COMMERCIAL LAW 1 20112012 ACADEMIC YEAR LECTURE 1

COMMERCIAL LAW 1 2011/2012 ACADEMIC YEAR LECTURE 1 UGBS, 20 th SEPT 2011 Rowland Atta-Kesson Esq.

FORM OF CONTRACT • English law recognizes only 2 kinds of contract, – The contract by deed • A contract made by deed derives its validity neither from the fact of the agreement nor because it is an exchange but solely from the form in which it is expressed. – The simple contract • A simple contract as a general rule need not be made in any special form, but requires considerations

Merit of Form • Evidential function – Writing facilitates and renders certain the existence of a transaction and its terms as well as identifying the intention of the parties • Paternalistic and cautionary function – It helps to ensure that a party deliberately considers whether to contract and to prevent people accidentally binding themselves on impulse or because of improper pressure • Eg classes of contractors considered to be weaker, such as tenants, employees, borrowers, and consumers may be protected by requiring a written agreement and clear language; there may be a statutory ‘cooling off’ period in some of these cases.

Demerits of Form • If the form is complex, it can be inconvenient, mysterious, and inaccessible to ordinary people • Formal requirements may also affront social and commercial attitudes to promises (‘my word is my bond’) since requiring, for instance, a deed or writing implies mistrust. • The result of either or both of these may be that the required form is not used, whether deliberately or by accident, and thus the requirement can have the effect of reducing the security of transactions.

• Contracts may be oral • CHATLANI v HAROUTUNIAN– Defendant employed the plaintiff as storekeeper and later manager of his retail store in 1959. The contract of employment was oral. He was entitled to monthly salary and leave. No term about termination of the contract. He was dismissed in 1969 for shortages in stock and he sued. – HELD since there was no express term dealing with the conditions under which the services of the plaintiff could be terminated, his employment was, in the absence of misconduct, determinable at any time by either party on giving reasonable notice.

• HAMMOND v. AINOOSON – The defendant’s fishing boat was damaged at sea and was rendered unserviceable in 1965 – The defendant verbally agreed with the plaintiff for the boat to be sent to the Boatyard Corporation, Tema, for repairs. – The defendant also requested the plaintiff to supervise the repairs for a fee of ¢ 3. 00 a day. She was to be present at the Boatyard during the repairs – An attempt was made to draw up a written contract but the defendant promised to abide by the terms whether they were reduced into writing or not. – After the repairs, the parties also agreed that the plaintiff was to sell the fish that was to be caught. – When, later defendant gave that right to another woman, the plaintiff sued – HELD there was a contract between the parties resulting in legal obligations which could be enforced. Even in the absence of such a contract the plaintiff would have been able to recover in quantum meruit.

• Domins Fisheries Ltd v. Bremen-Vegesacker Fisheries – The defendants, the owners of a foreign fishing vessel, The Paderborn, offered to sell the vessel to the plaintiffs, a fishing company, for ¢ 30, 000. 00 after a lengthy discussion at a meeting held between the solicitors of both parties. – The terms of the sale were verbally agreed upon at the meeting where the plaintiffs, to whom the vessel was of special interest and value, accepted the offer through M. , their solicitor.

• NOTE • It is advisable to have the K in writing. Why? • In case of dispute, one has to prove existence of the K and the contents of the K • Some Ks are required by law to be in writing

Contract for with which writing is required • In some simple contracts, statute imposes (in addition to the requirement of consideration) the necessity of some kind of form, such as writing either as condition for their existence or for proving the contract.

1. The Bills of Exchange Act requires that a bill of exchange or promissory note must be in writing 2. Contract of marine insurance are void unless made in writing 3. Consumer credit agreements, e. g. hirepurchase or loan agreement must be in writing and be signed by the hirer or debtor 4. Contract for the sale of land must be in writing

5. Electronic contracts – Where contracts are made by e-mail or by trading on a website, any requirement of writing will normally be satisfied – So long as it satisfies the standard common law test of authenticity, the requirement of a signature can be satisfied, by e. g. a digital signature or by typing a name into an electronic document • PEREIRA FERNADES SA v MEHTA [2006] 1 WLR 1543 – The decision in this case was that the automatic insertion of the name of the person from whom an e-mail has been sent does not constitute a signature. • Section 10 of the Electronic Transactions Act, 2008 (Act 772) – Where a law requires the signature of a person, that requirement is deemed to be satisfied in relation to an electronic record if a digital signature is used

• ELLUAH v ANKUMAH – K of guarantee held void for want of writing • BOOHENE FOODS LTD – Held that though writing is necessary no particular form needed • DEEGBE v NSIAH – Section 2 of Conveyancing Act, provides that no contract for the transfer of an interest in land shall be enforceable unless it is in writing – Held that oral agreement to sell house not enforceable • DJAN v. OWOO-Edusei J said; – K in writing must • • Name parties Property transferred Purchase P Signature by Dff

CONTRACTUAL TERMS • By terms, means the obligations undertaken, and representations made in respect of discharging the obligations • Distinguish this from mere puffing or sales talk • K terms may be conditions or warranties • Condition is a central, fundamental term of the K • Warranties creates minor obligations

• FRAFRA v BOAKYE – tractor could haul 30 to 40 logs of timber a day. – Held breach of warranty • Subject matter of a K is a condition but the combined effects of the common law and equity is that quality, quantity and time for performance are warranties • Parties may however elect to make any term a condition

Express and Implied terms • Expressly agreed by the parties – Terms are clearly discussed and agreed to by the parties either orally or in writing • Implied by the parties – Terms not expressly agreed to but which if brought to the parties’ attention they would have agreed to the Moorcock – Frafra v Boakye, CA implied a warranty of fitness

• Parties to the contract may choose to make – Express terms prevail over the implied terms – Express terms exclude implied termed • BARTHOLOMEW & CO LTD v ADU-GYAMFI, Korsah CJ – “all the implied terms however are subject to the express terms of the agreement and within limits they may therefore be excluded or modified if apt words are used provided the party relying on such exempting clause carries out his contract in its essential respect, in other words, he does not commit a breach fundamental to the terms of the contract”

• Implied by courts – BUTT v CHAPEL HILL PROPERTIES • SC held that there was, from the conduct of the parties, an implied loan transaction between the plaintiff and the 1 st def – CHANTLANI v HAROUTUNAIN • Absence express agreement, notice of termination of employment of managerial rank was 3 months – SOWAH v BHC • SC noted that in construction contracts in Ghana, prices of materials were so unstable that the building trade had adopted a practice of varying the contract price to reflect current market prices

• Implied by statutes – Sale of Goods Act, • Sections 9, 13, 15 etc – Conveyancing Act • Sections 22, 23 • Implied by customs – SOWAH v BHC

PAROL EVIDENCE • Where the parties put their agreement in a written document, the question arises whether extrinsic evidence may be led to established the existence of a term. • That barring fraud, parties to a K cannot lead oral evidence to contradict, vary, add to or subtract from the terms of their written K • WILSON V. BROBBEY – Dff admitted signing invoice but that he was signing as guarantor for some one else – Oral evidence is admitted to explain but not to contradict the circumstance and terms of a document-the ct is to consider the totality of the evidence, both oral and documentary before deciding • ADDISON v. A/S NORWAY, Annan JA – “oral evidence in the case has to be viewed against the background of the documentary evidence so copiously provided by both parties”

Exception to the Parol Evidence • PETERS v PETERS, Crabbe JSC – “to this principle or doctrine certain exceptions are well recognized. It only applies to clear and unambiguous statements and does not debar a party from setting up fraud or illegality. It only applies between parties tot eh deed and their privies. Finally it only applies to actions on the deed and not on a collateral transactions”

EXEMPTION CLAUSES • Contracting parties may incorporate terms to abridge their rights and/or limit their liabilities to each other, or one party may agree to accept a reduction in liability by the other party. – INUSAH v DHL WORLDWIDE EXPRESS • Absent fraud, a signed document containing contractual terms is binding on the party of full age and understanding • Out of $6000 worth of travellers cheques only $1500 delivered to bankers in abroad • Meanwhile, airbill limited DHL liability to only $100 which pff signed.

Types of Exemption Clause • Litigation-limiting clauses – Eg arbitration clauses or other grievance procedures • Liability limiting clauses – Used in storage (bailment) carriage eg Inusah case • Implied-term-modifying clauses; and – Eg “subject to any agreement to the contrary by the parties, the following provisions shall apply” • Restrictive covenants – Typical of contract of employment; not to operate in the same industry for say 5 years

Construction of Exemption Clauses • • The reasonable clause rule The four corners rule The repugnancy rule; and Contra proferentem rule – PRAAH & ORS v ANANE

VITIATING FACTORS

• A void contract has no binding effect at all and in reality the expression is a contradiction terms. • A voidable contract is binding but one party has the right, at his option, to set it aside. • An unenforceable contract is valid in all respects except that it cannot be enforced in a court of law by one or both of the parties should the other refuse to carry out his obligations under it. E. g. Contracts of guarantee are unenforceable unless evidenced in writing.

• A contract may be vitiated by – Mistake (including non est factum) – Undue influence – Duress – Public policy or illegality

• Mistake may be –Unilateral –Cross-purpose –Common

MISTAKE AS A VITIATING FACTOR • As Francois JSC said in ADDAI v PIONEER TOBACCO LTD – “a successful plea of mistake wipe[s] out any view of consensus and destroy[s] the foundation of an agreement”

• Unilateral mistake – One party (A) is wrong about an aspect of the K and the party (B) is aware that (A) is mistaken – Passive acquiescence of one party in the self deception of the other party doe not entitle the self-deceived party to avoid the k

• In SMITH v HUGHES, the pff sued the dff to apy for the price of oats because the dff had refused to pay. The dff had before him a sample of oats which he had the opportunity to inspect. • The dff wanted old oats, not new, which the sample was. • The pff, on the other hand, was interested in selling the oats which he had-which happened to be new oats. • Blackburn J in his judgment drew the distinction between agreeing to the oats under the belief that they were old, and agreeing to take the oats under the belief that the pff contracted that they were old.

• Cockburn CJ of the QB said: – “it only remains to deal with an argument which was pressed upon us, that dff in the present case intended to buy old oats, and the pff to sell new, so the two minds were not ad idem; and that consequently there was no contract. this argument proceeds on the fallacy of confounding what was merely a motive operating on the buyer to induce him to buy with one of the essential conditions of the contract. Both parties were agreed as to the sale and purchase of this particular parcel of oats. The dff believed the oats to be old, and was thus induced to agree to buy them, but he omitted to make their age a condition of the contract. All that can be said is, that the two minds were not ad idem as to the age of the oats; there were certainly ad idem as to the sale and purchase of them”

• In other words, if one contracting party enters into a contract in a self-induced mistaken belief, and the other contracting party is unaware of the error made by the mistaken contacting party, there is no mistake in law. However, even if B is aware, it does not follow that in law, there is mistake in law, for as Cokburn CJ said in Smith v. Hughes – “The question is not what a man of scrupulous morality or nice honour would do under the circumstances. The case put of the purchase of an estate, in which there is a mine under the surface, but the fact is unknown to seller, is one in which a a man of tender conscience or high honour would be unwilling to take advantage of the ignorance of the seller; but there can be no doubt that the contract for the sale of the estate will be binding”

• Merchants are naturally more disposed to grant credit to reputable and creditworthy persons than to unknown quantities. • If due to similarity in looks or name, a merchant thinks that she is dealing with a creditworthy person and therefore grants credit, but it turns out that the one she is dealing with was an impoverished or roguish look -alike, a case of unilateral mistake may be made out. But it depends. It depends on whether the parties dealt with each other face to face. If so, the transaction is not likely to be held void for mistake (although it may be voidable for fraud). Lewis v. Averay; Phillips v. Book Ltd. cf Ingram & other v Little where a face-to-face transaction was nevertheless held to be void.

• Cross-purpose mistake – Where parties are thinking about different things but both are unaware that they are on different wavelengths. Suppose A offers to sell a house and B accepts. – They reach agreement on price, payment terms, delivery date and the like. But which A was thinking of selling house X, B was thinking of buying house Z, the parties are not at ad idem; there is no consensus; there is no contract.

• ADDAI V PIONEER TOBACCO CO. LTD. • The Dff advertize in the Ghanaian Times for tender offers for the public to buy a number of vehicles which it wanted to sell on an “as is where is” basis. • The Pff put in a tender for one of the Land Rovers which the Dff accepted. • Unknown to Dff, however, Leyland Motors had installed new motor, thereby substantially enhancing the value of the Land Rover. • The dff asked the pff to pay for the new engine; the pff insisted on the new Land Rover with its new engine at the contact price. In light of the impasse, the pff sued. • The dff pleaded mistake.

• Francois JSC ruled that the plea of mistake had clearly been made out and that there was never an intention for the dff to fit the vehicle with a new engine; that it did not make commercial sense to install a new engine on a used vehicle only to offer it to tender or accept a bid that took no account whatsoever of the enhanced value of the refitted engine. • As His Lordship explained: “[W]here what is offered was fundamentally different from what was sold, a plea of mistake would however succeed. The mistake that would annul a contact must however be fundamental and basic and must affirmatively exclude an intention. That principle of the law ran with an equally important principle that there should not be a fundamental difference in the bargaining knowledge of the parties to erode the viability of the agreement. ”

• Common mistake – This arises where the parties make an identical error about the same subject matter. There are two species of the common mistake that result in void transactions; res sua and res extincta. – An example of res sua is Cooper v. Phibbs, Cochrane v Willis where unbeknown to both purchaser and vendor, one purports to buy something that he already owns.

• An example of res extincta is Couterier v. Hastie where unbeknown to parties, one purports to buy something that is already totally destroyed. • If however, the common mistake only affects the quality of the subject matter, the contract is not void. Leaf v Int. Galleries • If, however, the common mistake only affects the quality of the subject matter, the contract is not void. • Thus in Smith v. Hughes the purchaseas a result of selfdeception of new oats instead of old was of no consequence. • In Leaf v International Galleries, the pff bought an oil painting from the dff in 1944. A label on the back of the painting represented that the paingting was made by Constable, a famous artist.

• The pff discovered that this was not so when, 5 years later, he tried to sell the painting. He sued to rescind the contract. It was held, among other things, that there was here only a mistake as to quality. Denning LJ in the CA said – “This was a contact for the sale of goods. There was a mistake about the quality of the subject-matter, because both parties believed the picture to be a Constable; and that mistake was in one sense essential or fundamental. But such a mistake does not avoid the contract; there was no mistake at all about the subject matter of the sale. It was a specific picture, ‘Salisbury Cathedral’. The parties were agreed on the same terms on the same subject-matter, and that is sufficient to make a contract. ”

• To sum up on the legal effects of the 3 types of mistakes. At worst, mistake generally makes a contract voidable, not void. Nevertheless, – – – a unilateral mistake has no consequence. A cross-purpose mistake makes a contract void because there is no consensus. A common mistake which is either res sua or res extincta makes the contract void; but a common mistake affecting the quality of the subject matter does not affect the contract but entitles the affected party to damages. • Mistake must relate to facts and not legal effect of a document or transaction. In Buaful v. Construction Pioneer a voluntary payment under a mistake of law was not recoverable. In Peters v Peters Crabbe JSC (dissenting) said: – “The reason which is now being advanced to justify the admission of parol evidence is that the recitals were made in ingorance of the legal rights of the dff. This ignorance or mistake of legal rights was not pleaded, and in my view it is not every kind of mistake that entitles a party to a contract to repudiate his obligation under it. Where a party has entered into an agreement he cannot evade the performance of it by simply saying that he has made a mistake”

Non est factum • This is a special type of mistake. It is amistake made over documents. One may rely on the plea of non est factum to claim that a document bearing her signature is in fact not one’s document, in that one was mislead into signing a document that was completely different from that which she was made to believe she was signing. • It protects the blind and the illetrate. Illiterates Protection Ordinance; Ansah v. Kofi and as a general rule, it is limited to a mistake as to the essential nature or character of a signed document Orhodox Sch of Peki v. Tawlma-Abels. Non est factum therefore is both a specie of misrepresentation and as it is also a specie of mistake.

• As a specie of mistake, Non est Factum has four (4) features namely: 1. There must have been a mistake 2. The one who made the mistake was misled into making it. • In Nkrumah v. Serwah & others the CA alludes to being coerced or pressurized. However, this passing reference must not be interpreted as an element of the plea. Coercion and pressure are more relevant considerations for duress and undue influence. 3. The mistake relates to a document radically dffierent from what one though he was signing 4. The one seeking to rely on the plea shoul not have been guilty of carelessness or negligence • All four elements must exist for there to be a successful plea of non est factum. Non est factum must specfically be pleaded and particulars proved, Mercer v Brempong II.

• To specifically plead a matter such as non est factum-means that the papers that are filed in court to initiate or defend suit must expressly state so in her statement of claim; or a defendant who wish to rely on non est factum must expressly state so in her statement of defence. • To prove particulars that have been pleaded means that during the trial process, when the parties are litigating the isseus before the court, the party who relies on the plea of non est factum must adduce sufficient and compelling evidence to persuade the court, on the balance of probabilities, that the purported deed is in fact not her deed, in that; – – – There was a mistake She was misled into making the mistake The mistake related to a document radically different from what she thought she was signing; – She was not guilty of carelessness or negligence in making the mistake. The evidence may be adduced by sworn testimony given in the witness box and/or by tendering documents or other exhibits.

• The one who seeks to rely on non est factum must specifically plead it, Nkrumah v Serwah. • Furthermore, the plea, if and when made, must be supported by evidence. In Wilson v. Brobbey the pff brought an action against the defendant to recover the value of goods credited to the defendant by the plaintiff. The plaintiff tendered in evidence an invoice, exhibit A, signed by the defendant. Although the defendant, who was literate, admitted signing the document he contended that he did so as a guarantor on behalf of one A. to whom the goods were supplied and not as a purchaser and that he in fact did not read the document. He accordingly sought to join A. as a co-defendant. The trial magistrate rejected the defendant’s contention and found for the plaintiff on the strength of the “oral testimony coupled with exhibit A. ” The defendant appealed and the main issue was how far the defendant could be allowed to lead parol evidence to contradict the terms of the invoice. On the matter of non est factum Osei-Hwere J said – “The general rule…. is that a man is estopped by his deed, and although there is not such estoppel in the case of an ordinary signed document, a party of full age and understanding is normally bound by his signature to a document, whether he reads or understands it or not. If, however, a party has been misled into executing a deed or signing a document of a class and character different from that which he intended to execute or sign, he can plead non est factum in an action against him.

• It was previously considered in Ghana, Nkrumah v. Serwah, and in England that the plea of non est factum affected documents of a radically different class, character and substance from that signed. But in Quao v Squire Taylor J debunked this view in the following words: – “The argument seeks to draw a sharp distinction between the contents of a document and the character of the document. On the argument if a man intends to enter into a contract of guarantee but he is misled into executing a conveyance then it is not his deed and non est factum succeeds; if, however, he intends to execute a deed conveying his landed property say Whiteacre worth ¢ 200. 00 but he is misled into executing a deed conveying his property Blackacre worth ¢ 20, 000. 00 then the plea of non est factum fails. Clearly a number of the English authorities do draw the distinction but it is drawn in so unsatisfactory a manner that in my opinion the distinction is illusory and unsatisfactory and should be rejected. ”

• In Quao v Squire The plaintiff, an educated man, alleged that he intended to convey a parcel of land at B. to the wife of his eldest son. For this purpose he gave the title deeds to a surveyor who prepared the document which he duly signed. Some time later the surveyor accompanied by the plaintiff’s younger son called on him and falsely represented to him that some mistake had been detected in the document he signed and a new one had therefore been prepared. He was asked to sign the new document which he did without reading it. In fact this new document was a conveyance of his plot of land at C. to his younger son who in turn conveyed it to the defendant. When the defendant began to develop the plot, the plaintiff brought an action against the defendant for, inter alia, a declaration of title to the land then applied for an order of interim injunction to restrain the defendant from continuing the development of the land pending the hearing of the substantive action. The question arose as to which of the parties-the innocent original owner or the innocent third party, i. e. the defendant-had a better title. Taylor J held for the defendant and reasoned thus: – “If the matter is as between the victim and the fraudulent party, there can be no question as to the course indicated by the demands of justice. As between two innocent parties I think the law ought to take such a stand so that the party, who by his conduct has any material way made it easy for the rogue to succeed in his designs, is not allowed to benefit by his conduct even though he is himself in no way dishonest in his actions. ” • Concerning the plaintiff’s plea of non est factum he said that – “I think it is really unrealistic to suggest that a plea of non est factum is available to a person who has actually signed a document when he signed it deliberately and consciously. The law however is not necessarily realistic and logical. If a man signs a blank paper and later someone writes on it, it makes sense if he says he did not sign the document since no document was in existence when he signed it. When however he signed the document in the form in which it ultimately reaches the court, the plea is illogical. ”

• Courts are slow to grant the plea of non-est factum since – Nemo contra factum suum proprium venire potest – Non one can go against his own deed • Mere reluctance in signing a document does not constitute the non est factum, nor does a mistake in the legal effect of the document signed. • The plea of non est factum is distinguishable from the common law defense of duress, and the equitable defense of undue influence. Orthodox School of Peki v. Tawlma-Abels

• In Wilson v. Brobbey the plea of non est factum did not avail the dff for the following reasons: the dff had been tricked; he was literate; the document bore his signature; he signed voluntarily; and it was he, the dff, who failed to to read and understand the document signed. • In Nkrumah v Serwah & Others was not upheld by the CA because, among other circumstances, the person asserting it was educated, was represented by counsel in the preparation of the document and the court was satisfied that the party knew the nature and effect of the document he was signing. The court would have none of the appellant’s attempt, under the guise fot eh plea of non est factum to read the sale document as a mortgage document. Suffice it to say that non est factum is not readily decreed by the courts to vitiate a deed or other document.

Duress • Duress is a common law defense available to a contracting party to nullify the consent and thereby nullify the contract where there has been coercion of will. • In Orthodox School of Peki a person must establish “actual or threatened physical violence to, or unlawful constraints of, the person of the contracting party. But in Hemans v. Coffie the SC considered the above formulation too narrow. According to the SC, the question now to ask is whethere has been coercion of the will which vitiates consent.

• Per Acquah JSC, – The present position therefore is that to be capable of giving rise to duress, the threat must be illegitimate either because what is threatened is a legal wrong, or because threat itself is wrongful (though what is to be done is lawful) or because it is contrary to public policy…. – Now, in determining whethere was a coercion of will such that there was no true consent, it is necessary to inquire 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; and whether after entering the contract he took steps to avoid it. All these matters are. . relevant in determining whether he acted voluntarily or not. – It is also important to point out that the duress must be actually existing at the time of the making of the contract. For, in duress, the court is concerned with the procedural impropriety rather than the issue of substantive fairness. Thus a contract which results from duress does not have to be to the “manifest disadvantage” of the person who is persuaded to enter into it. Indeed, a contract which is substantively fair can be struck down simply because it was made under duress. It is rather in a plea of presumed undue influence that the unfairness of the transaction is a prerequisite for a successful action. – Where the duress is by a third party and not the other contracting party, it must be established that the other contracting party who is seeking to enforce the contract, knew at the time of making the contract, of the threat, or the compulsion or the constraint on the party pleading duress

Undue Influence • Influence connotes the power or ability to affect another’s character, beliefs or action through admiration, example, relationship, office, fear etc • Influence is undue, if it is improper or more than is right • Undue influence is equitable defense to avoid a contract where the relationshi 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 servient party

• Whereas, duress in essence deals with coercion of will, notably threats and force, undue influence, deals with the improper manipulation of a contracting party • In Mercer v. Brempong Edusei J. said • “Undue influence means any influence by which the exercise of free and deliberate judgment is excluded at a time when some interest or benefit is given to another by someone over whom such influence was exercised. ”

• UI makes a K voidable not void ab initio • Therefore if UI is established, the pff has 2 options – The pff may repudiate the K once the IU cease to operate on him – The pff may affirm the K by express words or unequivocal acts – In Hemans v. Coffie Acquah JSC alluded to presume UI, and so we may distinguish btn presume UI and actual UI

Presumed UI • This arises by operation of law once certain facts are established. • There are 2 instances when the law will presume UI – Where there is a subsisting trust, confidential or fiduciary relationship between parties with one party being the dominant party whereas the other is a servient party