; the one which specifies no indorsee and a
negotiable instrument so indorsed becomes payable to bearer. Here only the signature of
the indorser is seen without the name of the endorsee.
Illustration:
(ii) s. 34(2) special indorsement; the one which specifies the one to whom it is payable:
Illustration:
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iii. Irregular indorsement
An indorsement is irregular if it differs from the form of the order to pay e.g. if A has
drawn a negotiable instrument in favour of KISIWA (the name being spelt wrongly, it
was supposed to be KISILWA). In this case KISILWA may indorse this negotiable
instrument as KISIWA the wrongly spelt name and add his right signature. The
discrepancy between the order to pay and the indorsement results in an irregular
indorsement. See s. 32 (d)
iv. Conditional indorsement
Is an indorsement which is coupled with a condition/conditions, according to s. 33 of the
BEO, the payer may disregard this condition and proceed to pay, the payment will be
valid.
v. Restrictive indorsement
Is an indorsement which restricts further indorsement by the indorsee?
S. 35(1) of the BEO reads that:
an indorsement is restrictive which prohibits the further negotiation of the bill or which
expresses that it is a mere authority to deal with the bill as thereby directed and not a
transfer of the ownership thereof, as, for example, if a bill be indorsed pay D. only, or
pay D for the account of X, or pay D or order for collection
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According to s.35 (2) of the BEO, the indorsee in this case acts as an agent and in no
way the owner of the negotiable instrument. He has the right to receive payment to the
bill and the power to sue as that of his employer. However he does not have the power to
transfer such rights as indorsee.
(b) It may be effected by mere delivery to the third party used in respect of bearer
negotiable instruments.
These modes of delivery are provided under s. 31 of the BEO
s. 31(2) a bill payable to a bearer is negotiated by delivery.
S.31 (3) a bill payable to order is negotiated by the endorsement of the holder
completed by delivery.
Types of negotiable instruments

i. Bills of exchange
Definition: section 3 (1) of BEO
S. 3 (1) of the Bills of Exchange Ordinance, Cap 214 defines a bill of exchange as; an
unconditional order in writing addressed by one person to another, signed by the person
giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or
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determinable future time a sum certain in money to or to the order of a specified person
or to bearer.
Analysis of this section results in the following:
That a bill of exchange is;
An unconditional order
In writing
Addressed by one person to another
Signed by the person giving it
Requiring the person to whom it is being addressed
To pay on demand or order at a fixed or determinable future time
A sum certain in money
To or to the order of a specified person or to bearer
ii. Cheque
Definition: Section 73 of the BEO
Is a bill of exchange drawn on a banker payable on demand.
The difference between a cheque and an ordinary bill of exchange is that a cheque must
be drawn on a banker and payable on demand, while a bill of exchange is drawn on
any other person and payable either on demand or at a fixed or determinable future
time.
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iii. Promissory Notes
Definition: section 84 of the BEO
Is an
unconditional promise, in writing,
made by one person to another,
signed by the maker,
engaging to pay on demand or at a fixed or determinable future time,
a sum certain in money,
to or to the order of a specified person or to bearer.
8.3 Creation and discharge of bill of exchange

Creation of a bill of exchange will be right only when the futures, of the same, described
in the definition are properly reflected. These features are as follows:
i. Unconditional order or promise
When you make this instrument, make sure that it is, first of all, an order. The drawer
must order someone to pay. This order must be unconditional, by being unconditional
means it must be entirely unqualified in its application to a drawee. In more explicit terms
it must not depend on something to happen or circumstances obtaining at the time of
payment.
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Illustration of a conditional order:
Paka Mapepe pay Panya Mstaarabu Shs. 2000/= (two thousand only) if you can do that.
Signed: Simba Mzee
Date: 10/07/2007
Here the words if you can do that are conditional; the law requires that the order must
not be coupled with a condition, it must be unqualified.
See the right order in the following illustration:
Paka Mapepe pay Panya Mstaarabu Shs. 2000/= (two thousand only) on demand.
Signed: Simba Mzee
Date: 10/07/2007
And an order must be distinguished from a request. A bill of exchange must not be a
request as illustrated here under;
Paka Mapepe will you please pay Panya mstaarabu shs. 2000/= (two thousand only) on
demand.
Signed: Simba Mzee
Date: 10/07/2007
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The words will you please have the effect of making the contents of the instrument a
request.
Legal effect when an order is not unconditional
At any time if the order in an instrument is conditional, the instrument is not recognized
as a bill of exchange. See section 3 (2) of BEO.
The parties must clearly be mentioned in the instrument

If the parties to a bill are not mentioned, the court will usually disqualify it as a bill of
exchange.
Case: In Bickos v Galanos [1924] 1 TLR 599
In this case a bill was drawn as follows:
On demand pay to Mrs. Zoi Bickos or Order the sum of 1000/= money received by cash
The court held that: this is neither a promissory note, a cheque nor a bill of exchange.
Why? Not a cheque because it is not drawn on a banker
It is not a bill of exchange because the drawee is not mentioned.
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(ii) Addressed by one person to another
(a) The words Addressed by one person refer to the drawer
A bill drawn must show certainty as to parties to that instrument. The bill of exchange
must have the drawer according to s. 3 (1) of the BEO.
What makes a person the drawer of a bill/ cheque?
It is his signature; without this signature the instrument is not a bill. The signature is
required by s. 3 (1)
The signature of the drawer determines his liabilities to any person regarding the
instrument see section 23 of BEO. It follows therefore that if his signature is missing he
has no liability whatsoever.
How does a drawer sign the document?
The following ways can be used in signing:
The drawer may sign the instrument by using his usual signature.
If he is a tradesman he can sign using his business name eg. Massawe and
Company Ltd.
In case of a firm, the signature of the firm may be used. See section 23 of the
BEO. In case it one person signs, in case of a firm, the signature will bind all the
partners of a firm.
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The drawer may authorise another person to sign in his behalf i.e. procuration
signature.
Effect if signature is not drawn in the ways prescribed above:

If the instrument is not signed by the drawer or under the authority of the drawer the
document can not qualify as a bill of exchange.
This means therefore a signature which is unauthorized is as good as no signature at all.
If a signature is unauthorized it does not qualify as a bill of exchange. S. 24 of BEO
gives effect of the unauthorized or forged signature.
(b) The words to another referred to under s. 3(1) refer to the drawee
The drawee is the person to whom the drawer addresses his order.
s. 6 (1) of BEO requires that the drawee must be named or otherwise indicated in the bill
with reasonable certainty.
The section reads as follows:
The drawee must be named or otherwise indicated in a bill with reasonable certainty.
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s. 6 (2) allows the drawer to address the bill to more than two drawees but when this
happens it must not be such that the bill is addressed to them in the alternative or in
succession.
In Bickos v Galanos [1924] 1 TLR 599 discussed above
In this case the drawee was not mentioned in the document that is why the court
disqualified it as a bill of exchange.
(iii) Requiring the person to whom it is addressed to pay some certain in money to or to
the order of a specified person
The words to or to the order of a specified person appearing in the definition refer
to the payee of a bill of exchange.
According to s. 7 (1) where a bill is not payable to bearer the payee must be named or
otherwise indicated therein with reasonable certainty. Therefore the law requires that the
payee must be certain if it is Juma, then Juma must he be.
Types of payees
By s. 7 (3) there are 3 types of payees as follows:
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Where the payee is a fictitious or non existing person the bill may be treated as payable to
bearer.
i.e. there are
i. existing payee (K and I)
If the drawer knows of the existence of the payee at the time he signs the bill and in fact
he intends the payee to receive payment, then the payee in this case is referred to as the
existing payee. Knowledge and intention on the party of the drawer must be present.
ii. Non existing payee (I)
If the drawer did not know of the existence of the payee when he signs the bill, but
nevertheless intends that the payee should receive the payment, then the payee is
known as the non existing payee.
Clutton and Co. v George Attenborough & Son [1897] A. C. 90
iii. Fictitious payee

these types come into being depending on the state of the mind of the drawer; if he
knows that he exists and intends him to receive payment.
Signed by the person giving it

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Requiring the person to whom it is being addressed
To pay on demand or order at a fixed or determinable future time
A sum certain in money
To or to the order of a specified person or to bearer
8.3 Parties to the bill of exchange

8.5 Liability of parties
8.6 Discharge from liability
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291
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292

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Definition and nature of law

Genesis and development of law

Law and business

1.1 DEFINITION AND NATURE OF LAW

Due to this, then, the law may be defined as:

1.2 GENESIS AND DEVELOPMENT OF LAW

He states with my own emphasis that :

Whatever the case Gregory Allan states:

NATURE OF THE ENGLISH LEGAL SYSTEM

2. Codification (Acts of Parliament/ Statutes)

THE EXTENT OF APPLICATION OF ENGLISH LAWS TO TANZANIA

THE TANGANYIKA ORDER IN COUNCIL OF 1920

WHAT WAS THIS DECLARED LAW?

As the laws that would apply to Tanganyika.

OTHER LAWS WHICH WERE DECLARED APPLICABLE TO TANGANYIKA

WHAT ARE OTHER LAWS APPLICABLE TO TANGANYIKA APART FROM

In 1961, a Law known as the JUDICATURE AND APPLICATION OF LAWS

Therefore customary laws apply to Tanganyika subject to such limitations underscored

FUNCTION OF CIVIL LAW

The Constitution of the United Republic of Tanzania of 1977

Legislation: statutes/ Acts of Parliament

Customary and Islamic Laws

English Law subject to Reception Clauses, 22nd July 1920

LAW AND BUSINESS

Yet another writer has this to say :

The world of business is full of such terms as Partnerships, companies, contracts,

The mode of winding up etc.

GENERAL REFERENCES UNDER THIS TOPIC

http://www.lawfulpath.com/ref/laworigin.shtml as visited on 3rdmarch 2007. pp. 2-6

The Tanganyika Order in Council, 1920

2.0 Law of Contract

2.2 BUT WHAT IS A CONTRACT?

Consider the following examples:

Enforceability (bindingness) of an agreement, therefore, is the condition precedent before

2.3 FORMATION OF A CONTRACT

THOSE WHICH ARE MENTIONED BY THE LCO, CAP 433

An analysis of this section brings up three of the essential of a contract as follows:

Free consent of the parties

Competency (sometimes is referred to as capacity) to contract

Lawful object (sometimes referred to as legality)

2.4 HOW IS AN AGREEMENT MADE?

An agreement is made by two things:

2.5 THE LEGAL ENVIRONMENT OF OFFER/ PROPOSAL

i. On the basis of the terms of the proposal made

Is the offer for selling or purchasing?

What is the item, subject to that sale?

What is the price?

Q. Do the examples of the proposals given above meet these tests?

There are a number of cases decided in Tanzania to this effect:

(b) The terms of a proposal must be a final expression

These words are the decision of Lugakingira J., in

Here I refer to the willingness of the proposor/offeror to be bound by the terms he

2.6 ACTS BEARING A RESEMBLANCE TO OFFERS

(a) A mere supply of information

Reply by Facey: Telegram number 2.

Harveys further response: Telegram number 3.

Examples of invitation to treat are:

This was held in a famous English case of:

Simple facts of the case were:

In an earlier case, Pharmaceutical Society of Great Britain v Boots cash chemists

Simple facts of this case:

2.7 WHEN THEN IS THE OFFER MADE IN SUCH A SITUATION?