LECTURE NOTES ON LAW OF

CONTRACT (LAW 022)

DIPLOMA IN LAW I 2015/2016
BY
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Nuhu Suleiman
Diploma in Law I 1
 TERMS OF CONTRACT
• Introduction
In the course of negotiations, a number of statements may be made by each
of the parties, some of these eventually form part of the contract, while
others are left out. Statements which form part of the contracts are known
as terms of contract. Those which are made in the course of negotiations
but are ultimately left out of contract are called representations.
A representation is a statement that is not within the contract. If it turns out
to be false representation, either fraudulently or innocently made, it is called
misrepresentation.
If the statement is within the contract then there is a further problem of
deciding whether it is a condition or a warranty. The terms of contract may
be further classified as express and implied.

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 TERMS…
• Characterization of Contractual Statements
The statements, whether written or spoken, may be either;
a. Representations or possible misrepresentation; or
b. Contractual terms
Those statements that constitute contractual terms may be either;
a. Conditions; or
b. Warranties; or
c. In- nominate or intermediate term
Contractual statements whether conditions or warranties, may be either
express or implied. And, if broken then there is breach of contract. An
examination of contents of contract entails studying characterization of
contractual statements. Since treatment of contractual statements
presupposes presence of non- contractual (pre-contractual statements),it is
important to see what distinguishes a contractual statement from a non-
contractual statement.
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 TERMS…
• Characterization of Pre-contractual Statements.
A pre-contractual statement may be made in order to induce the other party
to conclude the contract. It may be a representation or a fraudulent
representation or misrepresentation. According to the Law of Contract of
Tanzania a representation cannot be a basis of liability. So even if the
representation be false the contract is valid and no damages are awardable.
According to section 17 of the Act if fraudulent representation is shown the
contract becomes avoidable under section 19 of the Act provided conditions
set out thereunder are fulf illed. The consequences of avoiding the contract
are set out in section 64 of the Act. There is no provision in the Contract Act
that authorizes the award of damages. However, damages may be awardable
in tort.
Where misrepresentation is shown under section 18 of the Act the contract is
voidable under section 19 of the Act provided the conditions set out
thereunder are fulf illed. Consequences of avoiding the contract are set out in
section 64 of the Act. Damages are not awardable under the Act or in tort
except where there is negligence and a special relationship within the
meaning of Hedley Byrne.v.Heller [1964]
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 TERMS…
It may not be easy to decide whether a statement is merely pre-contractual
or contractual, therefore there have been developed certain guides to assist
in deciding whether or not the statement is a contractual term.
The primary guide is the contractual intention test; Whether there is
evidence of an intention by one or both of the parties that there should be
contractual liability in respect of the accuracy of the statement.
On the totality of the evidence can it be said the maker of the statement
should have taken to have warranted the accuracy of the statement. In other
words was the statement made with the intention that its truth be
guaranteed by the contract, that is to say that inaccuracy of the statement
would result in automatic breach of contract?. If the answer is yes then it is
a contractual statement. If the answer is no then it is not a contractual
statement.

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 TERMS…
In the case of Bannerman.v.White (1861) 141 ER 685, the prospective buyer
of hops asked the seller if any Sulphur had been used in the growth or
treatment of hops. The buyer added that if Sulphur had been used he would
not even ask for the price. The seller replied that Sulphur had not been used.
In fact Sulphur had been used over 5 acres out of 300 acres. After
discovering this fact the buyer rejected the hops and refused to pay the
price.
One of the issues before the court was whether the statement of the seller
that no Sulphur had been used was a term of the contract or a mere
representation. The court held that the statement was a term because the
buyer placed much importance on the seller statement that Sulphur had not
been used. Indeed the marker of the statement was taken to have warranted
the accuracy of the statement.
In addition to the main test there are subsidiary aids as follows;
a. Accepting responsibility
Where the maker of the statement accepts responsibility on the accuracy of
his statement, then the statement is a term of the contract.
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 TERMS…
The case of Schawel.v.Reade (1913) 2 L.R.18 (HL), illustrates this point the
plaintiff required a stallion for stud purpose and went to the defendant’s
stables where he began examining a horse. The defendant said: “You need
not look for anything, the horse is perfectly sound. If there was anything the
matter with the horse I would tell you”. Because of this statement the
plaintiff did not continue the examination. Later the plaintiff purchased the
horse which proved to be no good for stud purposes.
The court considered whether the defendant’s statement amounted to the
term of or a representation. In order to answer this issue the following
questions were asked: Did the defendant make the statement to the plaintiff
in order that the plaintiff might purchase the horse and that the horse was fit
for stud purposes?. And, did the plaintiff act upon that statement in
purchasing the horse?. Did the defendant accept responsibility should the
horse prove unfit for stud purposes?
The court answered all the above questions in the aff irmative and decided
that the defendant’s statement was intended to form part of the contract
and therefore, was a term of the contract.
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b. Importance attached to the statement
If either both or one party to the contract attach(es) much importance to the
statement it amounts to a term of the contract. The case of
Bannerman.v.White (supra) illustrate this proposition.
c. Special knowledge of the statement maker
If the statement maker has a special knowledge of the subject matter of the
contract compared with the other par ty then usually his statement is
regarded as a contractual term. The case of Dick Bentley Productions
Ltd.v.Harold Smith Motors Ltd [1965] 2 All ER. 65, is illustrative of this
proposition in this case the defendants, motor dealers, made a statement to a
private purchaser of a motor car that it had done only 20,000 miles since it
was fitted with a new engine and a new gearbox. The statement was made on
the reading of milometer. The plaintiff bought the car. Latter it was discovered
that the vehicle had in fact done 100,000 miles after it was f itted with the new
engine and gearbox.
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 TERMS…
One of the issues before the court was weather the statement by the
dealers that the car had done only 20,000 miles after being f itted with a new
engine and gearbox was a term or a representation.
The Court of Appeal held that the statement by the dealers was a term of
contract was a term contract because the defendants stated a fact that
should be within their knowledge and in fact they have to have known better.
This case may be contrasted with Oscar Chess Ltd.v.Williams [1957] 1 All ER
325, In this case a private seller sold a motor car to a f irm of dealers. He
told them the car was a 1948 model and the car logbook showed that. In
fact the logbook had been altered by somebody unknown. The car was
found to be a 1939 model.
The issue was weather the statement by the private seller that that the car
was a 1948 model was a term or a representation. The trial judge held the
statement to be a term. On Appeal the Court of Appeal by majority reversed
the decision of the trial judge and held that the private seller’s statement
was a mere representation.

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 TERMS…
The rationale behind the decision was that the plaintiffs, the car dealers,
possessed special knowledge and skill about cars. The defendant, private
seller did not have such knowledge and skill. It was the plaintiff who could and
who should have discovered in time the age of the car and not the defendant
private seller. Therefore the statement of the private seller made to car dealers
concerning the age of the car was a mere representation.
d. At what stage of the transaction was the crucial statement made?
The cour ts aim at reaching a result which may reasonably ref le ct the
presumed intention of the parties. This presumed intention may be found from
assessing the interval between negotiations and conclusion of the contract. If
the interval between the time the statement was made and conclusion of the
contract is long the court will say the parties did not intend the statement to
be a term, rather a mere representation. And, as to which interval is long or
short is a question of fact depending on the circumstances of each case.

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 TERMS…
In the case of Routledge.v.McKay [1954] 1 All ER 855, the plaintiff and
defendant, private persons, discussed possible purchase and sale of the
defendant’s motor cycle. On 23 October, the defendant taking information
rd

from the registration book said that the motor cycle was a 1942 model. On
30 October, a written contract of sale was made. The contract did not refer
th

to the date of the model. The actual date was latter found to be 1930,the
plaintiff buyer, sued for damages.
One of the issues was weather the statement made on the 23 that a cycle
rd

was a 1942 model was a term or representation. The court decided that
given that the interval between the making of the statement and the
conclusion of the contract was long, that statement was not intended to be
a term of contract.
e. Was the oral statement followed by reduction of the terms into writing?
The general rule is that exclusion of an oral statement from the subsequent
document may suggest that the statement left out was not intended to be a
contractual term.

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 TERMS…
Thus in the case of Routledge.v.McKay (supra), the other ground for holding
that the statement that the cycle was a 1942 model was not a term, that
statement was not incorporated into the contract when it was drawn.
However, where ends of justice require, courts may consider the oral
st a t e m e nt a nd t he d o c um e nt s subse q ue nt l y d r a w n a s a si ngl e
comprehensive contract. In the case of Walker Property Investments
(Brighton) Ltd.v.Walker (1947) 177 LT 204, the defendants wanted to lease
plaintiff’s f lat. The plaintiff represented that if the defendant took the f lat he
was to have the use of two basement rooms for storage of his surplus
furniture and also the use of the garden. The subsequent written agreement
for the lease of the f lat made no reference to the storage room or to the
garden.The Court of Appeal held that the oral agreement should be read
with the written instrument so as to form one comprehensive contract.

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 TERMS…
• Characterization of Contractual Statements: Express Terms
Express terms may fall into three categories namely;
a. Conditions
b. Warranties and
c. Intermediate terms
A condition may be def ined as a major term of the contract breach of which
entitles the non- breaching party to treat the contract as having come to an
end.
A warranty is a minor term of the contract breach of which entitles the non-
breaching party to damages, but not to treat the contract as ended.
An intermediate term is a term which def ies rigid classif ication, but may be
major or minor depending upon the result of breach of contract.

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 TERMS…
• Conditions
While in ordinary language a condition is understood as a stipulation of
something that must be done or fulf il led before any other thing is done, the
law has given specif ic meanings to the term condition. The law def in es
condition precedent, condition subsequent and promissory condition.
a. Condition Precedent
A condition precedent is a stipulation of a state of affairs which must be
achieved before any contractual liability, or possibly further contractual
liability will be incurred. The case of Bettini.v.Gye [1876] 1 QB 183, illustrate
that proposition, in this case Bettini contracted with Gye that Bettini would
offer his exclusive services as a singer in theatres, halls and drawing rooms
for three months. Among the terms of the contract was that Bettini was to
arrive in London six days before commencement of the engagement for
rehearsals. Bettini arrived 2 days before the commencement of the operas.
Gye repudiated the contract whereupon Bettini sued for damages.
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 TERMS…
The issue considered by the court were whether it was the intention of the parties to
make Bettini’s arrival in London six days before the commencement of the operas a
c o nditio n pre c e de nt; a nd w he the r the a rriv a l o f B e ttini six da ys be f o re
commencement of the opera was so vital as to justify repudiation of contract?
The court found that there was no expression of intention of the parties to make
Bettini’s arrival six days before commencement of the operas a condition precedent
and held that the stipulation as to rehearsals was not a condition precedent. It did not
go to the root of contract.
However, in the case of Poussad.v.Spiers (1876) 1 QB 410, the plaintiff agreed in
writing with the defendant to sing in operas for three months. A few days before
commencement of the engagement the plaintiff fell sick. She could not perform in the
f irst four days. The defendant looked for and succeeded to get a replacement. When
the plaintiff recovered she was refused to perform. She sued for damages. The court
held that the plaintiff’s inability to perform on the opening and early performances
went to the root of the matter and justified the defendant’s repudiation of the contract.
Read Also: Bashford.v.Tuli [1971] HCD no. 76

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 TERMS…
b. Condition Subsequent
Parties to a contract may agree that the contract should be immediately
binding but that if certain facts are ascertained to exist, or upon the
happening of a certain event, then either the contract cease to bind or one
party is to have the option to cancel the contract. In long term supply
contract, for example, it may be provided that the contract shall terminate
when price of the goods reaches a stated amount.
c. Promissory Conditions
Conditions precedent and subsequent are sometimes referred as “Contigent”
conditions. These should be distinguished from promissory conditions. A
promissory condition is that condition which is used to express the primary
obligation of the contract. Normally when the term “condition” is used
without qualification it means promissory condition.

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 TERMS…
• Warranties
Where the parties have classif ied a statement as a warranty it means is a
minor term of the contract breach of which does not entitle the non-breaching
party to repudiate the contract. The non- breaching party is only entitled to
sue for damages.
• Intermediate Terms (Innominate terms)
Before 1962 contractual terms used to be classif ie d into conditions and
warranties. From 1962 a third classif ication was developed by the courts,
namely, that of innominate or intermediate terms. Unlike conditions and
warranties, innominate terms are not predetermined by the parties. Explaining
the place of innominate terms in the case of Hong Kong Fir Shipping Co.
Ltd.v.Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26, Diplock, L.J. said,
There are, however, many contractual under takings of more complex
character which cannot be categorized as being “conditions” or “warranties”.

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 TERMS…

If the late 19th century meaning adopted in the Sales of Goods Act,1893, and
used by Bowen L.J. in Bentsen.v Taylor, Sons & Co [1893] 2 QB. 274, 280 be
given to these terms. Of such undertakings all that can be predicated is that
some breaches will and others will not give rise to an event which will
deprive the party not in default of substantially the whole benef it which it
was intended that he should obtain from the contract; and the legal
consequences of a breach of such an undertaking, unless provided for
expressly in the contract, depend upon the nature of the event to which the
breach gives rise and do not follow automatically from a prior classif ication
of the undertaking as a “condition or a “warranty”.
Thus in certain circumstances, the court will not consider the nature of the
term that has been broken rather the nature of the breach and its effect and
give appropriate relief.

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 TERMS…
• Characterization of Contractual Statements: Implied Terms
Parties to a contract may fail to express the terms of their contract. The
terms may have been in the minds of the parties when making the contract
but they did not trouble themselves to express them. Such terms may be
implied in the contract.
Terms by be implied into the contract either by;
a. Customs or
b. The Courts or
c. Statute
Terms Implied by Customs
Terms may be implied by the custom of a locality or by the usage of a
particular trade, but such custom or usage must be notorious, certain,
invariable and reasonable and must not be against the intention of any
legislative enactment.

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 TERMS…
The terms will only be implied in a contract to give effect to the parties’
i n t en t i on s a n d eff ic a cy t o t h e con t ra ct , for exa mpl e i n t h e ca se of
Khalfan.v.Kichwa [1980] TLR. 309, the plaintiff gave some money to the
defendant so that the latter could do some furniture business with it. The
money was given and received under the agreement that did not mention
payment of interest as a term.The defendant repayed the money that was
given to him and the plaintiff claimed that he be paid interest. He argued that
although there was no term in the agreement providing for payment of interest
such term could be implied by custom of trade.
Addressing this argument the court said:
“In order for a term to be implied, the custom or usage from which it purports
to derive mus be notorious and invariable. It is only in those circumstances
that the court can be assured that it is giving effect to the intention of the
parties. But even in the existence of the custom or usage, the court would not
imply a term if it would be contrary to the express words of the contract”.

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 TERMS…
In this case the cour t found that what was given and received was
expressed in the agreement as “Karadha” which according to the dictionary
meant money on loan, advance, credit, but without interest being charged.
Therefore implying payment of interest in the agreement would be contrary
to the express terms of the agreement.
Terms Implied by the Courts
As a general rule courts will not imply terms into a contract because they
regard their role as that of enforcing agreements made by the parties.
However in a number of situations courts will imply a term where it is clear
that if the parties had considered the matter at the inception of the contract
they would have inserted the term and where such implication is necessary
in order to give business efficacy to the contract.
Courts do imply terms in certain common types of contract to ensure that
neither party takes unfair advantage of the other with the view to providing
adequate protection to both parties even when little time was spent on
detailed negotiation of the term.

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 TERMS…
In the case of Merali Hirji & Sons.v.General Tyre (E.A) Ltd [1983] T.L.R. 175,
The appellant was verbally appointed to sell tyres and tubes of the
respondent in Tukuyu and Kyela districts. He was the sole dealer in those
goods in those districts. He used to purchase the goods from the
respondent at 15% discount and transport same to his shop in Tukuyu. The
relationship lasted for f iv e years. Then the respondents terminated the
contract without giving notice. The appellant f il ed an action claiming
damages for breach of contract in that the respondent had terminated the
relationship without giving notice.
The court of Appeal of Tanzania was of the view that although there were no
provisions governing the commercial relationship between the parties, the
parties had a duty to imply reasonable terms into a contract; one of such
reasonable terms was the requirement of a reasonable notice before
termination of the contract.
Read Also: Liverpool City Council.v.Irwin [1976] 2 All E.R. 39
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Terms implied by Statute
Many of the terms that were originally implied by the courts have now
been given statutory recognition. In Tanzania the statutes that contain
implied terms include the Sale of Goods Act [Cap 214 R.E 2002], the
Hire Purchase Act [Cap 14 R.E 2002], and the Fair Competition Act No.
8 of 2003.
The Sale of Goods Act carried implied conditions and warranties. In a
contract of sale, unless the circumstances of a contract are such as to
show different intention, there is an implied condition on the part of
the seller that in the case of a sale he has the right to sell the goods,
and that in the case of an agreement to sell he will have the right to sell
the goods at the time the property is to pass.
Where goods are sold in description there is an implied term condition
that the goods shall correspond with the description, where the sell is
agreed to be a sale by sample then there is an implied term that the
bulk must correspond with the sample in quality etc.
Read Also: Zachary.v.Biharamulo District Council [1970] HCD n. 323
Issack.v.Frank [1971] HCD. n 168
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 TERMS…
The implied terms in consumer contracts are contained in sections 29 to 32
of the Fair Competition Act, no 8,2003.These includes implied undertakings
as to title, encumbrance and quite possession. Implied undertakings in case
of supply by description, implied undertakings as to the quality and f itness,
and implied undertakings in the case of supply by sample.
Note: Implied terms may be excluded by the parties by inserting into the
contract express terms excluding them

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• Standard Form Contracts and Exemption Clause
The standard form contract are prepared by one party, the stronger
contracting party. The party that prepares a contact is free to insert into the
contract whenever terms that may benef it him provided he does so within
the law. It has been common for a party that prepares the contract to
incorporate into the contract clauses that tend to absolve him from liability
in case he breaches the contract. These clauses are known as exemption
clause.
• Exemption Clauses: Types, Meaning and Purpose
Exemption clauses may be divided into two groups,namely exclusion
clauses and limitation clause. An exclusion clause is intending to exclude
the breaching party wholly from liability in case he breaches the contract.
A limitation clause is intended to limit liability of the breaching party to
certain amount only.
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The main aim for inserting an exemption clause is to protect the breaching
party from liability in case of breach of contract. While an exemption clause
is intending to wholly exclude a party from liability, a limitation clause is
intended only to limit that liability to a specified or ascertainable amount.
The Courts and Exemption Clauses.
Standard terms contracts which contain exemption clauses are usually
prepared by stronger contracting parties. These parties do insert exemption
clauses in contracts with intention that they may protect their own
economic interests to the detriment of the weaker contracting parties.
Due to this the courts developed devices that were intended to check the
indiscriminate use of exemption clause by the stronger parties. The devices
included in our laws today are as follows:
• Incorporation of the clause into the contract by notice, by signature, by
course of dealing
• Inclusion of a reasonable exemption

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• Must be clear and unambiguous
• Where there is a misrepresentation an exemption clause not to be binding
beyond such misrepresentation
• Where there is fundamental breach of contract the breaching party may not
be allowed to invoke an exemption clause in his favour
a) Incorporation of the clause into the contract
The courts always insisted that where a party wished to invoke an exemption
clause in his favour he had to show that, that clause was a term of contract
that was agreed upon by the par ties to the contract, this means it is a
requirement for application of the clause that the weaker party had prior
knowledge of the and had accepted the exemption clause.
The stronger contracting party had therefore to communicate exemption
clause to the weaker contracting party and ensure that the other party had
accepted the exemption clause as a term of the contract.
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 TERMS..
Whether a party was made aware of presence of an exemption clause in a
contract and weather he accepted it is often a question of fact to be
ascertained from the evidence adduced.
In the case of Star Service Station Co. Ltd.v.Tanzania Railways Corporation
[1989] TLR 1, the plaintiff sued the defendants claiming damages for loss of
goods, namely petroleum, consigned to the latter for transportation from Dar-
es-Salaam to Shinyanga. The defendants raised a preliminary point of
objection arguing that they were not liable under the “Conditions of Carriage”
contained in the tariff book which stated that “dangerous goods” such as
petroleum products are carried at owner’s risk as the defendants are not
common carriers. The court observed that in cases in which one party to
contract inserts a term excluding or limiting liability which would be otherwise
his, the question weather or not the other party was made aware of such
clause and accepted it is often a question of fact to be ascertained from the
evidence adduced. Rarely can the question be dealt with as a preliminary point.

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 TERMS…
The following methods may be used to ensure that the weaker contracting
party is made aware of presence of exemption clauses:
By Notice
A party to be affected by an exemption clause is entitled to reasonable
notice of its existence before his acceptance of it as part of the contract.
Where the clause is contained in a contractual document then it is assumed
that the party got reasonable notice of its existence.
Where a document handed over to a party is not a contractual document
then if there is any exemption clause contained in such document, or
referred to in such document, the same must be communicated to the other
party with reasonable certainty. It follows, therefore, it is not enough to put
up a printed notice or issuing a printed catalogue containing exemption
clauses.
The clause must be sufficiently brought to the attention of the other party so
as to make it part of the contract (see Dar es Salaam Motor Transport Co
Ltd.v.Mehta and others [1970] E.A. 596 )
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 TERMS…
The party who wishes to invoke exemption clauses in his favour must go
further and show aff irmatively that it is a contractual term and accepted as
such by the party affected, alternatively, he should show that the notice of
the presence of the exclusion clause has been communicated to the other
party before the contract is concluded. So that in an hotel where the
contract is entered into at the reception, terms including exemption clauses
that are found in the room (and not communicated to the other party before
the contract) do not bind the quest (See Olley.v.Malborough Court Hotel Ltd
[1949] 1 KB 532 )
By Signature
An exemption clause may be incorporated into a contract by signature. The
rule is that a person who signs a contractual document is bound by its terms
even though he may not have read them. Indeed ,a signature is a conclusive
evidence that the person who has signed owns the document with it the-
exemption clauses. One will be bound by a document he has signed even if
he has not read it (See L’Estrange.v.Graucob Ltd [1924] 2 KB 394)

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By Course of dealing
Incorporation of exemption clauses by course of dealing entails party
dealing with each other for considerable period of time. Where there has
been a long consistence course of dealing between parties on the terms
incorporating an exemption clause then the clause may apply to a particular
transaction even though in relation to it the usual steps to incorporate the
clause have not been taken.
b) Must be Reasonable
It has been always insisted that exemption clause must be reasonable.
Consider an exemption clause by most bus owners that reads “passengers
shall be responsible for their own luggage and that the bus owner shall not
be responsible at all for loss of luggage of the passenger howsoever that
loss occurs". Clauses like this is probably unreasonable and the courts may
not allow the stronger contracting parties to invoke them in their favour.

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c) Must be Clear and Unambiguous

The courts developed the rule that any ambiguity in an exemption clause
should be interpreted against the party that drew the contract and inserted
the clause (contra proferentem rule).
The courts requires that those who draw up standard form contracts and
insert exemption clauses to ensure that the clauses they insert are clear and
unambiguous. If there is any ambiguity the same shall be interpreted against
the party who drew it (See Houghton.v.Trafalgar Insurance [1954] 1 QB 247)
d) Where there is a misrepresentation an exemption clause not to be binding
beyond such misrepresentation.
Where a misrepresentation has been made an exemption clause should not
be binding beyond the misrepresentation even where the non-breaching party
has signed the document.

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 TERMS…
The general rule is that a person is bound by his signature and he cannot be
heard to say that he did not understand the document or that it was too
technical and too diff ic ult. However, where a misrepresentation has been
made then the person would not be bound beyond the
misrepresentation(See Curtis.v.Chemical Cleaning Co [1951] 1 KB 805).
e) Where there is a fundamental breach of contract the breaching party may
not be allowed to invoke an exemption clause in his favour.
Where there is a fundamental breach of the contract the breaching party
may not be allowed to invoke the exemption clause in his favour. Before
1950’s the courts assisted the weaker contracting parties by requiring those
who invoked exemption clause by applying any four of the discussed
devices above.
Underlying those devices is the important aspect of the intention of the
parties which the courts always respected. There were cases however, that
could not be satisfactory dealt with by applying any one of those devices.
Thus the court developed the doctrine of fundamental breach.
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 TERMS…
Before the development of this doctrine even where a party committed a
breach that went to the root of the contract so as to deprive the non-
breaching party of all benef it under the contract, the courts looked at the
intention of the parties and interpreted the situation to see whether or not
the parties intended the exemption clause to apply. From mid 1950s the
Court of Appeal of England developed a principle that where a party
committed a breach that went to the root of the contract then the court
would as a matter of law, deny him the right to invoke the exemption clause
in his favour. Denying a party his right to invoke an exemption clause in his
favour, as a matter of law, come to be known as the doctrine of fundamental
breach.

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