BUSINESS LAW · 2020. 12. 13. · Section 11 ofContract Act 1960, Act 25 provides that, “unless...
Transcript of BUSINESS LAW · 2020. 12. 13. · Section 11 ofContract Act 1960, Act 25 provides that, “unless...
BUSINESS LAW
For Students of Business Administration (BBA)
KSB
by Oswald .K. Seneadza
• Aims and Objectives
Business management professionals should have an awareness of the relevant
legal duties, rights and processes that govern business operations in Ghana. This is
not intended to replace the need for professional advice and services. The objective
of this course is to enable students have basic knowledge in law that is relevant to
business operations in Ghana. Specifically,
• To provide the student with an overview and a basic knowledge of the
principles of contract relating to business operations.
• To enable students master the doctrines, cases and materials relevant to
business and how to apply them in hypothetical and real cases.
Teaching and Assessment
• The course will be taught by a Lecturer (course author) covering 3 credit
hours for each session. There is a component of seminar session to be
planned into the lecture session when the course commences. The course
will be assessed by an examination carrying 70% at the end of the semester
and a mid- semester which carries 30%. The mid-semester evaluation is a
combination of three items:
• Assignment/quizzes/ tutorial (10%)
• Mid-sem. Examination (20%)
• Course Materials / Reading list
1. Smith & Thomas: A Case book on Contract (8th edition)
2. G. H. Treitel: The law of Contract, (7th edition)
3. M.P. Furmston: Cheshire & Fifoot’s Law of Contract (11th
edition)
4. P. Ebow Bondzi-Simpson: Law of Contracts, Accra, 2002
5. J.C. Smith, The Law of Contract, S & W, 1993, 2nd
edition, London.
6. Kwame Abrefa-Gyan, Business for Professional & Tertiary Students, 2008,
Methodist Book Depot Ltd., Accra, Ghana.
7. L.S Sealy & RJA Hooley, Commercial Law Text, Cases and Materials, 3rd
Edition, Lexis Nexis, 2003
8. P.S. Atiyah, John Adams & Hector Macqueen, The Sale of Goods, 11th Ed, 2005
9. Margret Griffiths, Commercial Law, 3rd
Edition, 2003.
CONTENTS
The following areas will be covered under this course
1. Introduction to Business Law
2. Formation of Contract
3. Contents and Terms of Contract
4. Vitiation of Contract
5. Discharge of Contract
6. Remedies
7. Sales of Goods Act, 1962 (Act 137)
8. Hire Purchase Act, 1974 (NRCD 29
9 Agency Law
Lecture 1
INTRODUCTION TO BUSINESS LAW
The laws that govern or regulate all business undertakings and transactions. The
fundamental law in this regard is the Contract Law based on CONTRACTS ACT
1960 (ACT 25)
1.1 What is a Contract?
1.2 Types of Business Contracts
1.3 What is ‘Business’
1.4 Sources of Business Law in Ghana
1.5 Underlying Principles of Contract
1.6 Classification of Contracts
1.7 Forms of a Contract
1.8 Parole Evidence Rule
1.1 What is a Contract?
• William Hanson has defined contract as a legally binding agreement made
between two or more parties by which rights are acquired by one or more to
act or forbear (omissions, not doing something) on the part of other(s).
• In short it is an agreement between two or more parties which is intended
to have legal consequences. Thus, a contract is a legally binding agreement.
• Pollock, in his book Principles of Contract (1876) also defines contract as a
statement or set of promises which is enforceable in a competent of
jurisdiction.
1.2 Types of Business contracts
They are different types, according to their objects e.g.
i A sales contract is a contract between a company (the seller) and a customer that
where the company agrees to sell products and/or services. The customer in return
is obligated to pay for the product/services bought.
ii A purchasing contract is a contract between a company (the buyer) and a
supplier who is promising to sell products and/or services within agreed terms and
conditions. The company (buyer) in return is obligated to acknowledge the goods /
or service and pay for liability created.
iii A partnership agreement may be a contract which formally establishes the
terms of a partnership between two legal entities such that they regard each other
as 'partners' in a commercial arrangement. However, such expressions may also be
merely a means to reflect the desire of the contracting parties to act 'as if' both are
in a partnership with common goals. Therefore, it might not be the common law
arrangement of a partnership which by definition creates fiduciary duties and
which also has 'joint and several' liabilities.
Other Special Business Contracts
iv Sale of Goods Contracts for sale of goods are governed by the Sale of Goods
Act, 1962. This field covers transactions ranging from retail purchases in shops to
the sale of items of great volume and value. The act also covers hire purchase but
not sale of land (real property). It provides the regulation for the purchase and
supply of construction materials and equipment necessary for construction works.
v Agency describes the relation between two parties whereby one , the agent , acts
on behalf of the other, the principal. Law of Agency also regulates the relations
between Consultants and other professional who may be engaged by the employer
or the contractor (not as employees) but to provide some services on their behalf
and thereby act as agents in the delivery of their services.
vi Real Estate Contracts. These are contracts entered into between real estate
developers and people offering to purchase some of the properties.
vii Contract of Guarantee It is a collateral agreement for engagement to answer
for the debt or non performance, default or miscarriage of another person
Other categories are:
viii. Common commercial contracts include:
• employment letters,
• sales invoices
• purchase orders, and
• Utility contracts
They follow laid down rules and regulations without any serious negotiations
required
ix. Complex contracts are:
• construction projects,
• goods or services that are highly regulated,
• goods or services with detailed technical specifications,
• intellectual property (IP) agreements, and
• international trade.
They need serious negotiations, legal framework and strict execution.
1.3 What is ‘Business’
Business is any undertaking or transaction carried on for gain or reward or which
is an undertaking in the course of which goods or services are supplied otherwise
than free of charge or for pleasure. Business includes the following:
1 Trade – relating to the exchange of goods and services for money.
2 Professions – relating to the use of intellectual skill by a practitioner or by a
professional body for a fee.
3 Vocation – relating to the regular occupation like repairs, cleaning or manual
skill as in painting, sculpture and interior decoration for money.
4 Hiring – relating to paying money to borrow soothing far a short time (e.g. car,
room, video or hiring a professional like a lawyer.
5 Tenancy – relating to rental services or business tenancy.
6 Sale of Goods – relating to wares (material objects like ornaments), chattel (all
things belonging to you), capital goods (factory machines used for the production
of other goods), consumer goods (such as food, clothing) sold to individuals or
associations.
7 Hire Purchase – relating to buying an article by making regular payments for it
over several months or years
All these transactions are regulated or governed by the laws of Ghana. Hence the
need to know the sources of Business Law.
1.4 Sources of Business Law in Ghana
• A source of law my mean two things. First, it may mean the authority from
which the laws of a State spring, for example, the current
constitution/enactments by parliament/ decrees by military government.
These are described as formal source.
• The second meaning is the source from which the rules of law are derived
and are referred to as legal source. Under the second meaning, the law of
Ghana has three sources, namely: Common Law, including Equity, Statute
and Custom.
• The question of sources of law in Ghana is answered by our country’s most
authoritative legal document, the CONSTITUTION OF GHANA.
(Refer to Article 11 (1) of the 1992 Constitution)
• The primary source of law in relation to business transactions is the formal
source (Statutory). The most relevant are:
1 INSURANCE ACT, 2006 (ACT 724),
2 LABOUR ACT, 2003, (ACT 651)
3 CONTRACTS ACT 1960 (ACT 25),
4 MORTGAGES DECREE1972 (NRCD 96),
5 CONVEYANCING DECREE, 1973 (NRCD 195),
6 BILLS OF EXCHANGE ACT, 1961 (ACT 53),
7 HIRE PURCHASE ACT, 1974 (NRCD 292),
8 SALES OF GOODS ACT, 1962 (ACT 137),
9 AUCTIONS SALES LAW (PNDC LAW 230),
10 INSURANCE LAW, 1989 (PNDC LAW 227)
11 CONVEYANCING ACT, 1973 (NRCD 175
1.5 Underlying Principles of Contract
Every businessman who intends entering into business contract should be
guided by the following principles:
• Sanctity of Contracts
• Freedom of Contracts
• Contracting Party beware
• Reasonableness
• Intolerance of Fraud
• Protection of Innocent Third Party Purchaser
Let us look at each of them in more detail
1. Sanctity of Contracts
Parties are free to determine the terms of their contract. The contractual
obligations voluntarily undertaken under a contract are therefore sacred and should
be observed by all parties as such.
Case example : Printing and Numerical Registering Co. v Sampson [1875] LR
19 462
Held: Contract when entered into freely and when trading shall be held sacred
and shall be enforced by courts of justice.
2 Freedom of Contracts
Parties are at liberty to enter into any kind of agreement that they so desire to
unless they do not have capacity to undertake the transaction, there is no legal basis
of the agreement or the performance of it is impossible.
A person may not be under compulsion to enter into a contract.
3. Contracting Party beware
The principle of caveat emptor (let the buyer beware) applies to contracting
party. A contracting party is to ensure that a due diligence is undertaken,
warranties and undertakings are taken were necessary, and must seek professional
advice where necessary.
4. Reasonableness
The court considers the reasonable man’s test in considering what is reasonable
in contracts. The reasonable man is the ordinary layman or the ordinary technical
person reasoning.
5. Intolerance of Fraud
Generally, law does not tolerate fraud, fraud omnia vitiate, (fraud vitiates
everything). Fraud in the law of contract is actionable.
6. Protection of Innocent Third Party Purchaser
The law of contract protects the third party who without fraud or deficiency
obtains a contractual benefit.
1.6 Classification of Contracts
Business Contract may be classified into different categories namely:
1. Deeds and Simple Contracts
• Deed Contract is a contract under seal. It must be in writing.
• Simple Contracts. This includes oral contracts and contracts which require
some writing.
2. Implied Contracts and Contracts of Record
• Implied Contract arises from the assumed intentions of the parties.
• Contracts of Record arises from obligation imposed by a Court of record
3. Bilateral Contract and Unilateral Contract
• Bilateral Contract is a contract in which the parties must fulfill reciprocal
obligations
• Unilateral Contract – Contract arising where an offer is made in the form of
a promise to pay in return for the performance of an act, so that the
performance of the act is taken to imply an assent e.g. – Police advertising
for a suspect for a price.
• (Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256)
• 1.7 Forms of a Contract
Forms of contract are basically, 1. Oral and 2. Written
Section 11 of Contract Act 1960, Act 25 provides that, “unless legislation
requires, a contract need not be written. It may be oral”
“Subject to the provisions of any enactment, and to the provisions of this Act, no
contract whether made before or after the commencement of this Act, shall be void
or unenforceable by reason only that it is not in writing or that there is no
memorandum or note thereof in writing.”
Case example: In Hammond v Ainooson [1974] 1GLR176 there was an oral
contract for the Plaintiff to supervise repair works of the defendant’s boat. The
court upheld the oral contract.
Although contract may be oral it is advisable for it to be written because writing
facilitates
proof of contractual terms. In the event of a dispute if the alleged contract is oral
the party relying on it has to proof its existence i.e. to prove its content or terms.
1.8 Parole Evidence Rule
The rule states that, barring fraud, parties to a contract cannot lead oral evidence
to contradict, vary, add to or subtract from terms of their written contract.
Case example: Wilson v Brobbey [1974] 1GLR 250
• Plaintiff, a retailer, sued the defendant to recover the value of goods he
credited the defendant. The Plaintiff tendered as an exhibit an invoice signed
by the defendant. The defendant, a literate, claimed that he was a guarantor
for someone else and not a purchaser in his own right.
• The Court rejected the defendant’s contentions holding that oral evidence
could not be led to contradict the terms of a written document. Appeal was
dismissed.
• Oral evidence is however, admissible to explain the circumstances and terms
of a document. It may also explain unclear and ambiguous statements in the
contractual document. The court considers the total evidence –oral and
written documents before judgment.
• Exceptions to the Rule: Contract induced by fraud / illegality or contracts
binding strangers.
Lecture 2
FORMATION OF A CONTRACT
• The general requirements for the formation of a valid contract include
the following:
2.1. Offer
2.2. Unqualified acceptance
2.3. Consensus ad idem
2.4. Valuable consideration
2.5. Genuineness of consent
2.6. Contractual capacity of parties
2.7. Intention to create legal relations
2.8. Legality of object
2.9. Possibility of performance
Let us now turn to look at each of them in detail.
2.1 Offer – is a proposal made by an ‘offeror’ to an ‘offeree’
In the case of NTHC Ltd v Antwi [2009] SCGLR 117 per Dr Date-Bah JS:
“Basically, an offer is an indication in words or by conduct by an offeror that he
or she is prepared to be bound by a contract in the terms expressed in the
offer,…… Accordingly, the offer has to be definite and final and must not leave
significant terms open for further negotiation”. As a definite promise to be bound;
• An offer must be clear and unambiguous
• An offer may be made to a specific/particular person or group of or to the
world at large
• An offer is a statement/promise or undertaking which the person making it is
prepared to enter into a legal relationship along the terms stated,
• An offer must be firm and complete proposal to another leaving him or her
to accept or reject.
• An offer must be effective without being a reply to a request for information
or an advertisement or invitation to treat.
Statements which are not binding or not constituting an offer
i. Intention to make an offer or invitation to treat: This includes:
• Exhibition or display of goods for sale, Fisher v Bell
• An advertisement that an auction sale is to be held, Gibson v Manchester
City Council. Exception:Carlill v.Carbolic Smoke Ball Co,1893
• Invitation to tender for the construction of building or engineering works
• the circulation of a price list or invitation to bid or submit a proposal.
ii Request for information:
• This is an inquiry to the offeree to supply information. A tenderer may
request for information in the cause of preparation for a bid/tender, the
request does not constitute an offer.
iii. Expression of good intentions;
• This is a statement to another signifying that declarant is serious about the
transaction as in the case of Okai v Ocansey [1992-93] 3 GBLR
iv Variation of terms of Offer or Counter Offer: Where a term in an offer is
waived by the offeree, the offeree’s document results in rejection of the offeror’s
proposal or the offeree’s document now forms basis for a fresh contract or
agreement not one initiated by the offeror. This new offer is best described as a
Counter Offer to the original offer.
v Withdrawal of Offer: the withdrawal must be communicated to the offeree. A
Contractor may withdraw his bid at any time before the employer’s letter of
acceptance is received by the Contractor.
vi Termination of offer: lapse of time, death of offeror, rejection by offeree
2.2 Unqualified Acceptance
Acceptance is the assent of ALL the terms of the offer.
NTHC Ltd v Antwi [2009] SCGLR 117 @ 125 per Dr Date-Bah JSC; “…the
mere acceptance of an offer is sufficient to turn the offer into a contract, if there is
consideration for it, together with an intention to create legal relations.’’
(a) Essentials of Acceptance:
1. Acceptance must in all cases be unqualified –
Qualified acceptance amounts to rejection of the offer.
Unqualified acceptance means:
i acceptance must be precise, properly communicated back.
ii no insertion of new terms (which may amount to counter offer)
iii addition of “subject to the usual terms of acceptance” (where there are no such
usual terms) Deegbe v Nsiah & Another [1984-6]1 GLR 545
2. Silence in Contract does not always amount to acceptance: to be valid it must
be communicated to the offeror in an express or implied terms in a manner that the
offeror understands. It must be demonstrated in some acts such as spoken or
written. Can use any mode in response to offeror unless a particular mode is
expressly given by the offeror.
3. Where acceptance is given to an agent of the party (the post office,
messenger courier etc. as agent of offeror, it is complete even if reply is not
received by offeror (if he elects this mode of response). Offeree can revoke his
acceptance before the offeror actually receives the earlier communication of
acceptance. Students to try the assigned questions.
(b) When is contract made?
Once an offer has been accepted the contract is formed and offer ceases to exist
[Offer + Acceptance = Contract]
Offer is effective only when:
Statement is received by Offeree known to the Offeror. A counter-offer is effective
only when it is actually communicated to offeror.
Acceptance is complete the moment response is given by the offeree not
necessarily when received by offeror. If by telephone acceptance does not take
effect until it is communicated and the offeror hears the acceptance.
Mode of Communication:
• Telephone (with answering machine), telegram, fax
• Post (postal rule applies only acceptance sent by post when it is the
anticipated mode of acceptance).
• E-mail (postal rule not applicable because e-mail is considered as
instantaneous communication)
2.3. Consensus ad idem
Where the parties agree on contractual terms there is the meeting of the minds
or consensus ad idem.
• In the case of SATurgenia & Bros v Lamptey, Ollenu J – said:
“The minds of the parties were not ad idem …there is therefore no binding
contract between the parties.’’
What do we mean by meeting of the mind?
i. There must be certainty as to the terms offered and accepted. However, the
court has a duty to protect the substance of the parties’ agreement and not to
destroy it. As in British Steel Corp v Cleveland Bridge & Engineering Co. Ltd.
[1984].
ii. Parties to a contract must agree on all material terms. In Asare v Antwi
[1975] 1 GLR 16 CA, the Court of Appeal held that there was no contract when the
purchased price of land was not finalized, nor was specific land identified.
iii. Agreement may be inferred from conduct, words expressed or documents
that have passed between parties.
2.4 Valuable consideration
• Consideration is that which is actually given or accepted in return for a
promise. At the promisor’s request consideration is required for all simple
contracts.
• A binding contract must be backed by consideration except in contract under
seal.
• According to Sir Frederick Pollock – in Eastwood v Keryon [1842] “an act
or forbearance of one party or the promise therefore, is the price for which
the promise of the other is brought, and the promise thus given for valuable
consideration is enforceable” E.g.: (a) An act i.e. doing something that one
has specifically requested. Kessie v Charmant & Anor(Plaintiff Service);
(b)Some right, interest, profit or benefit accruing to one party.
(c)Forbearance, loss or responsibility given, suffered or undertaken by the
others (Bank of West Africa Ltd v Apenteng & Anor); (d)Exchange of
promises (Afrifa v Class Peters); (e)Relying on another’s promise and acting
to ones detriment – Atta & Another v Adu [1987/8] 1 GLR 233. (f)Acting on
the basis of another’s unilateral offer- Carlill v Carbolic Smoke Ball Co. But
Must be legal, not be in the past, not necessarily adequate.
2.5 Genuineness of consent
• The intentions of the parties must be well understood when agreements are
being entered into. In a situation where one party (A) does not actually
intend to enter into contract with party (B) or the consent is not genuine then
there cannot be a contract.
• The legal effect of lack of genuine consent is that the contract is voidable.
Genuineness means: real, exactly what it appears to be, not artificial.
2.6 Contractual capacity of parties
• The ability of a person whether artificial or natural to enter into a contract
is referred to as ‘capacity’.
• General rule:
The general rule is that Parties are at liberty to enter into any kind of agreement
that they so desire unless they do not have capacity to undertake the business
transaction.
• Exceptions to the general rule (i.e. those who may be disqualified or
may have limited capacity):
i Children (Infants or minors): The Ghanaian constitution defines children
under the age of 18 but the Children Act, 1998 (Act 560), Wills Act 1971 (Act
360) place the age at 18 whilst the Common law and Companies Code, 1963 (Act
179) has the age limit for maturity as 21 years. In contracts, the age 18 has often
been the maturity age for a person to enter into contract. Generally a child or infant
cannot be sued or sue to enforce contract.
• However, infants can sue or be sued to enforce the following contracts:
Contract of necessaries; Contract of apprenticeship or of service (beneficial
contract of service); Perform his/her obligation.
ii. Drunkards
• A drunkard is a person who has lost control of his senses as a result a
substance he has taken in.
• A contract with such a person is voidable.
• The drunkenness exist at the time of contract
• It must be obvious and known to the other party.
• The drunkard may ratify the contract upon gaining his sobriety.
iii Lunatics
• A lunatic may be described as a person of unsound mind, a person mentally
incompetent or an insane person. A contract with such a person is voidable.
The insanity must exist at the time of contract. It must be obvious and
known to the other party.
• The insane person may ratify the contract upon gaining his sanity.
iv Third party (Privity of Contract). At Common law, a contract cannot be
enforced by or against who is not a party to the contract. With a few exceptions
(e.g. insurance company or bank issue guaranty), no one will be entitled to the
benefit or bound by the obligations of a contract to which he is not a party.
In Ghana, S 5 (1) of the Contracts Act, 1960 changed the position.
• 2.7 Intention to create legal relations
• Where in a contract there is offer and acceptance and consideration and it is
established that the parties do not have the intention to create legal relations
the contract could not be enforced.
• In domestic agreements such as family agreements and other social
agreements the presumption is that no legal relation is established.
• In marriage or family agreements where relationship is cordial, the
agreement may be considered not to create legal relations as in Balfour v
Balfour [1919].* However, where the family members are not living in
harmony the presumption that there is a legal relation may exist as in Meritt
v Meritt [1970]
• In a situation where there is no enforceable contract at law, equity may
affect the situation as in Hussey v Palmer [1972] 1 WLR 1286
2.8 Legality of object
• A contract is valid if the subject matter or the object of the contract is legal.
A contract is said to be illegal when it is expressly or impliedly prohibited
by law. A contract to deal in narcotic drugs is illegal
• Where, the object of the contract is illegal the contract is void. An example
is a contract to construct an underground trench that will lead to the vault of
a banker or a contract of sale of illegal drugs or objects against public policy.
2.9 Possibility of Performance
• A valid contract is enforceable if it is capable of being performed. If a party
enters into a contract that cannot be performed by the reasonable person, the
court may not enforce it.
• If a party undertakes to jump 10 storey building but rescinds the decision,
the contract cannot be enforced at a court because the performance is not
possible.
Self-Assessment Questions
1 Lisa wants to sell her grandfather’s clock. She writes the following letter to four
people: “Dear X, in the past you have shown an interest in my grandfather’s clock.
I have decided to sell the clock; if you are interested in making an offer please send
me a bid by first –class post to reach me not later than 3 p.m. on the 15th
of this
month. I am writing the same letter to four people.” James sends in the highest bid.
After considering the bids, Lisa rejects them all and accepts instead an offer from
Tony, a work colleague who offered her 200 more than James. Which of the
following is correct?
[A] The letter requesting the bids is an invitation to treat and Lisa can accept or
reject any.
[B] The letter requesting the bid is an invitation to treat but Lisa has a
contractual duty to accept a bid only from the four invited.
[C] The letter requesting the bids is an offer and Lisa has a duty to accept the
highest bid.
[D] The letter requesting the bid is an offer and Lisa must chose to accept one of
the four.
2. Jake, aged 17 years, entered into a contract to purchase a car from Arnold, a
friend of Jake’s mother. The purchase price was GHc 24,000 payable by 24
monthly payments of GHc1,000. Jake owes 3 months’ payments. Can Arnold
successfully sue for the arrears?
[A] Jake will only be liable if the car can be shown to be ‘necessary’ taking into
consideration his position in life.
[B] Jake will be liable once he becomes 21 years old.
[C] Jake is liable for all the payments.
[D] Jake is not liable for the arrears because a minor cannot be sued in contact.
3. What is the common law doctrine of privity of contract?
[A] Only parties to a contract can sue or be sued under that contract.
[B] Any person who has a benefit under a contract can sue upon it.
[C] Any person seeking protection under the contract can rely upon it.
[D] It protects the privacy of the parties to the contract
4. Phillipa owes Eric, a car dealer, GHc25,000 for a car she bought from Eric last
month. Phillipa has the money to pay Eric but before the time is due for payment
Eric wins GHc800,000 on the National Lottery. Eric is obviously overjoyed by his
good fortune and tells Phillipa to forget the debt and to enjoy the money on a good
time. Phillipa has now spent the GHc25,000. Unfortunately Eric could not find his
winning ticket and is desperate for the GHc25,000 which he demands back from
Phillipa. Which of the following statements is correct?
[A] Since Phillipa paid no money to Eric she did not provide any consideration
for Eric’s promise to forgo the GHc25,000 and therefore Eric is entitled to have the
GHc 25,000 back.
[B] Since Philipa did not ask Eric to forgo the GHc25,000 Eric is entitled to
have the GHc25,000 back.
[C] In the circumstances it is equitable for Eric to go back on her word and she
is therefore entitled to have her GHc25,000 back.
[D] Eric will have to bear his sad loss and will be stopped from demanding the
GHc25,000 back.
Lecture 3
CONTENTS AND TERMS OF A CONTRACT
3.1 Contents of a Contract
The contents of a valid contract are basically all the information that constitute a
contract. In construction contracts, for example, the contents include:
• The terms in the offer (Form of Tender or Bid Form)
• The statement of acceptance (Award Letter or Letter of
Acceptance).
• Data and information relied on for acceptance
(submitted tender document).
• Conditions and warranties of the contract
• Specifications, if any.
• Price, time and other agreed terms (Agreement form)
• Drawings, specifications, if any.
• Basis for price (Bill of Quantities)
• Securities etc.
• Continued 3.1
However, in some cases such as in construction contracts other sources of
information may constitute additional terms of the contract. These may include:
• Minutes of site meetings,
• Instructions of the Engineer or the Client to the contractor,
• Correspondence which has the effect of giving information to the parties. An
example is a letter from a contractor for submission of Revised Work
Programme to the Engineer or the Client.
Students should identify other relevant sources of information relating to their
profession as part of the contents of their contract?
3.2 Terms of a Contract
Terms of a contract are obligations that each party
undertakes and the representations made in respect of
discharging the contractual obligations. ‘Term’ must be
distinguished from mere ‘puffing’ (boastful represen-
tation) intended to induce another into agreement.
(A) A term of a contract must be clear and certain but not ambiguous.
(B) A term of a contract is either a condition or warranty depending on the
expression or the intentions of the contracting parties.
(C) A term of a contract may be expressed or implied by the parties, by statute
and by the courts
Let us now look at the 3 categories of terms.
• (A) Clarity and Certainty of terms
• Terms of a contract are obligations that each party undertakes and the
representations made in respect of discharging the contractual obligations.
• A term of a contract must be clear and certain but not ambiguous
• Carlill v Carbolic Smoke Ball
(B) Conditions and Warranties
• A term is either condition or warranty depending on the expression or the
intentions of the contracting parties.
i. Conditions
• They create the fundamental obligations of the
• contracting parties.
• Some describe it as the ‘central’ or ‘root’ of a
• contract and if it is breached will lead to the total
• collapse of the contract.
• Breach of conditions in a contract entitles the other
• party to repudiate the contract.
ii. Warranty
• Warranties create minor obligations and may also be a representation that
induces the contract or collateral term of the contract
• They are therefore called minor terms
• Breach of warranties entitle the other party to damages only
• Warranties by effect of common law and equity are:
(i) quantity,
(ii) quality (colour)and
(iii) time for performance of the contract.
• Parties may on agreement however turn a warranty into a condition if the
warranty is of essence to any of the party.
• The Sale of Goods Act 1962,s.16(2), makes time of the essence to the buyer,
but not to the seller s.23
• Identifying Conditions and Warranties
Hypothetical Case: A written contract between Alfred and Ben
Alfred, a car dealer in Hamburg (Germany) and Ben, a bank worker in Kumasi
(Ghana) made a contract on purchase of car. Alfred agrees to buy and ship a
Mercedes Benz Saloon car, to be delivered by an agent to Ben in Kumasi latest by
the end of December 2010. The contract mentioned these specification: 2000 -2005
model, leather interior, automatic, black colour, diesel engine, in good condition.
Ben also agrees to transfer the full amount of US$ 20.000 as total cost of car
prior to shipment and then pay the clearance fee on delivery in Ghana Cedis.
Contract made and signed in Kumasi and witnessed by Mark. 12 March 2010
On the basis of this contract let us use the following two scenarios to determine
whether there was a breach of condition or warranty and the consequences.
• Let us consider the two scenarios
S1. Alfred delivered the Benz saloon car, diesel engine 2004 model but had
problem with some of the specifications given by Ben. Instead of black he bought
red, he could not also get the leather interior, the ship delayed so delivery was
made in Feb. 2011 and was not satisfied with the condition of the car. Ben decided
to repudiate (reject) the car and demanding full refund of his money. Can he
succeed to repudiate? Advise Ben
S2. What if Alfred bought and delivered a Toyota Camry, 2008 model instead of
the Benz car claiming it is newer and more affordable Can Ben repudiate (reject)
the Toyota even if Alfred was able to meet all the other specification and the date
of delivery by his agent?
Advise Alfred of any remedy due Ben.
Was there a breach of condition or warranty by Alfred?
• (c) Express and Implied Terms
Contractual terms may be classified as:
i Express Terms
Terms that the parties have intentionally discussed and agreed upon. For
example, Land-owner agrees with Building Company to pay GHc 10,000 for the
construction of a house within one year. But the parties may also specifically
agree that if the cost of building materials go up, Land-owner will make a
fluctuation payment to reflect the cost of increment. In this example the subject
matter, completion date and fluctuation payments have been expressly stated, e.g.
Price Adjustment clause.
B. Implied (assumed) terms (law may read into contract what parties are silent
about)
Terms may not have been discussed and agreed on but are
i. implied by the Parties (when the court finds that although not discussed
by all parties, if brought to their attention they would have all agreed to the terms
e.g. if they have not discussed price escalation during the construction, the court
may imply its existence. In Frafra v Boakye (1976) the Court of Appeal implied a
warranty of fitness-the tractor to haul timber should be fit for that purpose.
ii. implied by Statute (a number of statutes contain implied terms. e.g. Sale
of Goods Act, 1962 (s. 15)– that the delivery of goods by the seller shall be
concurrent with payment for those goods by the buyer).The Conveyancing Decree
(1973) also implies various covenants for both transferors and transferees. By way
of lease for valuable consideration, there shall be implied the covenants relating to
payment of rent, repair of adjoining premises, alteration, illegal or immoral uses,
nuisance, annoyance and yielding up the premises.
iii. implied by Custom – a) when a course of dealing between the parties
establish a pattern of consistent arrangement which can be deemed to apply to their
continued dealings or - b) when the practice in the industry is to incorporate
various well-known terms in their business transactions. E.g. British Crane Hire
Corp. Ltd. v. Ipswich Plant Hire, Ltd.(1974) by industry practice it was for the
hirer to indemnify the owner for damages to equipment under hire.
iv. implied by the courts – in Arkurst v. Ghana Museum and Monuments
Board, (1971) Abban J. held that there is in a contract of service, an implied term
imposing an obligation on an employee to serve his employer with good faith and
fidelity, breach of which constitutes grave misconduct.The courts may imply
conditions and warranties in a contract as in Bartholomew 7 Co. v Adu-Gyamfi
(1962)
Note however, implied terms may be made by the parties to be subject to
express terms as in Bartholomew 7 Co Ltd. v Adu-Gyamfi (1962) –all implied
terms may be excluded or modified by an exempting clause if apt words are used.
Self-assessment Questions
1 Sam lived in a block of flats. The lease was silent in respect of who was
responsible for the repair and maintenance of the shared parts. When the landlord
refused to repair the lighting and lift, Sam successfully sued the landlord. The court
held that there was an implied duty in the contract to repair and maintain the
common parts. Why was the term implied?
[A] The term was implied by fact under the “officious by stander test”.
[B] The term was implied by fact since it was necessary to give business
efficacy to the contract.
[C] The term was implied by law because the court considered it the landlord’s
duty to maintain the shared part
[D] The term was implied in fact because it was reasonable
• Continued Questions
2. Bella viewed a flat and agreed to take the tenancy from the day after the present
tenants left the flat. Bella signed the tenancy agreement two days before she was
due to take up occupation of the flat. The following term was included in the
agreement: The tenant accepts the flat in good order. On entering the flat she found
the flat was not in good condition. The flat was dirty, the carpets were heavily
stained, the cooker was filthy and some of the curtains were missing. Bella wants
to end the contract. The landlord is agreeable to putting the flat in order but does
not accept that the contract comes to an end. Which statement is correct? (Ignore
any landlord and tenancy legislation.)
[A] There has been a breach of warranty and therefore Bella cannot end the
contract.
[B] There has been a breach of condition and therefore Bella can end the
contract.
[C] This is an in-nominate term and in the circumstances Bella could end the
contract
[D] This is an in-nominate term and in the circumstances it is unlikely that
Bella could end the contract.
Lecture 4
VITIATION OF CONTRACT
Factors that invalidate an apparent or purported contract are
called vitiating factors. These include:
4.1 Mistake of Fact - voidable
4.2 Misrepresentation - voidable
4.3 Fraud - voidable
4.4 Incapacity - voidable
4.5 Duress - voidable
4.6 Undue Influence - voidable
4.7 Public Policy - void
4.8 Illegality - void
4.9 Unconscionability - void
A contract may be declared void or voidable if found by the court to be vitiated.
A void contract does not have, and never had any force or effect. A voidable
contract is valid until steps are taken to set it aside by the court of law. Public
Policy and illegality makes contract unenforceable and therefore void. Most
mistakes, and other vitiating factors make contracts voidable. Absence of
consensus makes contract void.
4.1 Mistake of Fact
There are 3 types of Mistake
1. Unilateral Mistake – It occurs when one party (A) is wrong about an aspect of
the contract and the other party (B) is aware that A is mistaken. If B is not aware
that A is prevailing under a wrong perception, the law does not consider that there
is a mistake.
The effect of unilateral mistake in contract is that it has no consequence.
2. Cross – Purpose Mistake - where the parties are thinking of different things,
and yet both are unaware that they are on different wavelengths. E.g. A describe
two storey building and B is seeing two floors (three storey) building. The parties
are not ad idem, there is no consensus and no contract. The contract is void.
3. Common Mistake –where the contracting parties made an identical error about
the same subject matter. This type of mistake makes the contract void.
• Mistake generally makes a contract voidable but not void.
• Mistake relates to a fact not to the legal effect of a document or transaction.
See, Buaful v Construction Pioneers [1982-83] 2 GLR 1058 (voluntary
payment under a mistake of law could not be recovered.)
4.2 Misrepresentation
• It is a false statement of fact that is intended to induce and in fact induces
another to enter into the contract.
• In Japan Motors Trading Company Limited v Randolph Motors Limited, it
was held that Misrepresentation is a false statement of fact that is intended
to induce and in fact induces another to enter into a contract.
• It is untrue representation. Thus, a statement of fact made by one party to the
contract which is not true but had the intention to and did induce the other
party to enter into the contract.
• Misrepresentation is legally harmless if the plaintiff:
(i) Never knew of its existence (ii) did not allow it to affect his judgment or
(iii) was not aware of its untruth.
3 facts about Misrepresentation
1. If statement is one of opinion only and not a statement of fact even if false,
there is no misrepresentation.
2. If statement relates to laws or legal effects, rather than it being a statement fact
there is no contract.
3. If even the statement was false, but the one alleging misrepresentation was not
aware of the statement or did not rely on it, then there is no misrepresentation
because there was no inducement.
4.3 Fraud (Dishonesty)
• A contract induced by fraud is not void but only voidable at the election of
the party defrauded, and once the party has elected to abide by the contract,
being aware of the fraud, he cannot afterwards rescind it.
• Fraud is defined as a false statement made knowing, or without belief in its
truth or recklessly.
• Fraud ommia vitiate: Fraud vitiates everything.
• Fraud must be specifically pleaded and strictly proven.
• Fraud can sometimes be presumed when consideration is woefully and
shockingly be inadequate. It can however be rebutted by evidence.
• One seeking to avoid the contract must act timely upon discovering it.
• Fraud is dishonesty and for one to rely on it there must be proof of reliance.
It is also importance for one to mention the suffering as a result of the
reliance.
4.4 Incapacity – see slide 2.6 above
4.5 Duress
It is actual or threatened physical violence to unlawful constraint of a contracting
party which will suffice for the purpose. It is available to nullify the consent and
thereby nullify the contract where there has been coercion of will.
It must be established:
• whether the person relying on the plea had acted voluntarily or not by
considering;
• whether the person alleged to have been coerced did or did not protest
• whether at the time he was allegedly coerced into making the contract, he
had no reasonable alternative but to agree
• Whether he was independently advised
• Whether after the contract he took steps to avoid it
• Duress must actually exist at the time of making contract.
4.6 Undue Influence
• Influence connotes the power to affect another’s character, beliefs or action
through admiration, exceptional fiduciary relationship, fear etc.
• Influence is ‘undue’ if it is improper or more than is right.
• Undue influence is an equitable defence to avoid a contract where the
relationship between the contracting parties is such that one party, being the
dominant party, will presumably or in fact have taken advantage of his
dominant position over the subservient party. Whereas duress deals with the
coercion of the will, notably threats and force, Undue influence deals with
the improper manipulation of a contracting party.
• There are two options available when undue influence is detected;
• Repudiate the contract at once (or soon after) - the undue influence then
ceases to operate on him.
• Affirm the contract by express words or unequivocal acts.
(i) Presumed Undue Influence: It arises by operation of law once certain facts are
established.
Hemans v Cofie, per Acquah JSC
….in a plea of presumed undue influence, the unfairness of the transaction is a pre
requisite for a successful action.
There is usually a subsisting trust, confidential or fiduciary relationship between
parties, of one party being dominant and the other being subservient.
Examples: the Protected Class
Lawyers and Clients
Trustees and Beneficiaries
Doctors and Patients
Guardians and wards
School masters and students
Where an undue influence is presumed, the dominant party
may rebut the presumption.
(ii) Actual Undue Influence: It occurs when a party claims and proves that he
entered into a contract of the other contracting party against his free will and under
the direction and dominance of another person. The party alleged undue influence
ought to plead it.
4.7 Public policy
A contract is contrary to public policy if it offends against the public interest such
as if it:
• Promotes immorality, disorderly conduct, breaches of the peace or the
commission of a tort;
• Promotes invidious discrimination on the grounds of ethnic origin, race,
religion or gender;
• Discourages or prevents children from obtaining education;
• Stifles free and fair competition on the open market, i.e. restrains trade;
• Limits employment or occupational mobility;
• Injures the environment, or public health or safety.
• A contract that is contrary to public policy is unenforceable.
Case examples: Accra Brewery CoLtd. V. Guiness Ghana Ltd (1999)- per Abbab
JA – defendants entered into an arrangement with others which restricted trade...
4.8 Illegality
• A contract is illegal if what it intends to achieve or the means to achieve its
objects, are contrary to statute or judicial precedent.
• A contract that is illegal is void ab initio as in Elluah v. Ankumah [1968]
GLR 794. where however, it is not the entire contract that offends against
public policy or is illegal but only a portion of the contract, it is possible to
sever the offending portion and retain the balance.
4.9 Unconscionability
• Unconscionable transaction is one that is oppressive, grossly unfair or
patently unreasonable. Typically those between powerful parties on one
hand and poor and ignorant parties on the other hand. Numerous acquisitions
of land ad mineral concessions by Europeans from Africans for pittance
during the colonial periods were unconscionable transactions. The hallmark
o an unconscionable transaction is its one-sidedness.
• The relief to an unconscionable transaction lies in equity and in legislation.
• The court may refuse an order of specific performance if found to be
oppressive, e.g buying a property from a poor or ignorant seller at a price
that is considerably below the market value,
• Test Q. When is there an Enforceable Contract ?
• Is it when the parties agree on the business terms or when the legal terms are
finalized? Under contract law, there is no contract until all of the material
elements of the deal have been negotiated and agreed upon. So, a legal
dispute over whether and when a contract exists will boil down to whether
any of the outstanding legal issues are material elements of the deal.
• Let's say that Sam refuses to budge on any of the terms of his standard
lease, but Jane has already given notice at her current apartment because she
believed her handshake with Sam created a contract. Whether she has a legal
right to force Sam to go through with the agreement or pay her damages
depends on whether the attorney fee and insurance provisions are material
elements of the deal.
• If the parties have agreed to the business terms of the deal and want to
proceed before hammering out the legal details, they can condition the
release of funds on the execution of a written agreement. This avoids the
problem of having to chase after money you laid out if the deal never
materializes. If the negotiations fall apart, everyone gets back what they put
in and moves on.
Lecture 5
DISCHARGE OF CONTRACT
• Discharge of Contract is a general term for the release of contractual
obligations to do anything further under the contract thus, when the parties
become freed from obligation.
• A contract is discharged when a party is lawfully free from obligations under
the contract. Thus when the obligations under the contract are in one way or
the other extinguished by lawful means a contract is said to be discharged.
• The general rule subject to exception is that literal compliance with the
terms of a contract will operate to discharge a contract.
• The lawful means by which one of the parties would be free from
obligations are:
5.1. by performance
5.2. by agreement between parties
5.3. by frustration
• The unlawful means of termination:
5.4. by breach of a condition
5.1 By Performance
Performance must be complete, precise and exact of entire contract terms.
There may be defences for non-performance including the following:
• Agreement
• Impossibility of performance and frustration events after contract.
• Impossibility of performance falling short of discharging frustration: e.g. due
to unforeseeable events.
• Contractual excuses for non – performance.
Substantial Performance is where a party executes a contract to a state where
fundamental requirements of the contract have been completed. For example,
where the construction of a road has been completed leaving out the planting of
grass to check erosion at one end. Again, where a building has been completed
leaving out minor works such as cleaning of site to be executed.
5.2 By Agreement
The obligations that come about by agreement can also be varied or terminated
by agreement.
• In Bilateral contracts, for discharge by agreement to be effective, the
variation must be by mutual agreement.
• Discharge by agreement means that the parties intend to free each other from
their contractual obligations, or one party intends to free the other from the
latter’s contractual obligations.
• This intention to relieve each other or to relieve one party is then manifested
in a subsequent agreement therefore merges as the latter agreement; the
subsequent agreement super cedes the former.
a. The intention of Agreement may be merely to vary or modify the terms of the
prior contract without altering them in substance.
b. The agreement may also intend to extinguish the original contract completely
and put an end to the contractual relations.
c. There could also be an agreement to waive of a contractual term by one party at
the request of the other.
5.3 By Frustration
• Definition: L. B. Curzon (Dictionary of Law) defines frustration as a
situation where there is an event or change of circumstances so fundamental
as to strike at the roots of a contract as a whole and beyond what was
contemplated by the parties. Such a contract is considered frustrated.
• A frustration may be caused by:
1. One’s own conduct or to the conduct of those to whom one is responsible.
However, a party cannot rely on a self induced frustration.
2. A thing or person essential to the attainment of the fundamental object which the
parties had in view is no longer available owing to extraneous cause.
3. The non-occurrence of some event which must reasonably be regarded as the
basis of the contract.eg non availability of land for the construction works.
4. Interference by the government in the activities of one or both of the parties.
• Section 1 of the Contract Act 1960 (Act 25) provides that all sums paid or
payable to any party in pursuance of the contract be recoverable from him.
• 5.4 By Breach of Condition
• It is the refusal or failure by a party to contract to fulfill an obligation
imposed on him under that contract. This may result from e.g. repudiation of
liability before completion, or conduct preventing proper performance.
• In construction contracts, a breach may arise if the contractor refused to
obey a proper instruction, e.g. to remove defective work or if work were not
completed according to the contract.
Q. Kwame hired a room to view the Hogbetsotso Festival which is held every year.
He hired the room for 12 day only. Unbeknown to both Kwame and the landlord
the Festival had already been cancelled for security reasons, Kwame is refusing to
pay the landlord for the hire of the room. Which of the following statements is
correct:
[A] The contract is frustrated
[B] The contract is void for mistake
[C] The contract is enforceable
[D] None of the above
Lecture 6
REMEDIES
If a contract has been breached, or if a breach is threatened or imminent, there
must be a remedy The under-listed remedies are available in
6.1. Damages
6.2. Quantum meruit
6.3. Money had and received
6.4. Specific performance
6.5. Re-instatement
6.6 Injunction
6.7. Rescission
6.8. Rectification
6.1 Damages
• Damages is the court’s estimated compensation in money for the detriment
or injury sustained by a claimer. It is a means of monetary award to place a
party of a contract in the position he would have occupied if he had not
suffered the wrong complained of.
• Damage is recoverable if it results either:
1. From the natural consequences of the breach or
2. From special circumstances of which the parties had actual knowledge and
which caused the breach to result in exceptional loss.
• Not every loss arising out of a breach of contract is recoverable in damages.
Thus a claim can be made for most, but not all, losses which stems from
breach of contract. Damages for breach of contract are recoverable only if a
cause between the breach and loss claimed is established. The courts
consider two principles in assessment of damages:
1. those losses which may arise naturally out of the breach
2. those losses which may reasonably be supposed to have been within the
contemplation of the parties at the time of the making of the contract.
6.2 Quantum meruit
Quantum meruit means ‘as much as he has earned’. An injured party in contract
may be entitled to claim for work done and services performed on breach of
contract. A claim of quantum meruit can be made in any contract where there is no
express agreement as how much the contractor is to be paid for his services or his
remuneration is not fully provided for. Thus, where there is an express stipulation
as to payment a claim on a quantum meruit will not lie except;
1. Where the other party has prevented him from completing
2. Where the claimant has conferred a benefit upon the other and the benefit has
been accepted
3. Where work has been done under void contract
4. Where work is outside the original contract that binds the parties (if work
cannot be treated as variation to the original contract)
5. Quantum meruit operates as a legitimate remedy in contract and sometimes as a
quasi-contractual remedy.
6. Under a purely contractual arrangement quantum meruit may be used to recover
a reasonable price or remuneration where a contract has been made for the supply
of goods or services and no precise sum has been fixed by the agreement
6.3 Money had and received
• According to Annan JA in Frafra v Boakye [1976]
“where money has been deposited or paid on a contract and before any benefit has
been derived by the payer or any part of the contract has been performed by the
other party, the consideration wholly fails, an action for money had and received
may be maintained to recover the money so deposited or paid.”
• Simply put:
An action for ‘money had and received’ is one for a court order compelling a
defendant to refund monies by or on behalf of the plaintiff to defendant.
The ground for the claim for refund being that the defendant has not at all
performed his contractual obligation.
It is quasi-contract and equitable imposition created by the parties themselves.
6.4 Specific Performance
• It is an equitable remedy and discretionary. It is an order of the court
compelling a party to a contract to perform exactly what he had promised to
do. It thrives on the basis that in some circumstances the payment of
damages would not provide an adequate remedy. For example a contractor
who fails to build after payment of advance may be compelled to perform
instead of only claim of damages.
• Specific performance may be ordered if the following conditions are
satisfied:
1 The claimer has a substantial interest such that damages would not compensate
him
2. The defendant is in possession of the land so that the claimer cannot do the work
3. There is no consideration, even if the contract is under seal
4. Contract for the sale of goodwill of a business without the premises
5. Contracts in which only one side can enforce the agreement e.g. a minor’s
contract
6.5 Reinstatement
• A reinstatement order is a special type of specific performance, but it is used
in employment contracts to order that a party who has been wrongly
dismissed be reinstated to his position i.e. he/she be re-employed.
• The rule is that a court will not just order specific performance of a contract
of employment, unless they should turn contract of service into contract of
slavery. Similarly, if an employee cannot be compelled to work for an
employer, an employer too cannot be compelled to keep an employee.
• An award of damages is the normal remedy in a wrongful dismissal case, not
a reinstatement order.
• However, if one is wrongfully dismissed from a statutory corporation, a
reinstatement order may be granted, as was in the case of Nyarko & Another
v Bank of Ghana [1973]
6.6 Injunction
• It is a court order directing a person to refrain from doing or continuing to do
an act complained of, or restraining him from continuing an omission. There
are several types of injunction:
Main types of Injunction
a. Prohibitory Injunction– forbidden continuation or omission of a wrongful
act. In contract law it is granted only in the case of negative promise i.e.
what a party has promise not to do. A contractor who has promise not to
deposit gravels at particular spot but continue to deposit them there may be
forbidden from continuing such negative act. It is sometimes equivalent to
specific performance.
b. Mandatory Injunction – Restraining continuation of omission by direct
performance of positive act. This is restorative in its effect, not merely preventive.
It directs the party to take positive steps to undo what he has already done in
breach of the contract. E.g. asking a contractor to remove gravels deposited at a
particular which is in contrary to agreement.
c. Interlocutory Injunction – Temporary injunction intended to maintain the
status quo until trial. It is granted where there is a serious, not frivolous, for trial or
unless granted something disastrous may be caused. A contractor building on a
disputed land may be asked to suspend works until trial of the action.
6.7 Rescission
• Rescission is sometimes known as repudiation
• It is a remedy granted to one contracting party to avoid or set aside a
contract A party intending to rescind must notify the other party.
• A rescission ab initio results in the contract being treated as though it had
never existed.
• Grounds that may justify a rescission include:
1. Fraud;
2. Misrepresentation; and
3. Mistake.
• Since it is a unilateral remedy available to one party, he or she has to notify
the other party that
• he/she has rescinded.
6.8 Rectification
• Rectification is an equitable remedy
• It is the power of the court to correct or alter a contract document if by
mistake the document does not conform to the actual agreement reached
between the parties.
• There can be no rectification of an error in the transaction but only of the
way in which the transaction was put into writing.
• One cannot resort to this remedy to vary the terms of a contract.
For example: if the purchaser orally agrees with the vendor to buy “30 exercise
books” for GHc100.00 but in preparing the written contract 300 exercise books is
inadvertently or even deliberately substituted by the purchaser and the written
contract containing the error is inadvertently signed by the vendor, the vendor is
nevertheless able to apply to the court to order that the written contract be amended
to read “30 exercise books”.
NOTE: Students are requested to look for the following documents:
I. Contract Law 1960 (Act 25) in support of the materials provided here.
2. Sales of Goods Act, 1962 (Act 137)
3. Hire Purchase Act, 1974 (NRCD 29