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