LAW OF CONTRACT

DEFINITION OF CONTRACT

A contract can be defined as: “An agreement between two or more parties which is intended by them to have legal backing.” It can also be defined as an agreement creating an obligation, i.e ., a legal agreement between two parties. All contracts therefore involve some sort of agreement, but not all agreements are contract. The vital thing which turns an agreement into a contract is when the parties intend to be legally bound to carry out their agreements, e.g. sales, hire purchase etc. This can best be illustrated in the following cases:

BalFour Vs BalFour (1919): A husband, who was working abroad, promised to send his wife an allowance of £30 per month. Later when the marriage broke down, the husband stopped to keep up the payment. The wife sued but failed to receive judgement on her favour. The court held that: ‘an agreement between husband and wife is a pure domestic arrangement and it was not intended to have legal consequence.’ Therefore, it is just an agreement and not a contract.
Merrit Vs Merrit (1970): After the parties’ marriage had broken down and the husband and wife were no longer living together, the man agreed to pay the woman £40 per month and she in turn, agreed to discharge their mortgage. In addition, the husband undertook in writing to transfer the house to her name, but failed to do so. The wife sued and won. The court in deciding the case held that, it is different when they are not living together. They then bargained keenly, and therefore have the intention that any agreement entered into must be binding on them. This now becomes a contract.

CLASSIFICATION OF CONTRACT

Contract can be classified into: Formal contract and Informal contract.

1) Formal Contract

Contract of Deed (Speciality Contract): These are formal contracts. They are promises written on paper, signed, sealed and delivered. A contract under seal is carried out by putting a seal on it. They do not usually require consideration, e.g. conveyance of a legal estate etc.
Contract of Records: These are obligations imposed by the court. They are not true contracts but contracts which are acknowledged before a law court.

2) Informal Contract

Informal contracts are simple contracts which must possess all the essential characteristics of a valid contract. All contracts that do not belong to the formal contract mentioned above are referred to as informal contract and because of its flexibility it may be difficult to execute, e.g. contract of sales.

ESSENTIAL CHARACTERISTICS OF CONTRACT

To be valid, a contract must possess the following essential characteristics or ingredients:

1) Offer and Unqualified Acceptance

In a valid contract, a definite offer must be made by one party to the other and the offer must be unconditionally accepted. Acceptance must be absolute and once it is completed, it cannot be revoked. Advertising and invitation to tender, for instance, are not offers.

Characteristics of an Offer

An offer which is a definite promise to be bound on certain specific terms has the following characteristics:

An offer may be made to a specific person, a group of persons or the world at large in which one person must accept, e.g. in the case of Carlill Vs Carbolic Smokeball (1893), the company offered to pay money to anyone who contracted influenza after using their product. Garlill purchased and used it accordingly but it did not cure her sickness. When the company refused to pay her, she sued and won. The court in its judgement, held that the offer had been accepted by carrying out the condition of use.
An offer must not be mistaken with the answer to a question or the supplying of information.
An offer may be expressly made or implied by the conduct of the parties.
An offer must be communicated to the offeree.

Termination of an Offer

An offer can be terminated in the following ways:

Revocation, i.e ., withdrawal of the offer.
A refusal or counter offer.
Lapse of offer.
When the offeree notifies the offeror that he does not wish to accept the offer.

Rules of Communication of Acceptance

Acceptance is not effective if communicated in ignorance of the offeror.
It must be communicated by the offeree or by someone with his authority.
Acceptance is not effective until communicated to by the offeror and received by the offeree.
The offeree must positively accept the offer.

2) Intention to Create Legal Relations

The terms of an agreement must state clearly that the parties intended to create legally binding contracts. There must be no clause that will exclude the court, e.g. in the case of Merrit Vs Merrit, there was an intention to be legally bound.

3) There Must be Valuable Consideration

All simple contract must be supported by valuable consideration, that is, some elements of exchange which is measurable in money or money’s worth. The benefit to one party must be balanced by the benefit to the other. An agreement can become contract when each of the parties gives or promises to give something of value to the other party. Therefore, consideration can be defined as “the price for which a promise is bought.”

Essentials of Consideration

Consideration must move from the promise.
It must not be past.
Consideration must not be vague or indefinite.
It must be legal.
Consideration must be real, but may not be adequate.

4) Genuineness of Consent

The consent of the parties involved in a contractual agreement must be genuine. Agreement of the parties to a contract must not be obtained under duress, undue influence, misrepresentation or mistake, e.g. Cummis Vs Ince (1847). In this case, an old lady was threatened with unlawful confinement in a mental home if she did not transfer certain property right to one of her relatives.

In the judgement, the court set aside the transfer since the threat of unlawful imprisonment amounts to duress. In the context of contract, duress means actual violence or threat to violence to a person while undue influence means, pressure or force not amounting to duress which prevents the party involved from exercising free judgement, whereas misrepresentation is interpreted to mean a false statement of a material fact made by one party to a contract or his agent which induces the other party to enter into the contract.

Types of Misrepresentation

Innocent Misrepresentation: A misrepresentation is said to be innocent if the maker has reasonable ground to believe that the statement is true.
Fraudulent Misrepresentation: A misrepresentation is fraudulent if the party making it knows that it is false or it makes it without honest belief in its truth.
Negligent Misrepresentation: Negligent misrepresentation is a false statement made by a person who has no reasonable ground for believing the statement to be true.

5) Mistake

When a party has entered into a contract as a result of mistake, the contract can be voided if it is one of the facts and not of law or the mistake is so fundamental as to negate the agreement. A mistake can be operative or in-operative.

a) Inoperative Mistakes: These are mistakes that do not affect the validity of a contract. These are:

Mistake by one party of the expression of his intention.
Mistake relating to the meaning of a trade description where goods are sold under that description.
Mistake relating to quality, arising from an error of judgement.
Mistake by one party in respect of his ability to perform the contract.

b) Operative Mistakes: The following mistakes will void a contract.

Common Mistake: Common mistake occurs due to the existence of the subject matter of the contract, i.e ., where unknown to both parties, the subject matter had been destroyed before the contract was made, e.g. Coturier Vs Hastle (1852). Unknown to the parties at the time of contract, a cargo of corn bound for the UK had been sold by the captain of the vessel at a port en route due to over-heating of the commodity. The court upheld that no contract came into being.
Mutual Mistake: This occurs following the identity of the thing contracted or to the terms of the offer. In this case, both parties will mistakenly believe that they were contracting for the same article, but in fact have different articles in mind. So their minds do not meet (no consensus adidem)
Unilateral Mistake: Unilateral mistake happens in respect of the nature of the contract (document) signed.
Mistake of One Party Known to the Other: If one party knows that the other party has mistaken the subject matter of the contract, then he will not be allowed to profit by the other party’s mistake.

5) Legality of Objects of the Contract

The contract must be undertaken for legal purpose. Any contract in which the object is to commit crime or civil wrong, e.g. contract that is promoting sexual immorality, cannot be enforced by the court. Contract of sales of public offices, e.g. in the case of Pearce Vs Brooks(1866) , Pearce hired a carriage to Brooks knowing she was a prostitute, later when Brooks did not pay, Pearce sued to recover the hiring charges. The court declared the contract void and thus Pearce could not recover the hiring charges.

6) The Parties Must Have Contractual Capacity

Those entering into a contract must have contractual capacity. An adult, corporation etc can enter into a valid contract while a minor, drunkard and an insane person cannot enter into a contract. A company cannot enter into a contract outside its Memorandum of Association.

a) Contract Binding on a Minor (Under 18)

The Sales of Goods Act says a minor must pay a reasonable price for the basic necessities sold and delivered.
Contract for the infant’s benefit, e.g. infant’s education and training.

b) Contract Void Against a Minor

Contract to repay money lent.
Contract for goods supplied other than the necessities.
All accounts stated, e.g. IOU
Agreement made to repay loan incurred during infancy.

7) Certainty of Terms of Contract

The terms of the contract must be clearly stated. The parties can expressly state every term of their contract. A contract may contain two types of clauses, namely, express and implied terms.

a) Express Terms: There are two basic terms:

Conditions: This is a vital term which goes to the root of the contract, i.e ., main terms, a breach of which normally puts an end to the contract.
Warranties: A warranty is a term which is subsidiary to the main purpose of the contract, a breach of which only entitles the innocent party to damages only.

b) Implied Terms: These are terms which are left to be deduced from the surrounding circumstances. It may be implied by custom, statutes or courts.

8) Possibility of Performance

The parties to a contract can enter into a contract once they are sure that they can do the job. It must be possible to carry out the contract.

9) Formality of a Contract

Generally, contract can be made in any form, namely, writing, oral or implied by conduct but in exceptional cases, the law lays down a particular requirement. In the following special cases, the law requires that a particular form must be adopted to prevent dispute.

Contract Executed by Deed, i.e ., Under Seal: A deed is a document in writing, signed, sealed and delivered by the parties to an agreement. The essentials of deed are: writing, signature, seal and delivery. Some examples are promises of gifts and transfer of legal estate.
Contract which Must be in Writing, e.g. Bill of exchange, promissory notes, contract of employment, copyrights, marine insurance.

TYPES OF CONTRACT

Voidable Contract: This is a contract which is valid unless and until the party entitled to void it actually does so, i.e ., it is a binding contract but may be rejected by the third party. In the case of Corpe Vs Overton (1833), an infant agreed to enter into a partnership to be formed in the future. He paid £100 in advance but he later changed his mind, and successfully recovered the £100. The court decided that since the partnership had not been formed and the infant had received nothing for his money, therefore he can void it.
Valid Contract: This is an agreement in which the parties are legally bound to carry out their obligations. It is binding and enforceable by the law, e.g. in the case of Chaplin Vs Lestre Frewin Ltd (1966), Chaplin contracted with a publisher to publish his autobiography since his wife and child needed money. Later he tried to void the contract but failed. It was held that the contract was binding on him.
Void Contract: This is one which is destitute of legal effect; it is no contract at all. The parties are not under obligations to each other, e.g. ultra vires contract, contract entered into by a minor. Money and other property can be recovered by the party who transferred them under the contract. In the case of Leslie Vs Sheill (1914), a minor fraudulently represented himself to be of age in order to obtain a loan of £400 from the plaintiff (money lender). When the money lender wanted his pound of flesh, the infant refused and when sued he defended himself by pleading infancy. The minor succeeded. The court held that there was no liability on the defendant to repay the money since the loan was void under the Infant Relief Act 1874.
Unenforceable Contract: This is one which although valid, cannot be enforced in the court because of the absence of some written evidence or because the time stipulated for bringing action has elapsed.
Illegal Contract: This is not only a void contract, but any other contract related to it will also be void, if the main contract was strictly illegal.
Executed Contracts: Executed contracts are contracts that have been completed. In this contract, the duties and obligations of the parties have been carried out, and nothing
Executory Contracts: These are contracts in the process of being executed. The contract has not been totally carried out; the parties still have obligations to carry out as some things still need to be done before it is totally completed.
Severable Contract: Where a contract can be divided into several parts, payment for parts that have been completed can be claimed. Whether a contract is severable or not depends on the intention of the parties.
Quasi Contract: Quasi contract is said to exist in those exceptional circumstances where a court feels compelled to impose obligation upon one person even though the person has no intention of making a contract, e.g. a doctor who rendered first aid treatment to an unconscious man and later sent a bill for his services. The court, in this case, pretends there is a contract.
Oral Contracts: These are contracts entered into through the use of verbal communication or spoken words. They are not documented or written down. Oral contracts are also as effective as written contract.
Written Contracts: These are contracts which are documented. The duties and obligations of the parties as well as terms of agreement are clearly stated so as to establish clear-cut evidence in case of default, e.g. contract of sale of land, copyrights and contract of employment.
Expressed Contracts: Expressed contracts are contracts in which the parties have expressed their duties or obligations and terms of agreement orally or through written form, e.g. construction contract.
Implied Contracts: These are contracts which are entered into through the acts and conducts of the parties. The terms of agreement are not shown by oral or written declarations, e.g. a person who is getting his hair cut in a barber’s shop actually desires the services and is willing to pay for it.
Bilateral Contracts: In this type of contract, the promise to do something is given in exchange for another. Promise will flow in two directions and the parties involved must as a matter of necessity carry out their promises, e.g. when a manufacturer enters into a contract in May with a supplier, calling for the supplier to deliver 10,000 books by September. In that regard, each party has promised the other to perform one or more acts at a subsequent time. Such contract consists of a promise in exchange for another.
Unilateral Contract: This is a contract where the offer consists of a promise to pay money in return for the performance of an act. Promise is not given in exchange for another, i.e ., it flows in one direction, e.g. Mr Ojo promised to compensate whoever finds his stolen television set if it is found and returned.

TERMINATION OF CONTRACT

A contract can be discharged or brought to an end in the following ways:

By Performance: The general rule is that when both parties have performed their obligations or duties, the contract can come to an end, e.g. a supplier agreed to supply 1000 crates of coke. When he delivered the goods, he was paid the agreed price. It is assumed that the contract has come to an end.
By Breach: A contract can be discharged when one of the parties failed to perform his own part of the contract, e.g. if he does not perform on the agreed date or he delivers inferior goods as in the case of Hoschester Vs de La Tour (1853). Defendant agreed to employ the plaintiff as a courier for three months, commencing on June 1. Before this date, the defendant told the plaintiff that his services would not be required any more. This would be held as an anticipating breach and the plaintiff could sue for damages immediately.
By Agreement of the Parties: A contract can come to an end when both parties agree to release each other from contractual obligations. It can be bilateral or unilateral.
By Frustration: A contract can be discharged when the subject matter or basis of the contract has been destroyed or frustrated by an act of God, e.g. flood, war etc or there has been a change in law as in the case of Taylor Vs Caldwell. Taylor entered into a contract to let a music hall to Caldwell for hire for four days but before the first day, the hall was burnt down. Caldwell attempted to claim damages but failed. In this case, it was held that the contract had been frustrated. In another case between Krell Vs Henry, (1903) the defendant hired a flat for the purpose of viewing the coronation procession of Edward VII. When the procession was cancelled due to the king’s illness, the defendant refused to pay the balance of the rent. It was then held that the viewing of the procession was the basis of the contract, which has been frustrated.
By Lapse of Time: A contract can be brought to an end when the period fixed for the agreement comes to an end.
Death or Insanity of the Party: The death or insanity of one of the parties will automatically bring a contract to an end.
Bankruptcy: A contract can be brought to an end when either of the parties is bankrupt.
Illegality of Object: If the subject matter is illegal, e.g. prostitution, the contract can be terminated.

REMEDIES FOR BREACH OF CONTRACT

The injured parties can sue for:

Damages: The injured party has a right to sue and claim damages.
Action for an Agreed Sum: The innocent party may sue for an agreed sum.
Quantum Merit (As Much as he Deserves): Under this remedy, the plaintiff will be awarded as much as is earned.
Injunction: This is a discretionary court order which may be prohibitory or mandatory.
Rescission: In granting rescission, the court must be satisfied that it is possible to restore the parties to their pre-contractual positions.

TERMINOLOGIES USED IN CONTRACT

Counter Offer: This refers to an offer which is made after the original offer. This implies that the new offer automatically rejects the original offer.
Tender: A tender is an estimate submitted in response to a prior request. It does not amount to an offer.
Conveyance: A conveyance is the document which transfers the title of unregistered land.
Minor: This is an infant who is under 18 years of age.
Party: This refers to each person or group of persons in a contract.
Quantum Merit: It means “as much as you deserve.”
Quasi Contract: Quasi contract occurs when the law imposes obligations of a contractual nature, even when no true agreement exists between the parties.
Privity of Contract: This is the relationship that exists between parties to a contract. They can bring an action on it.
Offeror: This is the person that makes an offer. Offeree: This is the person to whom the offer is made and he accepts the offer.
Ex Post Fasto Warranties: This refers to conditions of a contract turned into warranties. Auction: In auction sales, bids are made by prospective buyers and the commodity would be sold to the person making the highest bid, i.e ., the highest bidder.
Invitation to Threat: This is an invitation to another person to make an offer. It is not an offer, therefore it cannot be accepted.
Ultra Vires: Under this doctrine, a statutory or registered corporation can only give contracts readily within the powers conferred upon it by the statute governing it and the Memorandum of Association. Any contract which is ultra vires (beyond its power) is void.
Promisor: This is the person who makes a promise in a contract.
Promisee: This is the person to whom the promise is made.
Guarantor: This is a third party who assures one party to a contract of the other party’s compliance.
Damages: This is compensation awarded by a court of law to a plaintiff who has suffered loss as a result of an act of the defendant.