COMMERCIAL LAW 1 2011/2012 ACADEMIC YEAR LECTURE 1 UGBS, 13 th SEPT 2011

1. COMMERCIAL LAW 12011/2012 ACADEMIC YEAR LECTURE 1UGBS, 13th SEPT 2011 Rowland Atta-Kesson Esq.

2. INTENTION TO CREATE LEGAL RELATIONS • In commercial matters the courts presume that the parties intend to create a legal relationship, while • In agreements of social or domestic nature no such presumption is made. • In either case, however, the presumption may be overturned by actual evidence to the contrary.

3. Social & Domestic Arrangements • Most social and domestic arrangements do not amount to binding contracts since they are not intended to be such. • Cases that amount to social/domestic arrangements tend to fall into 2 broad areas • Family arrangements • Other social arrangements

4. Family arrangements • BALFOUR v BALFOUR • A husband, who was a civil servant based in Sri Lanka, brought his wife to England. • Eventually he had to return but his wife had to stay in England for medical reasons. • He agreed to pay her £30 per month maintenance during his absence. • When he failed to pay the allowance she sued. • Her action failed on 2 grounds; (1) she had not provided any considerations for the £30 per month, and (2) the parties had no intention of creating a legally binding agreement.

5. MERRIT v MERRIT [1970] • The husband left the matrimonial home to live with another woman. • At a meeting with his wife, he agreed in writing to pay her £40 per month maintenance from which she had to repay the mortgage and, when the repayment was completed, to transfer the house into her sole ownership. • The wife did in fact pay off the mortgage but the husband then refused to transfer the house to her. • The CA held that there was intention to create a legal relationship and therefore held the husband to his agreement.

6. JONES v PADAVATTON [1969] • A mother agreed with her daughter that if the daughter gave up her job in the USA and read for the Bar in England, the mother would pay her an allowance of $200 a month. • On this basis, the daughter came to England and began her legal studies in November 1962 • In 1964 the mother bought a house for £6000, whereupon the earlier agreement was now varied so that the daughter, instead of receiving her allowance, would live in part of the house and let the rest, using the rent to cover expenses and her maintenance. • In 1967, the parties had an argument and as a consequence the mother brought an action for the possession of the house. • The mother based her claim on the allegation that the agreement was not made with the intention of creating a legal relationship. • Majority in the CA held that there was no intention to create a legal relationship between the parties and gave the mother possession of the house

7. Other social arrangements • SIMPKINS v PAYS [1955] • The defendant owned a house in which she lived with her granddaughter, and the plaintiff, a paying lodger. • The three regularly took part in a competition in a Sunday newspaper. • Whilst the entries were entered under the defendant’s name, all of them contributed to the competition, though there was no regular arrangement as to the payment of postage and other expenses. • One week the entry was successful but the defendant refused to pay the plaintiff his share of the price and claimed that there was no intention to create a legally binding relationship. • Held: the plaintiff was entitled to his share, the judge stating that there was sufficient ‘mutuality in the arrangements between the parties’ to establish a legally binding agreement to share any prize that might be won.

8. COMMERCIAL AGREEMENTS • In these types of agreements there is a strong presumption that there is an intention to create a legally binding relationship. • This presumption can, of course, be rebutted, but in fact very strong evidence is required to do this. • One way of rebutting the presumption is by inserting an express statement to this effect in a written statement.

9. APPLESON v H. LITTLEWOOD [19390 and JONES v VERNON’S POOLS LTD [1938] • The plaintiffs in both cases attempted to claim monies which they had alleged had been won in a football pool. • The words ‘Binding in honour only’ were contained on each coupon. • Held, the words were sufficient to rebut the presumption and the plaintiffs thus failed.

10. ROSE & FRANK CO v JR CROMPTON & BROS [1925] • An English company agreed to sell certain carbon copy materials in the USA through a New York based firm. • The transaction, which was made in writing, gave the plaintiffs the sole rights to market and sell the products in the USA and Canada for period of 3 years with an option to extend the period. • The document contained a clause, which was described as and “Honourable Pledge Clause”, and which provided: “This arrangement is not entered into….as a formal or legal agreement and shall not be subject to legal jurisdiction to the law courts either of the United States or England.” • The original agreement began in July 1913 but at the end of the 3-year period the option to extend was exercised; as a result the agreement was to last until March 1920. • In 1919, the English defendants terminated the agreement and failed to given appropriate notice as required by the agreement, and also refused to fulfill orders received by them prior to their decision to terminate the agreement.

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

12. EDWARDS v SKYWAYS LTD [1964] • The plaintiff was employed as an airline pilot • the defendants, his employers, informed him that they were making him redundant and gave him 3 months’ notice. • By virtue of his contract the plaintiff was a member of the defendants’ contributory pension fund which entitled him to one of two options on leaving their service. • He cold either take his contributions out of the fund or received a paid-up pension which would take effect when he was 50 years of age. • The plaintiff’s professional association, negotiating on his behalf, agreed with the defendants that if the plaintiff chose the first option the defendants would make him an ex gratia payment equal to the defendant’s contribution to the fund. • The plaintiff accepted the agreement and chose to withdraw his contributions. • The defendants then paid him his total contributions but refused to make the ex gratia payment. • The plaintiff sued for breach of contract and won.

13. The judge stated that the words ex gratia did not give rise to a negative contract agreement but simply meant that the employers did not admit to any pre-existing legal liability on their part. • They failed to discharge the burden of overturning the presumption that there was an intention to create a legal relationship and were thus liable to make the payment.

14. TUTORIAL 4 (A) • Husband and wife enter into an agreement whereby she will not visit her mother more than three times a year if he pays her monthly “a reasonable sum to be arranged between us”. For the first six months he pays GhC100 a month at the suggestion of his wife but then refuses to pay a penny more alleging that the agreement is : • (a) not intended to be legally binding, and • (b) too vague and uncertain to be a good contract • ADVISE WIFE

15. TUTORIAL 4(B) • A asked B to come and stay at his house for a fortnight. A’s wife died on the day before B arrived. B after paying the expensive train fair found that A could not receive him and was obliged to stay at a hotel. • ADVISE B.

16. Tutorial 4(C) • It is said that an agreement, even though it is supported by consideration, is not binding as a contract, if it is made without an intention to create legal relations. Critically examine this statement with the help of illustrations from the decided cases.

17. CAPACITY • Generally, the law assumes that all parties to a contract have the power to enter into that contract. • However, the law places restrictions on the ability of a number of groups of persons to enter into contractual relations

18. Infants/Minor • Section 4 of the 1st Schedule to the Companies Act • Infant means a natural person under the age of 21 years or any other age that is declared by an enactment to be full age for legal purposes • Article 28(5) of the 1992 Constitution • Child means a person below the age of 18 years • Section 1 of the Children’s Act 1998, (Act 560) • Child means a person below the age of 18 years

19. At common law, the only class of contract which was binding on a child was a contract for ‘necessaries’ • In all other cases, the common law treated a minor’s contracts as being either voidable at the option of the minor, either before or after becoming an adult, or enforceable against him unless he ratified them after attaining majority. • Contracts in which the minor acquired an interest of a permanent or continuous nature, such as a contract to acquire an interest in land, were binding until the minor disclaimed them, either during minority or within a reasonable time after becoming an adult. • The aim of the law is to protect minors on the one hand, and to safeguard the interests of traders

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

21. RYDER v WOMBWELL (1868) • W, a minor with an income of £500 a year, bought from R a pair of crystal, ruby and diamond solitaires and an antique goblet in silver gilt. • It was held that neither of these articles could be necessary, even though W was the son of a deceased baronet and ‘moved in the highest society’

22. Other things may be of a useful character but the quality or quantity supplied may take them out of the character of necessaries • NASH v INMAN [1908] • A tailor supplied a Cambridge undergraduate with clothing which included 11 fancy waistcoats at 2 guineas each. • It was proved that although he was a minor, he had already a sufficient supply of clothing according to his position in life • The English CA held that the tailor had failed to prove that the clothing was suitable to the undergraduate’s actual requirements at the time of the sale and delivery.

23. Necessaries also vary according to the minor’s station in life or peculiar circumstances at the time of the contract . PETERS v FLEMING • The court must take into consideration the character of the goods supplies, the actual circumstances of the minor, and extent to which the minor was already supplied with them. • In Section 2(3) of Act 137, • Necessaries means goods suitable to the condition in life of the person to whom they are delivered and to the actual requirement of that person at the time of delivery

24. Contract of employment and training • A minor may enter into a contract of employment so as to earn a living or into a contract for the purpose of obtaining instruction or education so as to qualify for a suitable trade or profession whereby he or she may profit himself afterwards. • Provided that there are beneficial to the minor, these contracts are binding

25. CLEMENTS v LONDON & NORTH WESTERN RAILWAY COMPANY [1894] • A minor entered into a contract of employment with a railway company, promising to accept the terms of an insurance against accidents in lieu of his rights of action. It was held that the contract, taken as a whole, was for his benefit and that he was bound by his promise.

26. ROBERTS v GRAY [1913] • The defendant wished to become a professional billiards player and entered into an agreement with the plaintiff, a leading professional, to go on a joint tour. • The plaintiff went to some trouble in order to organize the tour, but a dispute arose between the parties and the defendant refused to go. • The plaintiff sued for damages of £6,000 • Held; the contract was for the minor’s benefit, being in effect for his instruction as a billiards player. Therefore the plaintiff could sustain action for damages for breach of contract, and damages of £ 1,500 were awarded.

27. On the other hand, a contract of this class which is more onerous than beneficial to the minor will impose no liability. • DE FRANCESCO v BARNUM • B, aged 14 years, agreed to become De F’s apprentice in ‘the art of choreography’ for 7 years. De F was to teach her stage dancing, and during the period of apprenticeship B was not take any professional engagement with the consent of De F, nor was she to marry. • She was to receive certain payments for any performances she might give, but there was no provision for any other remuneration and De F did not undertake to find her any engagements. The effect of the deed was to place B entirely at the disposal of De F. • Held that the contract was not beneficial to B and was unenforceable.

28. Other beneficial contracts • The class of contracts for necessaries is not, limited to contracts for employment and training. • It includes numerous contracts for ‘necessaries’ other than goods, e.g medical treatment, preparation of marriage settlement by solicitor, hire of a car to fetch a minor’s luggage from railway station • Provided these are reasonable and beneficial to the minor, the other party can enforce them.

29. CHAPLIN v LESLIE FREWIN (PUBLISHERS) [1965] • The plaintiff, the minor son of a famous father, made a contract with the defendants under which they were to public a book written for him, telling his life story and entitled I Couldn’t Smoke the Grass on my Father’s Lawn • The plaintiff sought to avoid the contract on the ground that the book gave an inaccurate picture of his approach to life. • Held, among others, that the contract was binding because it was for the minor’s benefit.

30. When infants have themselves performed their side of the contract, they may sue to enforce it. • LARTEY v BANNERMAN [1976] • A father agreed with the defendant to buy a house for his infant daughter. • He made an advance payment towards the agreed purchase price. • Subsequently, the vendor had second thoughts about the transactions • The father sued for specific performance • Defendant argued that on ground of mutuality, the SP ought not to be granted, the CA held that the mutuality argument is no bar to the minor’s claim.

31. STEINBERG v SCALA [1923] • The plaintiff purchased shares in the defendant company and paid certain sums of money on application, on allotment and on one call. • Being unable to meet future calls, she repudiated the contract whilst still a minor and claimed: (a) rectification of the Register of Members to remove her name therefrom, thus relieving her from liability on future calls; and (b) the recovery of the money already paid • The company agreed to rectify the register but was not prepared to return the money paid. • Held; that the claim under (b) failed because there had not been total failure of consideration. The shares had some value and gave some rights, even though the plaintiff had not received any dividends and the shares had always stood at a a discount on the market.

32. In DAVIES v BEYNON-HARRIS [1931] a minor was allowed to avoid a lease of a flat without liability for future rent or damages but was not allowed to recover rent paid. • However, in GOODE v HARRISON (1821) a partner who was a minor took no steps to avoid the partnership contract while a minor or afterwards. He was held liable for debts of the firm incurred after he came of age.

33. Drunks • A contract is voidable if drunkenness prevents an individual from understanding the transaction he has entered into and the other party is aware of his level of intoxication • It should be noted that a drunk will be liable to pay a reasonable price for items considered to be necessaries and in any event will be liable on the contract should he ratify it on becoming sober • Section 2(2) of the Sale of Goods Act, 1962 (Act 137) states that “where necessaries are delivered to a person under an agreement which is void because of that person’s incapacity to contract, that person is bound to pay a reasonable price for those necessaries.

34. MATTHEWS v BAXTER [1873] • Matthews agreed to buy houses from Baxter. He was so drunk as not to know what he was doing. • Afterwards, when sober, he ratified and confirmed the contract. • It was held that both parties were bound by it.

35. Mentally disordered persons IMPERIAL LOAN CO v STONE [1892] • This was an action on a promissory note. • The Defendant pleaded that at the time o f making the note he was insane and that the Plaintiff knew he was. • The jury found that he was in fact insane but could not agree on the question of whether the plaintiff knew it. • The judge entered judgment for the defendant. • On appeal, it was held that the trial judge was wrong. The plea of insanity must satisfy the two test of unsound mind and knowledge of this fact by the other party.

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

37. In HART V O’CONNOR [1985] • The Privy Council refused to set aside an agreement to sell farmland in New Zealand because although the seller was of unsound mind, his affliction was not apparent. • The price paid was not unreasonable.

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

39. Enemy Aliens • It is contrary to public policy for courts to enforce contracts between parties who include enemy aliens. • To do so constitutes providing assistance to the enemy. • An enemy alien is a national of a country with whom Ghana is at war.

40. DAIMLER CO LTD v CONTINENTAL TIRE & RUBBER CO (GT BRITAIN) LTD (1916) • When Britain was at war with Germany, the House of Lords held that the respondent could not sue and recover a debt from the appellant. • This was despite the fact that the respondent was incorporated in England, because all of the shares of the respondent were held by German residents, except for one share which was held by the company secretary who was resident in Germany.

41. Corporate Bodies ASHBURY RAILWAY CARRIAGE & IRON CO. v RICHE (1875) • The company was formed for the purposes of making and selling railway wagons and other railway plant and carrying on the business of mechanical engineers and general contractors. • The company bought a concession for the construction of a railway system in Belgium from Antwerp to Tournai and entered into an agreement whereby Messrs Riche were to construct the railway line. • Messrs Riche commenced the work and the company paid over certain sums of money in connection with the contract. • The Ashbury company later ran into difficulties, and the shareholders wished the directors to take over the contract in a personal capacity and indemnify the shareholders. • The directors thereupon repudiated the contract on behalf of the company and Messrs Rich sued for breach of contract. • HELD; the directors were able to repudiate because the contract to construct a railway system was ultra vires and void.

42. NB: the common law position is that ultra vires acts of the company are void and cannot be ratified • Under Section 204 of the Companies Act, 1963 (Act 179) by an ordinary resolution, the directors may exceed their powers for a different purpose if they believe that doing so is in the company’s interest. • The Ghanaian law has modified common law • Sec 25(3) of Act 179 • an act of a company or a conveyance or transfer of property to or by a company is not invalid by reason of the fact that the act, conveyance or transfer was not done or made for the furtherance of any of the authorized businesses of the company or that the company was otherwise exceeding its objects or powers.

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

44. Tutorial 5 (A) • Abusua was a tailor who used to deal heavily in used clothes. Akpeteshie was also his stock-in-trade. He was drunk virtually everyday and everybody at Otrokpe knew for that. • In his usual condition he entered into an agreement with 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 sell to Saman some of the used clothes. • At the time of the agreement Saman kept running round in circles, jumping into the air and shouting that he had seen his father’s ghost. • After the “contract” had been made, Abusua supplied the clothes, Saman promptly began using them and refused to pay for them arguing that at the time of the agreement he was so out of mind as not knowing what he was about. • Abusua also argued that when he made the contract with Saman, he (Abusua) was barely sober and he was not aware of Saman’scondidtion and so Saman is bound to pay him. • ADVISE THE PARTIES.

45. Tutorial 5(B) • KwasiDiasempa, an infant, carries on trade as wine and spirit merchant at Besease Street, Adukrom. He agrees to buy from Konkonsa and Konkonsa agrees to sell to him a quantify of champagne, the price to be paid three months after delivery. • Konkonsa at the time of the contract did not know that Diasempa was an infant, but on discovering this fact later claims that he was not bound by the contract on the ground that it is void and refuses to deliver the champagne. Diasempa wishes to sue Kokonsa • ADVISE DIASEMPA