LAW OF CONTRACT Richard Obeng Mensah Esq Hospitality

LAW OF CONTRACT ©Richard Obeng Mensah Esq. , Hospitality & Tourism Law, KNUST Business School @ 2018/2019.

MEANING OF CONTRACT? A contract is an agreement between two or more parties who have capacity, for a price measured in terms of money, effort, forbearance or exchange of promise; which agreement is enforceable by a court of law. In Kobaku Associates v Owusu [2003 -2005] 1 GLR 611, a contract was defined as ‘an agreement constituted by an offer and acceptance with mutual intention that it should be binding and enforceable at law’.

MEANING OF CONTRACT? A contract is an agreement giving rise to obligations which are enforced or recognised by law. The factor which distinguishes contractual obligation from other legal obligations is that they are based on the agreement of the contracting parties.

FORMS OF A CONTRACT Under Ghanaian law, a contract may be a. oral, b. written, or c. by conduct. Section 11 of the Contract Act 1960 (Act 25) provides that a contract is not void simply because it is not in writing. *See: Brogden v Metropolitan Railway (1877).

TYPES OF A CONTRACT The three (3) main types of contract are: 1. Unilateral Contracts -there is no reciprocal promise -based on performance of a requested act 2. Bilateral Contracts (reciprocal promise), and 3. Formal Contract (made by deed) -contracts for sale of land hire-purchase agreements are, for example, generally required to be in writing.

DOCTRINES OF LAW OF CONTRACT 1. Freedom of Contract 2. Sanctity of Contract 3. Contracting Party Beware (caveat emptor) - ‘buyer beware’ 4. Protecting the Innocent Third Party Purchaser 5. Reasonableness 6. Intolerance of Fraud – ‘fraud vitiates everything’ 7. Privity of Contracts 8. “Pacta Sunt Servanda” -agreements are binding and must be kept -not all agreements are binding or contractual e. g social or domestic agreements *See: Balfour v Balfour (1919).

ELEMENTS OF A VALID CONTRACT 1. Offer and Acceptance (Agreement). 2. Consideration (element of value), 3. Capacity, 4. Intention to create legal relation, and 5. Legality of purpose. Any contract that lacks any of the above elements is void. A void contract has no legal effect. A voidable contract occurs when the law permits a party to repudiate the contract due to factors such as duress, misrepresentation or undue influence. A voidable contact remains valid unless and until the innocent party chooses to terminate it.

AGREEMENT = Offer + Acceptance Ampiah J. A stated in the case of Dormenyor v Johnson Motors Ltd (1989 -90) GLRD 175 that ‘in all contracts there must be an offer and acceptance of some sort’. An offer is a proposal by one party to the other by which he promises or undertakes to do or give (or forbid from doing or giving) a specified thing. The party making the proposal is called the ‘offeror’ and the party whom the proposal is directed to is called the ‘offeree’ Offer consists of an undertaking (to be performed by the promisor) and the request (to be performed by the promisee). An offer is not a. a mere request for information, b. a mere indication of good intentions (e. g a statement future conducts), and c. an invitation to make an offer (invitation to treat).

Offer An offer must be distinguished from the following: 1. An invitation to treat – Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd, Dormenyor’s case and Carlill v Carbolic Smoke Ball Co. (1892) 2. Counter offer– Deegbe v Nsiah & Another (1984 -86) 1 GLR 545 CA. A counter offer cancels or destroys the original offer – Hyde v Wrench An invitation to treat is a communication by which a party is invited to make an offer e. g advertisement for employment. An invitation to treat is a request from one person to another asking the other person to make a proposal for consideration by the one making the proposal. See Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd for the legal effect of goods with price tags displayed on the shelves of a shop.

AGREEMENT = Offer + Acceptance is assenting to the offeror’s proposal. When all terms of an offer are accepted, there is an agreement. The test of an agreement is that both parties should have agreed on the same terms on the same subject matter. An offer must be a. communicated to be effective – Fofie v Zanyo (1992) 2 GLR b. accepted totally within reasonable time if no time has been stipulated -an offer sent through the post is made where it was posted and takes effect when it was posted. An offer must be communicated in a manner that is in accordance with law and the manner of acceptance clearly indicated.

Acceptance is assenting to the offeror’s proposal. According to Treitel G. H, an acceptance is the ‘final and unqualified expression of assent to the terms of an offer’ -a mere intention to accept or silence does not constitute an acceptance (See Felthouse v Bindley (1863)) -it was held in Felthouse v Bindley that ‘silence is usually equivocal as to consent but failure to reply to letters is a common human weakness’. Acceptance must be communicated to the offeror. Each of the following does not amount to acceptance a. acceptance in ignorance of offer – see R v Clarke (1972), or b. a cross offer.

Acceptance A cross offer occurs when two identical offers are sent by two parties to each other by post or by any other means and the offers cross in the post or en route. This does not constitute an acceptance since they are both offers. Where an acceptance is qualified by the term ‘subject to contract’, it means liability is postponed until the formal agreement is signed. Either party can therefore withdraw from the agreement before the actual contract is made. Acceptance by post takes effect the moment the letter is posted – Adams v Lindsell. The reason for this postal rule is that the post office is the common agent for the parties so a letter put in the post technically constitute acceptance communicated to the offeror and with that a contract is completed. Subject to law and other special circumstances (such as manifest inconvenience or defective letter or post), an offeror can make it a term of his offer that there can be no valid acceptance until he receives the letter of acceptance.

REVOCATION OF OFFER & ACCEPTANCE Under Section 8(1) of the Contract Act 1960 (Act 25), an offeror is free to withdraw his offer at any time before the offeree’s acceptance is communicated to the offeror. This means that an offer can be withdrawn or revoked at any time before it is accepted. The offer can also be revoked through lapse of time, death, rejection or if a condition upon which it is subject to fails to materialize. Acceptance on the other hand can be revoked before it reaches the offeror.

CAPACITY Generally speaking everybody has capacity to enter into contract unless otherwise proven. The following classes of individuals, however, are subject to some degree of contractual incapacity – a. minors/infants, b. persons of unsound mind, and c. enemy aliens. Who is a minor (see article 28(5) & section 1 of the Children’s Act 1998 (Act 560)), or an infant? A minor or an infant is only bound by 1. contract for necessaries, 2. contracts that are beneficial to infants,

CAPACITY A minor or an infant is only bound by 3. beneficial contracts of service, and 4. contracts that the minor or infant has performed his side of the bargain. Necessaries are goods suitable to a minor’s or infant’s condition in life and to his actual requirements at the time of the sale or delivery. Necessaries may take the form of food, clothing, apprenticeship, education or service. All other contracts other than above are voidable at the option of the minor or infant hence will be binding only on the other party. A person of unsound mind or a drunkard is bound by his contract unless it can be shown that owing to his mental condition he did not understand what he was doing, and that the other party was aware of his incapacity to make the contract.

CONSIDERATION (Value element) In Currie v Misa (1875) consideration was defined as ‘‘some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other ’’. A contractual agreement must amount to a bargain, with each of the parties paying a price for that which he receives from the other. This price is referred to as consideration. Consideration moves the promisee -a person can only enforce a promise if he himself provided consideration for it. -consideration may be supplied by someone other than the promisee -See Section 10 of Contract Act 1960 (Act 25). Consideration must be sufficient not adequate -it must have value even though the value need not be adequate -it must be real or sufficient.

CONSIDERATION (Value element) In Kwadey v Okantey (1972), it was held that the Plaintiff was entitled to judgment since the Defendant’s offer for the Plaintiff to stop further litigation on being paid GBP 200 was good consideration from which the Defendant could not resile or withdraw. Stilk v Myrick (1809) two sailors deserted during the course of a long voyage and the captain promised the rest of the crew the deserters’ wages if they would work the vessel home. It was held that there was no contract because the seamen or crew had given no extra consideration. They were already bound by their original contract to work the ship home. Section 9 of the Contracts Act however provides that ‘the performance of an act or promise to perform an act may be sufficient consideration for the promise notwithstanding that the performance of that act may be already enjoined by some legal duty, whether enforced by the other party or not’.

CONSIDERATION (Value element) In Kessie v Charmant (1973), where a fresh or additional promise was made even though there was an existing contractual obligation it was held that the performance of the act constituted sufficient consideration. Section 8 the Contracts Act 1960 provide as follows: -a promisor who has promised to keep an offer open for a specified period is not at liberty to withdraw his offer before the expiration of that period on the ground that the promisee has not provided any consideration for the offer. -a creditor who promises without receiving consideration for the whole or part of a debt or to waive the performance of some other contractual or legal obligation can be held to his promise.

INTENTION TO CREATE LEGAL RELATION This can be ascertained by the importance of the agreement and by the fact that one of the parties acted in reliance of it. The test for the intention is an objective one. An intention is not a mere puff or a clause expressing excluding the intention to enter into a legal relation. Domestic agreements would not be considered as creating legal relations -Balfour v Balfour -an example is a husband agreeing to make a monthly allowance to his wife for personal enjoyment -In Mc. Gregor v Mc. Gregor (1888), a promise made in pursuance of an agreement to live apart (when a husband wife were separating) was taken to be legally binding.

LEGALITY OF PURPOSE Both the subject matter of the contract and the manner of achieving realizing it must be legal. A contract may be illegal at the time of formulation or during its performance a. if it involves a breach of law, or b. where the subject matter was forbidden by law, or c. where both parties or one of them intends to perform the contract in an illegal manner or effect some illegal purpose. An illegal contract is void -ignorance of the law will still make the contract void. -in Miller v Karlinski, an eemployee, whose mode of payment amounted to a fraud on the revenue, was held to unable to recover arrears of salary, whether or not the parties knew about the illegality.

CONTRACTUAL TERMS A term is an obligation each party undertakes and the representations made in respect of discharging the contractual obligations. Contractual terms may be a warranty or condition. A warranty creates minor obligations, a breach of which entitles the party to damages only. A condition, however, creates a fundamental obligation on the contractual parties, a breach of which entitles the other party to repudiate the contract -an example of a condition of a contract is the subject matter. The terms of a contract may be express or implied. -Express terms are clearly discussed and agreed to by the parties. -Implied terms are not categorically discussed by the parties but if brought to their attention, the parties would have agreed to the said terms.

CONTRACTUAL TERMS The test for construing implied terms is on what the reasonable man would have done. Terms can be implied by a. the courts, b. statute (the parties need not provide for such terms), and c. custom (where the parties have established a pattern of consistent behaviour).

EXEMPTION CLAUSES Exemption clauses are clauses in agreement incorporated to abridge the rights and limit the liabilities of the parties or where one party may agree to accept a reduction in liability by the other party. Exemption clauses may be contained in Standard Form Contracts or in individuality drafted contracts. There are four types of exemption clauses: 1. Litigation-limiting clauses -these clauses postpone litigation till after other specified dispute-resolution methods have been unsuccessfully resorted to. However, if the contract seeks to oust the jurisdiction of the court, it is void and will be ignored by the court. 2. Liability-limiting clauses - these clauses limit or exclude their contractual liability by one party to the other in the event of a breach by that party. Courts are reluctant to enforce contracts that limit liability.

EXEMPTION CLAUSES There are four types of exemption clauses: 3. Implied term-modifying clauses -these clauses seek to exclude the operation of terms that would otherwise be implied by legislation. -the typical wording used in legislation is ‘subject to any agreements to the contrary by the parties, the following provision shall apply’. In this regard the parties have the liberty to contract out of the regime implied by law. 4. Restrictive covenants -this is usual is cases where the employer seeks to protect his business from a former employee. It is usually done when an employee is leaving an employment with special knowledge about that employment which needs to be protected against immediate competition.

VITIATION OF CONTRACT A contract may not be enforced as a result of factors which vitiate its performance – these factors include mistake (including non est factum), undue influence, duress, public policy, illegality, unconscionability, misrepresentation or fraud. Mistake - as a general rule, a mistake does not enable one party to avoid the contract except where it is so fundamental in its nature and seriously affect or undermine the agreement between the parties. This is known as operative mistake. -a mistake may be unilateral, cross-purpose or common. -it is unilateral when one party is wrong about an aspect of the contract and the other party is aware that the first party was mistaken -in Smith v Hughes [1871] LR 6 QB 597, the Defendant sold new oats when he wanted to buy old and was thus induced agree to buy them, but he omitted to make their age a condition of the contract. Thus the two minds were not ad idem as to the age of the oats; they were certainly not ad idem as to the sale and purchase of them’.

VITIATION OF CONTRACT - Mistake -Cross-purpose or mutual mistake is where the parties are thinking different things -in Addai v Pioneer Co. Ltd. [1989] the defendants sold to the plaintiff a car fitted with a new engine thinking it was an old engine. It was held that the mistake was so fundamental and basic such as to wipe out the consensus between the parties and destroy the foundation of the agreement. -Common mistake occurs when the contracting parties make an identical error about the same subject matter. -the contract is not void if the mistake affects only the quality of the subject matter. A contract is not void if the mistake affects the quality of the subject matter’

VITIATION OF CONTRACT – Mistake Non est factum (not my deed) -it is a mistake over documentation where a party relies on the plea of non est factum to claim that the document bearing his signature is in fact not his because he was misled into signing a document that was completely different from that which he was made to sign -this plea especially protects the illiterate and the blind. The general rule is that a person who signs a written document or contract is bound by its terms, whether he has read it or not -in Wilson v Brobbey (1973), it was held that a party of full age and understanding would normally be bound by his signature to a document whether or not he read it or understood it -mere negligence in not reading a document before signing it is not a good defence so as to establish non est factum.

VITIATION OF CONTRACT-mistake Non est factum (not my deed) -to protect the party who is not illiterate or blind a clause (jurat clause) is usually included in the agreement stating that the terms of the contract were read over to the illiterate or blind person -that the said person understood the terms before appending his signature or thumbprint -the person who read over the terms of the agreement has to sign against his name in support of his function.

VITIATION OF CONTRACT-Duress is a wrongful and unlawful compulsion (as threats of physical violence) that induces a person to act against his or her will. To be capable of giving rise to duress, the threat must be illegitimate either because what was threatened was a legal wrong or because threat itself was wrongful or because it was contrary to the public policy. In Hemans v Coffie [1996 -97] SCGLR 596, the entire transaction was ‘achieved through the unlawful arrest of the plaintiff and his son, coupled with the naked show of unlawful force and pressure exerted on the plaintiff at the time he was unlawfully incarcerated police in cells. The Supreme Court that the held transaction or contract could not be enforced. Duress nullifies consent and therefore the contract. In Orthodox School of Peki v Tawima–Abels [1974] 1 GLR 419, it was held that ‘the party relying on the plea of duress must establish that there was actual or threatened physical violence to, or unlawful constraint of the person of the contracting party’.

VITIATION OF CONTRACT-Undue Influence is a 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 the dominant position over the servient party. In Mercer v Brempong II [1975] 2 GLR 376, undue influence was described as ‘any influence by which the exercise of free and deliberate judgement is excluded at a time when some benefit or interest is given another by someone over whom such influence was exercised. ’ Influence connotes the power to affect another person’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 an equitable defense to avoid a contract. The two main types of undue influence are presumed undue influence and actual undue influence.

VITIATION OF CONTRACT-Public policy A contract is against public policy if it offends public interest such as promoting immorality, illegality, disorderly conduct, discrimination on grounds of ethnicity or religion or gender, stifles free and fair competition, injures the environment or public safety or health. Public policy as a vitiating factor is different from illegality. A contract is illegal if what it intends to achieve, or the means to achieve its object are contrary to statutes or judicial precedent. ‘Public policy’ is difficult to define but it includes promoting immorality. A contract that is contrary to public policy is unenforceable *See: 1. Kessie v Charmant & Another (1973) 2 GLR 194 2. Elluah v Ankumah (1968) GLR 795

VITIATION OF CONTRACT-Public policy The following are examples of contracts opposed to public policy and therefore illegal: 1. Contract tending to impede administration of justice. In Okantey v Kwaddey [1975] where an agreement not to pursue or execute a judgement in favour of the Plaintiff in consideration of the defendant assisting the Plaintiff to be appointed a magistrate was held to be against public policy. 2. Contract which tends to corrupt the public service. In Ampofo v Fiorini [1891], it was held that a civil servant who engages in any activity that is likely to lead to his taking improper advantage of his position in the civil service for his private gains, commits an illegal act under the Civil Service Act 1960 and any contract and the consideration given for it in that respect is illegal. 3. Contract in unreasonable restraint of trade, occupation or profession may be illegal

VITIATION OF CONTRACT-Unconscionability A contract is unconscionable if it is oppressive, grossly unfair or patiently unreasonable. They are usually between powerful parties on one hand a poor ignorant party on the other hand. The hallmark of an unconscionable contract is that it is one-sidedness. Section 18 of the Conveyancing Act 1973 (NRCD 175) states that ‘the court have power to set aside or modify an agreement to convey or a conveyance of an interest in land on the ground of unconscionability. Equity does not enforce unconscionable bargains. See Campbell Soup Co. v Wantz 172 F 2 d 80 (1948).

VITIATION OF CONTRACT-Misrepresentation A misrepresentation is a false statement of fact that is made by one party to another intended to induce the other to enter into a contract. In Kpeglo v SCOA Motors Ltd [1962], there was a misrepresentation that a car bought from the Defendants was new whilst it was not. The court held that the Plaintiff was entitled to have the contract of the hire-purchase rescinded or set aside for misrepresentation. Misrepresentation may be: 1. Innocent - contained a falsehood that was unknown to the declarant or that the declarant believed to be true. 2. Negligent - made by a person who had a duty of care towards the other party 3. Fraudulent - declarant knew very well that the statement being made was false or it was recklessly made without caring that it was true or false, or stated a material untruth, which brought about wholly or partially the contract.

VITIATION OF CONTRACT-Fraud occurs if a party is induced to enter into a contract by willful falsehood or by false pretense, or by word or conduct. The state of facts presented is with the knowledge that it was false or without the belief that it was true and made with the intent to defraud. Fraud vitiates everything: fraud omnia vitiate. Fraud makes a contract voidable, not void. The party seeking to avoid the contract must act timeously upon discovering same.

REMEDIES FOR BREACH OF CONTRACT There may be reasons for not performing a contract. A contract may not be performed due to circumstances beyond the control of the parties. However, if substantial performance has taken place, the party who has the obligation to pay for the services rendered can not treat himself as discharged from performing his obligations under the contract, though he may not be expected to pay for full performance of the contract. Repudiation occurs when one of the parties shows by actions or words that he does not intend to honour his obligations when they are due. Repudiation can in some circumstances constitute a breach of contract. Fundamental breach occurs when a party expressly or impliedly refuses to perform the contract.

REMEDIES FOR BREACH OF CONTRACT REMEDIES FOR BREACH 1. Damages: this is the monetary value placed on the breach of contract. The principle of payment of damages is to effect ‘restitutio in integrum’ - to bring the party into the position in which he would not have occurred. The plaintiff however is required to take steps to mitigate his losses. 2. Specific performance: it is a discretionary remedy given by the courts to compel a party to specifically perform the contract, such as for the sale, purchase or lease of land, or for the recovery of unique chattels (i. e. not obtainable on the markets). It is usually given when damages would be inadequate compensation for the breach of the agreement. Specific performance will not be decreed for the contracts of personal service, but a defendant may be restrained by injunction from the breach of a negative stipulation in such a contract e. g. the covenant not to give services elsewhere during the of the contract.

REMEDIES FOR BREACH OF CONTRACT REMEDIES FOR BREACH 3. Quantum meruit: if a party performs his part and is then prevented by the fault of the other from finishing the work, he can sue the defaulting party for breach of contract or for quantum meruit and so obtain reasonable compensation for the work done. In S. A. Turqui & Bros. v Lamptey (1961), it was held that a motor mechanic was entitled to be paid for work so for done on a truck after the contract had been cancelled. 4. Part Performance: this is where the court would intervene to order the defaulting party to also perform his side of the promise or obligation.

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