COMMERCIAL LAW 1COMMERCIAL LAW 12011/2012 ACADEMIC YEAR 2011/2012 ACADEMIC YEAR

LECTURE 1LECTURE 1UGBS, 13UGBS, 13thth SEPT 2011 SEPT 2011

Rowland Atta-Kesson Esq.Rowland Atta-Kesson Esq.

INTENTION TO CREATE INTENTION TO CREATE LEGAL RELATIONS LEGAL RELATIONS

• In commercial matters the courts In commercial matters the courts presume that the parties intend to presume that the parties intend to create a legal relationship, whilecreate a legal relationship, while

• In agreements of social or domestic In agreements of social or domestic nature no such presumption is made. nature no such presumption is made.

• In either case, however, the In either case, however, the presumption may be overturned by presumption may be overturned by actual evidence to the contrary. actual evidence to the contrary.

Social & Domestic Social & Domestic Arrangements Arrangements

• Most social and domestic Most social and domestic arrangements do not amount to arrangements do not amount to binding contracts since they are binding contracts since they are not intended to be such. not intended to be such.

• Cases that amount to Cases that amount to social/domestic arrangements social/domestic arrangements tend to fall into 2 broad areas tend to fall into 2 broad areas – Family arrangementsFamily arrangements– Other social arrangements Other social arrangements

Family arrangementsFamily arrangements• BALFOUR v BALFOUR BALFOUR v BALFOUR • A husband, who was a civil servant based A husband, who was a civil servant based

in Sri Lanka, brought his wife to England.in Sri Lanka, brought his wife to England.• Eventually he had to return but his wife Eventually he had to return but his wife

had to stay in England for medical reasons.had to stay in England for medical reasons.• He agreed to pay her He agreed to pay her ££30 per month 30 per month

maintenance during his absence. maintenance during his absence. • When he failed to pay the allowance she When he failed to pay the allowance she

sued. sued. • Her action failed on 2 grounds; (1) she had Her action failed on 2 grounds; (1) she had

not provided any considerations for the not provided any considerations for the ££30 per month, and (2) the parties had no 30 per month, and (2) the parties had no intention of creating a legally binding intention of creating a legally binding agreement. agreement.

• MERRIT v MERRIT [1970]MERRIT v MERRIT [1970]• The husband left the matrimonial home The husband left the matrimonial home

to live with another woman. to live with another woman. • At a meeting with his wife, he agreed in At a meeting with his wife, he agreed in

writing to pay her writing to pay her ££40 per month 40 per month maintenance from which she had to maintenance from which she had to repay the mortgage and, when the repay the mortgage and, when the repayment was completed, to transfer repayment was completed, to transfer the house into her sole ownership. the house into her sole ownership.

• The wife did in fact pay off the The wife did in fact pay off the mortgage but the husband then refused mortgage but the husband then refused to transfer the house to her. to transfer the house to her.

• The CA held that there was intention to The CA held that there was intention to create a legal relationship and therefore create a legal relationship and therefore held the husband to his agreement. held the husband to his agreement.

• JONES v PADAVATTON [1969]JONES v PADAVATTON [1969]• A mother agreed with her daughter that if the A mother agreed with her daughter that if the

daughter gave up her job in the USA and read for daughter gave up her job in the USA and read for the Bar in England, the mother would pay her an the Bar in England, the mother would pay her an allowance of $200 a month. allowance of $200 a month.

• On this basis, the daughter came to England and On this basis, the daughter came to England and began her legal studies in November 1962began her legal studies in November 1962

• In 1964 the mother bought a house for In 1964 the mother bought a house for ££6000, 6000, whereupon the earlier agreement was now varied whereupon the earlier agreement was now varied so that the daughter, instead of receiving her so that the daughter, instead of receiving her allowance, would live in part of the house and let allowance, would live in part of the house and let the rest, using the rent to cover expenses and her the rest, using the rent to cover expenses and her maintenance. maintenance.

• In 1967, the parties had an argument and as a In 1967, the parties had an argument and as a consequence the mother brought an action for the consequence the mother brought an action for the possession of the house. possession of the house.

• The mother based her claim on the allegation that The mother based her claim on the allegation that the agreement was not made with the intention of the agreement was not made with the intention of creating a legal relationship. creating a legal relationship.

• Majority in the CA held that there was no intention Majority in the CA held that there was no intention to create a legal relationship between the parties to create a legal relationship between the parties and gave the mother possession of the houseand gave the mother possession of the house

Other social Other social arrangements arrangements • SIMPKINS v PAYS [1955] SIMPKINS v PAYS [1955]

• The defendant owned a house in which she lived The defendant owned a house in which she lived with her granddaughter, and the plaintiff, a paying with her granddaughter, and the plaintiff, a paying lodger. lodger.

• The three regularly took part in a competition in a The three regularly took part in a competition in a Sunday newspaper. Sunday newspaper.

• Whilst the entries were entered under the Whilst the entries were entered under the defendant’s name, all of them contributed to the defendant’s name, all of them contributed to the competition, though there was no regular competition, though there was no regular arrangement as to the payment of postage and arrangement as to the payment of postage and other expenses. other expenses.

• One week the entry was successful but the One week the entry was successful but the defendant refused to pay the plaintiff his share of defendant refused to pay the plaintiff his share of the price and claimed that there was no intention to the price and claimed that there was no intention to create a legally binding relationship. create a legally binding relationship.

• Held: the plaintiff was entitled to his share, the Held: the plaintiff was entitled to his share, the judge stating that there was sufficient ‘mutuality in judge stating that there was sufficient ‘mutuality in the arrangements between the parties’ to establish the arrangements between the parties’ to establish a legally binding agreement to share any prize that a legally binding agreement to share any prize that might be won. might be won.

COMMERCIAL COMMERCIAL AGREEMENTSAGREEMENTS

• In these types of agreements there In these types of agreements there is a strong presumption that there is a strong presumption that there is an intention to create a legally is an intention to create a legally binding relationship. binding relationship.

• This presumption can, of course, This presumption can, of course, be rebutted, but in fact very strong be rebutted, but in fact very strong evidence is required to do this. evidence is required to do this.

• One way of rebutting the One way of rebutting the presumption is by inserting an presumption is by inserting an express statement to this effect in express statement to this effect in a written statement. a written statement.

• APPLESON v H. LITTLEWOOD APPLESON v H. LITTLEWOOD [19390 and JONES v VERNON’S [19390 and JONES v VERNON’S POOLS LTD [1938]POOLS LTD [1938]

• The plaintiffs in both cases The plaintiffs in both cases attempted to claim monies which attempted to claim monies which they had alleged had been won in they had alleged had been won in a football pool. a football pool.

• The words ‘Binding in honour only’ The words ‘Binding in honour only’ were contained on each coupon. were contained on each coupon.

• Held, the words were sufficient to Held, the words were sufficient to rebut the presumption and the rebut the presumption and the plaintiffs thus failed. plaintiffs thus failed.

• ROSE & FRANK CO v JR CROMPTON & BROS [1925]ROSE & FRANK CO v JR CROMPTON & BROS [1925]• An English company agreed to sell certain carbon An English company agreed to sell certain carbon

copy materials in the USA through a New York copy materials in the USA through a New York based firm. based firm.

• The transaction, which was made in writing, gave The transaction, which was made in writing, gave the plaintiffs the sole rights to market and sell the the plaintiffs the sole rights to market and sell the products in the USA and Canada for period of 3 products in the USA and Canada for period of 3 years with an option to extend the period. years with an option to extend the period.

• The document contained a clause, which was The document contained a clause, which was described as and “Honourable Pledge Clause”, and described as and “Honourable Pledge Clause”, and which provided: “This arrangement is not entered which provided: “This arrangement is not entered into….as a formal or legal agreement and shall not into….as a formal or legal agreement and shall not be subject to legal jurisdiction to the law courts be subject to legal jurisdiction to the law courts either of the United States or England.” either of the United States or England.”

• The original agreement began in July 1913 but at The original agreement began in July 1913 but at the end of the 3-year period the option to extend the end of the 3-year period the option to extend was exercised; as a result the agreement was to last was exercised; as a result the agreement was to last until March 1920.until March 1920.

• In 1919, the English defendants terminated the In 1919, the English defendants terminated the agreement and failed to given appropriate notice as agreement and failed to given appropriate notice as required by the agreement, and also refused to required by the agreement, and also refused to fulfill orders received by them prior to their decision fulfill orders received by them prior to their decision to terminate the agreement. to terminate the agreement.

• The CA decided that with regard to The CA decided that with regard to the orders already received there the orders already received there arose a separate and binding contract arose a separate and binding contract which the defendants were bound to which the defendants were bound to fulfill. fulfill.

• With respect to the grant of the With respect to the grant of the selling rights, the court found that as selling rights, the court found that as the parties had specifically declared the parties had specifically declared that the document was not to bring that the document was not to bring about legally binding consequences about legally binding consequences then one could exist; as a result there then one could exist; as a result there was no obligation to giver orders or to was no obligation to giver orders or to receive them, though once they were receive them, though once they were given and accepted the defendants given and accepted the defendants were bound to execute the order. were bound to execute the order.

• EDWARDS v SKYWAYS LTD [1964]EDWARDS v SKYWAYS LTD [1964]• The plaintiff was employed as an airline pilotThe plaintiff was employed as an airline pilot• the defendants, his employers, informed him that the defendants, his employers, informed him that

they were making him redundant and gave him 3 they were making him redundant and gave him 3 months’ notice. months’ notice.

• By virtue of his contract the plaintiff was a member By virtue of his contract the plaintiff was a member of the defendants’ contributory pension fund which of the defendants’ contributory pension fund which entitled him to one of two options on leaving their entitled him to one of two options on leaving their service. service.

• He cold either take his contributions out of the fund He cold either take his contributions out of the fund or received a paid-up pension which would take or received a paid-up pension which would take effect when he was 50 years of age. effect when he was 50 years of age.

• The plaintiff’s professional association, negotiating The plaintiff’s professional association, negotiating on his behalf, agreed with the defendants that if the on his behalf, agreed with the defendants that if the plaintiff chose the first option the defendants would plaintiff chose the first option the defendants would make him an ex gratia payment equal to the make him an ex gratia payment equal to the defendant’s contribution to the fund. defendant’s contribution to the fund.

• The plaintiff accepted the agreement and chose to The plaintiff accepted the agreement and chose to withdraw his contributions. withdraw his contributions.

• The defendants then paid him his total contributions The defendants then paid him his total contributions but refused to make the ex gratia payment.but refused to make the ex gratia payment.

• The plaintiff sued for breach of contract and won. The plaintiff sued for breach of contract and won.

• The judge stated that the words The judge stated that the words ex gratia did not give rise to a ex gratia did not give rise to a negative contract agreement but negative contract agreement but simply meant that the employers simply meant that the employers did not admit to any pre-existing did not admit to any pre-existing legal liability on their part. legal liability on their part.

• They failed to discharge the They failed to discharge the burden of overturning the burden of overturning the presumption that there was an presumption that there was an intention to create a legal intention to create a legal relationship and were thus liable relationship and were thus liable to make the payment. to make the payment.

TUTORIAL 4 (A)TUTORIAL 4 (A)• Husband and wife enter into an Husband and wife enter into an

agreement whereby she will not visit her agreement whereby she will not visit her mother more than three times a year if mother more than three times a year if he pays her monthly “a reasonable sum he pays her monthly “a reasonable sum to be arranged between us”. For the to be arranged between us”. For the first six months he pays GhC100 a month first six months he pays GhC100 a month at the suggestion of his wife but then at the suggestion of his wife but then refuses to pay a penny more alleging refuses to pay a penny more alleging that the agreement is :that the agreement is :– (a) not intended to be legally binding, and (a) not intended to be legally binding, and – (b) too vague and uncertain to be a good (b) too vague and uncertain to be a good

contract contract • ADVISE WIFE ADVISE WIFE

TUTORIAL 4(B)TUTORIAL 4(B)• A asked B to come and stay at A asked B to come and stay at

his house for a fortnight. A’s his house for a fortnight. A’s wife died on the day before B wife died on the day before B arrived. B after paying the arrived. B after paying the expensive train fair found that A expensive train fair found that A could not receive him and was could not receive him and was obliged to stay at a hotel. obliged to stay at a hotel.

• ADVISE B. ADVISE B.

Tutorial 4(C)Tutorial 4(C)• It is said that an agreement, It is said that an agreement,

even though it is supported by even though it is supported by consideration, is not binding as a consideration, is not binding as a contract, if it is made without an contract, if it is made without an intention to create legal intention to create legal relations. Critically examine this relations. Critically examine this statement with the help of statement with the help of illustrations from the decided illustrations from the decided cases. cases.

CAPACITY CAPACITY • Generally, the law assumes that Generally, the law assumes that

all parties to a contract have the all parties to a contract have the power to enter into that power to enter into that contract. contract.

• However, the law places However, the law places restrictions on the ability of a restrictions on the ability of a number of groups of persons to number of groups of persons to enter into contractual relationsenter into contractual relations

Infants/MinorInfants/Minor• Section 4 of the 1Section 4 of the 1stst Schedule to the Schedule to the

Companies Act Companies Act – Infant means a natural person under the age Infant means a natural person under the age

of 21 years or any other age that is declared of 21 years or any other age that is declared by an enactment to be full age for legal by an enactment to be full age for legal purposespurposes

• Article 28(5) of the 1992 ConstitutionArticle 28(5) of the 1992 Constitution– Child means a person below the age of 18 Child means a person below the age of 18

yearsyears

• Section 1 of the Children’s Act 1998, (Act Section 1 of the Children’s Act 1998, (Act 560)560)– Child means a person below the age of 18 Child means a person below the age of 18

yearsyears

• At common law, the only class of contract At common law, the only class of contract which was binding on a child was a contract which was binding on a child was a contract for ‘necessaries’for ‘necessaries’

• In all other cases, the common law treated In all other cases, the common law treated a minor’s contracts as being either voidable a minor’s contracts as being either voidable at the option of the minor, either before or at the option of the minor, either before or after becoming an adult, or enforceable after becoming an adult, or enforceable against him unless he ratified them after against him unless he ratified them after attaining majority. attaining majority.

• Contracts in which the minor acquired an Contracts in which the minor acquired an interest of a permanent or continuous interest of a permanent or continuous nature, such as a contract to acquire an nature, such as a contract to acquire an interest in land, were binding until the interest in land, were binding until the minor disclaimed them, either during minor disclaimed them, either during minority or within a reasonable time after minority or within a reasonable time after becoming an adult. becoming an adult.

• The aim of the law is to protect minors on The aim of the law is to protect minors on the one hand, and to safeguard the the one hand, and to safeguard the interests of traders interests of traders

Contracts for Contracts for necessaries necessaries

• It has always been held that a It has always been held that a minor may be liable for the minor may be liable for the supply, not merely of the supply, not merely of the necessaries of life, but of things necessaries of life, but of things suitable to his or her station in suitable to his or her station in life and particular circumstances life and particular circumstances at the timeat the time

• Certain things are not Certain things are not necessaries necessaries

• RYDER v WOMBWELL (1868)RYDER v WOMBWELL (1868)• W, a minor with an income of W, a minor with an income of

£500 a year, bought from R a pair of £500 a year, bought from R a pair of crystal, ruby and diamond solitaires crystal, ruby and diamond solitaires and an antique goblet in silver gilt.and an antique goblet in silver gilt.

• It was held that neither of these articles It was held that neither of these articles could be necessary, even though W could be necessary, even though W was the son of a deceased baronet and was the son of a deceased baronet and ‘moved in the highest society’‘moved in the highest society’

• Other things may be of a useful character Other things may be of a useful character but the quality or quantity supplied may but the quality or quantity supplied may take them out of the character of take them out of the character of necessaries necessaries

• NASH v INMAN [1908]NASH v INMAN [1908]• A tailor supplied a Cambridge A tailor supplied a Cambridge

undergraduate with clothing which undergraduate with clothing which included 11 fancy waistcoats at 2 guineas included 11 fancy waistcoats at 2 guineas each. each.

• It was proved that although he was a It was proved that although he was a minor, he had already a sufficient supply minor, he had already a sufficient supply of clothing according to his position in life of clothing according to his position in life

• The English CA held that the tailor had The English CA held that the tailor had failed to prove that the clothing was failed to prove that the clothing was suitable to the undergraduate’s actual suitable to the undergraduate’s actual requirements at the time of the sale and requirements at the time of the sale and delivery. delivery.

• Necessaries also vary according to the Necessaries also vary according to the minor’s station in life or peculiar minor’s station in life or peculiar circumstances at the time of the circumstances at the time of the contract . PETERS v FLEMING contract . PETERS v FLEMING

• The court must take into consideration The court must take into consideration the character of the goods supplies, the character of the goods supplies, the actual circumstances of the minor, the actual circumstances of the minor, and extent to which the minor was and extent to which the minor was already supplied with them. already supplied with them.

• In Section 2(3) of Act 137, In Section 2(3) of Act 137, – Necessaries means goods suitable to the Necessaries means goods suitable to the

condition in life of the person to whom condition in life of the person to whom they are delivered and to the actual they are delivered and to the actual requirement of that person at the time of requirement of that person at the time of deliverydelivery

Contract of employment Contract of employment and training and training

• A minor may enter into a contract of A minor may enter into a contract of employment so as to earn a living or employment so as to earn a living or into a contract for the purpose of into a contract for the purpose of obtaining instruction or education so obtaining instruction or education so as to qualify for a suitable trade or as to qualify for a suitable trade or profession whereby he or she may profession whereby he or she may profit himself afterwards. profit himself afterwards.

• Provided that there are beneficial to Provided that there are beneficial to the minor, these contracts are the minor, these contracts are binding binding

• CLEMENTS v LONDON & NORTH CLEMENTS v LONDON & NORTH WESTERN RAILWAY COMPANY WESTERN RAILWAY COMPANY [1894][1894]

• A minor entered into a contract of A minor entered into a contract of employment with a railway employment with a railway company, promising to accept the company, promising to accept the terms of an insurance against terms of an insurance against accidents in lieu of his rights of accidents in lieu of his rights of action. It was held that the action. It was held that the contract, taken as a whole, was for contract, taken as a whole, was for his benefit and that he was bound his benefit and that he was bound by his promise. by his promise.

• ROBERTS v GRAY [1913]ROBERTS v GRAY [1913]• The defendant wished to become a The defendant wished to become a

professional billiards player and entered professional billiards player and entered into an agreement with the plaintiff, a into an agreement with the plaintiff, a leading professional, to go on a joint tour. leading professional, to go on a joint tour.

• The plaintiff went to some trouble in order The plaintiff went to some trouble in order to organize the tour, but a dispute arose to organize the tour, but a dispute arose between the parties and the defendant between the parties and the defendant refused to go. refused to go.

• The plaintiff sued for damages of £6,000The plaintiff sued for damages of £6,000• Held; the contract was for the minor’s Held; the contract was for the minor’s

benefit, being in effect for his instruction benefit, being in effect for his instruction as a billiards player. Therefore the plaintiff as a billiards player. Therefore the plaintiff could sustain action for damages for could sustain action for damages for breach of contract, and damages of £ breach of contract, and damages of £ 1,500 were awarded. 1,500 were awarded.

• On the other hand, a contract of this On the other hand, a contract of this class which is more onerous than class which is more onerous than beneficial to the minor will impose no beneficial to the minor will impose no liability. liability.

• DE FRANCESCO v BARNUM DE FRANCESCO v BARNUM – B, aged 14 years, agreed to become De F’s B, aged 14 years, agreed to become De F’s

apprentice in ‘the art of choreography’ for 7 apprentice in ‘the art of choreography’ for 7 years. De F was to teach her stage dancing, years. De F was to teach her stage dancing, and during the period of apprenticeship B and during the period of apprenticeship B was not take any professional engagement was not take any professional engagement with the consent of De F, nor was she to with the consent of De F, nor was she to marry. marry.

– She was to receive certain payments for any She was to receive certain payments for any performances she might give, but there was performances she might give, but there was no provision for any other remuneration and no provision for any other remuneration and De F did not undertake to find her any De F did not undertake to find her any engagements. The effect of the deed was to engagements. The effect of the deed was to place B entirely at the disposal of De F. place B entirely at the disposal of De F.

– Held that the contract was not beneficial to Held that the contract was not beneficial to B and was unenforceable. B and was unenforceable.

Other beneficial Other beneficial contracts contracts • The class of contracts for necessaries The class of contracts for necessaries

is not, limited to contracts for is not, limited to contracts for employment and training.employment and training.

• It includes numerous contracts for It includes numerous contracts for ‘necessaries’ other than goods, e.g ‘necessaries’ other than goods, e.g medical treatment, preparation of medical treatment, preparation of marriage settlement by solicitor, hire marriage settlement by solicitor, hire of a car to fetch a minor’s luggage of a car to fetch a minor’s luggage from railway stationfrom railway station

• Provided these are reasonable and Provided these are reasonable and beneficial to the minor, the other beneficial to the minor, the other party can enforce them. party can enforce them.

• CHAPLIN v LESLIE FREWIN CHAPLIN v LESLIE FREWIN (PUBLISHERS) [1965](PUBLISHERS) [1965]

• The plaintiff, the minor son of a The plaintiff, the minor son of a famous father, made a contract with famous father, made a contract with the defendants under which they the defendants under which they were to public a book written for him, were to public a book written for him, telling his life story and entitled telling his life story and entitled I I Couldn’t Smoke the Grass on my Couldn’t Smoke the Grass on my Father’s Lawn Father’s Lawn

• The plaintiff sought to avoid the The plaintiff sought to avoid the contract on the ground that the book contract on the ground that the book gave an inaccurate picture of his gave an inaccurate picture of his approach to life.approach to life.

• Held, among others, that the contract Held, among others, that the contract was binding because it was for the was binding because it was for the minor’s benefit. minor’s benefit.

• When infants have themselves When infants have themselves performed their side of the contract, performed their side of the contract, they may sue to enforce it.they may sue to enforce it.

• LARTEY v BANNERMAN [1976]LARTEY v BANNERMAN [1976]– A father agreed with the defendant to A father agreed with the defendant to

buy a house for his infant daughter. buy a house for his infant daughter. – He made an advance payment towards He made an advance payment towards

the agreed purchase price. the agreed purchase price. – Subsequently, the vendor had second Subsequently, the vendor had second

thoughts about the transactionsthoughts about the transactions– The father sued for specific performance The father sued for specific performance – Defendant argued that on ground of Defendant argued that on ground of

mutuality, the SP ought not to be mutuality, the SP ought not to be granted, the CA held that the mutuality granted, the CA held that the mutuality argument is no bar to the minor’s claim. argument is no bar to the minor’s claim.

• STEINBERG v SCALA [1923]STEINBERG v SCALA [1923]• The plaintiff purchased shares in the defendant The plaintiff purchased shares in the defendant

company and paid certain sums of money on company and paid certain sums of money on application, on allotment and on one call.application, on allotment and on one call.

• Being unable to meet future calls, she Being unable to meet future calls, she repudiated the contract whilst still a minor and repudiated the contract whilst still a minor and claimed: (a) rectification of the Register of claimed: (a) rectification of the Register of Members to remove her name therefrom, thus Members to remove her name therefrom, thus relieving her from liability on future calls; and relieving her from liability on future calls; and (b) the recovery of the money already paid (b) the recovery of the money already paid

• The company agreed to rectify the register but The company agreed to rectify the register but was not prepared to return the money paid.was not prepared to return the money paid.

• Held; that the claim under (b) failed because Held; that the claim under (b) failed because there had not been total failure of there had not been total failure of consideration. The shares had some value and consideration. The shares had some value and gave some rights, even though the plaintiff had gave some rights, even though the plaintiff had not received any dividends and the shares had not received any dividends and the shares had always stood at a a discount on the market. always stood at a a discount on the market.

• In DAVIES v BEYNON-HARRIS [1931] In DAVIES v BEYNON-HARRIS [1931] a minor was allowed to avoid a a minor was allowed to avoid a lease of a flat without liability for lease of a flat without liability for future rent or damages but was not future rent or damages but was not allowed to recover rent paid. allowed to recover rent paid.

• However, in GOODE v HARRISON However, in GOODE v HARRISON (1821) a partner who was a minor (1821) a partner who was a minor took no steps to avoid the took no steps to avoid the partnership contract while a minor partnership contract while a minor or afterwards. He was held liable for or afterwards. He was held liable for debts of the firm incurred after he debts of the firm incurred after he came of age. came of age.

DrunksDrunks• A contract is voidable if drunkenness A contract is voidable if drunkenness

prevents an individual from understanding prevents an individual from understanding the transaction he has entered into and the the transaction he has entered into and the other party is aware of his level of other party is aware of his level of intoxicationintoxication

• It should be noted that a drunk will be liable It should be noted that a drunk will be liable to pay a reasonable price for items to pay a reasonable price for items considered to be necessaries and in any considered to be necessaries and in any event will be liable on the contract should event will be liable on the contract should he ratify it on becoming soberhe ratify it on becoming sober– Section 2(2) of the Sale of Goods Act, 1962 (Act Section 2(2) of the Sale of Goods Act, 1962 (Act

137) states that “where necessaries are 137) states that “where necessaries are delivered to a person under an agreement delivered to a person under an agreement which is void because of that person’s which is void because of that person’s incapacity to contract, that person is bound to incapacity to contract, that person is bound to pay a reasonable price for those necessaries.pay a reasonable price for those necessaries.

• MATTHEWS v BAXTER [1873]MATTHEWS v BAXTER [1873]• Matthews agreed to buy houses Matthews agreed to buy houses

from Baxter. He was so drunk as from Baxter. He was so drunk as not to know what he was doing. not to know what he was doing.

• Afterwards, when sober, he Afterwards, when sober, he ratified and confirmed the ratified and confirmed the contract. contract.

• It was held that both parties It was held that both parties were bound by it. were bound by it.

Mentally disordered Mentally disordered personspersonsIMPERIAL LOAN CO v STONE [1892]IMPERIAL LOAN CO v STONE [1892]

• This was an action on a promissory note. This was an action on a promissory note. • The Defendant pleaded that at the time o The Defendant pleaded that at the time o

f making the note he was insane and that f making the note he was insane and that the Plaintiff knew he was. the Plaintiff knew he was.

• The jury found that he was in fact insane The jury found that he was in fact insane but could not agree on the question of but could not agree on the question of whether the plaintiff knew it. whether the plaintiff knew it.

• The judge entered judgment for the The judge entered judgment for the defendant. defendant.

• On appeal, it was held that the trial judge On appeal, it was held that the trial judge was wrong. The plea of insanity must was wrong. The plea of insanity must satisfy the two test of unsound mind and satisfy the two test of unsound mind and knowledge of this fact by the other party. knowledge of this fact by the other party.

• PER LORD ESHER MRPER LORD ESHER MR• ““When a person enters into a When a person enters into a

contract, and afterwards alleges that contract, and afterwards alleges that he was so insane at the time that he he was so insane at the time that he did not know what he was doing, and did not know what he was doing, and proves the allegation, the contract is proves the allegation, the contract is as binding upon him in every respect, as binding upon him in every respect, whether it is executory or executed, whether it is executory or executed, as if he had been sane when he made as if he had been sane when he made it, unless he can prove further that it, unless he can prove further that the person with whom he contracted the person with whom he contracted knew him to be so insane as not to be knew him to be so insane as not to be capable of understanding what he capable of understanding what he was about. ”was about. ”

• In HART V O’CONNOR [1985]In HART V O’CONNOR [1985]• The Privy Council refused to set The Privy Council refused to set

aside an agreement to sell aside an agreement to sell farmland in New Zealand farmland in New Zealand because although the seller was because although the seller was of unsound mind, his affliction of unsound mind, his affliction was not apparent.was not apparent.

• The price paid was not The price paid was not unreasonable. unreasonable.

• PER LORD BRIGHTMANPER LORD BRIGHTMAN• ““the validity of a contract entered the validity of a contract entered

into by a lunatic who is ostensibly into by a lunatic who is ostensibly sane is to be judged by the same sane is to be judged by the same standards as a contract by a person standards as a contract by a person of sound mind, and is not voidable of sound mind, and is not voidable by the lunatic or his by the lunatic or his representatives by reason of representatives by reason of ‘unfairness’ unless such unfairness ‘unfairness’ unless such unfairness amounts to equitable fraud which amounts to equitable fraud which would have enabled the would have enabled the complaining party to avoid the complaining party to avoid the contract even if he had been sane.”contract even if he had been sane.”

Enemy AliensEnemy Aliens

• It is contrary to public policy for It is contrary to public policy for courts to enforce contracts courts to enforce contracts between parties who include between parties who include enemy aliens. enemy aliens.

• To do so constitutes providing To do so constitutes providing assistance to the enemy. assistance to the enemy.

• An enemy alien is a national of a An enemy alien is a national of a country with whom Ghana is at country with whom Ghana is at war. war.

• DAIMLER CO LTD v CONTINENTAL TIRE DAIMLER CO LTD v CONTINENTAL TIRE & RUBBER CO (GT BRITAIN) LTD (1916)& RUBBER CO (GT BRITAIN) LTD (1916)

• When Britain was at war with When Britain was at war with Germany, the House of Lords held that Germany, the House of Lords held that the respondent could not sue and the respondent could not sue and recover a debt from the appellant. recover a debt from the appellant.

• This was despite the fact that the This was despite the fact that the respondent was incorporated in respondent was incorporated in England, because all of the shares of England, because all of the shares of the respondent were held by German the respondent were held by German residents, except for one share which residents, except for one share which was held by the company secretary was held by the company secretary who was resident in Germany. who was resident in Germany.

Corporate Bodies Corporate Bodies ASHBURY RAILWAY CARRIAGE & IRON CO. v RICHE (1875)ASHBURY RAILWAY CARRIAGE & IRON CO. v RICHE (1875)• The company was formed for the purposes of making The company was formed for the purposes of making

and selling railway wagons and other railway plant and and selling railway wagons and other railway plant and carrying on the business of mechanical engineers and carrying on the business of mechanical engineers and general contractors. general contractors.

• The company bought a concession for the construction The company bought a concession for the construction of a railway system in Belgium from Antwerp to of a railway system in Belgium from Antwerp to Tournai and entered into an agreement whereby Tournai and entered into an agreement whereby Messrs Riche were to construct the railway line. Messrs Riche were to construct the railway line.

• Messrs Riche commenced the work and the company Messrs Riche commenced the work and the company paid over certain sums of money in connection with the paid over certain sums of money in connection with the contract. contract.

• The Ashbury company later ran into difficulties, and The Ashbury company later ran into difficulties, and the shareholders wished the directors to take over the the shareholders wished the directors to take over the contract in a personal capacity and indemnify the contract in a personal capacity and indemnify the shareholders. shareholders.

• The directors thereupon repudiated the contract on The directors thereupon repudiated the contract on behalf of the company and Messrs Rich sued for breach behalf of the company and Messrs Rich sued for breach of contract. of contract.

• HELD; the directors were able to repudiate because the HELD; the directors were able to repudiate because the contract to construct a railway system was ultra vires contract to construct a railway system was ultra vires and void. and void.

• NB: the common law position is that ultra NB: the common law position is that ultra vires acts of the company are void and vires acts of the company are void and cannot be ratifiedcannot be ratified

• Under Section 204 of the Companies Act, Under Section 204 of the Companies Act, 1963 (Act 179) by an ordinary resolution, 1963 (Act 179) by an ordinary resolution, the directors may exceed their powers for the directors may exceed their powers for a different purpose if they believe that a different purpose if they believe that doing so is in the company’s interest. doing so is in the company’s interest.

• The Ghanaian law has modified common The Ghanaian law has modified common law law

• Sec 25(3) of Act 179Sec 25(3) of Act 179– an act of a company or a conveyance or an act of a company or a conveyance or

transfer of property to or by a company is transfer of property to or by a company is not invalid by reason of the fact that the act, not invalid by reason of the fact that the act, conveyance or transfer was not done or conveyance or transfer was not done or made for the furtherance of any of the made for the furtherance of any of the authorized businesses of the company or authorized businesses of the company or that the company was otherwise exceeding that the company was otherwise exceeding its objects or powers.its objects or powers.

Government Government

• Section 79 of the Sale of Goods Section 79 of the Sale of Goods Act states makes the Sale of Act states makes the Sale of Goods Act cover contracts Goods Act cover contracts entered into by or on behalf of entered into by or on behalf of the Republic. the Republic.

Tutorial 5 (A)Tutorial 5 (A)• Abusua was a tailor who used to deal heavily in used clothes. Abusua was a tailor who used to deal heavily in used clothes.

Akpeteshie was also his stock-in-trade. He was drunk Akpeteshie was also his stock-in-trade. He was drunk virtually everyday and everybody at Otrokpe knew for that. virtually everyday and everybody at Otrokpe knew for that.

• In his usual condition he entered into an agreement with In his usual condition he entered into an agreement with Saman, a man who never kept himself tidy, talked to himself Saman, a man who never kept himself tidy, talked to himself most of the time and always slept at the bus stop, in order to most of the time and always slept at the bus stop, in order to sell to Saman some of the used clothes.sell to Saman some of the used clothes.

• At the time of the agreement Saman kept running round in At the time of the agreement Saman kept running round in circles, jumping into the air and shouting that he had seen circles, jumping into the air and shouting that he had seen his father’s ghost.his father’s ghost.

• After the “contract” had been made, Abusua supplied the After the “contract” had been made, Abusua supplied the clothes, Saman promptly began using them and refused to clothes, Saman promptly began using them and refused to pay for them arguing that at the time of the agreement he pay for them arguing that at the time of the agreement he was so out of mind as not knowing what he was about.was so out of mind as not knowing what he was about.

• Abusua also argued that when he made the contract with Abusua also argued that when he made the contract with Saman, he (Abusua) was barely sober and he was not aware Saman, he (Abusua) was barely sober and he was not aware of Saman’s condidtion and so Saman is bound to pay him. of Saman’s condidtion and so Saman is bound to pay him.

• ADVISE THE PARTIES. ADVISE THE PARTIES.

Tutorial 5(B)Tutorial 5(B)• Kwasi Diasempa, an infant, carries on Kwasi Diasempa, an infant, carries on

trade as wine and spirit merchant at trade as wine and spirit merchant at Besease Street, Adukrom. He agrees to Besease Street, Adukrom. He agrees to buy from Konkonsa and Konkonsa agrees buy from Konkonsa and Konkonsa agrees to sell to him a quantify of champagne, to sell to him a quantify of champagne, the price to be paid three months after the price to be paid three months after delivery. delivery.

• Konkonsa at the time of the contract did Konkonsa at the time of the contract did not know that Diasempa was an infant, not know that Diasempa was an infant, but on discovering this fact later claims but on discovering this fact later claims that he was not bound by the contract on that he was not bound by the contract on the ground that it is void and refuses to the ground that it is void and refuses to deliver the champagne. Diasempa wishes deliver the champagne. Diasempa wishes to sue Kokonsa to sue Kokonsa

• ADVISE DIASEMPAADVISE DIASEMPA