Business Law
Ashesi University College
Dzifa Gakpleazi
BA, BL (Ghana)
LL.M. IHR (Northwestern)
Contracts Law
For today’s class:
• What a contract is,
• Essentials of a contract
– Offer
– Acceptance
– Consideration
– Intention to create legal relations
– Capacity
What is a contract?
• An agreement between two or more parties
creating legal rights and obligations which the law
will recognize and the courts will enforce.
• Contracts are generally not imposed but created
by voluntary agreement or promises of parties
• Involves the exchange of promises
• The promises form the content of the contract
• Courts give effect to what the parties agreed to
• A contract can be unilateral or bilateral
• A unilateral contract is one made to the whole
world at large. Anybody who performs the act
that is being required to be done is said to have
accepted the offer. E.g., Afia announces to the
whole world that if anyone should return her lost
dog she will reward the person with a huge sum
of money. Once someone finds the dog Afia must
pay up.
• A bilateral contract on the other hand is between
two persons or between several parties.
Essentials of a Contract
•
•
•
•
•
Offer
Acceptance
Intention to create legal relations
Consideration
Capacity to contract
Offer
• An offer is a statement, proposition or conduct by one
person(s) to another person(s) expressing a willingness to be
held to that statement, proposition or conduct.
• The party making the offer is called the offeror or promisor
and the party to whom it is made is called the offeree or
promisee.
• Example: Kofi says to Ama, I will sell my phone to you for GHC
50. Kofi is the offeror and Ama is the Offeree.
• An offer can be written, oral, partly written and partly oral or
by conduct
• An offer must have terms which must be clear, certain and
definite, not vague and ambiguous
• Note that the courts are not likely to enforce a contract with
uncertain, vague and ambiguous terms
• Offers must be communicated [to the offeree or his
authorised agent]
• When a party promises to keep an offer open for acceptance
for a specified time he is bound, even in the absence
consideration, to keep the offer open under Ghanaian law
(section 8 of the Contracts Act) unlike common law where an
offeror is not bound by the time within which he is to keep
the offer open unless there is consideration.
What are not offers?
• Invitation to treat: invitations to the public
to make offers or attempts to initiate the
bargaining process.
• Distinguishing feature: there is no intention
to create legal relations
• Indicates that the person is willing and ready
to receive offers
• A person making the invitation is not bound
to accept any offers in response
Examples of invitation to treat
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•
•
•
Display of goods in a shop
Adverts
Auction sales
Tenders
• Display of goods in a shop
– Pharmaceutical Society of Great Britain v. Boots Cash Chemist
(southern) Ltd: the plaintiffs accused the defendant of violating the
Pharmacy and Poisons Act 1933. This required that certain medicines
be sold under the supervision of a registered pharmacist. The
defendants on the other hand run a self service shop. When
customers were picking these medicines up from the shelves there
was no supervision. The registered pharmacist was however at the
cash register to supervise the sale of these medicines. Held:
defendants were not making offers to their customers rather they
were inviting them to treat to which they would accept or reject when
the customers get to the cash register.
– Fisher v. Bell: display of goods in a shop window with prices attached
to them does not constitute offers but an invitations to treat.
• Adverts
– Harrison v. Nickerson: an auctioneer advertised the sale by
auction of certain goods in the newspapers indicating the
venue of the sale and the fact that the highest bidder
would be the buyer. A buyer relied on the advert and
travelled to the venue but realized some of the items
advertised which he had intended to buy were not put up
for sale. He sued the auctioneer for compensation for his
travel expenses to the venue. Issue: whether the advert
was an offer which the bidder accepted by travelling to the
venue of the auction. Held: the advert was not an offer but
a mere declaration of intention that lacked a contractual
intent. Not every declaration of intention to do a thing
creates a binding contract on those who act upon it.
However, in some circumstances, promises contained in adverts can
constitute valid offers if there is a clear indication of the intention of the
offeror to enter into a contract with whoever acts on the promise
contained in the promise.
– Carlill v. Carbolic Snowball: a pharmaceutical company caused an
advert stating that anybody who used a certain product, in the
manner specified in the advert and still contracted the illness which
the product was meant to cure, the company would compensate that
person. Plaintiff in reliance on the advert bought and used it in the
manner specified in the advert and still contracted the illness. She
sued for compensation. Issue: whether promise of compensation was
an offer or invitation to treat. Held: it was an offer. There was a clear
indication by the company of its intention to be bound by the promise
if what it said in the advert was complied with. Once it was complied
with the company was obliged to honour its promise.
• Auction sales – Auction Sales Act, 1989, (PNDCL 230)
The advert of the auction is an invitation to attend and make
offers in the form of bids which the auctioneer may reject or
accept. Each has the right to withdraw anytime before
acceptance. Acceptance is usually indicated by the fall of the
auctioneer’s hammer.
Without reserve: auctioneer is prohibited from withdrawing the
item after a bid has been made and must sell to the highest
bidder. Bidder may withdraw before the fall of the hammer
With reserve: item will not be sold below the reserve price.
Auctioneer is not bound to sell the item to the highest bidder
if the highest bid falls below the reserve price
• Tenders
Termination of offers
There are five ways in which an offer can be terminated:
• Revocation: withdrawal of the offer before it is accepted. It must be
communicated to the offeree
• Rejection and Counter-Offer: the offeree to whom the offer is
made rejects the offer but puts on the table a new offer. This new
offer by the offeree is called a counter offer. The counter offer
rejects, destroys and terminates the original offer.
• Lapse of time: the offeror in making his offer may stipulate a time
within which the offeree should accept. Once the time lapses the
offer comes to an end.
• Non-occurrence of condition: an offer can also be subject to a
condition, and if the condition does not occur or is not fulfilled,
then the offer may come to an end.
• Death: If one of the parties dies then the offer comes to an end.
Acceptance
When an offeror makes an offer and the person to whom it is made
agrees or consents to the contents of the offer one is said to have
accepted the offer thus acceptance.
– It must be to the whole offer and not parts of it. Any
qualification, deviation etc amounts to a counter offer subject to
acceptance and the old offer is terminated. Hyde v. Wrench: 6th
June, Wrench offered his farm to Hyde for £ 1000, 8th June,
Hyde offered to buy it for £ 950. wrench wrote back to reject
Hyde’s offer and Hyde subsequently wrote back accepting
Wrench’s original offer of £1000. Wrench refused to sell. Held:
no contract, by his letter of 8th June, Hyde had rejected the
original offer and therefore that offer was no longer available
for acceptance. Hyde’s proposal of a £ 950, was a counter offer,
it effectively killed the original offer and because the counter
offer was rejected by Wrench it meant there was no offer.
– Must be expressed, either in writing or oral
– Only the offeror can accept an offer. E.g., an offer
made by Kofi to Ama, cannot be accepted by Akos
– Its effect is that it transforms the offer into a
binding agreement
– Silence does not constitute acceptance. Neither
can the offeror impose silence as an indication of
acceptance on the offeree.
– It must be communicated to the offeror to be
effective
Mode of communication
• Should be that indicated by the offeror unless it is waived
• If no mode indicated, the most convenient and effective means.
The postal rule: acceptance by post is effective as soon as the letter is
addressed, stamped and posted.
– It does not matter if the letter is destroyed, or lost and never
reaches the offeror
– An offeree cannot revoke an acceptance once the letter is
posted, even if it has not reached the offeror
– applies only to letters of acceptance and not revocation
Exception: this rule can be waived by the parties
Exception to the communication rule:
Unilateral contracts: these involve promises
which can only effectively be accepted by acts.
E.g. return of lost items for a handsome
reward. A accepts this offer not by
communicating acceptance but by returning
the lost items.