Nature of Contract: Understanding the Foundation of Contractual Obligations

Contract law forms the backbone of commercial relationships and everyday transactions in modern society. From buying groceries at the market to executing complex business agreements, contractual principles govern our daily interactions. For law students in Nigeria and beyond, understanding the nature of contract is essential to grasping how legal obligations are created, enforced, and remedied when breached.

This comprehensive guide explores the fundamental nature of contract law, examining its sources, the concept of bargain that underpins contractual relationships, and the various classifications that help us understand different types of contractual arrangements.

What is a Contract?

A contract may be defined as an agreement enforceable by law between two or more persons to do or abstain from doing some act or acts, their intention being to create legal relations and not merely to exchange mutual promises.¹ Put simply, a contract is a legally binding agreement that the courts will enforce.

The Supreme Court of Nigeria has defined a contract as ‘an agreement between two or more parties creating obligations that are enforceable or otherwise recognisable at law’.² This definition emphasises three critical elements:

1. There must be an agreement between parties
2. The agreement must create obligations
3. These obligations must be enforceable by law

Not all agreements, however, constitute contracts. Social arrangements between friends or domestic agreements between family members typically lack the intention to create legal relations and therefore do not amount to enforceable contracts.³ The law distinguishes between mere agreements and contracts based on whether the parties intended their arrangement to have legal consequences.

The Principle of Consensus Ad Idem

At the heart of every valid contract lies the principle of consensus ad idem – the meeting of minds. This Latin maxim encapsulates the requirement that parties must genuinely agree to the same thing in the same sense. As one Nigerian jurist observed, ‘one of the fundamental principles of the law of contract is that the parties must reach a consensus ad idem in respect of the terms, otherwise, the contract cannot be regarded as legally binding and enforceable’.⁴

This principle ensures that contracts reflect genuine mutual assent rather than misunderstanding or confusion. Where parties are at cross-purposes about the essential terms of their agreement, no valid contract exists.

Sources of Contract Law in Nigeria

Understanding the sources of law that govern contracts in Nigeria is fundamental to appreciating how contractual obligations are determined and enforced. Nigeria’s pluralistic legal system draws contract law from multiple sources, creating a rich tapestry of rules and principles.

1. English Common Law

The foundation of Nigerian contract law rests on English common law principles. Through the doctrine of judicial precedent, centuries of English case law have been received into Nigerian jurisprudence. This reception occurred primarily through colonial legislation and continues to influence Nigerian courts today.

The common law approach to contracts emphasises freedom of contract, party autonomy, and the sanctity of agreements. Classic English cases such as Carlill v Carbolic Smoke Ball Co⁵ (on unilateral contracts) and Hadley v Baxendale⁶ (on remoteness of damages) remain authoritative in Nigerian courts when addressing contractual disputes.

2. Statutes

Various statutes supplement common law principles in specific areas of contract law. Key legislative instruments include:

• The Sale of Goods Law (applicable in different states with variations)
• The Contracts Act (in some states)
• The Lagos State Contracts Law 2009

These statutes codify certain aspects of contract law and provide specific rules for particular types of contracts. For instance, the Sale of Goods Law governs contracts for the sale of goods, establishing rules about the passing of property, implied terms, and remedies for breach.

3. Doctrines of Equity

Equitable principles play a significant role in contract law, particularly where common law rules would lead to injustice. Equity provides remedies such as:

• Specific performance (compelling a party to fulfil their contractual obligations)
• Injunctions (preventing a party from breaching the contract)
• Rescission (setting aside the contract)
• Rectification (correcting errors in written agreements)

The maxim that ‘equity follows the law’ means that equitable remedies supplement rather than contradict common law principles, providing flexibility and fairness in contractual disputes.

4. Customary Law

In Nigeria’s pluralistic legal system, customary law governs certain contractual relationships, particularly in rural communities and traditional settings. Customary contracts may arise from marriages, land transactions, or other arrangements governed by indigenous practices. These contracts are valid provided they are not repugnant to natural justice, equity, and good conscience, nor incompatible with written law.⁷

5. Judicial Precedents

Nigerian court decisions form an essential source of contract law. Through the doctrine of stare decisis, higher court decisions bind lower courts, creating a body of case law that interprets and applies contractual principles. The Supreme Court of Nigeria stands at the apex of this system, and its pronouncements on contractual matters carry binding authority throughout the federation.

The Concept of Bargain in Contract Law

Central to the nature of contract is the concept of bargain – the idea that a contract involves an exchange of value between parties. This notion distinguishes contracts from gratuitous promises or gifts, which the law does not generally enforce.

Understanding Consideration

The bargain element of contracts manifests through the doctrine of consideration. Consideration has been defined as ‘some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other’.⁸

Simply put, consideration is the price paid for a promise. It represents what each party gives or promises to give in exchange for what they receive or are promised to receive. Consideration serves several important functions in contract law:

1. Evidential Function: It provides evidence that the parties intended to create legal relations
2. Cautionary Function: It encourages parties to think carefully before making binding commitments
3. Channelling Function: It distinguishes enforceable bargains from unenforceable gratuitous promises

The Rule That Consideration Must Move From the Promisee

A fundamental principle of consideration is that it must move from the promisee. This means that a person can only enforce a contract if they have provided consideration for it. As the courts have held, ‘only a party who has furnished consideration can enforce a contract’.⁹

In Anuruba v ECB Ltd,¹⁰ the Court of Appeal emphasised this principle in a case involving three parties. The appellant attempted to enforce a contract between two other parties, even though he had not been a party to that contract nor provided consideration for it. The court held that he could not enforce the agreement because he lacked privity of contract and had not furnished consideration.

Past Consideration is No Consideration

The law requires that consideration be given in exchange for the promise sought to be enforced. Past consideration – acts done or promises made before the current promise – cannot constitute valid consideration.

In the Nigerian case of Akenzua II, Oba of Benin v Benin Divisional Council,¹¹ the plaintiff performed services for the defendant before the defendant promised to grant him exclusive exploitation rights to a forest area. The court held that since the plaintiff’s services were rendered before the defendant’s promise, the consideration was past and therefore could not support the contract.

This rule prevents parties from making unenforceable gratuitous promises appear contractual by pointing to some past benefit. However, exceptions exist where:

• The act was done at the promisor’s request
• The parties understood that the act would be remunerated
• Payment would have been legally recoverable had it been promised in advance

Consideration Need Not Be Adequate But Must Be Sufficient

Courts do not concern themselves with whether the consideration exchanged is economically equivalent – this is the rule that consideration need not be adequate. Parties are free to make good or bad bargains; the law merely requires that something of value be exchanged.

However, consideration must be sufficient in law – it must be something recognised by law as having value. Mere sentiment, natural love and affection, or moral obligations do not constitute sufficient consideration.¹²

This principle reflects the law’s respect for party autonomy. As Lord Somervell observed, ‘courts do not concern themselves with the adequacy of consideration’.¹³ Thus, one could validly sell a car worth ₦5 million for ₦1, provided both parties genuinely agree to these terms.

Executory and Executed Consideration

Consideration can be classified based on timing:

Executory consideration consists of mutual promises to be performed in the future. For example, when a buyer promises to pay ₦100,000 next month and a seller promises to deliver goods next week, both considerations are executory. The contract is formed when the promises are exchanged, even though neither party has yet performed.

Executed consideration occurs when one party performs an act in exchange for a promise. In unilateral contracts, such as reward offers, the consideration is executed when the offeree performs the required act. The offeror’s promise becomes binding only upon completion of the act.

The Bargain Test in Practice

The bargain requirement ensures that contracts reflect genuine economic exchanges rather than disguised gifts. This is particularly important in commercial contexts where legal relationships must be clearly defined.

Consider a scenario where a businessman promises to donate ₦10 million to a university for a new library. If this promise is gratuitous (no consideration), it is not enforceable as a contract. However, if the university promises in exchange to name the library after the donor and erect a commemorative plaque, consideration exists on both sides, creating an enforceable bilateral contract.

Classification of Contracts

Contracts can be classified in various ways depending on their formation, validity, performance, and the nature of obligations created. Understanding these classifications helps in identifying the applicable legal principles and remedies in different contractual situations.

Based on Formation: Express and Implied Contracts

Express Contracts

An express contract is one in which the parties clearly and explicitly state their intentions, either orally or in writing. The terms are spelled out directly, leaving little room for ambiguity about what the parties agreed to.

Examples include:

• A written employment contract specifying salary, duties, and working hours
• An oral agreement to sell a car for ₦2 million with delivery next week
• A signed lease agreement for rental property

Most commercial contracts are express contracts because they provide certainty and reduce the likelihood of disputes about what was agreed.

Implied Contracts

An implied contract arises from the conduct and circumstances of the parties rather than from express words. The law infers the existence of contractual obligations from the parties’ behaviour.

In Brogden v Metropolitan Railway Co,¹⁴ the House of Lords held that a contract could be implied from the parties’ conduct even without explicit acceptance. The parties had exchanged draft contracts and then acted upon the terms for several months, leading the court to infer that a binding agreement existed.

Common examples of implied contracts include:

• Boarding a commercial vehicle (implying agreement to pay the standard fare)
• Ordering food at a restaurant (implying agreement to pay the menu price)
• Using a car park (implying agreement to pay the displayed parking fee)

Nigerian courts recognise that ‘a contract is implied in fact when the facts indicate a contract was formed’.¹⁵ The key is whether a reasonable person would conclude from the parties’ conduct that they intended to create contractual obligations.

Based on the Nature of Obligation: Bilateral and Unilateral Contracts

Bilateral Contracts

A bilateral contract involves an exchange of mutual promises – both parties make promises to each other. This is the most common type of contract in commercial dealings.

As explained in legal literature, ‘bilateral contracts are the most common form of contracts. They include ordering food in a restaurant, buying gas for vehicles, purchasing goods and services’.¹⁶

In a bilateral contract:

• The seller promises to deliver goods, and the buyer promises to pay
• An employer promises to pay wages, and the employee promises to work
• Each promise serves as consideration for the other

The contract is formed as soon as the promises are exchanged (assuming other requirements are met), even though performance lies in the future. Both parties have obligations and rights under the agreement.

Unilateral Contracts

A unilateral contract involves a promise by one party in exchange for performance of an act by another party. Only the promisor is bound until the promisee performs the specified act.

The classic example is the reward case Carlill v Carbolic Smoke Ball Co,¹⁷ where a company advertised that it would pay £100 to anyone who used its product as directed and still contracted influenza. The Court of Appeal held this was a unilateral offer to the world, which could be accepted by anyone who performed the required act. The company argued that one cannot contract with the whole world, but the court reasoned that the advertisement was ‘not a contract with the world but a unilateral offer and that anyone that performs the terms of the offer brings himself into a contractual relationship with the defendant’.

Characteristics of unilateral contracts:

• No obligation on the offeree until they begin or complete performance
• Acceptance occurs through performance of the act, not through a return promise
• The offeror cannot revoke once the offeree has begun performance
• Common in reward scenarios, competitions, and promotional offers

Based on Form: Formal and Simple Contracts

Formal Contracts (Contracts Under Seal)

A formal contract or contract under seal (also called a deed) is one that derives its validity from the form in which it is executed rather than from consideration. These contracts must be:

• In writing
• Signed by the parties
• Sealed (affixing a seal or indicating intention to create a deed)
• Delivered

Formal contracts are typically used for:

• Conveyances of land and real property
• Certain corporate transactions
• Gratuitous promises that the promisor wishes to make binding
• Long-term commercial agreements requiring enhanced formality

The key advantage of a formal contract is that it does not require consideration. A promise made by deed is enforceable even if the promisee gives nothing in return.

Simple Contracts

Simple contracts comprise all contracts other than those under seal. They may be:

• Written
• Oral (also called parol contracts)
• Implied from conduct

Simple contracts require consideration to be enforceable (except in limited circumstances involving promissory estoppel). The vast majority of everyday contracts are simple contracts, from buying groceries to entering employment relationships.

Based on Validity: Valid, Void, Voidable, and Unenforceable Contracts

Valid Contracts

A valid contract is one that contains all the essential elements required by law and is fully enforceable. It creates legally binding obligations that courts will uphold. Valid contracts must have:

• Offer and acceptance (agreement)
• Consideration
• Intention to create legal relations
• Capacity to contract
• Legality of purpose

Void Contracts

A void contract is one that has no legal effect from the beginning. It is as if no contract ever existed. Common reasons for voidness include:

• Illegality of purpose (contracts to commit crimes)
• Impossibility existing at the time of formation
• Lack of capacity (contracts with minors for non-necessaries in some circumstances)
• Fundamental mistake affecting the substance of the agreement

The principle ex turpi causa non oritur actio (no action arises from a base cause) prevents enforcement of contracts tainted with illegality. In Amadi v Pool House Group and Nigerian Pools Co,¹⁸ a betting company successfully avoided liability by relying on an ‘honour clause’ stating that the contract was not intended to create legal relations.

Voidable Contracts

A voidable contract is valid and enforceable unless and until one party chooses to void it. The distinguishing feature is that one party has the option to either affirm or reject the contract, usually due to:

• Misrepresentation
• Undue influence
• Duress
• Certain types of mistake

In Merritt v Merritt,¹⁹ a husband and wife who had separated made a written agreement about property division. Such agreements between separated spouses are enforceable (unlike agreements between cohabiting spouses, which are presumed not to create legal relations). If one party induced the other to enter the agreement through misrepresentation, the innocent party could choose to void it.

Unenforceable Contracts

An unenforceable contract is one that meets all substantive requirements but cannot be enforced due to some technical defect, typically:

• Lack of written evidence where law requires it
• Expiration of the limitation period for bringing an action
• Absence of necessary documentation or registration

The contract exists and may be voluntarily performed, but if one party refuses to perform, the court will not compel performance or award damages.

Based on Performance: Executory and Executed Contracts

Executory Contracts

An executory contract is one in which obligations remain to be performed by one or both parties. The contract has been formed, but performance is yet to occur or is only partially complete.

For example, when a buyer and seller sign a contract today for delivery of goods next month with payment upon delivery, the contract is executory until both delivery and payment occur.

Executed Contracts

An executed contract is one in which all parties have fully performed their obligations. Nothing remains to be done under the contract.

When you buy a sandwich from a food vendor, hand over the money, and receive the sandwich, the contract is executed – all obligations have been fulfilled simultaneously.

The distinction matters because:

• Different remedies may apply depending on the stage of performance
• Questions of risk, title transfer, and breach vary between executory and executed contracts
• The statute of limitations may run from different times depending on when performance was due

Based on Legal Effect: Unilateral Obligations

Contracts of Record

Certain obligations, while not strictly contracts in the traditional sense, are treated as such for enforcement purposes:

• Court judgments create obligations similar to contracts
• Recognisances (bonds entered into before courts) create binding obligations

Quasi-Contracts

Quasi-contracts (also called implied-in-law contracts) are not true contracts but obligations imposed by law to prevent unjust enrichment. They arise where:

• One party receives a benefit
• At the expense of another party
• It would be unjust for the recipient to retain the benefit without compensation

For example, if a carpenter mistakenly begins repairing the wrong house and the homeowner, knowing of the mistake, allows the work to continue, a quasi-contract may be imposed requiring the homeowner to pay reasonable value for the work.

The Contractual Framework in Practice

Understanding the nature of contracts – their sources, the bargain requirement, and various classifications – provides the foundation for analysing specific contractual situations. These principles work together to determine whether an enforceable contract exists and what remedies are available if it is breached.

Integration with Other Legal Principles

The nature of contract does not exist in isolation but integrates with broader legal frameworks. Contract law intersects with:

• Property law (sale of goods, transfer of title)
• Tort law (negligent misstatement inducing contracts)
• Commercial law (negotiable instruments, banking contracts)
• Employment law (contracts of service)

Students should recognise that contract law provides the skeletal framework upon which more specialised areas of commercial law are built.

The Role of Contract Law in Society

Contract law serves multiple functions in regulating social relationships:

1. Facilitation of economic exchange: Contracts enable parties to plan for the future with confidence that their agreements will be honoured
2. Protection of reasonable expectations: The law protects the legitimate expectations of parties who rely on contractual promises
3. Promotion of certainty: Clear rules about contract formation and enforcement reduce transaction costs and disputes
4. Enforcement of voluntary obligations: Contract law respects individual autonomy by enforcing freely made commitments

Conclusion

The nature of contract encompasses the fundamental principles that determine when and how the law will enforce private agreements. By understanding the diverse sources from which contract law draws its authority – common law, statute, equity, and custom – Nigerian law students gain appreciation for the rich pluralistic tradition of their legal system.

The concept of bargain, manifested through the doctrine of consideration, distinguishes enforceable contracts from mere promises or gifts. This requirement ensures that contracts reflect genuine exchanges of value and protects the integrity of the contractual system.

Finally, the various classifications of contracts – from express and implied, through bilateral and unilateral, to valid, void, voidable, and unenforceable – provide the analytical framework for determining the rights, duties, and remedies in any given contractual situation.

As second-year law students progress in their studies, these foundational concepts will prove essential for understanding more complex contractual doctrines, including the formation requirements of offer, acceptance, and intention to create legal relations; the doctrines of privity and consideration; issues of capacity; and the content and interpretation of contractual terms.

The principles examined in this guide apply not only in Nigeria but form part of the common law tradition shared by many jurisdictions worldwide, making them relevant for understanding contract law in both domestic and international contexts.

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Key Takeaways

• A contract is a legally enforceable agreement creating obligations between parties
• Nigerian contract law derives from English common law, statutes, equity, customary law, and judicial precedents
• The concept of bargain, expressed through consideration, distinguishes contracts from gratuitous promises
• Consideration must move from the promisee, must not be past, need not be adequate but must be sufficient
• Contracts may be classified as express or implied, bilateral or unilateral, formal or simple
• Understanding validity classifications (valid, void, voidable, unenforceable) is essential for determining enforceability
• Executory and executed contracts differ in the stage of performance
• These foundational principles provide the framework for all subsequent study of contract law

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Further Reading

For students wishing to deepen their understanding of contract law fundamentals, consider exploring:

• Legal Reasoning and Approach to Problems
• Sources of Law in Nigeria
• Understanding Hohfeldian Legal Concepts

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Footnotes

1. Denis Keenan, Advanced Business Law (10th edn, Pitman Publishing 1997) 156. ↩

2. Enemchukwu v Okoye [2017] 6 NWLR (Pt 1560) 37, 55-56 (CA). ↩

3. Balfour v Balfour [1919] 2 KB 571. ↩

4. Esin v Matzen Contractor Co (Nig) Ltd (1996) 7 NWLR (Pt 458) 29 (CA). ↩

5. Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (CA). ↩

6. Hadley v Baxendale (1854) 9 Ex 341, 156 ER 145. ↩

7. See generally the provisions on customary law in the Evidence Act 2011, ss 14-15. ↩

8. Currie v Misa (1875) LR 10 Ex 153, 162. ↩

9. Cardoso v The Executors of the Late JA Doherty cited in Stephen Legal, ‘Introduction to Nigerian Law of Contract: Notes’ (Stephen Legal, 2 August 2023) https://stephenlegal.ng/introduction-to-nigerian-law-of-contract-notes/ accessed 26 October 2025. ↩

10. Anuruba v ECB Ltd (2005) 10 NWLR (Pt 933). ↩

11. Akenzua II, Oba of Benin v Benin Divisional Council (1957) WRNLR 1. ↩

12. Eastwood v Kenyon (1840) 11 Ad & El 438; Faloughi v Faloughi cited in Nigerian case law. ↩

13. Lord Somervell in Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87, 114. ↩

14. Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 (HL). ↩

15. John Musa Alewo Agbonika, ‘The Principle and Nature of Law of Contract in Nigeria: Formation of Binding Contract’ (2012) 5(4) Journal of Politics and Law 123, 125. ↩

16. Business LibreTexts, ‘Types of Contracts’ (Business LibreTexts, 18 August 2025) https://biz.libretexts.org/Bookshelves/Civil_Law/Fundamentals_of_Business_Law_(Randall_et_al.)/10:_Contracts/10.03:_Types_of_Contracts accessed 26 October 2025. ↩

17. Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (CA). ↩

18. Amadi v Pool House Group & Nigerian Pools Co (1966) 2 All NLR. ↩

19. Merritt v Merritt [1970] 1 WLR 1211 (CA). ↩