A contract, in the simplest definition is a promise enforceable by law. The promise may be to do something or abstain from doing something. A contract is an agreement between two or more parties, which the law recognizes as binding and may enforce.
Furthermore, contract is defined as an agreement which the law will enforce or recognize as affecting the legal rights and duties of the parties. It can also be defined as a promise or a set of promises the law will enforce upon the request of an aggrieved party.
Thus, as we shall see, not all agreements will be enforced by law. For example, social and domestic agreements are generally not binding. Furthermore, the court will not, except in special cases, enforce an agreement unless it is supported by consideration.
Tobi, J.C.A., defined contract as an agreement between two or more parties which creates mutual or reciprocal legal obligations to do or not to do a particular thing. For a contract to be valid, “there must be mutuality of purpose and intention”.
It should be noted, that strictly, however, there can be no contract between more than two parties at a time. Where it appears there are more than two parties involved, what it means is that either group of parties belong to one side, or there is more than one contract involved. For example, a contract of guarantee usually consists three parties and two contracts, namely;
- Contract of guarantee between the lender and the guarantor,
- The loan contract (or credit agreement) between the lender and the debtor whose debt is being guaranteed.
Essential Elements of a Contract – Law of Contract
For a contract to be enforceable at law, certain basic requirements must exist. These are:
- Agreement (offer and acceptance): for a contract to exist there must be an agreement between two or more parties. This is reflected in an offer by one of the parties (called the offeror) and an acceptance by the other party (called the offeree).
- Consideration: this is the price for which the promise or the offer of the offeror is brought. There must be consideration issuing from the promisee to the promisor, except where the agreement is under seal e.g. a Deed of gift, in which consideration is not necessary for its validity.
- Intention to Create Legal relations: the parties to the agreement must intend it to create legal relations, i.e. to be binding in a legal sense.
- Capacity of the Parties: the parties must have full legal capacity to enter into the contract. By this it is meant that the parties should be of the required age, be of sound mind etc.
Legality of Objects: though this is usually taken for granted, for a contract to be enforceable, the objects must be legal. For example, an agreement for the assassination of a person is not legally enforceable because the object is illegal.
It should additionally be noted that some statutes require special formalities like writing, seal, etc. for some contracts to be valid or enforceable. But we need not include such requirements in this discussion since they are not essential features of all contracts.
The absence of one or more of the above, which we shall discuss in details in the next article, may render a transaction void or unenforceable.
Why Contracts are binding
We must consider knowing why the law in England, USA and other common wealth countries does enforce agreements. The commercial and economic life of contemporary society consists of agreements.
Trade and commerce would be chaotic or in disarray, if not impossible, if the law in England permitted a promisor to break his promise without at least placing him under a duty or an obligation to pay compensation for the loss occasioned by his default.
Furthermore, the law of contract in USA, Canada and England pervades virtually all spheres or areas of human activity. To mention a few, the sale of goods, agency, hire purchase, insurance, industrial or labour relations, company law, partnerships, carriage of goods by air, sea and land, banking law, and a host of franchises and services, are governed by contracts, which itself is made up of mutual promises between the contracting parties.
To ensure peace, order and security, and the smooth and efficient operation of commerce, industry and the economy, the law recognizes the need for the satisfaction of 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, services, or some other benefits has been promised to enforce the promise or to obtain a remedy for its breach.
Classifications of Contracts
- Formal and Simple contracts
- Express and implied contracts
- Bilateral and unilateral contracts.
There are two basic types of contracts at common law –
Formal Contracts and Simple Contracts
Formal Contracts and Simple Contracts
A formal contract is a contract made by deed. It is also known as a contract under seal. All other contracts are simple contracts, whether or not they are in writing or by words of mouth (parol).
- Contracts under seal (Formal Contracts)
A contract under seal or deed, may be in writing or may be typed on paper or parchment. A deed is supposed to be executed, i.e., completed and given full legal effect by the signing, sealing and delivering of it by the party executing, to the other party. However, there have been considerable changes in the law and practice regarding deeds since the second half of the nineteenth century.
In the first place, the signature was not regarded as being necessary. Execution was valid, provided that the seal of the party executing was imprinted on the deed. However, by the English Law of Property Act 1925, S.73 and 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. The reason for this is not hard to seek. Whereas previously, sealing means 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 documents.
More so, with the seal now having a merely symbolic value, the signature has become the vital component of the deed which gives it authenticity and validity.
Previously, delivering was only effective if the deed was actually handed over by the party executing to the other party or a stranger for the latter’s benefit. But since 1867, by the House of Lords’ decision in the English case of Xenos V. Wickham a deed may be delivered even though retained in the custody of the grantor. Any acts or words showing that it is intended to be executed by the grantor as his deed, binding on him, will suffice.
2. Simple Contracts
These may be defined as all contracts other than formal contracts. They may be in writing, or may be oral. In the latter case, they are called parol contracts.
Generally speaking, these are contracts which do not require any special form. They are also known as informal contracts in that they are not under seal. They may be express, implied, written or just oral.
The major distinction between a formal contract and a simple contract is that, unlike the formal, only a party who has furnished a consideration can bring an action to enforce a simple contract. It’s validity is derived from the presence of consideration.
As noted above, Simple contracts can take both the oral and written form. Indeed, in some special cases, the law prescribes that the contract or a memorandum of it must be in writing in order to be enforceable. However, such contracts must be distinguished from contracts under seal or deeds, for in the latter case, there must be a seal. This is not present in ordinary written contracts.
As was remarked by Skynner, C.B., in Rann V. Hughes (1778)7Term Rep. 350.
“…all contracts are by the laws of England distinguished into agreements by parol (simple contracts); nor is there any such third class…as contracts in writing. If they be merely written and not specialties, they are parol, and a consideration must be proved.
This obiter was made to repel the notion first expressed by Lord Mansfield, a famous Chief justice of the King’s Bench in the eighteenth century, that proof of consideration was necessary in the presence of writing.
However, as was stated above, only if the writing was contained in a deed (contract under seal) could consideration be dispensed with.
Express Contract and Implied Contracts – Law of Contract.
A contract is described as express when the terms of the contract are clearly stated. This is the usual position Y invites tenders from contractors for the building of a house, and invites one out of several tenders.
The contract is then awarded to the owner of that tender. All the material terms will usually be clearly spelt out in such an agreement, and the contract comes into existence after much correspondence and negotiation on price, duration of construction, materials to be used, etc.
However, in the case of implied contracts, the terms are not expressly stated. The court, in such circumstances, will normally construe the existence of a contract from the conduct of the parties rather from their words or correspondence. Yet to all reasonable men, his action implies that he will pay his fare, while the bus owner is obliged to carry him safely to his destination, provided it is on the route of that bus.
Thus, in the famous United Kingdom celebrated case of Brogden V. metropolitan Railway Co.; (1877) 2A.C.666 , the defendant was held bound by a contract between it and the plaintiff, in spite of the fact that the defendant failed to sign the document containing the contract. It was established in evidence that both parties had been acting on the terms of the unsigned contract over a reasonable period of time. The court held that “the conduct of the parties was explicable only on the assumption that both parties mutually approved the terms of the unsigned document.
See also the Nigerian case of Attorney General of Kaduna State & ors. V. Bassey Atta & Ors, were the appellate court in dismissing the appeal held that “an acceptance of an offer can be demonstrated by the conduct of the parties as well as by words and documents.
Bilateral contracts and Unilateral contracts
A bilateral contracts is one which involves two parties. It is a contract whereby an offer (the party who purposes the terms of the contract) communicates his offer to an offeree and the offeree in response accepts the offer. In bilateral contracts, the two parties are mutually bound.
A bilateral contract consists of exchange of promises; the offeror promising to do something in exchange for the offeree promising to do something else in return.
However, although a contract has come into existence at this stage, all we have is a mere exchange of promises. There is as yet no performance by either party. This type of contract is called a bilateral contract, and the consideration (the mutual promises) is referred to as executory consideration.
Furthermore, is a consideration consists of actual performance in return for a promise, it is called a unilateral contract and performance is referred to as executed consideration. See the famous Queens Bench case of Carlill V. Carbolic Smoke Ball Co. (1893) 1 Q.B 256; the above case is a good example of a unilateral contract.
Facts of the case were as follows:
The defendant company advertised in the newspapers to pay £100 to anyone who used its medical preparation called smoke ball for two weeks, and nevertheless contracted influenza.
The plaintiff Carlill bought one smoke ball and used it as specified, and still caught influenza. The company was held liable to the plaintiff for the £100. The court held that by the terms of the contract, there was no need to notify the defendant company of the fact of acceptance.
This had been waived by the company, and acceptance took the form of performance, in this case, using the smoke ball for two weeks. Performance, in this case, also constituted the consideration.
Unilateral contracts are also well-illustrated by the reward cases; cases in which the offeror or promisor offers a reward for information leading to the arrest and conviction of criminals, or leading to the location of a lost loved one, or a reward for finding and returning of a lost object of great value to the offeror, like a favorite dog or jewellery or even money.
In such situations, the offeree “accepts” by actually providing the information or locating the missing person or object and re-uniting it with the offeror. The act of finding or giving the relevant information constitutes the consideration furnished by the offeree.
Furthermore, it should be noted that only one party, the offeror or promisor, is under a contractual obligation at any relevant period in a unilateral contract.