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The law of contract

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									                              THE LAW OF CONTRACT
A contract is a legally binding agreement between persons. It does not have to be in writing but it
must be the sort of agreement which will give rise to legal duties.

NB. Any contract entered into by signing a piece of paper is binding to the parties even if its contents
were neither read nor understood (except where one can plead "non est factum" i.e. It is not my deed).

Why then, are people under the misapprehension that contracts must be in writing?

1. Most important contracts (such as buying a house, furniture, or perhaps, renting a car) take the
   form of complex printed documents which are intended to cover all eventualities. These
   documents will, therefore, contain a large number of terms most of which will not be easily
   understood by the general public.

2. People are unable to take legal action against someone for breach of contract, because they cannot
   prove that what they are “alleging” is true. Good sense tells the businessman that he should
   commit his contracts into writing and preferably get the other side to sign. Otherwise, he must
   have witnesses to support any verbal dealings.

3. A small number of contracts have to be evidenced in writing or at least there must be a note or a
   memorandum to record what was agreed. Examples include transfer of land or contracts under
                                                                          (Owen, 1994)
Classes of Contracts

 Simple Contracts:- Most contracts are made by word of mouth or informally in writing. These are
  known as simple contracts and they may also be implied from the circumstances. A major problem
  with oral contract lies in proving the terms if the matter comes to trial.

 Contracts under Seal:- Some contracts must be formally made by a deed. This means that they
  must be in writing and signed. These contracts are sometimes known as speciality contracts and, as
  an exception to the normal rule, do not require consideration. The fact that a contract is under seal
  has important consequences in connection with limitation periods.

 Contracts which must be evidenced in writing:- Certain contracts which do not need to be under
  seal must nevertheless either be in writing or evidenced in writing before they can be enforced.
  Examples of these include a contract for the sale or other disposition of land, or the sale of
  building materials recovered from the demolition of a house.

 Standard Form Contracts:- This is the use of the so-called standard forms of contract. Certain
  transactions are governed by the standard terms which are predetermined by the company or
  organisation. It is, therefore, not usual for the customer to negotiate terms of a hire purchase or a
  mortgage. Such contracts have made a mockery of the concept of “freedom of contract” whereby a
  person is free to contract or not at his own wish and selection of the subject matter, terms and
  parties are a matter of choice.

   There are two basic types of standard forms of contract:

   1. Adhesion variety whereby no opportunity exists for negotiations; (take it or leave it).

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   2. Incomplete standard forms whereby the main terms are set out but parties are free to negotiate
      matters such as dates of completion and fees. It is the most appropriate standard form in the
      construction industry since it is geared towards particular situations.
                                                                              (Wood, 1984)

1. An Agreement (Offer & Acceptance) - there must be an "offer" and it has to be "accepted" by the
   one to whom it is being made. Anyone with legal capacity can make an offer, verbally, in writing
   or by implication.
   NB. Displays of goods in a shop window or a "For Sale" board outside a shop is not an offer, but a
   mere invitation to others to make their offers. This is called an invitation to treat.

2. Consideration - All contracts must have consideration given by one party to the other as the price
   of the promise. It may take the form of money, goods, services etc., and must represent the price
   of the promise. If there is no consideration, the offer was a mere gift and there is no contract.

3. Intentions to create legal relations - This element merely suggests that the parties to a contract
   can take each other to court if one party fails to fulfil his part of contract, and, that the Injured
   Party can be compensated for the loss he suffered as a result of failure of the other to do his part.

Terms of Contract

Terms of the agreement can either be "expressed" or "implied". For example, when work is started
what materials to be used, allowances for delays, etc., should all be agreed from the onset. These terms
should be stated. However, some terms may be implied i.e. without the need to say it, the courts will
infer that those terms were understood to exist.

Conditions and Warranties.

A condition is a term of the utmost importance to the contract, since when breached, allows the injured
party to repudiate the contract and claim damages as well. A warranty on the other hand does not
repudiate the contract but allows the injured party to claim damages.

Exclusion Clause - Can a party/person exclude or exempt his liabilities under a contract? i.e. can he
restrict his contractual duties in some way so that he will only be liable for breach of contract in a
limited number of situation? The answer is yes, but subject to certain restrictions imposed at common
law and by Statute.

Statutory Restrictions:
The Sale of Goods Act
The Supply of Goods Act
The Supply of Goods and Services Act

The Unfair Contract Terms Act (UCTA)

" A person cannot, by reference to any contract term..., exclude or restrict his liability for death or
personal injury resulting from negligence".

Contra Proferentum Rule -where there is an ambiguity concerning the exclusion clause, the courts
will construe the clause against the party who inserted it into the contract, e.g. "Cars are parked at
owners risk".
                                                Page 2

Some factors may arise during the execution of the contract thus rendering it void, voidable or still

1. Mistake - In most cases a mistake will have no effect on the contract validity and the parties are
   still bound by the terms of their agreement. However, if the mistake is of such immensity that it
   robs the contract of its effectiveness, it will be void at common law.

2. Capacity - Generally anyone i.e. any legal person can enter into a contract. This is called capacity
   to contract. However, there are certain persons, who because of their age or mental state are
   restricted in the types of contract they may enter into. These will include minors (under age) and
   the old people, and such contracts will be voidable in the case of a minor reaching 18 or void in the
   case of infants and aged people.

3. Misrepresentation - This is a false statement of facts made before the contract is entered into,
   intended not to become part of the contract, but to induce one of the parties to enter into a contract.
   In order for a statement to become a misrepresentation, it must;
    Be a statement of facts not of a personal opinion
    Be untrue;
    Induce the other party to enter that particular contract with the maker or his representor;
    Have been relied upon by the party to whom it was made.

       Types of Misrepresentation

       Fraudulent- the false statement is made "knowingly, or without belief in its truth, or
       recklessly, careless of whether it be true or false". (By Lord Herchell)

       Negligent - the statement is made negligently hoping to induce one party to enter into contract
       with another. This merely says that if precautions were taken, the truth about the nature of the
       person for whom the statement is made could have been revealed.

       Innocent - the statement is made innocently without any element of fraud or negligence. No
       truth could have been discovered even if any reasonable competent person took precautions.

       Misrepresentation in general renders the contract voidable.

4. Illegality - A contract may be illegal at common law and by virtue of statute law. In both cases,
   such contracts are generally void ab initio. Money paid under such contracts will usually be
   irrecoverable except in certain situations. This is because law does not allow someone to benefit
   from a wrong to which he was a party. "Ex turpi causa non oritur actio."- there can be no action
   arising from an evil cause.
5. Duress or Undue Influence - The parties must enter into contract freely, without force or undue
   influence. Duress means threatening someone with death or bodily harm or actually harming
   him/her, whilst undue influence means someone exerts some pressure on another in order to obtain
   some benefit from that person. Either of these factors renders the contract voidable.


A contract does not go on forever, with the parties owing each other duties. There are a number of
                                                 Page 3
ways contracts can end.

1. Performance - most contracts end by the parties performing their part of the bargain. Once there
   has been performance the parties do not have to perform any more duties, although there is
   residual right to sue if it turns out later that there has been a breach of contract during the
   contractual stage.
   The major rule in performance is that it has to be completed. Anything less than what was agreed
   will not suffice.


   Substantial Performance - this amounts to performance as close as a reasonable person would
   expect. Obviously, in building contracts even with variations, the final product cannot be exactly
   as specified down to the last nut & bolt. Whether it is substantial will depend on the circumstances
   of the case.

   Divisible Contracts - when the contract is made up of separate instalments of work to be done at
   different times, such as a maintenance contract, then payment is not conditional on completion of
   the whole contract. This will depend on what was agreed between the parties.

   Quantum Meruit - this is done where one party accepts partial performance by the other, and
   occurred voluntarily, then the other party can claim to be paid on the basis of Quantum Meruit
   i.e. be paid a reasonable amount for the work he has completed. This can also happen where one
   party who is willing to perform his part of the contract is prevented from doing so by the other.

2. Agreement - if neither of the parties have performed their part of the bargain, then they can agree
   by another exchange of promises to end the contract. They will have then made a new contract to
   end the old. This is termed waiver.

3. Frustration - a party cannot avoid his contractual obligations merely because costs have risen or
   circumstances have changed to make the contract difficult to perform. Frustration will only
   terminate the contract where some outside happenings occur which are the fault of neither party
   and which has had such a dramatic and fundamental effect on the performance of the contract, that
   it is either impossible to perform or its performance is substantially different to that originally

4. Breach - if one party fails to perform the contract at all, i.e. he repudiates the contract without
   good reason he commits an anticipatory breach. Alternatively, during performance of the contract,
   if he fails to comply with all his duties he is also in breach of contract.


1. Damages - the actual damages for which the court awards compensation in contract must be
   "either arising naturally, i.e. accordingly to the actual course of things, from such breach of
   contract itself or such as may reasonably be supposed to have been in contemplation of both
   parties at the time they made the contract, as the problem result of the breach of it."

   Liquidated Damages - this is the amount specified during the time of contract, which will be
   paid by the party in breach and it is intended to avoid (not prevent) litigation.

   Unliquidated Damages - these are awarded by the courts to cover the true loss suffered as a result
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    of breach of contract.

2. Specific Performance - this is awarded at the discretion of the courts if it considers that the legal
   remedies are inadequate. Such decrees require the party in breach to perform his part of the
   contract. Specific performance will not be awarded in contract for personal services, e,g. contract
   of employment as it would be inequitable to force someone to work for another.

3. Injunction - this is a court order instructing the party in breach to perform his contractual duties,
   or if the breach is a continuing one, to cease breaching the contract. Courts may also award
   damages in lieu of or in addition to injunction if they find suit.


It is unfair on a defendant and unreasonable of a plaintiff if he (the plaintiff) fails to take action within
a reasonable time of his right to do so. The Limitation Act 1980 (a consolidating Act) lays down strict
periods after which the plaintiff will be unable to sue in court. In contract, the limitation periods are:

For Simple contracts, Six years after the contract should have been completed.
For Speciality contracts, Twelve years of the same.

If there has been an express defects liability clause inserted into the contract as is usual in building
contracts, then the time is said to run from the end of that period. If a defect is deliberately concealed
by fraud, then the limitation period may be extended to take account of such fraud.

It must be noted that limitation is a defence and if pleaded, an action can still be taken even if it was
statute-barred. It is also possible for time to run afresh, if there has been acknowledgement in writing
by one party to another that some money is still owed or liquidated amount under a contract or if there
has been a payment made in relation thereto.
                                                                                     (Owen 1994)

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