A contract is an agreement between two or more parties ( could be persons, companies, etc) which can be enforced in court. It is a legally binding promise between two parties. For example, party B can contract party C to supply some goods on a specific date. If party C agrees, and both parties intend to ensure that the law courts would intervene if the other party fails to fulfil his or her part of the agreement, the parties can decide to enter into a contract and make the agreement legally binding on themselves.
Some scholarly definitions:
According to Pollock, “Every agreement and promise enforceable at law is a contract”.
According to Salmond, “A contract is an agreement creating and defining obligation between two or more persons by which rights are acquired by one or more to acts or forbearance on the part of others”.
According to Sir William Anson, a contract is “A legally binding agreement between two or more persons by which rights are acquired by one or more to acts or forbearance on the parts of others”.
Principles of Contract Law:
1. Freedom to contract: parties to a contract must be free to enter into a contract. A party to a contract should not be forced to enter into that contract.
2. Sanctity of contracts: The parties to a contract are expected to live up to their promises. When any party to a contract fails to live up to their promises, there will be legal consequences (e.g a court can order the party to live up to their promise, thus request specific performance).
Classifying contracts:Contracts can be classified based on four main metrics or criteria (note that there can be other classifications).
1. Contracts can be classified based on explicitness (thus how clearly the terms of the contract have been spelt out):
i. Express contract: In this type of contract, the terms of the contract are spelled out directly in intelligibly. For example, a contract to purchase property has the buying price clearly stated, the property clearly stated amongst others.
ii . Implied Contract (thus, contracts implied in fact): This is a contract formed through inference of actions. For this type of contract, the terms of the parties have not been explicitly discussed by its parties, but is believed to exist based on the conduct of the parties. For example, ordering food at a restaurant implies that you implicitly agree to pay for the food although there was no explicit agreement between you and the seller.
iii. Quasi-Contract ( thus, contracts implied in law): This is a contract deemed to exist by the courts to prevent the unjust enrichment of a person at the expense of another. For example, a waitress mistakenly delivers food to your table, which you ate. The law would require that you pay for food since you benefitted from it.
2. Classification based on mutuality (thus the way a contract is supposed to be performed):
i. Bilateral contracts:Both parties to the contract make a promise in exchange for another promise. For example, a contract to buy property involves a party making a promise to give up his cash and another party making a promise to give up his property.
ii. Unilateral contract: for this type of contract, only one party makes a promise to fulfil a particular obligation (note that the fulfilment can be based on some conditions). For example, the police can promise to pay anyone who helps them arrest a criminal. This scenario represents a unilateral promise by the police to fulfil a particular obligation on condition that an action is taken by another party. Notice here that no promise needs to have been present by the other party.
3. Classification Based on the Subject Matter:
Contracts can also be classified based on their subject matter. For example, contracts about employment can be called employment contracts, contracts about purchase of real estate can be classified as immovable property contract.
Elements of a valid contract:
For a contract between two or more parties to be considered valid, it must meet the following conditions:
1. There must be an offer and there must be an acceptance (either by words or by performance of the terms contained in the contract).
2. There must be consideration: A consideration is an inducement given by one party to another party to get that party to enter into a contract. For example, the money paid to a property seller represents the consideration.
3. Both parties must have the capacity to contract: Minors, people of unsound mind, amongst others, cannot enter into a contract because of the assumption that they may not properly understand the terms of the contract.
4. Legality: For a contract to be valid, it must be legal. Law courts will not enforce that a party to an action performs an action that is illegal.