N.B. This article is particular to Nigeria.

Capacity to Contract

Capacity to contract, simply put and given a stringent elucidation, is the competence or ability that a person has to enter into a contract. It looks beyond the purpose of the contact.

Capacity to contract is the legal competence or legal ability of a person to validly enter into a contract under the existing legal framework.

The rationale for disqualifying certain categories of person from validly entering into a contract flows for the essential principle of contract which requires that the parties to a contract must have consensus ad idem.

Certain categories of persons are deserving of protection in contractual transactions.

This is especially because these category of persons can be easily exploited or taken advantage of at the course of negotiating contract. Although the general rule is that parties have freedom of contract, the lack of competence based on the person’s states as imposed by the law is an exception to this general rule.

Read also: Consideration in contract

Flowing from the above, a contract can be declared invalid not because of the purpose of the contact in itself but because of the status of the persons entering into the contract.

Categories of Persons that lacks the Requisite legal capacity:

• Illiterates
• Infants or Minors
• Lunatics
• Drunkards
• Unincorporated entities

In some jurisdiction, the capacity of some other persons may also be denied justly or unjustly by the state. e.g. The 2011 Hammon-Beason Act in the state of Alabama which restricts immigrants from entering into certain categories of contract.

ILLITERATES

The issue of capacity will arise only where the contract is in a written form. This solely because illiteracy does not necessarily suggest some invalidity or infirmity. The basis for considering the states of an individual arises where their ability to read and comprehend terms as contained in the contractual document need to be ascertained to validate such contract.

For the purpose of the law, illiterate does not mean the dictionary meaning of illiteracy.

Who is an illiterate?

There is no definition for an illiterate person under the extant provision of the law governing contract.

However, the court have at different times tried to give an insight into the concept of illiteracy.

1. A person may be deemed illiterate based on the language used in the contractual document.
In Pz and Co V Gusau and Kantoma (1961) 2NRNLR Pg.1, The court in that widely criticized case adopted a narrow definition of the word illiterate.

But happily in Otitoju v Governor of Ondo State (1994) NWLR part 340 pg 510, the supreme court have held that the determination of illiteracy is based on a person’s knowledge of the language that was used in the course of negotiation of the contractual document. See also, Ntiachagwo v Amodu (1959) WRNLR pg 1

In summary, illiteracy is relative depending on the language of the transaction in question. Osefor v Uwania (1971) 1 ALR pg. 421

2. The test of illiteracy is determined by functionality and is never to be assumed.
In Scoa Zarta v Okon (1960) NRNLR Pg 34, the court held that the fact that a person could sign a document does not suffice to assume that he could read and childe stand the content of the document signed see Also Lawal V Gb Olivant (1970) 2ALR pg. 208.

3 The burden is on the party that is objecting to the enforceability of a contact to prove illiteracy. Otitoju v Governor of Ondo State.

In Anaeze v Ayanso (1993) 5 NWLR Pt 291, the respondents claim of illiteracy failed woefully as he was unable to prove same, rather the appellant was able to establish the Respondent’s literacy by leading evidence to show that he respondent had a letter headed paper and that he has previously signed so many other similar document.

For the purpose of determining literacy or illiteracy, the content of the contractual document must have been properly and fully explained to the person in question. In Salami v Savanna Bank (1990) 2 NWLR Pt 130, the court upheld the claim of illiteracy by the appellant as it was shown that the condition of the guarantee which he gave was not fully explained to him.

Legal Provisions for the Protection of Illiterates:

1. Illiterate protection laws
2. Land instrument Registration Laws
The illiterate protection laws requires the fulfillment of certain conditions in transactions involving illiterate

1 The law requires the writer of the document in question to include his name and address. This requirement will suggest the following:
i. That he was to write the document
ii. That the document contained and represent the instructions given to the writer
iii. That the document was read over and explained before it was either signed or thumb printed by the illiterate person.

2. Under the land Instrument Registration Law. Section B requires that any document that is to be signed or thumb printed by an illiterate person must be executed before the magistrate or the justice of peace. Failure to do this will make it impossible to register such document or to admit such document in evidence for the purpose of establishing title to land.

The definition of the writer of a document have been the subject of controversies. In UAC V Edems & Ajayi (1958)NRLW pg 33. The decision reached in this case emphasizes that the requirement and provisions of the law are sacrosanct and meant to be obeyed.

In Igbadume v Bentworth Finance Ltd, the court held that the requirement of the law is an integral part of the document preparation process and as such, it cannot be satisfied subsequently.

There are two views.

The first view is that which emphasizes purpose. The contrary view is that the law requiring the writer to put his name and address must be seen to have been complied with even before the illiterate person signs the document. Doing otherwise may aid fraud. The exception to the requirement in the illiterate protection law as in respect of document prepared on behalf of the client by a legal practitioner.

Illiterate protection laws are meant to be used as a shield for the protection of the illiterate and not as a sword and as such, the court will carefully consider the fact and circumstances of each case before allowing an illiterate person to rely in compliance with the law as an excuse to evade his contractual obligation.

Read also: Promissory estoppel in contract

In Lawal v UBA, the supreme court favoured the strict and rigid interpretation of the provision of the law. Again, in another decision, the supreme court in the case of Anaeze v Ayanso held that technical non compliance will not avail an illiterate person to escapes liability unless he can establish that he lacks understanding of the content of the document signed by him.

The Rationale for the decision in Lawal’s case can be assumed to be based solely on the requirement for registration, whereas in the latter case, registration was not the issue before the court.

Note that where there have been non compliance by the writer of the document, such a person cannot see to enforce the document against an illiterate person see Agbara v Amara (1995) 2NWLR Pt 40 Pg 712.
Strict compliance is therefore obligatory on the writer.

The only exception to this may be when he have been able to successfully establish that the content of such document was sufficiently explained and understood by the illiterate person.

As regards third party, an executed document can be used by a third party against an illiterate person if he can establish that the document is the true intent of the illiterate person and that the illiterate person derives some benefits from such document. See Anaeze v Ayanso

Lastly, an illiterate person will ordinarily be allowed to enforce a document which does not comply with the provisions of the law. The rationale for this as stated in Edokpolor v Edokpolor (1994)7 NWLR pt 358 pg 311 is that the illiterate person has no fault attributable to him in the series of event that brought about the non compliance.

INFANTS

The age of minority varies in Nigeria depending on the specific purpose in question. For contractual purposes, 21 years is the age of maturity and as such, persons below the age of 21 are considered infants for the purpose of entering into contractual transactions.

The general rule under the common law is that contracts made by an infant are not binding on the infants but will however be binding on the other party in certain circumstance.

The common law position was modified in 1874 by the provision of the Infant Reliefs Act. The following are the position of the law under the 1874 Act:

1. Just as it is under the common law, the 1874 Act also recognizes the validity of any contract that is entered into by infant for necessary goods and services

2. Under the 1874 Act, contract for loans, non necessary goods and services and account stated are void.

3. With respect to number 2 above, such a void contract cannot be ratified upon attainment of the age of majority.
Under the common law, the fact that the contract can be ratified upon attainment of the age of majority by an infant cannot be denied and as such an infant under the common law principles can ratify a contract even where such a contract has been deemed voidable.

Concerning ratification of such contract, such ratification to be valid must be done within a reasonable time upon attainment of age of majority.

Under the common law and 1874 Act an infant who does not repudiate a contract during infancy or within a reasonable time thereafter will be bound by such a contract.

What are necessary Goods?

Section 2 of the sales of goods Act 1878 provide that:
“Necessary goods are goods that are suitable to the condition of life and the actual agreement of an infant or any other person at the time of sale and delivery of such goods”
Such a goods must be necessary

Section 2 further provides that an infant, minor, drunken person or a person with mental incapability to pay a reasonable price for necessary goods sold and delivered to him.

In Chapple v Cooper (1944) 13 M&W Pg 253, necessary goods was defined as things without which an individual cannot reasonably exist and which are essential to the existence reasonable advantage and comfort of the infant.
The position of life of a person may be considered in determining what is necessary and what is luxury.
5 Under the provisions of the 1878 sales of goods Act, an infant is expected to pay not necessarily the contractual prices but a reasonable price.

In the case of contract for necessary services, the time of delivery may not be easily ascertainable. In such contract, the requirement for delivery may be modified depending on the circumstances of each case. Necessaries for an infant wife and children are deemed to be necessaries for the infant. The question that arises is “what happens where such wife is not an infant?”

From the foregoing, it appears that an infant may as well go ahead to deliberately purchase non necessary items with the intention of avoiding liabilities.

Where an infant misrepresents his age, the plea of infancy will still be open to the dishonest infant especially since it appears as though the burden of ascertaining the age of the person is on the seller or the other party.

In cases of fraud, the principles of equity particularly restitution will demand that the infant is not allowed to use the protection afforded by the law as an instrument of fraud. As such, equity will demand that whatever goods or sum that had been paid or given to the infant be returned to the seller.

Note however, that restitution here should not result in seeking to enforce the void contract. In Leshe v Shell (1914) Lord Sumna was of the firm view that restitution ends where repayment begins. Some authors have argued that repayment may be allowed to the extent that what is being paid back is exactly what was collected and nothing more, i.e. the exact monies that were received should be what is being given back. If this is not the case, it will no longer amount to restitution.

LUNATICS

Contract for necessaries entered into by lunatics will be valid by virtue of the provision of section 2 of the sale of goods Act. The definition of a lunatic or a person of an unsound mind is not so controversial and as such once there is a medical report evidencing mental imbalance or unsoundness of mind or any mental condition by whatever name called, such a person will qualify as lacking legal capacity to enter into contract.

In addition, evidence of unstable behaviour may also be admissible where this has been exhibited notoriously over a period of time.

For a contract to be enforceable against a lunatic, the following must be established.
1. There must have been some forms of consent, though not necessarily express consent, on the part of the lunatic
2. There must be evidence that the contract was not forced on the lunatic
3. The other party to the contract must not have presented himself as a benefactor or as someone rendering assistance to be the lunatic.
4. For the contract to be enforceable, the lunatic must not have entered into the contract during his lead interval.

A contract that is entered into by a lunatic would be voidable at the instance or at his option. To render such contract voidable, he must show:
1. That he had no understanding of what he was doing
2. That the other party was aware of his mental incapacity

DRUNKARDS

Section 2 of the sales of goods Act also applies to drunkards and as such contract for necessaries would be valid and enforceable against the drunkards. The contract will be voidable at the option of a drunk person where he can establish that the other person was aware of his state of intoxication.

See Core v Gibson (1853) 13 M & W P. 623
Ordinarily, unincorporated associations should not have the legal capacity to enter into contractual transactions in their unincorporated names.

Under the relevant provisions of the company and allied Matters Act (CAMA), incorporations of a company is what clothes an organization with the requisite legal personality to contract in its name, to sue in its name, and to be sued in its names.

Unincorporated Organization

An organization that is registered as a business name under CAMA cannot sue and cannot be sued in such name. The owners of such organization would be the proper parties to sue or the proper parties that can be sued. This suggests that any contract that is to be entered into by such an organization should rightly be entered into the owners of such association. The same will also apply to organizations that re not registered at all under CAMA.

Contributed by: Adedokun Samuel

N.B. This article is particular to Nigeria.

Exception Clause in Contract

An exception or exclusion clause is a contractual stipulation purporting to exclude the liabilities of one of the parties in the contract. In exception clause, one party to a contract seeks to keep his right but reduces his obligation.

Where a standard form of contract is involved, it is not unusual for the parties who draw it up to take advantage of the dominant position by including exception clauses. It is essentially a picture of standard contract.

The court do not like exception clauses. This is because they go against the whole basis of what contract should be, i.e. an assumption of rights and duties on both sides. However, if a document is to be regarded as an integral part of a contract, it must first be seen if it is signed or has not been signed.

Read also: Contract in law

If it is unsigned, the question will be whether reasonable notice of the term have been given. In the case of Parker v South Eastern Railway Co, the court decided that the plaintiff had notice of exception clause written at the back of the receipt such that the company could rely in it in their defence.

For an exception clause if it is unsigned, to be taken as binding, the notice must be given before the contract is formed, i.e. pre contractually. A belated notice may be useless.

In Olley v Marlbough (1949) P 532. The plaintiff, a woman had booked into the defendant hotel with him husband and paid in advance to stay for a week. They had never been to the hotel before. They went to their room upstairs. On the wall, there was the notice. “The proprietors will not hold themselves responsible for articles lost or stolen unless handed to the manageress for safe custody.”

The couple went out for a while leaving the key to their room at the reception section. Somebody took the key and stole several items of the plaintiff. The plaintiff sued and the hotel management attempted to rely on the exception clause as excepting them from liabilities.

It was held that the contract has been formed at the desk before they went to the room and since the notice came through, thus, it cannot be regarded as effective notice.

In Thomton v Shoe Lane Parking (1971) 2 Qb P163. The plaintiff parked his car in an automatic car park. On his way out, a ticket emerged from a machine where terms excluding the defendant from liability was written.
It was held that the notice was not brought to the notice of the plaintiff before the contract was formed.

Ojeniyi v Zand and Co (1972) 2 UILR pg 34 from the fact illustration in the above cases it is clear that before a notice can be held to create an exception clause, the notice must be effective and must be given pre contractually.

However, if the parties have dealt with each other before, the notice may be given by these previous course of dealings.

Notice by Signature

If somebody signs a document containing an exception clause without reading it, he is bound by it in the absence of misrepresentation, fraud and duress.

This is exemplified by the case of L’estrange v Graucob (1934)2 Kb p. 394. The plaintiff ran a café. She bought a cigarette machine where she signs a sales agreement which included a number of clauses in regrettably small prints but quite legible. She did not read the document neither was it read over to her.

The defendant did not draw her attention to the exemption clause. In fact, she had no real idea about what she signed. When the machine broke down, she complained to the defendant but they hide behind the exemption clause.

Read also: Variation of Contractual Rights

It was held by the court that when a document containing contracted term is signed in the absence of fraud and misrepresentation, the party signing it is bound and it is immaterial whether he has read the document or not.

When misrepresentation or fraud is alleged, it will constitute an exception to it.

Exception Clause and the Doctrine of Fundamental Obligation

Fundamental breach of contract have been defined as an event resulting from the failure by one party to perform a primary obligation which has the effect of depriving the other party of substantially the whole benefits expected from the contract.

It is the general belief that a party guilty of the fundamental breach of contract cannot rely on exception clause to avoid liability.

In Boshallis case (Adel Bashalli v Allied commercial exporters limited), where a contract for the supply of clothes was entered into between the plaintiff (buyer) and the defendant (supplier). The sample was found very much inferior in quality to the sample which form the basis of the agreement. The supplier relied on an exception clause to avoid liabilities.

The court held that the clause do not avoid the defendant any protection. It forth held that the clause can only avail the party if he is carrying out the contract in his essential respect.

In the Nigerian case of Shotayo and Arekegbe v Nigeria technical company (1970) 2ALR P 129. The plaintiff bought a second hand lorry from the defendant under a hire purchase agreement which contained a clause excluding all warranties and conditions as to fitness or road worthiness. The lorry turned out to be unfit, the plaintiff spending most of his time for repair works. The defendant relied in the exception clause.

It was held that the defendant had committed a fundamental breach and could not therefore rely on the exception clause.
However, before 1966, it has been thought that the doctrine of fundamental breach and its effect in relation to exception clause constituted a rule of law that nobody was allowed to rely on it.

This seemingly settled position of law was shaken in Suisse Atlantique’s case (1967) 1 AC p 36 when the matter was reexamined and the House of Lords held that there is no rule of law by which an exception clause could be eliminated or rendered ineffective as a result of a breach of contract whether fundamental or not, that since parties are free to include exception clause in the agreement, it is a matter of construction of the whole contract including the exception clause.

As a result, the court finally held that although the defendant were breach of the obligation, the exception clause was clear and unambiguous and protected the defendant from liability.

Although, Suisse Atlantique’s case is regarded as deciding that there is no law which established that a fundamental breach of term destroys exception clause. The ghost of the rule of law reappeared in Harbutts Plasticine’s case (1970)1 KB 447. The plaintiff own a factory and contracted with the defendant to design and install equipment in the factory for storing and dispensing a heavy wax.

The contract incorporated printed conditions including clause number 15 which provided that until take over, the defendant will not indemnify the plaintiff against direct damage to their property caused by their negligence but not excluding the contract price.

The defendant used unsuitable material for the purpose. In an attempt to test if the defendant switched on the heating plant and lift it unattended to overnight. The factory was totally destroyed.

The court held that there have been a fundamental breach of contract which denies the defendant from relying on the exception clause.

The uncertainty and contradiction between the decisions in Sussie Attlantique and Hebutt Plastiscine’s case was finally settled in the case of Photo productions Limited v Securico Transport (1980) All Er p 556.

The plaintiff owned a factory and entered into a contract with the defendant (A security company to provide security services to the factory). While carrying out a night patrol, an employee of the defendant company deliberately started a fire which got out of control and destroyed the whole factory.

The plaintiff sued and the defendant pleaded an exception clause which had the effect that the defendant shall not be responsible for any injurious act or default of the defendant employee unless the default would have been foreseen.

The House of Lords overruling Harbutt Plastiscine case held that there is no rule of law by which an exception clause can be rendered ineffective as a result of a breach of contract whether fundamental or not.

The court further held that parties are free to agree to whatever exclusion or exception clause they want on their obligation, and any breach is a matter of construction of the whole contract.

The rule of construction in accordance with the House of Lord decision in photo production case is the method being employed to interpret exception clauses in England.

However, the negative effect or result which may arise from this interpretation has been taken care of by the unfair contract Terms Act 1977 which is not applicable in Nigeria.

The initial attitude of the Nigerian court to the exception clause is that of employing the Rule of law approach, i.e. no exception clause will apply where a fundamental breach of contract was alleged. In line with the decisions in Karsals V Wallis, Shotayo Arekegbe’s case and Harbutt Plastiscine case. This apparently ignores the new development in England where the rule of construction is employed.

Unfortunately in 1989, the Nigerian Supreme court stated to employ the rule of construction. In Akinsanya v UBA in heavy reliance on the authority in the English case of photo productions Limited. This is an alter disregard to the socio cultural environment and state of development in Nigeria.

Read also: Consideration in contract

It is the view of text writers that the supreme court need not follow the decision of the English court slavishly but instead he should adopt the rule of law interpretation which is move in time with our level of development in Nigeria and more so when there is no general legislation to protect the consumers from oppressing exception clauses.

Contributed to: Adedokun Samuel

N.B. This article is particular to Nigeria.

TERMS OF CONTRACT

After the preliminaries of Negotiations, which culminated into offer and acceptance with the requisite intention to create legal relations, the next important thing is the main body of the contract. The terms are items that are well articulated and agreed upon by the parties.

Whether a contract is orally or partly in writing, it must contain terms which will determine the full extent of the parties liabilities or obligations.

Not all the statement made by the parties in the course of negotiation will be binding as the terms of contract. It is only those intended statements by the parties at the time of the agreement which form part of the contract and it is called contractual terms. But a distinction has to be made between a term of contract and a more representation.

A statement is a term of the contract if it creates a legal obligation while a mere representation is a statement made in the course of negotiation which is intended to induce the other party into the contract but which is not part of the contract.

Read also: Variation of Contractual Rights

Whether a statement is taken or regarded as a term of the contract or mere representation is a matter of construction but the importance of the distinction between the two lies on the fact that the cause of action in the court will have to be determined by reference to the classification.

Whether statement is a term or mere representation, it is determined by some criteria:

1. The first criterion is the stage in the negotiation (The point in time the statement was made).
Usually, the time gap between the period a statement is made and the actual formation is taken into account.
If there is a long gap, it may imply that it is a statement of mere representation and not intended as a term of contract. Thus in Routledge v MCkay (1954) All Indian Law Report P 255 where the time gap was one week, it was held that the statement was mere representation. In this case, the interval between the negotiation and the contract was well marked.

2. The second criterion is the importance of the statement of the parties. If the statement is made with some force, obviously it will be regarded as being of sufficient importance to be regarded as the term of the contract.

Thus, in Bamerman v White (1861) 142 AIER pg. 685, a prospective buyer of hops asked the seller whether sulphur has been used in their cultivation adding that if it was so, he will not even bother to ask for the price, the seller assumed that the hops have not been treated with sulphur. It was held that it was a term of the contract.

A statement which is not strong may well be regarded as a mere representation.

3. The third criterion is Relative strength. The Relative strength of the two parties. If there is an inequality of bargaining power, the law will very often favour the weaker party. This is especially so where the stronger party is an expert sales man and the weak is inexperience members of the public, it will follow them that the statement of the stronger party tends to be a term of the contract.

Read also: Acceptance in contract

In Shawel v Reade and Esso petroleum limited v Mardon, the statement in each case was made by an expert and relied upon by layman and in both cases, the statement were held to be terms of the contract. If however the statement is made by a person who has less knowledgeable about the subject matter of the contract, it is regarded as a mere representation.

This is illustrated in the case of Oscar Chess Limited v Williams (1957)1 WLR pg 370. The contract concerned a moriss car. The plaintiffs were car dealers, the defendant mother bought it is 1984. The log book showed it to have been registered on 1948. In 1985, the defendant traded it in part exchange with the plaintiff dealers for a new eman car. The car was traded as a 1948 model. The plaintiff allowed 290 euros on it. In fact, the car was a 1939 model upon which they will only have allowed 175 euros. The plaintiff discovered this some 8 months later and sued for the interest of 116 pounds and breach of contract.

It was held that the plaintiff were experts who could have test by confirming the engine number and number four the maker since they are export the representation made by the defendant as to the year of make was not treated as a contractual term.

4. Another grade in determining whether a statement is a fact or mere representation is the verification Test. A statement will not be regarded as a term of the contract of the person making it expects the other to verify the truth of it. The case of Ecay v Godfrey

Effects of Contractual Terms

After ascertaining whether a statement on a contract is a term or a mere representation, it is necessary to consider in more details the various categories of contractual terms since all the terms are not of equal importance.

At present, 4 categories of terms have been identified in the following order of importance:

1. Fundamental Terms
2. Conditions
3. Warranty
4. Irominate or Intermediate Term

Fundamental Term is a term which constitution the mean purpose of the contract. It is of the greatest importance in a contractual obligation, and the failure to comply with it is equivalent to non performance of the contract.

It is something which underlines the whole contract so that if it is not complied with the performance becomes, it something totally different from that which the contract contemplates. It is the breach that goes to the root of the entire contact. For instance, a contract to buy groundnut from a seller and the seller supplies beans, it is a fundamental breach and amounts to non performance of the contract.

A breach of fundamental term gives the innocent party option to sue even if there is an exception clause.
A locus classicus case to illustrate this is the case of Karsals Ltd v Wallis (1956) 2 ALLER pg. 866. Wallis entered into a contract of hire purchase of a motor car which he has inspected and found to be in excellent condition. The contract contained a clause:
“No condition or warranty is given whether the vehicle is road worthy or fit as to its age condition or fitness for any purpose is given by the owner or implied.’’

The car was shortly afterwards delivered at night. The next morning, when Wallis came to inspect it, he found it to be in a deplorable condition. Many of the original parts have been removed and the car will not move. It was held by the court that the car delivered was not the thing contracted for. There was a fundamental breach of contract irrespective of the exception clause.

Conditions and Warranties

A condition may be defined as a statement of fact which forms an essential term of a contract. If the statement or the promise is unfulfilled, the innocent party may plead the breach or repudiate the contract which discharges him from further obligations.

Condition inherent is relevant to our study. It qualifies the obligation in the contract and it is not external to it. In this sense, a condition is an important part of the contract, the breach of which entitle the injured party to treat himself as discharged from future obligation under the contract or to sue for damages immediately. If he does not exercise the right to elect, he will remain bound by the contract.

On the other hand, warranty means an agreement which is collateral to the other purpose of a contract. The breach of which gives right to a claim for damages but not to a right to reject the contract and treat it as repudiated. The destruction between condition and warranty is more blurred but useful guides can be found on the definition provided by sales of goods Act 1893.

Implies Terms

Contracts are concluded within the context and framework established practices. This means it necessary not to take all terms in a contract expressly. Thus implied terms are not mentioned by the parties to a contract.

Read also: Consideration in Contract

Nevertheless, terms can be implied by the court, statute, and by the custom in order to promote commerce and business efficacy.

1. Terms implied by court:
   Court are not always anxious to temper with contract made by the parties but they imply a term where it is really necessary in order to give the contract a business efficacy, i.e. to make it work. This is based on the idea that the parties must have intended the term to be in the contract although they did not expressly make it so. The test to determine the presumed intention of the parties which the court may imply is the officials by stander test which was first propounded in the case known as Morcock’s case
   
   In the case of Okotete v Electricity Corporation of Nigeria (Unreported) PHC
   
2. Terms Implied by Statute:
   The provision of sales of goods Act 1893 which have been locally exacted on some states in Nigeria is a good example of terms implied by statute.
   
3. Terms implied by Custom:
   A contract is made subject to customary term or usages preventing within sphere of the subject matter of the contract even though such term have not been expressly mentioned in the contract. This is based on the assumption that it was intention of the parties to be bound by the custom.
   
   A good example of a term implied by custom in a contract is in the Maine insurance when there is an implied undertaken that the premium will be paid by the broker, i.e. he (the broker) is deemed to provide the insurer that he will be liable for the payment of premium in the event of default on the part of the assured.
   
   It must be noted however that a custom can be excluded from an agreement by express term. Thus, when a custom is expressly excluded, the custom will not operate to override the express provision in the contract.
   In the case of Mainland Nig Ltd v Dizengoll, the court held that no evidence of custom can override the express terms of a contract.
   
   Another thing about importing custom into a written contract is that the custom must be sufficiently well established so as to be known to all those engaged on the trade. If the custom have not been well established, it cannot be applied to a contract on which notice of which have not been given to one of the parties.

Contributed by: Adedokun Samuel

N.B. This article is particular to Nigeria.

Intention to Create Legal Relations

Arguably, this is also one of the elements of contract. The parties must have intended to enter into a legally binding arrangement before such contract can be enforceable, otherwise, the court will lack the jurisdiction to entertain such matter.

Professor Williston argued that animus contrahandi which is another name for intention to create legal relation should not be compulsory as element of contract since there is already the doctrine of consideration.

However, despite the arguments, it is a settled position of law that under the common law and in Nigeria, intention to create legal Relation is prerequisite as an element of contract. In Akin Akingun & Associates v Odu ‘A Investment Co., the court held that “where there is failure of any of the requirement of a valid contract such as intention to create legal relations, then there is failure of contract as it is incomplete”.

Read also: Promissory estoppel in contract

In determining whether there is an intention to enter into legal relation by the parties, the court will do it objectively looking at each circumstances and conducts of the parties.

In RTS Flexible Systems Limited V Molkerei Alois Muller & Co, the court held that both parties had intention to enter into legal relation based on the fact of the case. Both parties had been acting based on the terms of a contract which was impliedly “subject to contract” and has the probability of boding to a formal contract.

Social or Domestic Agreements

Generally, the presumption of law is that social or domestic agreements are not intended to be legally enforceable. They are merely gentleman’s agreement binding in honour only.

Thus, in Balfour v Balfour, an unfulfilled promises by an husband to his wife which was enforced by the wife was dismissed by the court reason because she furnished no consideration for the promise and that there is no intention to create legal relation in a domestic agreement.

Read also: Variation of Contractual Rights

Also, in Jones v Padavatton, a mother promised her daughter a house and fulfilled the promise, she latter sought to recover the possession of the house after both of them fell out. The court held that the agreement was a domestic one and lacked intention to create legal relation, and that mother can also claim the house if she wishes since domestic contract is only binding in honour.

However, the principle can be upturned in a situation where spouses are not living in amity and their relationship had become a hostile one.

Thus in Meritt v Meritt, given the fact of the case, it was shown that the couples are not in amity, the agreement of the transfer of the ownership of house which they extended into was then held as binding by the court.

In determining whether there is an intention to create legal relation in instance of spouses who are not living in amity, the court will carefully consider the language used. In Gould v Gould, a separating husband promised the wife $15 so long as he had it. The court held that the agreement was unenforceable since it was not sufficiently certain.

Commercial Agreements

In commercial transactions, there is presumption that parties intended to create legal relations. This assumption is very heavy to be rebutted by a party objecting to it.

In Esso Petroleum Co. Ltd v Commission of Customs and Excise, the court held that there was an intention to create legal relations by the plaintiff’s unilateral offer of a world cup coin for wherever purchase 4 gallons of petrol.
Instances where the assumption to create legal relations in a commercial contract may be rebutted include.

1. Inserting an express statement to this effect in a written statement. Where a clause is inserted that the agreement will only be binding in honour.
   
   In Amadi V Pool House Group & Nigerian Pools Co. The defendant denied the receipt of the coupon which the plaintiff had won a prize by pointing to the defendant of a clause stating that the agreement is only binding in honour. The court uphold the effectiveness of the clause.
   
   Read also: Contract in law
   
   Another possible rebuttal of the presumption may also be found in the cases of advertisement where the defendants assets that their statements are to be regarded as a mere puff in that they puff up the product in order to make it more attractive, and such words are not to be taken seriously. This is the line of argument that failed in Carbill V Carbalic Smoker Ball Co.

Contributed by: Adedokun Samuel

N.B. This article is particular to Nigeria.

Promissory Estoppel in Contract

This doctrine is to the effect that when a party by his word or conduct makes a promise to another party with the intent to be acted upon by that other party, and in fact, acted upon, the promisor will not be allowed to go back on his word.

It is a defense to an assertion of contractual rights where one party has given a promise not to assert his legal right if a condition is fulfilled by the other party and that other party fulfills that condition, the promisor would not on good law and equity be allowed to go back on his word.

The attempt to rely on the doctrine failed in Jordan v Money. In that case, Jordan promised to forego Mr. Money’s debt. In reliance on the promise, money went on expending a lot on his wedding. The plaintiff reversed his promise after 5 years. Mr. Money raised a defense of promissory Estoppel but failed. Although on a farther appeal promissory estoppel was allowed to be relied upon by the defendant.

Read also: Contract in law

However, in Hughes v Metropolitan Railway Company, the court did not allow the plaintiff to renege his implied promise to forego a 2 month of Negotiation with the defendant for the sale of his (the plaintiff) house out of the 6 month ultimatum given by him for the defendant to repair the house.

The doctrine was made popular in High Trees Case. After the war broke out in 1939 and the landlord found most part of his apartment desolate, he reduced the ground rent of the house from $2,500 to $1,250, although he did not specify for how long the reduction will last. The war ended at early 1945 and the whole apartment was occupied again. The landlord then brought an action to claim for the arrears of the amount he reduced during the war time.

The court held that promising Estoppel would not avail the landlord to go back on their promise to waive half of the grand rent during the war times but can however claim the full amount from when the war ended to when the action is being instituted as the condition that brought about the promise is over.

The principle was applied in the Nigerian case of Tika Tore Press v Abina, the defendant bought some books which have stayed for some time in the store of the plaintiff for some time without being sold with the agreement that payment will be made when the defendant are able to sell the books. They were also unable to sell the books for a long time and indeed the books have began to go bad. The parties then agree that the defendant should pay approximately half of the initial agreed price. The defendant paid and the plaintiff subsequently sought to recover the forgone balance.

The Supreme Court held that the plaintiff were bound by their promise and would not be allowed to go back on it.

However, it should be mentioned that promissory Estoppel can only be used as a shield and not as a sword in the sense that it can only be used to raise a defense and not be used to raise a cause of Action.

This does not mean that a person seeking to rely on promissory Estoppel cannot himself be the plaintiff by initiating an action. However, in such a case, he may only use the plea of promissory Estoppel in support of a cause of action.

Thus, in Combe v Combe, a divorced wife whose divorced husband failed to fulfill the promise of giving her $100 per year failed in her action in court because she based her case on promissory Estoppel. She attempted to use promissory Estoppel as a sword rather than a shield.

Read also: Variation of contractual right

However, the assertion that promissory Estoppel cannot found a cause of action has seemingly come under criticism.
In Bard Textile Holdings V Mank & Spencer The court allowed promissory Estoppel to institute a course of action but dismissed the appeal of the appellant based on the fact that there was no intention to create legal relation.

In the application of the doctrine of promissory Estoppel, the following are condition precedent.

1. PRE-EXISTING CONTRACT OR LEGAL OBLIGATION
   
   There must have been an existing legal relationship between the parties pre dating the promise. The relationship is not limited to contractual obligation.
   
   Thus, in re Wyvern, the court imposed a legal relationship by the virtue of Bankruptcy, legislation. Also, in Durham fancy goods v Michael Jackson fancy goods, a legal relationship imposed by the Companies Act of 1948 (UK) was considered sufficient and a promise not to rely upon rights arising out of that relationship was enforced.
   
   However, in Evenden V Guildfond City AFC, there was no pre-existing legal relationship but it was held that promissory estoppel still applied. The plaintiff’s employment was transferred from the supporters club to the football club. He became redundant after some time and he claimed for redundancy fee of both the years he spent at the supporting club and the football club.
   
   The court held that the football club had agreed when his employment was transferred that Evenden’s employment was continuous and on this basis, he could claim for the full years he spent at both appointment.
   ii. Clear and unambiguous promise either expressly or impliedly
   iii. Reliance on the promise by the promisee
   iv. It would be inequitable to allow the promisor to go back on his promise
   
   The party raising a defence of promissory estoppel must be able to prove that it will be inequitable to allow the promisor to go back on his promise. In deciding this, the court will look at the conduct of both parties. Thus, if the promise was given by undue influence or pressure, the court will allow the promisor go back on his promise.
   
2. DETRIMENT
   
   It is sufficient if the party relying on promissory estoppel can prove that he has relied on the promisor’s promise. He needs not to establish that he has suffered some detriment in consequence of the promise. The promise should have altered his position in reliance on the promise.
   
   The decision in the case of WJ Alan V EL Nasr shows that detriment is not a requirement for the plea of promissory estoppel. The plaintiff countered the defence of promissory estoppel raised by the defendant on the basis that there was no detriment on the part of the defendant. The court refused their claim.
   However, in Nigeria decision in some cases would appear to suggest that detriment is a condition precedent to the plea of promissory Estoppel. Despite this, the position in Nigeria will not be considered as different to that of England. Detriment will only provide easy proof but it is not compulsory it must be present.
   
3. DURATION
   Generally, promissory estoppel only suspends the right of the promisor to go back or his promise for some time such that the promisee will be able to have appropriate notice and as such reposition himself to stop relying on the promisor’s promise.
   
   However, in a situation where it is impracticable for the promisor to go back impracticable for the promisor to go back on his promise, it would then mean that promissory estoppel has extinguished his legal right.
   
   Thus in Tool Metal Manufacturing Co. Ltd V Tungsten Electric Co., the plaintiff were estoppel from going back on their promise made in a period of war to wave a payment they were entitled to from the defendant because it was difficult for the latter at that period. But they could go back on the promise after the war ends.
   
   Similar to the above case is the High Trees Case where promissory Estoppel only disallowed the landlord to enforce his promise during the war times alone. The promisor must give a notice whether formal or informal indicating that he is going back on his wood.
   
   Whether promissory Estoppel will extinguish or suspend the legal right of the promisor will depend on the nature of the case.
   
   When it is not Inequitable to repudiate the promise (Where it is equitable for the promisor to go back on his promise)
   Where it is equitable for the promisor to go back on his words, he would be allowed to do so based on the fact of the case. For example, it might be that the promise had been gotten unjustly, i.e maybe the promise was not made willingly. .
   
   In D & C Builders V Rees, the court held that it was equitable for the plaintiff to go back on their promise as it had not been freely given: the conduct of the promisee itself was adjudged unconscionable.
   

Composition With Creditors and Part Payment of a Debt by Third Party

In a situation where creditors owed by a common debtor agree with themselves to accept a smaller sum each in discharge of the entire debt, the creditors are bound by their promise and the debtor is free from the debt. None of the creditors can legitimately come back to claim the balance of the debt. Such an attempt will be a fraud.

Read also: Consideration in Contract

Also, the debt owed by one party to another party may be settled with a smaller sum by a third party due to the inability of the debtor to pay the debt. In such a case, the debtor is discharged from the debt and the creditor cannot come back for it again.

Thus, in Hirachand V Temple, the action of the plaintiff failed because he claimed for the balance of a debt which the part payment in satisfaction of the whole debt had been paid by the defendant’s father.

Contributed by: Adedokun Samuel

N.B. This article is particular to Nigeria.

Variation of Contractual Rights

As a general rule, where a party under a contract performs or promise to perform less than his obligation in full discharge of the contract with the consent of the promisor (the other party), this does not discharge the promisee from the contract and the promisor can come back to demand performance of what is left by the promisee on the bases that no consideration for the promise was furnished by the promisee.

The principle was laid down in Pinnel’s case (1602). In that case, the defendant owed the plaintiff 8 pounds 10 shilling which was due to be paid in November. The defendant paid 5 pounds, 2 shillings 2 pence to the plaintiff in October claiming to have done so at the request of the plaintiff and with the understanding that the plaintiff had accepted this payment in full discharge of the contract.

Read also: Consideration in contract

The court gave judgment in favour of the plaintiff (pinnel) holding that the payment of a lesser sun could not discharge a debtor from the obligation to pay the full amount of debt except at the promisor request for payment is made either:

a. Before the due date
b. With a chattel instead of money
c. To a different destination to that originally specified

Judgment was still given in favour of the plaintiff (despite that he made the agent) due to flaw in the defendant’s pleadings.

The fact that what was being given as a chattel for the discharge of the contract must carry relative meaning and that the defendant must not rely on the plaintiff’s precarious situation to vary the contract was emphasized by Lord Denning in (D & C Builder v Rees). There, the plaintiffs did some renovation and reconstruction work for the defendants. The agreed fee was 482 pounds. After completion of the work and fully aware that the plaintiffs were desperate for funds, the defendants offered to pay 300 Pounds in full discharge of the debt, or nothing. The plaintiff reluctantly accepted. The defendant paid by cheque and as soon as they cashed it, the plaintiff brought an action to receiver the remaining debt.

The court held that the defendant could not rely on estoppel as there was no true agreement to accept less than the agreed sum. The document only took advantage of the precious condition of the plaintiff.

Also, it is the view of the court that the case did not create a valid exception to the rule in Pinnel’s case as “no sensible distinction can be taken between payment of a lesser sum by cash and payment of it by cheque”.

Contributed by: Adedokun Samuel

N.B. This article is particular to Nigeria.

Performance of an Existing Duty as Consideration in Contract

Whether or not performance of an existing duty will constitute good consideration may largely depend on the nature of that duty. There are 3 basic types:

1. Duty Imposed by Law

Generally, a party cannot enforce a promise made to him in return for his performance of a public duty. Since he is already under an obligation to discharge the existing public duty imposed on him by law, enforcing such a promise made to him would be contrary to public policy since it might encourage extension by public officers.

Thus, in (Collins v Godefroy), the plaintiff has been subpoenaed to give an evidence on labour of the defendant’s case. The defendant Godefroy was keen to ensure that the plaintiff shows up to give evidence, and therefore promised to pay him 1 Guinea per day. After 6 days that he has been attending court and not being called to give his evidence, he demanded for the accumulated amount of 6 days which the plaintiff had promised.

The court held that Collins was under a public duty to attend court due to the subpoenaed. Therefore a promise to give him any remuneration is a promise without consideration.

Also read: Consideration in contract

However, if the plaintiff acts or promises to act more than his duty under the law, then this would constitute consideration.

Thus, in (Glassbrook Bros v Glamoungan County C0uncil )
The owners of a coal mine at which there was a strike applied to the local police authority to station a force of policemen at the mine to protect the mine from strikers. The police were willing to protect and control the situation by a mobile force which would be rushed to the mine at the first hint of trouble. But the manager wanted police to be stationed at the coal mine agreeing to bear the expenses or agreed to pay for the additional service. At the end of the strike the police requested for the fee but the defendants refused to pay arguing that the police were acting under their public duty.

The court held that by providing officers stationed at the coal mine, the police had gone beyond their public duty. Therefore, there is a valid consideration and the contract was enforceable. See Also (Ward v. Byham)

2. Duty imposed by contract with the promisor

If a party to a contract simply promises to carry out or carries out an already existing contractual duty to the defendant, he has furnished no consideration for any fresh promise that might have been made by the defendant.
In (Stilk v Myrick), two section dissected a ship in the course of a voyage between London and the Baltic. The ship’s captain who could not find substitute promised the rest of the crew extra wages if they could work the ship back home. The captain never made the extra payment promised.

The court held that there was no consideration for the promise to make the extra payment. Under the seamen’s contract, they were obliged to sail the ship under these circumstance and so the suit was dismissed.

However, like the way it is in duty imposed by law, also, where the plaintiff acts or promises to act in excess of his contractual obligation to the defendant, it can be said that a new contract has been entered into between the parties, and the extra performance by the plaintiff can stand as a valid consideration for the extra promise of the defendant.

Thus, in (Hartley v Pronsonby), the circumstance were similar to Stilk v Myrick, but the ship was so short-handed that it would have been extremely dangerous to sail the ship without additional crew. 17 out of 36 crew of the ship deserted. Pronsonby (the defendant) then promised to pay the remaining crew extra money to sail back which they did
The court held in this case that they could enforce the promise. Their agreement to sail the ship under those circumstances amounted to them entering into a new contract with the captain.

3. Duty imposed by contract with a third party

Where parties are already into a contract with each other i.e. they both owe themselves contractual obligation, and a third party comes in to make a promise of reward for a party to perform his obligation under the contract, the party can rely on the performance of that act as consideration for the fresh promise made to him by the third party.

Unlike the two earlier situations in which the law regards the performance of the already existing duty as no consideration, in this third situation the courts have consistently held that there is consideration.

Read also: Contract in law

Thus in (Shadwell v Shadwell), the plaintiff had already entered into a contract to marry one Nicholl. He then received a letter from his uncle congratulating and promising to pay him #150 yearly during his (the defendant) life time and until the plaintiff’s income is increased to 600 gram. When the uncle died, the plaintiff sought to recover outstanding amounts from his estate.

The court gave the judgment in favour of the plaintiff that there was good consideration for the promise by the Nephew’s marriage to Nicholl.

The court’s attitude to this category of duty is promised on the fact that the third party has special interest in the performance of the contract and that the party who is induced by the promise of the third party to perform has suffered detriment by limiting his freedom in that he might for good reason want to repudiate the contract and pay for damages.

Contributed by: Adedokun Samuel