Law of ContractBy

His Lordship Justice Francis Obiri

LAW OF CONTRACT

• It is a legally binding agreement between two or more parties that can be enforced in a Court of Law. All contracts are agreements but not all agreements are contracts. Agreements which are not contracts can be termed as social agreements or domestic agreements.

• A husband promised his wife to be given a household allowance to support her daily expenses. For example, if a husband promise to pay his wife allowance daily but the husband pays for some time and stop, the wife cannot sue the husband for breach of contract. It has been held that it was a social agreement because none of the parties has the intention to create any legal relationship.

ELEMENTS/ INGREDIENTS/ESSENTIALS OF A VALID CONTRACT.

• A contract can only be binding and enforceable, if the following elements are present.

• Offer and Acceptance.

• Consideration

• Capacity

• Intention to create legal relationship.

• Legality.

• Offer and acceptance: The parties who form the contract must agree and have a common mind to agree to enter into a contract. The minds must be equal and think of the same thing.

• CONSIDERATION: a consideration is the promise made by one party under the contract in exchange for another party’s promise. It is an interest, benefit, loss, detriment accrued from one party to the other. For example, payment of money for something purchased. It can be in cash or kind.

• CAPACITY: the term “capacity” as used in law means the ability of a person to incur legal liability or to acquire and enforce legal rights. In general, all persons of whatever nationality or sex may enter into contracts they want but to this general rule there are certain exceptions. Some group of persons such as infants, persons of unsound mind and drunkards are under disability and there are special rules governing these persons whose capacity to contract is limited because of these rules. The parties who establish the contract must have contractual capacity to enter into the contract. These parties can be both natural and artificial persons. Natural and artificial beings all have full contractual capacity to enter into any contract but there is an exception in the case of children.

• A child is a person who is below the age of 18 years. A child does not have contractual capacity to enter into certain types of contracts, but they can enter into contract which are necessary (necessary goods are goods to the actual requirement of the child such as food, clothes and shelter). Apart from children, parties who do not have contractual capacity are insane persons, drunkards, among others.

• INTENTION TO CREATE LEGAL RELATION

• The parties must have at the back of their minds that each can enforce the contract in the event of a breach of the contract. When the parties do not have that intention at the time of the making of the contract, the court cannot enforce the contract whenever there is a breach. The court will classify such contract as a social contract.

• LEGALITY

• A contract which has been formed must be within the operation of the laws of the country. If it is illegal, the law courts cannot enforce it. For instance, selling of Indian hemp or cocaine or contract for prostitution cannot be enforce in Ghana.

TYPES OF CONTRACTS

• There are three main types of contract. These are simple contract, specialty and contracts of records.

• Simple contracts: this is a contract which may be written or oral (the contract made by the words of the mouth).

• Section 11 of the Contracts Act says “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”. All the simple contracts should be supported by available consideration.

• Specialty contract: this is a type of contract that is written, signed, sealed and delivered to the parties. The contract become binding to the parties as soon as the documents are delivered to the respective parties unless the contract is held in an “escrow” (the escrow means until the actual event happens). For example, contracts between States or big entities.

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• Contracts of records: this is written in the books of the court in respect of judgment which has been delivered between the parties. Anyone who breaches such contract after the judgment of the court can be cited for contempt.

WAYS BY WHICH A CONTRACT MAY BE FORMED

• The express contract by the parties- when the individuals expressly agreed upon the terms of the contract. The parties may state clearly and precisely the obligations expected from both parties.

• Oral contract- this is where the contract is created by the word of mouth or orally stating the obligations required from each party. It is important to support the oral contracts by valuable consideration.

• Contract created by implication or conduct- This contract is created by implication of conduct of the parties which is measured by the behaviourof the parties under the contract. Example, if a person wants to board a taxi to his or her destination, as soon as the person board the taxi, the offer has been made and the law expects the taxi driver to send the passenger to his destination and the passenger to also pay the normal fare.

• Contract created by written or deed – this is where the parties under the contract put the contract into written form and signed by the parties concern, sealed and delivered to the respective parties. As soon as the documents are delivered to the parties, the contract takes legal effect unless the contract is held in an escrow (meaning until the actual event happens ).

• Contract of records – this contract is formed after the court proceedings or judgment to create the contractual relationship between the parties to fulfill certain legal obligations deemed just to each party.

TYPES OF CONTRACT

• Valid contract; it is a contract which meet all the essential legal requirements and can be enforced in a court of law.

• Void Contract. It is a contract which has no legal effect. Therefore, any money paid under it may be returned .It is void ab initio, that is, the defect begin from the initial stage. No legal effect is acquired under such contract. For example a tenant who sells the house he is staying without the consent of the landlord.

• Voidable Contract: voidable contract is the one which is binding but one of the parties reserves the right to repudiate or rescind it because his consent was procured by undue influence, mistake etc. Such a contract binds the parties until it is repudiated by the injured party.

• Unenforceable Contract: this contract is valid but cannot be enforced in the law court. This may be due to the technical defects.It may be due to lapse of time or change in laws etc.

OFFER AND ACCEPTANCE

• An offer is an expression of willingness to contract on specific terms, made with the intention that it is become binding as soon it is accepted by the person to whom it is addressed.

• A contract is made by an offer or promise made by one person to another together with unconditional acceptance of the offer by the other person. Therefore, if the acceptance is conditional, no contract arise until the condition has been fulfilled. A conditional acceptance is also called a counter offer.

• A contract comes into legal effect when an offer made by one party is accepted by the other. The party who purports to give an offer is known as offeror and the party to whom the offer is made is known as the offeree.

• An Offer may be defined as a unilateral communication by one party to the other of his desire to conclude a contract with him. An offer may be made to a single person, a group of persons or to the public at large.

RULES GOVERNING OFFER AND ACCEPTANCE

An offer and acceptance must have the following rules:

• An offer and acceptance can be made partly oral or partly written.

• An offer and acceptance can be made by the parties to the contract or their authorized agents.

• An offer must be communicated to the offeree.

• The offer and acceptance cannot remain permanently. Sometimes, the offeror can change his mind and revoke the offer. The revocation will only be operative if there has been no acceptance. After the acceptance. The offeror cannot revoke his offer.

• The offer and acceptance can be made by implication of conduct or by expressed words by the offeror. For example, if a bus company’s part that it will carry passengers at the published fare from A to B, then when a person board the bus, there is implied acceptance of the offer.

• The offer and the acceptance can be terminated if the offeree makes a counter offer.

• Every simple contract is made by an offer or promise made by one person to another together with unconditional acceptance of the offer by the other person.

• A mere statement of price is not an offer.

• The offer must be definite but it may be made to the public at large.

COMMUNICATION OF AN OFFER

• The offer must be communicated to the offeree for the offeror to know whether his offer has been accepted. The failure to communicate would not provide enough grounds to sue for breach of contract. An offer made to the whole world at large need not to communicated before acceptance.

• In the case of Carlill v. Carbolic Smoke Ball Co., the company advertised that they have produced a drug which can cure influenza, if one buys it and uses it accordingly to the prescriptions and still contract the disease, they have deposited an amount at the bank to be given to the victim.

• Mrs. Carlill bought the drug and used it according to their prescription but still contracted the influenza. She therefore sued the company for breach of contract.

• It was held that, Mrs. Carlill was entitled to the money at the bank. The company argued that Mrs. Carlill did not communicate to them before acceptance, but the court decided that the offer made to the world at large need not be communicated to offeror before acceptance.

OFFER AND INVITATION TO TREAT

• A mere statement of an offer or an invitation to treat should be distinguished from an offer capable of acceptance. For example, when goods are exhibited for sale in a shop window and marked with prices that is not an offer to sell at the quoted price. It indicates an invitation to people to generally come to the shop to make offers to buy. The shop keeper does not undertake to sell the goods and can always refuse to accept the offer made by the buyer.

AUCTION SALE

• It does not constitute an offer capable of acceptance but rather invitation to treat. A declaration of intention for the auction sale to be conducted at a particular place and later cancelled does not constitute an offer capable to accept. It is rather an invitation to treat and the person who has traveled to the place cannot claim his or her traveling expenses.

• In the case of Harris v. Nickerson, an auction sale was advertised and later cancelled. The plaintiff who had travelled to the place of the sale sued claiming his travelling expenses as damages. His action failed for the advertisement was not an offer which he could accept by making the journey.

• TENDER

• An invitation for tender is an invitation to treat. A tender is an offer. The general rule is that ,the tenderer (that is, the person making the tender must disclose all the material facts about the transaction). If a tender is accepted and contract awarded, a revocation will give rise to breach of contract.

REVOCATION OF AN OFFER

• An offeror can change his mind and withdraw the offer. Revocation is valid if there has been no acceptance in transaction conducted by correspondence. Where however the letter of acceptance was posted before the offeree learnt of the revocation. It was held that the revocation has no legal effect. The question that arises is whether the post provision in Ghana is affected by English law. The position of the Ghanaian law is that a revocation of an offer will terminate the offer even if the offeree letter of acceptance has been posted, provided that the said letter has not been delivered to the offeror or his agent.

• The revocation of a contract must actually be brought to the notice of the offeree. However, it would be sufficient if the offeree learns of the revocation from another source which he believes to be reliable.

• In the case of Dickinson v. Dodds: A entered into a written agreement to sell property to B, the document stating that, “this offer would be left over until Friday 9am. A, contracted to sell the property to another person on Thursday. B hearing this from C delivered the letter of acceptance to A, offer on Friday 7am.

• It was held that B could not accept A offer after he learnt that he has revoked the sale of the property to another party.

• Revocation is effective only upon actual notice of it reaching the offeree. In the case of Byrne v. Van Tien Hoven; the plaintiff posted an offer letter to the defendant residing in another place on 1st October. On 8th October, the offeror posted a letter of revocation of the offer. On 11th October, the offeree sent the telegram accepting the offer. On October 20th, the offeree received the letter of revocation dated. It was held that the offeror revocation was not operational because it did not reach the offeree until after his acceptance on 11th October.

TERMINATION OF AN OFFER

• An offer cannot remain permanent throughout but sometimes, the offeror can change his mind and withdraw his offer and bring it to an end. The following are the circumstances which can bring an offer to an end.

• The offer can be terminated by revocation. This happens when the offeror changes his mind and withdraw the offer. This will be effective provided there has been no acceptance. If there is an acceptance the offeror cannot revoke his or her offer.

• An offer may cease to exist if it is not accepted by the offeree within a reasonable period of time.

• In Ramsgate Victoria Hotel v. Montefiore; M offered to buy shares in Rs Company on 8th June but did not receive any respond until 23th, November when the letter of acceptance was sent to him, he refused to pay for the shares. The court held that no contract exists.

• An offer is rejected, if the person to whom it is made refuses to accept out rightly or made a counter offer. The counter offer occurs where the offeree rejects the original offer.

• Bankruptcy; the offer comes to an end when the offeror becomes bankrupt and is unable to settle his indebtedness or commitment as soon as it falls due.

• Lapse of time or expiration period. The offer ceases to exist when a particular period fixed by the offeror expires or lapsed. The offer cannot be continued at the end of that stipulated time period.

• The death of the offeror: the death of the offeror brings the offer to an end. This usually takes place where the deceased personal representative does not have any interest in the offer. It also normally happens where the parties are natural persons.

• Insanity of the offeror: this is where the offeror becomes mentally in capacitated or incapable to continue with the offer. This means the offeror cannot reason for himself and therefore terminates the offer.

• The happenings of an event which renders the offer illegal can bring the offer to an end. For example flood, earthquake, fire outbreak etc.

ACCEPTANCE OF AN OFFER

• Acceptance occurs when the offeree’s words or conduct give rise to the objective inference that the offeree assents to the offeror’s terms

• The acceptance of an offer completes the contract and the place where the acceptance is made constitute the place of the contract. If negotiation takes place between parties in different countries, this rule helps to determine which system of law applies. Acceptance may take the form of spoken words or written or may be implied by conduct as where the offeree performs some specific acts required by the offeror. There must be some positive act of acceptance.

• In Felthouuse v. Bindley: negotiation was taken place regarding the price of a horse. The plaintiff eventually wrote “if I hear no more about him, I consider the horse mine at £30”. The defendant did not reply. The court held that although he had intended to sell at this price, his silence would not constitute acceptance and there was therefore no sale.

COMMUNICATION OF AN ACCEPTANCE

• As a general rule, an acceptance must be communicated to the offeror. There is no contract until the offeror knows that his offer has been accepted. The acceptance must be communicated by the offeree himself or his authorized agent.

• In the case of Powell v. Lee, the plaintiff had applied for a post as headmaster. The school managers and the principal decided to appoint him. One of the managers without authority from the others told him unofficially.

• . Later, the managers changed their mind. The court held that they were free to do so. There was no contract with the plaintiff because the acceptance was not communicated by the offeree or the managers.

CONSIDERATION

• Consideration is the price for which the promise of one party was bought by the other party. It is something given for something in return.

• Consideration is one of the elements which a plaintiff must prove in order to establish that there exist a contract. Consideration is defined in terms of benefit and detriment. The idea means that, the plaintiff must prove either benefit conferred on the defendant or detriment suffered by himself. Valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to one party or for some forbearance, detriment loss or responsibility given suffered or undertaken by the other.

TYPES OF CONSIDERATION

• Executed consideration. Consideration is executed when the promise is made by one party is fulfilled waiting for a promise by the other. In such a case, each promise is the consideration for the other. Consideration is executed when an act is performed expecting another party’s promise to be performed. When the consideration is executed, liability is outstanding on one side. This type of consideration is binding to all parties.

• Executory consideration. Consideration is executory when the promises are made by the parties. The contract is binding as soon as the promises are exchanged. The liabilities of the parties are outstanding to both parties to be fulfilled and binding to all parties

• Past consideration. This is the consideration where one party has performed an act before the other party promise was made. That act cannot be consideration to support the promise. For instance, if “A” offer to drive “B” from Accra to Kumasi in his motor car, on arrival in Kumasi, he promised to pay GH100 to A towards the cost of petrol. B’s promise is not binding because the consideration to which it was given is past.

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RULES OF CONSIDERATION

• Consideration must be real or sufficient but need not be adequate. This means that it must have value. It matters not how small such a value is so long as it is worth something.

• It must be noted that the performance of a pre-existing obligation does not amount to consideration. But where a party does more than he is bound to do, there may be consideration.

• An existing contractual obligation to a third party may amount to consideration

• Consideration need not be adequate: the general rule is that the court would not concern himself with the adequacy of consideration. The law allows the parties freedom to make their own bargain freely. Once it is established that a bargain was freely reached it will be presumed that each party stipulated according to his wishes at the time. The inadequacy of the price maybe immaterial to the existing of binding contract.

• Consideration must not be past, where one party Has performed an act before the other parties’ promise was made, that act cannot be consideration to support the promise.

• Consideration must be legal: where the consideration is either contrary to the rule of law or immoral, the court will not usually allow an action on such a contract. Example paying for the supply of indianhemp.

• Consideration must not be vague: the general rule is that the promise by a contracting party must be clear and definite. A vague promise is not binding unless the vagueness can be cured by the implication of the terms.

• Consideration can be supplied by a third party who may not be part of the agreement.

• Consideration can be waived or redued by a third party for it to be valid. If Kofi is under a contractual obligation to pay Ama the sum of GH 1000 in London on 28th June and Ama requested Kofi to pay GH800 in London on 2nd June saying she would take the lesser sum in full discharge of GH1000. Ama will not further claim the balance against Kofi if he complies.