BUSINESS LAW (400L - 1ST SEMESTER)

Question 1:

What is a contract and what are its essential element?

Answer:

A contract is an agreement made between two or more persons which the law will enforce, in other words, a contract is set of promises between two or more persons, which the law will enforce.  What distinguishes a contract  from other forms of agreement is the element enforceability. This means that if a party fails to honour or discharge his promise, the other party may take action to enforce it in the law court.

The elements of a contract are offer, acceptance, consideration and the intention to create legal relations, unless all the elements are present, there is no contract in law.  The elements will be considered one after the other.

Offer: - An offer is a proposition made by one part (Offeror) to another (Offeree) indicating his willingness to be contractual bound on certain terms provided that those terms are accented by that other party. An offer may be made expressly or implied from the conduct of a party, it may also be made to a particular person or to the public at large.  An offer was made to the public at large in Carlill v. Cabolic Smoke Ball Co.

Acceptance:  For a contact to exist, the offeree must accept all the terms of the offer without equivocation, qualification or addition.  An acceptance is the final expression of assent to the terms of an offer. Any qualification, modification or addition to the terms of the offer will amount to counter offer which destroys the original offer.  In Hyde v. Wrench, the defendant offered to sell an estate to the plaintiff for $1000 and the plaintiff  accepted to pay $950.  It was held that the plaintiff had rejected the original offer and that there was no longer any offer for him to accept.

Consideration:  For a party to enforce an agreement, he must show that he has furnished consideration for it, hence the, dictum that; consideration must move from the promise.  Consideration is an act or forbearance of one party for the act or forbearance of the other. 

Simply put consideration is the price which is paid for the promise of another.  It is the contribution of a party to the contract.  It may be in form of an act, a promise, forbearance, detriment or benefit.  Consideration may executor or executed. 

Intention to create legal relations:  Not every agreement which contains an offer, acceptance and consideration can be regarded as contract.  For an agreement to give rise to a contract both parties must have intended to hold themselves bound by the agreement.  The general presumption regarding social and domestic agreements is that parties do not intend to be bound legally.  In Balfour v. Balfour  a husband promise to give the wife $30 monthly until he is able to take her to his new station, it was held that the wife could not enforce the promise.  

Question 2:

Magic Paint Limited, a manufacturer of Magic Pain advertised thus; “One bucket of Magic Pain will do more than two bucket of others. Awuf don jam correct.  Mr. Builder bought 1000 buckets of the paint on the strength of the advertisement and discovered that the claim Magic Paint Limited was false. Car Mr. Builder enforce the Statement against Magic Paint Limited. 

Answer:

The main legal issue in this question is whether the statement by Magic Paint that “one bucket of Magic Paint will do more than two buckets of others.  Awuf don jam correct” is intended to create legal relations or is a mere puff or promotional gimmick.

The determination of the question whether an agreement is meant to have legal relations depends on the overall facts of each case.  The first consideration is whether the agreement relates to a social or commercial setting. The second consideration is whether the statement is definite enough to be taken seriously by a reasonable man.  The fact that the statement here was made in a commercial setting is not conclusive.  The presumption that business or commercial dealings are intended to be binding on the parties can be easily rebutted because of its vagueness.  For instance, the comparison between Magic Pain was not made with reference to any particular paint.

Also, the language Awuf don jam correct is a clear indication that the advertisement must have been meant to simply excite the interest of prospective buyers.  The position might have been different if the advertisement had simply read “if you buy Magic Paint to paint your house, we guarantee that it will last for seven years”.  Furthermore, it is illogical for Mr. Builder to buy 1000 buckets of paints without any prior trials of its quality.

Question 3.

What are the elements of a valid offer in the law of contract?

Answer:

An offer is a proposition made by one part (Offeror) to another (Offeree) indicating his willingness to be contractual bound on certain terms provided that those terms are accented by that other party. An offer may be made expressly or implied from the conduct of a party, it may also be made to a particular person or to the public at large.

1.       It must be definite, certain and unequivocal otherwise the proposition will be regarded as an invitation to treat.  For instance if A ask B will you buy one of my cars and B answers  Yes, there is no offer capable of being accepted.  This is because A has not disclosed the price and which of his cars.  At best A at this stage is only trying to see whether he can get someone to buy one of his cars in case he decides to sell.

2.      The offeror must be willing to be committed to the offeree as soon as the latter accepts the proposition:  otherwise there is no offer but an invitation to treat. In Payne v. Cave, it was held that an advertisement stating that an auction will be held is not an offer but an invitation to treat. When the auctioneer commences and asks for bids from those attending, the bids are the offers. A contract comes into existence when the auctioneer knocks down his hammer.

3.      The Offer must be made by a capable person: In Ajayi Obe v. Executive Secretary Family Planning Council of Nigeria, the plaintiff was interviewed for a post in the defendant’s establishment.  The Chairman of the interview panel (Instead of the Secretary) told the plaintiff that he had been offered the job but no letter of offer came from the secretary.  It was held that there was no valid offer because the offer was not made by a capable person.

4.      The offer must be communicated to the other party.  This is quite logical, since the offeree must have knowledge of the offer before he could accept or reject it.  The rule is hat there is no acceptance in ignorance of offer.

Question 4:

Distinguish between an Offer and an invitation to treat.

Answer:

An offer is a proposition made by one party (offerer) to another (offeree) indicating his willingness to be contractually bound on certain terms.  An offer must be certain, definite and the offerer must have firmly resolved to be bound by the terms or the proposition.  If there is no such firm resolve, then the parties are still in the negotiating stage. At this stage, we have what is called an invitation to treat or an invitation to make offer. 

It is not always easy to distinguish between an offer and an invitation to treat.  However, one important distinction between them is that while the acceptance of an offer crystallized into contract, in the invitation to treat there is no offer capable of being accented.  The distinction between offer and invitation to treat has been made in some decided cases.  In Fisher v. Bell, a shopkeeper displayed a flick-knife in his shop window together with a price tag.  He was charged with an offence of offering a Hick-knife for sale contrary to particular statue which aimed at controlling sale of offensive weapons. 

The charge was dismissed on the basis that a display of an article with a price on it in a shop window is mere an invitation to treat and not an offer. 

Question 5:

Discuss fully the rules governing consideration

Answer:

Consideration is the “price” which one party pays for the promise or act of another.  It has been judicially defined in the case of Currie v. Misa as consisting of some rights, interests, profit or benefits accruing to one party, or some forbearance, detriment loss or responsibility given, suffered or undertaken by the other.

The basic rule of consideration is that it must move from the promise.  By this, it means that before a party can enforce a contract, he must show that he has furnished consideration for the contact.  If A purchases a pair of shoes he will pay the purchase price and in return will receive the shoes. Here, each party has provided consideration.  A – the money and B – the shoes.   In Dunton v. Dunton: a man promised his wife from whom he had just been divorced, an allowance of $6 every month, if she would conduct herself with sobriety and in a respectable, order and virtuous manner.  It was held that the wife had furnished consideration for his promise because she no longer owed him any duty to observe those stipulations.

Question 6:

With the aid of decided cases, discuss the rule that “Consideration need not be adequate, but must be sufficient”.

Answer:

Consideration is the “price” which one party pays for the promise or act of another.  It has been judicially defined in the case of Currie v. Misa as consisting of some rights interests, profits or benefits accruing to one party or some forbearance, detriment loss or responsibility given, suffered or undertaken by the other.

The basic rule of consideration is that it must move from the promise.  In other words, before a person can enforce a contract, he must show that he has furnished consideration for the contract. Once the acts or promises exchanged by the parties are something of value to them, the court will generally not interfere even if their economic value seem unequal.  Hence, the rule consideration need not be adequate.  This means that the court will not measure the comparative value of the respective considerations of the parties, nor will it declare a contract to be invalid simply because one party has got much better bargain than the other. While consideration need not be adequate, it must however be sufficient.  By sufficiency, it is meant that whatever is furnished as consideration must at least, contain some elements of a bargain, which can be regarded as the price for the other party’s promise. For instance, where the thing which the plaintiff does or promises to do in consideration for the defendant’s promise is no more than something which he is already bound by contract or law to do for the defendant, in such circumstance, the mere doing of the thing or a promise to do it will cost the plaintiff nothing more and will therefore not constitute a valid consideration.

In Stilk v. Myrick, two seamen deserted a ship in the course of a voyage.  The ship’s captain, who could not find substitutes, promised the rest of the crew extra wages if they would sail the ship back home.  The members of the crew instituted an action to enforce the promise.  Their claim failed on the ground that they had not furnished any consideration. 

Question 7.

With the aid of decided cases consider whether or not there is an intention to create legal relations in the following situations:

i.                    Mr. Dadani a divorcée orally promised to be paying his former wife a monthly allowance of N10,000 for her maintenance

ii.                  Miss Bintu, a part two law students was in dire financial need.  She was asked by her friend Titi to sell her bed space and promised to squat her in her own room.  Two weeks after she obliged, Titi threatened to send Miss Bintu out of her room after a quarrel.

Answer:

i.                    The general presumption regarding a social and domestic agreement is that parties do not intent to be bound by the agreement. In Balfour v. Balfour  a husband promise to give the wife $30 monthly until he is able to take her to his new station, it was held that the wife could not enforce the promise.  However, there are situations when the court will enforce a contract between a husband and a wife.  For instance, where the husband and wife are not in amity, for instance, where they are separated.  In such circumstance, the presumption of lack of intention to enter into legal relation will be rebutted. Thus in Merrit v. Merrit, the husband who had left the matrimonial house had a discussion with the wife in his car about the matrimonial house.  The wife refused to leave the husband’s car until he signed a written agreement where he undertook to transfer the house to her.  It was held that the hostile relationship existing between husband and wife rebutted the presumption against contractual intention.

Based on the principle in Merritt v. Merritt, from the circumstances of the case, the court will most likely imply an intention to create legal relations in the agreement between Mr. Dadani and his former wife.  Hence, Dadani is bound to pay the monthly allowance otherwise, he would be liable for breach of contract.

ii.                  The agreement between Bintu and Titi is a social agreement.  The general rule is that such agreements are binding only in honour.  A good illustration in this regard is where A and B agree to lunch together and A promises to pay for the food if B will pay for the drink.  Notwithstanding the presence of consideration, the presumption of the law is that there is no intention to create legal relations in such circumstance.  Such agreements are merely biding in honour. To offer a friend a meal is not to invite litigation.

However, where the performance of social agreement involves great sacrifices on the part of one or both parties, the presumption of lack of intention to create legal relations may be rebutted.  In Parker v. Clark on the invitation of defendant (who is the plaintiffs uncle), the plaintiff and his wife sold their house. It was agreed that the defendants would share the living expenses with the plaintiff and that the defendant would leave the house to the plaintiffs in his will.  It was held that the agreement was binding because the plaintiff had taken drastic and irrevocable steps based on the agreement.  To hold otherwise would wreak untold hardship on the plaintiff. 

The fact of the present case can however be distinguished from that of Parker v. Clark on the ground that there was no agreement between Bintu and Titi to jointly maintain the room. Here, unlike the case of Parker v. Clark, Bintu had not furnished any consideration for Titi’s promise.   At best, Tit had acted benevolently and she is totally free to retile from her promise to accommodate Bintu without any liability. The case would have been different if Bintu had been paying Titi any amount, no matter how little.

Question 8:

With the aid of decided cases, discuss whether or not a contract exist in each of the following cases:

i.                    The Viagara Bottling Company advertised that the first prize in a particular promotions attracts N5 million.  Mr. Lucky won the first prize at the raffle drawn at Abuja. However, the organizers failed to honour their promise.

ii.                  Company A and company B who are neighbours agreed to jointly contribute towards the cost of fuellng company A’s 10,000kv industrial generator for their joint use.  Company B who has now bought its own generator refused to pay company A the outstanding sum of 41million form the cost of fuelling the generator.

iii.                The staff of First Banking System embarked on a strike to protest against one f the new policies of the bank.  The management reached a collective agreement with the workers union to reverse the policy if the strike is called off.  However, the management refused to implement the collective agreement after the strike was called off.

Answer:

i.                    The issue to be considered here is whether the advertisement by Viagara bottling company creates a binding contact between the company and Mr. Lucky.  Or was the advertisement a promotional gimmick?  The test of reasonable man is applied in determining whether a statement is a mere puff or a serious  and deliberate commerceial statement.  In Carlill v. Carbolic Smoke Ball Co.  the defendant contended that a reward of promise to anyone who used carbolic smoke ball product and still caught influenza was a mere puff, a mere statement of confidence in their product and a promise in honour.  The court rejected this plea and held that the fact that the defendant had deposited some money in the bank for that purpose was cogent evident that in intended to be bound by the statement.  

Applying the above principle to the fact of this case, the advertisement by Viagara Bottling Compnay would be held to be binding.

ii.                  There is a strong presumption that business or commercial dealings are intended to have legal effect. This is so whether the dealings involves members of the same family or not.  In this regard, company A and company B are primarily into business to make profits.  The agreement reached between the two parties was for the mutual benefit of their businesses since power generation is vital to effective business.  Hence, they both agreed to bear obligations in furtherance of their joint interests.  The fact that the two companies are neighbours is immaterial since the arrangement between them is purely commercial in nature.  Based on the foregoing, company B is liable to pay Company A the N1,000,000

iii.                This question raises the issue whether a collective agreement is enforceable. Collective agreement is an agreement between a Trade union and an Employer regulating conditions of service. At common law, there is a presumption that the parties to a collective agreement do not intend to enter into legal relations unless the contrary is clearly established.  However, Section 2(2) of the Trade Dispute Act provides that where a collective agreement is deposited with the Minister of Labour, it becomes binding on the employers and workers whom they relate once the Minister makes the appropriate order.

In this question, we are only told that the First bank reached a collective agreement with workers union to reverse the policy. There was no indication that the agreement was signed by the parties and deposited with the Minister of Labour.  Even if all these had been done, the Minister is still required to make an appropriate order in respect of the agreement. Since all the foregoing provisions of the Trade Dispute Act have not been complied with, the collective agreement between First Bank Systems ltd and its workers has no binding force.

Question 9:

Whether the law will presume an intention, to enter into legal relations in any contract depends on the circumstances of each case.  In what situations will there be a rebuttal of the legal presumption in this areas of law?

Answer:

It is now beyond controversy that the element of an intention to create legal relations is a separate and distinct element of a binding contract.  In some contract or agreements, the intention to enter into legal relations are apparent and obvious, however, there are others where this is not so.  Therefore, the duty of the court is to ascertain the intention of the parties by using the objective test.  Where both parties by their conduct do not exhibit any intention to create legal relation, the court will refuse to decree an enforceable contract.  For the purpose of considering the presence or absence of contractual intention in agreements.  Agreements may be divided into three classes viz;1. Social and domestic agreements; 2. Commercial agreements; and 3. Intermediate situations

The general presumption regarding a SOCIAL AND DOMESTIC AGREEMENT is that parties do not intend to be bound by the agreement. Hence in Balfour v. Balfour, a husband promised to give the wife $30 per month until he is able to take her to his new station.  It was held that the wife could not enforce the promise.

The above principle however does not mean that there cannot be a binding contract between husband and wife.  For instance, where the husband and wife are bitter enemies and do not live in amity, the presumption of absence of an intention to enter legal relation will be rebutted.  In Merritt v. Merritt, the husband who had left the matrimonial house had a discussion with the wife in his car about the matrimonial house.  The wife refused to leave the husband’s car until he signed a written agreement where he undertook to transfer the house to her.  It was held that the hostile relationship existing between husband and wife rebutted the presumption against contractual intention.

IN COMMERCIAL AGREEMENTS, the law presumes that the parties intend to create legal relations and make a contract.  But the presumption may be rebutted. For instance, where the promise is a mere puff or promotional gimmick, the said presumption is rebutted.  Another good example is an advertisement that men who use particular toothpaste become successful and important.  The presumption will also be rebutted, where the agreement itself contains a clause expressly excluding the intention to enter into legal relations such as in football pool agreements.  In Amadi Pool House Group & Nigeria Pools Co., the plaintiff who was a staker claimed to have won lump sum.

The defendant successfully denied any liability by relying on an “honours clause” that the contract was not intended to be binding.

In INTERMEDIATE SITUATIONS, which can neither be described as domestic and social engagements nor a commercial agreements, the presumption is that the parties do not intend to be bound.  However, the presumption is rebuttable in certain situations.  For instance, in relation to collective agreements Section 2(3) of the Trade Dispute Act 1976 provided that where a collective agreement is deposited with the Minister of Labour, it becomes binding on the employers and workers whom they relate once the Minister makes the appropriate order.  Based on the foregoing, it is clear that there is no hard and fact rule on when the court will imply an intention to create legal relations.  Everything depends on the circumstances of each case. 

There were domestic settings where the courts had implied the intention  to create legal relations while there were also commercial settings where the presumption had been rebutted.  Therefore, in order to ensure certainty, parties may  expressly state their intention to create legal relations and even the manner adjudication such as reference to arbitration.

Question 10:

Write short notes on the followings: i. Conditions and warranties ii. In nominate or intermediate terms and iii. Fundamental term

Answer:

i.                    Conditions and warranties; Conditions are vital terms of a contract while warranties are relative minor terms of a contract.  In other words, whilst conditions are the very important and fundamental obligations, warranties are less important or subsidiary promises.  The difference between the two is that a breach of conditions entitles the innocent party to repudiate the contract while a breach of warranties merely entitles the innocent party to claim damages.  If there is a breach of contract, the innocent party may treat the contract as terminated or cancelled so that he is discharged from further performing his own obligations while he can only claim damages for breach of warranties.

ii.                  In nominate or intermediate; there may be other contractual undertakings of complex character where it may not be easy to classify the terms simply as either conditions or warranties.  For such complex transactions, the court has evolved another category of terms known as “In nominate or Intermediate term” as a hybrid between a condition and warranty.  The approach of the court here is to categories a term is breached, the remedy available to the innocent party would depend on the effect  its breach has on the substance of the contract.  Hence, if an intermediate term is breached, the remedy available to the innocent party would depend on the effect that breach on the enjoyment of the benefits which the contract is meant to confer on the innocent party. 

iii.                Fundamental Terms:  During the 1950s and 1960s, the courts created another spices of term called a fundamental term. A fundamental term is a term of even greater importance than a condition.  It is a term, which underlies the main purpose of the contract and failure to perform it will amount not to a mis-performance, but non-performance of the contract.  An example is where a tailor is asked to sew a male suit but he sews an agbada or babanringa or does something else, which negates the whole purpose of the contract.  The doctrine was developed by the court to protect consumers from unreasonably wide exclusion and limiting clauses.  

Question 11:

Discuss the Parol Evidence Rule and the Exceptions

Answer:

Disputes often arise between parties to a contract or the terms of the contract, for instance, on the meaning and effect of certain words or phrases, if the contract is wholly by words, it is simply a question of fact and manner of evidence for the parties to establish what they have agreed upon.  The words used will be interpreted objectively. A party will not be allowed to say that he understood a word in the sense in which a reasonable person would not have understood it.  If the contract is wholly in writing, the general rule is that the parties are to be confined to the four corners of the document containing the terms and will not be allowed to adduce evidence to show that his intension has been wrongly stated in the document.  All that the court will do is to interpret the express terms of the agreement and give effect to them.

This rule is called the parol evidence rule.    The Parol evidence rule however admits of the following exceptions, among others;

i.                    The rule only relates to evidence as to contents of a contract.  It does not apply where evidence is introduced to show that the contract is vitiated on the grounds of illegality, duress, mistake, misrepresentation or lack of consideration. 

ii.                  Oral evidence may be allowed for the purpose of establishing equitable defense

iii.                Oral evidence may be allowed to show that the written contract has been subsequently varied or rescinded.

iv.                 The mere fact that a contract is reduced to writing does not mean that all the  terms of the contract contained in that document.

Question 12:

When is a contract discharged?

Ii: Explain the concept of “Accord and Satisfaction”

iii. Mr. Aba has supplied Mrs. Owerri 20 consignments of Grade A reagents for industrial use at an agreed price of 20 million.  Mrs. Owerri protested that the quality of the regent was grade B and wanted to reject the consignments.  Mrs. Owerri however agreed to manage the reagents because of the pleading of Mr. Aba and the intervention of people of goodwill. Meanwhile, Mr. Aba is afraid that Mrs. Owerri might change her mind.  Advice him on what to do to allay his fear.

Answer:

i.                    When parties enter into a contract, the contract does not last forever.  It must at one point come to an end. The discharge of a contract means in general that the contractual relationship (bond) between the parties ahs come to an end (broken and the parties are freed from their obligations to each other under the contract.   Essentially, the question whether or not a contact is discharged must be considered in relation to the terms of the contract.

ii.                  A contract can be discharged by agreement.   Where the contract is executor, that is, both parties have not performed their obligations under the contract, and then the discharge is bilateral. Consideration raises no difficulty in a bilateral discharge for each party agrees to release under the contract.  Thus each party in law surrenders something of value.  Where one party has performed his obligations under the contract, either in whole or in part the other party musts prove that he has either been released by an agreement under seal or that he has furnished consideration for the promise by the other party to waive his right.  This is called a unilateral discharge. 

iii.                It is clear from the facts of this case that Mr. Aba has breached the contract between him and Mrs Owerri by supply a grade B regent instead of grade A.

Normally, a breach of contract discharge a contact and gives the innocent party the right to repudiate it and sue for damage. However, the innocent party has a choice.  He can affirm the contract and sue for damages or reach a compromise on mutually agreeable terms of settlement.

Question 13.

What are contracts in restraint of trade? In what circumstances are they binding on the parties.

Answer:

A contract in restraint of trade is one by which a party restrains his future liberty to carry on his trade, business or profession.  Such restrain may arise where an employee agrees not to compete against his employer after leaving his employment either by setting up his own business or by entering the service of their competitor.  The law was discouraged before due to monopolies that it may creates but now is justifiable in certain circumstances in the interests of both of the public and of the parties involved.