Contract | Definition, Parties, Types. Elements

A Contract is an agreement between two or more parties which creates legal rights and obligations as between the parties involved.

Parties to a Contract

This is the identity given to the persons who have made an agreement that is recognized by law as a valid contract

e.g. Landlord and Tenant

Insurer and Insured

Bank and Customer

Vendor and Vendee

Essential elements of a contract

A contract must satisfy certain basic requirements in order to be enforceable at law. These are:

Offer and Acceptance
Valuable Consideration
Intention to create legal relationship €
Legal capacity of the parties
Genuine Assent
Legal Object

Offer and Acceptance

An Offer is a definite statement by one party called the OFFEROR of the terms under which he will enter into contract with the party to whom it is made called the OFFEREE. An Acceptance occurs when the party to whom an offer is made agrees without attaching any conditions to the offeror’s proposal. Any attempt to accept the offer with modification is not an acceptance but a counter- offer which itself requires acceptance before a contract emerges. For an agreement to constitute a valid contract there must be an offer by one party and acceptance by another party.

Valuable consideration: Consideration is whatever is done or suffered or promised to be done or suffered by one party in return for the promise of the other party. To support a simple contract, consideration must be valuable. The most common example of valuable consideration is money or other property or a promise to pay money or transfer property.

Intention to create legal relationship

An agreement will not constitute a binding contract unless it is intended by the parties to it that should give rise to legal relations. An agreement to attend a dinner would not be a contract because it would neither be intended to create nor would it in fact create any legal obligations between the parties to it.

Legal capacity of the parties

The parties involved in a contract must possess legal capacity to contract. The following classes of persons are not capable in law of entering into a valid contract;

Minors i.e. infants under eighteen years of age.
Lunatics or insane persons
Drunken persons or persons induced with drugs.

Genuine assent

For a contract to be valid in law, the agreement involved must have the mutual consent or assent of the parties. Where the consent of one of the party was obtained through fraud, deceit, misrepresentation or under undue influence, there is no valid contract.

Legal object

The purpose of the contract should not violate any law of the land. The

Courts will not enforce an illegal contract, even though all the elements required for formation of a valid contract are present.

In some cases such illegal contract involves a breach of criminal law. For example a contract between two or more persons to

Commit murder or arson
Defraud individuals or the government.

TYPES OF CONTRACT

Formal and Informal Contract

Formal contract are normally written contracts. They are usually effected by affixing a seal on a written agreement or document.

Informal or simple contracts are contracts whether written or oral, which are not under seal.

Oral or Written Contract

Oral contracts are contract entered into by the use of spoken words.

Written contracts are contracts documented by written evidences on a paper.

Express or Implied Contract

Express contracts are contracts resulting from actual agreements between the parties.

Implied contracts does not have any evidence of actual agreement between the parties but may still be sustained by the acts or conducts of the parties involved.

Valid Contract

This is an agreement that satisfy all the six basic requirements mentioned above. It is enforceable at law.

Void and Voidable Contract

A voidable contract is an agreement lacking in some basic requirements, that may be rejected or adopted (or concurred) by one of the parties e.g. in case of mistake, misrepresentation, ratification etc.

A void contract is an agreement without legal effect and is usually incapable of enforcement e.g. agreement to commit illegal (acts contrary to the law) e.g. murder, forgery, fraud, treason, drug, trafficking, prostitution etc.

Executed and Executory Contract

Executed contract is a contract that has been completely performed.

Executory contract is a contract that has not been completely performed.

Unilateral / Bilateral / Multilateral Contract

Unilateral contract is a one – sided contract which is initially binding only on one person who make a promise, the person to whom promise is made being free to perform his part or not as he wishes e.g. an offer of N500 by Dayo to anyone who finds and returns his lost calculator.

Bilateral contract is a contract involving two parties who make mutual promises to the other.

Multilateral contract – where more than two parties are involved in making mutual promises to one another.

DISCHARGE (DETERMINATION) OF A CONTRACT

A contract is said to be discharge or determined when its obligations are no longer binding on the promisor. Discharge (determination) may be effected by:

Voluntary agreement between the parties.
Breach – when a party to a contract refuses to perform the obligation imposed on him under the contract.
By full performance – where both parties (all parties) have conclusively met or carried out their obligations under the contract.
Frustration – where either party can not continue due to:
Fundamental change of circumstances
Subsequent illegality e.g. alteration of a written law affecting the contract
Destruction of the subject matter of the contract
Personal incapacity of parties e.g. death, lunacy, bankruptcy
Lapse of timee. the end of time agreed between the parties for which the contract is to run.

GENERAL EVALUATION QUESTIONS

Give five examples of small scale retail outlets
Explain five reasons for the survival of small scale retailers
State five aids to trade and explain how each facilitates trade
Explain any five reasons why commerce is important in the life of a nation
Illustrate with a labelled diagram the main divisions and subdivisions of production

THEORY

List the six essential element of valid contract
Mention three ways by which a contract may be determined