By Stanley Muema
Writing up a legal contract or agreement between two or more parties can be a fraught with hidden dangers. The devil is often in the detail and that’s why extreme caution should be used when the parties come together in anticipation to forming a legally binding contract.
The contract lies at the heart of everyday business and is the means by which the simplest to the most complex of business is done. Effectively, a contract can be described as quite simple as a promise or agreement enforced or recognised by law. A contract has been defined by Sir William Anson in the words, “A legally binding agreement between two or more parties, by which rights are acquired by one or more to acts or forbearances on the part of the other or others.”
The basic elements which are necessary in order for there to be a legally enforceable contract are as follows:
Sometimes it can be very difficult to establish that there was an intention to create legal relations, especially in the case of family matters. The court will consider many factors when deciding whether or not there was an intention to create legal relations. These factors include the closeness of the family relationship and the extent to which one of the parties relied on the ‘agreement’. When the contract is entered into during the course of business then there will be a strong presumption that it was the parties’ intention to be legally bound.
An offer is essentially an expression of willingness to contract made with the intention that it shall become binding on the person making it as soon as it is accepted by the person to whom it is addressed. It will usually be a matter of construction as to whether or not the offer was made in the first place and whether or not it was intended to create a legally binding agreement. When considering such issues the court will distinguish between an offer and an invitation to treat that is not enforceable. An invitation to treat requires further confirmation by the invitor.
An acceptance is a final and unqualified expression of assent to the terms of an offer. It may sometimes be difficult especially in business to determine when the negotiations have ended and the offer has been accepted. The court will look at the entire negotiation to ascertain whether or not final acceptance had taken place. Acceptance can be deemed to have taken place through the conduct of the parties. The general rule is that acceptance must be communicated to the person who makes the offer, although there are exceptions to this rule, for example where the offer expressly waives the requirement. One of the main exceptions is where acceptance is made by post. In this situation acceptance happens upon the posting of the acceptance. In practice, most contracts in today’s business world will lay down very specific methods of acceptance.
A promise is not, as a general rule, binding as a contract unless it is made in a deed or supported by some consideration. Where a contract is under seal no consideration need be provided.
The law presumes that everyone has the capacity to contract and the onus is on the person claiming that they were incapable to prove so. If they succeed this incapacity may defeat the contract and make it unenforceable. The courts will accept three categories of incapacity. The first of these is contracts entered into by a minor. Apart from contracts for necessaries and contracts of apprenticeships, education and service, the general rule is that the contract will not be binding on the minor. The second category of incapacity is insanity. In order not to be bound the person must show that owing to his mental condition he did not understand what he was doing, that the other party was aware of this incapacity and that the contract was not one for necessaries. The third category of incapacity is intoxication and there is a similar burden of proof on the person seeking to rely on it as in the case of insanity.
Free consent of all the parties is another key element. ‘Consent’ means that the parties must have agreed upon the same thing in the same sense. There is absence of ‘free consent’ if the agreement was induced by (i) coercion (ii) undue influence (iii) fraud (iv) misrepresentation or (v) mistake.
For a contract to be enforceable it must be capable of performance. If the act is impossible in itself, physically or legally, the agreement cannot be enforced at law.
The question of capacity to contract in a commercial law context arises when registered companies enter into contracts. There are two issues that need consideration. Firstly, the company must have the power to enter into the particular contract. This will be evident from the Memorandum of Association and the Articles of Association of the company. Secondly, it is necessary to see if the person who is entering into the contract on behalf of the company has the power to do so. This will be contained in the Articles of Association.
It is also necessary that the parties to an agreement must agree for a lawful object. The object for which the agreement is entered into must not be fraudulent or illegal or immoral or opposed to public policy or must not imply injury to a person or property of another.
The general rule at common law is that contracts do not have to be in writing. Where formal requirements are necessary, these will have been established by statute and will refer to specific contracts. For example contracts concerning interests in land and guarantees must be in writing under the Statute of Frauds.
In general, the terms of a contract are those set out and agreed by the parties to the contract. But, in certain circumstances the courts have been prepared to imply terms into a contract. In order to do so it must be reasonable and necessary and must not be inconsistent with the express wording of the contract. There are also terms that are implied by statute, most notably by the Sale of Goods Act and Supply of Services Act 1980 and other statutes.
In absence of one or more of the above elements, then the contract may be deemed void, voidable or unenforceable.
Stanley Muema is a legal expert with Savic Consultants-Nairobi.