Characteristics of a Valid and Binding Contract

Apparently, there are contracts which the law will enforce and contract which the law will not enforce or consider binding due to the absence of some requirements. In this article, i am going to explain some of the characteristics of a valid and binding contract. This is basically to guide students, lawyers and even traders in their day-to-day business transactions.

I enjoin you to read this topic painstakingly as I pen down the 7 (Seven) major characteristics of a valid and binding agreement. Trust me; you will not regret reading this article.

What is a binding contract?

A contract is an agreement made upon sufficient consideration to do or not to do a particular thing. It is an agreement that is enforceable by the law, between two or more persons to do or abstain from doing some acts; their intention being to create legal relations and not merely to exchange mutual promise.

characteristics of a valid and binding contract
characteristics of a valid and binding contract

You will agree with me that the commercial and economic life of people in the society consist of contract. It will be chaotic in trade and commerce if the law permits promisors to break their promises without, at least, placing them under an obligation to pay compensation to the promisee for the loss caused by their default.

In that light, a party to a contract will not be allowed in law to unilaterally back out of a contract merely because he subsequently realises that the contractual conditions are not favorable to him. Now, for a contract to be valid and binding, it must meet some requirements provided by the law. Where any of the requirements of a valid and binding contract is missing in a contract, the court will hold that the contract is invalid and as such will not be enforceable.

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Characteristic of a valid contract

Below are the essential elements of a valid contract:

  1. There must be an offer;
  2. There must be acceptance of the offer;
  3. There must be consideration;
  4. Intention to create legal relations between the parties;
  5. The parties must have contractual capacity;
  6. The contract must not be unlawful or contrary to public policy;
  7. The contract must be in the form required by law;

There you have a list of the elements of a valid and binding agreement. Each of these elements will be extensively discussed as we continue. Now, let talk about the first element.

1. There must be an offer:

This is the first and must importance element of a valid and binding agreement. By being the first I mean it is the foremost characteristic of a contract the court will check in deciding whether a contract is valid and binding.

For academic purposes, i will define an offer as the expression of willingness to contract on certain terms made with the intention that it shall become binding as soon as it is accepted by the person whom it is addressed.

It can also be defined as a proposition made by one party called the offeror or to another party called the offeree, clearly and precisely indicating the terms under which the offeror is willing to enter into a contract with the offeree.

Like I have already stated, an offer is the first ingredient to look out for in ascertaining whether there is a contract or not. Where there is no offer, there is no contract.

In Dahiru v Kamale [2005] 9 NWLR (PT 929)50, Ogbuagu JSC said that an offer is an expression of readiness to contract on the terms specified by the offeror which if accepted by the offeree, will give rise to a binding contract. In other words, it is by acceptance that the offer is converted into a contact.

In order for a proposition to amount to an offer capable of acceptance, four conditions must be satisfied:

  • It must be definate, certain and unequivocal.
  • It must be communicated to the offeree.
  • The communication of the offer must be authorized.
  • It must be made to a particular person or to a class or group of persons or to the public at large.
Characteristic of a valid and binding agreement
Characteristic of a valid and binding agreement

2. There must be acceptance of the offer:

The second characteristic of a valid and binding contract is acceptance. An offer which has been made and has not been withdrawn or terminated must be accepted before it can result in a contract.

Simply put, acceptance is the final and unqualified expression of assent to the terms of an offer. In Dalek (Nig) Ltd v OMPADEC [2007] 7 NWLR (PT 1033) 402, Ogbuagu JSC noted that a qualified acceptance of an offer cannot give rise to a binding agreement between the parties.

Aboki JCA has also defined acceptance as the reciprocal act or action of the offeree to an offer in which he indicates his agreement to the terms of the offer as conveyed to him by the offeror. His Lordship went further to say that an acceptance of an offer may be demonstrated by:

  • Conduct of the parties,
  • Words
  • By documents that have passed between them

For conduct to constitute acceptance, it must be unequivocally traceable to the transaction to constitute acceptance. Where there is a missing link between the conduct of the parties and the transaction, a court of law will not be prepared to hold that a valid contract exist between them.

Acceptance is as important as an offer in a valid and binding contract because it shows that the offeree is will to contract on the terms proposed in the offer. No doubt, it is one of the major characteristics of a binding contract.

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3. There must be consideration:

Consideration is another essential characteristics of a valid contract which is not under seal. The term “consideration” has been defined as the price for which the defendant’s promise is bought. This definition was given by Pollock in his book “Principles of contract“. To sustain an action in contract, the plaintiff must establish either that the contract is contained in a document under seal, deed or that it is supported by consideration.

What this really means is that the plaintiff must give something in return for the promise made to the promisee. That price or something given is what is known as consideration. A consideration may take several forms. Eg, it may be a mere promise, an act, a right conferred on the defendant, a benefit given to the defendant or even a forbearance suffered by the plaintiff.

The position of the law concerning consideration was extensively explained by Lush J in Currie v Misa [1875] LR 10 Exch 153. In that case, Lush J held that a valuable consideration in the eye of the law may consist either in some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility, given suffered or undertaken by the other.

In light of the above information, consideration does not only consist of profit by one party but also exist where the other party abandons some legal right in the present, or limit his legal freedom of action in the future as an inducement for the promise of the first.

It is irrelevant whether one party benefits but it is enough that he accepts the consideration and that he party giving it does thereby undertake some burden, or lose something which is contemplation of law may be of value.

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4. Intention to create legal relations between the parties:

So far, we have agreed that for a valid contract to result there must be an offer and a corresponding acceptance supported by consideration in some cases. It does not stop there. Another important characteristics of a valid and binding contract is the presence of an Intention to create legal relations between the parties.

According to Lord Stowell in Dalrymple v Dalrymple [1811] 2 Hag Con 54,

“contracts must not be the sport of an idle hour, mere matters of pleasantry and badinage, never intended by the parties to have any serious effect whatsoever”

Some legal scholars are of the opinion that there is actually no need to include the requirement of “intention” to support a valid and binding contract. However, it is clear that the element of intention to enter into legal relations has come to stay in the common law of contract.

Apparently, not all agreement is accompanied with the intention to enter into legal relations. So, it is important to prove that there was an intention to create legal relations between the parties.

In Thoroughgood’s Case, Mr. Thoroughgood was an illiterate person. His tenant, Mr. Chicken was in arrears of rent which he had been unsuccessfully pressed to pay. Mr. Chicken then produced a paper to Mr. Thoroughgood and after incorrectly and misguidedly reading it to him as a document intended to release Mr. Chicken from all the arrears of rent, got the sympathy of the landlord who signed and sealed it.

In fact, the document was a deed transferring the very house in which the tenant lived to the tenant himself as owner.

Mr. Chicken, proceeded to sell the property to an innocent purchaser. It was held that the document or deed was void and that Mr. Thoroughgood remained the owner of his house because there was no intention to contract on such terms.

5. The parties must have contractual capacity:

Even when all other characteristics of a binding agreement or contract has been met, it may nevertheless turn out to be illegal, voidable or unenforceable as a result of the kind of persons who entered into the contract.

It is important to note that a contract may not be enforceable against certain categories of people who enjoy special status in contractual transactions.

This privilege is intended as protection for people who, because of their circumstances, can easily be exploited or defrauded in the making of contract. This protected group includes infants, persons of unsound mind or lunatics, drucken persons, married women and illiterates.

In Nigeria, the requirement of contractual capacity is important in relation to the above protected group of people. All other persons have full contractual capacity.

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6. The contract must not be unlawful or contrary to public policy:

If a contract is contrary to a law inforce, then it lacks a very important characteristics of a valid and binding contract. An unlawful contract or illegal contract is a contract that is expressly prohibited or forbidden by law and whose formation is usually followed by a penal sanction.

Such a contract differ from a void contract in that a void contract is not expressly forbidden or visited with a sanction, but merely deprived or emptied of any legal force. An illegal contract is void and cannot be the foundation of any legal right.

A contract may be illegal by statutes or at common law. Contracts which are made illegal by statutes can exist in various forms. For instance, where the contract is expressly prohibited by status, where there is regulation of a particular trade, profession or the dealings in a particular commodity, where there is protection of a class or group of people by the law.

An example of a law that protect a class of people is the illiterate’s protection Act. It provides in section 3 that any person who writes or prepares a document at the request of, or on behalf of, an illiterate person, must read it over and explain the content to the illiterate person before the latter signs it or makes his mark on it. A case that clearly shows this is the Thoroughgood’s case which earlier explained in this article.

There are also contracts which are illegal by common law on grounds of public policy. Take for instance, contracts to commit a crime, tort or fraud, contracts prejudicial to the status of marriage, contracts prejudicial to public safety, contracts prejudicial to the administration of justice and even contract capable of corrupting public life.

7. The contract must be in the form required by law:

Sometimes, the law may that a particular kind of contract should be in a particular format. For instance, the law may provide that contracts that has to do with transportation must be in written form. If the law provides for this, then any contract that has to do with transportation, but does not follow this rule, is not valid and cannot be binding.

The law can also provide that the contract should take the shape of mere writing, embodied in a deed or requirement of authentication by a notary or magistrate. The rationale for this is to promote certainty in law and to prevent a person from being bound by a hasty promise.

An example of a law that requires that a contract must be in written form is the Statute of Fraud of 1677. In section 4 of this law, it provides that no action shall be brought whereby to change the defendant upon any special promise to answer for the debt, default or miscarriage of another person unless there is written evidence of the promise.

This will be an essential characteristics of a valid and binding contract in states where the Statutes of Fraud applies.

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Conclusion:

By way of conclusion, i must remind you that, what you just read are the essential elements of a valid and binding contract. Where any of these elements or characteristics is not present in a contract between two persons and there is a default, the court may not enforce the contract. So, as a trader doing business in any part of the world, you must take notice of this because it concerns you the most.

Hope this article was helpful? I would love to hear from you anyway. If you have any question or contribution to this topic, kindly send it using the comment section.