Elements of a contract - MakeMoney.ng

A Contract is an agreement between two or more persons for the general protection, guidance and understanding of activities to be undertaken. A contract offers clarity on the terms and conditions to be followed by the parties.

Contracts are significant to the overall benefit of the parties, things not contained in the contract cannot be claimed in the long run.

Contracts take varying forms from confidentiality agreements to standard clause contracts and shareholder’s agreements. A contract need not be written, it can be oral; nonetheless, the law provides that contracts on certain subjects must be written, for instance, contracting on issues relating to land must be written.

If contracts can be made orally, what then must parties follow to form a legally binding contract? This article specifies the crucial elements that must be contained in every contract.

How a Legal contract is made

1. Offer

The offer is highly crucial to a valid contract. An offer is a foundation for every contract, it introduces a contract into existence and offers a foundation for the interrelation between the parties.

An offer must be expressly made and not vague. The offer is the intent to commence a contract made from one party known as the Offeror to another known as the Offeree. The Offeree is expected to make a response to the offer.

An offer can take varying forms, from an express to an indirect offer. An express offer, as the name implies, is a clear indication to the offeree to accept a contractual offer made by the offeror. Nonetheless, an indirect offer occurs in varying ways and does not necessarily call for an express style.

For instance, in the famous British case of Carlill v. Carbolic Smoke Ball Company, Carbolic smoke ball a cigarette company claimed on a television commercial that their cigarette can cure influenza, the cigarette company further stated if the influenza isn’t cured after the use of their cigars, the company would make a $100,000 award to the victim.

Carlill, an 80-year-old woman contacted influenza and tried the cigars but didn’t get cured, she sued for her $100,000 award, Carbolic smoke ball claimed there was no offer because an offer must be made directly to a person, the advert made was made to the general public, which defeats the nature of offers. The English court rightly held that an offer can be made to the whole world and the offeror would be liable to every person that claims the offer as stated in the advert.

2. Acceptance

Just as the Offer, acceptance is another vital element of a contract, whether orally or written. When written an acceptance is made through the execution of the document brought by the offeror. The acceptance must be clear and precise, unlike the offer an acceptance can never be indirect, all acceptance must have a direct and clear style.

For the benefit of the doubt, an acceptance can be made on the condition of a requirement. For instance, a contractor accepts an engineer if the latter can complete the work within a certain timeframe.

Nonetheless, an invitation to treat is often mistaken as an offer in practice and certain persons might mistakenly grant an acceptance to such. An invitation to treat occurs when negotiations are still in place, technically it resembles an offer but isn’t.

For instance, when one goes to a shopping mall, the prices are contained on the shelf, one takes a cereal and moves to the counter to pay, and the cashier corrects the price of the cereal. The purchaser cannot sue because technically there was no offer.

An invitation to treat was well explained in the Nigerian case of Architects v. AG Kaduna, the Kaduna state government with the intention to develop a structure called on architects to bid, the plaintiff bidded and won the bid, and the parties were in discussion as to the execution of the project, subsequently, the plaintiff drew the plan to the structures and sent them over to Kaduna state, the government of Kaduna rejected the samples and called off the contract. The court held, that as at the time the samples were made the parties were still in discussion, the Kaduna state government had at no time made an offer to the plaintiff.

3. Consideration

The consideration is the value that comes from the offeror to the offeree for the observance of the duties in the contract. The consideration need not be commensurate with the activities to be undertaken.

Considerations can also come in varying forms, they need not be in cash, they can come with services or other assets other than cash. The consideration must be present, a contract done for free isn’t a contract in the strict legal sense. Considerations must be valuable, an item that would not prove value cannot be accepted as consideration.

4. Capacity to contract

The parties must have the capacity to contract. The capacity of a party speaks to the age, mental, physical and all other abilities to understand the agreement into which they enter.

The lack of capacity is sufficient to vitiate a contract. The test to capacity is that the parties must be aware of the terms at the time of contracting. Corporations must also have the capacity to contract, generally, to identify the capacity of a company, the company’s articles must provide that the company can undertake activities as stated in the agreement.

5. Intention to enter into a Legal relationship

This is perhaps the most vital element confused by the general public. The intention to enter into a legal relationship is occasioned by the theory of social contract. A social contract is one where the parties do not intend the terms to be effected legally but is a mere promise to undertake responsibility. The distinction between a proper contract and a social one is largely on the circumstances.

For instance, when a husband promises to purchase a car for the wife in exchange for the wife taking care of the children, such would seem to be a social contract.

On the other hand, when a husband promises to get his wife a car in exchange for her quitting her job, such would be a legally binding contract. The difference in the examples above is that the intention of the wife in the latter would be to get the car otherwise she would not quit her paying job.

Conclusion

The elements of a contract are vital to the overall performance of the contract. A contract lacking one or more elements would be vitiated and set aside.