LAW AND BUSINESS TIPS: FORMATION OF A CONTRACT

A contract may be defined as a legally binding agreement between two or more persons by which, rights, are acquired by one party in return for acts or forbearances on the part of the other. See EMORI V. ESUKU (2012) LPELR-9797(CA) and ORIENT BANK (NIG.) V. BILANTE INT'L LTD. (1997) 8 NWLR PT.515 PAGE 37. An agreement or contract is a bilateral affair, which needs the ad idem of the parties as was held in ODUTOLA V. PAPERSACK (NIG.) LTD. (2006) 18 NWLR PT.1012 PAGE 470.

In ADEDOYIN V. IGBOBI DEVT COMPANY LTD (2014) LPELR-22994(CA) the Court of Appeal held that

"It is also an established rule of law that contracts may be in writing, oral or implied. Consequently, a contract between parties may be expressed by words or by an agreement in writing signed by the parties. Also a contract could be implied by the conduct of the parties themselves…” See also NATIONAL BANK OF NIGERIA LTD. (1978) 3 SC 119 and B. STABILINI & CO. LTD. V. OBASI (1997) 9 NWLR (PT.520) 293.

Also in ASSET RESOURCE MANAGEMENT CO. LTD V. ELIZADE (NIG) LTD & ANOR (2019) LPELR-47328(CA) it was held that the law is also known that parties can make their contract either orally or in writing as long as all the essential elements can be ascertained and shown to exist. The law does not require or insist that an agreement or contract between parties should or shall be in any particular form or according to any particular formality and so it is sufficient that an agreement or contract was factually entered into by the parties in any definite form. See also OMEGA BANK NIGERIA PLC V. O.B.C. LIMITED (2002) 16 NWLR (794) 483, J.E. OSHEVIRE LIMITED V. TRIPOLI MOTORS (1997) 5 NWLR (503) 1, TRADE BANK PLC. V. DELE MORENIKEJI NIGERIA LIMITED (2005) 6 NWLR (921) 309.

Thus, from the above it means that a contract may be made as follow:

1.    IN WRITING: These are contracts which have their terms reduced into writing and executed by the parties. A written contract may either be a simple written contract or a formal written contract or contract by deed. A simple written contract is the most common form of contract. It is merely in writing and signed by the parties. It is suitable where each party to the contract has one or more obligations to be performed under the contract.  For example, in a contract for purchase of a vehicle, a simple Vehicle Purchase Agreement is sufficient because both parties have obligations to perform under the contract. The Seller’s obligation is to transfer both ownership and possessory rights to the purchaser. On the other hand the Purchaser’s obligation is to pay for the vehicle.

A formal contract is a written contract made under a deed, signed, sealed and delivered by the parties.  It is used where the law requires the contract to be by deed, for example lease of more than three year must be by deed by virtue of the combined effects of Statute of Fraud, 1677 and Real Property Act, 1845. Also a formal contract is suitable to give validity to a naked agreement or a naked promise. A naked agreement is an agreement where only one party has an obligation to perform, generally they are not binding. Let use the contract for purchase of vehicle as an example again here, the contract would not be binding on the Seller if the Purchaser did not pay for the vehicle or furnish any other consideration in exchange for the Seller’s obligation. However, the contract will be binding on the Seller where it is made under deed.

A written contract is the best form of contract as it easily serves as a point of reference in case of a dispute or disagreement. In AGBAREH & ANOR V. MIMRA & ORS (2008) LPELR-43211(SC) the apex court held as follow:

 "Thus, if and where there is any disagreement as to what is or are the term or terms of an Agreement on any particular point, the authoritative and legal source of information for the purpose of resolving the disagreement, is of course, the written Agreement executed by the parties…”

2.    ORALLY: Oral contracts are also referred to as parole contracts. These are contracts made without the execution of any document. The terms of the contract are orally agreed upon by the parties. In TAURA V. CHUKWU (2018) LPELR-45990(CA) it was held that "an agreement can be oral, or can be inferred from the conduct of the parties thereto. Notwithstanding the contract is oral, it is enforceable…” However, the problem with oral contract is that it may be difficult to prove its existence.

3.  BY CONDUCTS: These are contract that are implied from the conduct of the parties. Ordinarily, there are no terms expressly agreed upon by the parties. But parties have by their conducts performed the contract.

In conclusion, our advice is that a business entity should embrace written contracts in the form of an Agreement, Memorandum of Understanding and the likes. Every relationship or undertaking entered into by the business should be documented. One of the benefits of this is that a well-prepared contract can limit disputes and promote harmony among the parties.

Jimoh Mokanreola Bamigbola

M.J.B. BAMIGBOLA & CO.

mjbbamigbolaandco@gmail.com