INTRODUCTION TO THE LAW OF CONTRACT

Definition of a contract
A contract is an agreement between two or more persons (it could be to perform a service,
provide a product or perform an act) which the court will enforce as a legally binding agreement.
It can also be defined as a promise or a set of promise the law will enforce. As we shall see not
all agreements will be enforced by law. For example, social and domestic agreements are
generally not binding in law. Also, the court will not, except in special cases, enforce an
agreement unless it is supported by consideration. Examples of contracts are building contracts,
employment contracts, and loan agreements. For a contract to be recognized by law it must
have been entered freely and voluntarily i.e. there must have been no form of undue influence
while negotiating the contract. For instance, an agreement for the sale of an hotel when the
seller is held at gun point by the buyer will not be recognized by law if such circumstances are
brought to the knowledge of the court.

Why contracts are binding

The commercial and economic life of modern society consists very largely of agreements.
Track and commerce would be chaotic, if not impossible if the law permitted a promisor to
break his promise. The law of contract is found in virtually all aspect of human activity. Sales
of goods, agency, real estate business, company law, banking law etc. are all governed by
contracts or agreements between parties. To ensure peace and order and the smooth and
efficient operation of commerce, industry and the economy, the law recognizes and expects
promises made by parties to be satisfied. 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.

Classification of contracts
The following are the types of contract:

Formal contract (Contract under Seal)

A formal contract is a contract made by deed. It is also known as a contract under seal. A deed
is a legal document, that contains a contract and it must be signed, sealed and delivered. A
Deed is usually used to transfer title of land. All other contracts are simple contracts whether
or not they are in writing or by word of mouth (parol). A contract under seal or deed must be
in writing or may be typed on paper. The deed must be signed and sealed for it to be valid
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contract. A contract under seal or deed is enforceable by the party in whose favour the deed is
made, even in the absence of consideration. It is good to use such contract in cases where a
person makes promises without consideration. E.g. it can be used in the cases of conveyance
of land, promises of payments or gift to charities over a period of time. By law, certain contracts
must be made under seals or deed in order to be valid. These include the conveyance of a legal
estate in land and most contracts made by companies.

Simple Contract
They are also called Informal Contracts. This may be referred to as contracts other than
contract under seal or deed. They may be in writing or may be oral. In the latter case, they are
called patrol contracts. The major difference between a contract under seal (deed) and a simple
contract is that unlike the former, only a party who has furnished consideration can bring an
action to enforce a simple contract. In other words, the validity of a simple contract is derived
from the presence in it of consideration. Simple contracts can take both the oral and written
form. In some special cases however the law requires that the contract or a memorandum of it
must be in writing in order to be enforceable. These include, contracts of guarantee, a contract
involving the transfer of an interest in land, a contract of loan by money- lender, hire-purchase
agreement etc. However, such contracts must be distinguished from contracts under seal or
deeds, for in the latter case, there must be a seal.

Express and implied contract.

A contract is described as express when the terms of the contract are clearly and expressly
stated either orally or in writing. The unique advantage of an express contract particularly
when it is written, is that parties can always refer to it in case of controversy for interpretation.
For example in a contract for the building of a house, all the material terms, the price, duration
of construction, materials to be used must be spelt out in the agreement.

However in the case of implied contracts the terms are not expressly stated either orally or in
writing. The court, in such circumstances, will normally construe the existence of a contract
from the conduct of the parties rather than from their words. For example, a customer enters a
shop, sees a shirt with a price tag, picks it up, and takes it to the cashier, who collects money
from the customer, packs the shirt and hands it to the customer. Although no word has been
spoken during the entire transaction, no one can seriously deny that the parties have concluded
a contract by conduct. Similarly, there is a contract, where a person enters a restaurant to eat
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and he is served with a plate of pounded yam and chilled water, which he consumed. The risk
in an implied contract is that, in case of a dispute, it is the terms that the court considers to be
reasonable that will prevail and not what either of the parties is asserting to be the basis of the
contract.

Bilateral and Unilateral contracts

Bilateral: A bilateral contract consists of an exchange of promises; that is, “a promise for a
promise”. In a bilateral contract, both parties have outstanding obligations, which they must
perform under the contract. For instance, in a contract of sale of goods, the buyer is obliged to
pay and the seller is obliged to give the buyer the goods. The buyer is the promisor (he promises
to pay) and the seller is the promisee (he promises to deliver the goods). However, although a
contract has come into existence at this stage, all we have is a mere exchange of promises.
There is yet no performance by either party. This type of contract is called bilateral contract.

Unilateral : Unilateral contract is a one-sided in which only one person is obliged to act while
the other party is free to decide whether to act or not. A unilateral contract can simply be defined
as where one party promises to do something in return for the act of the other party. E.g. I will
buy you a car if you make first class; there is a cash reward for anybody who finds my lost dog.
Unilateral contracts are well illustrated in reward cases. E.g. cases in which the offer or
promisor offers a reward for information, leading to the arrest of a criminal or a lost object such
as jewelry, money etc. In such situations, the offeree accepts by providing the information or
locating the missing object and re-uniting it with the offeror. The act of giving information or
finding a lost object is the consideration furnished by the offeree. It shall be noted that only
one party is under obligation under a unilateral contract.

The case of Carlill v Carbolic Smoke Ball Co. is a good example of a unilateral contract.
There, the defendant company advertised in the newspapers to the effect that it would pay 200
pounds to any person who used a smoke ball manufactured by it for a minimum period of two
weeks, and nevertheless had influenza. The plaintiff bought one smoke ball and used it as
specified and still caught influenza. The company was liable to the plaintiff for the 100pounds.
The court held that by the terms of the contract there was no need to notify the defendant
company of the fact of an acceptance. This had been waived by the company and acceptance

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took the form of performance, in this case, using the smoke ball for 2 weeks. Performance, in
this case constituted consideration.

Executed and Executory Contracts

Executed Contracts are contracts whose formation and performance occur at the same time i.e.
the contract is fully performed or executed. For example A purchaser picks up a book from the
shelve and pays for it and takes it away with him. The contract is fully executed.

Executory contracts are where the formation and performance occur at different time i.e the
contract may be partially performed or totally unperformed. For example I bought a TV set
today while delivery is slated for next week.

Valid, void, voidable and unenforceable contract

A Valid contract contains all the elements of a contract and it is free of any legal defect or
infirmity which could render it unenforceable. A valid contract is enforceable in all respects.

A Void contract is no contract at all in law. It is void ab initio (i.e. from the very beginning).
Although there may be tangible evidence of an attempt to form an agreement. Factors which
render an attempted agreement void include illegality or criminality of the subject matter. For
example, an agreement to commit murder, fraud or contracts between drug dealers i.e. the
subject matter of the contract is illegal. In such situations neither party can go to court to enforce
it. A contract can also be declared void by the court. For example a contract when originally
entered into may be valid and binding on the parties but subsequently declared void by the
court. Examples of void contracts are:
- Contracts involving illegality e.g prostitution, gambling or committing a crime.
- Contracts entered into by someone not mentally competent (mental illness or minors)
- Contracts that are against public policy because they are unfair.

Voidable contracts are contract that have some defects which entitles the innocent party to set
it aside. It may be a binding act but the fact that it contains some defects gives the other party
right to set it aside. The contract is legally binding but could become void. The party that is
affected must take steps to make it void, otherwise it is valid. Factors such as fraud, mistake,
and incapacity will generally render a contract voidable. Example of voidable contract:

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- Contracts entered into when one party is a minor. (The law often treats minor as though they
do not have the capacity to enter a contract. As a result, a minor can walk away from a contract
at any time).
- Contracts where one person was forced or tricked into entering it
- Contracts entered into when one party was incapacitated.

Unenforceable contract are contracts which fails to meet a formal requirement (such as being
in writing or by deed). Here although a contract exists, it is deprived of any legal effect. Equity
may however intervene in certain cases to ameliorate the harshness of the common law.

Revision
1a. Define a Contract
B. Mention and explain the various classification of a contract.