TERMS OF CONTRACT

The terms of contract are the statements, promises or propositions which form part of the contract and
which define the respective rights and obligations assumed by the parties under the contract. The term
of contract define the scope and extent of the contract. If a statement forms an integral part of a
contract, it is said to be a term of the contract such that when it is breached, the party offended may sue
for damages. A term of a contract must however be distinguished from a mere misrepresentation. A
mere representation is a statement made in the negotiation which does not qualify as a contractual
term but rather induces the other party to enter into the contract.

Certain terms of contract may be significant than others. In this phase, the law categorizes them into
conditions, warranties and innominate terms. A condition is a term of contract which so essential that its
breach entitles the injured party to rescind the contract and sue for damages.
However with a warranty, its breach may entitle the injured party to sue for damages but does not
entitle him to repudiate the contract. Innominate or intermediate terms however cannot be pre-
classified either as a condition or a warranty. In determining the consequence of a breach of such term,
when it happens, the courts do not look at the importance of the breach itself but rather the
consequence of the breach after it has happened. Such that where the breach is very serious, the courts
classify it as a condition which entitles the party to terminate the contract as well as sue for damages
but where it is less the court considers it as a warranty which does not entitle the aggrieved party to
terminate the contract but could rather sue for damages.

ASCERTAINING THE TERMS OF A CONTRACT

Where the contract has been made orally, the terms will be found in the statements of the parties. If
any of the statements turn out not to be true, a party can sue for damages if the statement in question
constitutes a term of contract and where it is a mere misrepresentation, the party misled may be
entitled to certain remedies depending on whether the breach is innocent, fraudulent, negligent etc but
the innocent party cannot sue for a breach of contract because the statement is not a term of contract.

TESTS OF ASCERTAINING THE TERMS OF AN ORAL CONTRACT

The test is an objective one thus, the courts look to see whether considering all the circumstances a
reasonable third party would assume that the party making the statement intended that it will be a term
of contract or not. In making such determination the level of importance attached to such statement are
important and this can be found in the case of Bannerman v White. : In this course of making
negotiation for the purchase of hops, the buyer asked the seller if Sulphur had been used in their
treatment, adding that if it had, he will not even bother of the price. The seller answered that no
Sulphur was used. This later resulted in a contract. It was found later by the buyer that Sulphur had been
used in the cultivation of the hops. The jury found out that the buyer attached greater importance to the
sellers answer and the seller was aware that the statement should be part of the contract. Thus, the
statement by the seller that Sulphur had not been used was a term of contract and a breach of it
entitled the buyer to reject the goods.

However, where the party to whom the statement was made was given an opportunity to make an
independent investigation or to verify the statement, it would be clear that such statement will not
amount to a term of contract. This is illustrated with the case of Eccay v Godfrey where a seller of a
boat stated that it was sound but advised the buyer to survey it. It was held that the statement is not a
term of contract. Here it could be inferred that the maker of the statement did not want to undertake
any contractual liability for its accuracy since he advised the other party to take steps to verify his
statement.

Three broad tests are generally used by the courts to determine whether a particular statement was a
term of contract

RELATIVE MEANS OF KNOWLEDGE OF THE PARTIES: Where the party who makes the statement
has a special knowledge or skill superior to the other party, the courts are likely to infer that there was
an intention that the statement should constitute a term of contract. Hence the maker of the statement
by reason of his superior knowledge as compared to the other party can be presumed to have
undertaken contractual responsibility of the accuracy of the statement. In Oscar Chess v Williams, the
plaintiffs were car dealers. The defendant wished to obtain from them on hires purchases a new Hillman
Minx car and to offer to them his second hand Morris car in part exchange. The amount to be paid by
the defendant depended on the age of the Morris car. The defendant relying on the date stated on the
car’s registration book informed the plaintiffs that the car was a 1948 model. The plaintiffs accepted this
as the year of manufacture of the car and based on this valued it for 290 pounds. The agreement was
carried out and 8 months later, the plaintiffs found out that the date of the Morris car was to 1948 but
1939 making the value of the car only 175 pounds and not 290 pounds.it turned out that the date on the
registration book had been altered by a pervious holder before it reached the defendant. The issue was
whether the statement made by the defendant about the year of the manufacture of the car constitutes
a term of contract. It was held that the statement did not amount to a term of the contract. Lord
Denning LJ relying on the means of knowledge of the parties explained that the seller had no special
knowledge about the year when the car was manufactured and his only reliance was the registration
book…in this circumstance an intelligent by stander would say that the seller did not intend to bind
himself so as to warrant that it was a 1948 model. This case may be contrasted with that of Dick Bentley
Production v Harold Smith Ltd: In this case, the plaintiff Bentley asked the defendant Smith a car dealer
to find him a “well vetted” Bentley car. Smith found a car which he told Bentley had done only 20, 000
miles since it was fitted with a replacement engine and gear box. The statement was untrue so Bentley
sued for damages. The Court held that the defendant’s statement was a term of contract and the
plaintiff was entitled to damages. Denning explained that Smith was in a position to know of which he
did not do so…he ought to have known better.

Even where a party expresses an opinion on a matter, the fact of his superior knowledge or means of
knowledge may result in an inference that he was warranting that he had reasonable grounds for the
opinion he expressed. In other words, the courts will construe that the opinion was sound and reliable
and was made with reasonable skill and care. The case of Esso Petroleum v Mardon illustrates this. An
experienced representative of Esso Petroleum Company told Mardon who was thinking of operating a
petrol station, that the company estimated that the throughput of petrol on the site would reach
200,000 gallons in the third year of operation, and thereby persuaded Mardon to enter into a tenancy
agreement for the site for three years. After transaction Mardon found out that not more than 60000 to
70000 could be realized. Mardon continued to loose money and was unable to pay for the petrol
supplied. Esso then sued to recover possession of the site and the money due. Mardon claimed damages
that the forecast or representation constituted a term of the contract. The court held that, Esso had
special knowledge and skill and that they had much experience at their disposal and was in a better
position than Mardon. Therefore if the forecast turned out to be an unsound forecast, such as no person
of skill or experience should have made there is a breach of warranty.

RELIANCE AT THE TIME OF CONTRACTING: Generally if A is relying on B’s statement at the time of
contracting and B knows that A is relying on his statement, it is likely to behold to be a term of contract.
The court seeks to establish whether the statement was designed to be part of the contract and not just
an incident in the preliminary negotiations. Thus the smaller the interval between the statement and the
time of contracting, the more likely it is that A is relying on that statement. In Bannerman v white, the
seller contended that the statement was merely preliminary to the contract and not part of the
contract. The buyer contended that the whole interview was one transaction and that since he had
declared the importance he attached to his inquiry the seller should have known that if Sulphur had
been used there was no need to go on with the purchase of the hops. The jury found that the seller’s
statement was understood and intended by both parties to be part of the contract and the seller should
have therefore known that the buyer was relying on the statement he made at the time of contract. In
Schawel v Reade, the plaintiff wanted a horse for stud purposes. He went to the defendant’s stable
which had been advertised for sale by the defendant. Whilst examining the horses, the defendant
interrupted him saying ‘you need not look for anything: the horse is perfectly sound’ and if there was
anything the matter with the horse I will tell you the plaintiff stopped with the examination and a few
days later the price was agreed. Three weeks later, the sale was concluded. The horse turned out not to
be fit for stud purposes. The trial judge asked two questions: did the defendant, at the time of the sale,
represent to the plaintiff that the horse was fit for stud purposes. The trial judge asked two questions:
did the defendant, at the time of the sale, represent to the plaintiff that the horse was fit for stud
purposes?, did the plaintiff ac on that representation in the purchase of the horse? The question was
whether the representation was to be part of the contract. The jury found that the statement
constituted a term of the contract.

REDUCTON OF TERMS INTO WRITING: Where the parties reduce their oral agreement into writing,
the omission or exclusion of an oral statement from the written document may lead to the inference
that the parties did not intend it to be a term of contract. In Routledge v Mckay, the plaintiff and
defendant were discussing the possible purchase and sale of the defendant’s motorcycle. Both were
private citizens. The defendant taking the information from the registration book said on October 23,
that the cycle was a 1942 model. On October 30, a written contract was made which did not refer to the
date of the model. The actual date was later found to be 1930. The court of appeal refused the claim for
damages by the buyer partly on the ground that the statement was omitted from the written contract
and partly on the basis of the time interval between the making of the statement and the conclusion of
the contract.

COLLATERAL CONTRACTS
When part of the statement made in an oral contract is omitted from the written agreement, it is said
not to be part of the terms of contract. However, a party could be given a contractual effect even
though it was not part of the resulting contract itself. This could be done when the plaintiff could
establish that it formed part of a collateral contract or was a collateral term. Collateral contracts are
contracts that exist side by side another contract the consideration of which is the entering into of that
contract. In a collateral contract where a party fails to fulfill the part of the collateral contract even
though it does not form part of the main contract, the other party can sue for its breach. The principle of
collateral contract serves as a means of ensuring remedial flexibility in the law of contract. In De Lassale
v Guildford a tenant declined to hand over his counterpart of a lease agreement unless the landlord’s
oral assurance that the drains were in good order. The court held that in addition to the terms contained
in the lease, there was a collateral contract under which the landlord promised that the drains were in
good order and the tenant was entitled to damages for breach of that term or undertaken.

It must be noted however that a collateral term can exist even though the collateral term contradicts
the express terms of the main contract. In City and Westminster Properties Ltd v Mudd: The contract
was a lease which contained the covenant not to use the premises for other purposes other than trade.
Under an earlier lease the defendant had been contrary to the terms of the lease by sleeping there. He
insisted that he would not sign the new lease unless the plaintiffs agreed to his sleeping there. The
landlord who was unwilling to include that effect in the lease assured the plaintiff that he could sleep
there. The landlord brought an action later for the forfeiture of the premises on the ground that the
defendant was going contrary to the express terms of the written lease. The action failed even though
the collateral contract was in contravention with the terms expressed in the written contract. The court
found that all the ingredients for the existence of a collateral contract were present.

WRITTEN CONTRACTS –PAROLE EVIDENCE RULE

Where parties have formally recorded the whole f their agreement in writing, the written document,
prima facie is taken to be the whole contract. The terms of such a written contract are, therefore, said to
be limited to the contents of the written document and nothing more. The parole evidence rule is that
where the agreement is wholly reduced into writing, extrinsic evidence will not be admitted to add,
vary, or contradict the terms of the written agreement. In Motor Parts Trading co v. Nunoo, the
appellants, relying on a written agreement signed by the respondent, instituted proceedings for arrears
of installments due under the agreement, damages for breach of contract and an injunction. The
respondent contended that the written agreement did not contain all the terms agreed upon between
the parties; that there was an oral collateral agreement not included in the written agreement because
the appellants wanted to evade payment of income tax on the amount involved in the transaction; that
the appellants did not honour this collateral agreement and, therefore, he repudiated the written
agreement.
In the High Court, Charles, J. found that the collateral agreement was obtained by fraud in that the
appellants had no intention of carrying it out. He therefore dismissed the claim in whole. It was held,
allowing the appeal, that when a transaction had been reduced into or recorded in writing by agreement
of the parties, extrinsic evidence is in general inadmissible to contradict, vary, add or subtract from the
terms of the document. In Wilson v Brobbey, in an action to recover the value of goods credited to the
defendant by the plaintiff, the plaintiff tendered in evidence an invoice signed by the defendant.
Although the defendant who was a literate admitted signing the document, he contended signing it as a
guarantor on behalf of one A and not as the purchaser and he had not read the document. In an appeal
by the defendant, it was held dismissing the appeal that where parties had embodied the terms of their
contract in a written document, extrinsic or oral evidence would be inadmissible to add to , vary,
substract from or contradict the terms of that agreement.

EXCEPTIONS TO THE PAROLE EVIDENCE RULE:

 Parole evidence may be admissible to establish or prove the existence of a collateral contract De
Lassale v Guildford
 The parole evidence may be admissible to establish a vitiating factor such as duress, fraud,
misrepresentation, undue influence etc. Curtis v Chemical Cleaning and Dyeing Co.
 Parole evidence may be admissible to establish the plea of non est factum (not my deed). Gallie
v Lee
 The parole evidence may be used to show that the operation of a contract has been suspended
until the occurrence of some event. Pym v Campbell
 Where the word or phrase in a written document is ambiguous the parole evidence is admissible
to explain such word or phrase. Robertson v Jackson.
 Where it can be shown that a written document is incomplete in that it was not intended to
contain all the terms of the contract, then extrinsic evidence may be admitted to fill the gaps.
Allen v Pink
 Where it is shown that a written document was it neded to record a previous oral agreement
and does not accurately reflect the pervious oral agreement, extrinsic evidence will be
admissible to ‘rectify’ or correct the written document prior to its enforcement. Joscelyne v
Nissen

SIGNED CONTRACTS

DISCHARGE OF CONTRACT

Under what circumstances will a party to a contract be freed or discharged from performing his
obligations under the contract? There are several ways: Discharge by agreement, performance, breach
or frustration.

DISCHARGE BY AGREEMENT

The parties to an existing contract may enter into a subsequent contract to extinguish their rights and
obligations under the earlier contract. Fish & Meat Co Ltd v Ichnusa Ltd: By a written contract dated 3
December 1961 the defendant who owned a fishing vessel agreed to sell all their fish catches exclusively
to the plaintiffs. The defendants were however to maintain their own vessel and crew. The same parties
entered into another contract on December 29 1961 whereby the plaintiffs were to purchase the
defendants’ fishing vessel. AT the trail, evidence was led to show that in the plaintiffs’ reply to a letter
written by the defendants, the plaintiffs referred to some of the terms of the December 4 Contract. On
May 3 1962 the plaintiff informed the defendants in a letter that they were no longer going to purchase
the vessel. On the July 17 1962, the vessel arrived in Ghana and the plaintiffs nevertheless started
business with it, paid for its maintenance and the salaries of its crew. They alleged that the defendants
later took possession of the vessel, sold all its fish catches and threatened to remove it from Ghana. The
plaintiffs therefore sued inter alia for accounts of all fish sold and payment to them of all the proceeds
from the sales.

The court held that an existing contract can be discharged by mutual agreement and expressly by
another contract or agreement in which a clear intention to discharge the previous contract is shown. In
the instant case, the December 4, 1961 contract was extinguished by the December 29, 1961 contract
since the character and terms of it were different from and inconsistent with the December 4, 1961
contract. The court noted that the December 4, 1961 contract could not be said to have been revived by
the plaintiff’s letter referring to the terms of the December 4, 1961 contract after execution of the
December 29 1961 contract to regulate the contractual relations of the parties.

In certain cases the parties’ intentions may be to extinguish the former written contract and replace it
with a new and self-contained agreement. The result of such an agreement is that the earlier written
contract is deemed to have been rescinded and substituted with the new agreement. In Japan Motors
Trading Co. Ltd v Randolph Motors Ltd, the plaintiffs entered into an agreement to sell their motor
workshop to one JKR. Subsequently, JKR floated the defendant as a limited liability company and a new
agreement was entered into a between the plaintiffs and the defendants on the same terms as between
the plaintiffs and JKR. The plaintiffs brought an action to recover the outstanding sale price. The
defendants resisted and contended, inter alia that the earlier agreement with JKR did not bind them.

The court held that the parties themselves agreed to substitute the subsequent agreement for the
previous one. Thus with the consent of all the parties , the transaction in the previous agreement was
incorporated in the new one and the defendants were substituted for JKR, thereby discharging him from
his obligation under the agreement.

DISCHARGE BY PERFORMANCE
Generally, a party must perform all his obligations under a contract completely and exactly in order to
be discharged from further performance or in order to be entitled to sue to enforce the other party’s
performance. As a general rule, where one party tenders defective or incomplete performance of an
entire contract the other party is discharged from his liability to perform his side of the contract and the
performing party cannot sue to recover payment for partial or defective work done. In Cutter v Powell,
the defendant agreed to pay Cutter 30 guineas if he performed his duties as a second mate on a ship
sailing from Jamaica to Liverpool. Cutter proceeded to act as mate on the ship, but died 19 days before
the ship arrived at Liverpool. Cutter’s widow brought an action to recover a portion of the agreed sum.
In Sumpter v Hedges, the plaintiff had agreed to erect on the defendant’s land two houses and stables
for a fixed sum. Plaintiff did part of the work and abandoned the contract and the defendant had to
complete the buildings himself. The plaintiff sued to recover the value of the work he had done. It was
held that the plaintiff could not recover the value of the work done. He had failed to perform completely
and, therefore, was not entitled to payment.

Re Moore v Landauer, the defendants agreed to buy from the plaintiffs 3,000 tins of canned fruit from
Australia to be packed in cases containing 30 tins. When the goods were delivered it was found that a
substantial part of the consignment was packed in cases containing 24 tins, even though the agreed
number of tins was delivered. The court held that the defendants were entitled to treat themselves as
discharged from their obligation to accept the goods or to pay for them i.e. the defendants were entitled
to reject the whole consignment on the ground that the plaintiffs failed to perform their obligations in
accordance with the terms of the contract. Also in Bolton v Mahadeva, the plaintiff contracted to install
a central heating system in the defendant’s house for the sum of 800 pounds. He installed the system
but it did not work well and the defendant refused to pay for it. The court held that the plaintiff could
recover nothing.

As cold be noticed above, the application of the general principle could lead to the unjust enrichment of
one party to the contract. A number of principles have therefore been developed to deal with such
situations.

DOCTRINE OF SUBSTANTIAL PERFORMANCE

According to the principle of substantial performance, if the performance tendered falls short of the
required performance only in some relatively trivial respect, the party not at fault is not completely
discharged from performance. He must pay the price agreed upon for the work done or the services
rendered, but may counterclaim for the loss he has suffered by reason of the incomplete or defective
performance.

What constitutes substantial performance of a contract depends on the nature of the contract and all
the circumstances. The courts look at the nature of the defects in performance and the proportion
between the cost of rectifying the defects and the total contract price. Generally, where the cost of
rectifying the defects in performance is relatively small proportion of the total contract price, the courts
are likely to consider the contract as substantially performed. In Howenig v Isaacs, the parties entered
into a contract for the decoration of a one-roomed flat. The plaintiff, the decorator, had completed the
work but there were certain defects, which would cost 56 pounds to repair. The total contract price was
750 pounds. The court held that looking at all the relevant circumstances, the contract had been
substantially performed and, therefore, the plaintiff could sue for the contract price, subject to a
counterclaim by the defendant for damages for the cost of repairing or rectifying the work done.

ACCEPTANCE OF PARTIAL PERFORMANCE

The second exception to the rule of exact and precise performance is partial performance. Even though
a promisor has only partially performed his obligations under the contract, he will be entitled to
payment for his part performance if it can be inferred from the circumstances that there was a fresh
agreement between the parties, under which the promise agreed to pay for het partial performance
tendered. This inference is made when the other party having the option either to accept or reject the
partial performance, chooses to accept and keep the benefit of eth partial performance. In this case the
party who tendered the partial performance can sue on quantum meriut (for a reasonable price for
work done) or quantum valebat (reasonable sum for goods actually supplied) to recover payment that is
commensurate with the benefit bestowed on the other party. The principle is clearly illustrated in
section 14(1) of the Ghanaian Sale of Goods Act, which states: ‘Where the seller delivers to the buyer a
quantity of goods less than he contracted to sell the byer may reject them but if he accepts the goods so
delivered, he must pay for them at the contract rate.” In Mabsout v Fara Bros (Ghana) Ltd, On the basis
of an oral agreement, the appellant performed managerial duties for the respondents as their
representative in Kumasi. Upon being summarily dismissed he brought an action claiming 6000GH
pounds being reasonable remuneration for work done for the respondents. It was dismissed by the HC
judge but on appeal, it was held that the acceptance by the respondents of het services rendered by the
appellant at the request of the respondents raise a presumption in law of a promise to pay a quantum
meruit basis for the services rendered.

It should be noted that the performing party will only be entitled to sue on quantum meruit if the party
not in default had the option either to accept or reject the partial performance, not if it was forced on
him against his will.

PREVENTION OF PREFORMANCE BY PROMISEE

The third exceptional situation arises where a party who has only partially performed his obligations
under an entire contract is prevented through the fault of the other party from completing his
obligations under the contract. In such a case the law allows the performing party two options: (a)He
can either sue to recover damages for breach of contract; or (b) He may sue to recover reasonable
remuneration on quantum meruit for the work he has done. The leading authority for this principle is
Planche v Colburn, the plaintiff had agreed to write a book on costume and ancient armour for
publication by the defendant as part of a series being published by the defendants. It was agreed that
the plaintiff would receive 100 pounds on the completion of the book. He collected material and wrote
part of the book, but the defendant abandoned the series altogether before the plaintiff finished writing
the book. The plaintiff brought the action claiming payment on quantm meruit. See also the Supreme
court case of Skanska Jensen International v Klimatechnik Engineering Ltd

DIVISIBLE CONTRACTS

Generally, a contract is divisible when the obligation to pay for one part of the contract is independent
of performance of the other parts. Where the contract is divisible, completion of each distinct part or
each stage entitles the performing party to payment and the obligation to pay arises independently of
performance of the whole contract.

DISCHARGE BY BREACH: Another ground for the discharge of contract is the breach of the contract by
one party. In certain cases, a breach by one party releases or discharges the other party from his duty to
perform his obligations under the contract. The first point to note is that a breach of contract, no matter
what form it takes, always entitles the innocent party to maintain an action for damages. However, it is
not every breach which discharges the innocent party from his liability or obligation to perform. The
right of a party to treat a contract as discharged arises only in two kinds of cases:

1. Firstly, where the party in default has repudiated the contract before performance is due or
before the contract has been fully performed. Where the party in default repudiates the
contract before performance is due, such repudiation amounts to anticipatory breach.2.

2. Secondly, where the party in default has committed what is described as a fundamental breach
of the contract. A breach is said to be fundamental if, having regard to the contract as a whole,
the promise which has been violated is of relatively major importance to the contract.

ANTICIPATORY BREACH: Repudiation occurs when a party by his words or conducts demonstrates
that he does not intend to perform his obligations under the contract. It is an absolute refusal to
perform communicated either by words or by conduct. Such repudiation amounts to anticipatory
breach where the party in default renounces his obligations under the contract even before the time
fixed for performance. Repudiation may be explicit or implicit. It is explicit where the defendant
expressly declares that he will not perform the contract when the time for performance arrives.
Repudiation is implicit where the reasonable inference that can be made from the defendant’s conduct
is that he no longer intends to perform his side of het contract. In Frost v Knight, the defendant
promised to marry the plaintiff after the death of the father, the defendant then broke off the
engagement during his father’s lifetime and the plaintiff brought the action for damages for breach of
promise to marry. The plaintiff succeeded.

Before the other party can treat himself as discharged, it has to be established that the defaulting party
made his intention clear beyond reasonable doubt that he did not intend to perform his side of the
contract. In other words, there must be an absolute refusal to perform before there can be said to be
repudiation. To prove such an intention the courts look at the nature of the contract the surrounding
circumstances and the motives which prompted the alleged repudiation.it must be noted that even if
one party repudiates the contract or commits an anticipatory breach, the contract does not end
automatically. Since the parties voluntarily agreed to enter into the contract they must also both agree
or consent to its termination. Thus where one party to a contract commits an anticipatory breach of the
contract the party not in default has the following options: (a) he may treat the contract as at an end or
as conclusively discharged and sue for damages immediately; or (b) He may affirm the contract and treat
it as still being in force in spite of the other party’s breach until the date fixed for performance arrives.