Introduction to Law of Contract

INTRODUCTION TO CONTRACT LAW

 DEFINITION

A contract is defined as an agreement, which the law will enforce or recognize as affecting the legal rights and duties of the parties. Social and domestic agreements are usually not binding in law. The courts will not, except in special cases enforce an agreement unless it is supported by consideration.

WHY CONTRACTS ARE BINDING

To ensure order, peace and security, and the smooth and efficient operation of commerce, industry and the economy, the law recognises the need for the reasonable and well-founded expectations created by promises and agreements.The legal relations created by the law of contracts enable a person to whom money, goods and services or some other benefit has been promised to enforce the promise or to obtain a remedy for its breach.

 

CLASSIFICATION OF CONTRACTS

 1). Formal and Parol Contracts

1.  a) Contracts under seal (formal contracts)

A contract under seal or deed must be in writing. It is completed and given full legal effect by the signing, sealing and delivering of it by the party executing, to the other party.

Before the second half of the 19th century, the signature was not regarded as being necessary. Execution was valid, provided the seal of the party executing was imprinted on the deed. However, by various laws in Nigeria, a person executing a deed must now either sign or make his mark, in addition to sealing if the deed is to be valid. This is because previously, sealing meant the imprinting in wax of the executing party’s crest or coat of arms. In modern times, seals are commonly affixed beforehand and they consist of small red and round adhesive wafers attached to the document. They are mass-produced and available in all stationary shops. Thus, wit the seal now having a merely symbolic value, the signature has become the vital component of the deed, which gives it authenticity and validity.

 

1.  b) Significance of a contract under seal

Contract under seal derive sits validity solely from form, therefore, it is enforceable even in the absence of consideration or agreement. Apart from conveyances of land, one of the most common uses of a sealed instrument today is for the making of enforceable payments or gifts to charities over a period of time.

By statutory requirement, certain contracts have to be made under seal in order to be valid i.e. conveyance of a legal estate in land and most contracts made by companies.

It is clear from the Companies and Allied Matters Act 1990 (CAMA) that a company shall have a common seal but there is no difference whatsoever between companies and natural persons, as far as the use of seals is concerned. By section 71, companies are only compelled to use their seals in contracts, which, if made between individuals, would by law be required to be in writing under seal. Similarly, where contracts between individuals are merely required to be in writing, a company making them is entitled to conclude them in writing without seal. In fact, where individuals could make a contract orally, a company is also entitled to make them orally through its officials.

Where a company contracts under its common seal, the seal is to be affixed in accordance with the provisions of the articles. Usually, the articles provide that the document on which the seal is affixed must be signed by a director or countersigned by the directors for that purpose.

 

1.  c) Simple contracts

These are all contracts other than formal contracts or contracts required to be under seal. They may be in writing or may be oral (parol contracts). Major distinction between a formal contract and a simple contract is, unlike formal contracts, only a person who has furnished consideration can bring an action to enforce a simple contract.

Simple contracts can be either written or oral but in some special cases, the law prescribes that the contract or a memorandum of it must be in writing in order to be enforceable.

 

2). Express and Implied Contracts

A contract is described as express when the terms of the contract are clearly stated. In the case of implied contracts, the courts will normally construe the existence of a contract from the conduct of the parties rather than from their words or correspondence.

 

3). Bilateral and Unilateral Contracts

A bilateral contract is an exchange of promises, the offeror promising to do something in exchange for the offeree promising to do something else in return. Although a contract has come into existence at this stage, all we have is a mere exchange of promises, there is no performance yet by either party. This is called a bilateral contract and the consideration is referred to as executory consideration.

By contrast, if a consideration consists of actual performance in return for a promise, it is called a unilateral contract and the performance is referred to as executed consideration. Only one party is under a contractual obligation at any relevant period in a unilateral contract.

 

ELEMENTS

The essential elements of a contract are:

 

  • Agreement An agreement is formed when one party accepts the offer of another and involves a “meeting of the minds”.

 

  • Consideration Both parties must have provided consideration, i.e., each side must promise to give or do something for the other.

 

  • Intention to create legal relations The parties must have intended their agreement to have legal consequences. The law will not concern itself with purely domestic or social agreements. In some cases, certain formalities (that is, writing) must be observed.

 

  • Capacity The parties must be legally capable of entering into a contract.

 

  • Consent The agreement must have been entered into freely. Consent may be vitiated by duress or undue influence.

 

  • Legality The purpose of the agreement must not be illegal or contrary to public policy.

 

  • A contract that possesses all these requirements is said to be valid. The absence of an essential element will render the contract void, voidable or unenforceable (as to which see below).

 

In addition, a contract consists of various terms, both express and implied. A term may be inserted into the contract to exclude or limit one party’s liability (the so-called “small print”). A term may also be regarded as unfair. A contract may be invalidated by a mistake and where the contract has been induced by misrepresentation the innocent party may have the right to set it aside. As a general rule, third parties have no rights under a contract but there are exceptions to the doctrine of privity. There are different ways of discharging a contract and remedies are available for breach of contract at common law and in equity.

 

ENFORCEABILITY

Void contracts A “void contract” is one where the whole transaction is regarded as a nullity. It means that at no time has there been a contract between the parties. Any goods or money obtained under the agreement must be returned. Where items have been resold to a third party, the original owner may recover them.

 

Voidable contracts A contract that is voidable operates in every respect as a valid contract unless and until one of the parties takes steps to avoid it. Anything obtained under the contract must be returned, insofar as this is possible. If goods have been resold before the contract was avoided, the original owner will not be able to reclaim them.

 

Unenforceable contracts An unenforceable contract is a valid contract but it cannot be enforced in the courts if one of the parties refuses to carry out its terms. Items received under the contract cannot generally be reclaimed.

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