Contract Act 1960, (Act 25)

 

Introduction

The Contracts Act, 1960 (Act 25), as amended by the Volta River Project (Supplementary Provisions) Act, 1962 (Act 96), is a fundamental piece of legislation that governs contractual relationships in Ghana. It addresses various aspects of contract law, including frustration, third-party rights, consideration, formalities, and guarantees. These notes provide an in-depth understanding of the key provisions and their implications.

 

PART I: Frustration of Contracts

 

Section 1: Adjustment of Rights and Liabilities of Parties to Frustrated Contracts

1. Impossibility and Frustration: When a contract becomes impossible to perform or is otherwise frustrated, the parties are discharged from further performance.

·         Recovery of Sums Paid: Any sums paid under the contract before discharge can be recovered.

·         Cessation of Payable Sums: Sums due but not yet paid cease to be payable.

 

2. Expenses Incurred:

·         The court can allow a party to recover or retain expenses incurred before the time of discharge.

·         These expenses may include overheads and personal services.

·         Insurance sums are excluded unless insurance was an express term of the contract.

 

 Section 2: Severance of Frustrated Contract

·         If part of the contract is separable and was fully or partially performed before frustration, it can be treated as a separate contract.

·         This separate part will not be considered frustrated, and Section 1 only applies to the remainder.

 

 Section 3: Parties May Contract Out of Part I

·         Parties can include specific provisions to address potential frustration within their contracts. Such provisions will take precedence over the statutory provisions in Part I, as long as they are consistent with the contract’s terms.

 

 Section 4: Application of Part I

1. Temporal Application: Applies to contracts made before or after the commencement of the Act, provided the time of discharge is post commencement.

2. Exclusions:

·         Does not apply to most charterparties, except time charters or charters by demise.

·         Excludes contracts for the carriage of goods by sea (other than charterparties) and insurance contracts.

 

 PART II: Third Party Rights

 

 Section 5: Provision in Contract for Benefit of Third Party

1. Enforcement by Third Parties:

·         Contracts can confer benefits on third parties (designated or as part of a class).

·         These third parties can enforce or rely on the contract as if they were parties to it.

2. Exclusions:

·         Resale price maintenance provisions and exclusion/restriction of liability for non-parties are not enforceable by third parties.

 

 Section 6: Rights of Third Party not to be Altered Without Consent

·         A third party’s rights cannot be varied or rescinded without their consent if they have relied on the contract to their detriment.

·         Defences available to the original parties are also available against the third party enforcing the contract.

 Section 6A: Sections 5 and 6 Not to Apply to Certain Agreements

·         Specific agreements listed in the First Schedule to Act 96 are exempt from the provisions of Sections 5 and 6.

 

 Section 7: Assignment of Legal Rights

1. General Rule: Legal rights can be assigned to another person unless otherwise specified by law or the transaction.

2. Requirements for Valid Assignment:

·         Absolute and not by way of charge only.

·         In writing and signed by the assignor or their agent.

·         Written notice given to the debtor or other obligor.

3. Conditional Rights: A purported assignment of a conditional right operates as a promise to assign the right when the condition occurs.

4. Noncompliant Assignments: Assignments that do not meet these requirements are valid but unenforceable without involving the assignor or Court satisfaction.

5. Priority and Notice: Later assignees have priority over earlier ones if the debtor had not received notice of the earlier assignment.

 

 PART III: Consideration and Formalities

 

Section 8: Certain Contracts to be Valid Despite Lack of Consideration

1. Keeping Offers Open: A promise to keep an offer open for a specified time is valid without consideration.

2. Waiver of Obligations: A promise to waive payment of a debt or other obligation is valid without consideration.

 

 Section 9: Law as to Consideration Clarified in Certain Cases

·         Performance of an act or promise to perform, even if legally obligated, is sufficient consideration.

 

 Section 10: Consideration Need not Move from Promisee

·         A contract is valid even if the consideration is provided by someone other than the promisee.

 

 Section 11: Contracts Need not be in Writing Except in Certain Cases

·         Contracts are not void or unenforceable merely because they are not in writing unless otherwise specified by law.

 

 Section 12: Contracts of Corporations

·         Contracts entered on behalf of corporations are valid if executed by authorized representatives in the same manner as an individual.

 

 Section 13: Application of Part III

·         Applies to transactions after the commencement of the Act, subject to the provisions of Section 11.

 

 PART IV: Contracts of Guarantee

 

 Section 14: Guarantees, Etc., to be in Writing

1. Written Guarantees: Guarantees must be in writing and signed by the guarantor or recognized by customary law to be valid.

2. Promises and Representations: Promises or representations regarding a third party’s credit or character must be in writing to be enforceable.

 

 Section 15: Revocation of Continuing Guarantee by Change in Partnership

·         A continuing guarantee to a third person is revoked by changes in partnership unless otherwise agreed.

·         A continuing guarantee given to a partnership is not revoked by changes in partnership unless otherwise agreed.

 

 Section 16: Rights of Guarantor Against Debtor, Etc.

1. Rights After Payment: Guarantors who pay debts are entitled to the creditor’s security and remedies.

2. Proportionate Recovery: Guarantors can only recover their due proportion from coguarantors.

 

 PART V: Consequential

 

 Section 17: Contracts, Etc., of the Republic

·         The Act applies to contracts and transactions of the Republic as it does to other entities.

 

 Section 18: Repeals

·         Repeals Section 6(3) of the Motor Vehicles (Third Party Insurance) 1958 (No. 42).

 

 Section 19: Statutes Ceasing to Apply

·         Statutes listed in the Schedule, including specific sections of the Statute of Frauds, the Statute of Frauds Amendment, and the Mercantile Law Amendment, cease to apply.

 

 First Schedule to Act 96

 Exempt Agreements:

   The Master Agreement

   The Power Contract

   The Smelter Site Lease

   The Water Agreement

   The Port Agreement

   The Currency Agreement

   The Voting Trust Arrangements

   The Subscription Agreement

 

Conclusion

These notes cover the essential provisions of the Contracts Act, 1960, as amended, providing a comprehensive understanding of the key aspects of contract law in Ghana, including frustration, third-party rights, consideration, formalities, guarantees, and the Act’s applicability to government contracts.