Definition Of Law Of Contract
We can say the law of contract is an agreement between two or more people or entities like companies, corporations, and organizations that creates legal duty or responsibility and must be enforceable in a court of law.
The formation of contract requires the following;
a. Offer
b. Acceptance
c. Consideration
d. Mutual intention to be bound
The parties to a contract must not be:
a. Minors
b. Intoxicated person's
c. Those under mental afflictions
Characteristics of a valid contract includes the following;
a. Competency - parties to a contract must be competent , that is, have the capacity to enter into a valid contract. In the case of a minor, the contract will only be enforceable when they reach the age of majority in their particular state.
b. Offer and acceptance - an offer will be valid where party X makes an offer to Y and explain all the essential terms of such offer and must be understood by Y, then an acceptance will be valid when Y in return after understanding these terms agrees to the offer of X. However, an offer can be made to a person, class of people or to the whole world.
c. Intention to create legal relations - when we talk about creating legal relations, it does not exist because there is an agreement between A and B, for example, when A offers to give B a ride to work in his car, this does not create any legal relation. What creates legal relation is where A agrees to give B a ride on the terms that B will pay $20 for fuel each Friday. This is a legal contract.
d. Consideration - This is a price paid by A for the promise made to him by B. Consideration need not be money. It can be a right, benefits, or interest to one party or some forebearance, detriment, loss, or responsibility suffered by another party. Consideration must not be illegal and impossible to perform.
The exception to consideration is document under seal (deeds) because it does not require consideration to create a legally binding contracts.
Other characteristics of a valid contracts include;
i. Legal capacity
ii. Parties must be sane
iii. Consent of the parties
Mistakes that vitiates a contract
Only mistakes that goes to the root of an agreement can vitiate it. These includes;
a. Where A and B agrees on a car sale and in reality the car has been damaged by fire, there would be no valid contract. But if it is that the car was yellow and they thought it was green, the contract will still be valid.
b. Where A signs a document mistakenly believing that it is for the sale of a car, but the document in reality is for the sale of a house. A will not be bound by it
c. Where A cannot read, and B tells A what is in the document and A signs. A will not be bound by the document if what B tells A is not what is in the document.
Note - if A signs a document and A believes it is a contract and does not read the terms and conditions of the contract , A will be bound by such contract and cannot plead mistake.
Types of Mistake in contract
a. Common mistake - this is where A and B, who are parties to a contract, are both mistaken on the fact of the contract and therefore renders the contract void and can not be performed. See Bell v Lever Brothers Ltd, Svanosi v McNamara.
b. Mutual mistake - this is where A and B, who are parties to a contract, are both mistaken on the terms of the contract, that is, A believes the contract for lease is for 3 years, while B believes the same contract for lease is for 4 years, see Raffles v Wichelhaus.
c. Unilateral Mistake: this is where A and B, who are parties to a contract, A is the only party who is mistaken as to the terms or subject matter of the contract. The contract will become voidable unless B, the other party knows that A has mistaken on the terms and subject matter and still want to take advantage of A, the contract will become void. Se Lewis v Avery
Illegal and void contracts
Where a contract is illegal , it will affect its enforceability.
If the contract is illegal by statutes then it will be regulated by such statute and the one prohibited by statute will be void even when the parties are aware of the illegality or not.
However, if A and B enters into a contract and A performs his duty in an illegal way, voiding the contract , or leaving it to be regulated by statute , B, that has no knowledge of the act by A, can still enforce the contract or recover damages for the breach of such contract and this includes money or other property transferred under the contract.
Contract that are illegal at common law includes;
a. Contracts to commit a crime , tort or fraud
b. Contracts that are sexually immoral
c. Contracts that prejudice public safety
d. Contracts that promotes corruption
e. Contracts to defraud the revenue
Note that these illegal contracts are not going to be void in it's entirety, that is, if the offending part of it can be removed , the rest of the contract continues to make sense. But contracts that is illegal at common law cannot be severed , that is , the illegal parts cannot be separated and it will become void. Any money paid or transferred under this void contract will be recoverable because a void contract means that there is no contract.
Termination of contract
Only parties to a contract can terminate the contract or agreement due to the following;
a. Impossibility of performance - where a party to a contract cannot perform his duties in a contract, the other party has the right to terminate the contract .
b. Breach of contract - this is where a party did not perform his duties or performed it in half intentionally then the other party can terminate the contract because of the breach .
However, we have two types of breach
i. Material breach - this is where the other party is allowed to seek monetary damages from the party that breached. An example is where A agrees to supply B some materials to be sold for Bs customers on Friday and A did not supply the materials until after a month causing B to lose the customers.
ii. Immaterial breach - this is where the other party is not allowed to seek monetary damages from the party that breached. An example is where A agreed to supply B some materials to be sold for Bs customers on Friday and A supplied the said materials to B on Saturday.
c. Prior agreement - this is where the parties to the contract already agreed that at the occurrence of a particular event , the contract will be terminated.
d. Recision - this is where there is misrepresentation, illegality, mistake, or lack of capacity from a party to the contract.
e. Completion - this is where the obliagtions or duties of the parties to the contract have been performed completely.
f. Frustration - this is where one party to the contract is unable to perform his obligations or duties due to an unforseen circumstances . It is difficult to prove but when proved, it discharges the parties to the contract of their contractual obligations.
Payment of damages for breach of contract
a. Compensatory damages
b. Liquidated damages
c. Nominal damages
d. Punitive or exemplary damages
