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.

ELEMENTS OF A VALID CONTRACT

Offer and Acceptance

Intention to Create Legal Relations
Capacity to Contract
Consideration
ASCERTAINING 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).

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, gives
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 needs 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 person’s 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

Application of the Objective Test

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’s conduct would have supposed, 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 turns 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 buyers were
mistaken, but he thought they were simply mistaken as to the value of the tow. Defendant refuses 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.