WHAT IS A CONTRACT?
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 recognizes a duty.
WHAT ARE THE ELEMENTS OF A VALID CONTRACT?
• Offer and Acceptance
• Intention to Create Legal Relations
• Capacity to Contract
• Consideration
HOW TO ASCERTAIN THE FACT OF AGREEMENT?
The most important feature of a contract is that one party makes an offer for an arrangement that another accepts. This can be called a concurrence of wills or consensus ad idem (meeting of the minds) of two or more parties. The concept is somewhat contested. The obvious objection is that a court cannot read minds and the existence or otherwise of agreement is judged objectively with only limited room for questioning subjective intentions.
In determining whether or not the parties have come to an agreement the courts lay particular emphasis on external appearance rather than the actual intent or state of mind of the parties. The courts operate on the basic principle that agreement is not a mental state but rather an act and, therefore, a matter of inference from conduct. In ascertaining the existence of agreement, therefore, the parties are to be judged, not by what they had in mind but by what can be objectively inferred from what they have said, written or done (external appearance).
WHAT IS THE DIFFERENCE BETWEEN THE OBJECTIVE TEST AND THE SUBJECTIVE TEST?
There is thus a contrast between the objective test of a contract and the subjective test. With the objective test it is premised from the judgments of intention from the reasonable meaning of the words and conduct of a person as opposed to his actual intentions .which can be seen for the subjective side. In the case of PY Atta and Sons Ltd v. Kingsman Enterprise Ltd., the plaintiff held a lease from the Government of Ghana in respect of a plot of land . The plaintiff put up buildings on the land and carried on business there. Pursuant to the request of the defendant company, for a portion of the land to construct stores , the parties executed a document which provided that Kingsman would pay rent , give two of the stores to PYA and Kingsman could not undermine or underrate any of the stores without the prior consent of PYA. The parties complied with the terms of the agreement where until subsequently, Kingsman wanted to construct another building but PYA refused to give its consent.
The Supreme Court noted that in considering every agreement the paramount consideration was what the parties themselves intended or desired to be contained in the agreement. The intentions should prevail at all times. The general rule was that a document should be given its ordinary meaning if the terms used therein were clear and unambiguous. In conflicting situations , the process of determining the intentions of the parties should be objective. The objective approach in that context implied the meaning that the words in the document would convey to a reasonable person seized with the facts of the case. In such exercise the entire document, the effect it had on the parties, the conduct of the parties and the surrounding circumstances would have to be taken into account. And where two or more clauses were found to be inconsistent , effect was to be given to that which was calculated to give real effect to the intentions of the parties. The supreme court held unanimously allowing the appeal that it was clear from the agreement signed by the parties and on the evidence especially the conduct of the defendant company ,all against its own interest that the agreement was not a correct version of the concluded contract because it was expressed in terms amounting to an assignment rather than a sublease. The general rule was that a document need to be given its ordinary meaning as if the terms used therein are clear and unambiguous. Where the intentions of the parties are looked at from their actual state of minds and there is a disparity between a persons actual intention and the objective meaning of his words or conduct , the courts will apply the objective test and give effect to his words or conduct as opposed to his actual intentions.-Per Atuguba JSC
How is the Objective Test Applied?
In the application of the objective test, the courts rather than seeking the actual state of minds of the parties consider what was said or done and how such statements could be understood by a layperson.
In Freeman v. Cooke the objective principle was summed and this was adopted by Lord Blackburn in Smith v. Hughes as follows: “If whatever a man’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party, upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms.”
Thus if John behaves in a way to make Evans believe that he (John) consents to Evans offer to enter into a contract and so Evans upon that enters into a contract with John, there is deemed to be a contract even though John did not intend to enter any contract with Evans. Also if John makes an offer to Evans which bears a particular meaning and Evans accepts the offer based on that, John cannot escape being liable by intending to say that his offer meant something else.
Where there is no ambiguity
Generally if the words or conduct of the parties are not ambiguous and any reasonable observer of the offeror conduct would have supposed, a and the offeree did suppose that the offeror was making a particular offer , the offeror would be bound to that particular offer if it is in a bargain. This is illustrated in Tamplin v.James (1880)15ch. D.215 where the defendant after attending an auction in which a property (Ship Inn) was put up for sale at Lot 1. The property was displayed to show its extent and dimension, the defendant made a private bid for the property after the auction. The defendant however refused to complete the contract on the grounds that he had thought the property included other adjacent plots as he did not examine it well.
The court held the view that the defendant was bound by the contract to buy the property without the adjacent plots. Since there was no ambiguity in the plans and any reasonable man should have understood the terms of contract.
Where words and /or conduct are ambiguous
Besides where the words or conduct of the parties are ambiguous such that the interpretations of the parties are different but reasonable and the parties misunderstand each other, the court is likely to hold that there is no contract on the ground that there is no offer and acceptance. For instance in Raffles v.Wichelhaus (1864)2H&C906, the plaintiff offered to sell 125 bales of cotton to the defendant which was to arrive by Peerless from Bombay. Unknown to both parties there were two ships from Bombay named Peerless. One leaving in October and another in December. Buyer assumed it was the October ship .A breach of contract was sued by seller. Here, the contract was latently ambiguous as Simpson states.
Where one party is misled by the conduct of the other party to misunderstand the nature of the offer, the party whose conduct misled the other party may not be able enforce the contract in the way in which he intended. This is illustrated by the case of scriven bros v. hindley & co, the buyer bid at an action for two lots believing both to be hemp. It turn out that lot A was hemp and B was tow. His mistake had come from the fact that both lots had come from the same shipping mark “SL”.it was established that hemp and tow never landed from the same ship . The seller knew the buyer were mistaken , but he thought they were simply mistaken as to the value of the tow. Defendant refuse to pay and the auctioneer sued. The court held that the plaintiffs could not enforce the contract since the plaintiffs conduct had contributed to the defendants mistake.
Where the offeree knows that the offer as stated does not represent the real intention of the offeror but seeks to take advantage of the error the court will not allow the offeree to enforce the contract in that mistaken sense. In Hartog v. Colin & shields, the defendant offered to sell to plaintiffs 30,000 skins at prices quoted per pound instead of per piece which made the skins much cheaper. In all their previous negotiations , both parties had quoted the prices per piece and not per pound. It was customary to their trade. Plaintiff quickly accepted the offer and sued to enforce it. The court held that the plaintiffs action must be dismissed . The plaintiff could not reasonably have supposed that the offer made by the defendants contained their real intention. This shows that the court in appropriate cases apply the subjective test.
If one party was mistaken only about the quality of the subject matter and that mistake was not caused by the other party, the court will uphold the contract in spite of that party’s unilateral and undisclosed mistake. This will be seen in the case of Smith v. Hughes, where the plaintiff a farmer asked the defendant if he would like to buy some oats. The defendant replied that he would buy the whole quantity of oats. The plaintiff showed some of the oats to the defendant and he refused to buy alleging that he was not interested in new oats but was looking for good old oats. The plaintiff however insisted that the word old was never used. On an appeal, Cockburn c.j noted that the two minds were not ad idem as to the age of the oats; they certainly were ad idem as to the sale and purchase of them.
In conclusion, it will be said that the application of the objective test ensures certainty since it is difficult to ascertain the actual state of minds of the parties to a contract.
In most cases, in order to determine whether or not an agreement has been made, the courts have to conduct a meticulous examination of all the statements made or correspondence exchanged between the parties and/ or their conduct, to establish whether a definite offer was made by one party which has been clearly accepted by the other.
The case of Gibson v Manchester City Council [1979] 1 All E.R.972 illustrates this.
Facts: In November 1970 the Manchester City Council sent to their tenants details of a proposed scheme for the sale of Council houses at favourable prices. Gibson responded immediately by paying the administration fee of 3 pounds and forwarding his application on a printed form. The Council wrote back stating that the Council may be prepared to sell the houses at certain prices. The Council’s letter stated : “This letter should not be regarded as a firm offer of a mortgage. If you wish to make a formal application, fill this form and return it”.
Gibson filled the form but left out the purchase price and asked for a reduction. The Council refused to reduce the price, whereupon Gibson asked the Council to proceed with the processing of his application. Before further action could be taken, the Labour government took over control of the Council and ordered that no house be sold unless there was already an existing contract to sell the house. The Council refused to sell the house to Gibson and Gibson sued. The court examined the correspondence that had been exchanged between the parties to see if at any point in time a definite offer had been made by the Council which had been accepted by Gibson.
Held: The court held that it was impossible to construe the letter of the Council as a contractual offer, which was capable of being converted into a contract upon acceptance by Gibson. The wording of the letter made it clear that the Council was not making any definite or firm offer of a mortgage. The court noted further that the application forms returned by Gibson could not be deemed as an acceptance because no offer had been made as yet.
The more accurate interpretation is that it was Gibson who made an offer to buy the house by submitting his filled application form, but that offer had not yet been accepted by the Council. There was therefore no legally binding contract concluded between the parties for the sale of the house and the Council was therefore not liable for the breach of any contract.
Aidoo and Others v Attorney General and Another, Unreported High Court , Accra 16th March, 1984.
Facts : The Kanda Estates, comprising 233 houses and 120 flats, was established for allocation to Ghanaians. All but 61 of the houses were allocated to Ghanaians on hire purchase basis. The 61 houses were reserved for occupation by Members of Parliament. After the 1966 coup d’ etat, the Members of parliament who had failed to pay their rents on the respective houses they were occupying within the 61 houses were ejected from them and the National Liberation Council government then decided to allocate all the houses which were then vacant to those who needed them. In 1967, the Kanda Tenants Association, of which all the plaintiffs in this case were members, was formed. The first plaintiff was the Secretary of the Association. The Association entered into negotiations with the then Progress Party government for the sale of the 61 houses to its members who were individually occupying the houses. It was agreed between the government and the Association that those houses should be sold individually to the then sitting tenants.
When the National Redemption Council government came into power in 1972, the Kanda Estates Tenants Association took up the matter with that government. The result was that the government caused a letter to be written to the individual tenants, offering to sell to them the houses occupied by them. Each letter included a form, which was required to be filled by applicants for further action by the government. Each of the plaintiffs accepted the offer by filling in the forms as required. Subsequently, the plaintiffs received letters from the Ministry of Works and Housing, indicating that only 13 of the said houses would be sold to the siting tenants. The defendant further threatened the plaintiffs, who were retired civil servants with forcible ejection if they failed to vacate the houses. The plaintiffs, members of the Kanda Estates Association, brought the action against the government alleging that the government had agreed to sell to them certain houses in kanda Estates of which they were tenants.
The court considered the various correspondence exchanged between the parties on the proposed sale and held that there was in existence a complete contract between the parties for the sale of the said houses to the plaintiffs.
Anterkyi J, in his judgment stated as follows : “When the National Redemption Council assumed the reigns of government, the Association of the plaintiffs repeated to that government their request for the sale to them. This request was met by the government by Exhibit A (through the Ministry of Works and Housing), which stated that the sale of the house was to be “at its current replacement value”, and that the Ministry was “working out the terms and conditions for the sale, the results of which will be communicated to you in due course” The forms Exhibit B attached to Exhibit A were to be completed and forwarded for further action.
These forms were accordingly completed by the plaintiffs and sent to the Ministry. The Ministry of Works and Housing did receive them…It is my view that a direct offer was made by Exhibit A for sale with conditions and terms which even though the defendants had not seen or known, might be accepted by the tenant upon his filling in the forms in Exhibit B. I cannot read into Exhibit A that the sale was to be made subject to the terms and conditions being agreed upon by the tenant by a reply that he would first like to know the condition and terms before filling in the forms in Exhibit B. In effect the decision in Exhibit A is to this effect: “I offer to sell you the house at its current value and with certain terms and conditions. You may accept by filling in the attached forms and sending them to me.” The filling in and the return of the forms constituted an unconditional acceptance of the offer. It was absolute and corresponded with the terms of the offer…There was therefore a complete contract.”