COURSE CODE: CIL 318

COURSE TITLE: BUSINESS LAW

GENERAL INTRODUCTION
Business Law is a course meant to intimate students of Business
Administration and Accounting with the basics of legal dynamics in business
transactions. Whereas the course is not to make a legal expert out of the
students, it is necessary to equip them with basic knowledge of the legal effects
of their dealings in business transactions in order to keep them informed and
prepared to conduct themselves in manners that will save them from getting
into the mucky waters of business affairs.

The course is made up of Law of Contract, Law of Agency, Sale of Goods Law
and Hire Purchase Law. Each of these segments of the law will be treated
separately and further divided into modules convenient for teaching and
learning process.

SET OF OBJECTIVES OF THE COURSE

At the end of the course students are expected to be able to understand and
discuss the following topics as they relate to the entire aspects of business
dealings and their legal implications.

1. Introduction to Law of Contract

2. Elements of Contract
3. Terms of Contract
4. Vitiating Elements of Contract
5. Performance and Remedies of Breach of Contract
6. Nature, Creation and Types of Agency
7. Rights and Duties of Agent and Principal
8. Termination of Agency
 9.
MODULE 1: Introduction to Law of Contract

Contents
1.1 Introduction
1.2 What is Contract?
1.3 Types of Contract
1.4 Summary of Module 1
1.5 Self-Assessment Questions

1.1 Introduction
The purpose of this module is to present to the student a brief background of
the evolution of the law of contract, its nature by description, types and
introduce the elements of a valid contract.

The Law of Contract evolved out of the translation of some publication on law
of obligations that emanated from a French Jurist, Ponthier, in 1806.1 Unlike
other laws that are formulated by parliament, contract involves laws made by
individuals based on their agreement (called contract) to be bound and the
courts will enforce the contract if invited where parties to it disagree.

1.2. What is Contract?

Contract like other concepts cannot be defined but at best be described.2 By
nature contract is as wide as one can imagine the extent of human interactions,
particularly business transactions. Interestingly, contract appears in virtually all
our day-to-day dealings with one another. Our formal teaching and learning of
law of contract actually only provides the basic framework of how contracts
should be entered, performed and discharged or where breached, the available
remedies.

1 Commercial Law in Nigeria, Edited by E. O. Akanki, Lagos: University of Lagos Press, 2005, p.98.
2 Olugasa, O. (2007), Law of Contract Through Nigerian Cases, Lagos: BPint, p.1
Each time you board a commuter bus or taxi cab you enter into a contract with
the driver or bus conductor as the case may be. How? Whenever you jump on
a commuter bus which conductor announces its destination and fare you
ordinarily conclude a contract between you and the conductor of the bus. Your
obligation is to furnish the fare while the bus operator(s) is under the obligation
to take you to your destination. Informal as that relationship may seem it
involves the basic requirements of a contract.

What then is contract? Contract may be described as a voluntary agreement

between two or more persons. It confers some rights, duties and liabilities on
the parties to the agreement to do or not to do a particular thing(s). In it is a
promise or set of promises which if unfulfilled the law may enforce or remedy
in one way or the other. A contract brings about a legal relationship between
parties to it. It is all about the enforcement3 of the promises made in the
agreement freely entered by the parties. There must indeed be a consensus ad
idem, i.e., meeting of the minds of all parties to the contract.

According to Aditya S. McDuffy (2001) a contract is “a promise, or set of

promises, for breach of which the law gives a remedy, or the performance of
which the law in some way recognizes as a duty.”4

The case of Obminami Birch & Stone (Nig.) Ltd V AIB Ltd (1992) 3
NWLR (Pt 229) 260 at 309 describe the concept as:

“… a voluntary agreement whereby a person undertakes for reward (consistent) to

perform an act for another and its terms are as contemplated and admitted by the parties
themselves. It creates an obligations which is enforceable in law”

3
See also Dada, T. O. (1994) General Principles of Law, Lagos: T.O. Dada, p.115.
4In a paper presented by Aditya S. McDuffy (2001) when he chaired National Legal Review Committee citing
Gifis, Steven, Law Dictionary 4th ed. 1996
In the case of Orient Bank (Nig.) Plc V Bilante Int’l Ltd (1997) 8 NWLR
(Pt 515) 37 at 76 Tobi JCA (then) amplified the definition this way:

“A contract is an agreement between two or more parties which creates reciprocal legal
obligation or obligations to do or not to do a particular thing. For a valid contract to be
formed, there must be mutuality of purpose and intention. The two or more minds must
meet at the same point, event or incident. They must not meet at different points, events
or incidents. They must be saying the same thing at the same time. They must not be
saying different things at different times. Where or when they say different things at
different times, then they are not ad idem and thereby no valid contract is formed. The
meeting of minds of the contracting parties is the most crucial and overriding factor in the
law of contract. The minds must be ad idem or ad idem facit. In Okubule V
Oyegbola (1990) 4 NWLR (Pt 147) 723, the Supreme Court held that an
agreement will not be binding on the parties to the until their minds are at one both upon
matters which are cardinal to the species of agreement in question, and also upon matters
that are part of the particular bargain”.

To establish the consensus ad idem, a prerequisite to the existence of a valid

contract, certain elements must be present. Those elements are known as the
elements for the formation of contract. These are – offer, acceptance,
consideration, intention to create legal relationship, and capacity to contract.
See Nekka Bab Nig. Ltd V ACB Ltd (2004) 2 NWLR (Pt 858) 54.

A contract may be formal or informal. In other words, it may be written or

oral, or partly written and partly oral. A written contract is a formal contract; it
is otherwise known as a deed. It is an executed contract. By executed contract is
meant a contract (a written agreement) that has been signed, sealed and
delivered (although delivery is no longer a compulsory element). It means that
the contract has been fully performed by the parties to the contract. For
instance, in the case of sale of land or transfer of shares, as soon as parties to
the sale have mutually agreed to the terms stated in the written contract by
signing their respective columns in the agreement, the interest in the property
passes to the buyer even though the buyer is not yet in possession of the
property.

There are cases where the law specifically requires that certain contracts must
be in writing (See section 4 of Statutes of Fraud). Some examples are sale of
land, shipping agreements, bank loan agreements, etc.

1.3 Types of Contract

Informal contracts are oral or partly oral and partly written. They are
executory, meaning to be performed in future, unlike executed contracts.

Simple Contracts: appear to fall more into the category of executory contracts
because, they are more often than not oral. They may be wholly oral, or partly
oral and partly written.

Bi-Lateral Contracts: are contracts between at least two parties whereby each
party promises a performance. That makes each party an obligor on his
promise, on the one hand, and an obligee on the other party’s promise, on the
other hand, e.g. contracts of sale.

Unilateral Contract: In a unilateral contract only one party makes the promise
in exchange for an act to be performed by the other. A promise of reward for
finding a loss property is a typical example. In the case of Carllil v. Carbolic
Smoke Ball Co. Ltd. [1893] 1 Q.B. 256, the defendant company placed an
advertisement with a promise to pay £100 to any person who buys and uses its
product according to prescription and yet caught influenza. The court held that
was an offer; an offer to the world. The plaintiff bought the drug, followed the
prescriptions, and still contracted influenza. Her performance of the
requirements of the offer was deemed as acceptance. She was therefore entitled
to the reward of £100.
Void Contract: A purported contract which has not one of the elements of a
contract, or is not enforceable as all the elements of a valid contract are absent,
or is not allowed, it does not exiot ab inito, has no legal effect. It is null, by law to
exiot or the condition precedent are non-exiot. (See Pan Bisbilder Nig. Ltd V
Bank Ltd (2000) 1 NWLR (Pt 642) 684 at 693).

Voidable Contract: A contract purportedly entered as valid but which may be

set aside at the instance of a party to the contract on grounds that although the
elements appear to be present there have been some extraneous elements that
render them not genuine and thereby no consensus ad idem. Remain valid until
set aside. If further steps are taken to change of position of parties it may
become binding. Black’s Law Dictionary (7th ed.) defines it as “a contract that
is void as to the wrongdoer but not void as to the party wronged, unless that
party elects to treat it as void.5

Illegal Contract: A purported contract prohibited by law and particularly

sanctioned by the law. (See Pan Bisbilder (Nig.) Ltd supra. It is also void,
but its difference lies in the fact that it is in addition sanctioned.

Valid Contract
According to the pronouncement of Onalaja JCA in the case of Opara V. D.
S. (Nig.) Ltd (1995) 4 NWLR (Pt 340) 440 at 463, the essentials of a valid
contract are:
(a) Offer and acceptance
(b) Legal capacity to contract
(c) Valuable consideration
(d) Intention to create legal relationship

The case of NNB V Odaife (1993) 8 NWLR (Pt 310) 235 at 243-4 added

5 See also Atiyah, P.S. (1981, 3rd ed) Introduction to Contract pp. 37-38
 (e) The parties must be ad idem on the subject matter of the contract”

These are however not strictly followed under a formal contract where you
have the document properly executed. Besides, the modern day approach to
the study of law of contract prefers to avoid the concept of consensus ad idem. So,
instead of emphasising the intention of the parties to a contract as conveyed by
their words or conduct, the meaning a reasonable man would draw from the
contract is the focus. That approach has been tagged as the process of
“objective interpretation”.6 In Nigeria, however, the element of consensus ad idem
is still relevant, albeit it is the court that ultimately distils the intention of the
parties by their interpretation.

1.4 Summary of Module 1

We have attempted to highlight the nature of contract. In the discussion we
mentioned the description of a contract, types of contract, and introduction to
the elements of contract.

Self-Assessment Questions
1. With the help of decided cases explain what you understand as contract.
2. To what extent of human interactions can contract be found? Discuss.
3. Enumerate five types of contract and describe them.
4. Discuss the effect of consensus ad idem in contract.
5. What are the basic elements of a valid contract?

6See Catharine McMillan & Richard Stone (2004) Elements of the Law of Contract, London: University of London
Press, p.13
MODULE 2: Elements of Contract

Contents
2.1 Introduction
2.2 Offer
2.3 Acceptance
2.4 Consideration
2.5 Contractual Capacity
2.6 Intention to create Legal Relations
2.7 Summary of Module 2
2.8 Self-Assessment Questions

2.1 Introduction
At the end of this Module the student is expected to have fully understood the
respective elements of contract formation. Beyond that the student is expected
to be able to identify the elements and analyse any case study of business
transactions where contract exists.

This Module discusses elements of a valid contract with some illustrations and
guided by some notable decided cases. The elements include offer, acceptance,
consideration, contractual capacity and intention to create legal relation.
Distinction is drawn beteeen various situations that tend to appear as offers,
i.e., invitation to treat,counter-offer and cross-offer. Apart from explaining
Acceptance, mode of acceptance its communication are given due attention.

2.2 OFFER
What is an offer in contract? An offer in law of contract could be summed up
as the definite, clear, and final proposition made by an offeror to an offeree and
with the intention to be bound if accepted. Wakama v Kalio (1991) 8 NWLR
(Pt 209) 123 at 130, citing Black’s Law Dictionary, described it as:
 “A manifestation of willingness to enter into a bargain, so made as to justify
another person in understanding that his assent to that bargain is invited and
will conclude it”.

An offer is that final proposal which empowers the offeree to accept and which
acceptance will transform the offeror’s promise into a contractual obligation.

Tobi (JCA then) stated in Orient Bank V. Bilante (supra) that

“An offer is a proposal which emanates from the offeror to the offeree to enter into an
agreement to do or not to a particularly thing…. A valid offer must be precise, and
unequivocal, giving no room for speculation or conjecture as to the real content in the
mind of the offeree. The offer must place at the doorsteps of the offeree a clear intention a
desire to enter into at which the offeree on clearly defined terms the expectation of
acceptance on the terms as defined on a possible counter-offer which could be a basis for
further negotiation of course the offeree has the 3rd option of outright rejection of the offer.

Note that an offer not known to a party who purportedly accepts the offer is
not recognized in law. There are also instances whereby offers may cross, i.e.
cross-offer. This occurs where two parties make offer to each other at the
same time but unknown to neither of them. Cross-offers do not constitute
offers recognized in law. See Tinn V Hoffmann & Co (1873) 29 LT 271 at
278.

In Union Bank of Nig. Ltd V. Saw Nig. Ltd & Ors (1994) 8 NWLR (Pt
361) 150, Iguh JSC said at P. 168

“… offer capable of being converted into an agreement by acceptance, must consist of a

definite promise to be bound provided that certain specific terms are accepted. The offeror
must have completed his own share of the formation which the court by finally de……
his own readiness to undertake an obligation upon certain conditions leaving to the offeree
the option of acceptance or refusal”.
Types of Offer
Generally, offer has two forms as determined by the two types of contract
namely, bilateral contract and unilateral contract. Thus we have bilateral offer
and unilateral offer. An offer under a bilateral contract is a bilateral offer while
an offer under a unilateral contract is a unilateral offer.7

Offer and other similar but different appearances

Offer must be distinguished from other appearances of purported offers which
include the following:

(1) advertisement
(2) tender
(3) goods displayed
(4) passenger transport tickets or time tables
(5) auction sales
(6) job interview invitation letter
(7) Catalogues containing list of products with prices.

All these (but not limited to) are classified in law as invitation to treat.

What is an invitation to treat?

In distinguishing an offer from an invitation to treat the court usually considers
not only the words used but also the circumstances that surround the use of
the words including the conduct of the parties. Tobi JCA (as he then was) said
in Orient Bank (Nig) Plc V Bilante Int’l Ltd (1997) 8 NWLR (Pt 515) 37
at 80

“Does the mere use of the word ‘offer’ really constitute an offer in law? I think not. The
Court must examine the totality of the document to come to the conclusion that an offer is

7 See Cracknell, D. G. (2003) Obligations: Contract Law, 4th edition, London: Old bailey Press, pp8-9.
 made on it. It may be an invitation to treat although it contains the word ‘offer’.
Similarly, a statement may be an offer although it is expressed as an “acceptance”. In
Innih V. Fermado (1990) 5 NWLR (Pt 152) 604 the court held that an invitation
to treat is a mere declaration or willingness to enter into negotiation. It is not an offer and
cannot be accepted as to form a binding contract”.

In general, an invitation to treat has been described as a mere “puff” or

invitation to “chauffeur” i.e., an invitation to negotiate. It appears like an offer
but it is not an offer. It is an invitation to the other party to make an offer. It
involves negotiation processes that come before an offer. Note, however, that a
unilateral offer may come by way of an advertisement as in the case of Carllil
V. Carbolic Smoke Ball Ltd supra. It is not an offer and cannot be accepted
so as to form a binding contract.”

Examples of Invitation to Treat

Advertisement: An advertisement is generally not an offer but an invitation to
treat. In the case of Partridge v. Crittendon [1968] 1 WLR 1204 an
advertisement of the sale of wild birds was held not to be an offer. In that case
a party was held not liable to a law of England that prohibited the sale of wild
life on the ground that advertising the sale of some wild birds was not an offer
but an invitation to treat.

Note that this rule is applicable indeed to advertisements of bilateral contracts.

For a unilateral contract like the case of Carllil v. Carbolic Smoke Ball Co.
Ltd. Supra an advertisement amounts to an offer.

Tenders: A statement calling for tenders or that goods are to be sold by tender
is not an offer in law. In the case of Harvey v. Facey [1893] A.C. 552 H
telegraphed to F, “Will you sell us Bumper Hall Pen? Telegraph lowest price.”
F in response telegraphed, “Lowest cash price for Bumper Hall Pen £900.
“The response was held to be a statement as to price and not an offer. A
decision in the case of Blackpool and Fylde Aero Club Ltd v. Blackpool
Borough Council (1990) suggests that an invitation to treat may contain an
implied covenant to consider all tenders that conform to specified conditions
stipulated in a tender. This is not a binding principle in Nigeria.

Auctions: In an auction sale, the bids do not constitute an offer until the
hammer falls. The auctioneer has the right to accept or decline the lot before
the buyer accepts the bid. But where the auction is subject to as in the case of
McMarcus v. Fortescue [1907] 2 KB1 a reserve price the auctioneer’s
purported acceptance of a lower bid to the reserve price does not constitute an
offer. However, the reserve price must be expressly stated. The advertisement
of an auction is not an offer to hold it.

Goods Displayed: Goods displayed in shop windows, at some shelves, show

rooms with fixed prices do not constitute offers. They are invitations to treat.
The buyer may offer to buy at the price on the good but the shopkeeper or
cashier may accept or reject it. The offer made by the buyer in this instance is
actually not an offer but an invitation to treat. The actual price is exclusively in
possession of the cashier/shopkeeper who cross-checks and makes an offer by
stating the precise price in the shop’s book. If the buyer is willing to buy at the
price in the book offered by that cashier, then he can accept the offer made by
the cashier. Pharmaceutical Society of Great Britain v. Boots Cash
Chemists (Southern) Ltd [1953] 1 QB 401 where a prohibited poison
displayed on shelf was held by the court not an offer. Note that where that
shopkeeper expressly states that the first buyer at the price will be accepted
then it will amount to an offer. In England, in the case of Thornton v. Shoe
Lane Parking (1971) it was held that where the display was made by a
machine, the display will amount to an offer.
Share offers: A public offer of shares does not constitute an offer in law.
(Hebb’s case [1867] L.R. 4. Eq.9). But a letter on ‘rights’ issue of new shares
to an existing holder is an offer.

Passenger’s Tickets/Transport: Of all the categories of invitation to treat

this has been the most difficult aspect to ascertain. For cases where tickets are
used the problem arises as to whether the ticket passes for a contractual
document or not. In some cases where it is clear that the ticket is a contractual
document the request for the ticket is regarded as offer while the issuance of it
is considered as acceptance. But in some other cases the ticket itself is
considered as the offer and the taking of it the acceptance. The same principle
may be applied to the Lagos State Joint Partnership BRT system.

Although our transport system is still more of an informal contract, we can

safely say that the announcement by the conductor of the destination of a bus
and the price constitute the offer while the passenger’s stepping into the bus to
sit and proceed on the drive amounts to acceptance. See the dictum of Lord
Greene MR in Wilkie v London Passenger Transport Board [1947] 1 All
ER 258.

Communication of Offer
One important step that needs be noted here is that an offer will be valid and
complete when it is communicated. In other words it has come to the
knowledge of the offeree. The offeree cannot accept an offer the knowledge of
which he does not have. Why? The reason is that you cannot be meeting of
minds where one party is ignorant of the offer.

Note however that the position is not quite certain in all jurisdictions. In the
case of Gibbons v. Proctor (1891) a policeman who was ignorant of an offer
of reward for certain information was given the reward having sent in the
information albeit innocently. Whereas in the Australian case of R. v. Clarke
(1927) the court held that “… there cannot be an assent without knowledge of
the offer; and ignorance of the offer is the same thing whether it is due to
never hearing of it or forgetting it after hearing.” This view appears to be the
preferred approach presently.8 Could it be argued that Gibbon’s case was
misconceived given the rule of consideration that where it is the public
duty of a person there the reward will not pass for consideration?

Counter-offer
A valid offer is made upon certain terms that must be clear and final. Those
terms must be complied with if the offeree wishes to keep the offer alive, valid
and thereby capable of his accepting it. Where however, the offeree chooses to
vary or modify the terms of the offer, at best what he has done is called a
counter-offer. A conditional acceptance or any fresh term introduced while
purportedly accepting an offer by the offeree amounts to a counter-offer. (See
Innih V. Ferrado supra) Per Agbaje JSC in the case of Okubule V
Oyagbola (1990) 4 NWLR (Pt 147) 723 at 742, adopting the principle from
Chitty on Contract (23rd Edition)

“A counter-offer by the offeree has a dual significance! it amounts to

[1] a rejection of the offer;
[2] it destroys that offer so that it cannot subsequently be accepted” (See Hyde
V Wrench (1840) 3 Beave 334)

These principles have been reached in several notable contract related cases.
See NNBC V Agric Incorporation (1990) 3 NWLR (Pt 332) 329 at 344. In
that case, per Kalgo JCA (then),

“….where communication to the offeror takes the form of an attempt to vary the
terms of the offer, then it fails to take effect as an acceptance. It is then a
counter-offer which the original offeror can then accept or reject. And in law, a
8Catharine McMillan & Richard Stone (2004) Elements of the Law of Contract, London: University of London
Press, p.24
 counter-offer, apart from failing to be an acceptance, amounts to a rejection of
the original offer which cannot be accepted subsequently”.

See also Hyde v. Wrench (1840) 3 Beav 334; Tinn V Hoffmann & Co
(1873) 29 LT 271 at 278 the locus classicus of the principle. Note that request for
mere information or inquiry is not counter-offer. See FGN V Zebra Energy
Ltd (2002) (Pt 798) 18 NWLR 162 SC.

Termination of Offer
There are instances where an offeror may change his mind and no longer
wishes to make the offer. This, depending on the circumstance of each case,
may be a very thing line between offer and acceptance. The general principle of
law is that revocation of such an offer must be made before acceptance is
communicated. The intricacies here shall be further explained under
communication of acceptance. But note that the following constitute the
modes of revocation or termination of an offer:

1) Counter-Offer - A counter-offer, as earlier mentioned destroys an offer.

An offer so destroyed cannot be revived. So, where a condition attached to
an offer, expressly or impliedly, is unfulfilled the offer is terminated.

2) Revocation – An offer may be revoked. The case of Routledge V. Grant

(1828) 4 Bins 653 stated this principle. This must be done before
acceptance, including where offer is made open except where the offeree
has furnished consideration. But that revocation must be communicated
effectively to the offeree. Postage rule does not apply here (see Byrne V.
Van Tienhoven (1880) 5 CAD 344) though if acceptance was posted
before it is communicated then it can no longer be terminated. The
revocation need not emanate from the offeror himself (BCC Plc V. Sky
Inp (Nig) Ltd (2002) 17 NWLR (Pt 795) 80 at 106. See also Dickson v.
Dodds where a third party made the revocation known to the offeree
 before acceptance. Similarly, in Henthorn v. Fraser (1872) a revocation of
an offer posted is only effective when received. Note that it is not yet
determined when and how a unilateral contract may be revoked.

3) Rejection – An offer may be extinguished or terminated by an express or

implied rejection by the offeree. Express, if curtly rejected or implied, for
example, by counter-offer. Once rejected it cannot be brought back to life.

4) Lapse of Time – An offer can lapse only where the offeree requests
exclusively that acceptance can only be made by performance of the
requested act, so that offer can be revoked at any time before the
performance is completed. (FGN V. Zebra Energy Ltd (2002) 18 NWLR
(Pt 798) 162 at 192 8 C. Although the general principle appears to be that
where the offeror stipulates time limit for acceptance and the offeree fails to
accept within that time the offer lapses, or where no specific time limit is
given, a reasonable time takes the course. See also Ramsgate Victoria
Hotel v. Montefoire (1866) LR 1 Ex Ch 109.

5) Death – This has two dimensions;

i) death of the offeree which naturally ends the offer as none else
can accept the offer. Note that no direct authority is available
here other than the obiter dicta in the case of Dickinson v.
Dodds supra; and
ii) ii) death of offeror. In the latter case the knowledge of the
offeror’s death by the offeree determines the offer before
acceptance. If otherwise, his estate bears the liability if the type
of contract is one that can be performed by his personal
representative, e.g. an offer of a guarantee. See Brandbuy v.
Morgan (1862) 158 ER 877 (Ex).
6) Failure of Condition – A conditional offer once not met will result in the
termination of the offer. Here therefore an offer is subject to a condition,
once that condition is not fulfilled by the offeree, the offer terminates.
Examples of such conditions include time limit of offer, goods for sale to
be in saleable condition, etc. See Financings Ltd v. Stimson [1962] 3 All
ER 386.

7) Intervening Incapacity – An offer may be terminated if certain

circumstances occur which render the offeror or offeree incapacitated to
contract. Some of such events include bankruptcy, insolvency, insanity,
disaster, etc.9

2.3 ACCEPTANCE
By the authority of Innih V Ferrado supra at 617 & 622
“for an acceptance to be operative certain conditions must be fulfilled:
(1) The acceptance must be plain
(2) It must be unequivocal
(3) It must be unconditional
(4) It must be without variance of any sort between it and the proposal (offer)
(5) It must be communicated to the other party without unreasonable delay.

Therefore a valid acceptance occurs only where the offeree has unreservedly
assented to the exact terms proposed by the offeror. The acceptance is usually
elicited from the words on documents which had passed between parties or
inferred from their conduct.

It is not enough for an acceptance to be a final expression of consent (assent)

to the terms of the offer, it must be positive and must correspond with the
terms of the offer and this, as earlier stated, may be ascertained from the words,
intention or conduct of the offeree. Okubule V. Oyagbole supra.

9 See Cracknell, D. G. (2003) Obligations: Contract Law, 4th edition, London: Old bailey Press, pp103-120
Acceptance Vs Counter-Offer
In the case of Orient Bank (Nig.) Plc V Bilante Int’l Ltd Tobi JCA (then)
elucidated the difference between an acceptance and a counter-offer as follows:
“There is a distinction between acceptance and a counter-offer while the forms
consolidates the offer and therefore the contract, the letter speaks a different
language from the offer and therefore moves away from the contract as it is in a
totally different camp…. a counter-offer, as the name implies, counters the offer
of the offeror, which may convey the effect of rejecting the offer and making new
proposals by way of fresh offer. In a counter-offer, the offeree seems to play both
the role of an offeror and that of an offeree. In his status as an offeree, he receives
the offer. Technically in his status as an offeror, he makes new or additional
proposal to the original offeror, who has the liberty and option to accept or reject
the new additional proposals”.

Mode of Acceptance According to BCC Plc V. Sky Inp (Nig) Ltd (2002) 7
NWLR 58 at 106, there are various modes of accepting an offer, by promising,
by silence; by act or performance; by alternative modes as may be enshrined in
the offer”. But the acceptance must be brought to the notice of the offeror.

The Supreme Court of Nigeria, per Agbaje JSC, in the case of Okubule V
Oyagbola supra pronounced, by way of adoption of Chitty on Contract
(23rd Edition pp 25 – 26), that

“once it is clear that a definite offer has been made by one party it is necessary to
show that that offer has been accepted by the other party”.

By implication an acceptance must be communicated to the offeror by the

offeree in very clear terms.
In communicating an acceptance of an offer the offeree must consider the
offeror’s prescription or direction as regards the preferred method of
communication if the offeror so did. Whether such mode of communication
has been prescribed depends on the inference to be drawn from the
circumstances (See Annon Lodge Hotels Ltd V. Mercantile Bank (1993) 3
NWLR (Pt 284) 721 at 730.

This rule is, however, subject to certain exceptions, the most important of
which concerns communication by post which by the general rule provides that
acceptance is completed once it is posted (Orient Bank V. Bilante supra). It
does not matter if the acceptance was not received (Household Fire
Insurance v. Grant (1879). This no doubt may result in some difficulties. For
instance, it gives room for a situation whereby an offeror may not be aware that
his or her offer has been accepted. And, if we are to go by the provision that
there must be a consensus ad idem, where then lies the meeting of mind at the
point the offeror is ignorant that the contract was sealed by acceptance? It
would appear the authorities available are yet to address that problem. Further
discussion on this shall be made under acceptance by postage.

Acceptance must be by positive/external evidence

For there to be an acceptance of an offer, there must be an external
manifestation of consent via, some word said, an act done by the offeree or by
his authorized agent, which, in the eye of the law, will amount to
communication of the offeree’s acceptance to the offeror’s offer. (See Orient
Bank V. Bilante supra; NNSC V Agric Incorporation & Yabatech V.
Nigerlec supra) Mental or internal acceptance is not sufficient (Felthouse V.
Bindley; Yabatech V. Nigerlec supra)

Exceptions to the rule of communication of acceptance

1) By Post: In the case of Adams V. Lindsell (1818) 1 B & Ald 681, 683
the rule was laid that where a letter emanated as offer its acceptance takes
 effect as soon as the acceptance is posted. But telex and fax came under
instantaneous modes of communication, which by the authority of Entores
Ltd V. Miles Far East Corporation (1955) 2 Q.B 327, are deemed same as
oral communication and which will only be effective when received.
Although a case on new technological developments in communication such
as e-mail and others has not yet been tested in this regard, it is likely that they
will be categorized as instantaneous modes of communication like e-mail, fax
and telex. One other problem here is that the Evidence Act as it stands does
not accommodate this species of documents unless where the maker admits
them as his.

In the case of Alhaji R. A. Afolabi (Trading as Ifelodun Brod) V.

Polymera Industries Nig. Ltd (1967) All NLR 154 the Supreme Court
held that acceptance must be signified in the mode required by the terms of
the offer which was to

“read, study carefully and sign duplicate copy attached

signifying your agreement to all points as listed above and
return the earliest convenience for records”.

That did not include the postage rule.

2) Waiver: Parties may choose to waive the mode of communication expressly

or impliedly. It is expressly waived in cases of unilateral contract like Carllil
V Carbolic Smoke Ball Ltd., supra.

The posting rule applies only where the circumstances show that it is within the
contemplation of the parties that posting is the appropriate means of
communicating the acceptance. Posting should be used unless:
1) It is unreasonable to use posting in the circumstance – See Innih V.
Ferrado Supra .

2) It negates the term of contract – as shown in Afolabi v Polymera

Industries Ltd (Supra) where it was held that “An offer cannot be
accepted by anyone except the person to whom it is made and acceptance
means the assent of that person, signified by in the mode required by the
terms of the offer. The acceptance in that case was expected to be by
signing the duplicate and return at their earliest convenience. See PTI V.
Uwnanu (2000) 5 NWLR (Pt 205) 112 at 120.

3) It will result in injustice or absurdity – In the case of Henthorn v.

Fraser an offer made open for fourteen days was revoked a day after the
offer not to the knowledge of the offeree who posted his acceptance shortly
before the arrival of the letter of revocation. The court held that the
acceptance fell within the contemplation of the mode of acceptance whereas
the revocation did not.

4) It is not properly posted – especially when not dropped in the post box.
Giving it to an official of the P. O is no good posting.

5) It is misdirected due to the carelessness of the offeree

Contract
From the foregoing therefore, a contract comes into existence the moment a
clear and precise offer and unconditional acceptance of the terms are made
because at that point a consensus ad idem exists unless proved otherwise.
(Tsokwa Motors (Nig) Ltd V NAN Ltd (1996) 9 NWLR (Pt 471) 129 at
145 Alfihin Ltd V. A. G Fed (1996) 9 NWLR (Pt 475) 634 at 656-7.
2.4 CONSIDERATION
The essence of a business transaction usually is to gain something at one point
in time. Usually in business transactions, one “gains” and “losses” at the same
time. You exchange something for the other. Consideration is that value that is
exchanged whereby parties benefit something at the expense of giving
something in return. It could be an act, a forbearance or a return promise. So,
after offer and acceptance the law would locate consideration that backs up
both the offer and the acceptance. It is consideration that cements the
relationship as service, particularly, for a simple contract (not under seal). Note
however that consideration is not as easy to define as has been done. The
definition adopted here is that which we are used to in Nigeria and some
common law countries. But a school has also emerged making there two
schools of thought. The first we have mentioned is classified “Benefit and
detriment school” while the 2nd school is the “Bargain theory school”. In the
latter school, it is believed that parties subjectively view the contract as a
product of exchange or bargain. In reality both schools talk about the same
thing in different ways and in different expressions.

Some have adopted the-easy-way-out definition which limits consideration to

the price of the promise in a purchase and sale scenario. The House Lords
approves of this definition in the case of Dunlop Pneumatic Tyre Co. Ltd v.
Selfridge & Co Ltd. (1915) AC 847.

Muhammed JCA, in the case of Anwasi V. Chabasaya (2000) 6 NWLR (Pt

681) 408 at 417, citing and amplifying the definition of consideration in the
case of Currie v. Misa, the locus classicus on this definition, stated thus:

“A valuable consideration in the eye of the law may not exist either in some right,
interest, profit or benefit accruing to the one party, or some forbearance, defilement, loss or
responsibility given, suffered or undertaken by the other. Thus consideration does not only
consist of profit by one party but do exists where the other party abandons some legal
 right in the present, or limits his legal freedom of action in the future as an inducement
for the promise of the first, so it is irrelevant whether one party benefits but enough that
he accepts the consideration and that the party giving it does thereby undertake some
burden or lose something which in contemplation of law may be of value”.

It is also explained as “the performance or promise to perform obligation

already imposed by a contract between plaintiff and a defendant is not a
consideration for any new promise by the defendant.

Requirements of Consideration
1) Consideration must move from the promisee: For a person with whom a simple
contract has been made (the promise) to be able to enforce the contract
consideration must have given by him to the promisor or some other person
at the promisor’s request. Anwasi V. Chabasaya (Supra). The general
position under this rule was established in the case of Price v. Easton (1833)
4 B. & Ad. 433. The decision held therein is to the effect that if A owes B
sum S and T promises A that he would help A settle his debt to B if A would
do certain work for him (B). Where T failed to fulfill his promise to A after, B
cannot succeed to enforce T’s promise to pay since consideration only moved
from T to A and not from T to B. This also brings about the principle of
privity of contract. See also Thomas v. Thomas (1842) 2 QB 851 and
Twelddel v. Atkinson (1861) 1 B & S 393 at 398-9; Cardoso v. Doherty
(1936) WACA 78.
There is however an exception to this rule. The present position has limited its
application to the principle that consideration must move from the promise
and not necessarily to the promisor in cases involving bank guarantees.

2) Consideration need not be adequate: It is settled law that consideration must

be real but need not be adequate although a patently or grossly inadequate
consideration may in appropriate cases amount to strong evidence of fraud.
See Spasco Vehicle & Plant Hire Co. V. Alraine (Nig) Ltd (1995) 8
 NWLR (Pt 416) 655 at 672 SC. This rule is well illustrated in the case of
Chappell v. Nestle (1960) where wraps of sweet were held as adequate
consideration. It is required to be of economic value, however, for instance,
cessation of complaint will not amount to consideration as no economic
value is in it. (White V. Bluett)

3) Past Consideration
Consideration must be past. It may be executory or executed: Executory consideration
refers to a promise to be performed in future while executed consideration
occurs where the promise is made in return for the performance of an act as
in the case of Carllil V Carbolic Smoke Ball. A promise cannot be based
upon a consideration that was provided before the promise was made. See the
case of Oba Akenzua II V. Benin Divisional Council. In the case, the Oba
of Benin offered to assist the Defendants obtain some land from another
organization based in Benin. It was meant to be a gratuitous service. He
succeeded in getting the Council their desire. The Council promised the Oba
some forest resources in appreciation. The Oba wanted the court to enforce
that promise. He failed because the promise was held among other things as
past consideration. But note that it was so held based also on the principle of
public policy. See also Roscorla V. Thomas – after sale of a horse the
defendant assured the buyer it was a sound horse free of any vice. The
contrary was discovered later. The court held that the defendant was not
liable as consideration had passed and the warranty by the defendant had no
consideration. Note, however, that in other cases like Lampleigh v.
Braithwaite (1615) Hob 105; 180 ER and Re Casey’s Patents (1892) 1 Ch.
104 where similar promises were not held as past consideration but as
commercial issues that entitled the plaintiffs to some reward. Each case may
therefore be considered on its facts and merits as long as substantial justice is
achieved.10

10Sometimes a statute may permit reward for a promise made after consideration had ordinarily passed. In that
case consideration is not deemed past.
 Exceptions to the Rules of Consideration: There are some exceptions to
the rules of consideration. The exceptions are to the effect that not all
promises in what may appear as contractual relationships will be accepted as
consideration by the courts. These include:
a. Public Duty: Where a person is under public duty to do certain things s/he
is bound to fulfill that duty. A promise made to him by another to induce
him to fulfill that public duty will not be accepted as consideration or does
not constitute consideration in the eye of the law. See the case of Collins v.
Godfrey where the court held that a person promised some remuneration
for time spent in attending court to give evidence on behalf of a party
cannot enforce it as he was only fulfilling a public duty. The same line was
toed in Oba Akenzua II’s case supra. But where the person exceeds that
public duty he may be entitled to that remuneration where he performs
beyond what public duty demands.11
b. Contractual Duty: Where a person is under a contractual duty, a promise
to make him to fulfill that contractual duty will not constitute a
consideration in the eye of the law. That was the decision reached in the
case of Stilk v. Myrick where some sailors of a ship on a voyage deserted
her. The rest of the crew members were induced by a promise of extra pay
if they get the ship to the shore. They did as required but not paid. But they
were not paid as promised. The court held that there was no consideration.
Note that where they exceed their contractual duty that promise will be
deemed a valid consideration and therefore entitled to further remuneration.
See the case of Hartley v. Ponsonby.
c. Duty Imposed by 3rd Party Contract: A promise made to perform or the
performance of a duty already owed to a person may be good consideration
for a promise given to another. This is typical of the act of a guarantee for a
loan. This principle is well enunciated in the case of Shadwell v. Shadwell
where an uncle promised to pay his nephew £150 per annum if that nephew

11 See Glasbrook v. Glamorgan.

 marries his fiancée. The court held that promise as good consideration
rejecting the argument that there was no consideration for the uncle’s
promise since the nephew was under an obligation already to marry the
fiancée.

Exceptions to Existing Duties

There are certain contractual duties under common law which equity had to
remedy as they were creating some commercial hardships. These exceptions
became necessary with certain developments in business transactions.
1. Forbearance to Sue and Compromise: An express or implied promise
to refrain from enforcing a validly existing claim is deemed as good
consideration for a promise given in return. In the case of Alliance Bank v.
Broom the court inferred forbearance from the facts that the bank refrained
from bringing an action against the defendant. The bank had asked Broom to
give security over a loan facility. B promised to assign certain title documents
as security but failed to do so. B contended that there was no consideration
for the promise. Rejecting that contention, the court held per Kindersley VC
that “Although there was no promise on the pat of the plaintiff to abstain for
any certain time from suing for the debt, the effect was that the plaintiff did
in fact give, and the defendant received the benefit of some degree of
forbearance; not indeed for any definite time, but at all events, some extent of
forbearance.” The same conclusion will be reached even where the party in
forbearance has the slightest chance of success in court. See Callisher v.
Bischoffsheim (1870) L.R. 5 Q.B. 449.
2. Accord and Satisfaction: Under common law, a creditor who entered
an agreement to settle for lesser amount than the actual credit with a debtor,
like in the case of forbearance to sue and compromise, may later file an action
to recover the difference. The reason is that at common law a waiver of credit
facility for lesser amount is not recognized as consideration. The Pinnel’s
case (1602) and later buttressed by Foakes v. Beer (1884) established the
 principle that payment of a lesser sum in satisfaction of a greater amount
cannot be satisfaction for the whole.
3. Promissory Estoppel: This doctrine brought about the solution much
needed to remedy the absurdity or hardship introduced by the principle in
The Pinnel’s case (1602) and Foakes v. Beer (1884). The doctrine was
introduced through the landmark decision of Lord Denning in the case of
Central London Property Trust Limited v. High Trees House Limited
(1947), relying on the Hughes v. Metropolitan Railway (1877). The court
held that a promise to waive or accept a lower rent during the Second World
War years was binding on the landlord notwithstanding the fact that the
tenants had furnished no common law consideration for it. It could be
submitted that the promise has been recognized in law as sufficient
consideration and therefore no need for another. But this doctrine has not
been free from some legal checks as well in the English jurisdiction. Its
limitations have been set down as follows:
1. there must be an existing legal relationship;12
2. the promisee must have relied on it;
3. it is used as a shield and not a sword;13
4. it must be clearly inequitable for the promisor to renege on the
promise;14

2.5 CONTRACTUAL CAPACITY

For there to be a contract it is necessary also that the persons entering the
contract must be recognized as persons that are allowed to enter into a
contractual relationship in law. In actual fact the capacity relates to a person’s
right to avoid liability in a contract. Persons here include natural and artificial
persons.

12 See Lord Dennings decision in Evenden v. Guildford City FC (1975)

13 See Combe v. Combe (1951).
14 See D & C Builders v. Rees (1966)
1) Natural Persons Recognized in Law to Contract include all human
beings except infants, insane, drunk, illiterates and under customary law at a
time married women.
2) Infants: The law defines the age of adults from place to place. In
Nigeria a person below the age of 21 is deemed an infant under the law of
contract. A person below that age is known as a Minor in contract. Under
customary law a person below the stage of puberty is considered a minor.

A contract entered into with a minor is deemed “absolutely void in law (See
Infants Relief ACT 1874 S. 1). That is the general rule. In practice, the courts
have through some decided cases recognized certain circumstances under
which a contract entered into with an infant will be a valid and enforceable
contract.

(b) Contract of Necessaries – Necessaries are those goods and service that
are appropriate to the needs of the minor at the particular stage or condition of
life he is at the time the contract was made including food, drink, clothing,
shelter and other basic needs of life. His status is fundamental here. There
necessaries also will be determined according to each the fact. In the case of
Omidiji V. F.M.B (2001) 13 NWLR (Pt 731) 646 at 672 Per Akintan JCA
(then) pronounced that
“at common law infants or minors are barred from entering into contracts. They only
exceptions are in respect of contracts which are for the infant’s necessaries…., the buyer of
the house, being an infant, was therefore incapable of entering into the contract. The
purported sale of the house to the said infant purchaser is therefore null and void”.

Other contracts outlawed by the Infant’s Belief Act 1874 include contracts
relating to money lending. But the following are voidable at the instance of the
infant otherwise remains binding on the other parties.
(c) Contracts of Service – like apprenticeship or training are binding on
both the infant and the employer without more

(d) Educational service: As long as the education he gets is beneficial to

him a minor will be liable in such contract.

(e) Commercial trading: A minor is bound in contract where he sells to

another.

(f) Marriage: where a minor promises marriage to a person that contract

may be enforceable.

If should be noted that the other party in contract with a minor, particularly
where the minor misrepresented himself has the equitable remedy if recover by
way of restriction.

Insane/Drunk Persons: A person in these states are deemed incapable of

entering a contract although they must be certified medically as insane or drunk
and that must be known to the party that enters a contract with them. That
insanity must exist at the time of contracting. But they may ratify the contract
upon lucidity.

Illiterate Persons: The general rule is that an illiterate cannot enter into a
contract especially formal ones unless there is an illiterate just at properly
executed with the deed.

A married woman under marriage act by virtue of the common law doctrine of
unity of personality renders the wife incapacity to control. But the position has
been rectified by the Married Women’s Property Act 1882.
Artificial Persons: These include companies, statutory bodies etc. It should be
noted that a purported corporation not registered is not in existence and
cannot enter a valid contract. The capacity of a company or corporation is
generally limited to its objects in its memorandum and article of association
although with Section 39 of the Company and Allied Matters Act, 1990 that
restriction has been relaxed. Similarly, a statutory corporation is limited in
operations by the Act establishing it.

Unless otherwise provided by statute, be it expressly or impliedly, such as in the

case of certain trade unions, firms of partnerships, societies, unincorporated
associations do not have capacity to contract.

In similar vein, non-juristic, non-legal, non-existent person cannot enter into a

contract. Such persons include the Vice-Chancellor of the University of …,
Managing Director of …, Mr & Mrs …., etc. (See Carlen Nigeria Ltd v.
University of Jos (1994) 1 NWLR (PT 323) 631; Lion of Africa v. Esan
(1999) 8 NWLR (PT 614) 197 at 202.

2.6 INTENTION TO CREATE LEGAL RELATIONS

For there to be a consensus ad idem, there must be the clear intention of the
contracting parties to be bound. The intention may be inferred from the
conduct of the parties. Intention is not a physical object to see with natural
eyes. In law, the elements of contract must be conducted in such manner as to
show that parties contemplate to being bound by their promises.

In the case Carllil V Carbolic Smoke Ball the company backed up its promise
in the offer to the world not only for the fact that it placed a consideration of
₤100 in a bank but also for the fact that conduct implies serious intention to be
bound. In SCOA (Nig) Plc V. Civil Design Const (Nig) Ltd (2001) 9
NWLR (Pt 719) 652 at 767 the CA stated per Oguntade JCA (then) that
 “intention can only be ascertained from the terms of the contract into which the parties
freely subscribed their hands”.

The issue of intention to create legal relations is not really a problem as far as
commercial transactions are concerned. However, the problem areas here
border on matters relating to social/domestic relationships.

Social/Relationships/Arrangements: The general principle of law relating to

arrangements between parties including golf club competition, jalopy club,
food, car pool etc, i.e. between friends or neighbours will not amount to
contacts even where a party made contributions to the cost of getting the
arrangement going. See the case of Balfour V Balfour where it was also added
that acceptance of an invitation for a dinner does not amount to a contract.
Also, in the case of Amadi V Pool House Group (Nig) Ltd (1966) 2 ALL
NLR 254 exclusion clause at the back of the ship “binding in honour”

A similar arrangement subsuming under social arrangements are domestic

relationships / arrangement. Here as in Balfour V Balfour (1999) 2 RB 571,
578 where the husband’s promise to pay an allowance of ₤30 to his wife
monthly, was not with intention to be legally bound apart from the fact that
there was no consideration. It was in cuplion while his wife was in England on
medical grounds. The wife wanted to enforce the purported contract after they
had separated. But in Pettit V Pettit (1970) A C 777, 816 the Court was
divided as to whether an intention to create legal relations existed. A majority
held there was no intention. In that case a husband on having his wife
promised her ₤15 weekly for as long as he could manage it. Also, agreement
between parent and child in presumed domestic See Jones V. Padavatton
(1967) 1 WLR 328, 383.
Note however that where husband and wife agree to separate and in the
process made separation agreements there agreements are deemed to be with
an intention to be legally bound. this was the decision in Meritt V Meritt
(1970) 1 WLR 1211. Equally, where a man before a marriage entered certain
agreements with his would be wife may be reckoned with an intention to be
bound. See Synge V Synge (1894) 1 QB 466.

NB: Note that each case is considered on its merit and circumstances. For
instance where adult members of a family decided to share a common
household, the financial terms may be legally binding. Also, a husband may
make a binding contract between himself and his wife as a tenant to her – See
(Pearce V Meniam (1904) IKB 80

Collective relationships/agreements: These have to do with trade unions on workers’

unions/employees’ association on the on hand and their employers on the
other hands. The general rule is that they are not binding. But where they are
incorporated in individual workers’ contracts of employment they become
binding. See the case of Ford Motor Co. Ltd V. Amalgamated Union of
Engineering Foundary Workers (1969) 2 QB 303.

In Nigeria, the Wages Boards and Industrial Council Act 1990 provides that the
agreement should be rendered to the Minister of Labour and if approved by
him becomes binding.15

2.7 Summary of Module 2

In this module we have discussed the various basic elements the court will look
for in order to hold that a contract is valid and therefore decide on whether or
not the party is entitled to reliefs sought. For there to be a valid contract an
offer must be and that offer must be accepted without condition otherwise it
would amount to a counter-offer. Consideration is equally very important in
that it seals the contract. The module also highlighted what the law considers as
contractual capacity and intention to create legal relations.

15
See Commercial Law in Nigeria, Edited by E. O. Akanki, Lagos: University of Lagos Press, 2005, p.157.
2.8 Self-Assessment Questions
1. With copious examples, discuss the difference between offer and
invitation to treat.
2. Explain what will constitute a valid acceptance to an offer.
3. What is consideration? Discuss in three exceptions to the rules of
consideration.
4. You have been called upon to present a paper on contractual capacity,
highlight your points.
5. Of all the relationships used to distinguish a case of intention to create
legal relations which is most appropriate to law of contract? Why?
6. How will you describe a valid contract?
MODULE 3: Terms of Contract

Contents
3.1 Introduction
3.2 Terms of Contract
3.3 Classification of Terms of Contract
3.4 Summary of Module 3
3.5 Self-Assessment Questions

3.1 Introduction
In the course negotiations which eventually culminate in the contract, parties
make certain representations which induce them to enter into the contract
mutually. Those representations are called terms of the contract. The purpose
of this module is to discuss the different terms recognised in law of contract
and how they help in arriving at a conclusion as to the terms of the contact.
The student is therefore at the end of this module expected to be able to place
the degree of importance of the terms and how they are discerned.

3.2 TERMS OF CONTRACT

Whenever an agreement is made certain terms are agreed to directly or
indirectly. These terms are the rights and obligations of parties that arise from
the exchange of promises in the contract. When the terms are direct then they
are said to be express, where they are inferred then they are implied, hence the
term “express terms” and “implied terms”.

Before arriving at the terms of contract certain discussions or negotiations

would have passed. These negotiations are what pass for representations. The
distilled representation that is the agreed negotiations which parties arrived at
become the terms.
Implied Terms: are those not specifically stated but almost naturally implied.
This is where the problem frequently lies in contract especially when unwritten.
The courts invited to imply terms in a contract tend to consider the intention
of the parties in the contract as elicited from the words of the contract and the
circumstances surrounding them. The court would consider:

2) the custom or usage prevailing in the trade, profession or locality

3) the provisions of statutes related to the transaction; and
4) the decision of the court in previous similar cases
5) the terms the court itself could infer from the transaction if not earlier
pronounced upon. Examples include, terms that lead to efficacy to contract,
prevention of performance, landlord/tenant contract, e.t.c

3.3 Classification of Terms of Contract

Terms of contract are traditionally classified into condition and warranties.
But a third was added later called innominate (or intermediate) term.
Another fourth term later emerged as fundamental term.

Conditions: These are considered very essential to a particular contract on

footing of which breach may empower the aggrieved party (i) to deem himself
as discharged from the contract otherwise called repudiation or (ii) to deem it
as still binding and seek damages as remedy.

It would be further classified to promissory (promise to be fulfilled) and

contingent.

Warranties: Unlike conditions are subsidiary or collateral to the contract. A

breach of warranties can only entitle the party to damages and not repudiation
of the contract.
What terms would amount to conditions or warranties depend on the facts of
each contract.

Innominate: This is a term which ordinarily from the outset of the contract
does not appear as one that can entitle the other party to repudiate when one
breached the contract. It is subsequent events towards the performance of the
obligations of the parties that may render it as one which breach will entitle the
aggrieved party to repudiate.

Fundamental Terms: This term was evolved by the judiciary in order to

provide some remedy for wide exclusion clauses. In the case of L’Estrange V
Graucob (1934) 2 KB 394 the court held that liability for a breach of condition
could be excluded through the insertion of an exemption clause in a contract.
An exemption clause is that clause in a contract which exonerate a party from
certain liability. The court as a remedy to a situation whereby liability for a very
important term in a contract may be exempted/excluded decided to introduce
the term fundamental term. See the case of Akinsanya V UBA (1981) 4
NWLR 273; Narumal Ltd V Niger Benue Transport Corp. (1989) 2
NWLR 730.

Exemption Clauses: These are clauses inserted in a contract in order to make

a party avoid certain obligations under some conditions. These clauses are
otherwise referred to as exclusion or limitation clauses. They are usually
common features of standard form contracts. (Standard form contracts are
contract in written form prepared by one party to set out the terms of a
contract to which the other party is invited to accept. But the problem arises
whereby the other party may not read carefully e.g. receipt for goods deposited,
railway or steamship tickets but not a cheque, or ticket for parking or public
bath house etc). Those terms in a standard contract must however be brought
to the attention of the party before not after. If the other party does not know
it is written somewhere, he is not bound; if he knew, he is bound; if the party
giving the document notifies him, he is bound/. It will amount to insufficient
notice if the conditions were printed behind the document without appropriate
reference to it. Personal disability is not generally contemplated as long as there
is sufficient demonstration of notice.

Exceptions to the Rule:

(a) The current bearing the exemption clause must form part of the contract
between the parties. The implication is that the document must be a
contractual document. this is exemplified in the case of Olley V. Marlborough
Court Ltd (1949) 1 KB 532 a notice of exemption clause posted behind the
door of a hotel room was held not valid. Likewise, a receipt may not be
considered valid contractual document since it is evidence of payment, unless
the ticket is known to both parties as containing part of the contract. See
Chapelton V. Urban District Council (1940) 1KB 532.

(b) An exemption clause must be clear and not ambiguous. If ambiguous the
clause shall be resolved against the party relying on the clause. See Karsales V.
Wallis (1956) 1 WLR 936.

(c) Time of Notice: The conditions must be properly brought to the

attention of the other party to be bound on or before the contract is made. See
Olley’s case supra.

(d) Signature: Where parties append their signature they are bound unless
fraud could be proved, see Gurtis V Chemical Cleaning & Dyeing Co.
(1951) 1KB 805.

(e) Statutory Requirement: Where a statute prevents a party from certain

exemption clauses any contrary act will be void.
(f) Third Party: An exemption clause cannot apply to a third party in a
contract by virtue of privity of contract.

(g) Fundamental Breach: A fundamental term of contract may not be

concluded. See Niger Insurance Co. Ltd V Abed Bros Ltd (1976) NNLR
88; Ogun V Leventis Motors Ltd (1963) NNLR 115. But in Narumal &
Sons Ltd V. N. B. T. C Ltd (1989) 2 NWLR (Pt 106) 730 the Supreme
Court held that there is no rule of law that exception clause is nullified by a
fundamental breach of contract or breach of fundamental term but in each
case, the question is one of the construction of the contract whether the
exception clause was intends to give exemption from the consequences of
fundamental breach.

3.4 Summary of Module 3

This module attempted to explain those representations made by parties during
negotiations to enter into a contract, which representations may become the
agreed terms of the contract. The degree of importance of the different terms
was also highlighted.

3.5 Self-Assessment Questions

1. What constitutes a term of contract?
2. Enumerate and discuss the different types of terms of contract.
3. Distinguish between conditions and warranties.
4. Explain what you understand by exclusion clause. What are its exceptions.
5. Compare express and implied terms.
MODULE 4: Vitiating Elements of Contract

Contents
Introduction
Mistake
Misrepresentation
Undue Influence or Duress
Frustration
Summary of Module 4
Self-Assessment Questions

4.1 Introduction
In this module we intend to discuss those fundamental issues that may render
an otherwise valid contract ineffective and null and void. These issues
constitutes acts of parties in the process of entering the contract which the law
consider as unfair, fraudulent or negate the fundamental requirement of
consensus ad idem. They are tagged by some school as vitiating elements of
contract.

At the end of the module the student is expected to understand those

undertones in entering into a contract that the law will consider in case of
interpreting a contract or assessing whether or not there is indeed a contract.

4.2 Mistake:
It is possible for parties to operate under some mistaken assumption which is
fundamental to a contract like the subject matter or others. Where that occurs
the contract may be avoided because of the mistake. This was developed
originally in Bell V Lever Brothers Ltd (1932) AC 161, 218.

These species of mistake have been recognized namely:

 1. Common Mistake: Where both parties have same intention but share
the same mistake. For example where the subject matter is no longer exists.
See Abraham V Oluwa (1944) 17 NLR 123
2. Mutual Mistake: Parties here are found to have misunderstood each
other‘s intention as to certain fundamental terms e.g. the ownership or
quality of the subject matter as in Bell V Lever Brothers Supra.
3. Unilateral Mistake: As it suggests only one party is under the mistaken
assumption whereas the other party is aware that his contracting friend is
under that mistake. See Levis V Avemy.
4. Non est Factum: This is a case whereby a person was induced by a
false statement of another to sign a document containing terms
fundamentally different from what he thought he was signing. The deceived
person can plead non est factum – i.e. it is not my deed.

4.3 Misrepresentation
This involves a statement of fact which is false thought known as false by a
party. The misrepresentation is calculated to induce the other party to enter
into a contract. Misrepresentation is therefore good ground to avoid a contract
in law.

Elements of Misrepresentation: For there to be a misrepresentation, the

following must exist:
1. There must be an actual statement of fact and usually not
law;
2. That statement must be false and known only to the maker.
The statement must relate to the present or past not a
future event;
3. It must therefore not be a statement of intention
4. The statement must be capable of a vital proof not mere
puff.
5. Generally silence does not constitute misrepresentation.
 Exceptions to the elements:
(i) Where an opinion not actually held or of which the speaker is ignorant,
his claim will be a misrepresentation.
(ii) Where an opinion is stated as a fact e.g. a promoter using a publication
of another to induce subscribers.
(iii) Where misrepresentation contains both law and fact = to
misrepresentation of a fact.
(iv) A style word, nodding of head, smile etc may constitute
misrepresentation if it induced another.

Types of Misrepresentation: There are 3 types namely:

Negligent Misrepresentation: This is generally not actionable unless it can be

proved that there is a trust relationship between the parties. Examples include
where a party is misled by his solicitor or banker, doctor (professionals
generally) and thereby incurs loss. That person will be entitled to damages.
Hedley Bryne V Hellesco.

Fraudulent Misrepresentation: Where the maker know that the statement is

untrue, he is dishonest if he does not know, whether stupid, credulous be may
not be liable, carelessness is not dishonesty.

Innocent Misrepresentation: Where the maker did not knowingly or

dishonestly, though carelessly made a false statement, he has no intention to
deceive. See Derek V Peek.

Remedies vs Misrepresentation Generally, a misrepresentation makes the

contract voidable except in cases of unilateral contract.
• a party may repudiate or deem himself discharged
 • the party may choose to rescind and rescission implies his being returned to
the original position.
• A party that loses may be entitled to damages.

4.4 Undue Influence or Duress (Inequality of Parties)

Contract contemplates equality of status at negotiation and agreement. But
where one is made to contract by force or unequal relationship that contract
will be voidable or in case of infant void. For example where a person is made
to sign a document under gun threat amounts to duress e.g. the person induced
may plead non est factum. The court has attempted to capture the ingredients
of undue influence in the following words:
“
1. That the other party to the transaction had capacity to influence the
complainant.
2. That the influence was exercised.
3. That the exercise was undue.
4. That the exercise brought about transaction in question.
5. That the transaction was to the manifest disadvantage of the
complainant.
Failure to prove any of the above stipulations would be fatal to the
complainant’s case.”
See F.B.N. Plc V. Akinyosoye (2005) 5 NWLR (PT 918) 340 at 383. The
case further added a sixth requirement: “It is trite law that for the
maintenance of a pleaof undue influence, the party concerned must
apply timeously to avoid the contract and must not be guilty of undue
delay.”

4.5 Frustration
Frustration may be described as a situation whereby a contract could not be
performed due to no fault of either party. To arrive at what constitutes
frustration the court does not consider the actual intention of parties but what
they, from the position of a reasonable man, would presumably have agreed
upon if, having such possibility in view, they had made express provision for it.

In the case of Mazin Engineering Ltd V. Tower Aluminium (1993) 5

NWLR (PT 295) 526 at 534, 537-538 the court held thus:
“Frustration may be defined as the premature determination of an
agreement between parties lawfully entered into and in course of operation
at the time of its premature determination, owing to the occurrence of an
intervening event or change of circumstances so fundamental as to be
regarded by law both as striking at the root of the agreement, and as entirely
beyond what was contemplated by the parties when they entered into the
agreement. If, therefore, the intervening circumstance is one which the law
would not regard as so fundamental as to destroy the basis of the agreement,
there is no frustration. Equally if the terms of the agreement show that the
parties contemplated the possibility of such intervening circumstance arising,
frustration doe not occur. Neither of course, does it arise where one of the
parties had deliberately brought about the supervening event by his own
choice…. But where it does, frustration operates to bring the agreement to
an end as regards both parties forthwith and quite apart from their violation
… It must be emphasized that where the contract is frustrated, further
performance is excused only if: (i) it occurs before the breach of contract, (ii)
it is without the fault of either party, and (iii) it is due to fundamental change
of the circumstances beyond the control and original contemplation of the
parties.”

The question of breach does not arise therefore where indeed there is
frustration. Some of the common circumstances that may bring about
frustration of a contract will include:
• Death – in cases of personal service death discharges a contract.
• Destruction/Disaster: This is referred to as an act of God or force
majaure.
 • Illegality – a situation whereby performance is rendered illegal by some
unexpected legislation.
• Cancellation of event
• Inavailability of materials for completion of the contract. e.g. inflation,
ban on importation, etc.

4.6 Summary of Module 4

This module has shown that it is not enough to found a contract merely by the
presence of the necessary elements of a valid contract viz, offer, acceptance,
consideration, contractual capacity and intention to be bound. It reveals that
certain background circumstances may be considered as well to find out if
indeed the parties agreed without unlawful interference(s).

4.7 Self-Assessment Questions

1. List those elements that may vitiate a contract.
2. What is frustration in contract?
3. Can inequality of parties position vitiate a contract? Explain.
4. When will mistake invalidate a contract?
5. Is it only natural disasters that frustrate contract? Discuss.
MODULE 5: Performance/Discharge and Breach of Contractual
Promises
Contents:
5.1 Introduction
5.2 Performance of Contract
5.3 Breach of Contract
5.4 Remedies of Breach
5.5 Summary of Module 5
5.6 Self-Assessment Questions

5.1 Introduction
This Module is meant to intimate the student with the various ways of
measuring performance in contract and/or the discharge of obligations under a
contract. It also teaches the student the different situations of breach of
contract and the remedies available to an aggrieved party.

Mutual performance of a contract automatically discharges the parties to the

contract. The general rule is that a contract entered into is binding on parties to
perform unless otherwise agreed by the parties. Unless a party has fulfilled his
promise in a contract he is not discharged. It is not permissible for a party to
unilaterally resile from a contract or excuse himself from the contract to the
detriment of the other. See Beswick v. Beswick [1968] A.C. 58 at 92.

The promisor is under the obligation to carry out his promise according to the
agreement unless the parties mutually agreed to vary or waive the
performance. The court will usually consider the totality of the terms of a
contract to ascertain the extent of the obligations of the respective parties. In
doing that it is the duty of the court to also identify the terms of the contract
that will constitute the fundamental terms of the contract.

A contract may be entire or divisible. This is determined by the consideration

for the contract. If the contract is one in which the consideration is one and
entire then the contract is entire and indivisible. But where the contract is such
that a number of considerations are set out for a number of stages or acts to be
done then the contract is divisible. The latter suggests instalmental
performance.

5.2 Performance of Contract

There are different degrees of performance. For easy appreciation they may be
classified as:
 1. Full performance (de minimis doctrine): the law requires full or entire
performance of a contract. That is the doctrine of de minimis doctrine;

2. Substantial performance: When quite a portion of the contract has been

carried out it may be considered a substantial performance. It is a
doctrine in contrast to (1) above which the court developed to mitigate
the requirement of de minimis doctrine;

3. Part-performance: In actual fact his is a doctrine peculiar to certain

contracts which are required to be in writing by statute, for example,
lease, assignment, etc. Where one of the contracting parties has partly
performed an oral contract, which indeed the statute required to be in
writing, in expectation that the other party would perform the rest of the
contract, the court will not allow that other party to excuse himself from
the contract on the strength of the statute. See Paye v. Gaji (1996) 5
NWLR (PT 450) 589 at 605;

4. Total non-performance: This occurs where parties to the contract have failed
to fulfil their obligations in the contract.

The essence of the above classification is to set forth a platform for the proper
understanding of the remedies available for the breach of a contract. Where
parties perform their obligations they are discharged from the contract. But
where they do otherwise there is a breach of contract.

5.3 Breach of Contract

A contract is said to have been breached where a party unilaterally refuses to
fulfil his obligation in the contract. In other words, he unilaterally purports to
have discharged himself from the contract. A breach depending on its gravity
attracts different remedies open to the aggrieved party. The remedies available
to the aggrieved party are discussed in Chapter 10. The law presumes that every
reasonable person who enters into a contract knows the ordinary course of
things and consequently the loss that will likely arise from a breach of the
contract. So, two kinds of knowledge are identified. One is imputed as stated
(based on presumption of contemplation of parties) and the second is actual.
See C.A.P. plc V. Vital Inv. Ltd (2006) 6 NWLR (PT 976) 220 at 259, 251.

Anticipatory Breach: In certain situations a party may indicate that he will not
be able to continue with the contract thereby insinuating rescission from the
contract before the time at which he is bound to perform. Such a breach is
known as anticipatory breach. It occurs when the party expresses an intention
to break the contract or when he acts in manner as to lead a reasonable person
to conclude that he intends to renege on his obligation in that contract. See the
case of F.G.N. V. Zebra Energy Ltd (2002) 18 NWLR (PT 798) 162 at 215.
The other party may from that act of the party in such anticipatory breach
either unequivocally accept the breach completely and sue for damages, or,
reject the breach and retain the right to enforce the breaching party’s primary
obligation. See Johnstone V. Milling (1886) 16 Q.B.D. 460 and F.G.N. V.
Zebra Energy Ltd supra.

Exceptions to Breach of Contract

It is necessary to highlight some instances where the issue of breach of contract
cannot be grounded. These constitute cases whereby certain actions of the
parties to the contract discharged, albeit impliedly, them from being bound to a
contract. Such cases make up the exceptions to breach of contract. In the
following circumstances a breach may not be said to have been made:
i) Variation: Parties to a contract may mutually amend the terms of
their contract and thereby jettison those terms earlier agreed. When
that happens they are said to have varied the contract and thereby
discharged from the earlier agreement. See the case of Morris V. C.
H. Bailey Ltd [1969] 2 Llyod’s Rep 215.

ii) Rescission: It sometimes happens that parties to an executory

contract mutually decide to discharge each other from the obligations
of the contract. That is what is referred to as rescission. It may be
expressly done or inferred from the conduct of the parties. See the
case of Rose Frank & Co V. J.R. Crompton Bros Ltd [1925] A.C.
445.

iii) Waiver: Where one of the contracting parties chooses to grant a

concession to the other party by a voluntary decision not to insist on
the mode of performance agreed in the contract, that party is
reckoned to have waived the performance and therefore discharged
the other party. The waiver may come before or after a breach of the
term waived. See Besseler Waechter Clover & Co V. South
Derwent Coal Co Ltd [1938] 1 K.B. 408 at 417.

iv) Novation: In certain cases parties to a contract mutually agree to

substitute a new contract for an existing one and the latter
discharged. Such act amounts to what in contract is called novation.
Here a new party may be included in the new contract. The main
 issue here, however, is the assignment of contractual right. See the
case of Scarf V. Jardine (1882) 7 App Cas 345 at 351.

It is a transfer of liability in contract such that the original is

discharged. The transfer is not an assignment of liability but a
novation of the contract. A typical illustration of novation is a
situation whereby A owes B and C owes A, and all the three parties
mutually come to an agreement whereby C shall become debtor in
place of A. To make a valid novation the intermediate liability of A to
B must be estinguished; the same or larger amount should be due
from C to A than from A to B; and a defined and ascertained liability
is transferred. This tripartite agreement may take place before or after
the liability is due.

Practical novation is found in cases of amalgamation of companies or

retirement of a partner from a partnership. When used in contract of
service an employee or agent who agrees to serve a firm for a certain
period of years and who on the dissolution and reconstruction of that
firm, but before the expiration of that period sat down, agrees to
serve the reconstructed firm in place of the dissolved firm, no longer
has right of action against the dissolved firm. See Hobson V. Cowley
(1858) 27 LJ Ex. 205; Brace V. Calder [1825] 2 Q.B. 253

v) Accord and Satisfaction: See page 37.

vi) Promissory Estoppel: See page 38.

vii) Forbearance to sue and compromise: See page 36.

The foregoing constitute the various means by which parties to a contract may
be discharged without liability for breach.

5.4 Remedies of Breach of Contract

Remedies for breaches of contracts can be either preventive or redemptive.

The aggrieved party has remedies of either rescinding/repudiation of the
contract and recover the loss suffered so far or insist on the contract being fully
performed and recover damages. This principle was rested in the case of
Odusoga V. Ricketts (1997) 7 NWLR (PT 511)1 at 16-17 this way:
“… If one party to a contract commits a breach then if that breach is
something that goes to the root of the contract, the other party has his option.
He may still treat the contract as existing and sue for specific performance; or
he may elect to hold the contract as an end – i.e., no longer binding on him
while retaining the right to sue foe damages in respect of the breach
committed…”

On remedies open to the party there is part performance of the contract the
Supreme Court in Olaopa V. O.A.U., Ile-Ife (1997) 7 NWLR (PT 512) 204
at 220 held:
“The principal is that, a party to an entire contract partly performed by
him and was, by the act of the other party, prevented from proceeding
further with performance, the law entitles him to be paid for the fruits
of the labour he has already rendered. In situate like this, two
alternative remedies are open to him: (a) damages for breach of
contract; (b) reasonable remuneration in quantum meruit for the work
already done.”

Whereras the foregoing are the common and broadly recognized remedies of
breach of contract, the Osborne Concise Dictionary (9th edn) identified four
including one extra-judicial means viz:

“(1) By act the injured party, e.g. defence, reception, distress, abatement and
seizure.
(2) By operation of law. e.g. retainer and remitter.
(3) By agreement between the parties, e.g. accord and satisfaction, arbitration.
(4) By judicial process, e.g. damages, injunctions.”

Indeed these are practical remedies at the disposal of the aggrieved party to a
contract for breach of the contract:

1. Damages: Damages in breach of contract is that compensation which

the aggrieved/injured party in the contract is adjudged entitled to. The
quantum of damages in an action for breach of contract is strictly meant
to restore the party to the position he would have been had the breach
not occurred, i.e., restitutio in integrum. See Omonuwa V. Wahabi (1976)
4 SC 37 at 41. The reason is that the injured party cannot expect a
windfall. He has a duty to mitigate his loss. Note that damages in
contract are specially pleaded and proved. See Chitex Ltd V. O.B.I.
Nigeria Ltd. (2005) 14 NWLR (PT 945) 392 at 410.

2. Specific Performance: There are cases whereby a party may not be

adequately compensated by damages only, for instance, land related
 matters. For such circumstances the law has provided through equity for
the remedy of specific performance of the contract. It is however not
granted as a matter of course since it is discretionary. See Universal
Vulcanising (Nig) Ltd V. I.U.T.C. (1992) 9 NWLR (PT 266) 388 at
404, 413.

3. Repudiation: An injured party to a contract may be allowed to regard

himself as not being bound by the contract in consequence of its breach.
In other words the law in that circumstance permits him to reckon the
contract no longer binds him since the other party has breached the
contract. But the other party also has the option of accepting or refusing
the repudiation. See the case of Okongwu V. NNPC (1989) 4 NWLR
(PT 115) 296.

4. Rescission: This is an act of revocation or the undoing of the contract.

It is an act of the parties to the contract or a pronouncement of the
court. The circumstances that could evoke this remedy include
substantial breach, mistake, misrepresentation, fraud, undue influence,
etc. This option may only be permitted where restitution is possible. See
Ban-Nelson (Nig) Ltd V. Moro L.G., Kwara State (2007) 8 NWLR
(PT 1037) 623 at 631.

5. Restitution: this involves the return to the injured party his goods or
property or its monetary equivalent in order to restore him to his former
position. See Hyun Sung Hydraulic Machinery Co. Ltd V. Hassan
Jaffer (2004) 15 NWLR (PT 896) 343 at 361.

6. Injunction: The injured party may seek the court’s protection by

applying for an order to compel the party in breach to do, or refrain
from doing a particular thing. Such an order is called an injunction.

7. Rectification: There are cases whereby the terms of the contract may be
rewritten to reflect the true intentions of the parties and thereby ordering
them to proceed with the amended terms. It would appear that this
remedy is limited to cases of mistake. The Supreme Court illuminated
this remedy in the case of The Vessel “Leona II” V. First Fuels Ltd
(2002) 18 NWLR (PT 799) 439 at 470-471.

8. Extra-Judicial: There are cases where the party injured rather than seek
remedy/redress by judicial means exploits other options and is able to
 secure alternative satisfactory compensation from the party in breach.
Such remedy will qualify for extra-judicial remedy.

5.5 Summary of Module 5

This module has explained the various circumstances by which the
performance of a contract may be measured. It also discussed the modes of
breach of contract and the remedies available to the aggrieved party.

5.6 Self-Assessment Questions

1. Write short notes on the following: a. full performance, b. partial
performance, c. substantial performance and d. total performance of
contract.

2. Explain the quantum of damages available to an injured party to a

contract.

3. What is breach of contract? Discuss three of exceptions to breach of

contract.

4. Enumerate the remedies at the disposal of an injured party and explain

four of them.

5. What is anticipatory breach?