Law of contract

INTRODUCTION TO NIGERIAN LAW OF CONTRACT: NOTES

*We acknowledge Prof. Itse Sagay SAN whose seminal text, Nigerian Law of Contract, is instrumental to the drawing of these Notes for free use by students of law.

PART 1.

CONTRACT DEFINED
  • A contract is a legally enforceable agreement. Orient Bank (Nig.) Plc v. Bilante Int’l Ltd. [1997] 8 NWLR (Pt. 515) 37.
  • “A contract is an agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law.” Enemchukwu v. Okoye [2017] 6 NWLR (Pt. 1560) 37 at 55-56 CA.
CLASSIFICATION OF CONTRACTS
  1. Formal Contracts & Simple Contracts
  2. Express & Implied Contracts
  3. Bilateral & Unilateral Contracts
1. Formal & Simple Contracts
  • A formal contract is a contract under seal, also known as a deed.
  • An Implied contract is contract other than a formal contract which may be oral (parol) or written.
2. Express & Implied Contracts
  • An express contract is a contract whose terms are clearly stated and agreed upon.
  • An implied contract is a contract whose terms are not expressly stated but come into existence by the conduct of the parties.

Brogden v. Metropolitan Railway Co.

3. Bilateral & Unilateral Contracts
  • A bilateral contract is a contract formed by an exchange of promises regarding an obligation to be performed in the future. Amana Suits Hotels Ltd. v. P.D.P. (2007) 6 NWLR (Pt. 1031) 453 at 478 Para. F (CA).
  • A unilateral contract involves the making of a promise by one party and the actual performance by another party based on that promise. It is unilateral because only one party makes the promise and the other party enters into the contract by acting, as he is otherwise not obligated to act. Amana Suits Hotels Ltd. v. P.D.P.; Carlill v. Carbolic Smoke Ball Co.

FORMATION OF A CONTRACT

A contract is formed if the following elements or ingredients co-exist:

  1. Offer
  2. Acceptance
  3. Consideration
  4. Intention to enter into legal relation
  5. Capacity to contract (to be treated much later). See BPS Construction & Engineering Co. Ltd. v. F.C.DA. [2017] 10 NWLR (Pt. 1572) 1 at 25-26 SC.
Offer
  • “An offer is a definite undertaking or promise made by one party with the intention that it shall become binding on the party making it as soon as it is accepted by the party to whom it is addressed.” Orient Bank (Nig.) Plc v. Bilante; Ojo v. ABT Associates Incorporated [2017] 9 NWLR (Pt. 1570) 167 at 188 CA.
  • An offer must be precise and unequivocal.
  • An offer can be made to an individual, group of individuals as well as the whole world. Carlill v. Carbolic Smoke Ball Co.
  • An offer can be made expressly or by conduct.
  • An offer must be clear and final.

Invitation to Treat vs Offer.

  • An invitation to treat is not an offer. It is an invitation to another person to make an offer.
  • An invitation to treat is not capable of being accepted.
  • An invitation to treat is not binding.
  • It is the first step in negotiation for a contract. BPS Construction & Engineering Co. Ltd. v. F.C.DA.
  • Examples: call for a bid during auctions (Payne v. Cave); display of goods in shelves and showrooms (Pharmaceutical Society of Great Britain v. Boots Cash Chemists); advertisement of goods and services in catalogues; invitation to tender/submission of bids for projects like in construction, passengers waiting at bus or train stations, etc.

Termination of Offer.

An offer may be terminated by:

  • Revocation
  • Lapse of time
  • Death
  • Rejection

Revocation

  • Revocation means termination or withdrawal of an offer by the offeror.
  • Revocation must be communicated before acceptance. Routledge v. Grant.
  • In unilateral contracts, once performance commences, the offeror cannot revoke the offer as acceptance is taken to have been made; but completion of performance is a condition precedent to the offeror’s liability to perform his promise. Errington v. Errington; Hassan v. Obodoeze (2012) CA/J/172/2006.
  • If notice of revocation reaches the offeree through a reliable third party, it is valid. Dickinson v. Dodds.

Lapse of Time

  • Where an offer is said to be open for a specific period, it will lapse (expire) at the end/expiration of the stated period. Amana Suits Hotels Ltd. v. P.D.P.
  • If no period was stated, it shall lapse after a reasonable time.
  • The facts and circumstances of each case would determine what time is reasonable. Ramsgate Victoria Hotel v. MontifioreLoring v. City of Boston.

Death

  • Death of offeror or offeree can terminate an offer.
  • Where the offeree has notice of the death of the offeror, the offer is gone.
  • Where the offeree does not have notice of the death of the offeror, the offer cannot lapse if the estate of the deceased offeror can perform. Bradbury v. Morgan.

Rejection

  • The offeree has the option of acceptance or outright rejection of the offer. Amana Suits Hotels Ltd. v. P.D.P.
  • Rejection of an offer by the offeree terminates the offer.
  • A rejection can only terminate an offer when communicated to the offeror. Until then, the offeree can accept the offer before any notice of rejection reaches the offeror.
  • A counter-offer (see below) is an expression of rejection of an original offer.

Acceptance
  • Acceptance means an expression of assent to the terms of an offer.
  • “An acceptance of an offer is the reciprocal act or action of the offeree to the oferror in which he indicates his agreement to the terms of the offer as conveyed to him by the offeror.” Ojo v. ABT Associates Incorporated.
  • There cannot be an acceptance if there is no offer, as both must necessarily be linked to one another.
  • Acceptance may be in writing (documents exchanged by parties), orally or by conduct. Union Bank v. Ozigi [1991] 2 NWLR (Pt. 176) 677.
  • Acceptance must be final and unqualified or unconditional.
  • It must be clear.
  • Acceptance must be communicated to the offeror. Mental assent or silence is not enough.
  • In certain cases, the requirement of communication might be waived as in unilateral contracts such as in reward cases. Carlill v. Carbolic Smoke Ball Co.
  • Acceptance may be revoked before it reaches the offeror.
  • Acceptance becomes effective generally, when received by the offeror.
  • Acceptance communicated via post is effective at the time the acceptance letter is posted. Adams v. LindsellHousehold Fire Insurance v. Grant.

Exceptions to the Rule in Adams v. Lindsell:

  • Where the terms of offer expressly or implicitly requires that acceptance must reach the offeror.
  • Where the application of the rule would amount to absurdity and extreme inconvenience.
  • Where the letter of acceptance bears the wrong address of the offeror or not properly stamped.
  • Where the acceptance letter was not properly posted.

Counter-offer, Cross-offers, Acceptance in ignorance of offer.

  • A qualified or conditional acceptance is not an acceptance.
  • Conditional acceptance may be in the form of acceptance subject to contract. UBA v. Tejumola (1988) 19 NSCC (Pt. 1) 945; Cohen v. Nessdale.
  • “Subject to Contract” simply means a contract made subject to fulfilment of certain terms.
  • Where a contract is made subject to the fulfilment of certain specific terms and conditions the contract is not formed and not binding unless and until those terms and conditions are complied with or fulfilled. Best (Nig.) Ltd. v. Blackwood Hodge (Nig.) Ltd. (2011) 5 NWLR (Pt. 1239) 95.
  • Conditional/qualified acceptance could at best be a counter-offer.
  • A counter-offer cancels the original offer and becomes a fresh offer subject to acceptance. The legal effect of a counter offer is to repudiate or discharge the original offer so that it cannot subsequently be accepted by the offeree. Best (Nig.) Ltd. v. Blackwood Hodge (Nig.) Ltd.
  • There cannot be acceptance in ignorance of offer. The party accepting must be aware of the offer and its terms.
  • An offer made to another in ignorance that the offeree has made the same offer in like terms to the offeror cannot amount to acceptance. What we have are merely cross-offers.

Consideration
  • Consideration simply means something of value in the eyes of the law exchanged by parties to a contract.
  • Consideration is the inducement to a contract. it is the cause, motive, price or impelling influence which induces a contracting party to enter into a contract. It is the reason or material cause of a contract. Ojo v. ABT Associates Incorporated.
  • Only a party who has furnished consideration can enforce a contract. Cardoso v. The Executors of the Late J. A. Doherty.
  • Proof of consideration is not required in contracts under seal.
  • Consideration could be in the form of:
    • Some right, interest, profit or benefit accruing to the one party; or
    • Some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other. Currie v. Misa.
  • Moral obligation is not consideration.
  • Natural love and affection is not consideration. Eastwood v. Kenyon; Faloughi v. Faloughi.
  • Benefit or promise exceeding what a contract specifies cannot be enforced in the absence of consideration.

Types of consideration: 

  1. Executory consideration –exchange of promises to perform an act in the future such as in bilateral contracts.
  2. Executed consideration – where an act is exchanged for a promise such as in unilateral contracts.

Rules governing consideration – 

Consideration must move from the promisee:

  • That is, consideration must flow from a party to the contract and not any third party.

Past Consideration:

  • The rule is that consideration must not be past.
  • Past consideration is an act done or promise given before a contract is made.
  • Consideration in one particular contract cannot suffice in a fresh contract as it is deemed past or exhausted. Akenzua II, Oba of Benin v. Benin Divisional Council.
  • Past consideration is no consideration. Promise supported by past consideration is unenforceable.

Exceptions – (Pau On v. Lau Yiu Long).

  • An act already done before the making of a promise may constitute valid consideration if:
  • a) The act was done at the promisor’s request (Lampleigh v. Brathwait);
  • b) The act was performed on the understanding that it would be paid for (Re Casey’s Patents); and
  • c) The payment must have been legally enforceable had it been promised in advance.

Adequacy of consideration:

  • Adequate consideration refers to a price which is equal in value for an act or a thing for which it is given.
  • The general rule is that the courts will not inquire into the adequacy or fairness of consideration because parties have freedom of contract. S.P.D.C. (Nig.) ltd v. Allaputa [2005] 9 NWLR (Pt. 931) 475 at 500 Paras. C-D(CA); Royal Exchange Assurance Nig. Ltd. v. Aswani Textiles Industries Ltd. [1991] 2 NWLR (Pt. 176) 639.
  • This is based on the doctrine of freedom of contract.
  • However, consideration must be something of value in the eyes of the law. Consideration must therefore be sufficient.

Sufficiency of consideration:

  • Sufficient consideration means consideration deemed by law to be of some value to support the contract between parties.

Characteristics

  • Sufficient consideration need not be something of eceonomic value. Chappel v. Nestle.
  • It must be something owned by the contractual party or to which he is entitled.
  • It must be what the contracting party demanded for.
  • It must be reasonably ascertainable or definite but not vague. Dunton v. Dunton.

Insufficient consideration: 

  • This include:

Past consideration: (Already discussed above).

Performance of pre-existing duty:

  • Performance of existing duty cannot constitute consideration.
  • The general rule is that a party cannot enforce a promise made to him in return for his performance of, or promise to perform a public duty or duty imposed by law. Collins v. Godefroy.
  • However, if the party acts or promises to act in excess of the said public duty, this is valid consideration. Glassbrook Brothers Ltd. v. Glamorgan County Council.
  • Similarly, a party cannot enforce a promise made to him in return for his performance of, or promise to perform an already existing contractual duty. See Stilk v. Myrick.
  • However, if the party acts or promises to act in excess of the said already existing contractual duty, this is sufficient consideration. Hartley v. Ponsonby.
  • Performance of an already existing contractual duty is sufficient consideration for a fresh promise by a third party. Scotson v. Pegg; NBN v. Savol [1994] 3 NWLR (Pt. 333) 435.

Illusory promises:

  • Illusory promise is a promise that is unenforceable due to indefiniteness or lack of mutuality, where only one side is bound to perform.

Moral obligation. (Already mentioned above).

Lesser payment/performance in discharge of an obligation/ debt:

  • The general rule is that part payment of a debt or payment of a lesser sum cannot be satisfaction for the whole as same does not amount to good consideration. Pinnel’s Case; Foakes v. Beer; Panabiz Intl. Ltd v. Addidon Nig. Ltd.  (2016) LPELR-41350(CA).
  • It is taken that no consideration was furnished for the balance forgone.
  • It is immaterial that the plaintiff consented to the lesser payment/performance.

Exceptions:

  • If upon the creditor’s request and acceptance, part payment is made before the due date, then the payment is good consideration.
  • Payment of a lesser sum to be made at a different location upon the creditor’s request and acceptance is good consideration.
  • If upon the creditor’s request and acceptance, a different item is provided by the debtor in satisfaction of the whole amount, it is good consideration.
  • Above all, if it will be unjust for the plaintiff to insist on the full sum/performance after consenting to the lesser payment/performance, the plaintiff would be estopped from insisting on his strict legal rights. This is called equitable or promissory estoppel. See Central London Property Trust Ltd. v. High Trees House Ltd (The High Trees case); Combe v. Combe; Also Estoppel by conduct. Section 151, Evidenc Act, 2011. See A.G. Nasarawa State –v- A.G. Plateau [2012] 10 NWLR (Pt.1309) 419.
  • NB: The underlying point is that the introduction of a new element as seen above may be of some more beneficial interest to the creditor. In which case, the debtor is deemed to have furnished consideration.

Requirements for the operation of promissory estoppel: 

  1. There must be in existence two contracting parties who are contractually bound, or who but for the representation could have been contractually bound;
  2. There must be a representation relied upon resulting in something different from what was agreed between the parties. It is not necessary that there should be detriment in the sense of loss or damage suffered by the party relying on the representation or promise;
  3. The representation is not necessarily supported by valuable consideration. It is sufficient merely if it is a promise which has been relied upon.

BPS Construction & Engineering Co. Ltd. v. F.C.DA. [2017] 10 NWLR (Pt. 1572) 1 at 38.

Intention to Enter into Legal Relations

  • This is an intention to enter a legally binding contract.
  • Intention to enter into legal relations is presumed to exist in some cases; whereas, in some other cases, it is not.
  • Where the intention is said to validly exist, the contract is enforceable. Where it does not, the contract is unenforceable.

Domestic/Family and Social Arrangements:

  • Generally, it is presumed that family/domestic and social engagements (and other interrelated cases) do not create legally binding contracts. Balfour v. Balfour.
  • Examples – agreements between spouses; parents and children; friends, etc.

Exception:

  • The presumption that family/domestic and social engagements do not create legally binding contracts can be rebutted in certain instances.
  • Examples – agreement between spouses no longer living in amity (McGregor v. McGregor; Merritt v. Merritt ); social or domestic agreement involving great sacrifices (Parker v. Clark ).

Commercial Agreements:

  • Commercial contracts are generally binding in majority of the cases.

Exception:

  • Where the agreement or ‘contract’ expressly excludes any intention to create legal relations. E.g. “honour” clauses in football pool coupons. See Amadi v. Pool House Group and Nigerian Pools Co.
  • Where the promise is a mere puff, not to be taken seriously. E.g. some reasonably unbelievable and fallacious promises by companies during advertising.

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