NAME OF STUDENT : DOTTO BEATUS MKUYU

REGISTRATION NO : 2628011/T.23

NATURE OF WORK : INDIVIDUAL ASSIGNMENT

LECTURER NAME : MR NYASEBWA

COURSE NAME :DL 1

SUBJECT NAME : LAW OF CONTRACT

SUBJECT CODE : LAW O22

SUBMISSION DATE : 30/10/2023:

QUESTION

The rule that a stranger to a contract is precluded from suing on the basis of the contract to which he is
not a party, often gives rise to inconvenience and unfairness in enforcing a contract by third parties.”
Anonymous. Discuss the truth or otherwise of this statement.
 TABLE OF CONTENTS

INTRODUCTION

Meaning of the key terms

MAIN BODY

Discusion Based on the privity of contract

CONCLUSION
 INTRODUCTION

Meaning of the key term

Contract

Under section 1(2)h of the Law Of Contract Act[CAP,345,R.E,2019]1defines contracts as the agreements
which are ebforceable by the law .finally agreements is an agreement between two or more persons
which creates an obligation to do or not to do a particular thing. A legally enforceable agreement
between two or more competent parties made either orally or in writing.

Express contract.

A contract in which the terms are stated by parties in words, written or spoken.

Implied contract

A contract in which the terms are inferred from the circumstances of the case or conduct of the parties

Agreements Is the mere promices entered between two parties creating mutual obligations. finally all
contracts are agreements but not all agreements are contract .agreements entered in contracts are
enforceable by the law

Law of [Link] the branch of law that deals with the information and interpretations to contracts

1
[CAP,345,R.E,2019]
 MAIN BODY

In contracts the general rule is that a stranger to a contract cannot sue on the basis of that contract. This
principle is based on the doctrine of privity of contract, which states that only parties to a contract have
rights and obligations under that contract. This rule is also consistent with common law principles.

The doctrine of privity of contract has been criticized for its rigid application, as it can lead to
inconvenience and unfairness in certain situations. For example, it may prevent third parties who have a
legitimate interest in the contract from enforcing their rights. This can be particularly problematic in
cases where the contract is for the benefit of a third party, such as a beneficiary of a trust or a person
named as a beneficiary in a life insurance policy. The good example are in the case of Tweddle v
Atkinson (1861) 2in English contract law. In this case, two fathers entered into a contract to financially
support their respective children who were engaged to be married. However, when one of the fathers
passed away, the other refused to fulfill the financial [Link] engaged couple, who were the
intended beneficiaries of the contract, attempted to sue the executor of the deceased father's estate for
breach of contract. However, the court held that as the engaged couple were not parties to the contract,
they had no legal standing to bring a [Link] case illustrates the principle that a third party who is an
intended beneficiary of a contract cannot sue for breach of contract if they are not a party to the
agreement. It further emphasizes the importance of consent and privity of contract in determining the
rights and liabilities of the parties involves

In Tanzania the applicability of the doctrine of privity of contract is applied In the case of Burns & Blane
Limited v. United Construction Company Limited, 3the plaintiff sued the defendant for goods sold and
services rendered. The plaintiff had worked as a subcontractor for the defendant on a construction
project. The defendant admitted liability under the contract but argued that the plaintiff's recovery
should be reduced due to expenses incurred in fixing defects and a settlement made with a third party
due to other defects in materials supplied by the plaintiff. The court held that there was no privity of
contract between the plaintiff and the third party, and the defendant did not spend funds to correct the
defects covered by the settlement. Therefore, the amount of the settlement should not be deducted
from the plaintiff's recovery.

The rational behind the third party precluded from suing on the basis of contract its when its on the
issues of (contractual intention)

2
Tweddle v Atkinson (1861)

3
Burns & Blane Limited v. United Construction Company Limited,
 Contractual intention: The principle of privity of contract is based on the idea that only those who
have the intention to create legal relations should be bound by a contract. Third parties who are not
directly involved in the contract may not have had any intention to be bound by its terms, and therefore
should not have the right to sue on its basis. However, this can lead to unfair outcomes if a third party
suffers harm or loss as a result of the contract but has no remedy available.

Consideration refers to something of value that is exchanged between the parties to a contract. It
can be in the form of money, goods, services, or any other benefit. In the context of privity of contract,
consideration plays a crucial role in determining the enforceability of a contract between the parties
involved. The doctrine of privity of contract states that only the parties who have entered into a contract
can enforce its terms and benefit from its provisions. This means that a third party, who is not a party to
the contract, generally cannot sue for breach of contract or claim any rights under the [Link]
section 25(1) of The Law of Contract Act, [CAP 345 R.E 2019] 4States that agreements without
consideration is void

In both England and Tanzania, the position regarding privity of contract is the same. However, the
Law of Contract Act in Tanzania does not specifically address the principle of privity of contract.
According to section 2(1)(d) of the Law of Contract Act, [CAP 345 R.E 2019] a third person is allowed to
furnish consideration to the promisee (the person who receives the promise), but they are not
permitted to sue on the contract if they provided consideration.

Control over obligations: Privity of contract gives parties control over their obligations and liabilities. It
ensures that they are only bound by the terms they have agreed upon and are not subjected to
unforeseen obligations imposed by third parties who were not part of the original agreement.

Freedom of contract: Privity of contract upholds the principle of freedom of contract, allowing
individuals or entities to freely negotiate and enter into agreements without interference from third
parties. It ensures that contractual relationships are based on the consent of the parties involved,
promoting autonomy and private ordering.

Exeptions to the rule of privity of contract as to where the person (Third party) who is not the part to
the contract precluded from suing on terms of the Contract can sue as follows

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[CAP 345 R.E 2019]
Contract relating to the law of agency

The law of agency is an area of commercial law dealing with a set of contractual, quasi-contractual and
non-contractual fiduciary relationships that involve a person, called the agent, that is authorized to act
on behalf of another (called the principal) to create legal relations with a third party. Succinctly, it may
be referred to as the equal relationship between a principal and an agent whereby the principal,
expressly or implicitly, authorizes the agent to work under his or her control and on his or her behalf

The doctrine of agency establishes a fiduciary relationship between a principal and an agent in a
business context. The principal has control over the agent, who acts on behalf of the principal with their
consent. Under the Law of Contract Act,[CAP,345,R.E,2019] Part X deals with contracts related to
agency, including provisions regarding the impact of agency on contracts with third parties. Section 178
of the Law of Contract Act [CAP,345,R.E,2019] .Explicitly states that contracts made through an agent
and obligations arising from the agent's actions can be enforced in the same way and have the same
legal consequences as if the principal had entered into the contracts or performed the acts personally. In
summary, the law recognizes and protects the rights and obligations of parties in contractual
agreements involving agency relationships.

Contract relating to trust

In regard to contracts relating to trust, if a trust has been created and proven, the third-party beneficiary
may sue on the contract in their own name. It is necessary to prove to the court's satisfaction that the
trust was indeed created. Once established, the beneficiary can sue the promisor to enforce the
contract and is entitled to the benefits set forth in the contract. Essentially, a third party can enforce a
contract if it is determined that the promisor intended to create a trust. In trust law, a trustee holds
property on behalf of a beneficiary, and the law of trusts affords third-party beneficiaries the right to
take legal action against promisors who have not fulfilled contractual obligations. Good example are in
case In Tanzania Union of Industrial and Commercial Workers [TUCO] at Mbeya Cement Company Ltd
v Mbeya Cement Company Ltd and National Insurances Corporation, 5

In this case, the Tanzania Union of Industrial and Commercial Workers (TUCO) filed a lawsuit against
Mbeya Cement Company Ltd and National Insurances Corporation. The main issue was whether the

5
Union of Industrial and Commercial Workers [TUCO] at Mbeya Cement Company Ltd v Mbeya Cement Company Ltd and
National Insurances Corporation,

Union of Industrial and Commercial Workers [TUCO] at Mbeya Cement Company Ltd v Mbeya Cement
Company Ltd and National Insurances Corporation,
plaintiff could sue based on a trust deed to which they were not a party, and whether the trust rules
were applicable.

The plaintiff argued that the trust deed rules and regulations for the Mbeya Cement Company group
staff endowment assurance scheme supported their case. They sought specific performance of the trust
deed. The defendants, however, raised a preliminary objection, stating that the plaintiff had no legal
standing to bring the lawsuit and that the trust deed did not apply to them. The court ruled that while
TUCO had the capacity to sue and be sued, they could only do so if they were directly affected by the
alleged wrongful acts. It was determined that each individual employee should sue the defendants for
their rights under the trust deed and group endowment scheme.

In summary, TUCO was not able to sue based on the trust deed as they were not a party to it, and the
individual employees were the ones who had the right to bring claims under the trust deed.

Acknowledgement or Estoppel

This means that, if someone says or does something that suggests a certain situation or agreement, they
are not allowed to go back on their word later. For example, if someone agrees or admits that another
person has the right to take legal action against them, they cannot later deny this agreement. In these
cases, even if the person taking legal action is not directly involved in the original contract, their lawsuit
can still be considered valid.

For example, A and B enter into a contract where A pays B a sum of money that has to be given to C. B
acknowledges to C that he is holding the sum for him. If B defaults in the payment, C will have the right
to recover the sum from him.

Contract based on insurance

This note discusses a type of contract based on insurance, specifically related to the Road Traffic Act.
The contract grants third parties the right to sue. It highlights the importance of compulsory third-party
insurance for motor vehicle owners, as individuals not involved in the contract can acquire rights, known
as third parties. These third parties have the ability to sue both the owner of the vehicle and the
insurance contract parties. Example:

Let's say John owns a car, and he has a contract with an insurance company to cover any damages
caused by his vehicle. One day, while driving, John accidentally hits Mary, who is a pedestrian. Mary, as
a third party not involved in the insurance contract, can sue both John and the insurance company to
claim compensation for her injuries and damages. The contract based on insurance allows Mary to have
legal recourse against both parties involved in the contract

Negotiable instrument
The concept of a negotiable instrument is governed by the Bill of Exchange Act, [Cap ,215,R.E,2015]6.
According to section 38 (a) of the Act, a person who holds a bill has the power to sue on it using their
own name. In section 2 of the Act, a "holder" is defined as the payee or endorsee of a bill or note who is
in possession of it, or the bearer of the instrument. This means that the holder, whether they received
the bill directly or through endorsement, can take legal action against any person whose signature is on
the bill, not necessarily limited to the immediate party. By considering this provision, it becomes evident
that such a rule is in place to facilitate legal recourse for holders of negotiable instruments.

Beneficiaries of the third party

The Act also allows for the enforcement of contractual rights by third parties if the contract confers a
benefit on the third party and it is intended that the third party should have the right to enforce it.
Additionally, the Act allows for the enforcement of rights by third parties in cases where the contract
purports to confer a benefit on the third party, even if the contract does not expressly state that the
third party has the right to enforce it.

CONCLUSION

There fore the rule of privity of contract has long been a fundamental principle of contract law
worldwide, including Tanzania. While it serves important purposes in maintaining contractual
relationships, it is not without its drawbacks. The inconveniences and unfairness faced by third parties in
enforcing contracts are significant concerns. However, legal theories and comparative analysis suggest
that there are alternative approaches to address these issues. Tanzanian laws and cases provide a
foundation for further examination and potential reforms to strike a balance between the interests of
contracting parties and the rights of affected third parties.

6
[Cap ,215,R.E,2015]