CRITICAL ANALYSIS OF THE LEGAL IMPLICATION OF UNWRITTEN CONTRACTS AND ITS ENFORCEABILITY.

By: Janet M. Adio

Introduction

Generally, there is an erroneous opinion that unwritten contracts are unenforceable. However, contrary to this opinion, a contract can arise out of any discussion, obligation or instruction to do an act as far as the elements of a contract are present and still be enforceable. According to the Court in U.T.C. (Nig) Plc v. Philips [2012] 6 NWLR Pt. 1295, Pg. 144, Ratio 8

“An agreement or a contract can be made and given effect to whether in writing or verbally done or even established by conduct of the parties from which the agreement may be inferred”

 This article will focus on unwritten Contracts, their legal implications and enforceability.

What then is a contract?

 In Akinyemi v. Odu’a Inv. Co. Ltd. (2012) 17 NWLR {Pt.1329} page 209 at 212 Ratio 1, the Supreme Court maintained that:

“a valid or binding contract means an agreement that is enforceable or otherwise recognizable at  law”

Elements of a valid contract

In Ojo v. ABT Associates Incorp. (2017) 9 NWLR {Pt. 1570} page 167 at 172 Ratio 3 stated the elements of a valid contract thus:

“There are five important elements that must be present in a valid contract. These are offer, acceptance, consideration, intention to create legal relationships and capacity to contract. All the five attributes must be present for a contract to be valid in law”

A valid contract is formed if the following elements or ingredients coexist;

• Offer: In Dike v. Kay –Kay Construction Ltd (2017) 14 NWLR {1584} page 1 at 41 Ratio 32. The Court defined an offer

“as an expression of willingness or readiness to contract made with the intention that it shall soon become binding on the person making it as soon as it is accepted by the person to whom it is addressed”.

• Acceptance: In Dike v. Kay –Kay Construction Ltd (2017) 14 NWLR {1584} page 1 at 41 Ratio 32. The Court defined acceptance as;

“an unconditional assent communicated by an offeree to an offeror. It is an act signifying consent to the terms proposed by the offeror”

An offeree is the party to whom the offer is made while an offeror is the party making the offer

• Consideration: Also, in Dike v. Kay –Kay Construction Ltd (2017) 14 NWLR {1584} page 1 at 41 Ratio 32, the Court held that consideration was,

“the inducement to a contract; it is the cause, motive, price or the impelling influence which induces a contracting party to enter into a contract”.

1. Intention to enter into legal relations: This is the intention of the parties to enter into a legally binding agreement. In commercial transactions it is automatically presumed that there is an intention to create legal relations (Esso Petroleum V Commissioners Of Customs And Excise [1976] 1 WLR)
2. Capacity to contract: This refers to the legal ability of a person to validly enter into a contract. It is important that the person who enters into a contract must have the full capacity in terms of age and mind. The following persons may not have the capacity to enter into a valid contract.   

•   Infants: According to Section 1 of the Infants Relief Act 1874, “a person is in law an infant until he reaches the age of 21 years.” Accordingly, a person who has not attained the age of 21 lacked capacity to enter into a contract. This position has however been altered by the Child’s Right Act (2003). A child is defined under the Child’s Right Act (2003) as a person who is under the age of eighteen (18) years. It is provided under Section 18(1) Child’s Right Act (2003) that no child shall enter into a contract. There is no absolute bar on the capacity of a child to enter into a contract. Infants can only contract for necessaries (essential things such as food, clothing etc.) and beneficial contract of service (contracts in which an infant receives training or instruction for his future career).
• Persons of unsound mind: Any contract entered into by a person of unsound mind is revocable at the instance of the insane person. However, a person of unsound mind can enter a contract during his sane moments or through his representative.
• Drunken persons: Any contract entered into by a drunken person is revocable at the instance of the drunkard. However, the contract can be ratified when the person becomes sober.
•  

 Classification of contracts

Contracts may generally be classified into written contracts and unwritten Contracts. A written contract is a contract, in which the terms of the agreement are reduced into writing. An unwritten contract on the other hand, is a contract in which the terms of the agreement are not reduced into writing.

Unwritten contracts

An unwritten contract is a contract whose terms were not reduced into writing, that is, a contract that has been made but which has not been written down. In ordinary English parlance, it may also be referred to as a “gentleman’s agreement”. It can take any of the following forms;

• Oral : This is when a contract is formed via spoken communications without being recorded in writing
• Implied from the act of the parties: This is when a contract is derived from actions, conducts or circumstances of one or more of the parties to an agreement.

Examples of Unwritten contracts

While a contract can be either written or unwritten, the vast majority of contracts never get written down. A person is likely to engage in myriad of activities governed by unwritten contracts each day. Unwritten contracts are pivotal to our everyday lives. Examples of Unwritten Contracts may include:

• Employment contracts: There is always a contract involved in every employment relationship. However, where the employment contract is not reduced into writing, it is an unwritten contract. For example, where Mr. A employs Miss B as his Personal Assistant by saying “if you can start tomorrow, the job is yours” and Miss B resumes work the next day, without any written agreement between the parties but gets paid every month.
• Contracts of Purchase: Many of the purchases made on daily basis are largely unwritten. For example, Peter stops by the mall on his way home, to get groceries. He gets the groceries and pays for them without any written agreement. There is no written agreement between Peter and the attendant at the mall but there was an unwritten contract to purchase, implied from their conducts.
• Transportation contracts: Where a driver agrees to drive a passenger to his destination for a certain amount of money, there is a contract between the driver and the passenger but this kind of contracts are never really reduced into writing.
• Marriage contracts: Marriage is a contractual agreement; however a fair share of marriages exists without the existence of any written contract. According to Section 166 Evid. Act 2011, there is a presumption as to the existence of a valid and subsisting marriage between a man and woman cohabiting as husband and wife. Such a marriage based on this presumption, arises by conduct and is therefore an example of unwritten contracts.  

 

 

Legal Implication of an Unwritten Contract

The legal implications stemming from entering an unwritten contract depends on the terms of the contract. The legal implications of an unwritten contract will be discussed in respect of its formation, breach, level of breach, conditions and the Statute of Frauds.

1. Formation of an unwritten contract :

An unwritten agreement does not automatically translate to a contract. The unwritten contract whether formed by spoken communications or implied from the conduct of the parties must contain all the necessary elements of a valid contract. There are several requirements that must be met in order to form an unwritten contract;

• All the necessary elements of a contract must be present: An offer must be made by the offeror which must be accepted by the offeree; both parties must exchange value (consideration). Also, the parties to the unwritten contract must have the legal capacity or competence to contract. However, the parties may not necessarily have the intention to enter into legal relations because there is a presumption that there is an intention to enter into legal relations in all commercial transactions.
• There must be consensus ad idem in the formation of the contract: Consensus ad idem means “the meeting of minds”. The parties to the unwritten agreement must be ad idem on all the terms of the agreement (NICON Hotels Ltd v. N.D.C Ltd [2007] 13 NWLR Pt.1051, Pg.243, Ratio 3)
• The terms of the contract must be valid and legally enforceable: This means that the contract must not be illegal. According to the Court in A.B.S Ltd. v. Ibiyeye [2008] 14 NWLR Pt. 1107,Pg.387, Ratio 13,

“a contract is illegal where the subject matter of the promise is illegal or where the consideration or any part of it is illegal. Contracts which are prohibited by statute or at common law coupled with provisions for sanctions in the event of its contravention are said to be illegal…”

• Statute of Frauds: Section 4 of the Statute of Frauds (1677) requires that some contracts be evidenced in writing and signed by the party to be bound for it to be enforceable in court. These include Contracts of Guarantee and Contracts for any sale of disposition in land. Therefore, where any of the stipulated contracts is not put in a written form, it is probably impossible for the court to consider such contract as binding.

Where an unwritten contract does not contain any of the aforementioned events, such an unwritten contract is invalid and will not be enforced by the court.

2. Breach of an unwritten contract

The Court in DHL Int’l Nig. Ltd v. Eze-Uzoamaka [2020] 16 NWLR, Pt.1751, Pg.453, Ratio 5, held that

 “A breach of contract occurs when a party to the contract, without any lawful justification or excuse, fails, neglects or refuses to perform his obligations under the contract or incapacitates himself from performing same or in a way backs down from carrying out a material term.”

Each party to a contract has a duty to perform, if one party performs and the other party doesn’t, the non-performing party could face legal consequences. It is the popular belief that unwritten contracts can be breached because the terms were not reduced into writing. However breaches apply to unwritten contracts, in the same way it applies to written contracts. Where there is a breach of an unwritten contract, the implication of this is that, the law allows the non-breaching party to file a law suit against the non-performing party for breach of contract.

 In order to sue, the non-breaching party must be able to prove that a contract existed and that the other party actually breached the terms of the unwritten contract.

3. Level of breach

If a breach of an unwritten contract occurs, the level of breach must be determined. A breach may be material or minor. If the breach is a material one, the implication is that the non breaching party may not have to perform his own end of the contract. A material breach happens when a contracting party does not receive substantial benefit for his bargain.

 

Enforceability of an unwritten contract

According to the Court in Jukok Int’l Ltd v. Diamond Bank Plc [2016] 6 NWLR Pt.1507, Pg.73, Ratio 26, “agreements are made to be honoured”. Therefore, an unwritten contract is legally binding and enforceable where it is breached. Enforceability of a contract is when a party to a contract can be compelled to observe or forced to obey the terms of the contract. An unwritten contract is enforceable provided it complies with all the requirements earlier mentioned under the formation of a written contract. In MTN (Nig.) Comm. Ltd. v C.C Inv. Ltd. [2015] 7 NWLR, Pt.1459, Pg.444, Ratio 7, the Court was of the view that ;

“…a contract does not need to be signed at all; neither does it have to be in writing. Under common law, a contract can be implied and perfectly legal and binding simply if the required conditions of a contract formation are present…”

For the Court to enforce an unwritten contract, the parties must be able to prove that a contract existed and that there has been a breach of the contract by one of the parties. In Metibaiye v. Narelli Int’l Ltd. [2009] 16 NWLR, Pt. 1167, Pg.332-333, Ratio 6, the Court held

“… the fact that an agreement is not in writing but made orally does not make it unenforceable. An oral agreement is backed up by the same force of law as a written agreement where such an oral agreement has been satisfactorily proved in court…”

Entering into an unwritten contract is one thing, but proving that the contract exists, or that specific terms of the contract exist, is entirely different. This is because an unwritten contract is not reduced into writing, so it is difficult but not impossible to prove the existence of such contract. The following are ways by which the existence of an unwritten contract can be proved;

• Written communications: Written communications between the parties to the contract in respect of the contract may help substantiate the existence of such contract. Examples of this written communications may include emails, letters, text messages or other correspondences between the parties which confirm the terms of the contract or discusses key terms of the contract. Purchase orders, invoices, receipts, delivery dockets or bank statements showing payments that demonstrate an exchange of money between the parties and other written communications.
• Testimony of witnesses/ third parties: Where other persons were present when the unwritten contract was entered into or performed by the parties. Such persons as witnesses may testify to the existence of the unwritten contract or terms of the contract.
• Collection Attempts: Attempts made to collect what is owed by a party may be proof of an existing contract between the parties.
• Conduct of the parties: Actions, behavior or circumstances of the parties involved can be shown to be prove the existence of an unwritten contract.
• Video and audio recordings: Video or audio recordings of the parties entering into the contract may also help to substantiate the existence of the contract.

Conclusion

Unwritten contracts are valid and enforceable. Although there are some contracts required to be in writing by virtue of section 4 of the Statute of Frauds(1677), however, with the intervention of equity, the courts have devised the doctrine of part performance to avoid strict application of the Statute in order to prevent fraud. Thus, where one of the parties stands by and another of the parties changes his position by performing his side of the bargain acting on the supposition that there was a binding contract, the court will not allow a party to break the contract or when sued to rely on the statute. This is done through the principle of part performance.