Law Unit 2 PDF

Unit 2 AGREEMENT AND TERMS OF A BUSINESS CONTRACT Learning objectives After reading this unit, you should be able to: 1. State and explain the basic element of a contract...

Unit 2 AGREEMENT AND TERMS OF A BUSINESS CONTRACT Learning objectives After reading this unit, you should be able to: 1. State and explain the basic element of a contract 2. Define and describe the terms of a contract. 3. Apply the principles to hypothetical and real situations. Unit outline SESSION 1-2 AGREEMENT: OFFER AND ACCEPTANCE 1-2.1 Clarity of an offer 1-2.2 Termination of an Offer 1-2.3 Acceptance SESSION 2-2 TERMS OF BUSINESS CONTACT 2-2.1 Warranties and Conditions 2-2.2 Types of Contractual Terms 2-2.3 Exemption Clauses 2-2.4 Vitiation and Remedy SESSION 1-2 AGREEMENT: OFFER AND ACCEPTANCE 1-2.1 Clarity of an Offer An offer is a firm proposal by one party (offeror) to the other party (offeree) by which he promises or undertakes to do or give or forbid from doing a specific thing. The offer is susceptible to acceptance by the offeree at any time, unless it is revoked by the offeror. For example: Nana Yao might offer his car to Kwabena provided that Kwabena pays GH¢ 2,000 for it. Nana Yao is prepared to be legally bound to deliver the car provided that Kwabena complies with the specified term of the offer and pays the GH¢ 2,000. 1 An offer may be clear and simple but there are certain situations that can render an offer unacceptable by the courts. Such situations include the following:  Invitation to treat  Request for information  Declaration of good intention  An offer which is vague  An offer addressed to a specific individual or to the world at large  When the communicated offer is unknown to the offeree. Now let us take a closer look at above situations. (a) Invitation to treat This is an invitation from one party to another to do business. Invitation to treat is not an offer until it is complete by a further action. Examples of invitation to treat: i. The display of goods in a shop window or a supermarket. Such a display is an invitation to the public to come and buy. It is not a complete offer to customers, which would be immediately susceptible to acceptance. The case of Fisher v. Bell (1960) illustrates this. Where a shop keeper had displayed a flick-knife with a price tag in his shop window, it was held that this did not constitute an offer for sale; the display was merely an invitation to treat. Offer is complete only at the moment goods are deposited on the counter of the casher for payment. See also Pharmaceutical Society of Great Britain Ltd v Boots Cash Chemists (Southern) Ltd 1953. ii. An auctioneer‟s invitation for bids. Under the sale of Goods Act 1962 (Act 137) Section 4(1) (b) the bid at an auction constitutes offers. The auctioneer‟s invitation for bid is only completed by the fall of the auctioneer‟s hammer or in any other customary manner. Up to that point any offer made can be withdrawn. The Case of Harris v. Nickerson 1873 illustrate this point An auctioneer advertised that particular goods were to be auctioned at a specific time and place. The particular goods were withdrawn from the sale and Harris sued the auctioneer for loss of time and expenses incurred in going to the sale. The action failed on the grounds that information about the auction amounted only to a declaration of intent and not an offer which was susceptible of acceptance. See a similar case, Payne v. Carrel 91789) 2 iii. Circular and advertisement. A declaration of intention such as newspaper advertisement or a circular may only constitute and invitation to treat but not an offer. At times it depends on the formulation of the advertisement which can be taken as an offer. This is illustrated by the following cases: Case 1: Dormevor v. Johnson Motors Ltd (1989-90) In this case a newspaper advertisement which said that the defendant had spare parts and could repair damaged cars including Peugeot car, was considered by the High Court to be an invitation to treat. The advertisers are at liberty to change the price or withdraw the advert any time before acceptance. Case 2: Denton v. Great Northern Railway co.(1856). It is held that public announcement of train schedule is a promise to run trains at the times scheduled. The mere act of entering the train station with intention of becoming a passenger (though no ticket has yet been bought) does not make the announced schedule an offer. Case 3: In Grainger & Son v. Gough (1895) The court held that a price list sent out by a wine merchant to canvas orders amounted to an attempt only to induce offer and that was not an offer. iv. Tenders Tenders are regarded as invitation to treat. Example: Tender for sale of vehicles The church of Jesus Christ of Latter Days Saints Tenders are invited for the purchase of the following vehicle: Model: Mitsubishi Pajero Reg. No: AFA 1387 Year: 2003 The vehicles can be inspected at the Mission Office, Tenth Road, South East Ridge during 4:00pm (Monday-Friday). Tender should provide their Telephone Number (if any). Bids should be in sealed envelopes, marked, “vehicle tender” and addressed to: The R.M.T.A., P.O. Box 2585, Accra Main. Closing date for submission of tenders is June 28, 2008. Such an advertisement as illustrated above is not an offer but an invitation to the public for interested persons to make an offer in the manner specified. Such an offer if made may then be accepted by the church. 3 (b) Request for information: A request made by a customer (offeree) from the supplier (offeror) for the supply of information or a feeler is not a binding offer. Those who may well decide to sell often provide details of what they might sell without any intention of making a legally binding offer. The following case illustrates the point. Case: Henry v. Facey (1993) The appellants‟ telegram to the respondents: “Will you sell us Bumper Hall Pen? Quote lowest cash price”. The respondents‟ reply read: “Lowest cash price for Bumper Hall Pen £900”. The appellants then sent a further telegraph purposely to accept the “offer” and when it was ignored they sued for specific performance. The court held that the respondent‟s original reply did not constitute an offer – it was merely information about the lowest case price required if they did decide to sell. (c) Declaration of good intention A declaration by one person to another person signifying that he/she is serious about the transaction, which he/she considers to be mutually beneficial. Though such a declaration may be seriously made, it does not bind. Quite often a businessman may make a mistake about matters, which he intends to perform, but which he does not envisage as leading to legal relations. The following cases illustrate this: Case 1: Harris v. Nickerson (1873) An auctioneer advertised that particular goods were to be auctioned at a specific time and place. The goods were withdrawn from the sale and Harris sued the auctioneer for loss of time and expense incurred in going to the sale. The action failed on the grounds that information about the auction amounted only to a declaration of intent and not an offer which was susceptible of acceptance Case 2: Kessie v. Charment & Another (1973) In this case there was an agreement backed by consideration, for the plaintiff, then Ghana‟s Ambassador to Liberia to use his connections with the Liberian president and top officials to procure timber concession in Liberia for the defendant. In return, the defendants were to allot the plaintiff 5% shares in the company, a position as director and cash remuneration. The plaintiff succeeded in procuring the concession, but the defendant refused to provide the benefits to the plaintiff. As Annan J. A. sitting as High Court judge said: “with regards to the proposals for the appointment of the plaintiff to office, these proposals may well be seen as mere indication of the good intentions of the defendant towards the plaintiff in appreciation of his service to the cause of the defendants in Liberia. The first defendant said in exhibition B “I hope that the above very briefly give an idea of my intention and very much hope that this venture will 4 materialize and that you will find your way to become closely and permanently committed with it” (d) An offer which is Vague: The terms of an offer must be clear and certain, not vague. Where a contract is left deliberately vague the court will hesitate to uphold it, since the vagueness must not be interpreted to the benefit of one particular party. The following cases illustrate this point. Case: Scamell and Nephew Ltd. v Ouston (1941) The respondents agreed to purchase a motor van from the appellants but their order was given on the understanding “that the balance of the purchase price can be received on hire-purchase terms over a period of two years” Held: No precise meaning could be attributed to this clause because hire-purchase agreements varied widely and consequently there was no enforceable contract. There were no previous dealings between the parties or any accepted trade practice to which the court could refer to determine the hire-purchase terms. The court found that the matter had not passed the stage of negotiation. Similar cases are: Hellas and Co. v Arcos Ltd (1932) and Loftus v. Roberts (1902) (e) An offer addressed to a specific individual or to the world at large: If an offer is made to a specific individual it can only be accepted by that individual. Other offers may be general offers, made to the world at large (for anyone interested in the offer). The following case is of interest: Case: Carl ill v. Carbonic Smoke Ball Co. Ltd (1893) The company advertised and promised the payment of £100 to anyone who contracted influenza after using the smoke ball as specified. The advertisement further stated that £1000 had been lodged at the company‟s bank to show their good faith. Mrs. Carl ill purchased a smoke ball which she used as indicated (2 times a day for 2 continuous weeks) but still contracted influenza. She sued for £100. In defense the company argued that the advertisement was only an invitation to treat, not directed to any specific person. Held: The newspaper advertisement was considered by the English Court of Appeal to be a complete offer though addressed to the whole world. The sincerity which was demonstrated by the company through the deposit of £1000 with the Alliance Bank to pay those who accepted the offer and were dissatisfied made it an offer. Mrs. Carl ill had accepted the offer by purchasing the article and paying the price. Moreover the advert was coming from the industry itself so it cannot be a mere invitation to treat. It should be noted, however, that not all advertisement are serious offers. In this case it was held to be an offer because the defendant company had deposited £1000 with its bankers. In the absence of this deposit the court might well have come to a different conclusion. Hence each advertisement has to be judged individually having regard to the circumstance of each 5 case. It is probably best to say that most advertisements are examples of invitations to treat, as was in the case of Partridge v. Crittenden (1958) (f) When the communicated offer is unknown to the offeree: An offer is effective only when the communication gets to the offeree. When an offer is sent by post to a specific person it is complete when the letter is received by the person (offeree). Case: In Taylor v. Laird (1856) a sailor who helped by bringing a ship home failed in a claim for wages due, since the owners knew nothing of the offer and had not accepted it. The so- called “reward cases” are a further illustration. A person supplying an item cannot accept the offer of a reward without knowledge of the offer of reward. 1-2.2 Termination of offer When an offer is made, how long does it remain open for acceptance? There are several ways in which an offer may cease to be available. Since the primary purpose of an offer is that some other party should give acceptance, the offer ceases as soon as acceptance takes place and it is then said to have “merged” into a contract. Between the moment of “offer” and the moment of “acceptance” the following events might lead to termination of the offer.  Revocation of the offer.  Rejection of offer by offeree  Lapse of time  Failure of an attached condition  Death of offeror Let us now turn to each of these events in more detail. (a) Revocation of the offer An offeror can withdraw his offer at any time before it is accepted. The revocation must be communicated to the offeree. The offeror cannot just change his mind without informing the potential offeree about his change of mind. The following cases illustrate this: Case 1: Byrne v. Van Tienhoven (1880) Van T posted a letter on 1st October offering to sell goods to Byrne (a New York customer). On 8th October Van T posted another letter withdrawing his offer. On October 11th Byrne telegraphed acceptance of the offer and this was confirmed with a letter on 15th October. By 20th October the letter of revocation reached Byrne but he had already given acceptance. Held: The revocation was ineffective since acceptance took place before the revocation notice was received by Byrne. Case 2: Dickinson v. Doods The defendant (Doods) offered to sell a house to Dickinson for £800. The written offer stated that the offer would remain open until 9.00am of Friday, 12th June. On Thursday 11th June, the defendant sold the house to a third party. The plaintiff was informed of the sale later in 6 the day by a reliable source. At 7.00am of Friday, 12th June, the plaintiff handed a letter purporting to accept the offer. Held: The offer had been properly revoked and Dickinson could not enforce the contract and there was no need for the revocation to be actually communicated by Doods to Dickinson Case 3 Errington v. Errington & Woods (1952) A father bought a house for his daughter and son-in law to live in. He offered that so long as the couple paid the remaining mortgage installment, he would give them the house. They duly paid the mortgage installment but the father sought to revoke the offer. Held: The father could not revoke the offer once the couple had commenced performance as specified. A similar case is: Routledge v. Grant (1825) There are, however, some exceptions to the rule of revocation. A withdrawal would be effective if the offeree just neglected to read the notice of offer after it had reached him. Similarly, a withdrawal sent to the last known address of the offeree would be effective if the offeree has failed to inform the offeror of a change in address. In addition an offer made to the general public can be withdrawn by taking “reasonable steps” to bring the withdrawal to the notice of those who knew of the offer. A bid at an auction may be retracted up to the moment when the auctioneer announces the completion of the sale by the fall of the hammer. Sale of Goods Act, 1962. Note that, Section 8(1) of the Ghana Contract Act 1960 Act 25 has changed the common law position: “A promise to keep an offer open for acceptance for a specified time shall be valid as a contract by reason only in the absence of any consideration therefore.” (b) Rejection of offer by offeree An offer can be terminated by the means of rejection from the offeree. Once rejected, the offeree cannot go back at a later date and attempt to accept the offer. Also acceptance must exactly fit the offer. An attempt to accept an offer on new terms not contained in the offer amounts to a rejection of the original offer and making a counter-offer. This is illustrated by the following case: Case: Hyde v. Wrench (1840) Wrench offered to sell land for £1000. Hyde wrote offering £950, which was refused. Later Hyde wrote saying he was prepared now to pay £1000, and that he accepted the original offer. Held: The second letter could not accept the original offer since this original offer had been terminated by Hyde‟s counter-offer. He cannot go back to an offer he had first rejected. Note that on the other hand, a request for further information will not amount to rejection of an offer, as in: Stevenson v. Mclean (1880) 7 (c) Lapse of Time An offer may lapse (go out of existence) through the passage of time. Obviously an offer which is expressly stated to run for a fixed period of time cannot be accepted after that time. If there is no time stated in the offer then the offer lapses after a reasonable time. What is reasonable depends upon the facts surrounding each case in particular with regards to the subject matter of the contract and the means of communication used. Case: Ramsgate Victoria Hotel Co. v. Montefiore (1866). In this particular case, the defendant had intended to purchase shares in the plaintiff‟s company. He applied in June and paid a deposit. Not until the end of November, when he was informed that he had been allotted shares and that he should therefore pay the balance outstanding on the shares. The defendant‟s refusal to accept the shares was upheld on the grounds that his offer to purchase the shares in June should have been accepted by the company within a reasonable time. Since the company did not accept the offer until November, his offer had lapsed. (d) Failure of a an attached condition An offer which is expressly or impliedly made subject to some condition cannot be accepted if the condition fails. For example, an offer to buy goods will not deteriorate before the offer is accepted. (d) Death of offeror The effect of the offer at the offeror‟s death depends upon the nature of the offer. If it is to render personal service of some kind, it terminates on the death of the offeror. For example If X offers to Y to write a book for Y but dies later, Y cannot accept and sue X‟s personal representative for damage. The offer duly terminates with the death of the offeror. Case: Dickinson v. Dodds (1876) In this case Mellish L.J. said: “if a man who makes an offer dies, the offer cannot be accepted after he is dead. However, in Bradbury v. Morgan (1862) a guarantor was held liable for the guarantee given to supply goods, promising to honour the debts. In this case the offer did not lapse on his death. The plaintiff had no notice of his death and had relied on the guarantee in supplying the goods. 1-2.3 Acceptance Acceptance is an assent to all the terms of an offer. Acceptance can be oral, in writing or implied by conduct. The acceptance must exactly fit the offer. Significant changes in offer constitute a counter-offer which destroys the original offer and renders the purported 8 “acceptance” invalid as in the case Hyde v. Wrench (1840). We shall in this section look at specific conditions under which acceptance is legally binding and the exceptions. (i) Acceptance by agreed method In accordance with the ruling in Eliason v Henshaw (1819), offer creates no obligation unless it is accepted according to the terms on which offer was made. Where the offer demands a particular method of acceptance only, no other method will be effective. In the case of instantaneous communication such as by telephone, the acceptance takes place at the place where it is received and it is effective again only when such acceptance is received by the offeror. In the case, Entores v Miles Far East Corp Lord Denning made it clear by saying “if an oral acceptance is drowned by a flying aircraft such that the offeror cannot hear the acceptance, there is no contract unless the acceptor repeats his acceptance after the aircraft had passed”. Acceptance is non-binding in the following situations:  Where there is an express statement by the offeree that his acceptance is “subject to contract”. There are two reasons why this does not create a contract. First, it negates the intention to create legal relations. Second, it is an acceptance which does not correspond with the terms of the offer, because it imposes a further condition. The following case illustrates this. Case: Branca v. Caborra (1947) The parties negotiated for the sale of a mushroom farm and signed a document containing the terms of their agreement which concluded: “this is a provisional agreement until a fully legalized agreement drawn up by a solicitor and embodying all the conditions herewith stated is signed”. The purchaser need for the return of his deposit and the vendor contended that their “provisional agreement” was a binding contract. Held: There was no immediately binding contract “until” the document was replaced by one expressed in more precise and formal language. If the parties had used the word “tentative” instead of “provisional” it would probably have been otherwise, but each case depends on the intention of the parties as found by the court. See also: Chilling Worth v. Esche (1924)  Where the terms of the alleged contract are too vague for the court to ascribe legal meaning to them. However, the court might attempt to make a vague contract certain by implying unstated terms as the basis.  Where accepted business practice exist, as in the case of Foley v. Classique Coaches Ltd (1934). 9 Case: Foley v. Classique Coaches Ltd (1934) Foley supplied petrol to Classique at a price to be agreed by the parties in writing from time to time with a provision for arbitration in the case of dispute. Held: It was held that the lack of a stated price did not invalidate the contract. A term would be implied that the quantity and price of the petrol would be reasonable, and this together with the arbitration clause, gave the contract its own machinery by which the price could be fixed. (ii) Effective communication of acceptance The offeree might have decided in his own mind that he will accept the offer, but this is not sufficient to amount to acceptance in law. There has to be some “external act”, eg words spoken or written which communicate acceptance to the offeror. Communication is said to have taken place when the acceptance is actually brought to the notice of the offeror by the offeree or his authorized agent. The following case illustrates this. In Entores Ltd v. Miles Far East Corporation (1955), Lord Denning (arbiter) considered in detail the rule that acceptance must be communicated and said that if a person shouted an offer to another person across a courtyard that is noisy and the reply was drowned by the noise in the place or the noise of a passing aircraft, then there would be no contract. In Powell v. Lee (1908) – it was decided that absence of communication invalidates the contract. The rule that acceptance is incomplete until received by the offeror governs conversation over the telephoned and all other methods where communication is virtually instantaneous, such as telex. There is one major exception to this rule of communication though, and it relates to the less speedy means of dealing through the post. It is known as the “Postal rule” (iii) Acceptance by post The general rule with regard to postal communications is that acceptance is complete upon posting. See Adams v. Lindsell (1881) Note that “posted” means putting into the control of the Post Office, or one of its employees authorized to receive letters. (a) Where a party chooses the post as a means of acceptance, it must be reasonable to do so. It would not, for example, normally be regarded as reasonable to reply by post to an offer made by telegraph, telex or e-mail. Also, it would not be reasonable to reply by post if the acceptor knew that the postal service was disrupted. See, Cowan v. O’ Connor (1888) – (Postal rule extended to telex and telegrams) 10 (b) Acceptance is complete as soon as it is posted but withdrawal of the offer by the offeror is complete only when postal notice of withdrawal is received by the offeree. (In Dick v. United States (1949), the U.S court claimed that acceptance was no longer complete on posting). (c) A posted acceptance takes effect even if it never reached the offeree as a result of lost through an accident in the post (Household Fire & Carriage Accidental Insurance Co. v. Grant (1879). The postal rule is automatically set aside where a term in the offer stipulates the method of communicating acceptance, e.g. In Holwel Securities v. Hughes it was stipulated that the acceptance was to be in writing and communicated “to the vendor (Dr Hughes)". The court found there was no valid acceptance since the letter containing acceptance was posted and subsequently lost in the post. The stipulation that actual communication was required over- ruled the ordinary postal rule. The court was merely following the precedent set in the earlier case of Eliason v. Henshow (1819). Exceptions to the postal rule (a) You cannot take „silence‟ to mean acceptance. The following case illustrates this principle. Case: Felthouse v. Bindley (1862). Felthouse wrote to Bindley offering to buy a horse from him and the written statement read: “if I hear no more from you I consider the horse mine.” Bindley did not reply and instructed his Auctioneer not to sell the horse. The Auctioneer sold by mistake and Felthouse sued the Auctioneer for conversion. Held: There could be no conversion because there was no contract between Felthouse and Bindley since Bindley had not communicated acceptance of Felthouse‟ offer. (b) The offeror can waive acceptance. While the offeror may not impose a condition on the offeree silence will amount to acceptance. He may, however waive the need to communicate acceptance:- i.e. he may himself run the risk of incurring an un-communicated obligation, though he may not impose one upon others. Such a waiver may be expressed or may be inferred from the communication e.g. – Carlill v. Carbonic Smoke Ball Co. (1893), referred to earlier. (c) The acceptance must usually be made in the same manner as the offer. Where an offer explicitly or implicitly calls for acceptance in a certain way, the offeror will not generally be bound unless acceptance is made in that way. 11 Case: Eliason v. Henshaw (1819) „A‟ offered to purchase flour from „B‟ and the letter which contained this offer stipulated the price to be paid and mode of transport and in a post script. „A‟ added “please write by return of wagon whether you accept our offer”. „B‟ accepted the offer but the letter was sent by the first regular mail. „A‟ contended that it was not a valid acceptance as it was not sent “by return of wagon”. Held: There was no contract as an offer created no obligation unless it is accepted according to the terms on which the offer was made. Any departure from these terms invalidates the offer unless the different mode of acceptance is agreed to by the person who made the offer. Self-Assessment  1. What is offer and acceptance? 2. With the aid of decided cases, distinguish between an offer and an invitation to make an offer. 3. What rules govern withdrawals of offer or acceptance through the post? Try to answer the questions above by referring to session 2-1 of Unit 1 SESSION 2-2 TERMS OF BUSINESS CONTRACT 2-2.1 Warranties and Conditions Contractual terms may be warranties or conditions (i) Conditions create the fundamental obligations of the contracting parties. Breach of a fundamental obligation by one party entitles the other party to repudiate. A condition is central, fundamental or important term of the contract. (ii) Warranties are also terms but they create minor obligations. A warranty may also be a representation that induces the contract or collateral term of the contract. A breach of warranty entitles the other party to damages only. Case: In Frafra v Boakye (1976) the appellant told the respondent that the tractor the respondent wanted could haul 30 to 40 logs of timber a day. In reliance of this representation the respondent hired the tractor to enable him supply his customer. The appellant‟s assurance was not borne out; the tractor could only haul about 5 to 7 logs a day. The trial court and the court of appeal found the appellant liable in damages to the respondent for breach of warranty. The combined effects of Common Law and Equity The subject matter of a contract is a condition. But combined effect of common law and equity is that – quality, quantity and time for performance are warranties. However, parties may make any term a condition. For example, parties may agree to make time a condition. 12 The Sale of Goods Act 1962 (Act 137) makes time of the essence to the buyer, but not to the seller – unless, in either case, a different intention appears. This means that if a seller is unable to deliver goods at the agreed upon time, the buyer has the option to reject the goods on account of late delivery; but if the buyer is unable to pay for the goods contracted for on time or does not accept delivery of goods at the agreed upon time, the seller can sue for damages only. Example (a): If the contract is to supply 100 French oranges by the 15th of the month and pineapples supplied on that date, there has been a breach of condition and the buyer is at liberty to reject the pineapples and, or sue for damages. This is because a different subject matter has been delivered. Example (b): If on the other hand, 80 French oranges (less quantity) were delivered on the agreed 15th of the month, or if 100 Ghanaian oranges were delivered on the 15th of the month (similar), or if delivery of the 100 French oranges was made on the 20th (later time), there has been a breach of warranty. The buyer can only sue for damages but cannot reject the supply. Fundamental Obligation Besides conditions and warranties, the Sale of Goods Act (1962) introduces another term called fundamental obligation. For example section 8(1) of the said act provides that in a sale of specific goods “the fundamental obligation of the seller is to deliver those goods to the buyer”. Section 8(2) provides that in the sale of unascertained goods “the fundamental obligation of the seller is to deliver to the buyer goods substantially corresponding to the description of sample by which they were sold. Section 8(2) must be contrasted with section 11 and 12 of the same Act which provides that in a contract for the sale of goods by description or by sample “there is an implied condition that the goods shall correspond exactly” with the description or sample, as the case may be. It is clear, therefore, that the fundamental obligations created by the Sale of Goods Act are higher than and superior to the conditions implied by the same Act. The distinction between fundamental obligation and condition in the Act is a distinction without a difference in the remedy available of breach since a breach of either entitles the aggrieved party to consider the contract discharged as in the following cases: Bowes v. Shand (1877) where a quantity of rice which by contract was to be shipped in March or April was rather shipped in February. The buyer was right to reject the goods. In another case, Arcos v. Ronaasen (1933) AC 470, the contract was for wood staves half an inch thick. When they were brought many of the staves were marginally larger or smaller. It was held that the size differential, though small and not affecting the suitability of the staves for their intended use, the buyer was entitled to reject them because the goods did not correspond exactly with the description given in the contract. 13 2-2.2 Types of Contractual Terms Contractual terms may be: (a) expressly agreed upon by the parties (b) implied (or assumed) by the parties (c) implied by custom (d) implied by statute (e) implied by the courts However implied terms may be made by the parties to be subject to express terms. In Bartholomew & Co Ltd v. Adu-Gyamfi (1962), Korsah CJ. Said: “all the implied terms are subject to express form of agreement and within limits. They may, therefore, be excluded or modified if apt words are used provided the party relying on such exempting clause carried out his contract in its essential regards, in other words he does not commit a breach which is fundamental to the terms of the contract”. (a) Express Terms Express terms are clear stipulation in the contract which the parties clearly discussed and agreed upon. For example, landowner agrees with a building contractor to pay GH¢ 6,000 for the construction of a house within 6 months. But the parties also specifically agree that if the cost of building materials go up, landowner will make a fluctuation payment to reflect the cost of increment. In this example, the subject matter namely: completion date and fluctuation payments have all been expressly stated. The common law has divided express terms into two categories, namely, condition and warranties. The modern tendency of the courts is not to attempt to label the term as a “condition” or “warranty”. Instead, they look at the effect of the breach (Hong Kong Fir Shipping C. Ltd v. Kawasaki Kisen Kaisha Ltd (1962) per Lord Upjohn LJ). Under serious breach of warranty or condition the injured party can repudiate and obtain damages as well. There are three matters which can affect the remedies of the innocent party in relation to breach of contract: (i) The right to repudiate a contract for the sale of goods will be lost if the buyer had accepted the goods. (ii) If a representation becomes a warranty in a contract (iii) A breach of condition can be waived. This extinguishes the right to repudiate (e.g. Aquis Estates Ltd v. Minton 1975) (b) Implied (or assumed) by the parties Terms are implied by the parties when the courts find out that although not categorically discussed by all parties, if brought to their attention they would have all agreed to the terms e.g. – price escalations which parties did not specify. In other words, implied terms by parties are those terms which although not specifically stated by the parties by words or conduct, are by law deemed to be part of the contract An example is the case, Frafra v. Boakye (1976) 14 in which the court of Appeal implied a warranty of fitness. By implication, a tractor to haul timber should be fit for that purpose. See also Danquah v. Timber and Transport Co Ltd (1971) (c) Terms implied by custom A term is implied by custom when: (i) a course of dealing between the parties establish a pattern of consistent arrangements which can be deemed to apply to their continuous dealings or (ii) the practice in the industry is to incorporate various well-known terms in their business transactions. Case: In Sowah v. Bank for Housing and Construction & Another (1992-93), the Supreme Court noted that in construction contracts in Ghana, prices of materials were so unstable that the building trade had adopted a practice of varying the contract price to reflect current market prices. Consequently such a term would be implied in a construction contract unless the parties expressly exclude such fluctuation payments. (d) Terms implied by statute There are many areas of the civil law where parliament has interfered with the right of parties to regulate their own affairs; this interference mainly occurs where one party has used his dominant bargaining position to abuse this freedom. A number of statutes contain implied terms. For example: (i) The Sale of Goods Act ( Act 137), unless the parties agree otherwise, there are implied terms that specific goods are in existence (Act 137, s 9), that goods are of merchantable quality and fit for their declared purposes, and the delivery of goods by the seller shall be concurrent with the payment of goods by the buyer. Section 23 makes time the essence of the buyer, but not the essence of the seller. It means that unless a contrary intention appears, if a seller is unable to deliver the goods at the agreed upon time the buyer has the option to reject the goods on account of late delivery. But if a buyer is made to pay for the goods contracted for on time and does not accept the delivery of goods at the agreed upon time, the seller can sue for damages only. (ii) The Conveyance Decree 1973 (NRCD 175), also implies various covenants for both transferor and transferee. For example, in a conveyance for valuable consideration, there shall be implied covenants by the transferor for the right to convey, quiet enjoyment, freedom from encumbrances and further assurance, (NRCD 175) section 22 (1). Similarly, there are implied covenants for transferees. In a conveyance by way of lease for valuable consideration, there shall be implied covenants relating to payment of rent, repair of adjoining premises, alterations and additions, injury to walls, assignment and subletting, illegal or immoral uses, nuisance or annoyance and yielding up the premises (NRCD 175). When a statute implies terms, the contracting parties need not expressly provide for those terms unless they wish to vary the statutory terms. 15 (e) Terms implied by the courts The courts will imply a term into a contract under the doctrine of implied term, if it was the presumed intention of the parties that there should have been a particular term, but they have omitted to state it expressly. Although the implied term is one which the parties probably never contemplated when making the contract, the courts justify this by saying that the implication is necessary in order to give “business efficacy” to the contract. Case: In Arkurst v. Ghana Museum and Monuments Board (1971), per Abban J, in a contract of service, there is an implied term imposing an obligation on an employee to serve his employer in good faith and with fidelity, breach of which constitutes grave misconduct. In Bartholomew & Co Ltd v. Adu-Gyamfi (1962), Korsah C.J said: “It is against settled law that there are certain implied terms in hire purchase agreements such as: (a) implied conditions of title; (b) implied warranties of quiet possession and freedom from encumbrance; and (c) implied condition or warranty of fitness, for the purpose for which the goods have been expressly hired…”. 2-2.3 Exemption Clauses (a) Definition and Background: Exemption clauses are designed to exonerate a party wholly or partly from liability for breaches of expressed or implied terms or for tort. Exemption clauses first appeared in the early 19th century. The common law did not interfere, but took the view that the parties were free to make a bargain, within the limits of legality upon such terms as they thought fit. It is still the general rule today, but the growth and amalgamation of large trading concerns controlling large areas of the market have led to the increase of excluding and restricting clauses – both in number and stringency – to the severe detriment of other parties. Exemption clauses may be contained in: notice, receipts, tickets, documents which do not contain all the terms of the contract, standard form contracts – documents which purport to include the whole contract and which are printed or reproduced in a stereotype form. According to Lord Diplock, standard form contract can be sub-divided into two groups namely:- (a) those between commercial concerns with equal bargaining power; (b) those imposed by big concerns on consumers (properly termed „take it or leave it‟). Note that, the common law does not differentiate between these two kinds of standard form contracts. 16 What is the general rule? Case: In Inusah v. DHL Worldwide Express (1992), it was held that as a general rule, when a document containing contractual terms is signed by a party of full age and understanding, then fraud or misrepresentation is absent. He is bound by his signature. In this case, therefore, there was an operative clause that limited the defendant‟s liability to $100. (b) Types of exemption clauses There are 4 types of exemption clauses, namely: 1. Litigation–limiting clause (to postpone litigation until other method of dispute resolution failed e.g. negotiation, conciliation, mediation, arbitration) 2. Liability–limiting clause (to limit liability of one of the parties in vent of breach, e.g. carriage by road, sea or air) 3. Implied–modifying clause to exclude the operation of terms that would otherwise be implied by legislation, e.g. Mortgages Decree 1972 (NRCD 96), Hire Purchase Decree 1974. All these laws allow parties to vary their implied terms 4. Restrictive covenants are intended to protect the employee‟s restrictive covenant; an employee will be made to agree with his employer not to operate in a competing business in the employer‟s catchment area for a period of say 5 years. 2-2.4 Vitiation and Remedy (a) Circumstances affecting the validity of contracts If a contract is found by the court to be vitiated, the contract may be declared void or voidable by the court. A void contract does not have any legal force and effect. Voidable contract is valid until steps are taken to set it aside by a court of law as in Elluah v. Ankomah (1968) GLR 795 per Owusu J. The most common circumstances that may invalidate (vitiate) an apparent or purported contract are the following:  Duress (actual or threatened violence). See, Hemans v Coffie (1996-67) and Orthodox v School of Peki (1974) 1 GLR 419 at 423  Undue influence (without threat but based on a relationship). Plaintiff must prove undue influence if there is no special relationship between the parties. Williams v Barley (1866) illustrates this.  Where certain types of mistakes have been made (knowingly or unknowingly). It could be a common (identical mistake of both parties), mutual (cross purpose) or unilateral (mistaken identity) mistake.  Where the contract is unlawful (illegal) or contrary to Public Policy  Others are: misrepresentation, fraud and unconscionable (oppressive, one-sides or unreasonable contract) See, Equip Co. v. Hawkins (1991). It means that a court may refuse to enforce a contract on any of the above listed grounds. 17 (b) Remedies for breach of business contracts What is a remedy in law? The means provided by the law to recover rights or to obtain redress or compensation for a wrong. It is the relief or redress given by a court. Remedies in contract law In the field of contract law like other private laws such as Tort, equity will not suffer a wrong to be without a remedy. If a business contract is breached or if a breach is threatened or imminent, there must be a remedy. The following remedies are available under contract law and the first five (1-5) are discussed separately in more detail: 1. Damages, (court‟s estimated compensation in money based on remoteness of case) Hadley v Baxendale, (1854) 9 Ex. 34 2. Quantum meruit, (pay him remuneration as much as he has earned in a business transaction without any prior agreement between parties) Money had and received, (an order from a court compelling a defendant to refund monies paid by or on behalf of the plaintiff to the defendant), Frafra v Baokye (1976) 2 GLR, 332 at 336; 3. Specific performance/re-instatement (an equitable and discretionary relief). 4. Injunction, (this equitable remedy is intended to restrain a breach of a contract). 5. Rescission (Repudiation-order to set aside a contract due to fraud or mistake or misrepresentation); Rectification by which the court corrects or amends an error in a written contract to bring it into conformity with actual agreement reached between parties). On rectification see, Mackenzie v Coulson (1869) LR 8 EQ 368 at 375. Self-Assessment  1. What is contractual term? Distinguish between conditions and warranties. 2. What are the rules governing the making of exemption clauses? 3. What is quantum meruit? Distinguish quantum meruit from the remedy of money had and received. Answer the above questions by referring to Session 2:2 of Unit 2. Unit Summary  1. An offer is a definite promise to be bound or expression of willingness to contract on specified terms and be made to a particular person or class of persons or public at large. A person making the offer/promise/statement is offeror and the person to whom it is directed is the offeree. Acceptance is the assent of all the terms of the offer. NTHC Ltd v Antwi SCGLR 117 at 125 per Dr Date-Bah JSC;“…the mere acceptance of an offer is sufficient to turn the offer into a contract, if 18  there is consideration for it, together with an intention to create legal relations.‟‟ 2. “Terms of a contract” means the obligation each party undertakes and the representations made in respect of discharging the contractual obligations. 3. Express terms are terms that parties intentionally discuss and agreed on to be part of the contract e.g. Price Adjustment clause.  Key terms in Unit 1. Non est factum 2. Quantum meruit 3. Exemption clause 4. Void and voidable Review Question: What tests are applied by the court to determine the remoteness of a damage claim for breach of contract? Discussion Question: How true is it that in Ghana an offeror is not necessarily at liberty to withdraw the offer at any time before acceptance?  Reading: Article 11 of the 1992 Constitution; Cases: Merritt v. Merritt (1970), Backpitt v. Oates (1968), Raffles v. Wichelhaus (1864); Smith v. Hughes (1871); Neequaye v. Ghana Film Industry Corporation (1992-1993); Anisminic v. Foreign Compensation Commission (1969); Ashitey v. Ghana Industrial Holding Corp. Bartholomew & Co. Ltd v. Adu Gyamfi (1962). 19