Introduction to Contract

A contract may be described as a legally binding agreement between two parties which affects the legal rights and duties of both parties, and would therefore be enforced by a court of law. One party to a contract usually agrees to forgo legal rights and possibly suffer detriment in exchange for the conferment of a form of benefit from the other party. Tobi, J.C.A. defined a contract as an agreement between two or more parties which creates reciprocal legal obligations to do or not do particular things. While contracts often involve both parties conferring benefit on each other, it is not always so. Sometimes gratuitous promises may be binding.

It should be noted that there cannot exist more than two parties to a contract, as everyone involved falls under one of the two parties. Where there are more than two parties, there is usually more than one contract as is the case in a contract of guarantee. A contract of guarantee has three parties and two contracts with one contract being the contract of guarantee between the lender and the guarantor and the other contract being between loan contract between the lender and the debtor whose debt is being guaranteed.

The reason why contracts are regarded as binding is because the commercial and economic life of modern society consists largely of contracts. It would cause great disruption and confusion if a person could be allowed to freely break a promise they made and suffer no repercussions after the other party has relied on that promise. The enforcement of contractual obligations is therefore based on the need to ensure a smooth and efficient operation of commercial and economic activities.

There are different kinds of contracts. They have been classified based on different requirements.

1. Formal and simple contracts.
2. Express and implied contracts.
3. Bilateral and unilateral contracts.

1. Formal and simple contracts.

Formal contracts, also referred to as contracts under seal or deeds, are contracts which are required to be in writing and to possess the seal of whoever is to execute the contract. The modern position has however been expanded to also include a signature since seals have become common and easy to purchase. A gratuitous promise may only be enforced if it exists in the form of a contract under seal since there is a lack of consideration flowing from both parties. The court stated in Xenos v. Wickham that the delivery of the document is not necessary once the executor has shown that it is his intention to be bound by the promise. A simple contract, on the other hand, is every contract which is not a formal contract. This includes written contracts which are not under seal and contracts made orally. Contracts made orally may also be referred to as parol contracts in recent times, although parol contracts used to refer to both written contracts that were not under seal and oral contracts. The main difference between a simple contract and a formal contract is that while a plaintiff must have furnished consideration to bring an action in a simple contract, the need for consideration may be dispensed with when an action is being brought under formal contracts. It was stated by Skynner, C.B. in Rann v. Hughes that a contract may be written and still be simple if it was not under seal and therefore still required that consideration should be furnished.

2. Express and implied contracts.

A contract shall be referred to as an express one when the terms are clearly stated. This is the usual position and the contract shall come into existence after correspondence and negotiation on price, the duration, inter alia. This was the case in Mountford v. Scott, where Scott granted Mountford an option to purchase his house for 10,000 pounds exercisable within six months in return of a payment of 1 pound to him by Mountford. The contract would be implied if the terms are not expressly stated. The court, in such circumstances, would usually construe the existence of a contract from the conduct of the parties. As an example, a passenger might enter a bus without any dialogue with the conductor or driver. There is an unspoken agreement that he would be taken to his destination and in exchange he would pay the fare. In Brogden v. Metropolitan Railway Co., the defendant was held bound by the contract between the defendant and the plaintiff even though the defendant never signed the document containing the contract. Both parties had been acting in conjunction with the contents of the unsigned document over a reasonable period of time, and so the contract was there held to be an implied one.

3. Bilateral and unilateral contracts.

A bilateral contract is a mutual exchange of promises between two parties. The consideration is usually executory. One example is if A asks B to build his house in exchange for a sum of money, it is a bilateral contract. There are only promises which have not been performed and thus the consideration is executory. An offer is usually made directly to the other party in a bilateral contract. One example of a bilateral contract is the previously cited Mountford v. Scott. A unilateral contract, on the other hand, involves an executed consideration. The offer is usually also open to a group of people, very often the public, for those of them interested to accept. A good example of this is reward cases. There is also the landmark case of Carlill v. Carbolic Smoke Ball Co. where the defendant company advertised in the newspapers to the effect that it would pay 100 pounds to any person who used a smoke ball manufactured by it for a minimum period of two weeks, and nevertheless succumbed to influenza. The company was held liable to the plaintiff for 100 pounds. The buying of the smoke ball was acceptance by the plaintiff and it was not necessary for it to be communicated.