LEGAL ENVIRONMENT

OF BUSINESS

FORMATION OF CONTRACTS
Definition of contract
• Difficult to define- “a contract is a legally
enforceable agreement.”

Prof. Bondzi-Simpson - A contract is an

agreement between parties who have
capacity, for a price measured in terms of
money, effort, forbearance or exchange of
promise, which agreement is intended to bind
the parties and is enforceable by a court of
law “ .
ELEMENTS/INGREDIENTS OF A VALID
CONTRACT

• Agreement (offer and acceptance)

• Capacity
• Consideration
• Intentions to create legal relations
• Legality of object
 OFFER
AND
ACCEPTANCE
 Meaning of offer
Definitions:
1) An offer is a definite promise to be bound
provided that a certain specified terms are
accepted.

2) It is an expression of willingness to contract on

specified terms.

3) An offer is a proposal by one party to the other

party by which he promises to do or give or
forbid from doing a specified thing.
 Meaning of offer
 For an offer to be valid it:
 Must be communicated, so the offeree may accept or reject it.

 Must come with commitment

 Must have specific terms

 Can be conditional or absolute

 Example of offer:
 I will sell my Toyota VENSA car for GHS3,500 cash
 The one who makes the offer is the offeror and the one to
whom the offer is directed to is the offeree.
 Examples of offers
1. Public transport: as was the case in Wilk ie v. London Passenger Transport Board.
2. Bidding at an auction as was the case in Harris v. Nickerson.
3. Submission of a tender
4. Application for employment

An offer must be distinguished from an Invitation to treat.

 Meaning of offer
An offer:
May be communicated
 Expressly (writing/orally) or
 impliedly

Can be made to a/ the

 definite person,
 group of persons or
 whole world.
 Where and when an offer
takes effect
 An offer cannot take effect until it is heard and
received.

 An offer which is not heard or not received has no

legal effect

 An offer takes effect immediately the offeree hears of

it or receives it.

 If an offer is sent through the post the offer is not

necessarily made the very moment the letter is posted
 Specific V. General offers
 A specific offer is an offer which is directed to
a named offeree or group of offerees.
 Specific offer can only be accepted by the
person or any member of the group to whom
the offer is made.

 A general offer is the offer that is made to the

whole world.
 General offer can be accepted by any person
anywhere.
 CARLILL V. CARBOLIC SMOKEBALL CO.
1. In Carlill v. Carbolic Smoke Ball Co, the defendant company manufactured and owned a drug
name the “Carbolic Smoke Ball” which the company thought was the best cure for
influenza, cold and other diseases associated with taking cold water. The company put an
advertisement in a newspaper to the effect that a £100 reward would be given to any
person who contracted influenza or related diseases after taking the smoke ball as
prescribed i.e. 2 tablets, 3 times a day for 2 weeks. The advertisement further stated that
the company had deposited £1000 with the Alliance Bank on Reagent Street as a sign of
their sincerity in the matter. Mrs. Carlill who had read the advertisement bought and took
the Smoke balls as prescribed but contracted influenza. The company rejected her claim
and she sued. The company argued that the advertisement;

a. Was nothing but mere sales talk

b. Was not an offer to the whole world

c. Was not intended to create legal relations

The Court of Appeal held that though the wording of the advertisement was unclear, it amounted
to an offer to the whole world and the person who fulfilled its conditions, contracted with the
company hence Mrs. Carlill was entitled to the £100 reward.
 What an offer is not
The following cannot be treated as offers:
 A mere request for information

 A mere indication of good intention

 A mere puff or boast

 Invitation to treat
 Mere request for information
 This is an inquiry made by the offeree directed at
the offeror for the supply of information.

 It is merely regarded as part of negotiation and

not an offer in itself.

 In Harvey v. Facey, the plaintiff sent a telegraph

to the defendant in the following manner, “Will
you sell us Bumper Hall Pen? Telegraph lowest
price.”
 The court declared the statements to be a mere
A mere indication of good intention
 This is a statement where one offer to show that he/she is
serious about a particular transaction

 In Kessie v Charmant and Another, The plaintiff agreed to

use his connections with the Liberian president and other
high-ranking officials to help the defendants get a timber
concession in Liberia. In exchange, the plaintiff was
promised 5% of the company owned by the defendants
and some money.
 The plaintiff succeeded in procuring the concession but the
defendant refused to provide the benefit to the plaintiff.
 It was held that the defendants’ claim was not an offer but just
a declaration of good intention.
 See also: Harris v. Nickerson (1873)
 A Mere Puff or Boast
 This is a statement that no reasonable person
would take seriously because it is an obvious
exaggeration.

 It is often made in advertisement with claims

such as, “Omo washes brighter and removes all
stains.”

 If anyone buys and uses it and it could not

remove all stains, it does not become actionable.
 An invitation to treat
 This is when one party invites another party to
make an offer.

 Its an indication that the invitor is willing to

enter into negotiations but is not prepared to
be bound immediately

 A response to an invitation to treat does not

lead to an agreement (hence no contract).
 An invitation to treat
Invitation to treat may take following forms:
1) DISPLAY OF GOODS FOR SALE:
 The display of goods on a shop window with
prices marked on them or not.

In Fisher v. Bell, it was held that the display of

goods on a shop window with prices marked
on them amounts to an invitation to treat
and not an offer to sell the goods at the
prices indicated.
 An invitation to treat
The display of goods on the shelves of a self
service store with prices marked on them(sale by
self-service).

In the case of Pharmaceutical Society of Great

Britain v. Boots Cash Chemists, the court held
that the “offer for sale” could only properly be
said to have been made at the time when the
customer who picks the drug then decides to
present it to the sales girl or boy in order to
pay for it, the offer being made rather by the
customer.
 An invitation to treat
2) AUCTION SALE
 The auctioneer at an auction is considered in law to
be making an invitation to treat when he puts up an
item for bids.

 The people who make the bids are the ones making
the offer to buy the item.

 The auctioneer accepts the offer by the fall of the

hammer or by any customary way.
 An invitation to treat
3) ADVERTISEMENT (some) FOR SALE
 Generally Advertisements are not offers, acceptance of which will amount to contract.

 Advertisements made in newspapers are invitation to treat.

In Dormenyor v. Johnnson Motors Ltd., a newspaper advert which said that the
defendant had spare parts and could repair damage cars including Peugoet cars was
considered by the High Court to be an invitation to treat.

4) TENDERS
The request for tenders represents an invitation to treat and each tender submitted
amounts to an offer unless the request specifies that it will accept the lowest or highest
tender or other condition.
Spencer v Harding Law Rep. 5 C.P.561

5) CATELOGUES AND
6) PROSPECTUSES
 Counter offers
 A counter offer is made when the offeree
makes modification or alteration in the
proposal given by the offeror before he /she
can accept it.

 A counter offer has two effects:

1) It cancels or nullifies the original offer.
2) It replaces the original offer and it becomes a
new offer altogether.
Case: Hyde v Wrench
 Cross offers
 Cross offers refer to offers that are made simultaneously between two
parties.

 The parties are each other offerors with respect to their own individual
offers and at the same time they are both offerees too among themselves.

 The legal effect of cross offers is that, even if the two offers contain the
same terms, there can be no contract created between the two parties
unless one of them turns around to accept the other’s offer.

 Cross offers are when two people make offers to each other at the same
time. Neither offer is accepted until one of them agrees to the other's
offer. If both offers are the same, then no contract is created until one of
them accepts the other's offer.

 See Tinn v. Hoffiman &Co

 Standing offer
• A standing offer arises when a person’s tender to supply goods and service to another is
accepted. Such acceptance is not an acceptance in the legal sense. It merely converts the
tender to a standing offer for the duration specified if any. The offer is promising to supply
the goods or services on request and is bound to do so where a requisition is made.

• : A standing offer is an agreement between two parties where one party offers to provide
goods or services to the other party on request. The offer is open for a certain period of
time and the other party can make requests for the goods or services during that time.

• Any requisition of goods or services by the offeree amounts to acceptance and failure to
supply by the offerer amounts to a breach of contract.
• If someone offers to provide goods or services, and the other person agrees to buy them,
then the offer has been accepted. If the person who offered the goods or services then
fails to provide them, they have broken the contract.

• As was the case in Great Northern Railway Co Ltd v. Witham. The plaintiff company
invited tenders for the supply of stores for 12 months and Witham’s tender was accepted.
The company made a requisition but Witham did not supply the goods and was sued. It
was held that he was liable in damages for breach of contract.
 Standing offer
• In standing offer, the offeror is free to revoke the offer at
any time before any requisition is made, unless the offeree
has provided some consideration for the offeror to keep the
standing offer open.

• This consideration is referred to as ‘an option’. This is an

agreement between an offeror and the offeree by which an
offeree agrees to keep his offer open for a specified
duration. In this case, the offeror cannot revoke the offer.

• In a standing offer, if no order to requisition is made by the

offeree within a reasonable time, the standing offer lapses
 Termination of offers
 An offer may be terminated and when this
happens, then it can no longer be accepted.

 An offer may be terminated by the following ways:

1. By withdrawal
2. Lapse of time
3. Death
4. Rejection
5. Non occurrence of a condition
6. Acceptance
7. Insanity
 1) Withdrawal
 An offer may be withdrawn at anytime before acceptance

 In Routledge v. Grant, it was held that Grant was entitled to withdraw

his offer at anytime once it had not yet been accepted.
 ROUTLAGE V GRANT
 The defendant offered to buy the claimant's home lease, and said the
offer would stay open for six weeks. Before the six weeks were up, the
defendant changed his mind and tried to withdraw the offer. However,
the claimant accepted the offer before the six weeks were up.

 The revocation of the offer is effective only when it is communicated

 The postal rule is not applicable here (see ADAM V LINSHEL)

 2) Lapse of time
 An offer may be terminated after the
stipulated time has expired

 If no time is specified, the offer is said to

expire after a reasonable time

 What is a reasonable time is a question of fact

 3) Death
 Death of either party before acceptance terminates
an offer

 The termination takes effect from the moment the

survivor gets to know about the death of the
deceased.

 If the identity or service of one of the parties is

vital to the contract, then the termination of the
offer takes effect from the moment of the death
irrespective of what time the survivor actually got
to know about the deceased death.
 4) Rejection
 An offer can be rejected by the offeree once he
communicates such an intention

 Once an offeree has rejected an offer, he

cannot go back and purport to accept it.

 When a counter offer is made, it rejects the

original offer thereby wiping the existence of
the pre-existing offer
 5) Non occurrence of a
condition
 An offer may be subject to the occurrence of a
condition or contingency.

 If these conditions to which the offer is subject

fail to occur, then the offer can be said to have
been terminated.

 Note the non occurrence of a condition

situation
 6) Acceptance
 When a valid acceptance has been made to a
valid offer, it has the effects of merging with
the offer to produce a new thing called an
agreement (Consensus Ad Idem) and together
with other elements -contract.

 The offer is then said to have come to an end

 7) Insanity
• The unsoundness of mind of either party
terminates an offer.

• However, the offer only lapses when notice of

the insanity of the one is communicated to the
other.
 Promise to keep an offer open
 This is when an offer contains a promise not to
revoke the offer for a specified period of time.

 Unless the specified time has elapse the

offeror cannot make the same offer to another
person.

 At common law a promise to keep an offer

open is not enforceable unless it is backed by
consideration.
Ghana Contracts Act & Promise to
Keep offers Open
 The common law position causes hardship on
the offeree.

 Under Ghana law, a promise to keep an offer

open can be enforced

 There will be a breach of contract for the offeror

to revoke the promise while the time agreed for
exercising the option has not expired
 Acceptance
 An acceptance is a final and unqualified assent to all
the terms of the offer

• This is the external manifestation of assent by the

offeree. It gives rise to an agreement between parties.

• In legal theory, an agreement comes into existence at

the subjective moment when the minds of the parties
meet. This moment is referred to as Consensus ad
idem (meeting of minds).

• However, this subjectivity must be externally

 Acceptance
 valid acceptance must:
 Be made while the offer is still in force
 Offeree must have been aware and intended to accept the offer
 Be made by the offeree
 Acceptance must be communicated to the offeror in the
prescribed method if any or an equally expeditious method.
 Be written, oral or implied from conduct (forms)

 Must be unconditional and unqualified(Exactly match the

terms of the offer)
• A purported acceptance which does not accept all the terms and
conditions of the offer but which in fact introduces new terms is not
acceptance but treated as counter offer (see Hyde v. Wrench)
 Acceptance

 The offeror may require acceptance to be made in a

particular way:

 If mandatory - must be followed.

 If not mandatory – use another equally effective method.

 Where the offer is made in alternative terms, the

acceptance must make it clear to which set of terms it
relates.

 A person cannot accept an offer of which he has no

knowledge
Communication of Acceptance
 Acceptance must be communicated by the
offeree or his agent.

In Powell v. Lee, an unauthorised

communication by one of the managers that
the Board of Managers had selected a
particular candidate for a headship was held
not to be a valid acceptance.
 Silence as Communication
 An offeror may stipulate that silence of the
offeree is to amount to acceptance. BUT NO!!

 …………unless its per their course of dealing.

 In Felthouse v. Bindley, the plaintiff wrote to

his nephew offering to buy a horse, and adding,
‘if I hear no more … I will take it that the horse
is mine’. The nephew did not reply to this letter.
It was held that acceptance had not been
communicated to the offeror.
 Silence as Communication
 The Felthouse case does not mean that silence can never amount to acceptance.
 The Felthouse v Bindley case is a landmark case in English contract law that established that silence
cannot be taken as acceptance of an offer. This case was later rethought in the Brogden v.
Metropolitan Railway case, which stated that acceptance can be communicated through conduct.
 Brogden v. Metropolitan Railway case, Metropolitan Railway Company and Brodgen had been doing
business together for a long time without a formal contract. Brodgen suggested that they draw up a
contract, so Metropolitan drew up a draft agreement with some parts left blank for Brodgen to fill
in. Brodgen filled in the blanks and added an arbitration clause, then signed the bottom of the
agreement and sent it back to Metropolitan. Metropolitan did not respond, but the parties
continued to do business in accordance with the terms of the draft agreement. When a dispute
arose, Brodgen denied that any contract had been formed between them, so Metropolitan sued
Brodgen for breach of contract.
 Held: The House of Lords held in favour of Metropolitan. The parties’ conduct established that
there was a contract between them, and Brogdan was in breach of it

 If the offeree had relied on the offeror’s statement that he need not communicate his acceptance, and
wished to claim acceptance on that basis, the court could decide that the need for acceptance had
been waived by the offeror (thus, through course of dealing). Or

 This is known as Silence by conduct

 Exceptions to the rule that
acceptance must be communicated
 In a unilateral contract where communication is
expressly or impliedly waived (Carlill v. Carbolic
Smoke Ball Co Ltd)

 Communication to authorised agent of the offeror

 Where failure of communication is the fault of the

offeror- estoppel (Etores’ case)

 Where the postal rule applies

 The Postal Rule
 The postal rule says that acceptance takes place when a letter is properly posted, not when it
is received

 Proper posting- letter correctly addressed, stamped & placed in the post box.

 Acceptance is effective on properly posting, even when the letter is lost in the post. (see
Adams v. Lindsell)
• Adams wrote to Lindsell offering to sell him 800 tods of wool. Adams asked for a response
within two weeks. A few days later, Lindsell wrote back agreeing to the offer. However, the
letter was misdirected. As a result, it arrived two days after the deadline. In the meantime,
Adams had already sold the wool to a third-party. Lindsell sued Adams for breach of
contract.

 Note:
1) Acceptance of an offer takes place when a letter is properly posted

2) Revocation of an offer takes place when the letter of revocation is received- no postal rule
 Limitations to the postal rule
 It only applies to acceptance

 It only applies to letters and telegrams. It does not apply to

instantaneous methods of communication such as telex, fax or mail

 It must be reasonable to use the post as the means of

communication

 Letters of acceptance must be properly posted, thus properly

addressed, stamped and posted

 The rule is easily displaced, for example, it may be excluded by

the offeror either expressly or impliedly (WAIVER)
CONSIDERATION
 Introduction
 For a promise to sustain an action on a promise, the promise
 must have been made in a deed or
 must be backed by consideration.
 For a promise to be legally binding, it must have been made in a
written document (deed) or must have been exchanged for
something of value (consideration). This means that if someone
makes a promise to do something, they must have given
something in return for that promise to be legally binding.

 A person who has not provided consideration is called a

‘volunteer’.
 Meaning of Consideration
 Consideration is the price paid by one in order to secure the
obligation by the other party.

 Consideration can also be regarded as something done or

promised by one party in exchange for something done or
promised to be done by the other party.

 In Dunlop v. Selfridges, consideration was defined as

“ an act or a forbearance of one party or the promise thereof is the
price for which the promise of the other is bought, and the promise
thus given for value is enforceable.”
When one person does something or promises to do something for
another person, the other person promises to give something in
return. This promise is legally binding and can be enforced in court.
Definition of Consideration
According to Currie v. Misa
A valuable consideration consist of the following:
 Either some right, interest, profit or benefit to one
party; or
 Some forbearance, detriment, loss or responsibility
given, suffered or undertaken by the other.

In short, consideration is
A benefit to one party or a detriment to the other
(but this has been highly criticized for its
purported unidirectional effect)
 Definition of Consideration
Mutual promises are the basis of consideration

The basic feature of consideration is

reciprocity

Consideration may be
 expressly stated or
 implied.
 Forms of Consideration
1) An act: That is doing something that the other person has
specifically requested, (see Kessie v Charmant & Another)

2) Forbearance to act: That is, not acting or exercising one’s

right at the instance of the other party, (see Bank of West
Africa Ltd v Appenteng and Another)

3) The exchange of promises: Mutual promises constitute

consideration, (see Afrifa v Class Peters)

4) Acting on the basis of another’s unilateral offer. (see

Carlill v Carbolic Smoke Ball)
Adequacy of Consideration
 The consideration provided by one party need not
equal in value to the consideration provided by the
other party.

 Consideration need only have ‘some value in the eyes

of the law’.

 The court does not consider whether a party has made

a good bargain

 Adequacy means ‘quid pro quo’ – something for

something, irrespective of how little or big the
consideration may be.
 Sufficiency of Consideration
 Consideration must be sufficient and not necessarily adequate

 The consideration must have some value in the eyes of the

law

 A too little or too big consideration is regarded by the court

as a sufficient consideration

 Paying GHS500 in exchange for a saloon car is a sufficient

consideration

 Courts are not interested in whether the consideration given is

the same as the consideration received (see sanctity of
contract)
 Types of Consideration

• Executed consideration

• Executory consideration

• Past consideration
Executed Consideration
 Executed consideration normally occurs in
unilateral contracts

 Consideration is executed if the contractual

terms are fully set out and that a party has
performed an act in accordance with the terms.

 If X offers a reward to anyone who finds and

returns his lost dog, the return of the dog by Y,
the performance of the act by Y constitute the
required consideration.
Executed Consideration
 Executed consideration is also referred to as
present consideration

 If Kofi agrees to sell his bicycle to Ama who

agrees to pay GHS500. If Ama pays the money
in return for the bicycle at the time the contract
is made, this is present consideration

 See
 Lartey v. Bannerman
 Carlill v. Carbolic Smokeball Co.(1893)
 Executory Consideration
 Its also called future consideration.

 It’s a promise to do something in the future.

 The act that is consideration is to be performed

at a time after the contract is made.

 Consideration is executory to a party if the

contractual terms are fully set out but one party
is yet to perform his contractual obligation
 Past Consideration
 Its when something is already completed before the promise or the
contract is made

 Past consideration has no legal effect

 When John promises Kwadwo GHS500 because Kwadwo weeded

John’s garden the previous day.

 see
 Re McArdle :Mrs McArdle spent her own money to improve an
inherited property. She got the owners of the inherited property to
sign a document promising to repay her for the cost of the
improvements. However, when she tried to get the money back, the
owners refused to pay.

 Roscorla v Thomas
 Promissory and Propriety
Estoppel
 Promissory estoppel (equitable estoppel) is a doctrine whereby a person may
be prevented from denying a statement of fact that he has made and which
another has subsequently relied on it ( to his or her detriment).
 Hughes v Metropolitan Railway Co
 The lessor gave the lessee a repair notice in October, which was due to
expire in April the following year. The lessor then tried to buy the property,
but negotiations ended in December without a sale. When the lessee failed
to make the repairs by April, the lessor tried to evict them. The lessee
argued that they should be given a chance to make the repairs and not be
evicted.
 The Court held in favour of the lessee. The negotiations suspended the
repair notice for their duration. The lessor had therefore tried to evict the
lessee before the notice expired, which equity would protect against.

 Promissory estoppel arises when one has done acts in reliance on the belief
that he has or that he will acquire rights in or over another’s land.
 Part payment of a debt
 At Common Law, payment of a smaller sum of a
debt does not discharge a larger debt

 A creditor is not bound by an undertaken to accept

part-payment in full settlement of a debt

 Yaw owes Comfort GHS1000 and Comfort agrees

to accept GHS800 from Yaw in full satisfaction of
a debt. At Common Law, Comfort can come back
at a later date to claim the balance despite the
former agreement. (see Pinnel’s case)
 Notable Modifications to the Doctrine of
Consideration

The Contracts Act, 1960 has made some

exceptions in the doctrine of consideration.
These exemptions are:
1. A promise to keep an offer open for a
specified period
2. Part payment of a debt
3. Performance of an existing duty
4. The rule that consideration must move from
the promise
Promise to keep an offer open
 A promisor who has promised to keep his
offer open for a specified period is not at
liberty to withdraw his offer before the
expiration of that period on the grounds that
the promisee has not provided any
consideration for the offer.
 ( Routledge v Grant)

 The offeree has promised to make effort to

raise the money to enable him accept the
offer
Part Payment of a Debt
A creditor who promises, without
receiving consideration for the
whole or a part of the debt or to
waive the performance of some
other contractual or legal obligation
can be held to his promise.
Performance of Existing Duty
 By virtue of the contracts Act, 1960 even if one
is legally bound to perform a legal duty, the
performance or promise to perform that act may be
sufficient consideration.

 In the case of Kessie v Charmant and

Another, the ambassador’s performance,
although enjoined by law, was held to be
sufficient consideration.
 The Rule that Consideration must move
from the Promisee

 The Contracts Acts, 1960 now makes it

possible for consideration be supplied by
someone other than the promisee.

 The beneficiary need not be the promisee.

 Consideration can be given by someone else

and it will be valid to enforce an action by the
promisee
 Privity of contracts
• Under common law two categories of persons may
sue to enforce a contract
– A party to a contract
– someone who is not a party to the contract, but who is
entitled to receive a benefit from it.

• In Ghana a third category namely a person who is

directly affected by the contract although not a party
to the contract may rely on grounds of public policy
to have it declared void or unenforceable

• Case review: Accra Brewery Co Ltd. V. Guiness

Ghana Ltd (1999)
 Privity of contracts
• The general rule is that a stranger is not liable on a
contract and cannot thereby enforce any benefit from a
contract
– case example Neoplan (Ghana) Ltd v Harmony
Construction Ltd : The plaintiff, a Ghanaian firm, repaired a
truck for the defendant and submitted a bill for payment.
The defendant refused to pay, claiming that they had a
service agreement with their vendor for the free
replacement of a defective part. The plaintiff then sued the
defendant for non-payment
– The High Court rejected their contention because the
relationship between the defendant and the vendor of the
truck in question had nothing to do with the work the plain-
tiff had done for the defendant. The defendant was ordered
to settle the plaintiff's bill.
 Privity of contract contd.
• A stranger is therefore as a rule not liable on a
contract and cannot enforce any benefit from a
contract. This is referred to as the doctrine of
privity of contracts.
• Its basis is in mutuality: if a stranger cannot be
sued on a contract, a stranger cannot sue on it
either. Refer to Dunlop Pneumatic Tyre Co
Ltd v. Selfridge & Co Ltd (1915)
 Modification of the doctrine of privity of
contracts
• S. 5 (1) of Ghana’s contact act, 1960 modifies
the strict common law position on privity of
contracts. The section reads:
“any provision in a contract made after the
commencement of this Act which purports to
confer a benefit on a person who is not party to
the contract, whether as a designated person or
as a member of a class of persons may subject
to the provisions of this part be enforced or
relied upon by that person as though he were a
party to the contract”
 Modification of the doctrine of privity of
contracts contd.
• The effect of the S. 5 as stated is not to abolish
the doctrine of privity of contract but to extend
the benefits of contracts to third parties if so
contemplated by the contracting parties and if
sufficient consideration has been given.
• It is summed up in the words of Archer J “ here
in Ghana, the contract Act has changed the law
with a fan fare of trumpet and has made it clear
that third parties not parties to a contract can
sue but if and only if and when the contract
purports to confer a benefit on that third person”
 Exceptions and circumventions
 There are a number of situations in which the rule
preventing a third party from suing does not apply.
These exceptions exist at:
 Common law
 In equity
 By statutes
Agency – common law exception
Under agency principle, the principal,
even if undisclosed, may sue the third
party.

The maxim applicable here is that “qui

facit per alium, facit per se” – he who
does something through another does it
himself.
 Assignment – common law exception

Assignment is the process whereby a

contractual right is transferred to
someone other than the original creditor
without the consent of the original
debtor.

It is clear exception to the privity

doctrine.
 Covenants concerning land - equity

Burdens imposed on land may in

certain cases “run with the land” and
may be enforceable against
subsequent owners.

In equity, a restrictive covenant may

run with the land.
 Cont’d
If A buys land from B,
promising not to build
thereon, and A later sells
to C, C may be bound by
the restriction
 Statutory exceptions
In Ghana, the Contract Act (Act 25) and
Motor Vehicles (Third party insurance)
Act have created exceptions to the
doctrine of privity.

Under these Acts, third parties can

benefit from insurance contract made for
their benefit even though no
consideration is moved from them.
 Capacity
• Refers to the legal ability of a party to enter into a valid contract

• For an agreement to be enforceable as a contract the parties must have had the requisite
capacity.

• As a general rule, every person has a capacity to enter into any contractual relationship.

• However, in practice, the law of contract restricts or limits the contractual capacity of
certain classes of persons namely;

– Infants
– Lunatics
– Drunken persons
– Enemy aliens
– Corporate bodies
– Governments

• NB: Contracting parties may be natural persons or artificial legal persons

 Infants
In Ghana, infant according to:
• Companies Act, 1963 below the age of 21

• Children’s Act, 1998 below the age of 18

• Wills Act, 18 years can prepare a will

• Constitution -18 years are permitted to vote, to be

member of parliament at 25 years, president at 40 years

• For purpose of contract law the age of majority is 18

years
 Infants contd.
• The common law position is that an infant cannot enter into a
contract;

• precisely an infant cannot be sued nor can he sue to enforce a

contract.

• NB: an infant or minor is any person who has not attained the age
of 18.

• Contracts entered into by an infant are

 binding,
 voidable or
 void depending on their nature and purpose.
• However, infants can sue or be sued to enforce the
following types of BINDING contracts:

– Contracts of necessaries (see Nash v Inman)

– Contracts that are beneficial to infants( for education or

apprenticeship eg Roberts v Gray; Champlin v Leslie
Frewin (publishers))

– Beneficial contracts of service (contarcts of employment)

– When the infants have themselves performed their side of

the bargain( see Lartey v Bannerman[1976] 2 GLR 461,
CA)
 Infants
• There are other contracts which bind infants
unless the infants avoid them while they
remain infants or within a reasonable time after
the infants attain adulthood. -VOIDABLE

• These contracts establish durable relations,

include those relating to:
– Marriage
– Lease of real property
– Share in companies
– Partnership transactions
 Lunatics
• A lunatic is a person of unsound mind, a mentally
incompetent person, an insane person, a person who is not
mentally composed i.e. one non compos mentis.

• the insanity or the unsoundness of mind would be a good

defense to an action upon a contract, if it could be shown
that the defendant was not of the capacity to contract and
the plaintiff knew it

• The insanity must be obvious, and must exist at the time of

the contract, the insanity must be known to the other
contracting party

• Lunacy therefore makes contracts voidable not void

 Intention to create legal
relations
An agreement supported by consideration is not
binding as a contract if it was made without any
intention of creating legal relations.

Intention to create legal relations means that the

parties intend to create legal rights and duties out
of their agreement
…thus to invoke the assistance of the ordinary
courts on breach of the contract.
 Cont’d
Whether or not the agreement has
the intention to be legally binding is
divided into two broad categories.
1. Domestic agreement and
social agreement
2. Commercial agreement
 Domestic Agreement
What are domestic
agreements?
These are agreements made
between husband and wife, parent
and child, and between relatives.
 Presumption under domestic
agreement
There is the presumption that…
… the parties do not
intend to create legal
relations in the agreements
made between them.
 Husband and wife agreement
 Most agreements made between husband
and wife is not legally binding.
The leading case is Balfour v. Balfour.
In the case, a husband promised to pay £30 per
month to the wife on medical grounds.
The wife’s attempt to enforce this promise
failed for two reasons:
1. She had not provided for consideration
2. The parties do not intend to create legal
relations
 Parent and child agreements
The general rule applies to agreements
made between parent and child.

In Jones v. Padavatton, a mother

agreed to pay her daughter an allowance
if she would go to England and read for
the bar.

The agreement was considered outside

the realm of contract.
 What are social agreements?
They are those agreements between
parties who are not relatives.

They are largely acts of friendship.

Many social agreements are not contracts

because they have no legal intentions.

For example: the promise to offer a

friend a meal is not litigation.
Presumption under social agreement
The presumption is that:
Social agreements are not intended
to be legally binding.

Agreements such as provision of free

residential accommodation and
sharing of petrol cost by friends are
not intended to be legally binding.
 Social agreements and court
decisions
In Lens v. Devonshire Club, the winner of a
competition held by a golf club could not sue for his
prize because the intention was not to create legal
relations.

In Heslop v. Burns, it was held that the provision of

free accommodation for close friends did not amount to
contracts as it was an act of bounty.

In Coward v. Motor Insurers’ Bureau, an arrangement

for sharing petrol costs where a person is given a lift to
work was held not to be a contract.
 Rebuttal of the presumption
Sometimes the parties under social and domestic agreement
intend to be legally binding.

In Parker v. Clark

The Clarks were an elderly married couple who asked Mrs
Parker and her husband to move in with them. Mr Clark
promised to give their home to Mrs Parker, her sister and her
daughter when they died. The Parkers sold their own house and
moved in, but the Clarks later told them they had to move out.
The Parkers then sued the Clarks for breaking their promise.
Held
Devlin J ruled that the Clarks must pay the Parkers for any
losses they suffered because the Parkers trusted the Clarks'
promise that they would have a place to stay..
 Examination of the cases
1. The presumption is overturned where the spouses are not
living together in amity at the time of the agreement as is.
2. Merritt v. Merritt
Mr Merritt and Mrs Merritt jointly bought a property together,
but Mr Merritt was living with another woman. He agreed to
give Mrs Merritt sole ownership of the property if she paid off
the balance on the mortgage, but after she did, he refused to
transfer the property to her.
Held :
Mr Merritt was instructed to transfer the property to Mrs
Merritt's name.

3. The presumption does not apply where the spouses are about
to separate, or are separated, or are contemplating to divorce,
or are divorced
 Cont’d
3. Despite the presumption, it is possible for a
husband to make a binding contract with his
wife. In Pearce v. Merriman, it was held that a
husband can be his wife’s tenant.

4. In Tanner v. Tanner, it was held that binding

separation agreement are often made when
husband and wife agree to live apart.
 Meaning of commercial agreements
Commercial agreements are those of
business nature and cover a very
large subject area.

Business agreements are the legally

binding

The test used here is the objective

one.
 Presumption under commercial
agreements

Here, it is presumed that the parties

intended to create legal relations and
make a contract.

Examples of contracts that are of

commercial nature include the cases
of Carlill V. Carbolic Smoke Ball
Co., Edwards V. Skyways Ltd. etc.
 Rebuttal of the presumption
The presumption is that the parties intended to
create legal relation in commercial agreements.
In some specific case(s), the presumption may be
rebutted.
The parties may expressly say that their
agreement is not to be binding in law.
Cases:
1. Rose and Frank V. Crompton,
2. Esso Petroleum Ltd v. Commissioners of
Customs and Excise etc.
 Exception of commercial agreement
• Rose & Frank Co v JR Crompton & Bros Ltd
• The claimant and the defendant made a deal where the claimant can buy products from the
defendant and then sell them as if they were the defendant's own. After a year, the parties
agreed to extend the arrangement for another three years. They produced a document
recording the agreement, which contained a clause stating that:
• ‘This arrangement is not entered into, nor is this memorandum written, as a formal or legal
agreement, and shall not be subject to legal jurisdiction…it is only a definite expression and
record of the purpose and intention of the three parties concerned, to which they each
honourably pledge themselves, with the fullest confidence…that it will be carried through by
each of the three parties with mutual loyalty and friendly co-operation.’
• The claimant, relying on the agreement, placed orders with the defendant. The defendant
accepted these orders, but on one occasion did not deliver. The defendant subsequently
terminated the contract without notice. The claimant sued for breach of contract. The parties
asked the court to determine whether there was a legally binding contra.