A contract is essentially an agreement that the law recognizes as binding and enforceable, affecting the legal rights and obligations of the parties involved. In Orient Bank (Nig.) Ltd v Bilante Int’l Ltd (1997) 8 NWLR (Pt. 515) 87, the court defined a contract as “an agreement between two or more parties that creates reciprocal legal obligations to do or refrain from doing a particular act.”
For a valid contract to exist, there must be a mutual meeting of the minds (consensus ad idem). Both parties must share the same understanding and intention at the same time. This “meeting of minds” is the cornerstone of contract law. Properly drafted contracts are therefore crucial in personal and commercial dealings as they:
- Ensure clarity of terms to prevent disputes,
- Reduce business risks by anticipating potential issues, and
- Provide an enforceable framework in the event of a breach.
Contracts and Corporate Legal Personality
Just as individuals can enter into binding agreements, companies also possess contractual capacity under the Companies and Allied Matters Act (CAMA) 2020, a duly incorporated company becomes a separate legal entity, distinct from its owners, directors, and shareholders. This means a company can:
- Enter into contracts in its own name,
- Sue and be sued independently, and
- Bear rights and obligations separate from its members.
Elements of a Valid Contract under Nigerian Law
For a contract to be enforceable in Nigeria, certain essential elements must be present:
- Offer and Acceptance – There must be a definite offer and an unqualified acceptance.
- Intention to Create Legal Relations – Parties must intend to be legally bound.
- Consideration – Something of value (money, goods, or services) must be exchanged.
- Capacity to Contract – Parties must be legally competent (e.g., of age, sound mind, and for companies, properly authorized under CAMA 2020).
- Legality of Object – The subject matter of the agreement must be lawful.
The absence of any of these elements renders a contract unenforceable.
Company Contracts under CAMA
Section 95 of CAMA 2020 outlines how companies may enter into contracts. Essentially, a company can contract in the same way an individual can, provided the required formalities are followed:
- Contracts by Deed – Where individuals must execute a deed, companies must also do so in writing, executed in the company’s name by its authorized officers.
- Contracts in Writing – Where the law requires contracts to be in writing and signed, a company must also comply.
- Oral Contracts – If a contract between individuals is valid orally, a company may also enter into such a contract orally.
Any such contract is binding on the company, its successors, and other parties involved. How to draft a contract in Nigeria.
Enforcement of Contracts in Nigeria
When a breach of contract occurs, enforcement generally follows these steps:
- Review of Contract Terms – Examine obligations, breaches, and dispute resolution clauses.
- Issuance of Demand Letter – A lawyer issues a formal letter stating the breach, required remedies, deadlines, and consequences. Many disputes are settled at this stage.
- Alternative Dispute Resolution (ADR) – Encouraged under the Arbitration and Mediation Act and by Nigerian courts, ADR (especially arbitration and mediation) is often a prerequisite in commercial contracts.
- Litigation – If ADR fails or is unavailable, the aggrieved party may sue. To succeed in court, the claimant must prove:
- The existence of a valid contract,
- The defendant’s breach of its terms, and
- Resulting loss or damage.
A sound contract must be clear, precise, and compliant with CAMA and other relevant laws. It should define the rights, duties, timelines, and dispute resolution procedures of the parties. Avoid vague terms, unlawful provisions, and generic templates without legal review, as these can undermine enforceability.
Where disputes arise, Nigerian law provides remedies such as damages, specific performance, and injunctions to protect the rights of aggrieved parties.