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;
i. Contract of guarantee between the lender and the guarantor,
ii. The loan contract (or credit agreement) between the lender and the debtor whose debt is being guaranteed.
Elements of a valid contract
For a contract to be enforceable at law, certain basic requirements must exist. These are:
- Agreement (offer and acceptance): The offer and acceptance identifies the point of formation, where the parties are of ‘one mind’. An offer is a definite proposal constituting specific terms for one party to enter into an agreement with another party, which is essential to the formation of an enforceable contract.
However, a valid contract requires an offer to be accepted. 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).
Acceptance is an agreement to the specific terms of an offer. Offers do not have to be accepted through words; they can be accepted through conduct. If someone purports to accept an offer but accepts on different terms than that of the original offer, that will constitute a counter-offer rather than an acceptance.
The acceptance must normally be communicated to the offeror – silence cannot be treated as an acceptance.
- 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.
Types of contract in Contract law –
- Formal and Simple contracts
- Express and implied contracts
- Bilateral and unilateral contracts.
What is contract example?
As was remarked by Skynner, C.B., in the celebrated case of 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.
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.