Introduction
Contracts are an important part of personal and commercial relationships. Whether the agreement concerns the sale of goods, the provision of services, employment, business transactions or other legal obligations, not every discussion or promise automatically creates an enforceable contract.
Under Nigerian law, a valid and enforceable contract generally requires certain essential elements. The courts have consistently identified the principal requirements as offer, acceptance, consideration, intention to create legal relations and capacity to contract. In addition, the parties must reach agreement on the essential terms of their transaction.
The Supreme Court reaffirmed these principles in BPS Construction & Engineering Company Limited v. Federal Capital Development Authority (2017) 10 NWLR (Pt. 1572) 1, relying on earlier authorities including Bilante International Ltd. v. N.D.I.C. (2011) 15 NWLR (Pt. 1270) 407.
1. Offer
An offer is a clear expression by one person or entity of willingness to enter into an agreement on specified terms. The offer must be sufficiently definite and capable of being accepted.
It is important to distinguish an offer from preliminary negotiations or an invitation to treat. Not every statement made during negotiations amounts to an offer capable of immediate acceptance.
For example, parties may exchange proposals, discuss possible terms or indicate a willingness to negotiate without creating a binding contract. A contract will generally arise only when a definite offer is made and subsequently accepted.
The Supreme Court explained the relationship between offer and acceptance in BPS Construction & Engineering Company Limited v. Federal Capital Development Authority (2017) 10 NWLR (Pt. 1572) 1. The Court referred to the principle that an offer is an expression of readiness to contract on specified terms which, upon proper acceptance, may give rise to a binding contract.
2. Acceptance
Acceptance is the clear and unequivocal agreement by the person receiving the offer to the terms proposed by the offeror.
For a contract to arise, the acceptance must correspond with the offer. Where a person attempts to change important terms of the offer while purportedly accepting it, the response may amount to a counter-offer rather than an acceptance.
Where the offeror prescribes a particular method of acceptance, the proposed acceptance should comply with that method where the circumstances require compliance.
The Nigerian courts have repeatedly emphasised that the parties must be ad idem, meaning that they must be in agreement regarding the essential terms of the proposed transaction.
See Orient Bank (Nigeria) Plc v. Bilante International Ltd. (1997) 8 NWLR (Pt. 515) 37 and Okubule v. Oyagbola (1990) 4 NWLR (Pt. 147) 723.
3. Consideration
Consideration generally refers to something of value exchanged or promised in connection with the agreement. It may involve money, goods, services or another legally recognised benefit or obligation.
In a simple contract, consideration is ordinarily required to support a promise and distinguish an enforceable contractual obligation from a purely gratuitous promise.
The Supreme Court stated in Alfotrin Ltd. v. Attorney-General of the Federation (1996) 9 NWLR (Pt. 475) 634 that, in a simple contract not under seal, the promise must be supported by consideration.
Whether valid consideration exists will depend on the nature and terms of the particular transaction.
4. Intention to Create Legal Relations
The parties must intend that their agreement should create legal obligations.
Not every promise or understanding between people is intended to be legally enforceable. The context and circumstances surrounding an agreement may be relevant in determining whether the parties intended to enter into a legally binding relationship.
In commercial and business transactions, the circumstances will commonly indicate an intention to create legal obligations. However, the particular facts and wording of the agreement remain important.
Intention to create legal relations is one of the recognised essential elements of a valid contract under Nigerian law. See Bilante International Ltd. v. N.D.I.C. (2011) 15 NWLR (Pt. 1270) 407 and BPS Construction & Engineering Company Limited v. Federal Capital Development Authority (2017) 10 NWLR (Pt. 1572) 1.
5. Capacity to Contract
The parties entering into a contract must have the legal capacity to do so.
Questions of capacity may arise where one of the parties is a minor, where mental incapacity affects the person’s ability to enter into the transaction, or where a person purports to enter into an agreement on behalf of another person or organisation without the necessary authority.
Where a company or other corporate body enters into a contract, it acts through human agents, officers or representatives. The relevant person should therefore have the authority required to bind the organisation in relation to the transaction.
Capacity to contract is consistently recognised by Nigerian courts as one of the essential requirements of a valid contract. See Bilante International Ltd. v. N.D.I.C. (2011) 15 NWLR (Pt. 1270) 407.
6. Agreement on the Essential Terms
For an agreement to be enforceable, the parties must reach agreement on the terms that are essential to their particular transaction.
The exact terms regarded as essential may differ depending on the type of contract. For example, in a commercial transaction, the parties may need to agree on matters such as the subject matter of the transaction, the obligations of each party, the price or method of determining the price, and other fundamental conditions.
A court will not ordinarily make a contract for parties by supplying fundamental terms on which they have not reached agreement.
In Alfotrin Ltd. v. Attorney-General of the Federation (1996) 9 NWLR (Pt. 475) 634, the Supreme Court emphasised that there must be a concluded bargain which settles the essential conditions necessary for the transaction and leaves no vital term or condition unsettled.
7. Certainty of Terms
The terms of the agreement should be sufficiently clear and certain for the obligations of the parties to be identified.
A contract may become difficult or impossible to enforce where fundamental terms are so uncertain that the court cannot determine what the parties actually agreed to do.
This requirement is closely connected with the principle of consensus ad idem. The parties must have reached agreement regarding the substance of their bargain.
The importance of agreement on the essential terms of a contract was recognised in B.F.I. Group Corporation v. Bureau of Public Enterprises (2012) 18 NWLR (Pt. 1332) 209 and Alfotrin Ltd. v. Attorney-General of the Federation (supra).
8. Legality of the Transaction
A contract must concern a lawful transaction. An agreement that requires the commission of an unlawful act, or which is prohibited by law or contrary to public policy, may not be enforceable.
Legality is therefore an important consideration when assessing whether a particular agreement can be enforced. The effect of illegality will depend on the applicable legislation and the circumstances of the particular transaction.
9. Does Every Contract Have to Be in Writing?
No. Nigerian law does not generally require every contract to be in writing.
A valid contract may, depending on the nature of the transaction and applicable law, arise orally, in writing or through the conduct of the parties.
However, certain transactions may be subject to statutory requirements relating to writing, execution, registration, consent or other formalities. For example, transactions involving interests in land may require compliance with applicable land laws and other statutory requirements.
Even where a written agreement is not strictly required, putting important contractual terms in writing can help reduce uncertainty and provide evidence of what the parties agreed.
Important Practical Steps Before Signing a Contract
Before signing an important agreement, it is advisable to:
- Read and understand all the terms of the agreement.
- Confirm the identity and authority of the persons signing on behalf of any organisation.
- Ensure that important commercial terms are clearly stated.
- Check whether the transaction requires a particular form, consent, registration or other statutory procedure.
- Avoid signing documents containing blank spaces or terms you do not understand.
- Keep signed copies and relevant correspondence relating to the agreement.
- Seek legal advice before entering into significant or complex transactions.
Conclusion
A valid contract under Nigerian law generally requires more than an informal understanding or exchange of promises. The parties must ordinarily have the capacity to contract, reach agreement through a valid offer and acceptance, provide the necessary consideration, and intend to create legal obligations.
The parties should also be in agreement regarding the essential terms of their transaction, and the transaction itself must be lawful. Depending on the nature of the agreement, additional statutory formalities may also apply.
Because the enforceability of a contract often depends on its specific wording and the surrounding circumstances, it is advisable to obtain legal advice before signing important agreements.
Legal Disclaimer
This article is provided for general informational purposes only and does not constitute legal advice. Contract disputes and questions concerning the validity or enforceability of an agreement depend on the specific terms of the contract, the conduct of the parties, the applicable law and the particular facts of each case. For advice concerning a specific contract or transaction, please consult a qualified legal practitioner.
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