LECTURE EIGHT

ESSENTIAL ELEMENTS OF A CONTRACT

Lecture Contents:

 Parties to a Contract

 Offer and Acceptance

 Lawful Object

 Capacity to Contract

INTRODUCTION

This lecture introduces students to the first four essential elements of the valid contract. Students will
observe that a valid contract must bear parties to contract, a lawful object of contract, a capacity to
contract and an offer and acceptance among others. This lecture is geared to prepare students to
understand the first four elements essential to the valid contract.

OBJECTIVES

At the end of this Module students are expected to be able to;

 Identify the first four essential elements of a valid contract

 Discuss what a valid contract entails

 Demonstrate the legality of various agreements in a contract

PARTIES TO A CONTRACT

In every contract there must be two parties. These parties may be natural persons are for instance:
Neema, Juma, Rose etc. while artificial persons are persons created by law for Example companies,
corporations and

other associations or organizations which are empowered by law to enter into contracts. Therefore, a
contract may be between natural persons and natural persons, natural person and artificial persons or
artificial persons and artificial persons.

PROPOSAL/OFFER

An offer may simply be defined as a set of terms moving from one party to another-
An offer or proposal is defined under s. 2(1)(a) of the Law of Contract Act as a signification by one person
to another of his willingness to do or abstain from doing anything with a view of obtaining the assent of
that other to such ac for abstinence.

A contract therefore is an agreement and it comes into existence when one party makes an offer which
the other accepts. The person making the offer/proposal is called the offeror/ proposer and the person
to whom it is made is called the offeree/ proposee.

Example: Suppose X says to Y " I will sell you this watch for 5/=" and Y says "I agree." An express offer
and acceptance have been

made; X is the offeror and Y is the offeree .

CHARACTERISTICS OF AN OFFER

1: It must be made willingly: ie. The offeror must be willing to be bound by_the_terms he has stated.

2: It must be clear and certain: ie. Clarity and certainty of an offer are essential because the person to
whom the offer is made should be in a position to know what the offer is. If the terms of the offer are
not certain yet the offeree accepts the offer the agreement reached will be treated by the law as no
agreement at all. Under s. 29 of the Law of Contract Act, agreements, the meaning of which is not
certain or capable of being made certain are void.

3. Final Expression: an_offer must be firm and final expression by the offeror of his willingness to be
bound_should his offer be accepted.

TO WHOM CAN OFFER BE MADE?

An offer can be made to specific persons or group of persons or to a

Public at large.

In Carfill v. Carbolic Smoke Bad Co., (1893) 1 QB 256. The defendants were proprietors of a medical
preparation called "the carbolic smoke ball." They inserted advertisements in various newspapers in
which they offered to pay £100 to any person who contracted influenza after using the ball three times a
day for two weeks. They added that they had deposited £1000 at the Bank for that purpose. The plaintiff,
a lady, used the ball as advertised, and was attacked by influenza during the course of treatment. She
sued for £100.

The Company raised the following defenses to which the court held as follows:

a) The company argued that the offer was too vague since no time limit was stipulated in which the user
was to contract influenza. To this the court held: that it must have been the intention that the ball would
protect its user during the period of its use.
 b) The Company suggested that the matter was an advertisement "puff and that there was no intention
to create legal relations. To this the court held: that the deposit of £1000 at the bank was clear evidence
of an intention to pay claims.

c) It was further suggested that this was an attempt to contract the whole world and this was not
possible in English law. To this the court held: that the advertisement was an offer to the whole world
and that, by no analogy with the reward cases, it was possible to make an offer of this kind.

d) The Company claimed that the plaintiff had not supplied consideration. To this the court held: that
using this inhalant three times a day for three weeks or more was sufficient consideration.

e) The defendant suggested that there had been no communication of acceptance. To this the court
held: that looking at reward cases, contracts of this kind, acceptance may be by conduct.

Making of offers under various situations

OFFER/PROPOSAL VS. INVITATION TO TREAT

Sometimes what looks like an offer may be no more than an invitation to make an offer, or as it is
sometimes called an invitation to treat.

The invitation to treaty unlike proposal is not final, clear in expression but merely an invitation to be
bound in those terms. The inviter process certain terms on which he is willing to negotiate.

He invites any person to make an offer which he may accept or reject.

COMMON CASES FOR INVITATION TO TREAT

Where goods are displayed for sale: This is merely invitation to treat even if they bear price tags in a self
service shops/stores.

Re: Fisher v. Bell, (1961)1QB

In this case Bell was charged with offering for sale a flick knife in violation of the Restriction of Offensive
Weapons Act, 1959, the

relevant provision which read in part

“ any person who manufactures, sells, or hires or offers for sale or lends or gives to any person ...a flick
knife shall be guilty of an offence."

The trial court decided that there had not been an "offer for sale" of the flick knife. On appeal to the
Queens Bench it was held that in the absence of a definition of "offer for sale" in the Act, the words were
to be construed as they are in the law of contract.
The court observed 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.

Also see Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd, (1953) 1 QB 401

The defendants' branch was adapted to the self service system. Customers selected their purchases from
shelves on which the goods were displayed and put them into a wire basket supplied by the defendants.
They then took them to the cash desk where they paid the price. In every case involving sale of a drug a
pharmacist supervised that part of transaction which took place at the cash desk and was authorized by
the defendant company to prevent, if he thought fit, any customer from removing any drug from the
premises. One section of shelves was set out with drugs included in the poisons list under the Pharmacy
and Poisons Act, 1933 which were required to be sold in the presence of a qualified registered
pharmacist. These drugs had price tags.

The plaintiffs which were a body empowered to enforce that Law sued the defendants for infringing the
provisions of the said law by selling drugs in contravention of the laid down procedure.

The plaintiff Society argued that by their deliberately devised self-service system, the defendant was
making an offer to sell and the customer accepted the offer when he picked an article from the shelf and
put it in the basket and the contract of sale was concluded.
:
The court held that the self-service system did not amount to an offer by the defendant company to sell
but merely an invitation to the customer to offer in case of a drug, to buy; that such an offer was
accepted at the cashier's desk under the supervision of the registered pharmacist; and that there was,
therefore, no infringement of the section.

(b) Advertisements:

These are mere invitations to treat.

In Patridge v. Critendem (1968) 2ALLER 421

The appellant had placed an advertisement indicating that he had certain wild birds for sale. The
advertisement did specify the price but gave no details about delivery or quantities available. It was an
offence to offer such birds for sale. In order to prove the offence it was necessary to prove that the
advertisement was an offer.

The trial court was satisfied that the advertisement was an offer and thus convicted the accused. On
appeal it was argued that the advertisement was not an offer but a mere invitation to treat because,
first, the advertisement was not sufficiently specific to amount to an offer.

Secondly, the court said that it would not be reasonable to think that the appellant was willing to be
bound by any and every acceptance made.

(c) Request, for information:

A request for information is an invitation to treat.

The appellant sent a telegram to the respondent asking "will you sell us Bumper Hall Pen? (this was a
piece of land).telegraph lowest cash price, reply paid." The respondent replied simply " lowest price of
Bumper Hall Pen £900." The appellant then purported to accept this offer. The respondent denied that
his reply was an offer. The Court held that no offer had been made which the appellants could accept.
The reason given by the court for its decision is that the respondents did not reply to the first part of the
question " will you sell us Bumper Hall Pen?" Rather that the reply was limited to the second part of the
question " telegraph the lowest cash price"

(d) Contract by tender:

In contracts by tender offers are made by those tendering. The law is to the effect that where a person is
invited to tender under certain conditions and he complies then he acquires a right to have his tender
considered along with other tenders. But it should be noted that a person who invited tenders must
accept the tender. The right is limited to the tender being opened and considered. Thus this is a mere
invitation to treat.

(e) Contract of sales:

The Advertisement of an auction is an invitation to treat. At an auction a bid is an offer, the auctioneers
request for bids is an invitation to treat. The sale is complete when the hammer falls.

ACCEPTANCE

Once an offer is proved it must be satisfied that the offeree has accepted die offer for there to be a
contract. Thus the person who accepts the offer must be aware that the offer has been made.

Under the Law of Contract Act s.2(l)(b) - Acceptance is defined as an assent to the proposal by the
person to whom it was made.

Acceptance must be firm and final: The signification of acceptance must be a firm and final expression of
assent to the terms of the proposal as communicated by the offeror/proposer.

Conditional acceptance: An acceptance must be absolute and unconditional. If the acceptance is,
qualified it ceases to be accepted instead it becomes a counter offer to the original proposal. The original
proposal would be free to accept or reject the counter offer.

One form of conditional assent is an acceptance "subject to contract." The law has placed a special
significance on these words, and they are always construed as meaning that the parties do not intend to
be bound until a formal contract is prepared.

In Winn v. Bull ( 1877) 7 Ch. D. 29

The defendant had entered into a written agreement with the plaintiff for lease of a house, the term of
the lease and the rent being agreed. However, the written agreement was expressly made "subject to
the preparation and approval of a formal contract." It appeared that no other contract was made
between the parties. The plaintiff sued for specific performance of the agreement.

It was held that the written agreement provided a memorandum under law (s.4 of the Statute of Frauds,
1677) but there was no binding contract between the parties because, although certain covenants are
normally implied into leases, it is also true that many and varied express covenants are often agreed
between the parties. That words "subject to contract" indicated that the parties were still in a state of
negotiation and until they entered into a formal contract there was no agreement which the court could
enforce.

But there is a different position if the statement is qualified and the terms of a proposed contract can be
identified. In this case the court will enforce it.

In Filsby v. Hounsel (1896) 2 Ch. 737

Property had been offered for sale by auction but had not been sold. An offer was then made to buy the
property, stating that if the offer was accepted the purchaser would sign a contract "on the auction
particulars." This offer was accepted "subject to contract as agreed."

It was held that the parties were bound by a contract drafted on the auction particulars, although they
had not signed a formal contract.

Counter offer : A counter offer is a rejection of the original offer and in some cases has the effect of
canceling it. Where the counter offer introduces a new term, the original offer is cancelled.

Hyde v. Wrench, (1840) 3 Beav. 334

In this case the defendant offered to sell his farm at £1000 to the plaintiff on June 6. The plaintiff’s agent
immediately called on the defendant and made an offer of £950 which the defendant wished to have a
few days to consider. On June 27 the defendant wrote to say that he could not accept the offer of £950.
On June 29 the plaintiff wrote "accepting" the offer of June 6. The defendant refused to sell his land to
the plaintiff at £1000

The plaintiff filed a case asking the court to award an order of specific performance. i.e. To order the
defendant to sell him the farm at £1000.

The court held that the plaintiff could not enforce this "acceptance" because his counter offer of £950
was an implied rejection of the original offer to sell at £1000 (of June 6). So when the plaintiff purported
to "accept" the June 6 offer, in fact there was no such offer.

Rules governing acceptance

Constitute acceptance the offeree's signification of assent to the proposal must:

(a) Be made in response to the offer

(b) Exactly match the terms of the offer

(c) The matching acceptance must be communicated to the offeror,

communication of Acceptance

Acceptance may be made in various ways. It may be made in writing or orally, but it must in general be
communicated and communication must be made by a person authorized to make it.

Powell v. Lee , (1908) 99 L.T. 284

The defendants were managers of a school and wished to appoint a headmaster. They passed a
resolution appointing the plaintiff (Powell) among other two applicants to be the headmaster but gave
no instruction pat this decision was to be communicated to him. One of the managers was instructed to
inform one of the candidates (Parker) that he had not been selected. This manager without authority
also informed Powell that he had been selected.

[Later the matter was reopened and Parker was properly appointed. Lee then informed the plaintiff that
this appointment had been made. The plaintiff sued the six managers for damages for breach of
contract.

The court held that there was no contract because there was no authorized communication of the
intention to contract by the lanagers.

See also Felthouse v. Bindley (1862), 11 C.B. (N.S.) 86

Principally, acceptance must be communicated to the offeror. However, it can also be communicated to
an agent of the offeror who is authorized to receive acceptance. Thus, where the authority given to the
agent is merely to transmit no acceptance is complete until it reaches the principal.

However, there are some cases in which the offeror is deemed to have waived communication of the
acceptance. This most often occurs in the case of unilateral contracts such as a promise to pay money in
return for some act to be carried out by the offeree. Performance of the act operates as an [acceptance,
and no communication is required. Re. Carlill u. Carbolic [Smoke Ball Co. Ltd, (supra)

The mode of communication of acceptance

Under common law communication of acceptance is normally by post either through a letter or a
telegram. The main issue has always been "when is [communication of acceptance complete?" Due to
this the courts have developed the postal rule. The postal rule states that once a mail is correctly
addressed , a proper stamp put on it and put in right hands of the postal officer, that is effective
communication unless expressly excluded by the offeror.

Therefore, on correctly posting the letter of acceptance both parties become [irrevocably bound].
However the same rule applies to acceptance by telegram.
A better view is that under Common Law an acceptance cannot be recalled once it has been posted even
though it has not reached the offeror.

Despite all this position, the offeror may signify the mode of acceptance which is different from the use
of post eg telex, email, fax etc. But under common law sometimes the court may refuse to recognize
some modes of acceptance.

For instance, in Entores v. Miles Far East Corporation, (1955) 2Q.B. 327. The plaintiff a London company
and the defendants, an American Corporation with agents in Amsterdam made an offer by telex to the
defendants' agents who accepted also by telex. When the dispute arose the Court of Appeal of England
held that the parties were in the same position as if they had negotiated in each other's presence, thus
no binding contract was created until the plaintiffs in London had received acceptance.

About e-mail services, the European Union Parliament passed a rule that a contract is formed when
acceptance is confirmed.

Some important authorities on posting Rule

Adam v. Lindsell, (1818)

In this case it was held that where acceptance is communicated by post a contract arises on the date
when the letter of acceptance is posted.

Household Fire and Accident Insurance Co. Ltd. v. Grant , (1879)

Here it was held that " an acceptance which only remains in the breast of the acceptor without being
actually and by legal implication communicated to the offeror is no binding acceptance... But if the post
be treated as agent of both parties, then as soon as the letter of acceptance is delivered to the post
office, the contract is made as complete and final and absolutely binding as if the acceptor had put his
letter into the hands of a messenger sent by the offeror himself as his agent to deliver by the offer and to
receive the acceptance..."

Bryne v. Van Tienhoven , (1880)

It was held that a contract is complete on posting letter of acceptance even though the letter may not
reach the offeror (its destination).

Henthorn v. Fraser, (1892)

It was held that where circumstances are such that it must have been within the contemplation of the
parties that, according to the ordinary usage of mankind, the post might be used as a means of
communicating the acceptance of an offer, the acceptance is complete as soon as it is posted.

COMMUNICATION OF ACCEPTANCE UNDER THE L.C.A.

Mode of communication
There is no an express rule governing postal services under the Act but the s.4 (2) reads:

"Communication of an offer is complete:

(a) as against the proposer, when it is put during 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."

Therefore, the parties are bound at different times. Unlike the position under the Common Law in which
after the acceptor has put the acceptance into the mode of transmission both parties are irrevocably
bound. Thus under the Act, the rule is that, where an acceptor posts his letter of acceptance so that the
letter is out of his power, then the proposer is bound but not the acceptor himself. The acceptor is bound
when his acceptance conies to the knowledge of the proposer.

As far as the other modes such as telex, fax, and e-mail there is no authority at the moment in Tanzania
but the English authorities are persuasive.

REVOCATION

Revocation means to withdraw or to recall. The offeror may revoke his offer, but to be effective, this
must be done before the acceptor has parted with his acceptance. This is a position under both the
Common Law and the L.C.A. Thus under s.5 (1) An offer may be revoked at any time before the
communication of its acceptance is complete as against the proposer but not afterwards.

In the same way under the L.C.A. the acceptor may revoke his acceptance but also this must be done
before his acceptance comes to the knowledge of the offeror. Thus s.5 (2) provides that "an acceptance
may be revoked at any time before the completion of its communication." This position is not the same
under the Common Law where the rule is that once the acceptance has been duly posted it cannot be
revoked by a faster means because both parties are irrevocably bound.

Thus for example under Common Law if X has posted an acceptance to Y, he cannot withdraw the same
by telephoning Y and asking him to ignore the letter of acceptance when it arrives. And Y can hold X
bound by the contract if he wishes to do so.

If successful, the revocation has an effect of nullifying the offer (if it is a revocation of an offer) or
acceptance (if it is a revocation of acceptance).

Note: -The L.C.A. position is more favourable to the acceptor than

the common law position as regards revocation. - Revocation of an acceptance is not effective until its
communication is complete.

-Revocation discussed above is a revocation done by the offeror sending a notice of revocation to the
offeree. (S.6 (a)

Revocation of proposal / termination of an offer

Under the L.C.A there are many other circumstances in which a proposal can be revoked. These are
provided for under s. 6. These include:

1. Revocation by notice: As discussed above

2. Lapse for want of acceptance

An offer may provide that it will remain open for a specified period of time - This acceptance must be
effected within times limit. Where time is not indicated the offer must be accepted within a reasonable
time.

3. Death/insanity of the offeror

Death/insanity renders the offer to be incapable of acceptance. Under the L.C.A this happens where the
fact of death/insanity is known to the acceptor before acceptance - S.6 (d). The law seems to suggest
that if the fact of death is not known to the acceptor at the time of acceptance then he should be
entitled to accept the offer.

4. Failure of the acceptor to fulfill conditions:

This happens when the acceptor has failed to fulfill the conditions precedent to acceptance.

Formation of an Agreement:

Once an offer has been accepted a binding contract is formed: Anson holds that an acceptance to an
offer is what a lighted match is to a raining of gunpowder: It produces something which cannot be
recalled or undone. In other words when the offer is accepted, both the offer and acceptance are
terminated / they come to an end and in their place a contract comes to existence.

LAWFUL OBJECT

The object of the contract must be lawful or legal. An agreement in which the object is unlawful is void -
(s.23(2))

For instance the agreement to carry out an act which is forbidden by public law is void. The same applies
to an agreement which is contrary to public policy.

CAPACITY TO CONTRACT

Capacity to contract refers to competence to contract. The general rule is only sane, sober persons of
contractual age are capable of making valid contracts.

This means that certain groups of persons natural and artificial may have the disabilities to contract.
Under s.ll of the L.CA refers to competency. Thus minors persons of unsound mind, and person
disqualified by law cannot qualify to make contracts.

Factors Vitiating Capacity

There are factors winch vitiates / negatives the capacity to contract. These factors include age,
soundness of mind and disqualification by law.

AGE

A minor or an infant is not competent to contract generally, (see s. 11(1). Minors or infants are persons
who have not attained the age of majority. The age of majority is mature age. Sometimes this age is
referred to as being the contractual age. The age of majority is determined by laws, to which a person is
subject. Such an age therefore may differ from one country to another.

in Tanzania mainland the Age of Majority Act, Cap.431 and the Laws of

Zanzibar Cap. 53, provide that the age of majority is 18 years.

In Kenya - Age of Majority Act 1974 - 18 years

In Uganda - Uganda Contract Act Cap.75 - 18 years

In England before 1969 - It was 21 years but The Family Law Reform Act established 18 years.

WHY IS AGE COMPETENCE IMPORTANT IN CONTRACTS?

A person without capacity lacks intellectual maturity, lacks experience to exercise sound judgment and
as a result he may not know or appreciate the effects of the agreement upon himself. Thus, since he
cannot protect himself then he needs the protection of the law.

Note: The protection by law in some cases is not absolute. There are circumstances where the legal
protection can be waived.

But despite the above legal position, the true fact remains that minors/ Infants enter into agreements
with majors every day.

HOW IS THE CONFLICT RESOLVED?

Two principle ideas are advanced concerning the law on minors / infants.

1. That the law protects minors from their inexperience, hence to invalidate agreements which are unfair
to the minors or which are wasteful.

2. The law is not to cause unnecessary hardship to adults who deal fairly with minors.

It is under the second principle idea that the law recognizes some contracts with minors as being valid
and others as voidable.

Additionally, a minor may be liable on quasi-contract and in equity where he is found guilty of fraud.
Therefore, contracts by a minor may be valid, voidable or void depending on the principles explained
above.
(a) Valid, contracts by a minor:

THE COMMON LAW POSITIONS

The position under the Common Law is that all agreements for necessaries and beneficial contracts of
service with a minor are valid. It should be borne in mind that the latter category (ie. Contracts for the
benefit of a minor) apply only to the contracts of the nature of apprenticeship, education or analogous
contracts.

THE TANZANIAN POSITION

The Law of Contract Act provides that the effect of incapacity is to render the contract to be void. It is
silent on the issue of contractual liability of a minor. The Act however regards some agreements entered
into by a minor as being "relations which resemble those created by a contract." Thus s. 68 provides:

"If a person incapable of entering into a contract, or any one whom he is legally bound to support, is
supplied by another person with necessaries suited to his condition in life, the person who has furnished
such supplies is entitled to be reimbursed from the property of such incapable person.”

Therefore, it can be seen that a contract with a minor is not recognized as a contract but as a relation
resembling a contract and where a person has supplied necessaries to a minor he is entitled to
reimbursement from the property of the minor.

Also the Sale of Goods Act, a minor who has been supplied with necessaries must pay a reasonable
price.(s. 4 proviso Cap. 214)

WHAT ARE NECESSARIES?

Necessaries are not defined under the L.C.A. but the Sale of Goods Act. defines necessaries as:

"goods suitable to the condition in life of such infant I minor or other person and to his actual
requirement at the time of sale and delivery." (see s.4 proviso, Cap. 214)

This definition may not be satisfactory. One may say that necessaries are things or services without
which an individual cannot reasonably exist. Thus food, shelter and clothing are necessaries and in
addition education and medical services may be included on the list of necessaries. One ought to note
that what is or is not a necessary will depend on the condition in life of the minor. As such articles that to
one person might be mere convenience or matters of taste, may in the case of another be considered
necessaries. The agreements for supplied / offered goods / services which are necessaries will not be
treated as void. On the other hand no

contractual liability will be imposed on the minor. The person supplying the goods or offering’s the
services becomes entitled to either a reasonable price or reimbursement from the property of the minor
if he has any.
NB: The general test of necessaries is that of utility and in this connection the minors condition in life
together with the supply of such goods which he already has, become relevant.

REFERENCE CASES

Nash v. Inman (1908) 2 KB I

The plaintiff was a tailor and the defendant was an infant undergraduate of Cambridge. The plaintiff sent
his agent to Cambridge because he had heard that the defendant was spending money freely and might
be sort of a person who would be interested in high class clothing.

As a result, the plaintiff supplied the defendant with various articles of clothing to the value of £145
during the period of October 1902 to June 1903. The clothes included eleven fancy waist coats.

The plaintiff sued the infant for the price of the clothes. The evidence showed that the plaintiff s father
was in good position and it could be said that the clothes supplied were suitable to the defendant's
position in life. However his father proved that the defendant was amply supplied with such clothes
when the plaintiff delivered the clothes in question. Thus it was held that the plaintiffs claim failed
because he had not established that the goods supplied were necessaries.

Elkington v. Ameiy , (1936) 2 Ail ER 86

The defendant, was an infant and the son of a former minister- He purchased from the plaintiff an
engagement ring and an eternity ring, the court treating the latter as a wedding ring. He also purchased
a lady's gold vanity bag.

The court treated the two rings as being necessaries but did not accept that the vanity bag was a
necessary because there was no evidence to show that it was purchased in respect of the engagement.

Robberts v. Gray , (1913)

The defendant wished to become a professional billiards player and entered into an agreement with the
plaintiff, a leading professional to go on a joint tour. The plaintiff went to some trouble in order to
organize the tour, but a dispute arose between the parties and the defendant refused to go. The plaintiff
sued for damages of £6000.

The court held that, the contract was for the infant benefit being in effect for his instruction as a billiard
player. Therefore the plaintiff could sustain an action for damages for breach of contract, and damages of
£1,500 were awarded.

Merchantile Union Guarantee v. Ball , (1937) 2 KB 498

The purchase on hire purchase terms of a motor lorry by an infant carrying on business as a haulage
contractor was held not to be a contract for necessaries but a trading contract by which the infant could
not be bound.

De Franceso v. Barnum , (1890) 45 Ch. D. 430

Two infants bound themselves in contract to the plaintiff for seven years to be taught stage dancing. The
infants agreed that they would not accept any engagements without his consent. They later accepted an
engagement with Barnum and the plaintiff Barnum for interfering with the contractual relationship
between himself and the infants, and also to enforce the apprenticeship deed against the infants and to
obtain damages for its breach.

The contract was prima facie for the benefit of the infants and so would be binding on the infants.

But the court considered the contract further in detail and it is found up some erroneous terms: eg. The
infants bound themselves not to marry during the apprenticeship; they were paid very poorly; the
plaintiff did not undertake to maintain them during unemployment and did not undertake to find them
engagements; the plaintiff could terminate the contract if he felt that the infants were not suitable for
the carrier of dancing. Thus it appeared from the contract that the infants were at the absolute disposal
of the plaintiff

The court therefore held that the contract was unreasonable one and was therefore unenforceable
against the infants. Thus Barnum couldn't be liable.

NB: A contract is not binding on a minor merely because it is proved to be for the minor's benefit; but a
contract which would otherwise be binding as a contract for necessaries is not so if it contains harsh and
onerous terms: Fawcett v. Smethurst (1914) 84 LJKB 473, (Atkin J).

(b) Voidable contracts by minor

Under the Common Law all agreements by which the minor acquires an interest of a permanent nature
in the subject matter of the agreement e.g. lease of premises, a partnership contract, holding of shares
in a company may be treated as voidable. They are voidable at the option of the minor.

So a minor is allowed by law to call to an end such contracts during his minority or within reasonable
time after attaining the age of majority.

Reference case

Steinberg v. Scala (Leeds) Ltd . (1923) 2 Ch. 452

The plaintiff purchased shares in the defendant company and paid certain sums of money on application,
on allotment and on one call. Being unable to meet future calls, she repudiated the contract whilst still
an infant and claimed for the removal of her name from the register to relieve her from liability to future
calls and also the recovery of money already paid.

It was held that she could succeed to remove the name from the register but the claim for recovery
failed because there had not been a total failure of consideration. That is; the shares had some value and
gave some rights even though the plaintiff had not received any dividends.

(c) Void Contracts by minor

Under the Common Law all other contracts with a minor which do not fall within (a) or (b) are void.

In Tanzania, the L.C.A elaborates clearly that the general rule is that contracts with a minor are void.(s.
11(2). Thus the contracts which do not fall under s. 68 of the L.C.A or s. 4 of Cap. 214 are void.

For instance the following contracts entered into with a minor are declared to be absolutely void.

- contracts for the repayment of money lent or to be lent (loan contracts)

- contracts for goods supplied or to be supplied other than necessaries

SOUNDNESS OF MIND

A) LUNATICS

Another factor which vitiate capacity is the soundness of mind, A person of unsound mind is
incompetent to contract, (s.ll(l) A person of sound mind is defined as:

"a person who is capable of understanding the contract during the formation of a contract and who is
capable of forming a rational judgment as to its effect upon his interests." (s. 12)

SS.12 (2) & (3) provides on the ability to contract by a person who is of always sound mind who
sometimes becomes of unsound mind and a person who is always of unsound mind and sometimes
sound mind that such persons may only contract when they are of sound mind. In Tanzania a contract
with a person of unsound mind is void unless it falls within the ambits of section 68 of the L.C.A or s. 4 of
the Sale of Goods Act where the liability of such a person is reimbursement and reasonable price
respectively.

Under the Common Law, a person of unsound mind can make voidable contracts only if the other party
knew of his unsoundness of mind. The contract is voidable at his option (the person of unsound mind).

Thus in Moulton v. Camroux , 2 Ex 487, it was held that:

The rule concerning unsoundness of mind has in modern times been relaxed, and unsoundness of mind
would now be a good defense to an action upon a contract, if it can be shown that the defendant was
not of the capacity to contract 'and the plaintiff knew it."

Read also: Imperial Loan Co. u. Stone f 1.892] 1 QB 599, CA.

INTOXICATED PERSONS

The authorities are scanty; but in Gore v Gibson (1845) 13 M & W 621; 153 ER 260, it. Was held that a
contract, made by a person so intoxicated as not to know the consequences of his act is not binding on
him if his condition is known to the other party. It appears, however, that such a contract is not void but
merely voidable, for it was held in Matthews u. Baxter (1873) LR 8 Ex 132 that if the drunken party, upon
coming to his senses, ratifies the contract, he is bound by it.
PERSONS DISQUALIFIED BY LAW

Sometimes persons may be disqualified by law from contracting generally or from entering into certain
types of contracts. For instance:

a) Bankrupt Persons:

The bankrupt persons are disqualified by law from entering into any type of contracts and whosoever
enters into a contract with a bankrupt does so at his own peril.

b) Unincorporated bodies and Corporations

Unincorporated bodies eg. Clubs, associations and societies are not capable to enter into contracts. This
is because they have no separate existence in law. However, these bodies contract through agents and
persons authorizing these agents (members of such bodies) are personally liable on such contracts. If a
member of a club for instance enters into contract with outsiders for the club; the contract will bind the
club members personally if they authorized such a member to contract for them but if the member was
not authorized then the contract cannot bind the members but it will bind such a member personally.

As for Corporations/Companies these are legal persons: A company for

instance is capable of concluding contracts in its own name through its

duly authorized agents i.e. Directors. Such contracts will bind the company but not members personally.
But the contractual capacity of a company is limited i.e. It can only enter into those contracts which the
Memorandum of Association of the company allows. This capacity is found in the objects clause. If the
company contracts within the powers stipulated in the objects clause it acts intra-vires and such
contracts are valid contracts. But if a company contracts outside this clause it acts ultra-vires/beyond its
powers and so the contract becomes null and void.

Reference Case

In Ashbury Railway Carriage and Iron Co. u. Riche , (1875) The company bought a concession for the
construction of a railway system in Belgium and entered into an agreement whereby Riche were to
construct a railway line. After the commencement of work, the company ran into difficulties and the
shareholders wished the directors to take over the contract in a personal capacity and indemnify the
shareholders. The directors thereupon repudiated the contract on behalf of the company and Riche sued
for breach of contract.

The objects clause of the company's memorandum stated that it was established:

" To make or sell or lend on hire railway carriages, wagons and all kinds of railway plant, fittings,
machinery and rolling stock, to carry on the business of mechanical engineers and general contractors, to
purchase and sell as merchants timber, coal, metal and other materials and to buy and sell such
materials on commission or as agents"
The court held that the purchase of the concession to build a complete railway system was ultra-vires
and void because it was not within the objects of the company. The contract with Riche was therefore
void and the directors were entitled to repudiate it.

LECTURE NINE

ESSENTIAL ELEMENTS OF A COUNTRACT – PART 2

Lecture Contents:

 Intention to Create Legal Relation

 Lawful Consideration

 Free Consent

INTRODUCTION
In our previous lecture, we got an introduction of some of the essential elements of a contract. In this
lecture you will get the discussion of the rest of the essential elements of a contract, to be enforceable.
The discussion is geared to let the learners understand the above stipulated elements of the contract
altogether with the Common law position as well as the position of the Law of contract Act

INTENTION TO CREATE LEGAL RELATION

This is also referred to as an intention to create treat. Under Common Law it is a settled principle that
there must be a common intention of the parties to enter into legal relations for there to be a contract.

What is the Importance of the Intention to Create Legal Relation?

The importance of the intention to create treat lies on the fact that contracts should not be spots of idle
hour or mere matters of pleasantry never intended by the parties to have any serious effect whatsoever.
Thus under the English law although there may be an evidence of offer and acceptance, the courts may
not recognize the agreement as legally
binding contract if they feel that there was no intention on the part of the persons involved that a
contract should result from their dealings. The intention to create legal relations may be categorized into
two groups namely the domestic arrangements and the business or commercial arrangements.

Intention in Domestic Arrangements

The presumption is that social or domestic arrangements do not give rise to legally enforceable contracts
even if they look like one. This is a general rule. Domestic or social arrangements include arrangements
between a husband and wife, family members or friends.

The agreements between a husband and wife are difficulty to decide whether the intention was there or
not especially when they are living in amity. It is easy to infer the intention when the parties to an
agreement are not living in amity.
Reference case: Balfour v. Balfour (1919) 2 K.B. 571

Balfour went to work in India leaving his wife in England for health reasons. He promised to pay his wife
£30 per month for her maintenance. The wife later divorced her husband. Then his husband refused to
pay as promised. The wife sued and it was held that this was not a contract because the parties did not
intend that they should be attended by legal consequences.

In Merrit v. Merrit, (1970) 2 All E. R 760 it was held that the agreement which had been made when the
parties were not living together in amity was enforceable as there was an intention to create legal
relation.

NB: This does not mean that in family or social matters there cannot be a legally binding contract. What
the law requires is that the parties must intend legal consequences to follow.

Intention in Business or Commercial Arrangements

The general presumption here is that in such agreements are intended by the parties to carry legal
consequences or to be followed by legal
Consequences.

This presumption may be rebutted where parties intend to rely on each other’s good faith and honor and
not on legal consequences.
Reference case: 'Rose. & Frank Co. v. J. R. Crompton & Brothers Ltd., (1925) AC 445

In this case an agreement was drawn between one American & two English firms for their dealings in
paper tissues. The agreement contained the following clause: This arrangement is not entered into as a
formal legal agreement and shall not be subject to a legal jurisdiction in the law courts either in US or in
England.

The agreement was terminated by one of the parties contrary to its terms. The American firm brought an
action for breach. The Court held that the document did not constitute a binding contract as there was
no intention to effect legal relations.

Test for Contractual Intention.

The intention of the parties must be ascertained from the arrangement & the surrounding circumstance.
It is the duty of the court to find out whether the parties intended to enter legal obligations.

The court employs an objective test: i.e. what a reasonable person would say in circumstance.

CONSIDERATION
The meaning of consideration revolves around exchange of values embedded in goods or services. That
is, a person who parts with value must be given some value in return. This is according to the maxim
"Quid pro quo" which means "something for something and nothing for nothing."
Consideration is a vital element in some contracts but not in all contracts. Thus contracts under seal
need no consideration. For an agreement to have legal force it must either be under seal or must be
supported by some consideration.

UNDER THE COMMON LAW

Consideration is an important ingredient in all contracts which are not made under seal.

Thus in Rann v. Hughes (1778) it was held that all simple contracts (ie. contracts not under seal whether
written or not) must be supported by consideration. It was held further that the law of the country
supplies no means, nor affords any remedy to compel performance of an agreement made without
sufficient consideration.

What is consideration?

There have been various definitions on the concept. But the most celebrated definition was given in the
case of Curie v. Misa, (1875) LR 10 Ex.153. In this case consideration was defined as:
"Some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or
responsibility given, suffered or undertaken by the other" From here we can see that consideration
comprises of both positives or negatives to a party. But payment of money is a common form of
consideration.

In Dunlop v Selfridge Ltd [1915] AC 847, it was held that: "An act or forebearance of one party, or the
promise thereof, is the price for which the promise of the other is bought, and the promise thus given for
value is enforceable

Simply stated therefore, consideration is a detriment to the promisee or benefit to the promisor
bargained for and given in exchange for a promise.

UNDER THE LAW OF CONTRACT ACT

Consideration is an essential element in all simple contracts concluded in Tanzania as opposed to

contracts under seal.

The L.C.A. defines consideration as: "When, at the desire of the promisor, the promisee or any other
person has done or abstained from doing or does nor abstains from doing or promises to do or to
abstain from doing something, such act or abstinence or promise is called a consideration for the
promise" (s. 2(d).

This definition the following things can be deduced: [1. that consideration must be given when the
promisor has expressed a desire and not otherwise. That consideration consists of both an act or
omission and a promise to act or to omit. [tracts without consideration are generally void. However,
there are options in the L.C.A which includes the following:

a) an agreement expressed in writing and registered under the existing law for the registration of
documents which is made because of natural love and affection between parties standing in a near
relation.

b) A promise to compensate a person who has already voluntarily done something for the promisor or
something which the promisor was legally compellable to do.

c) A promise made in writing and signed by the person to be charged therewith, or by his authorized
agent to pay a debt which the creditor might have enforced payment but for the law of limitation of suits
(see s.25)

WHO CAN FURNISH CONSIDERATION?

Common Law consideration must be furnished by promisee and promise only. Under the Law of
Contract Act, Consideration can be furnished by the promisee or any other person who is not the
promisee. (s.2(d)

Adequacy and sufficiency of consideration

The price fixed by the parties out of their own free will or consent is what in law is termed as sufficient
consideration. However, the kind of consideration agreed upon by the parties may not be based on the
market value but only on the wishes of the parties. The law only requires there to be a sufficient
consideration hence the rule that consideration needs only to be sufficient but not adequate.

This is because parties themselves agree as to what each of them has to do under the contract. The
rationale for this is that parties are presumed to can appreciate their own interests and of reaching their
own equilibrium. The court will only interfere where it proves duress, fraud, mistake under influence or
misrepresentation.

Consideration must have economic value

In determining sufficiency of consideration one has to consider whether or not the consideration has
economic value. Sentimental motives such as natural love and affection have no economic value and
therefore they cannot qualify as good consideration. (White v. Bluett (1853)
On the other hand nominal consideration and trivial acts of very small value may constitute sufficient
consideration in law.

Consideration must be Legal

The law requires that consideration must be lawful. Illegal consideration renders the whole contract to
be illegal and hence void.

Types of Consideration
(a) Executory consideration:

This results from an exchange of promises to perform acts in the future. E g. "A promise to deliver goods
to "B" and "B" promises to pay for the goods. In Tanzania the definition of consideration under S. 2 (1)
(d) - The phrase " a person may promise to do or to abstain from doing"

(b) Executed consideration:

This happened where one party promises to do something in return for the Act of another, rather than
for the mere promise of future performance of an act. Here performance of an act is required before
there is any liability on the promise. E.g. Where "A" offers a reward for return of his lost dog, A is buying
the Act of the finder and will not be liable until the dog is found and returned.

(c) Past consideration:

Comprises of an act (abstinence) which was done before the promise was made and not in response to
or induced by subsequent promise.

Re McArdlle, [1951]1 All ER 905.

Past consideration is no consideration at all under English law. In

Tanzania the phrase Has done or abstained from doing something.... Are questionable as to
whether they suggest past consideration is good consideration in Tanzania. However, it is argued that the
use of the word "has done" is not of past tense but of present perfect tense and therefore the act of
doing is not independent of the promise. Therefore, it is not past consideration.

On the other hand there are exceptions to the general rule that past consideration is not consideration
at all which include:

1. an agreement expressed in writing and registered under the existing law for the registration of
documents which is made on account of natural love and affection between parties standing in a
near relation, li. A promise to compensate a person who has already voluntarily done something
for the promisor or something which the promisor was legally compellable to do.

2. A promise made in writing and signed by the person to be charged therewith, or by his
authorized agent to pay a debt which the creditor might have enforced payment but for the law
of limitation of suits, (see s.25)

FREE CONSENT / REALITY OF CONSENT

Every party to a contract is required to conclude a contract out of his own free will or volition. This is
what is meant by the concept of free consent. The concept of free consent reflects the underlying
assumptions of a contract namely the freedom of contract and sanctity of contract.
By freedom of contract it means that every person is free to enter into any contract. A person may enter
into employment contract as an employer or employee and change as he may wish. He has the freedom
to bargain the terms of the contract. Principally freedom of movement and freedom of will presuppose
equality, that parties bargain the terms of the contract on equal footing and so they enter into contract
freely.
Meanwhile sanctity to contract means no one other than the parties to a contract who can interfere with
a contract validly concluded. This means that it is only the parties to a contract who have the rights and
duties under a contract.

However, the concept of the freedom to contract has been eroded by the coming of the standard form
contracts. This is because the formation of a standard form contract is based not on free consent but
rather on the relationships which develop independent of men's will.

Under the L.C.A the concept of free consent is reflected under s.10 as an essential ingredient of a valid
contract. On the other hand, although consent may be given by a party to a contract, it may not be real
but rather a vitiated or undermined consent. Therefore, consent may be undermined by the following
factors as discussed hereunder.

FACTORS WHICH UNDERMINES/VITIATES A CONSENT

(a) Coercion / Duress

Coercion or duress means- committing, threatening to commit any act forbidden by the penal code or
unlawful detaining / threatening to detain any property, to the prejudice of any person whatever: With
intention of causing any person to enter into an agreement, (s.15)
It must be proved that the other party actually committed/threatened to commit the forbidden act or he
unlawfully detained/threatened to detain some property in order to obtain such consent. The effect of
coercion is to make the contract voidable at the option of the party whose consent was so improperly
obtained.

(b) Undue influence

This involves improper use of power to affect somebody's character, beliefs or actions through fear,
administration etc. In contract undue influence means improper use of power to obtain consent. The
relations between the parties must be such that one of the parties is in a position to dominate the will of
the other and uses that position to obtain an unfair advantage over the other.

S.16 (2) L.C.A. gives situations whereby there is a decreed position of one person to dominate the will of
the other. These include:-

i) Holding a real / apparent authority over the other or where there is a fiduciary relationship. Eg. Real
authority - A magistrate holds a real authority over a person charged with an offence before him; a
director has a real authority over a secretary. Etc Apparent authority I implied authority: A dismissed
police officer or a dismissed agent has an apparent authority. Fiduciary relationship: a husband and wife;
A parent and child; A doctor and a patient; etc
ii)Making contract with persons with temporary or permanent
incapacity by reason of age, illness, mental or bodily distress.

The effect of undue influence is to render the contract voidable at the option of the party whose consent
was so caused by undue influence, (s.19)

(c) Misrepresentation /Representations

Representations are factual statements which are pre-contractual. The pre-contractual statements are
statements made to induce a party to enter into a contract. They may be written or spoken or made by
conduct. They do not become terms of the contract. These may be true or untrue. They also may be
untrue although the maker believes them to be true. If they are untrue they are called
Misrepresentations or misstatements. A false statement as to the law cannot be a misrepresentation
since everyone is presumed to know the law.

The maker of such statements may have been negligent or not in making these statements. If the maker
was not negligent in making them they are called innocent misrepresentations innocent misstatements
while if the maker was negligent in making them they are called negligent

Misstatements or negligent misrepresentations

The statements may be untrue to the knowledge of the maker but he proceeds to make them. In this
case they are called fraudulent misrepresentations. In Perry v. Peek (1889) fraud was defined as a false
statement made, knowingly, or without belief in its truth or recklessly, i.e. without caring whether it be
true or false.

Under section 18 enumerates three types of misrepresentations namely:-

i) Unwarranted statements

ii) Breach of duty to speak

iii) Inducing mistake about the subject matter of the agreement.

Remedies under Common Law:

Innocent misrepresentation:

The party so misled can rescind the contract. The effect of rescission is to restore the parties to their
original positions. Status quo ante. So that each party become entitled to be relieved of the obligations
created by the contract and to recover any benefit which I he may have conferred upon the other.

Fraudulent misrepresentation:

The injured party may either affirm the contract and sue for damages or rescind the contract and sue for
damages for any loss suffered.

UNDER THE LAW OF CONTRACT ACT

Both Innocent & fraudulent misrepresentation: The contract become voidable.

d) MISTAKE

In the law of contract the word mistake applies to two situations:

i) Where the contracting party or parties believe that a present or past
fact which is material to their transaction exists when it not; or
ii) Where the contracting party or parties believe that a present fact
which is material to their transaction does not exist while it does.

Mistake of fact and mistake of law

The mistake which affect the contract must be a mistake of fact as opposed to a mistake of law. The
reason is that everyone is presumed to know the law. (s. 21) Operative and non-operative mistake
The mistake which affects the validity of a contract is called operative mistake and it must be a mistake of
fact and not of law. Operative mistake can be classified into the following categories:-
a) Mistake as to the nature of the contract itself

b) Unilateral mistake

c) Bilateral mistake

A. Mistakes as to the Nature of the contract itself.

The General rule is that a person who signs a contractual document is bound by its terms whether he has
read it or not. But under certain circumstances if a person signs a contract in the mistaken belief that he
is signing a document of a different nature, there will be a mistake which avoids the contract. Thus
mistake as to the nature of the contract itself renders the contract to be void.

B. Unilateral mistake

This happens when one of the parties to a contract is mistaken as to some fundamental fact concerning
the contract and the other party knows, or ought to know this. This is mainly concerned with the mistake
on the identity or attributes of the other party. E.g. An offer made to A by C, is accepted B. who pretends
to be A. The effect here is that the contract becomes void.

C. Bilateral mistake

This happens when both parties to a contract are mistaken. They are of two types: -

1. Common or identical mistake:

This occurs when both parties make an identical mistake as to some fundamental fact concerning the
contract. In absence of fraud or misrepresentation where there is a common or identical mistake in a
contract the parties are bound except in cases of Res extincta and res-sua which renders the contract
void.
Res extincta:

Mistake as to the existence of the thing contracted for e.g. parties agree to sell a car which is destroyed
by fire at the time of sale unknown to them both.

Res Sua:

Occurs when a person makes a contract to buy something which

already belongs to him.

1. Mutual or non-identical mistake:

This occurs when the parties are both mistaken as to a fundamental fact concerning the contract but
each party has made a different mistake: The contract does not necessarily become void if the court can
find a sense of promise in it under common law under the law of Contract. Therefore there are
circumstances where it may not become void. See s.20 - Mutual mistakes in which consent may not be
defeated but nullified.
See also s. 13 - Mutual mistake in which consent may be defeated or rendered unreal and made
negative. Here each of the parties to an agreement is mistaken as to the intention of the other and each
does not know that he has been misunderstood. The parties make different mistakes. Parties were not
ad idem as such there was no consent.

The Plea of Nun Est Factum (It is not my act) Under Common Law
The apparent signed contract will be regarded as void if a party can successfully plead the defense of non
est factum. Under this plea a person disowns his signature and the document, that he never consented
to the terms appearing in the document.
However to succeed under this defense three things must be proved:
a) that the signature must have been induced by fraud

b) that the document must be fundamentally different from that thought to be signed. But a mistake as
to the contents is not sufficient to allow non est factum to be raised.

c) That the writing fails to express the agreement of the parties.

Reference cases:

Lewis v. Clay (1897)

In this case a party who was induced to sign promissory notes by the fraudulent misrepresentation that
his signature was required as a witness successfully pleaded non est factum. Here the rest of the
document apart from the space for signature was covered by blotting paper having being told that this
was a document of a private nature.
It was held by the court that the defense of non est factum applied even though the plaintiff could not
say precisely what type of the document he thought he had signed.

In Tanzania
There is no provision in the L.C.A. which covers the plea of non-est factum but it is traced from the
Common Law precedents.
An authority for this position is found in the case below:-

Sluis Bros (EA) Ltd, v. Mathias & Tawari Kitomari, (1967) H.C.D. 425
The appellant is a Tanzania registered Company affiliated to a Dutch Co. The appellant had entered into a
standard form contract with the respondent farmers for the business of growing, buying and exporting
seed beans. The company supplied stock seeds to farmers and peasants and then the appellant would
buy the harvested seed beans and export them. The standard contract contained "terms and conditions
of agreement written in English. The terms spelt out the rights of the appellant on the one hand and the
obligations of the peasants/farmers on the other.

The peasants did not understand English and they believed they were dealing in a joint venture with the
appellant in which they would contribute their farms, energy and time while the appellant would
contribute seeds, fertilizers, insecticides and cost of labour.

Meanwhile the contract provided that what was given to the peasants farmers was by the way of loan
deductible at the time of the sale of the produce.
The appellants sued the respondents claiming 48,007/25 as an outstanding on the contract. The
Respondents raised a defense of non-est factum The respondents won the case. On further appeal to the
CAT the decision of the high court was upheld.

FRAUD　　

MEANING OF FRAUD

Intentional misrepresentation of facts is of the essence of "fraud". In English law "fraud" was defined by
the House of Lords in Deny vs Peek (1889) 14 App. case. 337 as a false representation which has been
made:

According to section 17 of the Ordinance, fraud means and includes:

knowingly; or without belief in its truth; or recklessly careless whether it be true or false.

The first three clauses in section 17 above deal with fraud by intentional misrepresentation. Perhaps,
what need to be especially understood are the phrases "active concealment" in clause (b), and "any
other act fitted to deceive" in clause (d).

"any of the following acts committed by a party to a contract, or with his connivance, or by his agent,
with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:-

the suggestion, as to a fact, of that which is not true by one who does not believe it to be true;

the active concealment of a fact by one having knowledge or belief of the fact;
a promise made without any intention of performing it;

any other act fitted to deceive;

any such act or omission as the law specially declares to be fraudulent".

"Active concealment" is something different from "passive concealment". Passive concealment means
mere silence as to material facts. For example, A sells by auction, to B, a horse which A knows to be
unsound. A says nothing to B about the horse's unsoundness. This is not fraud in A. Mere silence, except
some few cases which shall be discussed subsequently, does not amount to fraud.

An active concealment of a material fact is a fraud. Take the previous example of sale of a horse.
Suppose B says to A "If you do not deny it, I shall assume that the horse is sound". A says nothing. Here
As silence is equivalent to speech. A is actively concealing the fact that the horse is unsound.

The phrase "any other act fitted to deceive" means any act which is done with the obvious intention of
committing fraud. For example, in the Indian case of

Ningawa vs Byrappa S. Hirekuraba (1968) 2 SCR 797; AIR 1968 SC 956, a husband persuaded his
illiterate wife to sign certain documents telling her that by them he was going to mortgage her two
lands to secure his indebtedness and in fact mortgaged four lands belonging to her. This was an act
done with the intention of deceiving her.

SILENCE

　The General

Mere silence is no fraud even if its result is to conceal facts likely to affect the willingness of a person to
enter into a contract. This is the general rule.

The rationale for this general rule dwells on the fact that a contracting party is under no obligation to
disclose the whole truth to the other party or to give him the whole information in his possession
affecting the subject matter of the contract! Hence, a trader may keep silent about a change in prices; or
in our previous example of sale of an unsound horse, the seller omits to say anything about its quality.
No fraud is committed. It is upon the other party to call for verification or information in cases of doubt.

However, the general rule is subject to some exceptions. In certain instances, as observed earlier, silence
may become deceptive.

The instances when silence is fraud are as follows:

When is Silence Fraud? (a) Duty to Speak

The first instance is where a person is under a duty to speak. This duty arises where one contracting
party reposes trust and confidence in the other; or where one of the parties is utterly without any means
of discovering the truth and has to depend on the good sense of the other party. For example, cases of
uberima fides i.e. utmost good faith.
The case of Haji Ahmad Yarkhan vs Abdul Gani Khan AIR 1937 Nag 270 is illustrative of cases of uberima
fidei. In this case the plaintiff spent a sum of money to mark the engagement of his son. He then
discovered that the girl suffered from epiloptic fits and so broke off the engagement. He sued the other
party to recover from them compensation for the loss which he had suffered on account of their
deliberate suppression of a vital fact which amounted to fraud.

The court in deciding the case referred to the holding of the House of lords in Norton vs Ashburton
[1914] AC 932 where it was pointed out that a more passive non-disclosure of the truth, however
deceptive in fact, does not amount to fraud, unless there is a duty to speak.

One of the issues before the court was therefore whether in that case there was a duty to speak.
Referring to the facts of the case, the court said that the law imposes no general duty on any one to
broadcast the blemishes of his female relations, not even to those who are contemplating matrimony
with them. There was no fiduciary relation between- the parties. It therefore found no fraud, but the
engagement was held to be avoidable by reason of the misrepresentation.

(b) Where Silence is Deceptive

As pointed earlier, sometimes silence is equivalent to speech. A party to a contract who keeps silent
whilst knowing that such silence will be deceptive is guilty of fraud.

For example, a buyer who knows more about the value of the property which is the subject of sale but
prefers to keep the information from the seller. The latter may avoid the sale.

(d) Change of Circumstances

We saw earlier how change in circumstances can render a representation a misstatement. Similarly, if a
representation is true when made, but on account of a change of circumstances, becomes false when it
is actually acted upon by the other party, then it is the duty of the person who made the representation
to communicate the change of circumstances.

For example in the case of Witth vs O'Flanagan [1936] 1A11 ER 727; [1936] Ch 575 (CA) - In the
negotiations for the sale of his medical practice, the defendant represented that his practice had brought
in £ 2000 per annum during the preceding three years and that he had a specified number of patients on
his panel. Negotiations resulted in a contract in about five months. During this time the defendant
became ill and could not attend to his practice. This resulted in a serious loss of practice, but the
purchaser could learn about it only after the completion of the sale. It was held that the
change of circumstances should have been brought to the notice of the purchaser. The plaintiff was thus
allowed to rescind the contract.

(e) Half Truths

These are instances where a person, although under no duty to disclose a fact, voluntarily discloses
something and then stops half the way.

The rule is that a person may be under no duty to disclose a fact, but if he speaks, a duty arises, to
disclose the whole truth. Lord MacNaughten in the cage of GluckScin vs Barnes [1900] AC 240, 250
pointed out thus:

"Everybody knows that sometimes half-truth is no better than a down-right falsehood."

In the U.S. case of Junius Construction Corpn. vs Cohen (1931) 257 NY 393 the plaintiff purchased a
tract of land. The contract of sale stated that the land was subject to a right of the Borough to open two
streets within the area. But as a matter of fact the borough had the right to open three streets.

The court held that the plaintiff had the right of rescission. Cordozo C.J. said:

"We do not say that the seller was under a duty to mention the projected streets at all. That question is
not here. What we say is merely this, that having undertaken or professed to mention them, he could
not fairly step halfway".

Just as it had already been observed in respect of the effect of silence in cases of misrepresentation, in
fraud by silence, if the plaintiff just means to discover the truth by ordinary diligence, he cannot obtain
rescission. But in any other case, the fraudulent party cannot say that the other could have discovered
the truth.

We have seen in the foregoing that where consent to a contract is caused by coercion, undue influence,
misrepresentation or fraud, the victim has a right of rescission. That is, he can avoid the contract. Section
19 (1) of the Ordinance provides that:

"when consent to an agreement is caused by coercion, undue influence, fraud or misrepresentation, the
agreement is a contract avoidable at the option of the party whose consent was so caused".

However, the right to rescind the contract is subject to certain infirmities or exceptions which may defeat
it as follows:

Where Truth could be discovered in Ordinary Diligence

The proviso to subsection (I) of section 19 provides that if consent was caused by misrepresentation, or
by silence which amounts to fraud within the meaning of section 17, the contract is not avoidable if the
party whose consent was so caused had the means of discovering the truth with ordinary diligence.
You will note from the scope of the proviso that this exception only applies to cases of misrepresentation
or fraudulent silence. It does not cover cases of coercion and undue influence.

Affirmation

Under subsection (3) of section 19, where a party whose consent was cause by fraud or
misrepresentation, after becoming aware of his right of rescission, affirms the contract, the right to
rescission is lost. Such a party may affirm the contract by insisting on its performance. Affirmation may
be express or implied. It is implied when the party who is entitled to rescind the contract does
something which is inconsistent with his right of rescission.

For example, where he appropriates to his use the defective goods received under a avoidable contract.

Lapse of Time

The right of rescission must be exercised within reasonable time after discovering the misrepresentation.
Unexplained delay may preclude its exercise.

Rights of Third Parties

The right of rescission is lost as soon as a third party, acting in good faith, acquires rights in the subject
matter of the contract. This was the case in Phillips vs Brooks Ltd [1919] 2 KB 243 which shall be
discussed in extenso in the subsequent topic on mistake. That is, where,

Restitution

The basic condition for allowing rescission is that, the party seeking rescission must be able to restore
the benefits he may have obtained under the contract. This condition is contained in section 64 of the
Ordinance, which reads:

"When a person at whose option a contract is avoidable rescinds it, the other party thereto need not
perform any promise therein contained in which he is promissory. The party rescinding a avoidable
contract shall, if he has received any benefit thereunder from another party to such contract, restore
such benefit, so far as may be, to the person from whom it was received".