Introduction to Contract Law

This lesson brief is under Construction.

Overview

Contract law is intriguing because most people have unknowingly entered a legally binding contract at some point in their lives. This legal brief will take you through the essentials of a contract, providing detailed explanations and guidance on each aspect of contract law. It is crucial to understand each section, as many principles operate in tandem and are better comprehended with a holistic knowledge of each part.

Definition of Contract

A contract can be defined as a legally binding oral or written agreement that involves the exchange of goods, services, money, or property. It is a common misconception that contracts must be in written form; oral agreements or agreements formed through conduct can be equally valid in contract formation. A contract is unique in that, with few exceptions, parties are free to agree to whatever terms they choose this is known as the “freedom of contract.”

Sources of Contract Law

Contractual relationships are between individuals, making contract law a form of civil law. The predominant source of contract law is common law, where the previous decisions of courts contribute to the current law. The Contract Act 1960 (Act 25) is statute in operation under contract law in Ghana. References may be  
made to other statute where necessary.

Principles of Contract Law

The principles of freedom to contract and the sanctity of contracts form the bedrock of contract law, ensuring that agreements are entered into freely and are honoured. These principles safeguard the voluntary nature of agreements and the expectation that parties will fulfill their promises, underpinning the stability and predictability of contractual relationships in commerce and everyday life.

Freedom to Contract (Libertas Contrahendi)

One of the fundamental principles of contract law is the freedom to contract, or libertas contrahendi. This principle asserts that individuals and entities must have the autonomy to voluntarily enter into agreements without coercion. A contract is fundamentally an agreement between parties, and the legitimacy of such agreements hinges on the free will of the parties involved. Any contract formed under duress, fraud, undue influence, or misrepresentation undermines this principle and may be rendered void or voidable.

Examples:

1. Voluntary Agreements: When two businesses negotiate a supply contract, each must do so without being forced by external pressures or threats. Both parties should agree to the terms freely for the contract to be valid.

2. Employment Contracts: An employee must willingly accept the terms of employment. If an employer forces an employee to sign a contract under threat of harm, the contract could be deemed void due to lack of free consent.

Sanctity of Contracts (Pacta Sunt Servanda)

Another cornerstone of contract law is the sanctity of contracts, known in Latin as pacta sunt servanda, meaning “agreements must be kept.” This principle underscores the binding nature of contracts, emphasizing that parties must honour their commitments as outlined in their agreements. When a party fails to fulfill their contractual obligations, legal consequences may ensue. These consequences can include court orders for specific performance, where a party is compelled to execute their duties as per the contract, or monetary damages to compensate for any breach.

Example:

1. Commercial Contracts: A company that fails to deliver goods as per the contractual terms may be sued for breach of contract. The court could order the company to either fulfill the delivery or pay damages to the aggrieved party.

What is Contract Law and What Does it Aim to Do?

Contract law seeks to provide an effective legal framework for contracting parties to resolve disputes and regulate their obligations. Contract law is mostly self regulatory, with most contracts requiring no intervention. Courts typically do not concern themselves with the fairness of a contract; if it was agreed upon, it should be enforced. However, courts may occasionally depart from the principle of contractual freedom, particularly where there has been an abuse of bargaining power by one party.