The importance of
contracts
contracts
Over the years, in my
professional capacity, as well as in my personal life, I have seen extremely
ugly disputes erupt amongst people who would have once referred to themselves
as close friends or family; all because they attempted to do business or engage
in a project together which subsequently went pear shaped. I often tell people
‘even if you are going into business with your mum, make sure you sign
something setting out, in clear terms, exactly what is expected from each party’.
professional capacity, as well as in my personal life, I have seen extremely
ugly disputes erupt amongst people who would have once referred to themselves
as close friends or family; all because they attempted to do business or engage
in a project together which subsequently went pear shaped. I often tell people
‘even if you are going into business with your mum, make sure you sign
something setting out, in clear terms, exactly what is expected from each party’.
The importance of formally
documenting proposed business obligations cannot be over stated. Some people
believe it might be insulting to the other party if seemingly out of nowhere
they bring a document for that party to review and sign; but I always stress
that prevention is better than cure, and in most instances, to actually save a
friendship one has to be objective and follow due process. If you were
doing business with a stranger, you would certainly mandate that the two of you
sign something to show each-others clear intentions…. So why should this change
because you are dealing with your “best friend”.
documenting proposed business obligations cannot be over stated. Some people
believe it might be insulting to the other party if seemingly out of nowhere
they bring a document for that party to review and sign; but I always stress
that prevention is better than cure, and in most instances, to actually save a
friendship one has to be objective and follow due process. If you were
doing business with a stranger, you would certainly mandate that the two of you
sign something to show each-others clear intentions…. So why should this change
because you are dealing with your “best friend”.
The Principals Behind
Legally Binding Contracts
Legally Binding Contracts
The foundations of legally
binding contracts are premised on intention, an offer, acceptance of that offer
and valid consideration. Each party to a contract acquires rights and duties
relative to the rights and duties of the other parties.
binding contracts are premised on intention, an offer, acceptance of that offer
and valid consideration. Each party to a contract acquires rights and duties
relative to the rights and duties of the other parties.
Key elements for the
formation of a legal contract include: –
formation of a legal contract include: –
a. Intention
– all parties must have intended to create relations by entering into the
contract;
– all parties must have intended to create relations by entering into the
contract;
b. Offer
– there must be a valid, definite and clearly stated offer to do something;
– there must be a valid, definite and clearly stated offer to do something;
c. Acceptance
– this must be unequivocal and unconditional, and must be in accordance with
the terms of the initial offer; and
– this must be unequivocal and unconditional, and must be in accordance with
the terms of the initial offer; and
d. Consideration
– this may be in any form accepted by both parties, aside from a monetary
consideration, it can also take the form of physical objects, promised actions,
services, absence from future actions and the list goes on.
– this may be in any form accepted by both parties, aside from a monetary
consideration, it can also take the form of physical objects, promised actions,
services, absence from future actions and the list goes on.
The general position of
legal authorities is that any contract is legally binding and enforceable where
the parties to the contract, at the time of entering into the contract, had the
intention to be bound to the terms of the contract. All courts around the world
appreciate that the sole objective of a legal contract is to define the
agreement that the parties have consented to enter into, thus fixing their
rights, duties and obligations in-line with what has been clearly set out in
the contract. There is no legal body empowered to enforce the terms of a
contract which does not exist.
legal authorities is that any contract is legally binding and enforceable where
the parties to the contract, at the time of entering into the contract, had the
intention to be bound to the terms of the contract. All courts around the world
appreciate that the sole objective of a legal contract is to define the
agreement that the parties have consented to enter into, thus fixing their
rights, duties and obligations in-line with what has been clearly set out in
the contract. There is no legal body empowered to enforce the terms of a
contract which does not exist.
Capacity to Contract
In saying this, I must
stress that there are instances where a party to a contract may be deemed as
lacking the capacity to enter into the contract, thus the contract regarded as
unenforceable where some laws which relate to that nature of person are not
duly complied with.
stress that there are instances where a party to a contract may be deemed as
lacking the capacity to enter into the contract, thus the contract regarded as
unenforceable where some laws which relate to that nature of person are not
duly complied with.
These persons include: –
a. An
Illiterate – this is generally a person who cannot read or write in the
language in which the contract has been executed;
Illiterate – this is generally a person who cannot read or write in the
language in which the contract has been executed;
b. An
Infant – this is persons under the age of 21 (with an exception being
contracts for the sale of goods)
Infant – this is persons under the age of 21 (with an exception being
contracts for the sale of goods)
c. A
Lunatic or Person of Unsound Mind – however
in these instances, a contract entered into with a lunatic at lucid intervals
is valid (here the test for determining whether someone is a lunatic is not
quite clear under Nigerian law, as we often see “many are mad but few are
raving”)
Lunatic or Person of Unsound Mind – however
in these instances, a contract entered into with a lunatic at lucid intervals
is valid (here the test for determining whether someone is a lunatic is not
quite clear under Nigerian law, as we often see “many are mad but few are
raving”)
d. A
Drunkard – again the test for differentiating a drunkard from someone
who likes to drink often is somewhat grey, however where it can be proved that
the drunkard was sober at the time of entering into the contract then the
contract would be binding.
Drunkard – again the test for differentiating a drunkard from someone
who likes to drink often is somewhat grey, however where it can be proved that
the drunkard was sober at the time of entering into the contract then the
contract would be binding.
Parties to a contract are
bound by the terms of that contract, even in instances where the terms are more
favorable to of the parties; as long as the contract is not the result of
duress, undue influence or fraud, it is not the duty of the courts to determine
the business viability of the contract terms.
bound by the terms of that contract, even in instances where the terms are more
favorable to of the parties; as long as the contract is not the result of
duress, undue influence or fraud, it is not the duty of the courts to determine
the business viability of the contract terms.
Key Clauses
I must empathize that the
contract does not have to perfectly drafted to be binding, although advise from
a professional would always be a best case scenario, in the event that this is
not possible, parties may simply google the applicable template and adapt to
suit their needs, or write out some pivotal points on a sheet of paper and
sign.
contract does not have to perfectly drafted to be binding, although advise from
a professional would always be a best case scenario, in the event that this is
not possible, parties may simply google the applicable template and adapt to
suit their needs, or write out some pivotal points on a sheet of paper and
sign.
The following are some
vital clauses I would advised to be included in every contract: –
vital clauses I would advised to be included in every contract: –
1. Commencement
Date – this is the date upon which the contract will be deemed as validly
existing;
Date – this is the date upon which the contract will be deemed as validly
existing;
2. Parties
– here you list the names and addresses of the parties to the contract, where
any of the parties is a company, one may also include the company registration
number, and the country in which the company was registered;
– here you list the names and addresses of the parties to the contract, where
any of the parties is a company, one may also include the company registration
number, and the country in which the company was registered;
3. Recital
– this is a clause which details briefly the facts surrounding the transaction,
and may be narrative or introductory by nature. For example, in a contract for
the sale of goods it would be narrative and would tend to specifically state how
the seller came about possession of the goods;
– this is a clause which details briefly the facts surrounding the transaction,
and may be narrative or introductory by nature. For example, in a contract for
the sale of goods it would be narrative and would tend to specifically state how
the seller came about possession of the goods;
4. Consideration
clause – as titled, this clause details the consideration for the transaction;
clause – as titled, this clause details the consideration for the transaction;
5. Receipt
clause – here the party receiving the consideration accepts receipt of same, or
where the consideration is not of a tangible nature confirms acceptance of
whatever consideration has been proposed;
clause – here the party receiving the consideration accepts receipt of same, or
where the consideration is not of a tangible nature confirms acceptance of
whatever consideration has been proposed;
6. Capacity
– this clause confirms the party’s capacity to enter into the contract;
– this clause confirms the party’s capacity to enter into the contract;
7. Termination
clause – this usually details what constitutes a significant breach or several
events which could lead to termination if not rectified within a specified
period of time;
clause – this usually details what constitutes a significant breach or several
events which could lead to termination if not rectified within a specified
period of time;
8. Choice
of law clause – this clause details which laws will govern the contract, there
must be a rational reason for the choice of law specified, as the laws of
different jurisdictions may affect the parties differently;
of law clause – this clause details which laws will govern the contract, there
must be a rational reason for the choice of law specified, as the laws of
different jurisdictions may affect the parties differently;
9. Alternative
dispute resolution clause – this clause creates an obligation for the parties
to submit their dispute to any of the alternative dispute resolution options.
It may also detail a course of actions both parties need to take in order to
rectify any possible discrepancies; and
dispute resolution clause – this clause creates an obligation for the parties
to submit their dispute to any of the alternative dispute resolution options.
It may also detail a course of actions both parties need to take in order to
rectify any possible discrepancies; and
10. Signature
– parties should bear in mind the signatory requirements of a company.
– parties should bear in mind the signatory requirements of a company.
Conclusion
The truth is, there are
several multi billion naira industries, which have been successfully operating
in Nigeria over several decades, established by a simple gentleman’s handshake.
Many people believe that in an attempt to be over diligent one can end up over
complicating the matter and set the foundation for distrust; akin to getting a
prenup before entering into a marriage.
several multi billion naira industries, which have been successfully operating
in Nigeria over several decades, established by a simple gentleman’s handshake.
Many people believe that in an attempt to be over diligent one can end up over
complicating the matter and set the foundation for distrust; akin to getting a
prenup before entering into a marriage.
Many people, especially in
the Nigerian jurisdiction, because of the difficulties experienced or the
tedious nature of the litigation procedure, believe that most contracts are not
worth the paper they are written on. They believe that in most instances when
one or more of the parties involved purposely and disrespectfully rescinds on
their contractual obligations, little to nothing can be done to immediately
rectify the situation. The truth is the Nigerian court system is over
saturated, with final judgment often taking several years from the date of the
initial application. However, where the dispute is amongst related parties, any
mutual friend may intervene and give their objective interpretation of the
terms of the contract.
the Nigerian jurisdiction, because of the difficulties experienced or the
tedious nature of the litigation procedure, believe that most contracts are not
worth the paper they are written on. They believe that in most instances when
one or more of the parties involved purposely and disrespectfully rescinds on
their contractual obligations, little to nothing can be done to immediately
rectify the situation. The truth is the Nigerian court system is over
saturated, with final judgment often taking several years from the date of the
initial application. However, where the dispute is amongst related parties, any
mutual friend may intervene and give their objective interpretation of the
terms of the contract.
Ivie is a commercial lawyer, with experience and keen
interest in projects and transactions work within the Sub Saharan African region.
She is called to practice in England and Wales and Nigeria.
interest in projects and transactions work within the Sub Saharan African region.
She is called to practice in England and Wales and Nigeria.
Ed’s Note – This article was originally published here.