CAT L1.2 BUSINESS LAW Study Manual

User Manual:

Open the PDF directly: View PDF PDF.
Page Count: 273 [warning: Documents this large are best viewed by clicking the View PDF Link!]

INSIDE COVER - BLANK
Page 1
© CPA Ireland
All rights reserved.
The text of this publication, or any part thereof, may not be reproduced or transmitted in any
form or by any means, electronic or mechanical, including photocopying, recording, storage in
an information retrieval system, or otherwise, without prior permission of the publisher.
Whilst every effort has been made to ensure that the contents of this book are accurate, no
responsibility for loss occasioned to any person acting or refraining from action as a result of
any material in this publication can be accepted by the publisher or authors. In addition to this,
the authors and publishers accept no legal responsibility or liability for any errors or omissions
in relation to the contents of this book.
INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS
OF
RWANDA
Level 1
L1.2 Business Law
First Edition 2012
This study manual has been fully revised and updated
in accordance with the current syllabus.
It has been developed in consultation with experienced lecturers.
Page 2
BLANK
Page 3
CONTENTS
Study
Unit
Title Page
CHAPTER 1: Introduction to the Course
Definition of Law
Purpose of Law
Law & Morality
Law & Ethics
Substantive and procedural law
Criminal and Civil Law
Main divisions of Law
Characteristics of a Legal Rule
Sanctions of a Legal Rule
Major legal systems (families) of the world
CHAPTER 2: Sources of Law
Material Source of Law
Formal Sources
Sources of Rwandan Business Law
CHAPTER 3: Administrative Law
Meaning
Separation of Powers
CHAPTER 4: The Business Disputes Resolution
Review of key constitutional provision regarding the Court System
Rwandan Commercial Justice System
Arbitration
CHAPTER 5: Law of Persons
Juridical or legal personality
Legal identification of physical persons
CHAPTER 6: Law of Tort
The liability for personal acts
Liability for acts committed by others
CHAPTER 7: Law of Contract
General overview on Contract
Contract formation
End of Contractual Obligations
CHAPTER 8: Sale of Goods
Definition
Essentials of contract of sale
Distinction between a sale and an agreement for sale
CHAPTER 9: Agency
Agency: Definition and key features
Agent
Creation of agency
CHAPTER 10: Insurance
Definition of the Contract of Insurance and Insurer
Common Types Insurance and their Role
Categories of Insurance Business
Page 4
Study
Unit
Title Page
CHAPTER 11: Negotiable Instruments
Definition and distinct characteristics of negotiable instruments
Different kinds of negotiable instruments
CHAPTER 12: The Law of Property
Definition of property
Real Rights
Overview of the 2005 Organic Law on land use and management in Rwanda
CHAPTER 13: Nature and Classification of Companies
Definition of Company
The Company as Contract
Shares
Vocation to Profits Sharing
Affectio Societatis
Company as Institution
Forms of Business Organisation
Distinction between companies and other Business Organisations
Legal Status of Companies
Companies Moral Personality
CHAPTER 14: Registration of Companies
Public Limited Company
Formation of the Public Limited Company
Substantive Requirements
Procedural Requirements
Office of the Registrar General (ORG)
Memorandum and Articles of Association
Promoters
Legal Consequences of Incorporation
Constituent Ordinary Meeting
The main differences between a private and a public company
CHAPTER 15: Share Capital
Subscription of Share Capital
Payment of Shares
Types of Share Capital
Raising Share Capital
Variation of Shareholder’s Rights
Rights and Obligations of the Shareholders
Prospectuses
Alteration, maintenance and reduction of Share Capital
The Acquisition and Redemption by a Company of its own Shares
Financial Assistance by a Company for the Purchase of its own Shares
Dividends
CHAPTER 16: Debt Capital
Debentures
Charges
Registration of Charges
Remedies for Debenture Holders
Comparison between a share-holder and a debenture-holder
Page 5
Study
Unit
Title Page
CHAPTER 17: Membership of a Company
Becoming a Member
Register of Members
Rights, Obligations and Liabilities of Members
Termination of Membership
CHAPTER 18: Shares
Classes of Shares
Issue and Allotment
Transfer and Transmission
Share Warrant
CHAPTER 19: Meetings
Classification of Meetings
Notice of Meeting
Agenda
Proxies
Quorum
Proceedings at the Meeting
Resolutions
Minutes
CHAPTER 20: Directors
Management of Companies
Appointment of Directors
Qualification, Disqualification and Removal of Directors
Powers and Duties of Directors
Remuneration or Compensation for Loss of Office
Loans to Directors
Register of Directors
Disclosure of Directors’ in Contracts
The Turquand’s Rule
CHAPTER 21: The Secretary
The Company Secretary
Qualification, Appointment and Removal
Liability of a Secretary
Removal of a Secretary
Register of Directors and Secretary
CHAPTER 22: Auditors
Qualification, Appointment and Removal
Remuneration
Powers and Duties
Liability of Auditors
Dismissal of Auditors
Page 6
Study
Unit
Title Page
CHAPTER 23: Company Accounts, Audit and Inspection
Form and Content of Accounts
Books of Account
Group Accounts
Directors’ Report
Auditor’s Report
Investigation by the Registrar General
Appointment and Powers of Inspectors
Inspector’s Report
CHAPTER 24: Corporate Insolvency
The Disappearance of Legal Personality
Winding up by the Courts
Voluntary Winding Up
Liquidators: Appointment and Duties
Release of Liquidators
CHAPTER 25: Alternatives to Winding Up
Reconstruction
Amalgamation, Mergers and Take-overs
Schemes of Arrangement
Rights of Shareholders
Rights of Creditors
CHAPTER 26: Foreign Companies
Definition
Registration of Foreign Companies
Obligations applicable to foreign companies
Cessation of foreign company activities
CHAPTER 27: Dormant Company
Dormant Company
CHAPTER 28: Removal from Register of Companies and Penalties
Removal from Register of Companies
Solvency and company’s inability to pay
Pertinent provisions in relation to the removal from the register of companies
Penal Provisions
Page 7
Study
Unit
Title Page
CHAPTER 29: Accounting Records and Audit
Definition
Financial Statement and Annual Report
Mandatory Investigation
Amalgamation of Companies
Alteration of the nature of companies
Appendix 1
Page 8
Stage: Level 1
Subject Title: L1.2 Business Law
Aim
The aim of this subject is to ensure that students have an understanding of the law relating to the
accountant and the ability to identify problems that require the advice of a legal professional.
Learning Outcomes
On successful completion of this subject students should be able to:
Distinguish between and describe sources of law
Interpret, describe and discuss aspects of the law of property
Interpret, describe and discuss aspects of the law of contract and of
sale of goods and supplies of services
Interpret, describe and discuss aspects of the law relating to negotiable
instruments and insurance
Recognise if and when more specialist legal knowledge is required
and identify the source of that expertise
Describe, discuss and explain aspects of company law relating to the
structure of business entities and of their commercial relationships.
Page 9
Syllabus:
1. Nature, Purpose and Classification of Law
Nature and purpose of law
Classification of Law
Law & Morality
Ethics and the Law
2. Sources of Law
The Constitution
Legislation
Statutes of general application
Substance of common law and doctrines of equity
Judicial precedent
3. Administrative Law
Separation of Powers
Natural Justice
Judicial control of the Executive
Administrative Legislation
Arbitration
4. The Court System
Courts and tribunals: composition, jurisdiction
Structure, composition and jurisdiction of courts justice
Subordinate Courts
5. Law of Persons
Legal Personality
Types of persons: natural person, artificial person
Sole proprietorships
Partnerships
Unincorporated Associations
Limited Companies
Page 10
6. Law of Tort
Nature of tortuous liability
General defences in the law of tort
Negligence
Nuisance
Trespass
Vicarious liability
Occupier’s liability
Limitation of action
Defamation
7. Law of Contract
Nature of a contract
Classification of Contracts
Formation of Contracts
Terms of a contract, conditions, warranties and exemption clauses
Vitiating factors: mistake, misrepresentation, duress, undue influence,
illegality, illegal contracts
Discharge of contract
Remedies for breach of contract
Limitation of actions
8. Sale of Goods
Nature of the Contract
Formation of the Contract
Terms of the Contract
Transfer of property in goods
Rights and duties of the parties
International contracts of sale
9. Agency
Nature and creation of agency
Types of Agents
Authority of an agent
Rights and duties of the parties
Termination of agency
Page 11
10. Hire Purchase
Nature of the contract
Formation of the contract
Terms of the contract
Rights and duties of the parties
Termination of the hire purchase contract
11. Negotiable Instruments
Nature and characteristics
Negotiability and transferability
Types: cheques, promissory notes, bills of exchange
Rights & Obligations of the parties
12. Company Law
Nature & Classification of Companies
Forms of business organisations
Distinction between companies and other business organisations
Law relating to other business organisations such as co-operative societies
13. Registration of a Company
Memorandum and Articles of Association
Promoters
Legal consequences of incorporation
14. Share Capital
Types of Share Capital
Raising Share Capital
Variation of shareholders rights
Prospectuses
Alteration, maintenance and reduction of capital
The acquisition and redemption by a company of its own shares
Financial assistance by a company for purchase of its own shares
Dividends
Page 12
15. Debt Capital
Debentures
Charges
Registration of charges
Remedies for debenture holders
Borrowing powers of a company
16. Membership of a company
Ways of becoming a member
Register of members
Rights and liabilities of members
Termination of membership
17. Shares
Classes of shares
Issue and Allotment
Transfer and transmission
Mortgage of Shares
Share Warrant
18. Meetings
Classification of Meetings
Notice of Meetings
Agenda
Proxies
Quorum
Proceedings at the meeting
Resolutions
Minutes
Page 13
19. Directors
Appointment of directors
Qualification, disqualification and removal of directors
Powers and duties of directors
Compensation for loss of office
Loans to directors
Register of directors
Disclosure of directors’ interests in contracts
The Turquand’s rule
Investor Protection
Insider Dealing
20. The Secretary
Qualification, Appointment and removal
Position and duties
Liability of a secretary
Removal of a secretary
Register of directors and secretary
21. Auditors
Qualification, appointment and removal
Remuneration of auditors
Powers and duties
Vacation of office
22. Company Accounts, Audit and Inspection
Form and content of accounts
Books of account
Group Accounts
Directors’ report
Auditor’s report
Investigation by the registrar
Appointment and powers of inspectors
Inspector’s report
Page 14
23. Corporate Insolvency
Winding up by court
Voluntary winding up
Liquidators: Appointment and duties
Release of liquidators
Offences relating to liquidation
24. Alternatives to winding up
Reconstruction
Amalgamation
Mergers and takeover
Schemes of arrangement
Rights of shareholders
Rights of creditors
Page 15
CHAPTER I. GENERAL INTRODUCTION TO LAW
Section 1. MEANING OF THE LAW AND OTHER KEY CONCEPTS
A. Definition of Law
For a better understanding of the course, some key words need to be defined, the first of these
being ‘Law’ itself. The word ‘Law’ can have several meanings depending on one’s point of
view. However, two of them are the most important as far as the definition of Law is
concerned. The rest are complementary and they are useful as well because the word ‘Law
can be viewed in different ways. Also in Law, there is generally a presumption that where a
clause or rule refers to he or she (similarly, him or her) either refers to the other inclusively.
Law, in its general sense, is a set of rules of conduct prescribed by a controlling authority and
having a binding force. The phrase ‘prescribed by a controlling authority’ means that the
controlling authority declares with authority that something should be done or should not be
done or that a rule should be followed. Law having a binding force means that the law is that
which must be followed by citizens and where the people don’t abide by it, sanctions are
attached. Sanctions mean the penalties or punishments for someone who has done wrong or
who has not respected the law. Having a character of a rule of conduct implies that it
commands what is right and what is wrong.
Law, in its second meaning, is referred to as a scientific subject studying the wide and
heterogeneous body of rules regulating human conduct. In this case, it is also called the
Science of Law.
In another perspective, law is referred to as objective or subjective. Objective law is a set of
rules governing persons’ conduct in a society, enacted and sanctioned by the public authority.
It is in this way that we say that Rwandan law, Belgian law etc., or criminal law, Civil law.
Subjective law refers to the prerogatives or rights bestowed (given) to a person by the objective
law ( above). These are rights or privileges belonging to a particular person or a group because
of their importance or social position. A human being is endowed with a number of rights that
he or she enjoys in his relationship with others; for example, a human being has the right to
property, the right to privacy, freedom of speech etc. Subjective law is what we would call
subjective rights. The reason why we call it a subjective right is because a right cannot exist on
its own. It needs somebody that has the right. It is an issue of who owns what. The one who
owns is the subject and what is being owned is the right.
In another way, law is said to be positive or natural positive law or legal position meaning a
hierarchy of laws made by man, applicable in a given place at a given time. This is manmade
law. Rwandan positive law is the whole body of different rules applicable in Rwanda today.
Natural law is a body of ideal rules of human conduct considered as superior to those of
positive law and compulsory even to the legislator. Natural laws are usually used to justify the
legal rule (positive law) this is because every single law is related to a pure moral law, which is
to say that a legal rule is a result of a moral law. An example is that the legal rule (positive
law) against murder originated from the natural law of ‘don’t kill’ which has been in existence
since time immemorial.
Page 16
Summarizing this development on the definition of the law, one can say that Law might be
understood as a set of rules which are generally obeyed and enforced within a politically
organised society. In other words, law is a body of rules for the guidance of human conduct
which are imposed upon and enforced among the members of a given state. The law is really
necessary in each society.
B. Purpose of the law
The establishment of laws in society is necessary to protect the rights of individuals and to
ensure the good order, functioning and survival of the society. In effect, what the law is trying
to do is to provide answers to the myriad of everyday problems that can arise in society. The
solutions to such problems must accord with objectives that are judged by the community to be
socially desirable. The problems arise in the first place because of the conflicting interests of
individuals and groups within the society and the necessity to ensure the functioning and
survival of the society itself. The more civilized a community becomes, and the greater the
industrial and scientific progress it makes, the more laws it must have to regulate the new
possibilities it is acquiring.
What the law does, in attempting to prevent and resolve conflict in society, is to:
- control social relations and behaviour;
- provide the machinery and procedures for the settlement of disputes;
- preserve the existing legal system;
- protect individuals by maintaining order;
- protect basic freedoms;
- provide for the surveillance and control of official action;
- recognize and protect ownership and enjoyment of the use of property;
- provide for the redress (compensation) of harm;
- reinforce and protect the family;
- facilitate social change.
C. Law and morality
There is a connection between legal laws laid down by a state and certain other norms of
behaviour known as laws of morality. From a legal perspective the essential difference between
these two sets of rules exists in their respective enforcement. Legal rules are enforced in the
courts. Rules of morality depend for their observance upon the good conscience of the
individual and the force of public opinion. In any society it is usual to find the rules of morality
observed by the majority of its members reflected in the legal laws of that society. The contents
of morality, or ethics, and law overlap to a great extent, e g murder, theft and slander; but there
are many rules of morality and ethics which the law does not seek to enforce, such as the
commandment to honour our parents; and many legal rules which are not intrinsically moral,
such as the husband’s general liability to pay tax on his wife’s income.
Page 17
D. Law and Ethics
Ethics (also known as Moral Philosophy) is the science of the rules of moral conduct which
should be followed as being good in themselves. There is a close relationship between law and
ethics, but there are important differences.
First of all, whereas law is enforced by the organs of the state, ethics are not. While the
commands of the law are imposed from without (heteronymous) and enforced by sanctions
primarily exterior, the final decision in moral issues is left to each man’s personal conscience,
and the sanctions lie in one’s own heart (save that, where a rule of ethics coincides with one of
positive morality, public opinion may provide a sanction). Secondly, law concerns itself
primarily with the external behaviour of a person, his overt acts, being interested in the state of
his mind, his intention or his motive as a rule only where it manifests itself in an act. Ethics on
the other hand, concerns itself primarily with the state of a person’s mind, with his thoughts
and desires, and is interested in his acts in the main only in so far as they reveal the state of his
mind.
Thirdly, whereas law imposes its commands in the interests of the community, the laws of
ethics are imposed for their own sake, to achieve virtue. While the Law aims at the doing of
justice and the maintenance of peace and order in the community, the aim of ethical theory is
the perfection of character; institution of law has to do with the regulation of conduct.
To a large extent law and ethics overlap, but they do not coincide.
Section 2. CLASSIFICATION OF LAW
A. Substantive and procedural law
Substantive law sets out the rights and duties governing people as they act in the society and
specifies remedies to back up those rights. Duties tend to take the form of a command. ‘’Do
this’’ or ‘Do that’ or ‘Do not do that’. For example, the Rwanda labour code tells employers
that they must not discriminate amongst people in hiring and employment on the basis of race,
colour, religion, sex, etc. substantive law also establishes rights and privileges, e.g. freedom of
speech, the right to self-defence.
Procedural law establishes the rules by which substantive law is enforced. It does not define
rights or duties, but merely implements them. Rules as to what cases a court can decide how, a
judgment of a court is to be enforced are part of procedural law.
B. Criminal and civil law
Criminal law consists of rules prohibiting anti-social conduct as well as certain deviant
behaviour. It aims to shape people’s conduct along lines which are beneficial to society, by
preventing them from doing what is bad for society. In Rwanda as elsewhere, these
prohibitions are listed in the penal code and a number of subsidiary legislation. Also forming
part of the criminal justice system are courts, which adjudicate questions of criminal liability,
as well as the police force and other enforcement agencies which exist not only to maintain law
and order but also to detect and prosecute violations against the criminal law. It is the society
through Government employees called public prosecutors that bring court action against
Page 18
violators. If a person is found guilty of the crime such as theft, the person will be punished by
imprisonment and or a fine. When a fine is paid, the money goes to the side of the government,
not to victim of the crime.
Civil law lays down rules, principles and standards which create rights and duties and specifies
remedies to back up those rights. The duties are owed by one person (including corporations)
to another. Actions for the breach of civil duty must be brought by the injured party himself or
his representative. Generally, the court does not seek to punish the wrongdoer but rather to
compensate the injured party for the harm he or she has suffered. For instance, if someone
carelessly runs a car into yours that person has committed a civil wrong (tort) of negligence. If
you have suffered damages you will be able to recover to the extent of the damages suffered.
Note that although civil law does not aim to punish, there is an exception. If the behaviour of
someone who commits a tort is outrageous, that person can be made to pay punitive damages
(also called exemplary damages). Unlike a fine paid in a criminal case, punitive damages go to
the injured party.
Sometimes, the same behaviour can violate both the civil law and the criminal law. For
instance, a person whose careless driving causes the death of another may face both a criminal
prosecution by the state and a civil suit for damages by survivors of the deceased. If both suits
are successful, the person would pay back society for the harm done through a fine and or a
sentence, and compensate the survivors through the payment of the money damages.
C. Main divisions of law
Broadly, law can be divided into two broad categories
1. International law
This is sometimes called the law of nations, and consists of rules governing the relations
between states. The basic principles are recognition of the sovereign state, known as pacta sunt
servanda (Latin for "agreements must be kept"). Public international law is the most well-
known branch of International law which regulates legal relations between states and the
manner in which international organizations operate. International law is the set of rules
generally regarded and accepted as binding in relations between states and nations. It serves as
the indispensable framework for the practice of stable and organized international relations.
International law differs from national legal systems in that it only concerns nations rather than
private citizens. National law may become international law when treaties delegate national
jurisdiction to supranational tribunals such as the European Court of Human Rights or the
International Criminal Court. Treaties such as the Geneva Conventions may require national
law to conform.
International law is consent based governance. This means that a state member of the
international community is not obliged to abide by international law unless it has expressly
consented to a particular course of conduct. This is an issue of state sovereignty.
The term "international law" can refer to three distinct legal disciplines:
Page 19
Public international law, which governs the relationship between provinces and
international entities. It includes these legal fields: treaty law, law of sea, international
criminal law, the laws of war or international humanitarian law and international human
rights law.
Private international law addresses the questions of (1) which jurisdiction may hear a
case, and (2) the law concerning which jurisdiction applies to the issues in the case.
Supranational law or the law of supranational organizations, which concerns regional
agreements where the laws of nation states may be held inapplicable when conflicting
with a supranational legal system when that nation has a treaty obligation to a
supranational collective.
The two traditional branches of the field are:
jus gentium — law of nations
jus inter gentes agreements between nations
2. National law
This is the law of a particular country and it is divided into various branches:
a) Public law
Public law is that branch of the law concerned with the organization of the state and state
agencies and corporations as well as their relations with private individuals. Constitutional law,
tax law, public finance, public liberties, administrative law, criminal law is all public law
subjects.
b) Private law
Private law on the other hand, is that branch of the law which governs the relationship of
individuals inter se. There are divisions in this branch of law:
- Law of persons (including family law): This branch of law deals with the legal status
of natural persons, such as minors and insane persons, and involves factors influencing
capacity, such as age, marriage and nationality. Family law deals with the law of
domestic relations and the legal rules for family relationships, such as marriage,
divorce, guardians.
- Law of things”. This branch is divided into categories:
Law of property: this is a branch of law that is concerned with real rights and
deals with ownership and possession, and various real rights in a thing
belonging to another, such as servitudes, mortgages, pledges and liens.
Law of succession: This deals with what happens to a person’s estate upon
death. In testamentary succession, the deceased leaves a valid will. In intestate
succession, there is no will at all, or part of the estate of the deceased was not
disposed of by will.
Page 20
Law of obligation: This branch of law deals with personal rights, and is divided
into two categories.
Law of contract: a contract is defined as a binding agreement between two or
more persons by which one or more of them agrees to give something, or to do
something, or not to do something. It is therefore an agreement intended to
create or extinguish personal rights between persons.
Civil liability. This is a branch of general duty imposed by law which will
ground an action for damages by any person to whom the duty was owed who
has suffered harm in consequence of the breach. The duty is owed to persons
generally and is imposed independently of the will of the parties.
Business law: There is no simple categorization of laws that fall under business
law, since much of this law also falls into other categories. However, business
law may include laws relating to insurance, labour law, bankruptcy, and agency,
sale of goods, taxation, negotiable instruments, company law, carriage, and law
of banking.
- Procedural law: This branch of law deals with the rules that govern how actions may
be brought under the law. There are two divisions:
a) Civil procedure: This sets out the rules of how persons can bring action against
others in a civil court.
b) Criminal procedure: This sets out procedure on how a criminal court operates,
the powers of judges in criminal matters, and how persons can be brought
before a criminal court.
- Law of evidence: This sets out the rules of how evidence may be introduced and
proved in a civil or criminal court.
- Conflict of laws: This branch of law prescribes rules for settling an issue before a
Rwandan court if the events at issue are so connected to a foreign country that the
foreign country’s system of law has to be considered in resolving the matter.
Section 3. CHARACTERISTICS OF A LEGAL RULE
A legal rule is binding, meaning that it requires you to do something or not to do something.
‘Binding’ also means that it is supposed to be followed by all citizens.
A legal rule is binding in time and space. On the one hand, a legal rule is said to be binding in
space when it is for example applicable to Rwanda and not to Britain. On the other hand, a
legal rule is binding in time, when it exists from a certain date to a certain date. It is possible
that a public (state) authority can vote for a law and it exists for two years and it is then
replaced by a new one.
A legal rule is always general. This means that it applies to persons in general but not to a
particular individual. A legal rule cannot regulate one specific person. A law which regulates
one person is not a legal rule. That law can’t or doesn’t exist.
Page 21
However, a legal rule can apply to a certain class of individuals. Some rules are applied to
some specific categories of people. This is the diversification of rules. An example is when a
law can apply to men and women doing military service, people doing commercial activities or
to employers.
A legal rule is permanent. It means that it is applicable or not interrupted between its inception
and its end. This characteristic of permanency of a legal rule refers to its applicability during its
life (its existence).
A legal rule can be private or public. Private law is a body of legal rules that regulate private
individuals and their relations. Public law is that which regulates relations between private
persons and the public (state) authority.
A legal rule generally regulates human conduct. This is why it is general and abstract (it is
concerned with general ideas or principles rather than specific issues)
A legal rule normally means a general and abstract provision stipulating how beings should
behave. The generalizing and impersonality of a legal rule are an important guarantee against
arbitrariness (unfairness)
A legal rule also distinguishes itself from other rules by the nature of its sanction. The sanction
of a legal rule is exercised by the public (state) authority. The phrase ‘sanction’ here should be
understood as the official permission, approval or acceptance of a legal rule which is the duty
of the state (authority)
On the other hand, an ethical rule (principles about what is right and wrong) bears an internal
sanction. This means that it is the internal conscience which leads someone to decide what is
right (what to do) and what is wrong (what not to do)
An ethical rule can also bear the social sanction but not the one exercised by a public authority.
This means that it is society which accepts and approves the ethical rule. It is clear that the law
cannot rely on such a sanction (of the society) because of its inefficiency to impose respect and
order in the society.
As to religious rules, they are applicable to believers and are sanctioned by church leaders,
which are also different from legal sanctions because they come from a public authority and are
vested with coercive force.
However, it is worthy to mention that, if one of the ethical or religious rules is at the same time
sanctioned by the public authority, it becomes a legal rule even if it is still and ethical or
religious rule. This is why some legal rules are also ethical rules, creating some confusion
between law and ethics.
Page 22
Section 4. SANCTIONS OF A LEGAL RULE
There are three main types of sanctions attached to a legal rule:
Criminal sanctions
Civil sanction
Disciplinary sanctions
A. CRIMINAL SANCTIONS
Criminal sanctions are applied when the legal rule that was violated is concerned with the
public interest (the social order) In this case; the violation is held to be an offence or infraction.
Sanctions or punishment in the case of a criminal conduct (offense) do range from some francs
of fine to the temporary and life imprisonment and the death penalty.
B. CIVIL SANCTIONS
Civil sanctions concern violations of a legal rule protecting private interests. The violation in
this case is concerned to be an attack on individual interests protected by the violated rule.
Civil sanctions aimed at restoring the situation prevailing before the violation. They are also
referred to as damages or reparations.
C. DISCIPLINARY SANCTIONS
Disciplinary sanctions are such as those extended to employees of the civil service, judges and
other magistrates as well as soldiers who do not conform to the duties of their functions. These
sanctions range from the warning, temporary suspension and in extreme cases the exclusion
from service.
Section 5. MAJOR LEGAL SYSTEMS (FAMILIES) OF THE WORLD
Every country in the world has its own laws and sometimes laws co-exist within the same state.
Despite these variations laws can be classed into types under a limited number of general
categories. The following legal systems have been identified in the world-: The Common law
tradition, the Civil law or Romano- Germanic tradition; the Socialist law tradition and Muslim
law tradition.
a) Common law system. The common law family embraces the law of England
and legal systems of the English type. Its wide expansion throughout the world
came as a result of colonization or expansion. Most English-speaking countries
in the world are common law jurisdictions. The essential features of the
common law system are the following. It is basically judge made law. The
common law was formed primarily by judges who had to resolve individual
disputes. Secondly, the legal rule in the common law system is one which seeks
to provide the solution to the case in hand. It does not seek to formulate a
general rule of conduct.
Page 23
b) Civil law system. Originating from continental Europe the civil law system has
spread to the countries of Latin America, Francophone and Lusophone African
countries, the countries of the near East, Japan and Indonesia. Colonization and
voluntary reception contributed for this wide spread. French law stands out as
the prototype of the civil law systems of laws. This is so because the Napoleonic
codes have served as model codes for other countries. The main features of the
civil law system are following. Firstly all civil law jurisdictions adopted the
legal technique of condition. Secondly, the legal rule seeks to formulate a
general rule of conduct as opposed to address the case in hand (cf Common
Law).
c) Socialists legal system. Prior to 25th October 1917 (the October Revolution)
Russian law could be said to belong to civil law family. Since then, law in
Russia has taken a different path based on Marxism-Leninism. So that today, it
is current to speak of socialist legal theory; a socialist law with its own
distinctive structure and system of administering justice. The primary function
of Soviet law is to organize the nation’s economic forces and to transform the
behaviour and attitude to an infringement on the interests of private persons or
an insult to the code of morality. This position is bound to change when states
previously subject to soviet law have adopted European Union market
economic policies (capitalism).
d) Muslim legal system. Muslim law is not an independent branch of knowledge
or leaning. It is only one of the facts of Islamic religion itself; Islam is first of all
a religion, then a state, and finally a culture. The Islamic religion includes,
firstly, theology which established dogma and states exactly what a Muslim
must believe. Secondly It includes the ‘sharia’ (‘the way to follow’) which lays
down rules of behaviour for believers. Since Muslim law is an integral part of
the Islamic religion no authority in the world is qualified to change it.
Page 24
Chapter 2. SOURCES OF LAW
There are two kinds of Sources of law: material and formal sources.
SECTION 1. MATERIAL SOURCE OF LAW
A. Definition.
The material sources are the sources of inspiration of law. In other words, it is what is at the
origin of the legal provision.
There are, for example, historical sources. The right keeps the memory of its past, it is
marked by a rather great continuity, a rather great stability. On certain essential questions
(contract law, right of the responsibility, etc.), the applicable rules come to us from the old
right (the canonical right, Roman law, habits). The historical sources are significant.
Concurrently to this core, there is also a very great mobility of the right. The Parliament votes
each year on tens of laws. Jurisprudence evolves/moves also rather quickly. It is not thus
enough to know the history of the right, even if this one is significant.
It is necessary to distinguish two types of sources: material sources and formal sources.
B. Various material sources
1. Social standards
The right very often endeavours to re transcribe social rules to transform them into legal
provisions. Example: the question of the homosexual couples and its legal recognition:
gradually society admits the existence of the homosexual couples and more and more reserves
a legal framework for them. , today, the PACS (Civil Pact of Solidarity). Of course, the right is
not always in phase with society, there can sometimes be a rather long time between the
evolution of manners and the evolution of the laws (e.g. 1975 only: lifting of the prohibition of
abortion).
2. The economic theory
More and more economic science takes importance in our society and more and more the right
takes as a starting point the economic theory, p. ex.1 for tax or revenue duty, the environmental
right, etc.
3. Religions
They play a rather weak and indirect role, today in France, primarily through the historical
tradition. It is not the case in other countries of the world (p. ex.: Muslim countries).
1 P ex. Per example or for example and is the same as e.g.
Page 25
C. Value of the material sources
The material sources are, themselves, never obligatory. They inspire the legal provisions, but
they are not themselves legal provisions.
They can be however taken into account to interpret a legal provision and they can clarify the
direction.
SECTION 2. FORMAL SOURCES
We have two main types of formal sources of law. Obligatory and Auxiliary sources
A. OBLIGATORY SOURCES OF LAW
These are the principal sources of law. In a narrow sense, laws are statutes enacted by the
parliament and promulgated by the president of the Republic.
In a broader sense, the Law mean all legal rules of written law formulated in a general way by
means of exercising legislative power or even executive power.
The laws have a general impact, emanating from public power and are obligatory for all
individuals found in a given society.
Here, we have national laws at the country level, and international laws on the international
level.
We will first examine national laws.
1. SOURCES OF NATIONAL LAWS
The laws are ranged, according to their hierarchy, as following:
- The constitution;
- The organic law;
- The ordinary law;
- The Decree law, etc.
1.1. The constitution
At the national level, the constitution comes at the first position. The constitution is a set of
rules which form the fundamental law of a state with which all other laws have to be in
conformity. This means that when there is a conflict between constitutional provisions and any
other law of the country, the former prevails.
For G. Burdeau, the constitution occupies a central place in a system of the rule of law. A
certain philosopher M. Kamto wrote:
“A democracy should not be a government by peoples, but a government by the law”. This is
what is called the rule of law. In this sense, it coincides with a “democratic state” on condition
that “the law really expresses the general will of the public”.
Rwanda has only one constitution, which was adopted through the referendum of 26th May,
2003.
Page 26
1.2. The organic laws
Besides the constitution, there are organic laws, which rank immediately below the
constitution. Within the hierarchy of laws, organic laws come after the constitution.
An organic law is adopted with a view to specifying or completing the constitution and other
laws. There are organic laws in Rwanda. This is the case of the organic law No 08/96 of
30/08/1996 on the organization of prosecutions of crimes constituting the crime of genocide or
crimes against humanity committed between 1st October 1990 and 31/12/1994, the organic law
on the organization and functioning of Gacaca jurisdictions, and so many others.
According to 93(6) of the Rwandan constitution, organic laws shall be passed by a majority
vote of three fifths of the members present in each chamber of Parliament.
Organic laws have a legal force superior to ordinary laws. It is the constitution, which
determines the areas reserved for organic laws. We can cite the:
- Conditions of acquisition, retention, enjoyment and deprivation of Rwandan nationality
(art. 7 const.)
- The organization of education in Rwanda (art. 40 const.)
- The modalities for the establishment of political organizations, their functioning, the
conduct of leaders, the manner in which they shall receive state grants as well as the
organization and functioning of the forum of political organizations (art. 57(2) const.)
- The internal regulations concerning each chamber of parliament (art. 73 const.) i.e. each
chamber of parliament shall adopt an organic law establishing its internal regulations.
- The conditions and the procedures by which parliament controls the actions of the
government.
- The organization and jurisdiction of courts.
1.3. Ordinary laws
Ordinary laws, which are most frequent, are voted by the absolute majority of seating
parliamentarians of each chamber. It is the constitution that determines the relevant areas for
ordinary laws. These areas are many compared to those of organic laws. The quorum required
for each chamber of parliament is at least three fifths of its members (art.66(1) const.).
1.4. Decree Law
In case of the absolute impossibility of parliament holding session, the president of the republic
during such period promulgates decree laws adopted by the cabinet and those decree laws have
the same effect as ordinary laws (art. 63(1) Const.).
These decree-laws become null and void if they are not adopted by parliament at its next
session. This is in conformity with article 63(2) constitution.
Page 27
1.5. Orders of Presidential, prime ministers and other public authorities.
1.5.1. Presidential orders
The president of the republic exercises his functions as the head of the executive Power by way
of Presidential Decrees.
According to article 112 of the constitution, the President of the Republic shall sign
presidential orders approved by the cabinet, and the prime minister, ministers, and ministers of
state and other members of government responsible for their implementation countersign these
orders.
1.5.2. Orders of the Prime minister and others public authorities
The prime minister signs orders of the prime minister relating to the appointment and
termination of senior public servants mentioned by article 118(10) of the constitution.
Ministers, ministers of state and other members of cabinet implement laws relating to matters
for which they are responsible by way of orders (art.120 (i) const)
The prefects of provinces can enact administrative and police regulations (art 21 of the law no
43/2000 concerning the organization and functioning of the province) in the same way, the
District council has the power to enact the regulations of the District in the areas of politics,
security, taxes (art23 of the l aw no 04/2001 of 13/1/2001 concerning the organization and
functioning of the province) in the same way, the District council has the power to enact the
regulations of the District in the areas of politics , security , taxes ( art.23 of the law no.04/2001
of 13/1/2001 concerning the organization and functioning of the District).
2. SOURCES OF INTERNATIONAL LAW
The sources of international law are actually the same as the sources of public international law
which were discussed earlier. Because these sources were elaborated in detail, not much detail
will be provided under this section. Mention can just be made that the classical formulation of
sources of international law is article 38 of the statute of the international court of justice. The
article sets out four sources and these are:
- International conventions, whether general or particular, establishing rules expressly
recognized by contesting states;
- The general principles of law recognized by civilized nations;
- International customs, as evidence of a general practice accepted as law …. Judicial decisions
and the teachings of most highly qualified practioners of law in various nations, as subsidiary
means for the determination of rules of law.
B. AUXILIARY SOURCES OF LAW
The auxiliary sources of law are jurisprudence, doctrine, general principals of law and equity.
Page 28
1. Custom (as a source of law)
A custom is generally defined as a set of a people’s way of doing things which has acquired an
obligatory force in a given social group and which is practiced over a relatively long time
period. Customs are practices or usages of a given society. Customary law is unwritten. It has
to be considered as legally binding on (obligatory by) the people in the society.
A custom is not created as a written law, a unique act, but by a repetition of similar practices
especially with the conception that it has a binding (obligatory) force. The essential elements of
a custom are therefore.
- The usage
- Binding force
- The social consensus
- The time in which it is applicable
But the first two are the ones that are most frequently cited as the ones that form a custom. It is
also important to point out that custom can inspire the legislator when modifying or completing
an existing law or when judges are regulating new cases where the existing laws are not clear
or incomplete. Custom can also help for the comprehension of a legal text. However, it is
important to indicate that custom is applicable in the absence of law; And when they are not
contrary to the constitution, laws, regulations, public order and good morals.
These laws are the principal sources of law. Custom is just a subsidiary source of law, in the
sense that they can inspire the judge and help him in the comprehension of legal texts.
2. General principles of law.
These are principles of law common to the legal systems of the world. In Rwanda, examples of
general principles of law are:
- the principle of double jeopardy
- that law provides for the future and does not have a retroactive effect.
- The principle of permanence and continuity of the state
- It is presumed that no-one is ignorant of the law.
In hierarchy, general principles of law are inferior to the Law. Some of them are already part of
the Rwandan penal code. In general, general principles of law are not as direct a source of law
as the laws they inspire the judge and they are resorted to in the absence of the law.
3. Jurisprudence (Decided case law)
Jurisprudence means the set of decisions rendered by courts and tribunals. In Romano-
Germanic legal systems, jurisprudence doesn’t bind the judge. The decisions of courts and
tribunals don’t have a general field of application. Judges’ decisions are only binding on those
parties involved in the case. If a judge is seized with a new case, he is not obliged to comply
Page 29
with decisions made on similar cases in the past (precedent). This means that in a new case, he
may rule differently from his previous decision.
This led some people to say that jurisprudence is not strictly speaking a source of law.
However, even though the jurisprudence doesn’t have a legal value or a legal binding force, it
exercises an unquestionably factual influence that guides the judge to rule in a given way. We
refer to this influence as defacto authority of jurisprudence .
In a common law legal system, the situation is different. Jurisprudence does constitute a
binding source of law .we refer to it as Precedent. A common law precedent has a binding
force on the judge. He cannot easily depart from it.
4. Doctrine
By doctrine, we mean legal scholars’ opinions on critical questions of law. In the wider sense,
doctrine refers to publications of persons deeply involved in the study of law. These are law
professors, senior judges, eminent lawyers, etc.
Doctrine serves to understand the positive law better, which means those rules applicable in a
given society at a precise time. Doctrine serves also to inspire possible law reforms by
proposing rules that should be enacted by the legislator. Although doctrine is not a principal
source of law, it constitutes a subsidiary impact on the law. It exercises an important influence
even though it is not a binding source of law. It guides the judge by promoting reasons for
deciding in a certain way. On the other hand, doctrine guides the legislator when enacting laws.
He can either consult legal works (publications) of scholars or ask them to participate in the
legal process as experts. The authority attached to doctrine relates somehow to the reputation of
the scholar himself. The more reputable he is in his field and publications, the more his
opinion will be of influence.
In conclusion, one can say that although doctrine is not a principle source of law, it plays a
significant role, as the opinion submitted by eminent lawyers on a subject of law can be useful
in case it is put forward and followed in courts, because it can help in the comprehension of a
legal text.
5. Equity
The regulation of 14 May 1886 foresees that in case there is a matter that is not provided by a
legal text, the disputes without solutions in local customs will be solved according to general
principles of law and equity.
Equity, which is based on the general feelings of justice, allows the judge, in case of silence of
law or a legal gap, to make judgements conforming to common sense and feelings of justice.
The notion of equity has a vague character and the judge is not bound by any certain precise
rule but he has the power to decide according to the circumstances but without arbitrariness
(unfairness) . This means that he has to apply equity with fairness. Certain legal provisions give
examples of how equity can be applied ( art 34,142, of the civil code iii , art.82 of the penal
code )
Page 30
Equity is not itself a source of law. It is a means available to the judge when he is supposed to
give a judgement without applying a determined legal rule.
Section 3. SOURCES OF RWANDA BUSINESS LAW
A. International sources
The role of international treaties is unknown in civil law. The implications of international
conventions on commercial law have been compounded by recent developments and increasing
interdependence in international commercial activities. Some might even argue that the result
of these developments might have had led to a uniform (unified) international law. The
implications of international conventions on Rwandan commercial law are both direct and
indirect.
Direct implication happens when a convention or an agreement becomes part of domestic law
or provides the basis for domestic law of similar content (e.g. the decree of December 10th,
1951 which deals with cheques and the decree of July 28th, 1934 which deals with the bill of
exchange the promissory note and protests). The content of both laws are based on the Geneva
Conventions of June 7th, 1930 and of March 19th, 1931, which deal with cheques and bills of
exchange.
Indirect implication of international conventions can be found in the adoption by Rwanda of
the Vienna Convention on the International Sale of Goods ( the United Nations Convention on
Contracts for the International Sale of Goods) of April 1980, which deals primarily with
external trade relations, Convention on the Recognition and Enforcement of Foreign Arbitral
Awards, etc.
.
Below are some examples of international conventions related to international trade.
- 1995- United Nations Convention on Independent Guarantees and Stand-by Letters of Credit;
- 1988- United Nations Convention on International Bills of Exchange and International
Promissory Notes;
- 2001- United Nations Convention on the Assignment of Receivables in International Trade;
1991- United Nations Convention on the Liability of Operators of Transport Terminals in
International Trade;
- 2005- United Nations Convention on the Use of Electronic Communications in International
Contracts.
B. Domestic sources
Currently, there is no commercial law code in Rwanda. However, some disparate laws do exist:
- Decree of 2 August 1913 on traders and proof of commercial engagements;
Page 31
- Decree of 12 January 1920, on pledge of business, discount and the pledge of
commercial bills;
- Decree of 27 July 1934 on bankruptcy and preventive legal settlement to bankruptcy;
- Decree of 10 December 1951 on uniform law on cheques;
- Law n°07/2009 of 27th April 2009 relating to companies, amending the law no 06/1988
of 12th February 1988.
- Law N° 50/2007 Providing for the establishment, organization and functioning of
Cooperative Organizations in Rwanda;
- Law n° 10/2009 of 14/05/2009 on mortgages;
- Law n° 12/2009 of 26/05/2009 relating to commercial recovery and settling of issues
arising from insolvency;
- Law n°40/2008 establishing the organization of Micro Finance activities;
- Law n° 005/2008 of 14/02/2008 on arbitration and conciliation in commercial matters;
- Law n° 35/91 on the organization of internal trade as modified and supplied to date;
- Law n° 11/2009 of 14/05/2009 on security interest in movable property.
- Ministerial order n° 01/MINICOM of 08/05/2009 determining small private limited
company;
- Ministerial order n° 02/09/MINICOM of 08/05/2009 relating to businesses of low
income;
- Ministerial order n° 03/09MINICOM of 08/05/2009 determining fees for registration of
companies’ business activities.
- Law 45/2011 of 25/11/2011 Governing Contracts
It is advisable that the student acquaints himself with the above ministerial orders, laws and
decrees.
Page 32
Chapter 3. ADMINISTRATIVE LAW
Section 1. MEANING
As a scientific subject or discipline, Administrative law is an autonomous branch of public law
comprising the special rules concerning the organisation and functioning of the administration,
the activities of the administration and also litigation should be understood as the processe of
taking claims to court in non-criminal cases.
Private law rules don’t govern controversies (disagreements) within the jurisdiction of
administrative law. The reason of this independence of administrative law is that the
administration, serving a public interest, can’t be subject to the same rules as individuals. This
is why there are special rules different from those applied to private individuals and in some
countries; administrative disputes are adjudicated by special courts called ‘administrative
courts’.
Section 2. SEPARATION OF POWERS
The State is composed of three branches which are the following:
- The Legislature
- The Executive
- The Judiciary
According to article 60(2) of the Constitution of the Republic of Rwanda, these three branches
are separate and independent from one another but are all complementary.
1. The Legislative branch: the Rwandan Parliament
According to article 62 of the constitution, it is stated that legislative power is vested in a
parliament consisting of two chambers:
- The chamber of Deputies, whose members shall have the title of ‘Deputies’
- The Senate, whose members shall have the title of “Senators”.
Parliament deliberates on and passes laws. These may be ordinary laws or organic laws.
Within the hierarchy of laws, an organic law ranks immediately beneath the constitution.
Organic laws are adopted with a view to specifying or completing provisions of the
constitution. Parliament legislates and oversees executive action in accordance with the
procedure determined by the Constitution (art. 62 const.).
Every member of the Parliament represents the whole nation and not just those who elected or
nominated him or her or the political organisation on whose ticket he or she stood for election.
(Art. 64(1)) before taking office, members of parliament shall take oath before the President of
Page 33
the Republic and, in case of his or her absence, before the president of the Supreme Court.
(Article 65(1))
The Bureau of each chamber of parliament is made up of the president and two vice-presidents.
This is in conformity with the constitution (art. 65(5) const.)
The office of a Parliamentarian shall not be compatible with being a member of the
Cabinet.
An organic law determines offices which are incompatible with the office of a
parliamentarian. (article 68(2 & 3) const. but see Art 116 Const. and below) It isalso stipulated
that no one shall at the same time be a member of the chamber of Deputies and of the senate
(Article 68(1) const.). The chamber of Deputies shall be composed of 80 members. The
members of the chamber of Deputies shall be elected for a five year term. Candidates may be
presented by a political organisation or may stand independently.
The Senate shall be composed of twenty six (26) members serving for a term of eight (8) years
and at least 30% (thirty percent) of whom are women. Note should be made that the sittings of
each chamber of parliament are public.
The right to initiate legislation shall be concurrently vested in each Deputy and the Executive
acting through the cabinet (art. 90 const.). The law is sovereign in all matters (art. 93(1))
Organic laws govern all matters reserved for them by the constitution as well as matters that
require related special laws (art 93(2) const.).
An Organic law cannot contradict the constitution neither may an ordinary law or decree law
contradict an organic law nor a Decree contradict an ordinary law. (Article 93(3) const.).
In voting a bill, there must be a separate vote on each article as well as a vote on the entire bill
(article 93(4) const.). A vote on the entire law is conducted by calling each parliamentarian by
name and the parliamentarian votes by replying in a loud voice.
2. The Executive branch
The President of the Republic is the Head of state. He or she is the guardian of the constitution
and guarantees national unity. He or she guarantees the continuity of the state, the
independence and the territorial integrity of the Country and the respect of international treaties
and agreements. (Article 98 const.)
The President of the Republic has the right to address the nation. (Art. 98 const.).
According to article 101 of the constitution, the President of the Republic is elected for a term
of seven years renewable only once. This means that under no circumstances shall a person
hold the office of the president of the Republic for more than two terms. (art 101 (const.) If
the office of the President is vacant before the term expires, elections are organised within a
period not exceeding ninety days (Art . 107(3) const. ).
Page 34
In case the President dies or is permanently unable or otherwise chooses not to assume office,
new elections are held. In that case, the acting president will be the president of the senate, in
the absence of the president of senate, the speaker of the Deputies and in the absence of both,
the duties are assumed by the Prime Minister (art. 105(3) and 107(1) const.)
The office of the President is incompatible with the holding of any other elective public office,
public function or any other civilian or military employment or professional activities (art. 106
cons.)
The President of the Republic is the commander–inchief of the Rwanda Defence Forces (Art.
110 cons.). He can declare war from his own initiative and he can as well sign agreements
temporarily or permanently to stop the war (Art. 110 const.).
He or she accredits Ambassadors and special envoys to foreign states and the ambassadors
accredited to Rwanda Present their credentials to him or her (Art. 114 const.). He or she shall
make appointments of senior public service and military offices as determined by the
constitution and other laws (Art. 112)
The cabinet shall comprise the Prime Minister, Ministers of state and other members who may
be determined by the President of the Republic (Art. 116(1) Const.).
The Prime Minister shall be nominated, appointed and removed from office by the President of
the Republic (Art. 116(2) const.). Other members of cabinet shall be appointed and removed
from office by the President of the Republic upon proposed by the Prime Minister (Art. 116(3)
const.).
According to Art. 117 const., the cabinet implements national policy agreed upon by the
President of the Republic and the cabinet. It is accountable to the President of the Republic
and to the parliament (Art.117 (2) const.).
3. The Judiciary
A. Introduction
Judicial power is exercised by the Supreme Court and other courts established by the
constitution and other laws. (Art140 (1) const.).
The Judiciary is independent and separate from the legislative and executive branches of
government. (Art. 140 (2)).
Justice is rendered in the name of the people and nobody may be a judge in his or her own
cause. (Art. 140(4) const.).
Judicial decisions are binding on all parties concerned, be they public authorities or individuals.
They shall not be challenged except through ways and procedures determined by law (Art. 140(3)
const.).
Page 35
Every court decision shall indicate the grounds on which it is based. (Art 141(2) const.) Courts
apply orders and regulations only where they are not inconsistent with the constitution and
other laws. (Art. 141(3) const. ).
In the exercise of their function, judges follow the law and only the law (Art. 142(2).
Page 36
B. Judicial organization and competence
B.1. Ordinary courts
a) Lower instance courts
There is established a lower instance court for sector councils. The court is to exercise
jurisdiction within the administrative boundaries of the sector council. In criminal matters
lower instance courts are competent to hear offences whose sentence a term of imprisonment
does not exceed five (5) years. They are not competent to hear offences relating to the violation
of traffic rules.
As regards civil disputes lower instance courts have original jurisdiction to hear and determine:
Disputes between natural or artificial (legal) persons whose monetary value does not
exceed three million (3,000,000Rwf), except civil actions related to insurance as well as
those seeking damages for loss occasioned by an offence tried by another court:
Disputes related to land and livestock and their succession:
Disputes related to civil status and family
Disputes related to immovable property other than land which does not exceed 3
million Rwf of monetary value and its succession.
Disputes related to movable property which does not exceed 3million Rwf of monetary
value and its succession.
Note that judgments rendered by lower instance courts in both criminal and civil matter can be
reviewed by the same court or appealed to the higher instance courts. The exception is cases
whose monetary value does not exceed Rwf fifty thousand (50,000). In this case the lower
instance court shall serve as the final court of appeal.
b) Higher instance courts
There is a higher instance court in district councils. Each court has specialized chambers: the
juvenile chamber, the administrative chamber and the labour chamber.
In criminal matters higher instance courts shall have jurisdiction to try offences whose sentence
is a term of imprisonment exceeding five (5) years except where the law reserves the offence to
other courts; they have jurisdiction to try traffic offences and person placed in the first category
accused of crimes of genocide and other crimes against humanity committed between 1st Oct.
1990 and 31st Dec. 1994.
In civil cases, higher instance courts have jurisdiction to hear cases on the first instance that are
not triable by other courts. They shall have competence to hear on first instance case related to
insurance regardless of the value of the claim.
Note that the specialized chambers of higher instance courts shall hear administrative cases
relating inter alia, to actions for damages arising from contractual liability, government
officials and its parastatals.
In its appellate jurisdiction the court can hear appeals against judgment rendered on first
instance by lower instance courts within their respective jurisdiction.
The provincial or city of Kigali court can review its judgment or appeal to the Higher court.
Page 37
c) The Higher court
There is established a higher court whose seat is in the city of Kigali. Its jurisdiction covers the
entire territory of the republic. The higher court shall have four (4) chambers in other parts of
the republic namely: Musanze, Nyanza, Rwamagana and Rusizi. The jurisdiction of the
chamber that operates at Musanze is equal to the jurisdiction of the higher instance court in
Musanze and Rubavu. The jurisdiction of the chamber that operates at Nyanza is equal to the
jurisdiction of the higher instance court Muhanga, Huye and Nyamagabe. The jurisdiction of
the chamber that operates at Rwamangana is equal to the jurisdiction of the higher instance
court of Ngoma and Nyagatare. The jurisdiction of the chambers that operates at Rusizi is
equal to the jurisdiction of the higher instance court of Rusizi and Karongi. Finally cases
originating from the territorial jurisdiction of the higher instance court of Nyarungenge,
Kabuga and Gicumbi shall be tried at the seat of the high court of the republic.
The high court exercises both original appellate jurisdictions. In the exercise of the original
jurisdiction, the high court has competence to hear specific criminal cases, administrative cases
and civil matters; its jurisdiction is limited to the execution or enforcement of authentic deeds
executed by foreign authorities as well as foreign judgments. In the exercise of its appellate
jurisdiction, the higher court has jurisdiction to hear appeals from civil cases heard on first
instance by a higher instance court. It also hears specific appeals on second instance from
higher instance courts. In addition, it hears appeals from decisions taken by arbitration
tribunals.
The high court also hears appeals from criminal cases tried on first instance or appellate level
from higher instance courts.
Note that the high court of the republic has competence to review its own decision. A
dissatisfied party can party can appeal to the Supreme Court.
d) Supreme Court
The Supreme Court is the highest court in the Republic of Rwanda. The Supreme Court directs
and co-ordinates the activities of the lower courts. The court has jurisdiction over the territory
of the Republic of Rwanda. Its decision is not subject to appeal except in terms of a prerogative
of mercy or the revision of a judicial decision.
The Supreme Court exercises ordinary and special jurisdiction. In the exercise of ordinary
jurisdiction the court is the court of last resort for appeal for trials heard by the high court of the
republic in the first degree and in the second degree provided inter alia, the award of damages
equals or exceeds twenty million francs (20,000,000) or the subject matter in disputes equals or
exceeds twenty million francs (20,000,000).
In the exercise of its special jurisdiction the supreme court has, inter alia, exclusive jurisdiction
to try in the first and final degree, the president of the republic, the president of the senate, the
president of the chamber of deputies, the president of the supreme court and the prime minister
for offences committed during their terms of office, whether such offences relate to the
exercise of their public duties or their private matters, regardless of whether they are still or
have ceased to hold office.
Page 38
B.2. Specialized courts
a) Military courts
Military tribunals have competence to try all offences committed by all military personnel
except offences which constitute a threat to national security and murder committed by
soldiers. They also have competence to try all military personnel accused of the crime of
genocide and crimes against humanity committed between October 1st and December 31st 1994
that places them in the first category.
Judgments rendered by a military court may be reviewed by the same court or appealed to the
military high court.
The military high court exercises both original and appellate jurisdiction. In that exercise of its
original jurisdiction, the military high court shall try all offences which constitute a threat to
national security and murder committed by soldiers. However, if, during judgment, the court
finds that the elements of the offences constitute manslaughter instead of murder, it shall
nonetheless hear the case.
In its appellate jurisdiction the court hears appeals from cases tried by the military court. Cases
heard in the first instance by the military high court may be reviewed by the same court or
appealed to the Supreme Court. If the case was heard in the second instance by the military
high court, the case will be appealed to Supreme Court provided the sentence passed by the
military high court is equal to or exceeds ten (10) years of imprisonment.
b) Commercial courts
Other specialized courts are commercial courts. They will be examined in the next chapter.
Page 39
Chapter 4. THE BUSINESS DISPUTES RESOLUTION
Section 1: REVIEW OF KEY CONSTITUTIONAL PROVISIONS REGARDING
THE COURT SYSTEM
As said above, there are several Constitution provisions related to the Court System. The
Constitution and other laws are clear about the ordinary courts and specialized courts.
Ordinary courts are the Supreme court, the High court and the Intermediary courts and the
primary courts.
Specialised courts are Commercial courts, and the Military courts. Military courts comprise
the Military Tribunal and the Military High Court - see previous chapter.
Section 2. Rwandan Commercial justice system
2.1. Background and chronology of the establishment of commercial courts in Rwanda
As said, the Rwandan judicial system comprises ordinary and specialized courts. Ordinary
courts include the Supreme Court, the High Court, Intermediate Courts and Primary Courts.
Specialized courts include Gacaca Courts, Military Courts, and Commercial Courts.
The long process that led to the establishment of commercial courts can be summed up in the
following table.
Table 1: Chronology of the establishment of commercial courts in Rwanda
Activities
Time
Creation of the Rwandan Law Reform
Commission
May 2001
Law Reform Commission drafts new laws
July 2001-December 2003
Law Reform Commission presents new laws to the
Cabinet
January 2004
Parliament adopts new law on courts, judges and
civil and criminal procedure
April-July 2004
Cabinet admits failure of assessors in enhancing
commercial litigation
End of 2004-Early 2005
Cabinet establishes Business Law Reform Cell
October 2005
Superior Council of the Judiciary selects 22 local
judges for the commercial courts
July-December 2005
Draft law establishing commercial courts adopted
December 2007
Draft law establishing commercial courts goes
through legislative process
December 2007-March 2008
Page 40
Eight local judges leave for specialized course in
South Africa
February 2008
Publication of law establishing commercial courts.
Procedural rules law is published the same day
March1, 2008
Law dealing with arbitration and conciliation in
commercial matters enters into force
March 6, 2008
Swearing in of 2 Mauritian judges as President of
the Commercial Court and President of the
commercial court of Nyarugenge
May 2, 2008
Commercial courts become fully operational
March 15, 2008
As indicated in the table above, on 16th December 2007, the Parliament enacted Law No.
59/2007 of 16/12/2007 establishing commercial courts and determining their organization,
functioning and jurisdiction.
2.2. Organization structure of commercial courts
The Law provides for four commercial courts. Of the 4 courts, 3 are lower commercial courts,
namely Nyarugenge Commercial Court, Huye Commercial Court and Musanze Commercial
Court, and one is the Commercial High Court.
Judges of the Commercial Court consist of the President, the Vice President and at least five
other judges. The President and the Vice President are appointed by a Presidential Order after
approval by the Senate. They can only be removed from office in specific circumstances as
provided for by the Constitution. Other judges of the Commercial Court along with judges of
Commercial Courts are appointed by the President of the Supreme Court upon approval by the
Superior Council of the Judiciary.
The President of the Commercial High Court and the President of the commercial court are
responsible for the organization and effective performance of their respective courts.
In this regard, they shall take all necessary decisions for the speedy trial of cases by avoiding
any factors which may cause delays in adjudicating the cases. In particular, they are
responsible for organizing and determining the functioning of their courts including monitoring
the performance and conduct of judicial personnel.
2.3. Jurisdiction of commercial Courts
Commercial courts have a limited jurisdiction. Such courts are competent to try commercial
cases. In order to determine the jurisdictional scope of commercial courts, the Law provides a
list of commercial matters. According to Article 3 of the Law establishing commercial courts,
commercial matters refer to commercial, financial, fiscal and other matters closely related to
them regarding:
Page 41
disputes arising from commercial contracts or commercial activities between
persons or business entities;
disputes arising out of the use of negotiable instruments such as cheques, bills of
exchange and promissory notes;
disputes relating to transactions between persons and financial institutions;
disputes related to liquidation, dissolution and recovery of limping business firms;
cases related to insurance litigation but not including compensation claims arising
out of road accidents by litigants who have no contract with the insurance firms;
claim related to fiscal disputes;
claims related to transport litigation;
any dispute that may arise between persons who own or manage registered entities
and commercial institutions and these include:
members of the Board of directors;
directors;
shareholders;
auditors;
liquidators;
managers of the property of a bankrupt business firm.
cases arising from bankruptcy;
cases related to intellectual property including trademarks;
cases related to registration and deregistration of businesses;
cases related to appointment or removal of auditors responsible for auditing the
books and accounts of a firm;
cases related to competition and consumer protection.
Problems may arise from the determination of the jurisdiction of commercial courts based on a
commercial list. Indeed, a list of commercial issues is not comprehensive and question of
jurisdiction may arise in some cases so as to decide jurisdiction. Thus, it is necessary to
formulate clear and efficient rules in order to avoid such problems.
As to the in-value jurisdiction of commercial courts, the Law provides that Commercial Courts
deal with all commercial disputes with a value below 20 million Rwandan francs and non-
monetary commercial matters. The Commercial High Court decides at first instance all cases
with a value above 20 million Rwandan francs and hears appeals from interlocutory interim
orders and judgments of the Commercial Courts at the first level. The Supreme Court hears
appeals against decisions of the Commercial High Court.
The territorial jurisdiction of the Commercial High Court and Commercial Courts is provided
in an annex to the Law establishing Commercial Courts.
2.4. Qualified judges for dealing with commercial litigation
Judges dealing with commercial litigation shall have sufficient experience in trade issues and
the relevant laws of different business activities. For satisfactory and effective commercial
litigation, it is important to train group of judges, lawyers and experts to deal with commercial
litigations and legislations, and to set suitable training program for this end.
Page 42
Considering that without improved professional standards the new commercial justice system
would not be effective and efficient, the Government of Rwanda recognized the urgent need to
have qualified judges to deal with commercial litigation. In this regard, Article 6 of the Law
establishing commercial courts provides that, apart from permanent professional judges,
Commercial Courts and the Commercial High Court shall have equally specialized judges
operating on temporary basis and governed by an employment contract. In addition, the
specialized judges may be of Rwandan nationality or of foreign nationality and shall be highly
qualified in commercial law matters with experience of three years in judicial matters for those
with at least a doctorate degree, and an experience of five years for those with a bachelor’s
degree.
In order properly to staff the Commercial High Court and Commercial Courts, in May 2008,
the Supreme Court succeeded in recruiting two Mauritian judges who were sworn in as
President of the Commercial High Court and the Nyarugenge Commercial Court. These judges
had the advantages of holding a mixed background in common law and civil law.
On the other hand, recruited judges undertook specialized studies in commercial law, the goal
being to have specialized judges in all Commercial Courts and the Commercial High Court.
2.5. Proceedings relating to commercial cases
On 11th September 2007, the Parliament passed Law No. 45/2007 modifying and
complementing No. 18/2004 of 20/06/2004 relating to the civil, commercial, labour and
administrative procedure. The 2007 Law contains amendments to the law 2004. The law
includes a new chapter on proceedings in commercial cases. This chapter comprises three
sections on the initiation of a case, preliminary hearing and substantive hearing of the case,
respectively.
A. Initiation of a case
The registrar receives and registers the claim in the commercial case register.
The plaintiff or his or her legal representative shall file a written commercial claim in form of a
Plaint.
The Plaint shall:
1° specify in form of conclusions the remedies sought;
2° identify the names of the parties to the suit or other persons connected to it;
3° contain a summary of the nature of the claim in form of short numbered
paragraphs and indicating the grounds on which it is premised;
The plaint is accompanied by the following documents depending on their availability:
1° a list of witnesses and a brief summary of evidence each witness shall give;
Page 43
2° an expert report that the plaintiff wishes to use as evidence;
3° any other document the plaintiff wishes to refer to.
The defendant must deliver a written statement of defence within 14 days of receiving the
initial complaint.
B. Preliminary hearing
An important innovation of the 2007 above-mentioned law is that the judge has a duty to
organize, within 21 days of receiving the defendant’s answer to the complaint, a preliminary
hearing with both parties. The preliminary hearing aims at making interlocutory orders on
issues that may hinder the hearing of the case; it allows the judge to prepare for the proceedings
and for the admittance of evidence. Also in the preliminary hearing, the judge may refer the
parties to arbitrators or mediators in commercial matters; refer the matter to the mediation
committee if the subject matter lies in its competence or jurisdiction; and pass a judgment in
respect to a matter without going into the substantive hearing after consultative hearing after
consulting to the parties.
After the preliminary hearing, a date for the substantive hearing is fixed and communicated to
the parties.
C. Rules on adjournments
The rules on adjournments extra time to comply with procedural requirements are meant to
avoid delaying tactics. It is in this line that there shall be no adjournment of a preliminary
hearing unless a sufficient reason is presented to court at least five working days before the
hearing date.
The law also addresses the issue of the adjournment of a case. In this regard, the trial judge
may at his or her own discretion or upon request of any of the parties adjourn the case or take
any order deemed necessary. If the judge grants a party extra time and it later turns out the
request was not genuine and meant only to delay the process, the judge can impose damages,
which must be paid before the next hearing. If they are not paid, a further penalty applies.
D. Substantive hearing
At the substantive hearing of the merits, the parties present their evidence. The trial judge may
during this hearing, after examining the evidence of witnesses or their opinions, make an order
whether such evidence is sufficient. He may also encourage skilled people on the subject
matter to seek dialogue with the parties with the view of making them settle the matter or
appoint an expert to examine on behalf of court any report of skilled persons or other evidence
presented to court and to report to court on a date fixed by the trial Judge. Upon request by the
parties, the trial judge may pass judgment based on the written submissions or written
submissions or any other evidence without a hearing.
E. Increased Efficiency of Commercial Courts
Page 44
As provided for by Article 11 of the law establishing commercial courts, the President of the
Supreme Court set up a Committee to advise her on expeditious disposal of commercial cases.
The Committee consists of 11 members: 4 judges (one from each commercial court and one
from the Commercial High Court); one person representing the Ministry of Justice; one person
from Rwanda Development Board; one advocate from the Bar Association; one from the
Chamber of Industry; one from banks and another one from professional services. Members of
the Committee should hold office for a period of 3 years.
As an Order of the President of the Supreme Court spells it out, the Committee shall have the
following attributions:
Analyse the reasons that may cause the delay in the adjudication of commercial cases
and advise on measures to remedy that
Advise on modifications of the law to be carried out so that commercial cases are tried
expeditiously
Analyse the gaps in providing various services to people who come to the commercial
courts and provide advice on how to fix that.
To perform any other duty assigned to the Committee or as the Committee may
determine in the furtherance of its mission
The committee found out that according to reports prepared by the Commercial High Court,
adjudication of commercial cases is generally speedy. However, after a thorough review of the
Law on Commercial Courts and the Law relating to civil, commercial, labour and
administrative procedure, the Committee found out that there are some shortcomings that have
to be addressed in order to avoid an accumulation of new arrears.
Section 3. Arbitration
1 Introduction
In Rwanda, new law on commercial arbitration and conciliation was established in 2008 as
Law n° 005/2008 of 14/02/2008 on arbitration and conciliation in commercial matters.
Article 3 (2) of Rwandan law on arbitration defines arbitration as a procedure applied by
parties to the disputes requesting an arbitrator or a jury of arbitrators to settle a legal,
contractual or another related issue‟.
Arbitration refers to a process in terms of which the parties to a dispute voluntarily and jointly
ask a third party, the arbitrator, to hear both sides of their dispute and make an award that they
undertake in advance will be final and binding. The fact that the arbitrator settles the dispute by
making a legally binding award distinguishes arbitration from mediation and negotiation. For
this reason, arbitration is more similar to litigation, as both are command processes where a
decision is imposed on the parties, in contrast to negotiation, which is consensual in nature.
But, in contrast to litigation, the arbitrator`s award arises from the consent of parties to accept
the award, not from the power of the court imposing an order.
Page 45
2. Significant features of arbitration
Four significant features of commercial arbitration are singled out for now, although they will
be the subject of a brief comment later. These features are :
The agreement to arbitrate;
The choice of arbitrators;
The decision of the arbitral tribunal;
The enforcement of the award.
3. The agreement to arbitrate
An agreement by parties to submit to arbitration any dispute or difference between them is the
starting point of the process in both national and international arbitration. If there is to be a
valid arbitration, there must first be a valid agreement to arbitrate. Arbitration is a contractual
process in the fact that it is based on an agreement between the parties, by opposition to some
cases where arbitration is imposed in statute, such as provided for in Switzerland by article 89
of the Statute on health care insurance for disputes between doctors and health insurers, or as
provided in France by Article 761-5 of the labour law code for certain disputes in the field of
journalism.
The Rwandan law on arbitration defines the arbitration agreement. The long Article 9 of the
above-mentioned law provides:
Arbitration agreement is an agreement by both parties to submit to arbitration all or
certain disputes which arisen or which may arise between them in respect of a defined
legal relationship, whether contractual or not. An arbitration agreement may be in
the form of an arbitration clause in a contract or in the form of a separate
agreement. The arbitration agreement shall be in writing. An arbitration agreement is
in writing if its content is recorded in any form, whether or not the arbitration
agreement or contract has been concluded orally, in a written form basing on the
conduct of the parties themselves, or based on other means. The requirement that an
arbitration agreement be in writing is met by an electronic communication if the
information contained therein is accessible so as to be used for subsequent
reference; Electronic communication refers to any communication that parties make
by means of data message; Data message refers to any information written, sent,
received or stored by electronic, magnetic, optical and other means, including,
but not limited to, electronic data interchange (EDI), electronic mail, telegraph,
telex or telefax. Furthermore, an arbitration agreement is in writing if it is
contained in an exchange of statements of claim and defence in which the existence of
an agreement is alleged by one party and not denied by the other. The reference
in a contract to any document containing an arbitration clause constitutes an
arbitration agreement in writing, provided that the reference is such as to make
that clause part of the contract”.
4. The choice of arbitrators
Page 46
One of the features of that distinguishes arbitration from litigation is the fact that the parties to
an arbitration are free to choose their own tribunal. Sometimes, it is true; this freedom is unreal,
because the choice may be delegated to a third party such as an arbitral institution. However,
where the freedom exists, each party should make sensible use of it. A skilled and experienced
arbitrator is one of the key elements of a fair and effective arbitration.
5. The decision of the arbitral tribunal
It is not uncommon for a settlement to be reached between the parties in the course of arbitral
proceedings. However, if the parties cannot resolve their dispute, the task of arbitral tribunal is
to resolve the dispute for them by making a decision, in the form of a written award.
An arbitral tribunal does not have the powers or prerogatives of a court of law, but it has a
similar function to that of the court in this respect, namely that it is entrusted by the parties with
the right and the obligation to reach a decision which will be binding upon them.
The power to make binding decisions is of fundamental importance. It distinguishes arbitration
as a method of resolving disputes from other procedures, such as mediation and conciliation
which aim to arrive at a negotiated settlement. The procedure that must be followed in order to
arrive at binding decision by way of arbitration may be described as judicial. An arbitral
tribunal is bound to act fairly and impartially as between the parties, giving each party a
reasonable opportunity of putting his case and dealing with that of his opponent.
6. The enforcement of the award
Once an arbitral tribunal has made its award, it has fulfilled its function and its existence comes
to an end. The tribunal`s award, however, gives rise to important and lasting legal
consequences. Although it is the result of a private arrangement and is made by a private
arbitral tribunal, the award constitutes a binding decision on the dispute between the parties. If
it is not carried out voluntarily, the award may be enforced by legal proceedings both locally
(that is to say, in the place in which it was made) and internationally.
The registration or deposit of award is a sine qua non requirement for an award to be
recognized an enforced in Rwanda. However, no fee is paid for that registration or deposit for
recognition of arbitral awards sought in Rwanda.
According to article 395 of the law establishing Commercial, civil, social and administrative
procedure code, the party seeking recognition shall deposit the duly authenticated original
award or duly certified copy thereof; and the original agreement or duly certified copy thereof
award at the president of the higher instance court`s office and request the executory stamp on
the deposited award. Article 396 of the same law, states that the President has 8 days to make a
decision concerning that recognition.
In 2008 Rwanda ratified the New York convention on Recognition and Enforcement of foreign
arbitral awards and became the 143rd State party to the convention.
The New York convention provides for a simpler and effective method of enforcement of
obtaining recognition and enforcement of foreign awards. It is mainly due to the provisions of
the New York convention that arbitration has become a very attractive alternative to traditional
Page 47
litigation. It is one of the widest accepted international conventions. It has significantly
simplified the enforcement of foreign awards and harmonized the national rules for the
enforcement of foreign awards.
7. Matters excluded from arbitration
The subject matter of a dispute must be arbitrable in order for legitimate arbitration to take
place. According to article 47 para 5 of Rwandan law on arbitration provides that a party can
appeal against an award if:
The award deals with a dispute not contemplated by or not falling within the terms of
the submission to arbitration, or contains decisions on matter beyond the scope of the
submission to arbitration, provided that, if the decisions on matters submitted to
arbitration can be separated from those not submitted, only that part of the award
which contains decisions on matters not submitted to arbitration may be set aside”.
Arbitration is not permissible in following matters:
Matrimonial causes;
Matters relating to status;
Criminal cases
8. Difference between arbitration and litigation
There are a number of important differences between arbitration and litigation, namely
Cost and Expeditiousness; Confidentiality; Flexibility; Impartiality.
Cost and Expeditiousness
It is a common, albeit not always true assumption, that arbitration is cheaper and less time
consuming than litigation. Can arbitration be faster and less expensive? The answer to this
question is ‘most certainly.’ However, this is not always the case. Arbitration just like any
other adversarial process may be expensive and time consuming especially if one of the parties
is willing and able to spend considerable resources to defend its position and can exploit
dilatory tactics to his or her benefit. In some aspects, the very characteristics that make
arbitration more appealing than litigation are the same aspects that frame its disadvantages. For
instance, the fact that it is flexible and dependant on the mutual consent of both parties may
create time delays and incidental costs.
Although litigation has been described as ‘a machine in which you enter as a pig and come out
as a sausage’. one would not be far from right by defining some international arbitration
procedures in the same way. Moreover, it is not uncommon for lawyers to take control of the
proceedings in complex international commercial arbitrations. This may come about as a result
of the arbitrators’ efforts to instil trust in the arbitration process. Arbitrators give both parties
the opportunity to fully present their case. Unlike in litigation where a case could summarily be
dismissed, arbitration does not have the remedies found in judicial systems that are created to
limit the development of frivolous cases. Consequently, there are no measures such as motions
Page 48
to dismiss or motions for summary judgment. The non-existence of such measures is an
advantage for the claimant but a rather costly disadvantage for a defendant confronted with an
unwarranted claim.
Furthermore, another factor that could lead to the high cost of arbitration is the number of
extensions granted by arbitrators. Arbitrators are often very generous with the amount of time
they grant parties to submit various pleadings. While this may be in line with making sure that
both parties are treated fairly or that due process is adhered to, the result is that it amounts to
significant delays in conducting the arbitration.
Additionally, there is usually a great amount of difficulty in arranging a timetable that will
accommodate the schedule of the members of the arbitral tribunal, the legal representatives or
witnesses, if the situation warrants it.
Moreover the panel of arbitrators for complex international commercial contracts is usually
three; each of whom has to be well paid hence increasing the cost of arbitrations. This cannot
be compared to the minimal court fees one encounters in litigation.
Although a party who has the intention to drag out the arbitration, may have a great chance of
doing so particularly at the commencement of the proceeding, the cost of arbitration is often a
great advantage if parties co-operate and keep expenses to a minimum.
Confidentiality
Many people view the private nature of arbitration as a main advantage. Due to the fact that
court proceedings are open to the public; many business people prefer arbitration to litigation.
Unless otherwise agreed, awards in arbitral proceedings are confidential and the proceedings
are closed to the public. This is considered important especially to parties who wish to protect
trade secrets. Moreover, in the interest of protecting present or future commercial transactions,
many business people deem any publicity of an on-going dispute as detrimental to their
reputation.
Flexibility
The arbitration process is hailed for its inherent procedural flexibility. Unlike court proceedings
which are rigid, arbitral proceedings offer greater flexibility in international commercial
transactions. Parties get to choose their own arbitrators, in addition to having the independence
to customize the arbitration proceedings to suit their wishes. Although parties may choose an
already established arbitral institution with its own set of rules of procedure, the parties have a
choice to decide on whether or not they want a totally different procedure that better serves
their needs. If both parties cooperate and decide that they both want a speedy arbitration, the
flexibility of arbitration can be used to their advantage to achieve that goal. Moreover, parties
may even choose to have ‘fast track’ arbitration an option that is offered by institutions such
as the International Chamber of Commerce and the London Court of International Arbitration.
Another reason for the preference of arbitration over litigation by business parties is that many
legal problems arise due to the possibility of several legal systems clashing hence complicating
matters even more. It may be hard for the parties to find the most ideal place to file their suit.
This may lead to a party embarking on a venture in search of a jurisdiction that may be more
Page 49
sympathetic to its interests. ‘Forum-shopping’ as this venture is often called, may be based on
the search for a jurisdiction that is likely to be biased in favour of the party choosing that
jurisdiction (for instance the anticipation of large amounts in damage awards).
Should the national courts of different countries claim to have jurisdiction over the same
dispute, parallel litigation in more than one court may be a consequence, which would not only
affect the parties heavily in costs but could potentially force them to defend themselves in
multiple courts concurrently; not to mention the ordeal of having to cope with ‘competing anti-
suit injunctions.’ This was the case in Laker Airways Ltd V. Sabena Belgium World Airlines.
Furthermore, if the problem of conflict of jurisdiction is not resolved, the various courts
presiding over the dispute may render conflicting judgments on the same matter.
Impartiality
One of the main reasons parties opt for arbitration over litigation is the fear the national courts
will be biased in favour of their own citizen or the advantage of the home litigant in issues such
as knowing the system, procedural rules, etc. Therefore, proceeding on the assumption that the
arbitral tribunal will be fair and impartial and will not take the nationality of the parties into
consideration, parties choose arbitration over litigation.
If any of the parties reasonably suspects that an arbitrator lacks the necessary degree of
objectivity or that the arbitrator will not be fair and impartial in performing his duties, then that
party can object on those grounds. Some have posited this as a disadvantage of arbitration in
that a party can use this as a delaying tactic by ‘raising unwarranted objections’ or attempt to
disturb what could otherwise be a smooth arbitration proceeding by filing an application
midway through the proceedings. However this may not be something to worry about
depending on whether the parties’ arbitration is under the auspices of an institution with rules
safeguarding against such conduct. Institutions such as the International Commercial Court
(ICC) have rules where parties have to follow certain procedures in making such objections
(which have to be well founded). Moreover, those objections have to be made in within a
specific period if the party’s application is to be considered on the specified grounds.
Page 50
Chapter 5. LAW OF PERSONS
According the law a “person” is defined as a “being” that can have rights and duties or
obligations, and that has, therefore, capacities to play a part in the life of a given community.
Rwandan law distinguishes between two classes of persons: the natural person or human
being, and the moral person. Moral persons, called also “juristic persons”, are social
associations representing a group of interests. Such organisations can be either a group of
individuals such as a state, company and association, or a group of properties/individuals such
as foundations.
These associations are governed:
- either by public law, in the instances of entities such as the state, provinces, districts,
and public corporations;
- or by private law, such as companies, associations of natural persons and foundations.
Natural persons and moral persons are vested with juridical personality.
§1. Juridical or legal personality
A. Principle
Juridical or legal personality” of a person refers to his ability to have rights and duties.
A human being, without any discrimination, is recognised as a legal subject who possesses
legal personality, without distinction of sex, race, colour, religion, nationality or social
condition.
Human beings are the only legal subjects recognised by the law. This principle implies that
things and animals are legal objects and cannot be legal subjects (active or passive).
There was a time in history when a human being could be considered as an object instead of a
human being: those were slaves. Slaves were legal objects like objects. Slavery has been
abolished all over the world. A human being does not ask for juridical personality. It is
recognised as a matter of right. But a moral person must always demand juridical personality
given by an authorised organ. The moral person, as a legal subject may only carry out acts
relating to its object.
Legal personality has a beginning and an end.
B. The beginning of legal personality: birth of a natural person
According to Art.15 of Family code (FC), a natural person’s personality begins at birth.
However, the potential interests of the unborn child may be protected from his/her conception.
Whenever there is a situation which can be to the advantage of a child, the child shall be
deemed to have been born from the time of conception (art.16 FC). Provisions of this article
enable the child born alive and viable to claim his/her rights from the time of conception, and
that will be the case in matters relating to successive rights.
Page 51
It appears thus that rights are conferred on the unborn child at birth, if he is born alive and
viable. However, there are rights that are to be protected before birth; we can mention the right
to life. From the time of conception, the unborn child is recognised as having the right to life.
This is the reason for repression and punishment of medical abortion.
What about the date of conception? This is a complex question of proof. In other words, how
can one determine the exact time of conception?
In trying to solve that complex question, the law established an irrefutable presumption: the
child is presumed to have been conceived between the 300th day and the 180th day before his
birth (Art.17 FC), so that his rights can easily be established.
C. The end of legal personality: death
The legal personality of a person is terminated by death or by absence. In law, if the missing
person has been absent for 9 to 12 years, he is presumed to be dead.
1. Principle. The legal personality, recognised by a person alive, is ended by death; the human
being is considered a legal subject from birth to death (Art. 15 FC). Dead persons cannot
possess (have) rights. Nevertheless, Rwandan law admits:
- Protection of the deceased’s body and burial place;
- Respect of the deceased’s names and protection against defamation;
- Respect of the deceased’s will after his death.
-
But in fact, respect of the dead and his memorial celebration is done in the interest of the
survivors’ honour.
2. Proof of death. In principle, death is proved by the identification of the deceased’s body. A
situation can arise where a person disappears, but nevertheless there are circumstances
justifying his death, even if his body was not found or identified. In such a situation, any
interested party may approach the competent tribunal to grant a presumption of death order
with regard to the person. This is called “declaration of death”(Art.19-20 FC).
3. Determination of the moment of death. It is always important and obligatory to determine
the moment of death. This is for practical reasons: for example, succession falls open at the
time of death. The date of death can be certain or presumed. The presumption is applied to
cases of co-deceased persons (Art. 18 FC) and “declaration of death”.
Death is also presumed in the case of long absence of a person and this presumption shall be
followed by a judgement declaring his death.
Page 52
§2. Legal identification of physical persons
Identification of a person serves to distinguish people from others while exercising their rights.
According to article 57 of the family code, “a physical person is identified by gender,
ethnicity, name, given name, residence and domicile”.
On these elements, we must add “nationality” in order to distinguish a Rwandan citizen from a
foreigner. It is also important to add “the place and date of birth (age)”.
Although, in this chapter, nationality is one of the elements identifying a person, it will be dealt
with in a separate section.
A. Gender, age and ethnicity
1. Gender and age
There are legal effects related to gender and age :
Examples :
- marriage is only allowed between two persons of different sexes (art.17 FC);
- the husband is the head of the conjugal community (art. 206 FC);
- The incapacity of a person of minor age;
- Under the former Family Code - the incapacity of the married woman; the new code
gives a man and a woman full capacity without distinction.
2. Ethnicity
Family code considers ethnicity as an element for identifying a physical person, even though
there is no right attached to it; especially in as far as the status and capacity of a person are
concerned.
At the moment of adoption of the Family Code, the upholding of ethnicity as an element for
identifying a person was justified by the former regime as a fundamental element to implement
the so-called policy of “ethnic and regional balance”.
Today, ethnic background is no longer an element of identification of a person, since it
was first repealed by the Arusha Peace Agreement of August 4th, 1993, and later by the 2003
Rwandan Constitution. It is formally prohibited to mention that element in the identity card, or
in any other document related to civil status.
B. Name and Given names (Art.58-72 FC)
1. Notion and principle
Page 53
Name is a term used to specify a person in his/her social and legal life in exercising his/her
rights and fulfilling his/her duties.
This means of individualisation is composed of various elements having different importance,
and governed by different regulations:
- A surname and one or more potential given names (Art.58 FC) ;
- In practice, individuals are sometimes given nick names ;
- Individuals also may decide to use a pseudonym or pen-name ;
- In some societies, there are qualifications based on either religion (e.g. Muslims), or
nobility (e.g. In European feudalism: Prince, Duke, Count, Viscount, Baron, and
Knight).
2. Surname and given name
Unlike some societies where the individuals take up family surnames, in Rwanda, a personal
name is given to an individual upon his/her birth: surname.
The legislator gives reasons to justify why a personal name is maintained instead of a
family name:
- Most of Rwandan names are closely related to previous circumstances of their parents
life;
- Some names are ridiculous and are against good morals;
- There are some names which are not suitable for females (e.g. Mfizi –Bull, Gasekurume
– Goat, SemubiThe Ugly.);
- Attribution of family surnames is no more than a blind obedience to foreign traditions.
- It is unanimously known that Rwandan culture, regardless of potential nicknames,
officially attributes one surname and if need be one given name.
A surname is given within a period of 15 days after birth. The given name(s) is (are) not
compulsory. The given name(s) is (are) given at the same time as the surname.
In the same family, given names are personal. It is not allowed to take one’s father’s, mother’s,
brothers’ or sisters’ given names while they are still alive so as to avoid confusion among
individuals.
The name given to a child is communicated to the civil status officer at the time of birth
declaration. In practice a surname is given to a new-born child by his/her father on the 8th day
after birth, in case of father’s absence, this is done by one of the close male relative, member of
the family council.
Birth declaration (notice) is done (given) by the father, in his absence by the mother, in their
absence by one of the ascendants or close relatives, or any person having assisted in the birth,
or any other person that finds a new-born.
The married woman retains her maiden name on official documents. She may however, for
personal reasons, use her husband’s name if she so wishes.
Page 54
Clergymen and religious personnel also retain their surnames and given names on official
documents.
Surnames and given names must not be against morality and good morals.
3. Nickname
A nickname is an unofficial name used by friends and by the public and adds to his/her name.
Nicknames are very common. They are not official, therefore cannot be written on certificates
of civil status.
4. Pseudonym
Pseudonym is a borrowed name that a person uses to conceal his/her real name. This is often
done by artists, writers, sportsmen, warriors and politicians.
Pseudonym has no regulation and has no official value. Because it is useful in completing
identity, people are used to mentioning it on certain certificates. Pseudonym can lead to birth of
a right similar to commercial names and be protected against usurpation.
5. Legal characteristics of a name
The name is characterised by the following three elements:
- Immutability;
- Imprescriptibility;
- Unavailability.
(1) Immutability
The name is imposed on a person. None shall officially take/adopt a name or a given name
which is different from the one mentioned on the birth certificate (Art.62 FC). A person cannot
change his/her name at will.
Changing a name is only authorised by the Minister of Justice on request of any interested
person in conformity with the prescribed legal procedure (Art.65-70 FC).
(2) Imprescriptibility
The person’s name is not subject to extinguishing or acquisitive prescription.
Page 55
(3) Unavailability
The person’s name is not subject to commercial transaction. It’s beneficiary cannot pass it (on)
to another neither can he/she generally allow another person to use it. However, an individual’s
name attributed to the commercial exploitation can be passed to another person as a
commercial name.
6. Protection of the right to a name
Any person has a right to use his name in order to identify him/herself, even though the usage
may cause prejudice to the other person; for example, in the case of homonymy - sharing the
same name. However, the attempt to create confusion is to be avoided, otherwise, there would
be abuse of rights that can result in liability.
A person may request third parties to address him/her using his/her real name, and rectify it on
certificates where his/her name might have been incorrectly written. It is the “action of
claiming a name” or an “action of rectifying a certificate” or an “action of claiming a status”.
The bearer of a name can prevent other persons from using it, especially when there is a
likelihood that it could lead to material or moral damage. After death of the bearer, the right is
passed to the surviving spouse and successors.
C. Domicile and residence
1. Notions
According to article 78 FC, the domicile of a person is “a place where he/she has his/her
principal establishment, and where he/she can possibly be reached at any time either directly
or through an intermediary, or where he/she is registered”.
Domicile is the place where a person is legally deemed to be permanently present for the
purpose of exercising his/her juridical activities. In a way it is the person’s registered office.
According to article 73 FC, a person’s residence is “a place where a physical person is
habitually based”. It is actually the permanent place where a person lives.
A place where a person lives is assumed to be his/her residence unless it is proved that he/she
has another residence elsewhere (art.74 FC).
The meaning that emerges from those two definitions is that residence is a factual notion.
Domicile is a legal notion and it is determined by legal provisions. Registration in
“population register” and an “identity card” provide an official evidence of a domicile.
A domicile can be a residence. In this case, the domicile and the residence are interchangeable.
But the domicile can also be located in a place different from that of residence.
The terms “domicile and residence” in their current usage, or in their official usage or juridical
usage, are very often confused. For example, in the field of criminal law, when we talk of
‘violation of domicile”, it can be taken to mean violation of domicile, as well as residence,
housing or lodging of a person, even for a single night.
Page 56
2. Practical importance of domicile and residence
The lex loci domicilii of a person plays an important practical role:
(1) Importance in the law of procedure
In several cases, the domicile of the defendant determines the competent jurisdiction “ratione
loci”, unless the law provides otherwise.
In case notice or summons con not be given to a person, domicile is the place where he/she can
be notified as regards procedural acts.
(2) Importance in the civil law
Some legal acts regarding family matters must or can be accomplished at the place of domicile;
e.g. marriage, adoption, tutorship.
The succession falls open at the deceased’s domicile.
The domicile is the central place of a person’s financial interest, in the event of measures to be
taken as regards his patrimony, e.g. the debt payment is normally done at the debtor’s domicile.
The determination of a person’s residence plays also an important practical role:
• The residence can sometimes replace the domicile when the latter is not fixed or known.
• Residence and domicile can also stand in direct position to each other as regards legal
effects. For example, marriage can be celebrated by the civil status officer not only at one
of the spouses’ domicile but also at one of their residences.
3. Legal characteristics of domicile and its determination
Necessity and uniqueness of domicile: “Every person must have one and only one domicile
(Art.79 FC). However, domicile can be transferred following certain administrative procedures
(Art.80 FC).
The family code distinguishes three categories of domicile: domicile of choice, domicile by
operation of law, and domicile by election.
D. Civil status
Page 57
Every physical person is legally characterised by a set of qualities or attributes to which legal
consequences are attached. That set of qualities is known as the civil status of a person. The
civil status of a person distinguishes him from all other entities. The civil status of a person
therefore personifies him and determines his role in the society and distinguishes him from all
other entities, as far as the enjoyment and exercise of civil rights are concerned. The civil status
determines civil rights of a person.
The person’s status is composed of political, familial, and individual elements.
The political elements (or the political status) determine the legal status of a person towards
the national community Hence, nationals (or citizens) are distinguished from foreigners within
the national community; and foreigners are not systematically accorded similar political rights
as citizens. Citizenship gives the right to participate in public life and enables him/her to take
part in institutions exercising political power within the state.
Familial elements of the person’s status determine his/her position vis-à-vis his/her family
members. The legal status of a person confers upon him/her rights and obligations. The legal
status of a person depends on his/her state of a spouse, father, child, brother or sister, married
or single, aunt or uncle, grand-mother or grand-father, cousin, brother-in-law or sister-in-law
Individual elements of a person’s status depend on factors such as age, gender, and mental
state. Such elements influence the person’s capacity of exercising his/her rights.
In some societies, race, religion, profession, social condition and wealth play a role in
determining the person’s legal status, nevertheless, this situation is no longer common with the
growth of the spirit of equality among human beings. In Rwanda, such elements do not have
legal effect.
In the narrow sense, civil status is the base of a person’s identification; it is at least made up
(composed) of a name, age, filiations, gender and nationality.
In the usual administrative practice, the person’s civil status is often confused with his/her
state of being married or single.
Page 58
Chapter 6. LAW OF TORT
Section 1. The Liability for personal acts
1.1. The wrongful act or fault
1.1.1. Culpability
The culpability can consist in the fault as violation of a rule, as a fault without a violation of a
rule or abuse of authority.
A. Fault, violation of a rule
A fault, violation of a rule can concern civil, penal, administrative rules…Example: to steal
something from somebody (fault, violation of criminal law); to injure somebody (fault,
violation of civil and criminal law).
B. Without a violation of a legal text
Without a violation of a legal text, one can commit a fault. This fault is defined as a behaviour
which an ordinarily diligent, prudent, honest person or one mindful of fulfilling social duties,
placed in similar circumstances would not have committed (e.g. behaviour of the good father
of family).
C. abuse of authority
This is a fault that is committed by a person in the exercise of his duties. For example, a head
of a certain Department who obliges his/her secretary to stay at work beyond office hours in
order to have a sexual relationship.
1.1.2. Imputability
It is not sufficient that the act was illegal; it must be attributable to somebody (the wrongdoer)
who has the conscious and free will to do the act. The conscience, capacity and free will are the
three components of imputability.
1. 2. The damage
In order for the victim to be indemnified, there has to be not only the fault but also the damage.
This is the harm to be repaired. Below, we are going to examine the kinds of damage and its
character in written law.
1. 2.1. Various kinds of damages
A. Material damage
This is damage on one’s patrimony. It is defined as attack on one’s patrimony arising from
bodily injury, death or damage to property.
B. Moral damage
The moral damage is the extra-patrimonial damage. It is a damage which does not concern
ones patrimony.
Page 59
Type: an attack against one’s personality (an attack against one’s names e.g. changing
someone’s name from KILA to KILLER; attack against one’s honour or the attack on the
reputation of a person, or his feelings of affection. e.g. saying that one is a prostitute when she
is not; etc.
1. 2.2. Characteristics of the reparable damage;
The damage must be actual and certain;
The damage must consist in violation of a legitimate interest (legally protected interest);
The damage must be direct;
The damage must be personal.
A. The damage must be actual and certain
The damage to be certain means that there is no doubt of its reality. In order to be
compensated, the victim must prove the existence of the damage which he suffered. This
damage must be certain at the time when the judge is evaluating it in order to facilitate him.
The eventual damage cannot be indemnified. For example, a father of a child who was killed
in an accident cannot claim the compensation related to the benefits invoking that his child
could be a President because he was intelligent.
B. The damage must consist of the violation of a legitimate interest (legally protected
interest)
The damage which the victim claims must be a legitimate damage. It is the interest which is
protected by the law that will be considered. For example, the owner of a property has a right
to request for indemnity because he has a right to property (interest protected by the law). On
the contrary, an illegitimate interest that is not protected by the law cannot be indemnified. For
example, a lady living with a boyfriend (without a marriage relationship) cannot claim
compensation because of the damage that arises from the death of her lover (boyfriend). This
damage is not a violation of an interest protected by the law.
C. The damage must be direct
The damage to be compensated must be the direct and immediate continuation of a faulty
behaviour. This characteristic makes it possible to put aside the reparation of many other
consequential damages, which perhaps, could not have been caused by the fault of the author
of the damage. For example, if the School of Finance and Banking (SFB) unjustly fires its
lecturer Dr MUSEMAKWELI, he can claim damages because of the illegal expulsion. But if
Dr MUSEMAKWELI becomes angry (as a result of the expulsion), and beats and injures his
child, he cannot claim compensation from SFB saying that the anger leading to a slap and
injury was caused by SFB act of expulsion. The injury was an indirect damage compared to
the SFB’s action.
Page 60
D. The damage must be personal.
The victim must have personally suffered the damage. Thus one must prove that s/he is victim
of the damage. If the action causes damage to various persons, each of them must prove his/her
personal damage.
1.3. The causal relationship
The victim must establish that there is a direct, certain and immediate relationship between the
fault and the damage which has been suffered.
Section 2. Liability for acts committed by others
2. 1. The responsibility of parents for the acts of their children
2.1.1. Principle
According to article 260 (2), “the father, and the mother, after the death of the father, is liable
for the damage caused by their children residing with them”. This liability is established
except if the father or mother prove that they did all they could to prevent the action of the
child (art. 260, 5)
2.1.2. Conditions for this liability - of parents for the acts of their children
Article 260 imposes a numbers of conditions for this liability to exist, namely:
- The damage must be caused by the child
- The child must be residing with the parent (article 260(2))
- The damage must be caused by the personal act of the child
2.2. Liability of masters for wrongs of their domestic and agent
2. 2. 1. Principle
According to Art. 260 (3) CC III2, a master/”commettant” is liable for acts of the domestic
(home maid) and agent (worker), if the acts fall within the functions for which they were
employed. A commettant” is a French word meaning someone who asks another to do
something on his behalf. This is a kind of indirect liability (for the master/commettant)
because the primary liability for the acts of the domestic and agent (worker) is born by them.
2.2.2. Conditions for the liability of a master/commettant for wrongs of a domestic and
agent (worker) respectively
- Relationship of subordination
- The fault of the domestic or agent (worker)
2 Civil Code Book iii
Page 61
- The damage is supposed to be caused to a third party, that is to say, any other person other
than the master/commettant
- A relationship between the act of the domestic or agent and the functions which they do
E.g. A domestic who injures somebody who is near him while he is cutting a fish.
2.1.3. The liability of teacher and craftsman for the acts of their students and apprentices
respectively
A. Principle
According to article 260 (4) CC III, teachers and craftsmen are responsible for the damage
caused by their students and apprentices respectively.
A teacher is not only one who teaches but also someone who has the role of direction and supervision
within an educational establishment. A craftsman is one who gives a professional training to the
apprentice.
B. Conditions for there to be this civil liability
- the most important condition is one of time. The law indicates that the damage for which the
craftsman and teacher are liable is that which was caused by the student or apprentice while the latter
was under the supervision of the former.
- the act which caused the damage must be the fault of the student or apprentice
The law only talks about teacher and student, craftsman and apprentice. It does not prescribe that the
student or apprentice must be minors.
However, the law creating the National University of Rwanda provides that professors and lecturers in
university are not liable for the actions of their students (article 39 (2) of the Decree law no 33/76 of
16/09/1976).
- the damage for which teachers and craftsmen are liable are those caused by the students and
apprentices against third parties or those committed between themselves.
- There must be a relationship of artisan and apprentice. This is usually by way of contract of
apprenticeship.
2.1.4. Liability of the damage caused by things.
In the section below, we will study the liability for the damage caused by animals (art. 261 (2)
of CC III); ruins of buildings (art. 262 of CC III) ; and for lifeless things ( art. 260, Para 1).
A. Liability for the damage caused by animals
1. Principle
According to article 261 CC III, the owner of the animal or one who uses it during the time of
its usage, is liable for the damage which the animal has caused, whether it was kept by him,
escaped or lost. Therefore, the legally liable person is either the owner, or one who keeps it (the
keeper).
Page 62
2. Conditions of application of this liability
These conditions concern the animal and the one liable for it.
2.1. The concerned animal and its behaviour
Here, the concerned animal is one that is domestic or even wild if the latter was caught and
made domestic.
These animals may be dangerous or harmless. We therefore consider all animals without
distinction of their zoological nature: domestic animals or others (dog, goat, pig, cat, monkey,
rabbit, bees in hives, etc.)
- The behaviour of the animal is also important, and it must be a positive one. The animal must
do a positive act.
2.2. The liable person
According to article 261 CC III the liable person is the owner of the animal which caused the
damage or its keeper while it is being used by him.
In general, the owner of the animal (this is why the law firstly cites him or her) or its keeper.
The keeper can be “an independent keeper” or “a professional keeper”
1° an independent keeper
This is the owner or the hirer of the animal. When the owner of the animal hires it out, it means
that he has transferred all the care and duty towards the animal to another person. Then if the
animal causes damage to someone, the hirer is liable and must indemnify the victim.
Another situation is when the owner of the animal loses its custody, for example when it has
been stolen. Then the thief becomes the keeper of the animal and the liable person. But
someone who abandons the animal cannot be considered as the one who loses its custody and
will therefore be liable for its damage.
2° the professional keeper
Someone who takes care of an animal on a professional level is considered to be its keeper and
will therefore be liable under article 261 CC III. An example could be a veterinarian who
treats the animal and is liable for the damage which it causes during the time when the animal
is under his care.
Also, someone in a circus who trains animals while exercising, dancing, running, etc., is liable
for the damage caused by these animals while they are under his care.
2.1. Liability for the damage caused by the ruins of a building
2.1.1. The principle
According to article 262 CC III, the owner of the building is liable for the damage caused by its
ruins when the ruins were caused by a result of default of maintenance or a construction defect.
Here, the owner of the building is liable, contrary to the case of the animal (article 261CC III)
where the owner and others may be liable for the damage caused by the animal.
Page 63
A. Necessary condition
According to article 262 CC III, three conditions have to be met in order to establish the
liability of the owner of the building.
a) There must be a building. The primary meaning of a building should be understood as a
normal construction.
b) the damage must be caused by the ruins of the building: in other words, when the building
or a part of the building falls. This is different from the building in ruins, meaning that
building has already fallen. The article (article 262 CC III) does not apply in this second case.
c) the origin of these ruins can either be caused by the default of maintenance or a construction
defect.
Article 262 CC III does not consider other causes of ruins like those falling because of a fire, or
car accident.
B. Defences
a) case of force-majeure if it is not caused by default of maintenance or a construction
defect.
b) The exclusive fault of the victim
There is an exclusive fault of the victim when the latter knows the deteriorating situation of
the building (for example if the owner posts the sign clearly indicating that the building is
in ruins) and the victim sustains an injury after passing nearby.
C. Legal actions of the owner
The owner can have legal actions against:
1. The architect or entrepreneur in case of default in construction
But this kind of action is prescribed after 10 years from the time the owner receives the
building (article 439 CC III)
2. The tenant if the owner proves that there was default of maintenance (a failure of an
obligation resulting from the contract).
Page 64
Chapter 7. LAW OF CONTRACT
Section 1. General overview on Contract
1.1. The scope of the law governing contract
The article one of the new legislation governing contracts has defined the scope of the law in
order to clarify the parts of the Civil Code Book III that will remain applicable after the new
law becomes into force. The provisions of article one to article 248 of the Civil Code book III
will be repealed. The other parts of the Civil Code Book III are still under review and there
will be new laws completing the legal framework governing Obligations in Rwanda such as
Tort liability Law and special contracts
1.2. Interpretation principle
The law governing contract refers to the Common Law and it is usual in the common Law
drafting rules to have an interpretation section establishing definition of basic terms appropriate
for the Law to be drafted.
Article 2 of the new law, No. 45/2011 of 25/11/2011 Governing Contracts, gives definitions
for some basic terms such as contract, promise, promisor, and promise and beneficiary.
1° “contract”: a promise or a set of promises the performance of which the Law recognizes as
obligation and the breach of which the Law provides a remedy;
It is a definition from the American Restatement of Law, Second, Contracts:
A contract is an agreement entered into voluntarily by two parties or more with the
intention of creating a legal obligation, which may have elements in writing, though contracts
can be made orally. The remedy for breach of contract can be "damages" or compensation of
money. In equity, the remedy can be specific performance of the contract or an injunction.
Both of these remedies award the party at loss the "benefit of the bargain" or expectation
damages, which are greater than mere reliance damages, as in promissory estoppel. The parties
may be natural persons or juristic persons. A contract is a legally enforceable promise or
undertaking that something will or will not occur. The word promise can be used as a legal
synonym for contract. although care is required as a promise may not have the full
standing of a contract, as when it is an agreement without consideration.
A promise is a manifestation by the promisor of an intention to act or to refrain from acting that
thereby gives the promise reasonable grounds to believe the promisor is making a commitment
to so act or refrain. All terms defined in this article refer to the American Restatement of law.
1.3. Requirements of a contract
The four basic requirements of a valid contract are as follows: Mutual assent, capacity, legality
of purpose and consideration. The new law governing contracts enumerates the basic
Page 65
requirements in its article 2 but without any comprehensive definition. They are developed in
the chapter on formation of contracts.
1.3.1 Mutual assent
The parties to a contract must manifest by words or conduct that they have agreed to enter into
a contract. The usual method of showing mutual assent is by an offer followed by an
acceptance
1.3.2 Capacity
The parties to a contract must have contractual capacity. Certain persons such as adjudicated
incompetents have no legal capacity to contract while others such as minors, incompetent
persons, and intoxicated persons have limited capacity to contract. All others have fully
contractual capacity.
1.3.3 Legality of Purpose
The purpose of the contract must not be criminal, tortuous or otherwise against the public
policy. An illegal contract is unenforceable.
1.3.4 Consideration
Each party to a contract must intentionally exchange a legal benefit or incur a legal detriment
as an inducement to the other party to make a return promise.
1.4. Classification of contracts
Article 3 gives the standards classifications of the Common Law contract law according to
various characteristics such as method of formation, content, and legal effect.
The standard classifications are (1) express or implied contracts; (2) bilateral or unilateral
contracts; (3) valid, void, voidable or unenforceable contracts, and (4) executed or executory
contracts. The article 3 mentioned the three first categories and some additional categories
from the Civil Code Book III such as gratuitous contracts or formal contracts.
The classifications are not mutually exclusive. A contract may be express, bilateral, valid,
executor and informal.
1.4.1 Bilateral and unilateral contracts
A bilateral contract results from the exchange of a promise for a return promise whereas a
unilateral contract results from the exchange of a promise either for performing an act or for
refraining from doing an act. The interpretation section gives the following definition: A
bilateral contract is a contract in which the parties have reciprocal obligations and unilateral
contract as a contract in which obligees do not have obligations.
Page 66
The Common Law tradition followed by the American Restatement defined an unilateral
contract as one where one party promises a benefit if the other performs an act. The second
party has no obligation to perform but if he does, a contract is formed.
In Common Law, where it is not clear whether a unilateral or bilateral contract has been
formed, the courts presume that the parties intended a bilateral contract.
1.4.2 Express and implied contract
Parties to a contract may indicate their assent by conduct implying such willingness. Such a
contract formed by conduct is an implied contract or more precisely, an implied in fact
contract. In contrast, a contract in which the parties manifest assent in words is an express
contract.
Both are contracts, equally enforceable. The difference is merely the manner in which the
parties manifest their assent.
1.4.3 Valid, void, voidable, and unenforceable contracts
By definition a valid contract is one that meets all of the requirements of a binding contract. It
is an enforceable promise or agreement.
A void contract is not a contract at all such as an agreement entered into by an incompetent
person or by physical compulsion.
A voidable contract on the other hand, is not wholly lacking legal effect. A voidable contract
is a contract; however, because of the manner in which the contract was formed or lack of
capacity to it, the law permits one or more of the parties to avoid the legal duties created by the
contract. If the contract is voided, both parties are discharged of their legal duties under the
agreement.
A party may also have power to ratify a voidable contract and thereby eliminate any power to
extinguish the legal relations arising from the contract. Consequences of avoidance may differ,
depending on the circumstances. The party who avoids the contract may, in the circumstance,
be entitled to be restored to as good a position as that which he occupied immediately before
entering the contract; or depending on the circumstances, may be left in the same condition as
before the contract. If a party cannot be restored to substantially the same original position, the
Court may decide there is no power of avoidance.
In some circumstances, the power of avoidance may be lost by unreasonable delay in
manifesting election to avoid or in returning benefits received under a contract
1.4.4 Unenforceable contract
A contract that is neither void nor voidable may nonetheless be unenforceable. An enforceable
contract is one for the breach of which the law provides no remedy. For example, in the
application of the law of limitations or prescription, after the statutory time period has passed, a
contract is referred to as an unenforceable contract, rather that void or voidable.
Page 67
1.4.5 Formal contracts
Some types of contracts, which may be called “Formal Contracts”, are subject in some aspects
to special rules that differ from some of the rules that govern contracts in general; contracts
under seal, negotiable instruments, negotiable documents, and letters of credit, those formed by
electronic means.
1.4.6 Gratuitous contracts
It is a type of contract from the Civil Code Book III which should be equivalent as a contract
without consideration.
1.4.7 Quasi contracts
There are in Civil Code Book III provisions on quasi contracts. , these are at common law
implied in law contracts which were not included in the previous classifications for the reason
that quasi contracts are not contracts at all. There will be a specific law on quasi contracts,
the draft bill is already prepared under the Ministry of Justice avoid injustice. The term
contract is used because the remedy granted for the breach of a quasi contract is similar to one
of the remedies available for the breach of contract on a restitution basis.
1.4.8 Promissory Estoppel
The new law is silent on the concept of promissory estoppel but it is an important concept in
Common Law.
As a general rule, promises are not enforceable if they do not meet all the requirements of a
contract. Nevertheless, in certain circumstances at Common Law, the courts enforce non-
contractual promises under the doctrine of promissory estoppel in order to avoid injustice.
Promissory estoppel requires:
1. an unequivocal promise by words or conduct
2. evidence that there is a change in position of the promisee as a result of the promise
(reliance but not necessarily to their detriment)
3. inequity if the promisor were to go back on the promise
In general, estoppel is 'a shield not a sword' . It cannot be used as the basis of an action on its own,
equally, it does not extinguish rights.
Section 2. Contract formation
2.1. Requirements regarding parties
For the contract formation, there must be at least two parties, a promisor and a promise, but
there may be multiple promisors and promisees.
Page 68
2.2. Requirements relating to the capacity to contract
Everyone is regarded as having legal capacity to enter into contracts unless the law, for public
policy reasons, holds that the individual lacks such capacity. It is the case for minors, persons
under guardianship, mentally ill or ‘defective’.
2.2.1 Minors
A minor also called infant is a person who has not attained the age of legal majority. At
common law, a minor was an individual who had not reached the age of twenty-one years.
Today, the age of majority has been changed by statute in nearly all jurisdictions, usually to
age eighteen. In Rwanda, except otherwise provided, the age of majority is twenty-one years.
In commercial matters, the majority is sixteen years while for the employment contract, the
majority is eighteen.
A minor‘s contract whether executed or executory is voidable at his guardian’s option. Thus
the minor is placed in favoured position by having the option to disaffirm the contract or to
make it enforceable.
The exercise of the power of avoidance, called disaffirmance, releases the minor from any
liability under the contract.
On the other hand, after the minor becomes of age, he may choose to adopt or ratify the
contract, in which case he surrenders his power of avoidance and becomes bound by his
ratification.
A minor may disaffirm a contract within a reasonable time after coming of age as long as he
has not already ratified the contract. Determining reasonable time depends on circumstances
such as the nature of the transaction and whether either party has caused delay. Some
jurisdictions prescribe a time period within which the minor may disaffirm the contract.
A minor has the option of ratifying a contract after reaching the age of majority. Ratification
makes the contract binding from the beginning (ab initio). Once effected, ratification is final
and cannot be withdrawn; further more, it must be in total, validating the entire contract
Contractual incapacity does not excuse a minor from an obligation to pay for necessaries such
as food, shelter, medicine and clothing that suitably and reasonably supply his personal needs.
2.2.2 Person under guardianship
If a person is under guardianship, his/her contract is void and of no legal effect. Nonetheless, a
party dealing with an individual under guardianship may be able to recover the fair value of
any necessaries provided to him/her.
2.2.3 Mental defect
The parties to a contract must have a certain level of mental capacity if a person lacks such
capacity, he is mentally incompetent and the contract entered into by such a person is voidable
Page 69
A person is mentally incompetent if he is unable to comprehend the subject of the contract, its
nature and its foreseeable consequences. Contracts entered into may be ratified or disaffirmed
during a lucid period.
2.2.4 Intoxicated persons
The provisional draft had a provision on intoxicated persons that had been considered as
covered by the provision on mental illness or defect but in other jurisdictions, intoxicated
persons are treated separately because the courts are even more strict with intoxicated persons
due to its voluntary nature. The intoxicated person regaining his capacity must act promptly to
disaffirm and generally must offer to restore the consideration he has received. Individual
persons who are taking prescribed medicine or who are involuntarily intoxicated are treated the
same as the person with mental illness or defect.
2.3. Mutual assent; an offer followed by an acceptance
Though each of the requirements for a valid contract is essential to its existence, mutual assent
is so basic that frequently a contract is referred to as an agreement between parties. Mutual
assent of parties consists of an offer by one party followed by acceptance by the other party.
The way in which parties usually show mutual assent is by offer and acceptance. One party
makes a proposal (offer) by words or conduct to the other party who agrees by words or by
conduct to the proposal (acceptance).
The important thing is what the parties indicate to one another, by spoken or written words, by
conduct, electronic means, or even by failure to act in some circumstances.
The law applies an objective standard and is concerned only with the assent or intention of a
party as it reasonably appears from his words or actions. The law of contract is not concerned
with what a party may have actually thought or the meaning that he intended to convey even
if his subjective understanding or intention differed from the meaning he objectively indicated
by words or conduct.
2.3.1 Offer
Definition and essentials of an Offer
An offer is a manifestation of a willingness to enter into a contract made in a manner so as to
justify another person in understanding that his or her assent is invited and will conclude the
contract.
The person making an offer is the offeror and the person to whom the offer is made the offeree.
An offer needs not to take any particular form to have legal effect. It may propose the
formation of a single contract by a single acceptance or formation of a number of contracts by
separate acceptance.
Page 70
In case of doubt, an offer is to be interpreted as inviting the offeree to accept either by
promising to perform what the offer requests or by rendering the performance, as the offeree
chooses.
To be effective however, it must be communicated, manifest intent to enter into a contract and
sufficiently certain and definite.
Invitation to Treat
Invitation to treat (also known as an invitation to bargain in the United States) is a contract
law term. It is derived from the Latin phrase invitatio ad offerendum and means "inviting an
offer". It suggests in other words an expression of willingness to negotiate on something but it
does not mean that the person making the invitation is bound to go through with the transaction
as they would be if they were making an offer.
A shop owner displaying their goods for sale is generally making an invitation to treat
(Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB
401). They are not obliged to sell the goods to anyone who is willing to pay for them, even if
additional signage such as "special offer" accompanies the display of the goods.
Generally, advertisements are invitations to treat, so the person advertising is not compelled to
sell to every customer. In certain circumstances however, an advertisement can be treated in
legal terms as an offer, as occurred in the British case of Carlill v Carbolic Smoke Ball
Company [1893].
For an offer to be capable of becoming binding on acceptance, it must be definite,
unambiguous, and final. If it is rather a preliminary move as part of a negotiation process
which may lead to a contract, it is not an offer but an invitation to treat. An offer may, or may
not, result in such a situation. The offerer must have been initiating negotiations from which an
agreement may or may not in time result. An invitation to treat cannot therefore be responded
to by a legal act of acceptance as no offer in a legal sense has been made. Rather the recipient
of the invitation to treat may respond and in their turn therefore makes an offer themselves to
which the party initiating the invitation to treat can therefore respond to potentially create a
legal contract by their acceptance.
Communication of an Offer
To provide his part of the mutual assent required to form a contract, the offeree must know
about the offer; he cannot agree to something about which he has no knowledge. Accordingly,
the offeror must communicate the offer in an intended manner.
Intent to enter into a contract
To have legal effect, an offer must manifest intent to enter into a contract. The intent of an
offer is determined objectively from the words or conduct of parties. The meaning of either
party’s manifestation is based on what a reasonable person in the other party’s position would
have believed.
Page 71
It is important to distinguish language that constitutes an offer from that which merely invites
offers.
If a communication creates in the mind of a reasonable person in the position of the offeree an
expectation that his acceptance will conclude a contract, then the communication is an offer. If
it does not, then the communication is a preliminary negotiation.
Definiteness and certainty of an offer
Even though a manifestation of intention is to be understood as an offer, it cannot be accepted
so as to form a contract, unless the terms of the purported contract are reasonably certain or can
be made reasonably certain from the manifestation of parties in the circumstances.
The terms are reasonably certain if they provide a sufficient basis for determining the existence
of a breach and for providing an appropriate remedy.
Part performance may remove the uncertainty of terms and establish an enforceable contract
and action, in reliance on an agreement, may make a contractual remedy appropriate even
though uncertainty is not removed.
Missing terms may be supplied by course of dealing, usage of trade, but in most cases, material
terms would include the subject matter, price, quantity, quality, terms of payment and duration.
Duration of an offer
An offer confers upon the offeree a power of acceptance which continues until the offer
terminates.
The ways in which an offer may be terminated, other than by acceptance are through Lapse of
time, revocation, rejection, counteroffer, death or incapacity of the offeror or the offeree,
destruction of the subject matter to which the offer relates and, subsequent illegality of the type
of contract the offer proposes.
(1) Lapse of time: “The offerees power of acceptance is terminated at the time specified in the
offer, or if no time is specified, at the end of a reasonable time”. The offeror may specify the
time within which the offer is to be accepted. Unless otherwise terminated, the offer remains
open for the specific time. Upon the expiration of that time, the offer no longer exists and
cannot be accepted and any purported acceptance of an expired offer will serve only as an
offer.
If the offer does not state the time within which the offeree may accept, the offer will terminate
after a reasonable time. Determining a reasonable time is a question of fact, depending on all
the circumstances existing when the offer and attempted acceptance are made.
The provisional draft stated that unless otherwise indicated by the language or circumstances,
an offer sent by email is reasonably accepted if an acceptance is mailed at any time before
midnight on the day on which the offer is received - referring to the restatement, section 41 and
the Uniform Commercial Code 1-303 but this provision was removed during the legislative
Page 72
process as a detail that would be not really applicable in a Rwandan context. For the same
reason, article 48 of the provisional draft has been removed:
“If a communication of an offer to the offeree is delayed, the period within which a contract
can be created by acceptance is not thereby extended if the offeree knows or has reason to
know of the offer, even though the delay is due to the fault of the offeror ; but if the delay is
due to the fault of the offeror or to the means of transmission adopted by him, and the offeree
neither knows nor has reason to know that there has been delay, a contract can be created by
acceptance within the period of delay which would had been permissible if the offer had been
dispatched at the time that its arrival seems to indicate”.
(2) Rejection of an offer: An offeree is at liberty to accept the offer as he sees fit. If he decides
not to accept it, he is not required to reject it formally but may simply wait until the offer
laspses or terminates. Therefore, rejection by the offeree may consist of express language or
may be implied from language or conduct.
A manifestation of intent not to accept an offer is a rejection unless the offeree manifests an
intention not so to treat it, as by announcing he will merely take the offer under advisement.
A communicated rejection terminates the power of acceptance. From the effective moment of
rejection which is, in common jurisdictions, the receipt of the rejection by the offeror, the
offeree may no longer accept the offer.
(3) Revocation: The offeror generally may cancel or revoke an offer at any time prior its
acceptance. An offeree’s power of acceptance is terminated when the offeree receives from the
offeror a manifestation of an intention not to enter into the purported contract but an offeree’s
power can be terminated by indirect communication as when the offeror takes definite action
inconsistent with an intention to enter into the purported contract and the offeree acquires
reliable information to that effect.
An offer made to the general public is revoked only by giving to the revocation publicity
equivalent to that given to the offer if no better means of notification is available.
Certain limitations however restrict the offer’s power of acceptance but were removed from the
final voted bill.
Option contracts: An option is a contract by which the offeror is bound to hold open an offer
for a specified period of time. It must comply with all the requirements of a valid contract,
including the offeree’s giving of consideration to the offeror.
Irrevocable offer of unilateral contracts: Where the offer contemplates a unilateral contract,
injustice to the offeree may result if revocation is permitted after the offeree has started to
perform the act requested in the offer and has substantially but not completely performed the
requested act.
Revocation of an offer proposing multiple contracts: An offer contemplating a series of
independent contracts by separate acceptances may be effectively revoked so as to terminate
the power of acceptance for future contracts, though one or more of the proposed contracts
have already been formed by the offeree’s acceptances.
Page 73
(4) Counteroffer: A counteroffer is an offer made by an offeree to his offeror relating to the
same matter as the original offer but on terms or conditions different from those contained in
the original offer. It is not an acceptance of the original offer, but by indicating an
unwillingness to agree to the terms of the offer, it generally operates as a rejection. But It may
also operate as a new offer – the counteroffer.
An offeree’s power of acceptance is terminated by his making of a counter-offer, unless the
counteroffer manifests an intention of the offeree that the original offer remains open or the
offeror has manifested a contrary intention
A rejection or counter offer by mail or telegram does not terminate the power of acceptance
until received by the offeror.
(5) Death or incompetency: The death or incompetency of either the offeror or the offeree
ordinarily terminates an offer. On his death or incompetency, the offeror no longer has legal
capacity to enter into a contract; thus all outstanding offers are terminated. Death or
incompetency of the offeree terminates also the offer, because an ordinary offer is not
assignable and may be accepted only by the person to whom it was made.
The death or incompetency of the offeror or the offeree however does not terminates an offer
contained in an option because of the consideration given.
(6) Destruction of the subject matter: Destruction of the specific subject matter of an offer
terminates the offer. A offers to sell a car to B. the Car is destroyed by fire in the night. The
next morning B accepts the offer. There is no contract because the offer was terminated before
the acceptance of B.
(7) Subsequent illegality: Subsequent illegality is illegality taking effect after the making of an
offer but prior to acceptance. A subsequent illegality legally terminates the offer.
2.3.2 Acceptance of an offer
Acceptance of an offer is a manifestation of assent to the terms of the offer made by the offeree
in a manner invited or required by the offer.
An offer can be accepted only by a person to whom it is intended. It must comply with the
terms of the offer as to the promise to be made or the performance to be rendered.
Modes of acceptance
The offeree’s acceptance may be by performance or my return promise.
An offer can be accepted by rendering performance only if the offer invites such a
performance. Even if the offer invite acceptance by performance, the rendering of a
performance does not constitute an acceptance if within a reasonable time and before the
offeree performs relevant acts, he exercises reasonable diligence to notify the offeror of non-
acceptance.
Page 74
Notification of acceptance
Where an offer invites an offeree to accept by rendering a performance like in case of unilateral
contract, no notification to the offeror is necessary to make such an acceptance effective
unless the offer requests such a notification.
Article 22-2 provides for an exception to the principle in respect to the requirement of good
faith during the course negotiations.
If the offeree has reason to know that the offeror has no adequate means of learning of the
performance with reasonable promptness and certainty, the offeror is not obligated, unless the
offeree exercises reasonable diligence to notify the offeror of the acceptance, the offeror learns
of the performance within a reasonable time or the offer indicates that notification of
acceptance is not required.
In case of acceptance by promise, it is essential that the offeree exercise diligence to notify the
offeror of acceptance or that the offeror receive the acceptance within a reasonable time, except
where acceptance by silence is possible.
Acceptance by silence
An offeree is generally under no legal duty to reply to an offer. Silence or inaction therefore
does not indicate acceptance of the offer. However, by custom, usage, course of dealing, the
offeree’s silence or inaction by an offeree may operate as an acceptance. Thus, the silence or
inaction of an offeree can operate as an acceptance and cause a contract to be formed where by
previous dealings the offeree has given the offeror reason to understand that the offeree will
accept all offers unless the offeree sends notice to the contrary.
Silence operates as an acceptance also where the offeree takes benefits from the offer with
reasonable opportunity to reject them and reason to know that they were offered with expected
consideration.
Silence may also operate as an acceptance where the offeror has stated or given the offeree
reason to understand that assent may be manifested by silence or inaction, and the offeree in
remaining silent and inactive intends to accept.
But care must be taken. Simply putting into the offer a term such as “If I do not hear from you
I shall assume you have accepted the offer” may not be, in common law, the same as a silent
acceptance.
Time when acceptance takes effect
The new law governing contract has no specific provision specifying the issue but generally an
acceptance is effective upon dispatch unless the offer specifically provides otherwise; such as
the offeree uses an unauthorized means of communication or the acceptance follows a prior
rejection.
Page 75
Article 62 of the provisional draft removed was clear on the principle of acceptance upon
dispatch in the following terms:
Unless the offer provides otherwise:
An acceptance made in a manner and by medium invited by an offer is effective as put
out of the offeree’s possession, without regard to whether it is ever reaches the offeror ;
but
An acceptance under an option is not effective until received by the offeror.
Then, it is clear that the offer is effective on receipt while the acceptance is effective on
dispatch.
Acceptance by telephone or similar medium of substantially instantaneous two way
communication is governed by the principles applicable to acceptance where the parties are in
the presence of each other.
Reasonableness of medium of acceptance
Unless circumstances known to the offeree indicate otherwise, a medium of acceptance is
reasonable if it is the one used by the offeror or one customary in similar transactions at the
time and place the offer is received. It is also called “authorized means of communication”.
Historically, authorized means of communication was either the means the offeror expressly
authorized in the offer or, if none was authorized, the means the offeror used in presenting the
offer.
If in reply to an offer by mail, the offeree places in the mail a letter of acceptance properly
stamped and addressed to the offeror, a contract is formed at the time and place that the offeree
mails the letter. This assumes that the offer was open at that time. The reason for this rule is
that the offeror by using the mail implicitly authorized the offeree to use the same means of
communication. It is immaterial if the letter of acceptance goes astray in the mail and is never
received.
2.4. Consideration
2.4.1 Consideration and cause
The concept of consideration is slightly different from the concept of cause used in Civil Law
The doctrine of consideration ensures that promises are enforced only where the parties have
exchanged something of value in the eye of the law. Gratuitous promises, those made without
consideration, are not legally enforceable except under some circumstances.
A performance or a promise by the promisee is a consideration if it is established as such by
the promisor and is given by the promise in exchange for that promise.
The consideration exchanged for the promise may be an act, forbearance to act, or a promise to
do either of these.
Page 76
The law does not regard the performance of, or the promise to perform a pre-existing legal
duty, public or private, as a consideration.
The consideration for a promise must be either a legal detriment to the promisee or a legal
benefit to the promisor. The promisee must give up something of legal value, or the promisor
must receive something of legal value in return for the promise.
Legal benefit means the obtaining by the promisor of that which he had no prior legal right to
obtain.
2.4.2 Adequacy of consideration or mutuality of obligation
The law will regard the consideration as adequate if the parties have agreed to the exchange.
The requirement of legally sufficient consideration is therefore not at all concerned with
whether one party received disproportionately more or less that he gave or promised to give.
Such facts however may be relevant to the availability of defence such as fraud, duress or
undue influence or certain remedies such as specific performance.
The provisional draft was clear on the issue of adequacy of consideration contemplated in
article 35 of the voted law:
“If the requirement of consideration is met, there is no additional requirement of
(1) a gain ,advantage, or benefit to the promisor or a loss, disadvantage or detriment to the
promisee,
(2) equivalence in the values exchanged ; or
(3) mutuality of obligation.”
Rules governing consideration
Consideration must not be in the past: If one party voluntarily performs an act and the other
party the makes a promise, the consideration for the promise is said to be in the past. Past
consideration is regarded as no consideration at all.
Example, John gives Susan a lift home in his car after work. On arrival Susan offers John 1,000
francs towards the petrol but, finding that she has not any change, says she will give him the
money next day at work.
In this example, John cannot enforce Susan’s promise to pay 1,000 francs because the
consideration for the promise (giving the lift) is in the past. John would have given Susan the
lift home without expecting payment and also there was no bargain between the parties.
Re McArdle (1951)Ch 669 Court of Appeal (in UK)
Mr McArdle died leaving a house to his wife for her lifetime and then to his children. While
Mrs. McArdle was still alive, one of the children moved into the house. The wife made
improvements to the house costing £ 488. After the work had been completed, all the children
signed a document in which they promised to reimburse the wife when their father’s estate was
finally distributed. The court of appeal held that this was a case of past consideration. The
promise to pay £ 488 to the wife was made after the improvements had been completed and
was, therefore, not binding. The rule about past consideration is not strictly followed. If, for
Page 77
example, a person is asked to perform a service, which he duly carries out, and later a promise
to pay is made, the promise will be binding.
Re Casey’s Patents, Stewart v. Casey (1892)
Casey agreed to promote certain patents which had been granted to Stewart and another. (A
patent gives the holder exclusive right to profit from an invention) Two years later Stewart
wrote to Casey promising him a one–third share of the patents in consideration of Casey’s
efforts. It was held that Stewart’s original request raised an implication that Casey’s work
would be paid for the later letter merely fixed the amount of the payment.
Consideration must move from the promisee: An action for breach of contract can only be
brought by someone who has himself given consideration. A stranger to the consideration
cannot take advantage of the contract, even though it may have been made for his benefit.
Tweddle V Atkinson (1861)
John Tweddle and William Guy agreed that they would pay a sum of money to Twaddle’s
William, who had married Guy’s daughter. William Guy died without paying his share and
William sued his late father in- law’s executor (Atkinson). His claim failed because he had
not provided any consideration for the promise to pay.
Consideration must not be illegal. The courts will not entertain an action where the
consideration is contrary to a rule of law or is immoral.
Consideration must be sufficient but need not be adequate. It must be possible to attach some
value to the consideration but there is no requirement for the bargain to be strictly commercial.
If a man is prepared to sell his Jaguar car for £1, the court will not help someone who
complains of making a bad bargain. The following are examples of cases where the
consideration was of little value, but, nevertheless, it was held to be sufficient.
Thomas v Thomas (1842)
After the death of her husband Mrs. Thomas agreed to pay rent of £1 a year in order to
continue living in the same house. It was held that the payment of £ 1 was valid consideration.
A person who promises to carry out a duty which he is already obliged to perform is in reality
offering nothing of value. The consideration will be insufficient. However, if a person does
more than he is bound to do, there may be sufficient consideration. The promise may involve a
public duty imposed by law.
Hartly v Ponsonby (1857)
When almost half of the crew of a ship deserted, the captain offered those remaining £40 to
complete the voyage. In this case, the ship was so seriously undermanned that the rest of the
journey had become extremely hazardous. It was held that this fact discharged the sailors from
their existing contract and left them free to enter into a new contract for rest of the voyage.
2.4.3 Contracts without consideration
Certain transactions are enforceable even though they are not supported by consideration.
Page 78
Promises to perform prior unenforceable obligations
These situations include promises to pay debts barred by prescription, debts discharged in
insolvency proceedings, voidable obligations and moral obligations.
Promise for benefit received
The article 39 of the law governing contracts has made enforceable promise without
consideration for benefit received based on the concept of promissory estoppel.
The practice at Common Law is to make enforceable promises for benefit received based on
the doctrine of promissory estoppel. The doctrine makes gratuitous promises enforceable to the
extent necessary to avoid injustice. The doctrine applies when a promise that the promisor
should reasonably expect to induce detrimental reliance and does induce such action or
forbearance.
Promissory estoppel does not mean that a promise given without consideration is binding
because of change of position on the part of the promisee. Such a change of position in
justifiable reliance on the promise creates liability if injustice can be avoided only by the
enforcement of the promise
Promise modifying existing contract
A promise modifying a duty under a contract not yet fully performed is binding;
(1) If the modification is fair and equitable in view of circumstances not anticipated when the
contract was made;
(2) If it is provided by specific law;
(3) In case of material change which results into the change of obligations for both parties.
Contracts under seal
Under the common law, when a person desired to bind himself by deed or solemn promise, he
executed his promise under seal. No consideration for his promise was necessary.
Article 41 of Itegeko No. 45/2011 Ryo Kuwa 25/11/2011 Ringengo Amasezerano
(Law No. 45/2011 of 25/11/2011 Governing Contracts refers to this practice in the followings
terms:
Article 41: Validity requirements for contracts without consideration
A promise without consideration is binding if:
1° it is in a written form and signed;
2° the document containing the promise is delivered to the promisee;
3° the promisor and the promisee are named in the document or are otherwise identified.
Page 79
The provisions above raised debates among Rwandan lawyers and most jurisdictions have
eliminated the practice.
2.5. A mandatory writing form for some contracts
2.5.1 Contracts within the statute of frauds
Although most contracts do not need to be in writing to be enforceable, it is highly desirable
that significant contracts be written. Written contracts avoid many problems and the process of
setting down contractual terms in a written document also helps to clarify the terms and bring
to light the problems the parties might not otherwise foresee.
But still the principle is the freedom of contracts except for some contracts said to be “within
the statute of frauds”. To be enforceable the contracts within the statute of frauds must be
evidenced by a signed writing.
In most Common Law jurisdictions, the contracts called “within the statute of frauds” are as
follows:
(1) Promises to answer for a duty of another;
(2) Promises of an executor or administrator to answer personally for a duty of the decedent
whose funds he is administering;
(3) Agreements upon consideration of marriage;
(4) Agreements for transfer of an interest in land;
(5) Agreements not to be performed within one year;
A sixth type of contract within the original English statute of frauds applied to contracts for
sale of goods.
Article 42 refers to the practice and enumerates contracts under risk of frauds that should be
evidenced in writing:
(1) Contract the duration of which exceeds one year
(2) Contract for the sale of an interest in land;
(3) Contract to act as a surety.
(4) Contract for the sale of goods for the price of 50,000Rwf or more;
(5) Contract for the sale of securities.
2.5.2 Requirement
Most modern jurisdictions require that the contract be evidenced in writing to be enforceable.
The purpose in requiring writing is to ensure that the parties have actually entered into a
contract. It is, therefore not necessary that the writing be in existence when parties initiate
litigation; it is sufficient to show the memorandum existed at one time, even if the parties
themselves view it as having no legal significance.
The provisional draft had details on compliance with the requirement removed in the final
voted bill, specifying that the note or Memorandum must
(i)Specify the parties to the contract
(ii)Specify with reasonable certainty the subject matter of the contract and the essential terms
of the unperformed promise and,
Page 80
(iii)be signed by the party to be charged or by his/her agent.
3. Vitiation and illegality
In addition to requiring agreement through offer and acceptance, the law requires that the
agreement be voluntary and knowingly. If these requirements are not met, then the agreement
is either voidable or void.
This part deals with situations in which the consent manifested by one of the parties to the
contract is not effective because it was not knowingly and voluntarily given. We consider four
such situations in this part: mistake, misrepresentation, duress, undue influence and the case of
illegality for which the contract is unenforceable.
3.1 Mistake
‘Mistake’ is a belief that is not in accord with the facts. The cases on mistake as a vitiating
factor fall into two main groups: In the first, the parties make the same mistake: e.g. both think
that the subject matter exists when it does not; in the second, one of the parties is mistaken.
3.1.1 Various kinds of mistakes
Mistake is of two basic types, i.e. mutual mistake and unilateral mistake.
Common or mutual mistake: Common mistake occurs when both parties are mistaken as to the
same set of facts. Where a common mistake of both parties at the time a contract was made as
to a basic assumption on which the contract was made has a material effect on the agreed
exchange of performances, the contract is voidable by the adversely affected party, unless
he/she bears the risk of the mistake”.
Mistake of one party or unilateral mistake: A unilateral mistake occurs when only one of the
parties is mistaken. “Where a mistake of one party at the time a contract was made as to a basic
assumption on which he made the contract has a material effect on the agreed exchange of
performances that is adverse to him, the contract is voidable by him if he does not bear the risk
of the mistake if:
(1) The effect of the mistake is such that enforcement of the contract would be unconscionable;
or
(2) the other party had reason to know of the mistake or his fault caused the mistake”.
3.1.2 Assumption of risk of mistake
A party who has undertaken to bear the risk of a mistake will not be able to avoid the contract,
even though the mistake (which may either be common or unilateral) would have otherwise
permitted the party to do so.
“A party bears the risk of a mistake when:
(1) the risk is allocated to him by agreement of the parties; or
Page 81
(2) he is aware, at the time the contract is made, that he has only limited knowledge with
respect to the facts to which the mistake relates but treats his limited knowledge as
sufficient”.
3.1.3 Effect of the mistake
Principle: The feature which is common to the two situations of mistake (common mistake and
unilateral mistake) is that the mistake must be fundamental (where the parties are mistaken as
to the existence of the subject matter) so that a party cannot rely on a ‘mistake’ which has led
him merely to make a bad bargain. Then the principle is that a fundamental mistake makes the
contract void.
Effect of fault of party seeking relief: The principle is that “[a] mistaken party’s fault in failing
to know or discover the facts before making the contract does not bar him from avoidance or
reformation (..), unless his fault amounts to a failure to act in good faith and in accordance with
reasonable standards of fair dealing”.
This rule does not, however, apply to a failure to read a contract. As a general proposition, a
party is held to what he signs. The signature authenticates the writing, and s/he cannot
repudiate that which s/he voluntarily approved. Generally, one who assents to a written offer or
contract is presumed to know its contents and cannot escape being bound by its terms merely
by contending that s/he did not read them; his/her assent is deemed to cover unknown as well
as known terms.
3.2. Misrepresentation
Another factor affecting the validity of consent given by a contracting party is
misrepresentation, which prevents assent from being knowingly given.
A misrepresentation may be:
(1) a misleading conduct or an assertion that is not in accord with the facts;
(2) an action intended, or known to be likely, to prevent another from learning a fact;
(3) a person’s non-disclosure of a fact known to him/her, where he/she knows that disclosure of
the fact is necessary to prevent some previous assertion from being a misrepresentation or
from being fraudulent or material.
3.2.1 Types of misrepresentation
There are two distinct types of misrepresentation:
(1) fraudulent or material misrepresentation; and
(2) misrepresentation as an inducing cause.
Fraudulent or material misrepresentation: A misrepresentation is fraudulent if the maker
intends his assertion to induce a party to manifest his assent and the maker:
(1) knows or believes that the assertion is not in accord with the facts; or
(2) does not have the confidence that he states or implies as to the truth of the assertion; or
(3) Knows that he does not have the basis that he states or implies for making the assertion.
Page 82
A misrepresentation is material if it would be likely to induce a reasonable person to manifest
his assent, or if the maker knows that it would be likely to induce the recipient to do so.
Misrepresentation as an inducing cause: A misrepresentation induces a party’s manifestation
of assent if it substantially contributes to his decision to manifest his assent. It is an intentional
misrepresentation of material fact by one party to the other, who consents to enter into a
contract in justifiable reliance on the misrepresentation.
3.2.2 Prevention from formation of a contract due to misrepresentation
If a misrepresentation as to the character, or essential terms, of a proposed contract induces
conduct that appears to be a manifestation of assent by one who neither knows nor has
reasonable opportunity to know of the character or essential terms of the proposed contract, his
conduct is not effective as a manifestation of assent.
3.2.3 Effect of misrepresentation
If a party’s manifestation of assent is induced by misrepresentation by the other party upon
which the recipient is justified in relying, the contract is voidable by the recipient.
3.3 Duress
A person should not be held to an agreement s/he has not entered voluntarily. Accordingly, the
law will not enforce any contract induced by duress, which in general is any wrongful or
unlawful act or threat that overcomes the free will of a party.
Ordinarily, the acts of threats constituting duress are themselves crimes or torts. But this is not
true in all cases. The acts need not be criminal or tortuous in order to be wrongful; they merely
need to be contrary to public policy or morally reprehensible. For example, if the threat
involves a breach of a contractual duty of good faith and fair dealing, it is improper.
Moreover, it generally has been held that contracts induced by threats of criminal prosecution
are voidable, regardless of whether the coerced party had committed an unlawful act. Similarly,
threatening the criminal prosecution of a close relative is also duress. To be distinguished from
such threats of prosecution are threats that resort to ordinary civil remedies to recover a debt
due from another. It is not wrongful to threaten a civil suit against an individual to recover a
debt. What is prohibited is threatening to bring a civil suit when bringing such a suit would be
abuse of process.
3.3.1 Types of duress
Duress is two basic types, i.e. physical impulsion and improper threats.
Physical compulsion: The first type, physical duress, occurs when one party compels another to
manifest assent to a contract through actual physical force, such as pointing a gun at a person
or taking a person’s hand and compelling him to sign a written contract. “If conduct that
appears to be a manifestation of assent by a party who does not intend to engage in that
Page 83
conduct is physically compelled by duress, the conduct is not effective as a manifestation of
assent”.
This type of duress, while extremely rare, renders the agreement void.
Improper threats: The second and more common type of duress involves the use of improper
threats or acts, including economic and social coercion, to compel a person to enter into a
contract. “If a party’s manifestation of assent is induced by an improper threat by the other
party that leaves the victim no reasonable alternative, the contract is voidable by the victim”.
Though the threat may be explicit or may be inferred from words or conduct, in either case it
must leave the victim with no reasonable alternative.
This type of duress makes the contract voidable at the option of the coerced party.
3.3.2 Assumption of strength and intelligence
The fact that the act or threat would not affect a person of average strength and intelligence is
not important if it places fear in the person actually affected and induces her to act against her
will. The test is subjective, and the question is this: Did the threat actually induce assent on the
part of the person claiming to be the victim of duress?
3.3.3 Effect of duress
If a party’s manifestation of assent is induced by duress, the contract is void in case of physical
compulsion, and voidable at the option of the coerced party in case of improper threats.
3.4 Undue Influence
Undue influence is unfair persuasion of a party who is under the domination of the person
exercising the persuasion or who by virtue of the relation between them is justified in assuming
that the person will not act in a manner inconsistent with the welfare of the party being
persuaded.
3.4.1 Cases of undue influence
Undue influence may be found in contracts between those in relationship of trust and
confidence that is likely to permit one party to take unfair advantage of the other, such as
relationships of guardian-ward, trustee-beneficiary, agent-principal, parent-child, attorney-
client, physician-patient, and clergy-parishioner. The weakness or dependence of the person
persuaded is a strong indicator of whether the persuasion may have been unfair.
3.4.2 Effect of undue influence
If a party’s manifestation of assent is induced by undue influence by the other party, the
contract is voidable by the victim.
Page 84
3.5 Illegality
The law refuses to give full effect to contracts which are illegal (or affected by illegality)
because they are contrary either to law or public policy.
3.5.1 Unenforceability of contracts contrary to the law
One of the ways in which the offer may be terminated other than acceptance is the ‘subsequent
illegality of the type of contract the offer proposes’. A contract is illegal if the mere making of
it amounts to a criminal offense, or if the contract has its object the commission of a crime, or
if one party to the other’s knowledge intended to use the subject matter for an illegal purpose.
3.5.2 Unenforceability on grounds of public policy
Contracts are contrary to public policy if they have a clear tendency to bring about a state of
affairs which the law regards as harmful. A promise or other term of an agreement is
unenforceable on grounds of public policy if legislation provides that it is unenforceable or the
interest in its enforcement is clearly outweighed in the circumstances by a public policy against
the enforcement of such terms.
Weighing a public policy against enforcement of a term: In weighing a public policy against
enforcement of a term, account is taken of:
(1) the strength of that policy as manifested by legislation or judicial decisions;
(2) the seriousness of any misconduct involved and the extent to which it was deliberate; and
(3) the directness of the connection between that misconduct and the term.
Bases of public policies against enforcement: A public policy against the enforcement of
promises or other terms may be derived by the court from:
(1) legislation relevant to such a policy; or
(2) the need to protect some aspect of the public welfare such as a restraint of trade; an
impairment of family relations; and an interference with other protected interests;
(3) failure to comply with a licensing, registration or similar requirement.
3.5.3 Exceptions to unenforceability
There are two categories of exceptions to unenforceability, i.e. excusable ignorance and
performance if intended use is improper.
Excusable ignorance: If a promisee is excusably ignorant of facts or of legislation of a minor
character, of which the promisor is not excusably ignorant and in the absence of which the
promise would be enforceable, the promisee has a claim for damages, but cannot recover
damages for anything that he has done after he learns of the facts or legislation.
Performance if intended use is improper: If the promisee has substantially performed,
enforcement of a promise is not precluded on grounds of public policy because of some
improper use that the promisor intends to make of what he obtains unless the promisee:
(1) acted for the purpose of furthering the improper use; or
(2) knew of the use and the use involves grave social harm.
Page 85
Section 3. END OF CONTRACTUAL OBLIGATIONS
The subject of discharge of contract concerns the termination of contractual duties. Whatever
causes a binding promise to cease to be binding is a discharge of the contract. In general there
are various kinds of discharge of the contract: mainly we have performance by the parties,
agreement of the parties to terminate the contractual obligation, happening of a condition and
impossibility of performance.
1. Condition
A condition is an event whose happening or non-happening affects a duty of performance
under a contract. Some conditions must be satisfied before any duty to perform arises; others
terminate the duty to perform; still others either limit or modify the duty to perform. A
condition is inserted in a contract to protect and benefit the promisor. For example, A promised
to pay 100,000Rfws provided that such amount is realized from the sale of an automobile,
provided that the automobile is sold within sixty days. This condition is known as a precedent
condition. That is, a contract that is subject to a future event, there cannot be a transfer of
property because the future event has not yet occurred. In this case, the risk shall always
remain with the debtor of an obligation since transfer of property has not yet been done.
It may also be a subsequent condition when a condition will terminate the contract. Subsequent
condition occurs, despite the fact that the contract will have been formed; the occurrence of the
subsequent condition renders the contracts without effect. In that case, the risk shall remain
with the debtor. The law says if under the terms of the contract the occurrence of an event is to
terminate an obligor’s duty of immediate performance or duty to pay damages for breach, that
duty is extinguished if the event occurs, unless the occurrence of the event is the result of a
breach by the obligor or the occurrence does not subject the obligor to a materially increased
burden.
A fundamental difference between the breach or non-performance of a contractual promise and
the failure or non happening of condition is that, a breach of contract subjects the promisor to
liability. It may or may not, depending on its materiality, excuse the non-breaching party’s
performance of his duty under the contract. The happening or non-happening of a condition, on
the other hand, either prevents a party from acquiring a right or deprives him of a right but
subjects neither party to any liability.
Conditions may be classified by how they are imposed. They may be express or implied in fact
condition and implied in law condition:
Express conditions: An express condition is explicitly set forth in language. No particular form
of words is necessary to create an express condition, as long as the event to which the
performance of the promise is made subject is clearly expressed. An expressed condition is
always preceded by words such as “provided that”, “on condition that”, “if”, “as soon as”, etc.
Page 86
Implied in fact condition: implied in fact conditions are similar to express conditions in that
they must fully and literally occur and that they are understood by the parties to be part of the
agreement. They differ in that they are not stated in express language; rather they are
necessarily inferred from the terms of the contract, the nature the transaction, or the conduct of
the parties. Example: thus if A, for 100,000Rfws contracts to paint the B’s house any colour
B desires, it is necessarily implied in fact that B will inform A of the desired colour before B
begins to paint. The notification of choice of colour is an implied in fact condition, as an
operative event that must occur before A is subject to the duty of painting the house.
Implied in law condition or constructive condition: implied in law condition is imposed by law
to accomplish a just and fair result.
It differs from an express condition and implied in fact in two ways:
(1) it is not contained in the language of the contract or necessarily inferred from the contract
(2) it need only be substantially performed. For Example: A contracts to sell a certain tract of
land to B for 2,000,000 Rwf, but the contract is silent as to the time of delivery of the deed and
payment of the price. According to the principle, the contract implies that payment and
delivery of the deed are not independent of each other. The courts will treat the promises as
mutually dependent of the deed of A to B is a condition to the duty of B to pay the price.
Conversely, payment of the price by B to A is a condition on the duty of A to deliver the deed
to B.
Concurrent conditions: concurrent conditions occur when the mutual duties of performance are
to take place simultaneously. In this case, the performance under a contract is concurrent.
Condition precedent: A condition precedent is an event that must occur before performance is
due under a contract. In other words, immediate duty of one party to perform is subject to the
condition that some event must first occur.
Condition subsequent: A condition subsequent is an event that terminates an existing duty. For
example, when goods are sold under terms of sale or return the buyer has the right to return the
goods to the seller within a stated period but is under an immediate duty to pay the price unless
the parties have agreed on the credit. The duty to pay the price is terminated by a return of the
goods, which operates as a subsequent condition.
2. Discharge by Performance
The performance signifies that the parties have dutifully carried out their respective
obligations, thus freeing themselves from further liability. The basic rule is that the parties
must perform their obligation in exact accordance with the agreed terms of the contract. The
contract must be performed at the time and place agreed upon. If no time is agreed then is must
be completed within a reasonable time and that will obviously depend upon the circumstance
of the particular case.
2.1 Date and time of performance
Contractual obligations must be performed in the time stipulated whether expressly or by
implication. When a specific date or a specified time is mentioned, then it is said that “time is
Page 87
of the essence” of the contact and completion in accordance with the time or date becomes a
condition going to the very foundation of the contact. But sometimes when there has been an
extension the beneficiary of it may argue that even if time was of the essence, the creditor had
abandoned that condition by allowing an extension. In this case for example, B may order
furniture from S to be delivered on April 30th 2011. The consignment was not ready by that
date but B extended the date to May 10th. It was still not available and therefore B cancelled the
order. S Nevertheless proceeded to deliver on May 12th. B refused to accept delivery. In this
case the time will be considered as not being of the essence; the court may set for an extra time
(a respite or days of grace) and moratorium damages may be charged after a notice. In a case
such as this, the wording of the “agreement” to the extension is very important.
The basis of “notice” is that time has not been made the essence of the contract is especially
important. The court will not allow one party suddenly to turn to the other and say “time has
gone, the contract is at an end”. When time has not been made the essence of the contract and
the circumstances are not such as to make it obvious that time is of the essence, it is clear that,
a party to the contract cannot avoid it on the ground of unreasonable delay by the other party
until a notice has been served after the unreasonable delay making time the essence. When no
time stipulated, performance must occur within reasonable time, determined by reference to
particular circumstances of the case.
2.2 Substantial Performance
In response to the harsh consequences that may result from entire contracts, the courts
developed the doctrine of substantial performance permitting recovery of contract price where
the plaintiff has substantially performed their obligations under a contract. If one party has
substantially completed his side of the bargain, leaving a minor omission or fault, the court
may accept such performance as discharging his obligations, subject to the innocent party’s
right to deduct a sum to cover the fault.
This is illustrated by this example. X built a bungalow For Y the price to be paid by
installments. On completion Y withheld the balance due on the basis that there were some
structural defects. The Court may allow the builders claim that he had substantially completed
the contract. In determining whether a failure to render, or to offer, performance is material,
the following circumstances are significant:
(1) the extent to which the injured party will be deprived of the benefit which he reasonably
expected;
(2) the extent to which the injured party can be adequately compensated for the part of that
benefit of which he will be deprived;
(3) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
(4) the likelihood that the party failing to perform or to offer to perform will cure his failure,
taking account of all the circumstances including any reasonable assurances;
(5) the extent to which the behaviour of the party failing to perform or to offer to perform
comports with standards of good faith and fair dealing.
However, a defendant may still maintain the right to claim damages for any loss suffered as a
result of the plaintiff’s failure to strictly adhere to their contractual obligations.
Page 88
2.3 Divisible performance
Sometimes, it may be possible for the court to view the obligations between the two
contracting parties not as one entire contract but consisting of a number of individual and
separate obligations. It may be also the same when one person contracts several obligations in
one contract.
The law says that where the whole of one party’s performance can be rendered at one time, it is
due at one time, unless the language or the circumstances indicate the contrary. Where only
part of one partys performance is due at one time, the other party’s performance can be so
apportioned that there is a comparable part that can also be rendered at that time, it is due at
that time, unless the language or the circumstances indicate the contrary.
If there is failure to perform all, it does not affect the obligations to pay for what has been
completed. For example, A transporter can agree to transport goods for so much per ton. If A in
fact carried less than the agreed amount, the court can hold that A was entitled to claim for
what he had carried, at the rate per ton subject to the other party’s right to sue for not carrying
the overall tonnage agreed upon.
2.4 Prevention of performance by one party
If the promisee prevents the promisor from performing his obligations under the contract, this
will excuse the promisor from performance and the promisee cannot thereafter rely on non-
performance as a basis for a contractual claim or as a defence to a claim brought by the
promisee. This is the principle of “exceptio non adimpleti contractus”.
It may be that one party is willing to release the other from completing the contract as
originally agreed. If such can be assumed from the circumstances of the case, then the party
that has performed part of his obligations is entitled to claim on a quantum merit. The other
party must, however, be in a position freely to decide to accept partial performance. If it is
forced upon him by the behaviour of the other party then no claim will be allowed. In some
case, the innocent party can sue for damages for breach of claim on a quantum merit.
The example is the case Sumpter v. Hedges (1898 Queen’s Bench division English contract
law). The plaintiff agreed to build on the defendant’s land premises for a lump sum of £565. He
completed work valued at £333 and then abandoned the contract. The buildings were
completed by the defendant. The plaintiff’s claim for the work done before abandoning the
contract was dismissed. The defendant had no real option but to finish the work. The plaintiff
was allowe d to claim for materials delivered as part of the original contract
As the court said: “He is not bound to keep unfinished a building which, in an incomplete state
would be a nuisance on his land”.
3. Discharge by agreement
After the formation of contract, but prior to complete performance, parties may wish to bring
their contractual rights and obligations to an end. Often this will be due to a change in
Page 89
circumstances of one or both parties and may also be used as part of a dispute resolution
mechanism between parties.
In order to effectively terminate an existing contract, a new agreement must meet all criteria of
a binding contract. In such a situation each releases the other party from performing. In that
way each has given consideration to the other, namely the release, and the second agreement
discharges the first. If one party has performed, or partly performed his obligations, in this case
it is not sufficient for him merely to say that he releases the other person. The reason being that
the other person has given no consideration to be executed as his contractual obligations, in
other words the second agreement is not a contract at all.
One way round, the problem is to make the release under seal. A contract under seal or a deed
does not require consideration. There are certain formalities to be followed however for the
deed to be valid. A method of obtaining the discharge in this situation where one party has
performed or party performed his obligations is by accord and satisfaction, the party that has
not performed his original obligation now offers new consideration to be released from the
original contract. The other party can now accept the new consideration. The requirement of
consideration under this kind of contract causes certain difficulties. If the discharges are under
seal, only then is the consideration requirement avoided.
A related problem is that of waiver. In the present context this signifies that one party is
prepared to waiver or vary the terms of the original agreement. The problem, of course, is what
consideration the other party provides. The courts have been eager to enforce such alterations
in the contract because they reflect normal business or commercial tendencies. In so doing
however, the rules are not particularly clear or logical. Perhaps the most satisfactory way of
explaining the situation is to say that the courts apply an equitable principle. If X agrees to
waive certain obligations owed by Y and Y therefore alters his position accordingly, then it
would be inequitable to allow X immediately to revert to the original agreement. That X should
be permitted to demand compliance at some future date is also a valid requirement if the
principles of equity are to be maintained.
The situation is illustrated by this decision in example. R agreed to build a car for D within
seven months, time being of the essence. The car was not ready but D agreed to extend the date
of delivery. After a further three months, D explained that if it was not completed within four
weeks he would cancel the order, this in fact happened. The court held that by allowing an
extension of time D had waived the original terms of the contract and therefore could not go
back on that. But he could reintroduce a reasonable date for completion and as R had failed to
comply with that date then D was entitled to repudiate the contract.
The agreement may also take the form of a novation. Novation recognizes the possibility that
one party to contract can release the other and substitute a third person who then undertakes to
perform the released person’s obligations. If an obligee accepts, in satisfaction of the obligor’s
duty, a performance offered by the obligor that differs from what is due, the duty is discharged.
Thus by agreement of the three parties a new contract replaces the original contract. A novation
is a contract that is itself accepted by the obligee in satisfaction of the obligor’s existing duty.
The substituted contract discharges the original duty and breach of the substituted contract by
the obligor does not give the obligee a right to enforce the original duty.
Page 90
Another type of novation can occur where the parties remain the same but a new contract is
substituted for the old. If an obligee accepts in satisfaction of the obligor’s duty a performance
offered by a third person, the duty is discharged, but an obligor who has not previously
assented to the performance for his benefit may in a reasonable time after learning of it render
the discharge inoperative from the beginning by disclaimer.
4. Frustration or impossibility
The doctrine of frustration deals with the allocation of risks and losses which occur as result of
an unanticipated change in circumstances occurring after parties have entered into a contract.
Frustration generally arises when a contracting party refuses to perform or has failed to
perform its obligations in whole or in part because performance of the contract has become
either physically impossible, illegal or is no longer commercially viable. The law says that
where, after a contract is made, a party’s performance is made impracticable without his fault
by the occurrence of an event the non-occurrence of which was a basic assumption, on which
the contract was made, his duty to render that performance is discharged, unless the language
or the circumstances indicate the contrary.
The principle is, once the parties had agreed to their various obligations and the contract was
valid, then nothing should be recognized as permitting one part to go back on his word. The
attitude, being strict, was that the parties should have provided for the happening of future
difficulties in the wording of the original agreement. If not then, it was his own fault for not so
providing and he must bear the consequences.
The case Paradine v. Jane ([1947] EWHC KB J5 is an English contract law case) illustrates this
situation. The defendant had leased a farm from the plaintiff. He was unable to pay the rent
because a German Prince had “ invaded the realm with a hostile army”, occupied the farm and
thus prevented him from making any profits from which he would have paid the rent. The court
allowed the plaintiff’s action arguing that the defendant had agreed to pay and as he had not
provided against such eventualities in the agreement, then he should bear the loss. It is not
sufficient merely to show that conditions have changed so that one party is released. That party
must prove the existence of the frustration and its effects on the contract. Here the court
decided that the parties did not contract one the footing that the goods were to come from
Germany.
In the nineteenth century in England the courts began to adopt a more lenient approach to the
problem. There is a difference of opinion as to the reasoning behind what has been termed the
Doctrine of Frustration. The two commonly accepted approaches are either that there is an
implied term in every contract that should the performance become impossible then the parties
should be relieved from their obligations ,or that the event that occurs so fundamentally alters
the courts to release the parties from the bargain. Perhaps the most useful course to adopt is to
review the judgments in an effort to gauge when the courts will invoke the doctrine.
4.1 Events that may frustrate
There are number of events that the courts have recognized which have rendered a contract
radically different from that which was contemplated. When determining whether the doctrine
of frustration operates in any particular case, consideration should be given to the terms of the
Page 91
contract, the nature of the event that has occurred and the type of contract involved; then an
assessment may be made of whether or not the operation of the contract following the event is
radically different from that originally contemplated.
(1) Destruction of something essential
If the continuing existence of a thing or a person is assumed by both parties as the foundation
of the contract, the destruction of that thing or a person may invoke the doctrine of frustration.
In one of the earliest cases on frustration, in Taylor v. Caldwell, the defendants let a certain
music hall to the plaintiffs. Before the dates of the proposed concerts, the hall was accidentally
destroyed by fire. The court held that the contract was frustrated.
(2) Non- occurrence of an essential event
If the occurrence of an essential event is assumed by both parties as the basis of their contract
relationship, the non occurrence of that event may invoke the doctrine of frustration.
(3) Impossibility of performance
If, as a result of a supervising event, a contract becomes impossible to perform, either
physically or commercially, the doctrine of frustration may operate to discharge the contract.
An interesting question of precedent arises out of the East African Court of Appeal decision in
Victoria Industries v. Ramanbhai Bros (1961 E.A. 11). A Ugandan company had agreed to
ship maize via Lake Victoria to Mwanza. While part of the shipment was being loaded E.A
.Railways refused to accept the shipment. The court held that the railway’s behaviour frustrated
the contract as there was no alternative or feasible route.
(4) Events causing delay or making performance more expensive
Events which merely delay performance or render it more expensive than contemplated will
not frustrate a contract. However, where delay or increased expenses is such that the contract
becomes one that is radically different from that contemplated by the parties the doctrine of
frustration may operate. However, sometimes as we said earlier, courts have to assess and
decide to consider or to disregard this theory. This illustrates clearly the situation. The facts
were that groundnuts were sold and were to be shipped from the Sudan to Germany.
Obviously, the route would have been through the Suez Canal. Owing to the invasion of Egypt
by Israel the Canal was blocked and the sellers argued that the contract was now frustrated.
This argument was not accepted. The court refused to imply a term that the voyage must be via
Suez. They considered that the contract could still be performed by going round the Cape of
Good Hope. The extra expense was not to be regarded as a frustrating event. In this decision
they seem to have forgotten that whenever the performance of the contract can be more
expensive the doctrine of frustration may operate.
(5) Changes in the law or government intervention
A subsequent change in the law may frustrate a contract, even if it does not render performance
of the contract illegal, provided it substantially affects the parties so that the contract becomes
different in nature from that contemplated by the parties. This may be, for example, an
interdiction from selling some kind of commodities in a given area or time.
Page 92
If government rules, regulations or enactments prevent one party from fulfilling his obligations
the contract is frustrated. The article 95 (of the Law 45/2011 Governing Contracts) says that if
the performance of a duty is made impracticable by having to comply with a new domestic or
foreign governmental regulation or order, that regulation or order is an event the non-
occurrence of which was a basic assumption on which the contract was made.
(6) Death in contracts involving personal performance (intuitu personae)
If the contract can be regarded as one that requires the personal service of one party and that
party dies or it becomes physically impossible or illegal for him to complete his obligations,
then it is regarded as a frustrating event. The law says that if the existence of a particular
person is necessary for the performance of a duty, his death or such incapacity as makes
performance impracticable is an event the non-occurrence of which was a basic assumption on
which the contract was made.
For instance, if a law graduate had signed a contract to work for a firm of advocates and the
Government then decided that all such graduates must spend one year at the Institute of Legal
Practice Development before starting their carrier, then the original contract of employment
would be frustrated because of the incapacity of that graduate.
4.2 Situation preventing the frustration
There cannot be a frustration when parties have contemplated a supervening event and made
provision for it in their contract. There is also no frustration when the event was caused by one
of the parties to the contract. If there is an event that has destroyed the basic on which the
contract was made the party seeking to rely on frustration must prove affirmatively the
occurrence of that the event. Once done, it is then for the other party to show that the event was
due to the neglect or negligence of the party claiming frustration.
Two East African Appeal cases illustrate the workings of the rule. In Howard and Co.(Africa)
Ltd. V. Burton, the plaintiffs had agreed to supply the defendants with mid-day meals for their
labourers. The labourers however objected to the meals and the fact that deductions were made
from their wages to cover part of the cost. The defendants allowed the men to choose and the
result was that the number of meals required dropped from 2,500 to almost nil. The plaintiff
sued for breach of contract and the defendants pleaded frustration. The court allowed the
plaintiffs action, arguing that it was the defendants positive act of allowing their labourers to
choose that led to the decline in numbers and the subsequent failure on their part to take
delivery of the agreed quantities.
4.3 Consequences of frustration
The effect of frustration is to terminate a contract automatically. Consequently, there is no need
for either party to elect to terminate. Where a contract is terminated in future that the accrued
rights and obligations remain. Thus, money paid under a frustrated contract for services to
occur in the future could not be recovered, nor could recompense be obtained for services
rendered where payment only fell due after the frustrating event. However, if one part has
gained an advantage under the contract before the frustrating event, for instance by way of part
Page 93
performance of the contractual obligations, then the court may order payment to be made by
the party benefited on the basis of the undue enrichment.
5. Discharge by breach
A breach of a contract may bring it to an end; in other words, may discharge, or terminate the
contract. When one party fails to perform his obligations or performs them in a way that does
not correspond with the agreement, the innocent party is entitled to a remedy. What form the
remedy will take depends on what type of breach the guilty party has committed. In all cases
the innocent party is entitled to claim damages, but only in two situations can the contract be
regarded as discharged and thus freeing him from performing his own obligations.
5.1 Fundamental breach
In deciding whether there has been a fundamental breach of the contract it is necessary to ask
whether it is a condition or a warranty that has been broken. We can examine if that condition
is a major term of the contract and breach of such a term allows discharge of the contract, and
that a warranty is a minor term that attracts only an award of damages. If the breach goes to the
root of the contract and affects its commercial viability, it is said to discharge the contract.
This can be illustrated by this Court decision in Mohamed Anwar v. Marjaria and Others. The
plaintiff had purchased eleven second hand tractors and spares from the respondents. He signed
a document that stated that the tractors were "seen and fully inspected on the description … no
other liability is taken whatsoever by the seller." When the plaintiff went to collect the tractors
two were missing and others had been stripped of their spare parts. Nevertheless he removed
the tractors on an undertaking that what was missing would be replaced. This was not done and
the appellant stopped payment and when sued for the price he alleged that he had repudiated
the contract and, in addition, that the consideration had totally failed.
Where there is a contract for the sale of goods to be delivered by stated instalments which are
to be separately paid for, and the seller makes defective deliveries in respect of one or more
instalments, or the buyer neglects or refuses to take delivery or pay for one or more
instalments, it is a question in each case depending on the terms of the contract, and the
circumstances of the case, whether the breach of contract is a repudiation of the whole contract
or whether it is a severable breach giving rise to a claim for compensation, but not to a right to
treat the whole contract as repudiated. The seller agreed to deliver milk daily for a period of
one year. After eight days the buyer refused to accept more deliveries on the grounds that the
milk had not passed through a refrigerator cooler. The buyer obtained the backing of the Public
Health Inspector that the milk was not fit for human consumption and then sued for breach of
contract.
5.2 Repudiation
A repudiatory breach is any form of conduct by a party that evinces an intention not to be
bound by the contract. Examples include expressly refusing to perform part or all of a contract,
or insisting that the other party perform the contract in a manner that it does not require or
sanction. It may also take the form of a continued failure to perform the contract. This occurs
when one party either expressly or impliedly intimates that he will not honour his side of the
Page 94
bargain. Obviously this can happen at the moment performance is due or before that time,
when prior warning is given that the obligations will not be performed it is called anticipatory
breach. The law says “Repudiation shall be made by:
(1) a statement by the obligor to the obligee indicating that the obligor will commit a breach.
(2) a voluntary affirmative act which renders the obligor unable or apparently unable to
perform without such a breach”.
The repudiation may be anticipatory. The anticipatory breach occurs when the guilty party
repudiates the contract before the date on which they were due to perform their obligations and
the innocent party elects to discharge the contract as a result. Where reasonable grounds arise
to believe that the obligor will commit a breach by non-performance that would of itself give
the obligee a claim for damages for total breach, the obligee may demand adequate assurance
of due performance and may, if reasonable, suspend any performance for which he has not
already received the agreed ex- change until he receives such assurance.
Where an obligor repudiates a duty before he has committed a breach by non-performance and
before he has received all of the agreed exchange for it, his repudiation alone gives rise to a
claim for damages for total breach. Where performances are to be exchanged under an
exchange of promises, one party’s repudiation of a duty to render performance discharges the
other party’s remaining duties to render performance. In such a situation the innocent party can
sue at once, or wait until the time of performance is due and sue then. If he decides on the last
course of action, it is possible for the guilty party to “reform” and complete his part of the
contract. It may even be that something occurs to prevent the original innocent party from
completing his own obligations.
Similarly the innocent party, if he decides not to act on the anticipatory breach but wait until
the date the performance was due, must show that he was able and willing to perform his part
of the agreement. If the innocent party decides to treat the other party’s behaviour as
anticipatory breach, he may be allowed to ask the court for a decree of specific performance so
that the court may compel the guilty party to perform. It is no defence to argue that the cause of
action does not arise until the final date for performance is due. The obligor’s failure to provide
within a reasonable time such assurance of due performance may be treated as a repudiation.
5.3. Effects of breach
As was said earlier, the effects of breach of contract vary depending on the seriousness of the
breach and also on how the innocent party decides to react towards the breach. The remedies
available are discussed in the next Chapter. A breach by non-performance gives rise to a
claim for damages for total breach only if it discharges the injured party’s remaining duties to
render such performance.
6. Rescission
Parties to a contract can file an action requesting for its nullity or rescission if there was error,
fraud or violence. An agreement of rescission is an agreement under which each party agrees to
discharge all of the other party’s remaining duties of performance under an existing contract.
An agreement of rescission discharges all remaining duties of performance of both parties. It is
Page 95
a question of interpretation whether the parties also agree to make restitution with respect to
performance that has been rendered.
Rescission of the contract extinguishes not only the rights of the parties therein but also those
of their successors in title. The rule is “resoluto jure dantis resolvitur jus accipientis”, but to a
certain extent third parties are protected. When a lease has been granted by an owner whose
right of ownership is afterwards rescinded in the case of the sale of an immovable object, the
seller cannot get the sale rescinded against an onerous purchaser whose right is transcribed
unless the seller has preserved his privilege by transcribing it.
In principle the rescission works ‘ex tunc, i.e. it returns matters to the state of the moment of
the conclusion of the contract or, sometimes, of a later date in the case of non-retrospective
effect the rescission works ‘ex tunc’, i.e. the day of the issue of the writ, or, sometimes, the day
of the judgment or even the day of the enforcement of the judgment. Ex tunc is the Latin for
“from the outset”
The impossibility of restitution in successive contracts, is due to the nature of the property
(e.g. the enjoyment of the premises) or the use which was made of it (e.g. a pipe-line delivers
oil over several months, but the oil is stocked in huge reservoirs; or fertilizer is spread in the
fields). The criterion proposed by Marcel Fontaine in order to define the exceptions to the
principle of the retrospective effect of the rescission is the divisibility of the contract. The
rescission has a retrospective effect to the moment of the conclusion of the contract each time
that the non-performance affects the whole of the contract; the rescission will be limited up
until the date of the serious no-performance which does not overturn the reciprocal utility of
what was performed earlier to the common satisfaction of both parties. If this criterion is
accepted, the starting point of the non-retrospective rescission will not be the same in all cases.
It is the date on which a party judged that the contract ceased to fulfil its function.
Page 96
Chapter 8. SALE OF GOODS
Section 1. Definition
A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the
property in goods to the buyer for a price in the form of money.
A contract of sale may be absolute or conditional. In an absolute sale the property in the goods
passes from the seller to the buyer immediately and nothing remains to be done by the seller.
Sale at a counter in the shop is an absolute sale. In a conditional contract of sale the property in
the goods does not pass to the buyer absolutely until a certain condition is fulfilled.
The term contract of sale comprises two things:
Sale, and
Agreement to sell
Where the seller transfers the property in the goods immediately to the buyer there is a sale.
But where the transfer of the property in the goods is to take place at a future time or subject to
some condition(s) thereafter to be fulfilled, the contract is called an agreement for sale.
An agreement for sale becomes a sale when the time elapses or the conditions are fulfilled
subject to which the property in the goods is to be transferred. Every sale originates in an
agreement to sell. It is an agreement to sell which gives birth to a sale. On a sale, the agreement
of sale is completely exhausted and ceases to exist.
Section 2. Essentials of contract of sale
A contract
Between two parties
To transfer or agree to transfer the property/title in goods
For a price, that is money consideration.
2.1. A contract
The word contract means an agreement enforceable at law. It presumes free consent on the part
of the parties who should be competent to contract. A compulsory transfer of goods under any
Nationalization Act is not a sale. The agreement must be made for a lawful consideration and
with a lawful object. In other words all the essential elements of a valid contract must also be
present in a contract of sale.
2.2. Two Parties
To constitute a contract of sale, there must be a transfer or agreement to transfer the property in
the goods by the seller to the buyer. It means that there must be two persons one the seller and
the other the buyer. The buyer and the seller must be two different persons, for a man cannot
purchase his own goods. The parties must be competent to contract.
Example: A partnership firm was dissolved and the surplus assets including some goods were
divided among the partners. The Tax Officer wanted to tax this as a sale.
Page 97
The court held that this was not a sale as partners were themselves joint owners of the goods
and they could not therefore be both sellers and buyers. Moreover there was no money
consideration.
There are certain exceptions to the rule that the same person cannot be a purchaser and a seller.
These are:
Where person’s goods are sold in execution of a decree, he may himself buy them.
A part owner can sell his share to the other part owner so as to make the other part
owner the sole owner of the goods.
Where a Pawnee sells the goods pledged with him on non-payment of bill money, the
pawnor may himself buy such goods
2.3.Transfer of property
In a contract of sale there should be a transfer or an agreement to transfer the absolute or
general property in the goods sold. It contemplates the transfer of ownership in the goods.
Though passing the title in the goods is an essential ingredient of sale, physical delivery of
goods is not essential. The sale of goods contemplates the transfer of the general property or
title in the goods from the seller to the buyer.
2.4. Goods
The subject matter of the contract of sale of goods must be the goods, the property in which is
to be transferred from the seller to the buyer. Goods of any kind except immovable goods may
be transferred. It does not include money and other actionable claims. The seller must be the
owner of the goods the ownership of which is sought to be transferred.
2.5. Price
To constitute a valid contract of sale, consideration for transfer must be money paid or
promised. Where there is no money consideration the transaction is not a contract of sale as for
instance goods given in exchange for goods as remuneration for work or labour. However, an
existing debt due from the seller to the buyer is sufficient. Further there is nothing to prevent
the consideration from being partly in money and partly in goods or some other articles of
value. For example when an old car is returned to the dealer for a new one and the difference is
paid in cash that would also be a sale.
It may be noted no particular form is necessary to constitute a contract of sale. A contract of
sale may