Contracts

Question 1

Contracts

Answer 1

A contract is a legally binding agreement which is enforceable by law made between two or more persons intended to create a legal obligation between them.

Question 2

Features of a valid contract

Answer 2

 Offer – this is an undertaking by an offerer that he is bound in a contract by the offer if someone accepts it. An offer may be oral, written or implied.
 Acceptance – this is an agreement to purchase an item for an agreed price or where an offer has been unconditionally accepted.
 Consideration – is the term given to what is being done/given as a benefit/item of exchange in the contract. In other words, consideration is something given in exchange for a promise. Consideration can be goods, services or money.
 Legality – the subject matter of the contract must not be contrary to law.
 Possibility – performance of the contract must be possible, that is, the act considered by the parties involved must be deemed achievable within a reasonable time frame
 Good faith – there must not be undue influence or duress, mistake, fraud or misrepresentation.
 Genuineness of the consent of the parties – there must be agreement between parties to create legal relations and each party must have entered into the contract of his own free will.

Question 3

Rules governing

Answer 3

Rules governing offer and acceptance include:
 An offer must be communicated to the other party. The offer may be made to a specific person or to the general public. However, acceptance must be made by a specific person or persons.

Rules governing consideration include:
 Consideration must be real, that is, it should be well defined.
 Consideration must be lawful, which means that the subject matter should be a lawful act.

Question 4

Types of contracts

Answer 4

1. Simple contract
2. Specialty contract
3. Contract of record

Question 5

Simple Contract

Answer 5

Features include:
 A simple contract requires no special for; it may be oral, written or implied by conduct.
 A simple contract must have consideration to be enforced.
Examples include:
 Hailing a taxi
 Entering a store to purchase an item

Question 6

Specialty Contract

Answer 6

Features include:
 A specialty contract must be in writing.
 A specialty contract can be enforced without consideration such as deed of gift.
 It must be signed by all parties.
 It must be stamped or sealed with an official stamp.
 Attestation by one or more witness is customary but not necessary.
Examples of specialty contracts include:
 Sale of land
 Mortgages
 Insurance

Question 7

Contract of record

Answer 7

These are obligations imposed upon someone by a court of law ordering someone to do or not to do something. Example of contract of record includes:
 A court may order a business to cease operations.

Void Contract
A contract is said to be void if it does not meet all the requirements of a valid contract.
Voidable Contract
A contract is said to be voidable when all elements of a valid contract are present but one party may dispute the contract on the basis of misrepresentation, duress or undue influence.

Question 8

Circumstances where a contract is voidable

Answer 8

a) Misrepresentation – a statement made by one party that is not true. The statement must be material or
significant to be deemed as misrepresentation.
b) Duress – a contract can be voidable if persons have been threatened or forced to enter an agreement.
c) Undue influence – a contract can be voidable if one party used persuasion or pressure to influence the other
party’s decision to enter into agreement. Undue influence does not involve force or threat as with duress but persuasive enough to affect the party’s decision to enter into an agreement.

Question 9

Termination of a contract

Answer 9

By performance – this is when a contract has been executed in every respect. Both parties have done what they promised to do.
 By lapse of time – The Limitation Act indicates that an action within a contract must be concluded within a certain time. By not meeting this deadline, the contract is terminated.
By agreement – both parties mutually agree to end the contract before obligations are performed or before obligations are performed completely.
 By merger – this refers to the creation of a higher grade contract to update the present contract.
 By death – if one party dies, the contract may be terminated.
 By impossibility – where an undertaking is known by both parties to be too absurd to be capable of
performance.
 By breach – this is the situation where one party fails to carry out his/her part of the agreement.

Question 10

Remedies for breaching contract

Answer 10

Granting of damages – the affected party can sue for damages, loss of income, etc.
 Specific performance – the court can order that the party fulfil its legal contractual obligation to do something by enforcing an order for specific performance.
 Restitution – the innocent party can claim for recovery of money paid and/or recovery for services rendered so as to restore his/her financial position.
 Waiver of breach – occurs when a non-breaching party accepts substandard performance. A waiver keeps a contract going.