The nature, elements and classification of contracts.

WHAT IS A CONTRACT?

The Law of Contract Act, Cap. 345 [R.E. 2019] laws of Tanzania under Section 2(h) defines a contract as "an agreement enforceable by law." Section 2(e) describes an agreement as "every promise and every set of promises forming consideration for each other," while Section 2(b) defines a promise as occurring when "the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise."

From these definitions, it is evident that a contract is essentially an agreement supported by two primary elements:

1. An offer or proposal, and
2. Acceptance of that offer or proposal.

However, not all agreements qualify as contracts. For an agreement to be considered a contract, it must be made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not expressly declared by LCA to be void (Section 10 of LCA). The Law of Contract Act governs agreements that create legal obligations, enabling parties to seek legal remedies in the event of a breach. Consequently, the essential elements of a contract are:

1. An agreement, and
2. A legal obligation enforceable by law.

NON-CONTRACTUAL AGREEMENTS

Certain agreements lack the intention to create legal obligations and, therefore, are not enforceable by law. These agreements, often of a social or moral nature, do not result in contractual obligations.

Examples:

1. If A invites B to a restaurant for dinner and subsequently fails to show up, B has no legal recourse. Similarly, if B fails to attend, A cannot claim any remedy.
2. A promise by a father to provide his son with a monthly allowance is not enforceable in a court of law.

These instances illustrate that while all contracts are agreements, not all agreements constitute contracts.

CONTRACTUAL OBLIGATIONS

The law of contracts does not encompass all legal obligations. Only those obligations arising from agreements fall within its scope.

Example:

A agrees to sell a motorbike to B for Tsh 1,000,000. The agreement creates a legal obligation for A to deliver the motorbike and for B to pay the agreed sum. Non-performance by either party allows the other to seek legal remedies. Conversely, agreements involving unlawful or immoral acts, such as smuggling, are unenforceable. Certain agreements are expressly declared void under the  Law of Contract Act, Cap. 345 [R.E. 2019], such as wagering agreements (Section 30), agreements in restraint of trade (Section 27), or agreements to perform impossible acts (Section 56).

Legal obligations that do not stem from agreements, such as those arising from torts, quasi-contracts, judgments, or status relationships (e.g., trustee-beneficiary or spousal obligations), are outside the purview of contract law.

RIGHTS IN PERSONAM AND RIGHTS IN REM

Contract law is primarily concerned with rights in personam, which are enforceable against specific individuals, as opposed to rights in rem, which are enforceable against the world at large.

Examples:

1. A has the right to peaceful enjoyment of his property, which everyone must respect (right in rem).
2. B has the right to recover a debt from A. This right is enforceable solely against A (right in personam).

In essence, the law of contracts governs those obligations and rights arising from agreements, specifically those creating enforceable rights in personam. As aptly stated by Salmond, “The law of contracts is not the whole law of agreements nor the whole law of obligations; it governs those agreements which create obligations, and those obligations that have their source in agreements.”

 

ESSENTIAL ELEMENTS OF A VALID CONTRACT

A valid contract requires certain essential elements to be legally enforceable. Section 10 of the LCA .

1. Agreement:

A contract arises out of an agreement, which involves an offer and acceptance. Both parties must agree on the same subject matter (consensus ad idem). For example, if one party offers to sell car "X" and the other believes the offer is for car "Y," no contract exists due to a lack of consensus.

2. Intention to Create Legal Relationship:

The parties must intend for the agreement to create enforceable legal obligations. Social or domestic agreements, such as promises between family members, are generally not considered contracts unless they demonstrate a clear intention to be legally binding. For instance, in Balfour v. Balfour (1919), a husband's promise to pay his wife an allowance was held unenforceable as it lacked the intention to create legal relations. However, in cases like Parker v. Clark (1960), where a promise between family members had financial implications, the court upheld the agreement as legally binding.

3. Free and Genuine Consent:

Consent must be given freely and not influenced by coercion, undue influence, fraud, misrepresentation, or mistake. If consent is compromised, the agreement is invalid.

4. Competence of Parties:

Under Section 11, parties must be legally capable of entering into contracts. This includes being of legal age, of sound mind, and not disqualified by law (e.g., due to insolvency or criminal status). Agreements with minors or individuals of unsound mind are generally void unless exceptions apply.

5. Lawful Consideration:

Each party must give something of value or a promise in return for the other’s promise. Consideration must be lawful, real, and not illusory. For example, an agreement lacking valid consideration is termed nudum pactum (a bare promise) and is unenforceable.

6. Lawful Object:

The purpose of the agreement must not violate the law or public policy. Agreements for illegal purposes, such as committing a crime, are void.

7. Agreements Not Declared Void or Illegal:

Certain agreements, even if they satisfy other requirements, may be expressly declared void by law (e.g., agreements restraining trade or marriage). These agreements cannot be enforced regardless of other factors.

8. Certainty of Meaning:

The terms of the agreement must be clear and unambiguous. Uncertainty or vagueness renders the contract unenforceable. For example, a promise to sell "10 meters of cloth" without specifying the type is invalid unless further details are clarified.

9. Possibility of Performance:

The contractual terms must be capable of being performed. Agreements to perform impossible acts, such as discovering treasure through magic, are void.

10. Compliance with Legal Formalities:

If the law mandates specific formalities for a type of contract (e.g., writing, registration, or attestation), these must be fulfilled. Non-compliance renders the contract unenforceable.

A valid contract requires all these elements to function as a legally binding agreement. Any deviation from these essentials may result in the agreement being void or voidable.

CLASSIFICATION OF CONTRACTS

Contracts can be classified based on validity or enforceability, mode of formation, or performance as follows:

1. Classification According to Validity or Enforceability

Contracts under this category are:

(a) Valid contracts: Meet all essential elements of a contract.

(b) Voidable contracts: Valid until repudiated by the aggrieved party due to defects like misrepresentation, fraud, or undue influence. For example, a medical professional exploiting undue influence for unreasonable compensation renders the contract voidable.

(c) Void contracts: Agreements with no legal effect from the beginning (e.g., contracts with minors). Contracts valid initially can become void due to subsequent impossibility or illegality (e.g., war).

(d) Illegal contracts: Agreements prohibited by law or opposed to public policy (e.g., fraudulent agreements). These agreements taint collateral transactions with illegality.

(e) Unenforceable agreements: Valid contracts lacking formalities like writing, registration, or stamping. They may become enforceable upon rectification of such defects.

2. Classification According to Mode of Formation

Contracts based on formation include:

(a) Express contracts: Terms are stated explicitly, either orally or in writing.

(b) Implied contracts: Terms inferred from conduct or circumstances (e.g., boarding a bus implies payment for the journey).

(c) Quasi-contracts: Legal obligations resembling contracts, imposed by law without mutual agreement. Examples include reimbursement for necessaries supplied to a minor or rectification of benefits acquired by mistake.

3. Classification According to Performance

Contracts can also be classified based on the extent of performance:

(a) Executed contracts: Fully performed, leaving no obligations (e.g., payment and delivery of a bicycle).

(b) Executory contracts: Obligations remain to be fulfilled by one or both parties.

(c) Unilateral contracts: Obligation exists for one party at the time of contract formation.

(d) Bilateral contracts: Obligations exist for both parties, similar to executory contracts.

Classification in English Law

Under English law, contracts are either formal or simple:

(a) Formal contracts: Valid due to formality, such as contracts of record or under seal (e.g., deeds). Consideration is not always necessary.

(b) Simple contracts: Any contract other than formal, including oral, written, or implied contracts.

Formal contracts in English law include judgments (contracts of record) or recognizances (criminal acknowledgments to the Crown). Speciality contracts in Indian law, such as those made out of natural love and affection, must be in writing, registered, and between close relations as per Section 25 of the Indian Contract Act, 1872.

This classification offers a comprehensive understanding of the diverse nature of contracts and their enforceability.

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An offer, also referred to as a proposal, is defined as a declaration where one person expresses to another their willingness to perform or refrain from performing a specific act, with the aim of obtaining the other party's acceptance of the act or abstention (Section 2(a) of The Law of Contract Act, Cap. 345 [R.E. 2019]).