Business law encompasses a variety of laws affecting the rights and obligations of those persons and organisations who engage in business. The elements of business law that are most vital to enterprise transactions are contract law, law relating to Sales of Goods, Hire purchase, Insurance, Negotiable Instruments, Agency, Partnership, law relating to recruitment and employment etc., but this chapter deals mainly with contract law.
This is because the Law of Contract is generally related to all aspects of human business activities, which include Sales of Goods, Agency, Hire Purchase, Insurance, Industrial or Labour Relations, Corporation Law, Partnerships, Carriage of Goods, Banking Law etc.
Principles of Contract Law
A contract has been defined as an agreement enforceable at law between two or more persons whereby rights are acquired by one or more persons to certain acts or forbearances on the part of the other or others. Thus the basic elements in any contract are agreements and intention to create legal relations.
Essential Elements of a Contract
(i) There miust be an offer: An offer is a proposition made by one party called the offer or to another party called the offere definitely and clearly indicating the terms under which the offer or is willin to enter into a contract with the offeror.
An offer must be distinguished fro man invitation to treat. Invitation to treat is the first step in negotiation which may or may not Iead to a definite offer. Invitation to treat is an invitation to people to come forward and make offer. Examples of Invitation to treat include price lists, catalogues, display of priced goods in a shop window, invitation to suppliers to make tenders, notice of auction sales etc.
An offer must be communicated to the offerce so that he has an opportunity to accept or reject it. Termination of offer will arise in the following circumstances.
a. The offeror may revoke his offer at anytime before acceptance.
b. The offeree may reject the offer outrightly orby making counter offer. A counteroffer occurs when the offercc allempts to accept the offer in a new term not contained in the original offer.
c. The death of the offeror and the offeror also terminates the offer.
(ii) There must be an unconditional Acceptance of the offer: – Acceptance is the unconditional assent to all the terms of the offer. Acceptance may be by express words or by action or implied from the conduct of the parties. The general rule is that acceptance is not valid until it has been brought to the notice of the offeror.
(iii) There must be an intention to create ‘legal Relations:- An agreement is not a binding contract unless the parties intend thereby to create legal relations. Where the parties have not expressly denied such intention what matters is not what the parties have in minds, but the inferences that reasonable people would draw from their words or conduct.
The conduct of the parties, viewed objectively, may negate an intention to be legally bound by the agreement, thereby precluding, one party from suing the other for its breach. Generally, the law presumed that there is always an intention to enter into legal relations if it is a commercial agreement while for family, domestic and social arrangements, they are always presumed not to be legally binding except the agreement stated otherwise.
(iv) Each party to the contract must give valuable consideration unless the contract is under seal:- The law of contract is not concerned only with promise, thus what distinguishes a mere promises from a legally binding contract is the existence of consideration, In Currie V. Misa (1875), consideration was defined as “some right, interest, profit or benefit accruing to one party or some forbearance, detriment loss or responsibility given, suffered or undertaken by the other”. In a laymans’ tcrm therefore, consideration is the price which the promise pays for the promises of the promisor. Cheshire and Fifoot (1890) suggest that consideration is a concept more casily understood and made commercially more relevant by reference to the language of purchase and sale. “The plaintiff must show that he has bought the defendants promise cither by doing some act in return for it or by offering a counter promise”.
Contract Under Scal (also known as “deeds” or”specially” or “formal” contracts) arc concluded in writing, signed by the parties, scaled and delivered. Unlike simple contracts, the presence of consideration is not necessary for validity, although it is supplied in most cases. Some contracts are not valid unless concluded by deed e.g conveyance of land.
(v) The parties must have capacity to contract:- Generally, any person has legal capacity to enter into a binding contract. But a minor, a person who is insane or drunk and a corporation has only restricted capacity and contracts made by such persons may be void, voidable or binding
Minor
A person is a minor until the age of twenty one (21) and as a general rule, such person cannot enter into a binding contract, but there are two exceptions to this general rule.
(a) Some contracts are binding on minor i.e. legally enforcecable
(b) Some contract made by minors are voidable i.e binding unless and until the minor repudiates the contracts
Binding contract of a minor: A minor can enter into valid and completely binding contracts in two situation only.
(1) Contracts for Necessaries
(2) Beneficial contracts of service
Contract for necessaries:- Necessaries are defined (in the sale of Goods Act, 1893) as goods suitable to the condition in life of the minor and to his actual requirement at the time of sale and delivery. Suitability is measured by the living standards of the minor while goods required by the minor for personal use could be necessary but goods required for use in a trade are not necessary nor are goods of any kind of which the minor is already well supplied with.
Beneficial contracts of service: Another binding contract on a minor
in a contract of apprenticeship or service of it is beneficial to the minor taking the contract as a whole. The contract must related to Education or training or some occupation or vocation e.g. training as a dancer or as a fashion designer. b
Voidable contract of a minor:- A minor may enter into a contract by which he acquires an interest. of a continuing nature and accepts obligation incidental to it. As an example, he may take a lease or become a shareholder of a company or a member of a partnership. Such contracts are voidable by the minor during the period of his minority and within a reasonable time after attaining his majority until he avoids the contract, it is binding. If he avoids it, he is delivered of any future obligations.
Void Contract of a minor: Any contract of a minor:
(a) To repay borrowed money or
(b) To pay for goods other than necessaries or
(c) On an account stated that is,on an admission that money is owed (I.O.U) is void.
At Common law, a minor also cannot be liable on a negotiable instrument. If, therefore a minor issues a cheque to pay for necessaries, he has no liability as drawer of the cheque, though he is still liable to pay for necessaries (which is a separate contract).
(vi) There must be genuine consent to the terms by all parties to the contract, that is, the contract must not be induced by mistake, misrepresentation, duress or undue influence:
Mistake
In general, the mere fact that one or both parties have made a mistake will not affect the validity of the contract, even though equity may step in to remedy the injustices. In other words, a mistake as to law has no effect on the validity of a contract, the only mistake which may render a contract void is a mistake of FACT. There are three types of mistake.
(a) Common mistake
(b) Mutual mistake
(c) Unilateral mistake.
(a) Common mistake: Both parties make the same mistake about some fundamental underlying fact, i.e., both parties are making mistake about the subject matter, e.g., where the subject matter of the agreement is no longer in existence.
(b) Mutual mistake: Unlike the case of common mistake, it can be said that offer and acceptance do not concide and therefore there can be no question of consent. The parties each made different mistake about different subject matter. For example, a believe the subject matter of the contract is a salon car while believes the subject matter of the agreement is a bus.
(c) Unilateral mistake: Here only one of the parties is mistaking and the other knows or is presumed to know of the others mistake. In any case where one party makes a fundamental mistake of which the other party is aware the contract is void. Here one party is attempting to bind the other to terms to which he did not freely assent because of the mistake. For example, where A tricks B to sign a contractual document which A knows is fundamentally different in nature from the one B intended to sign.
Misrepresentation
A misrepresentation is
(i) A false statement of fact
(ii) Made by one party before or at the time of making the contract.
(iii) Intending to and in facts inducing the other party to enter into the contract.
(iv) But not intended to become a term of the contract
There are three types of misrepresentation.
(a) Fraudulent misrepresentation.
(b) Negligent misrepresentation
(c) Innocent misrepresentation.
(a) Fraudulent misrepresentation:- This is a statement made with knowledge that it is untrue or without believing it to be true or recklessly careless whether it be true or false.
(b) Negligent Misrepresentation :- This is a statement made in the belief that it is true but without reasonable grounds for that belief
(c) Innocent misrepresentation: This is a statement made in the belief that it is true and with reasonable grounds for that belief
Duress
This is the use of threat or force or unlawful imprisonment to induce a person to enter into a contract.
Undue Influence: When the parties standing certain relationships, the law assumes that one has undue influence over the other. These relationships include the following (the stronger party is mentioned first).
(a) Parent and minor child(sometimes even if the child is an adult)
(b) Guardian and ward (i.e person in locoparentis)
(c) Solicitor and client.
(d) Trustee and beneficiary under the trust
(c) Religious adviser and disciple.
The person who has been induced to enter into a contract hy duress or undue influence is entitled to avoid it, i.e the contract is voidable at his option because he has not.given his genuine consent to the contract.
(vii) The terms of the contract must be legal and capable of
performance:- An agreement is regarded as illegal if it is expressly or impliedly prohibited by statute or considered as void by common law, on the grounds that its provisions are contrary to public policy and welfare. For example, a contract between an
employer and an employee to avoid payment of income tax by making false claim for nontaxable expenses incurred in the course of employment is illegal and void.
The following contracts are regarded as illegal
1. Contracts to commit criminal offence or a civil offence e.g agreement with tax officials to evade payment of tax.
2. Contracts injurious to good government and the public service agreement to use ones influential position with the government procure benefits for another for a reward
3. Contracts which impede the Administration of justice e.g agreement to conceal or hide information on criminal offences.
4.Contract injurious to Marriage and Family Life. These include agreement which encourage immorality e.g by providing for prostitution and illicit cohabitation.
5. Contract in Restraint of Trade :- These are agreements or clauses in contracts which seek to restrict the freedom of a party to practise his trade, business or profession in future.
(viii) If the law requires the contracts to be in any particular form, this requirement must be complied with. For example, a contract for the sale of land must be evidenced in writing otherwise, it is not enforceable in a court of law.