Contracts are made by people every day, whether the parties recognise it or not. Each time one spends money on anything – a bus ticket, an airline ticket, a pair of shoes, a meal in a restaurant, laundry services, books, or signs a lease, etc. one concludes a valid and legally binding contract. Contracts may be oral or written; may arise by parties’ conduct; may involve large or trivial sums of money and may be of short or long duration. The contents and subject matter of the contract also vary widely, creating different kinds of contracts including contracts of sale, hire purchase, insurance, employment, marriage, mortgage, leases etc.
The Law of Contract is simply the branch of the Law, which governs the effort to achieve and carry out voluntary agreement. The principles of the law of contract are concerned with determining whether an agreement or transaction is binding or legally enforceable and if so, what the consequences of a breach of it are. Sources of Ghanaian Contract Law Ghanaian contract law comprises the English law of contract, which comprises the common law principles of contract, doctrines of equity and English statutes of general application (i. e. English statutes in force before July 24, 1874) and all current legislation affecting contracts1.
One critical piece of legislation which has significantly impacted Ghanaian contract law and effected major changes in the common law rules on consideration, guarantees, third party rights and frustration of contracts is the Contracts Act, 1960 (Act 25). DEFINING THE LAW OF CONTRACT A contract has been defined by Sir Frederick Pollock as “a promise or set of promises which the law will enforce”. In other words a contract is an agreement (consisting of the exchange of promises) which is recognised by the Law as giving rise to enforceable rights and obligations.
The principles of the Law of Contract seek to identify legally enforceable agreements and establish the principles which govern their formation and enforcement. Promises and Undertakings It is important to recognise that the distinguishing feature of contractual obligations is that they are not imposed by the law but rather are undertaken by the contracting parties voluntarily. A party is bound by a contract only because he has voluntarily undertaken to do something or has undertaken that something is so – in which case if he performs that thing badly, or fails to perform at all, the party to whom the promise was made can have a cause of action against him for breach of contract.
The word “promise” is generally used in ordinary speech to refer to acts to be done or not to be done in the future and most contracts contemplate future performance by one or more of the parties. For eg. A and B enter into a contract for the purchase of a car to be delivered to A in two weeks time. 1 See, Courts Ordinance, Cap 4. © 2008 CD-H 2 In contract, even though the word “promise” bears this meaning, it is used in a wider sense to include undertakings about existing facts. The word “promise could be used to refer to any statement or undertaking about existing facts.
Thus a party could be deemed to have made a promise as to the present state of affairs or even as to past events … And if it turns out to be untrue, would amount to a breach of promise. For example, where the seller of the car promises that the car is roadworthy, or has been fitted with a new engine, or has done only a certain number of miles, or has had only one previous owner, etc. All such undertakings relating to the quality of the subject matter of the contract would constitute “promises” and if they turn out to be untrue, the maker of the promise could be in breach of the contract. Contracts are therefore essentially about promises and undertakings.
The principles of contract determine which promises are binding in law, and which ones are not binding in law and prescribes remedies available to a party who complains that a binding contract has been broken. DEFINITION Another definition of a contract can be found in the American Restatement of Contract and it states: “A contract is a promise or a set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognises a duty”. This definition emphasises three important aspects of a contract – [Promise, Legal Duty, Remedy]. In every case involving a contract the courts are concerned with three basic issues:
a) What exactly is the promise or promises that have been made? b) Does the promise or promises create any legal duty? c) If so, what remedy should be given the aggrieved party for the failure to perform that duty? Remedies The notion of the availability of a remedy emphasises the essence of contractual obligations. Where all the essential ingredients of a contract are present, the contract is deemed to be legally enforceable and the law would provide some kind of remedy in the event of breach by one party. The rules on formation of contracts and formality help to distinguish enforceable contracts from unenforceable ones.
BARGAIN The basic drawback of the American Restatement of Contract definition is that it fails to emphasise the central notion of the Law of Contract, which is the idea of a bargain. Every contract, by definition involves at least two parties and an exchange of promises, or the exchange of a promise for an act. This idea of exchange or bargain is a central notion of contract. Not all promises are binding in law and therefore English law, like all other systems, has rules to define promises, which are binding and those which are not. © 2008 CD-H 3.