Select Menu THE NATURE AND PRINCIPLES OF LEGALLY BINDING CONTRACTS A contract is a voluntary, deliberate and legally binding agreement between two or more competent parties. Contracts are usually written but may be spoken or implied and generally have to do with sale, lease, employment or tenancy. A contractual relationship is evidenced by an offer, acceptance of the offer and a valid legal and valuable consideration. Each party to a contract acquires rights and duties relative to the rights and duties of the other parties. A contract will be governed either by the law agreed by the parties (expressly or impliedly) or by the law imposed by the court. One of the simplest and most common kind of contract is the contract of sale of goods. A contract of sale of goods could be defined as a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price. Section 91 of the Nigerian Labour Act (2004) defines contract of employment as: “… any agreement, whether oral or written, express or implied whereby one person agrees to employ another as a worker and that other person agrees to serve the employer as a worker”. In order for a contract to be formed, the parties must reach a mutual assent (also called meeting of the minds). This is typically reached through offer and acceptance. The requisite for a formation of a legal contract include some key elements such as: The parties intended to create legal relations when they entered into the contract. Offer – In order to create a valid contract, there must be a valid offer. There must be a definite, clearly stated offer to do something. An offer however does not include a request for proposals, expressions of interest or letters of intent. Invitation to treat – this is different from an offer in the sense that there is no demonstration of present intent to form contractual relations. This is merely an invitation to make an offer. Acceptance – this is an expression of assent to the terms of an offer. This must be made by an offeree in a manner requested or authorised by the offeror. An acceptance is valid only if the offeree knows of the offer. The acceptance should be unequivocal and unconditional and the acceptance is manifested according to the terms of the offer. Consideration – this is the concept of legal value in connection with contracts. It is anything of value promised to another when making a contract. It can take the form of money, physical objects, services, promised actions, abstinence from a future action and much more. Consideration to create a legally enforceable contract entails a detriment to the promisee or a benefit to the promisor. The case of Carlill v. Carbolic Smoke Ball Company [1892] EWCA Civ 1, [1893] 1 QB 256 gives more insight into the elements of a contract. In this case, Carbolic Smoke Ball Company manufactured and sold the Carbolic Smoke Ball. The company placed advertisements in various newspapers offering the reward of £100 to any person who used the smoke ball 3 times per day as directed and contracted influenza, colds or any other disease. After seeing the advertisement, Carlill purchased a ball and used it as directed. Carlill contracted influenza and made a claim for the reward. Carbolic Smoke Ball Company refused to pay and Carlill sued for damages arising from breach of contract. Judgement for £100 was entered for Carlill and Carbolic Smoke Ball Company appealed. The Court of Appeal unanimously rejected the company’s argument that what they had put forward was an invitation to treat and held that there was a fully binding contract for £100 with the plaintiff. Among the reasons given by the three judges were that the advert was not a unilateral offer to the world but an offer restricted to those who acted upon the terms contained in the advertisement; that satisfying conditions for using the smoke ball constituted acceptance of the offer; that purchasing or merely using the smoke ball constituted good consideration because it was distinct detriment incurred at the behest of the company and more people buying smoke balls by relying on the advert was a clear benefit to carbolic; that the company’s claim that £1000 was deposited at the Alliance Bank showed the serious intention to be legally bound. Creation of legal relations is a doctrine in English contract law that states that an agreement is legally enforceable only if the contracting parties may be deemed by the court to have intended it. This doctrine operates in addition to consideration. The purpose of a contract is to establish the agreement that parties have made and to fix their rights and duties in accordance with that agreement. The courts must enforce a valid contract as it is made, unless there are grounds that bar its enforcement. Statutes prescribe and restrict the terms of a contract where the general public is affected. The terms of an insurance contract that protect a common carrier are controlled by statute in order to safeguard the public by guaranteeing that there will be financial resources available in the event of an accident. The courts may not create a contract for the parties when the parties have no express or implied agreement on the essential terms of a contract; in this case, there is no contract. Courts are only empowered to enforce contracts, not to write them for the parties. A contract in order to be enforceable must be valid. The function of the court is to enforce agreements only if they exist and not to create them through the imposition of some terms as the courts considers reasonable. It is the policy of the law to encourage the formation of contracts between competent parties for lawful objectives. As a general rule, contracts by competent persons equitably made are valid and enforceable. Parties to a contract are bound by the terms to which they have agreed, usually even if the contract appears to be improvident or a bad bargain. As long as it did not result from fraud, duress or undue influence, a contract once formed does not contemplate a right of a party to reject it. Contracts that were mutually entered into between parties with the capacity to contract, have binding obligations and may not be set aside due to the notion of one party or the other unless a statute provides to the contrary. The different types of contract include: i. Express contracts: – these are those contracts that the parties state the terms, either orally or in writing at the time of the formation of the contract. There is a definite written or oral offer that is accepted by the offeree in a manner that explicitly demonstrates consent to its terms. ii. Implied contracts – an implied contract consists of obligations arising from mutual agreement and intent to promise, which has not been expressed in words. Implied contracts are as binding as express contracts. For an implied contract to arise there must be some act or conduct of a party, in order for them to be bound. iii. Bilateral and Unilateral contracts – a bilateral contract is sometimes called a two sided contract because of the two promises that constitute it. This is an exchange of mutual, reciprocal promises between entities that entails the performance of an act, with respect to each party. A unilateral contract involves a promise that is made by only one party. The offeror (i.e a person who makes a proposal) promises to do a certain thing if the offeree performs a requested act that he or she knows is the basis of a legally enforceable contract. iv. Void and voidable contracts – a void contract imposes no legal rights or obligations upon the parties and is not enforceable by a court. It is in effect not a contract at all. A voidable contract is a legally enforceable agreement but it may be treated as never having been binding on a party who was suffering from some legal disability or who was a victim of fraud at the time of its execution. As the world of electronic commerce expands, there is an increasing demand for clarity in the rules which apply to participants and their transactions. Uncertainty exists on such matters as whether agreements entered into electronically are enforceable, how the operative terms of online contracts will be determined by courts, what rights parties have to online information and what electronic self-help remedies they may exercise. Much of the demand for the development of a legal framework has come from those who use electronic commerce and want assurances that electronic transactions will be valid and binding, as well as certainty about the rules and remedies that apply to their transactions. Contracts are part and parcel of our daily living. People in their interactions daily enter into legally binding contracts even if the legal implications are unknown to them. As we carry on our lives daily, we are likely to enter into legally binding contracts in one way or the other. This then means that caution must be taken to analyse and understand the contractual implications we are likely to go into daily. Doing this will prevent not just unnecessary losses and fraud but also unnecessary litigation in court.
Posted on: Mon, 01 Dec 2014 08:53:35 +0000
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