Oral Contracts Under Contract Law in Ghana: Validity, Enforceability, and Legal Principles

1. INTRODUCTION

A contract does not have to be written to be legally binding. The law recognises three main ways by which contractual obligations may be created:

1. By writing
2. By oral statements
3. By conduct of the parties

The form of the contract does not determine its validity. What matters is whether the essential elements of a contract exist, namely offer, acceptance, consideration, intention to create legal relations, and certainty of terms.

An oral contract arises where parties express their obligations, promises, or representations verbally. These verbal statements may become legally binding terms of the contract if they satisfy the legal requirements.

2. MEANING OF CONTRACTUAL TERMS IN ORAL AGREEMENTS

A term of contract is a statement, promise, or representation that the parties intend to be legally binding and to define their obligations.

Not every statement made during negotiations becomes a term of the contract. Some statements are merely:

• Sales talk
• Opinions
• Puffery
• Preliminary representations

For an oral statement to become a contractual term, the court must be satisfied that:

1. The parties intended it to be binding
2. It formed part of the bargain
3. It influenced the decision to contract

3. CLASSIFICATION OF TERMS IN CONTRACTS

Terms of a contract, whether oral or written, may fall into three main categories:

(a) Conditions

These are major terms that go to the root of the contract. Breach gives the innocent party the right to terminate the contract and claim damages.

(b) Warranties

These are minor terms. Breach only gives rise to damages, not termination.

(c) Innominate Terms

These are terms whose seriousness depends on the effect of the breach. Remedies depend on the consequences of the breach.

4. LEGAL FACTORS USED TO DETERMINE WHETHER AN ORAL STATEMENT IS A CONTRACTUAL TERM

Courts do not assume automatically that every oral statement is binding. The courts apply objective tests. Three major factors are considered:

1. Relative means of knowledge of the parties
2. Lapse of time between the statement and the contract
3. Whether the statement was later reduced into writing

Each factor is examined in detail below.

A. RELATIVE MEANS OF KNOWLEDGE OF THE PARTIES

Explanation of the Principle

Where the maker of a statement possesses special skill, expertise, experience, or superior knowledge, the court is more likely to treat the statement as a contractual term.

This principle is based on the assumption that:

• The recipient of the statement reasonably relies on expert knowledge
• The statement carries greater authority
• The representor is in a better position to verify accuracy

Where both parties have equal knowledge, the court is less likely to impose contractual responsibility.

Oscar Chess Ltd v Williams

Facts in Full

The plaintiffs were professional car dealers. The defendant was a private individual who wanted to buy a new car on hire purchase. As part of the transaction, the defendant offered his old car as a trade-in.

The value of the trade-in depended on the year of manufacture. The defendant stated that the car was a 1948 model. He relied on the car’s registration book which contained incorrect information. Unknown to the defendant, a previous owner had altered the registration details.

Based on this information, the parties orally agreed on a trade-in value of £290.

Later, the plaintiffs conducted a technical examination and discovered that the car was actually a 1939 model and therefore significantly less valuable.

The plaintiffs sued the defendant for breach of contract, arguing that the defendant had warranted the age of the car.

Legal Issue

Whether the defendant’s oral statement about the age of the car constituted a binding contractual term.

Court’s Reasoning

The court examined the relative positions of the parties:

1. The defendant was an ordinary private seller
2. The plaintiffs were professional car dealers
3. The defendant honestly relied on registration documents
4. The plaintiffs had the technical expertise to verify the car’s age
5. The plaintiffs had opportunity to inspect the vehicle

The court held that the defendant did not possess special knowledge. The plaintiffs, being experts, were in a better position to determine the car’s true age.

Decision

The oral statement was not a contractual term. It was merely a representation.

Legal Principle Established

Where the maker of a statement has no special expertise and the recipient has superior knowledge, the statement is less likely to be treated as a binding contractual term.

Teaching Illustration

If a farmer sells cassava to a food processing company and says it is fresh without scientific testing, the company cannot later rely on that statement if it had the means to test quality itself.

Esso Petroleum Ltd v Mardon

Facts in Full

Esso Petroleum was a large petroleum company with highly trained experts. Mardon was interested in leasing a petrol station.

Before the lease agreement was concluded, Esso’s manager gave Mardon an estimate that the petrol station would sell approximately 200,000 gallons of fuel per year by the third year of operation.

Based on this expert estimate, Mardon entered into a three-year lease and invested substantial money in equipment and operational setup.

After operating the station, it became clear that the site could only generate about 70,000 gallons annually. Mardon suffered serious financial losses.

Mardon sued Esso for damages.

Legal Issue

Whether Esso’s oral statement constituted a contractual term or actionable representation.

Court’s Reasoning

The court held that:

1. Esso had expert knowledge in petroleum distribution
2. The estimate was made by a trained manager
3. Esso knew Mardon would rely on the estimate
4. The statement induced Mardon to enter the contract

Decision

Esso was held liable for the losses because the statement was treated as part of the contractual obligations.

Legal Principle Established

Where a statement is made by an expert to a non-expert in circumstances showing reliance, the statement is likely to be treated as a binding contractual term.

Ghanaian Application

This principle applies strongly in:

• Banking advice
• Engineering contracts
• Real estate valuation
• Mining and oil consultancy
• Medical and professional services

B. LAPSE OF TIME BETWEEN STATEMENT AND CONTRACT

Explanation of the Principle

Where a party immediately enters into a contract after a statement is made, it indicates reliance and intention to treat the statement as binding.

Where there is a long delay, courts may infer that:

1. The party carried out independent verification
2. The party did not rely on the statement
3. Circumstances changed
4. The statement lost contractual importance

Atwood v Small

Facts in Full

The defendants were selling a mine. They made exaggerated claims about the mine’s earning capacity.

The buyers expressed interest but stated that they would only proceed after verifying the claims.

The buyers hired experts and accountants to investigate the mine’s performance. After completing their investigation, they decided to purchase the mine.

Later, the mine produced far less profit than expected. The buyers sued, alleging misrepresentation.

Legal Issue

Whether the buyers relied on the seller’s statements.

Court’s Reasoning

The court found that:

1. The buyers conducted independent investigations
2. They did not rely on the seller’s statements
3. Their decision was based on expert verification

Decision

The claim failed. There was no inducement.

Principle Established

Where the representee relies on independent verification rather than the statement, the statement cannot be treated as binding.

Export Import Bank v Hydroform Ghana Ltd

The defendants in this case argued, inter alia, that they relied on statements made by Allfirst bank as to the reliability and professionalism of USA Fametek, in getting into a contract with them. This eventually led to their detriment. They argued that Allfirst was under a duty of care when making the said recommendation. Their conduct therefore amounted to a negligent misrepresentation. 

The court found that the defendants hired an independent consultant upon whose recommendation they relied. They therefore couldn’t be deemed to have been induced by the statement of Allfirst Bank.

Teaching Illustration

If a buyer verifies land title at Lands Commission after a seller’s oral assurance, the buyer cannot later claim reliance on the seller’s words.

Smith v Chadwick

Facts in Full

A company prospectus falsely stated that a famous businessman was a director.

The plaintiff bought shares but later admitted that he did not rely on that information and took time to assess the company independently.

Court’s Decision

The plaintiff could not recover damages because he was not induced by the statement.

Principle

Reliance is essential for oral statements to become binding.

Leaf v International Galleries

Facts in Full

A painting was sold as being painted by a famous artist. The buyer kept the painting for five years before discovering the truth.

The buyer attempted to rescind the contract.

Court’s Reasoning

The long lapse of time made rescission inequitable.

Principle

Delay can destroy contractual remedies even where misrepresentation exists.

C. REDUCTION OF TERMS INTO WRITING

General Legal Rule

Where parties first make oral statements and later reduce the agreement into writing, courts presume that:

• The written document represents the final agreement
• Only written terms are legally binding
• Earlier oral statements are excluded unless expressly incorporated

This is closely related to the parol evidence rule.

Routledge v McKay

Facts in Full

The defendant orally stated that his motorcycle was a 1942 model.

Later, a written contract of sale was prepared. The written agreement did not mention the year of manufacture.

After purchase, it was discovered that the motorcycle was a 1930 model.

The buyer sued.

Legal Issue

Whether the oral statement remained a contractual term.

Court’s Reasoning

The court held that:

1. Both parties were ordinary individuals
2. The age of the motorcycle was not included in the written contract
3. This showed the parties did not intend the statement to be binding

Decision

The oral statement was not a contractual term.

Principle Established

When parties reduce their agreement into writing, courts presume that only the written terms are binding.

Ghanaian Application

This principle applies strongly in:

• Land sale agreements
• Commercial supply contracts
• Hire purchase agreements
• Employment contracts

ENFORCEABILITY OF ORAL CONTRACTS IN GHANA

Oral contracts are legally enforceable in Ghana except where statute requires writing, such as:

1. Certain land transactions
2. Guarantees and surety agreements
3. Some consumer protection requirements

Where no statutory requirement exists, oral contracts are valid if supported by evidence.

PROOF OF ORAL CONTRACTS

Because oral contracts lack documentation, courts rely on:

1. Witness testimony
2. Conduct of parties
3. Subsequent performance
4. Payment records
5. Communication records

Eric Ansong v Albert Gorman

The appellants were a married couple who were joint owners of the house which was the subject matter of the dispute. They entered into negotiations with the respondent for the sale of the house. The terms of the sale were subsequently reduced into writing in the form of a receipt signed by the first appellant only on behalf of himself and his wife. 

After the respondent made final payments, the appellants returned the money stating that they no longer wanted to go ahead with the sale. The respondent thus sued for specific performance. 

The court had to determine, inter alia, whether parole evidence could be admitted to alter in any way the written contract, if it existed. 

The court held that extrinsic evidence may be employed where there are conflicting or contradictory terms or where such evidence will elucidate the intentions of the parties. It cannot be admitted where that evidence is inconsistent with the intentions of the parties as expressed in the document. 

The court found that in this specific case.  The parole evidence did not contradict the written intention of the parties. It rather went to show the real parties to the sale. It was used to establish that though the second appellant was not a signatory to the agreement, she had consented to it. 

PY Atta & Sons v Kingsman Enterprise

The issue for determination was whether the agreement between the parties constituted a sublease or an assignment. 

The court held that where a written agreement contains conflicting terms regarding the nature of an interest in land, the court must determine the parties’ true intentions objectively, considering the entire document, conduct and surrounding circumstances. 

FINAL SUMMARY TABLE

Factor	Legal Effect	Authority
Expert knowledge	Statement likely binding	Esso v Mardon
Equal knowledge	Statement less binding	Oscar Chess v Williams
Immediate reliance	Supports enforceability	Atwood v Small
Independent verification	Breaks reliance	Atwood v Small
Delay	Weakens claim	Leaf v International Galleries
Written agreement later	Overrides oral terms	Routledge v McKay
Oral contracts generally	Enforceable in Ghana	Common law principle