The formation of a valid contract is a foundational concept in contract law that determines when parties become legally bound to their agreements. While the nature of contract provides the theoretical framework, the rules governing contract formation address the practical question: at what precise moment does a legally enforceable agreement come into existence?

Understanding contract formation is crucial for law students and practitioners alike, as it determines the point at which parties acquire rights and assume obligations. A misstep in any element of formation can render an otherwise valuable agreement unenforceable, potentially causing significant commercial disruption and financial loss.

This guide examines the essential elements required for valid contract formation in Nigerian law: offer, acceptance, consideration, intention to create legal relations, and capacity to contract. While consideration has been examined extensively in the previous discussion on the nature of contract, this analysis focuses on the mechanics of how agreements are concluded and the legal requirements that must be satisfied.

The Essential Elements of Contract Formation

For a contract to be validly formed and enforceable by law, five essential elements must coexist:¹

1. Offer – A definite proposal made with the intention to be bound
2. Acceptance – An unqualified assent to the terms of the offer
3. Consideration – Something of value exchanged between the parties
4. Intention to create legal relations – The parties must intend their agreement to be legally binding
5. Capacity to contract – The parties must have legal competence to enter into contracts

The Nigerian Supreme Court has affirmed that all five elements are necessary. In Orient Bank (Nig) Plc v Bilante International Ltd,² Niki Tobi JCA (as he then was) identified capacity to contract as a fifth essential element, stating that contracts are invalid where parties lack the legal competence to contract.

Offer: The Starting Point of Contractual Negotiation

An offer is the foundational building block of every contract. It represents one party’s willingness to enter into a legally binding agreement on specified terms.

Definition and Characteristics of an Offer

An offer has been judicially defined as ‘a definite undertaking or promise made by one party with the intention that it shall become binding on the party making it as soon as it is accepted by the party to whom it is addressed’.³

For a communication to constitute a valid offer, it must possess certain characteristics:

1. Definiteness and Certainty

An offer must be clear, complete, and certain in its terms. Vague or ambiguous proposals cannot constitute valid offers. The terms must be sufficiently definite that a court could determine whether they have been breached and what remedy should be awarded.

In G Scammell and Nephew Ltd v Ouston,⁴ an agreement to acquire goods ‘on hire purchase terms’ was held too vague to constitute a binding contract, as the parties had not specified which of many possible hire purchase arrangements they intended.

2. Intention to Be Bound

The offeror must demonstrate a serious intention to be legally bound if the offer is accepted. Statements made in jest, banter, or obvious exaggeration do not constitute offers. The test is objective: would a reasonable person in the offeree’s position believe the offeror intended to be bound?⁵

3. Communication to the Offeree

An offer must be communicated to the offeree before it can be accepted. One cannot accept an offer of which one is unaware. This principle was illustrated in R v Clarke,⁶ where the claimant provided information leading to arrest of criminals, but had forgotten about a reward offer when he gave the information. The court held he could not claim the reward because he did not act in response to the offer.

Offers to Specific Persons and to the World at Large

An offer may be directed to:

A specific individual or group: Most offers are made to identified persons. For example, a seller offers to sell his car to Adebayo for ₦2 million. Only Adebayo can accept this offer.

The world at large: In unilateral contracts, offers can be made to the entire world, and anyone who performs the specified act accepts the offer. The landmark case of Carlill v Carbolic Smoke Ball Co⁷ established this principle. The company advertised that it would pay £100 to anyone who used its smoke ball as directed and still contracted influenza. Mrs Carlill used the product and caught flu. The Court of Appeal held that this was a valid offer to the world, and her performance of the conditions constituted acceptance, creating a binding unilateral contract.

The Nigerian courts have recognised the applicability of this principle. When a company or individual makes a public offer conditioned upon performance of a specified act, anyone who completes that act creates a binding contract.⁸

Invitation to Treat Distinguished from Offer

Not every statement expressing willingness to transact constitutes an offer. The law distinguishes between offers (which, when accepted, create binding contracts) and invitations to treat (which are merely preliminary communications inviting others to make offers).

An invitation to treat is ‘not an offer but a mere offer to receive offers, an offer to negotiate or an offer to chaffer’.⁹ It represents an expression of willingness to enter negotiations but does not commit the maker to any terms.

Common Examples of Invitations to Treat

1. Display of Goods in Shops and Supermarkets

When a shopkeeper displays goods with price tags, this constitutes an invitation to treat, not an offer. In Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd,¹⁰ the Court of Appeal held that displaying goods on self-service shelves was an invitation to customers to make offers, which the cashier could accept or reject.

This principle protects retailers from being bound to sell at displayed prices if, for example, the price tag contains an error, or if they run out of stock.

2. Advertisements

Advertisements generally constitute invitations to treat rather than offers. In Partridge v Crittenden,¹¹ an advertisement stating ‘Bramblefinch cocks and hens, 25s each’ was held to be an invitation to treat. The advertiser was not making an offer to sell to everyone who responded, but inviting them to make offers to buy.

However, advertisements can constitute offers in unilateral contracts where they contain clear, definite terms and demonstrate an intention to be bound, as in the Carlill case discussed above.

3. Auctions

The auctioneer’s request for bids is an invitation to treat, not an offer.¹² Each bid constitutes an offer, which the auctioneer accepts by knocking down the hammer. Until that moment, bidders may withdraw their bids.

Importantly, advertising that an auction will be held is itself only an invitation to treat, not an offer to hold the auction. In Harris v Nickerson,¹³ the defendant advertised an auction of office furniture but cancelled it. The claimant, who had travelled to attend, could not recover his expenses because the advertisement was merely an invitation to treat, not an offer to hold the auction.

4. Invitations to Tender

When an organization invites tenders for the supply of goods or services, this generally constitutes an invitation to treat. Those who submit tenders make offers, which the inviting party is free to accept or reject.

However, where a tender specifies that a certain number of items will be required (rather than may be required), acceptance of a tender creates a binding contract for the supply of that quantity.¹⁴

5. Passenger Transport

The position regarding buses, taxis, and other passenger vehicles has special significance in Nigeria, where such transport is widely used. When a bus stops at a designated stop or a taxi pulls up at a rank, this constitutes an implied offer to carry passengers at the standard fare, which passengers accept by boarding.¹⁵

Termination of Offers

An offer does not remain open indefinitely. It may be terminated in several ways, after which it can no longer be accepted:

1. Rejection

If the offeree rejects an offer, it ceases to exist and cannot subsequently be accepted. Rejection must be communicated to the offeror to be effective.

2. Counter-Offer

A counter-offer is a response that purports to accept an offer but varies its terms. It operates as both a rejection of the original offer and a new offer proceeding in the opposite direction.

In Hyde v Wrench,¹⁶ the defendant offered to sell property for £1,000. The plaintiff responded offering £950, which the defendant rejected. The plaintiff then attempted to accept the original £1,000 offer, but the court held that his counter-offer of £950 had killed the original offer, which could no longer be accepted.

This principle is sometimes called the mirror image rule – acceptance must be a mirror image of the offer, matching its terms exactly.¹⁷

However, mere requests for information or clarification do not constitute counter-offers and do not terminate the original offer. In Stevenson, Jacques & Co v McLean,¹⁸ an enquiry about whether payment terms could be extended was held to be a request for information, not a counter-offer, so the original offer remained capable of acceptance.

3. Lapse of Time

An offer terminates if not accepted within the time specified by the offeror. If no time is specified, the offer lapses after a reasonable time. What constitutes a ‘reasonable time’ depends on the circumstances, including:

• The subject matter of the contract (perishable goods vs. real estate)
• Market conditions (particularly volatile markets)
• The method of communication used
• Trade customs and practices

4. Revocation

The offeror may revoke (withdraw) an offer any time before acceptance, even if they promised to keep it open.¹⁹ However, revocation is subject to important limitations:

Communication Required: Revocation is only effective when communicated to the offeree. In Byrne v Van Tienhoven,²⁰ defendants posted a revocation of their offer on 8 October, but plaintiffs accepted by telegram on 11 October, before receiving the revocation (which arrived on 20 October). The court held a binding contract was formed on 11 October because revocation was not effective until communicated.

Communication by Reliable Third Party: Revocation need not come directly from the offeror. If the offeree learns from a reliable source that the offeror has changed their mind, this may constitute effective revocation. In Dickinson v Dodds,²¹ the defendant offered to sell property to the plaintiff, promising to keep the offer open until Friday. On Thursday, the plaintiff learned from a third party that the defendant had sold the property to someone else. The court held this constituted effective revocation.

Exception for Unilateral Contracts: Once the offeree has begun performance in a unilateral contract, the offeror cannot revoke the offer. In Errington v Errington,²² a father promised to transfer a house to his son if the son paid off the mortgage. The father could not revoke once the son had begun making payments.

5. Failure of Precondition

If an offer is made subject to a condition, and that condition fails, the offer terminates automatically.

6. Death

Generally, the death of either party before acceptance terminates the offer. However, if the offeree accepts without knowledge of the offeror’s death, and the contract does not require personal performance by the deceased, some authorities suggest the contract may be valid and binding on the estate.²³

Acceptance: The Creation of Contractual Obligation

Acceptance is the final and unqualified expression of assent to the terms of an offer. It represents the point at which parties cross from negotiation into contractual commitment.

Requirements for Valid Acceptance

1. Unconditional and Unqualified Assent

Acceptance must be absolute, matching the offer precisely without variation, qualification, or condition. This is the mirror image rule already mentioned. Any variation, however slight, constitutes a counter-offer rather than acceptance.

In Orient Bank (Nig) Ltd v Bilante International Ltd,²⁴ the respondent applied for a loan, and the appellant bank made a formal offer in a letter containing specific terms. The letter concluded by asking the respondent to ‘confirm the above agreement’ by signing and returning a duplicate. Rather than signing the bank’s letter, the respondent wrote back adding additional terms. The Court of Appeal held this was a counter-offer, not acceptance, because it varied the bank’s terms.

A common form of conditional acceptance is an agreement ‘subject to contract’. This phrase indicates that parties do not intend to be bound until a formal written contract is executed. In UBN v Tejumola & Sons Ltd,²⁵ an agreement headed ‘subject to contract’ was held not to create a binding contract despite the parties having agreed on essential terms.

2. Communication to the Offeror

As a general rule, acceptance must be communicated to the offeror. Silence does not normally constitute acceptance. An offeror cannot impose a contract on an offeree by stating ‘if I do not hear from you, I will assume you accept’.

In Felthouse v Bindley,²⁶ the plaintiff wrote to his nephew offering to buy a horse, stating ‘If I hear no more about him, I consider the horse mine’. The nephew did not reply but told the auctioneer (the defendant) not to sell the horse as it was sold to his uncle. The auctioneer mistakenly sold the horse. The court held there was no contract between uncle and nephew because the nephew had not communicated acceptance.

Exception for Unilateral Contracts: In unilateral contracts, no communication of acceptance is required. The offeree accepts by performing the specified act. In Carlill v Carbolic Smoke Ball Co, Mrs Carlill’s use of the smoke ball as directed constituted acceptance; she need not notify the company.

3. Acceptance by the Offeree

Only the person or persons to whom an offer is made can accept it. A third party cannot accept an offer made to someone else.

4. Prescribed Method of Acceptance

Where the offeror prescribes a particular method of acceptance, the offeree should comply with that method. However, if an equally expeditious and advantageous method is used, acceptance will generally be valid.²⁷

In Afolabi v Polymere Industries Ltd,²⁸ the defendant appointed the plaintiff as an agent and sent terms requiring the plaintiff to ‘sign the duplicate copy attached, signifying your agreement… and return at your earliest convenience’. There was no evidence the plaintiff returned the signed duplicate. The court held there was no valid acceptance because the prescribed method was not followed.

Methods of Acceptance

Acceptance may be express (in words, whether spoken or written) or implied (by conduct).

Express Acceptance: Most acceptances are express, with the offeree clearly stating (orally or in writing) that they accept the offer.

Implied Acceptance: Where the offeree’s conduct unambiguously indicates assent, acceptance may be implied. For example:

• Boarding a bus at a bus stop implies acceptance of the offer to transport at the standard fare
• Beginning performance in a unilateral contract
• Accepting delivery of goods in furtherance of an ongoing business relationship

In Brogden v Metropolitan Railway Co,²⁹ the parties had negotiated a draft contract for coal supply. The company manager filled in some blanks and returned it to Brogden, who made some changes and returned it marked ‘approved’. The company filed it away without formally executing it, but both parties acted on its terms for two years. The court held that by conducting themselves according to the contract terms, the parties had implicitly accepted the agreement.

The Postal Rule of Acceptance

One of the most important and controversial rules in contract formation is the postal rule (also called the mailbox rule). This rule creates an exception to the general principle that acceptance must be communicated to be effective.

The Rule Stated

Under the postal rule, acceptance by post is complete and effective at the moment the letter is posted (placed in the postbox or handed to a postal official), not when it is received by the offeror.³⁰

This rule was established in Adams v Lindsell,³¹ where defendants posted an offer to sell wool on 2 September, but it was misdirected and not received by plaintiffs until 5 September. Plaintiffs immediately accepted by post. Defendants, thinking their offer had lapsed, sold the wool to a third party on 8 September. Plaintiffs’ acceptance arrived on 9 September. The court held a binding contract was formed on 5 September when plaintiffs posted their acceptance, so defendants were in breach by selling to another.

The rule was reaffirmed in Household Fire Insurance Co v Grant,³² where a letter of acceptance was lost in the post. The court held a binding contract was nevertheless formed when the letter was posted.

Rationale for the Rule

The postal rule serves several purposes:

1. Practical Necessity: In the 19th century when the rule developed, post was the primary means of long-distance communication. The rule prevented an infinite regression of confirmations.
2. Risk Allocation: The offeror, by choosing to use the post, accepts the risks inherent in that method of communication (delay, loss). As Bramwell LJ observed, the offeror ‘could avoid the postal rule by stating “Your answer by post is only to bind if it reaches me”‘.³³
3. Certainty for the Acceptor: The acceptor knows immediately whether they are bound, without waiting for confirmation that their acceptance was received.

Limitations and Exceptions

The postal rule does not apply in several circumstances:

1. Offers Made by Instantaneous Communication: Where an offer is made by telephone, telex, fax, or other instantaneous means, the postal rule does not apply.³⁴ Acceptance must be received by the offeror. In Entores Ltd v Miles Far East Corp,³⁵ Lord Denning held that for instantaneous communications, ‘the contract is only complete when the acceptance is received by the offeror’.

2. Offers Excluding the Postal Rule: The offeror may expressly require actual receipt of acceptance, thereby excluding the postal rule. This is advisable in high-value transactions to ensure certainty.

3. Where Postal Acceptance is Unreasonable: The postal rule only applies where it is reasonable to use the post for acceptance. In Henthorn v Fraser,³⁶ it was held that the postal rule applies ‘where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used’.

In Quenerduaine v Cole,³⁷ an offer was made by telegram, but the offeree attempted to accept by letter. The court held the postal rule did not apply because it was unreasonable to accept by a slower method when the offer came by telegram.

4. Where Notice is Required: If a contract requires that ‘notice’ of acceptance be given, this typically means actual communication, and the postal rule will not apply.³⁸

5. Improperly Posted Letters: The postal rule applies only to correctly addressed, properly stamped letters that are actually posted. If the letter is not properly addressed or stamped, or is simply handed to someone to post later, the rule does not apply.³⁹

The Postal Rule and Electronic Communication

The application of the postal rule to email and other electronic communications remains somewhat uncertain. Most authorities suggest that email should be treated as an instantaneous means of communication (like telephone or fax), meaning the postal rule does not apply and acceptance is effective only upon receipt.⁴⁰

However, where emails are sent outside business hours or to servers that may not be immediately monitored, the position is less clear. Some jurisdictions have enacted legislation (such as Electronic Transactions Acts) that specify when electronic communications are deemed sent and received, but these do not necessarily resolve whether the postal rule applies to such communications.⁴¹

Acceptance in Standard Form Contracts: The Battle of Forms

Modern commerce often involves the exchange of standard form documents (purchase orders, acknowledgments, invoices) containing different sets of terms and conditions. This creates a ‘battle of forms’ where each party attempts to incorporate their own standard terms.

The traditional analysis applies the mirror image rule: the ‘last shot’ prevails. Whichever party last communicates standard terms before performance begins gets their terms incorporated into the contract.⁴²

However, this approach can produce arbitrary results. Some courts adopt a more flexible approach, examining the parties’ conduct and correspondence to determine which terms they actually agreed to, ignoring boilerplate provisions on which no real agreement was reached.

Intention to Create Legal Relations

Even where offer, acceptance, and consideration exist, no binding contract arises unless the parties intended their agreement to have legal effect. This element distinguishes legally enforceable contracts from social arrangements and domestic agreements.

The Requirement Explained

The requirement of intention to create legal relations (also called animus contrahendi) ensures that parties are bound only where they genuinely intended their agreement to be legally enforceable.⁴³

As the Court of Appeal noted in Akin Akingun & Associates v Odu’A Investment Co:⁴⁴

Where there is failure of any of the requirement of a valid contract such as intention to create legal relations, then there is failure of contract as it is incomplete.

This element serves several purposes:

1. It keeps the courts out of intimate personal relationships where litigation would be inappropriate
2. It respects party autonomy by not imposing contractual obligations where none were intended
3. It maintains the distinction between legally enforceable obligations and mere moral or social duties

The Presumptions: Different Rules for Different Contexts

Courts apply different presumptions depending on the context in which the agreement was made. These presumptions may be rebutted by evidence, but they establish the starting point for analysis.

Commercial and Business Agreements

In commercial transactions, there is a strong presumption that parties intend to create legal relations. Businesses deal with each other with the expectation that their agreements will be legally binding and enforceable.

This presumption reflects commercial reality: when parties negotiate business deals, exchange correspondence, and commit resources, they ordinarily intend legal consequences. In Esso Petroleum Co Ltd v Commissioners of Customs and Excise,⁴⁵ the court held that a promotional offer of free World Cup coins with petrol purchases created legal relations because it was made in a commercial context.

Rebutting the Commercial Presumption:

Despite the strong presumption, parties may demonstrate that they did not intend legal relations:

1. Express Exclusion Clauses (‘Honour Clauses’)

Parties may expressly state that their agreement is not legally binding. Common formulations include:

• ‘Binding in honour only’
• ‘This is not a formal or legal agreement’
• ‘This arrangement is not subject to legal jurisdiction in law courts’

In Rose and Frank Co v Crompton Brothers,⁴⁶ a trade agreement contained a clause stating:

This arrangement is not… a formal or legal agreement and shall not be subject to legal jurisdiction in the law courts.

The House of Lords held this effectively excluded legal relations. The parties were free to rely on each other’s good faith, but the agreement was not legally enforceable.

The Nigerian case of Amadi v Pool House Group & Nigerian Pools Co⁴⁷ involved a football pools coupon with an honour clause stating that the arrangement was not intended to create legal relations. When the claimant alleged he had won but was not paid, the court held the honour clause was effective; the defendant had no legal liability.

2. Agreements ‘Subject to Contract’

When negotiations are expressed to be ‘subject to contract’, this indicates parties do not intend to be bound until a formal contract is executed. In UBN v Tejumola & Sons Ltd,⁴⁸ an agreement headed ‘subject to contract’ was held not to create immediate legal relations, despite agreement on all essential terms.

However, if parties begin performing under an agreement ‘subject to contract’, they may be held to have waived this requirement, creating a binding contract by their conduct.⁴⁹

3. Letters of Comfort

Letters of comfort are statements by parent companies regarding subsidiaries’ financial positions, often provided to induce banks to lend to subsidiaries. These typically do not create legal obligations.

In Kleinwort Benson Ltd v Malaysia Mining Corporation Bhd,⁵⁰ a parent company issued a letter stating ‘it is our policy to ensure that [our subsidiary] is at all times in a position to meet its liabilities’. When the subsidiary collapsed, the bank sued on the letter. The court held it was merely a statement of current policy, not a legally binding promise, and therefore did not create legal relations.

4. Mere Puffs

Advertising statements that are obvious exaggerations or promotional hyperbole (‘mere puffs’) are not intended to be taken literally and do not create legal relations. In Weekes v Tybald,⁵¹ the defendant’s statement that he would give £100 to any man who married his daughter was held to be a mere puff, not a serious offer creating legal relations.

However, statements that appear commercial and serious will be held to create legal relations even if made in advertisements, as Carlill v Carbolic Smoke Ball Co demonstrates. The company’s argument that its advertisement was a mere puff failed because it had deposited £1,000 in the bank to show sincerity.

Domestic and Social Agreements

For domestic and social agreements, the presumption is reversed: the courts presume that parties do not intend legal relations.⁵²

This presumption rests on sound policy grounds. If the law enforced all domestic promises, the courts would be inundated with disputes about household matters, child-care arrangements, social engagements, and family finances. As Atkin LJ famously observed in Balfour v Balfour:⁵³

In respect of these promises each house is a domain into which the King’s writ does not seek to run.

Agreements Between Spouses

The leading case is Balfour v Balfour,⁵⁴ where a husband working abroad promised to pay his wife £30 per month while she remained in England for health reasons. When the marriage broke down, the wife sued on the promise. The Court of Appeal held that agreements between cohabiting spouses are not intended to create legal relations. Such arrangements are made ‘in the ordinary course of family life’ and are ‘not intended to be subject to legal sanctions’.

Similarly, in Spellman v Spellman,⁵⁵ a husband’s promise to buy his wife a car was held not to create legal relations as it was a domestic arrangement.

Rebutting the Domestic Presumption:

The presumption against legal relations in domestic contexts can be rebutted in several circumstances:

1. Separation or Estrangement

When spouses separate, their relationship changes fundamentally. They are no longer living in the mutual trust and confidence of a harmonious household, but ‘bargain keenly’ over assets, maintenance, and support. Agreements made after separation are therefore intended to be legally binding.

In Merritt v Merritt,⁵⁶ after a husband left his wife for another woman, the couple met and made a written agreement that if the wife paid off the mortgage, the husband would transfer the house into her sole name. When the wife paid off the mortgage but the husband refused to transfer the property, the court held the agreement was enforceable. Because the parties were separated, they clearly intended legal consequences.

2. Written Agreements

While not determinative, a written agreement between family members provides strong evidence that they intended legal relations. In Merritt, the fact that the spouses reduced their agreement to writing (signed by the husband) supported the finding of legal intent.

3. Significant Sacrifice or Detriment

Where one party makes substantial sacrifices or incurs significant detriment in reliance on a domestic agreement, courts may find legal intent. In Parker v Clark,⁵⁷ an elderly couple persuaded younger relatives to sell their home and move in with them, promising to leave them property in their will. When the relationship soured and the younger couple was evicted, the court held there was a binding contract. The younger couple’s sale of their home demonstrated the seriousness of the arrangement and rebutted the presumption against legal intent.

Agreements Between Other Family Members

The same presumption applies to agreements between parents and children, siblings, and other relatives. In Jones v Padavatton,⁵⁸ a mother promised her daughter an allowance if she gave up her job in America to study law in England. When they later quarreled, the daughter sued to enforce the promise. The Court of Appeal held this was a domestic arrangement not intended to create legal relations.

Social Agreements Between Friends

Agreements between friends are similarly presumed not to create legal relations. In Balfour v Balfour, Atkin LJ stated that ‘[social] agreements are not contracts’ because they ‘are not contemplated to have legal effect’.

Rebutting the Social Presumption:

However, where friends make agreements involving significant commercial elements or mutual obligations, legal relations may be found.

In Simpkins v Pays,⁵⁹ the plaintiff (a paying lodger), the defendant (his landlady), and her granddaughter regularly entered newspaper competitions together. All contributed but entries were in the defendant’s name. When they won, the defendant refused to share the prize. The court held there was sufficient mutuality and a commercial element to indicate legal intent, making the agreement enforceable.

Similarly, in Albert v Motor Insurers Bureau,⁶⁰ regular car-sharing arrangements where passengers contributed to petrol were held not to create legal relations, but if such arrangements became regular and structured with fixed financial contributions, they might cross the line into legally binding contracts.

Intermediate or Collective Agreements

Some agreements fall between the clearly commercial and the clearly domestic. Collective agreements between employers and trade unions are an important example.

Although these are negotiated in a commercial context and may significantly affect employees’ terms and conditions, they are generally presumed not to create legal relations between employer and union.⁶¹ This is because such agreements are intended to be enforced through industrial action rather than litigation.

However, terms negotiated collectively may be incorporated into individual employees’ contracts of employment, making them legally enforceable by the individual employee (but not by the union).⁶²

Capacity to Contract

The final element of contract formation is capacity – the legal competence to enter into binding agreements. Not all persons possess full contractual capacity. The law protects certain vulnerable groups by restricting their ability to contract or by allowing them to avoid contracts they have entered.

Categories of Persons with Limited Capacity

Nigerian law recognizes several categories of persons with limited capacity to contract:

1. Minors (Infants)

Under Nigerian law, the age of majority is 18 years in all states that have enacted the Age of Majority Law. Persons below this age are minors (also called infants in legal terminology) and have limited capacity to contract.

General Rule: Contracts entered into by minors are voidable at the minor’s option. The minor may choose to affirm or repudiate the contract upon reaching majority, but the other party (if an adult) is bound.

Exceptions – Contracts Binding on Minors:

Certain types of contracts bind minors from the outset:

a) Contracts for Necessaries

Minors are bound by contracts for ‘necessaries’ – goods and services appropriate to their station in life that are actually necessary at the time of sale and delivery. In Nash v Inman,⁶³ clothes supplied to a Cambridge undergraduate were held not to be necessaries because he already had sufficient clothing.

b) Beneficial Contracts of Service

Contracts of employment and apprenticeship that are substantially beneficial to the minor are binding. In Doyle v White City Stadium Ltd,⁶⁴ a minor boxer’s contract was enforceable because it was overall beneficial to him, even though it contained some onerous terms.

c) Contracts for Education

Contracts for education and training that are for the minor’s benefit are generally binding.

2. Persons of Unsound Mind

Persons who lack mental capacity to understand the nature and consequences of a transaction cannot validly contract. However, contracts are only voidable (not automatically void) if:

• The person was of unsound mind at the time of contracting, AND
• The other party knew or ought to have known of the incapacity

Even where these conditions are met, the person of unsound mind must pay a reasonable price for necessaries supplied.⁶⁵

3. Drunken Persons

Similar rules apply to persons so intoxicated that they cannot understand what they are doing. The contract is voidable if the other party knew or should have known of the intoxication. The intoxicated person remains liable for necessaries supplied.

4. Corporations

Corporations are artificial legal persons with capacity to contract. However, their capacity may be limited by:

• Ultra vires doctrine: Corporations can only enter contracts within their objects as stated in their constitutive documents
• Internal irregularities: Contracts may be void if proper internal procedures were not followed

The Companies and Allied Matters Act 2020 has reformed some aspects of corporate capacity, generally expanding the powers of companies and protecting third parties dealing with companies in good faith.⁶⁶

The Protection Principle

The underlying principle of limited capacity is protection of vulnerable parties. Minors, persons of unsound mind, and intoxicated persons are protected from their own improvident transactions. However, this protection is balanced against the need to allow such persons to enter necessary transactions for their daily living.

The Moment of Contract Formation

Understanding precisely when a contract comes into existence is crucial, as this determines when rights and obligations arise, when title to goods may pass, and where (geographically) the contract is made (important for jurisdiction and conflict of laws).

Generally, a contract is formed at the moment a valid acceptance is communicated to the offeror (or, under the postal rule, when acceptance is posted).

Practical Significance

The moment of formation matters for several reasons:

1. Risk allocation: In contracts for goods, risk may pass when the contract is formed
2. Limitation periods: Time limits for bringing legal action may run from contract formation
3. Changes in capacity: If a party loses capacity after formation, the contract remains valid
4. Supervening illegality: If performance becomes illegal after formation, the doctrine of frustration may apply
5. Revocation: An offer cannot be revoked after acceptance has occurred

Conclusion

The formation of a valid contract requires the presence of five essential elements: offer, acceptance, consideration, intention to create legal relations, and capacity to contract. Each element serves a distinct function in ensuring that parties are genuinely bound only where they intended to create enforceable legal obligations.

Offer represents the initiating party’s definite proposal to contract on specified terms. It must be distinguished from preliminary communications (invitations to treat) that merely invite negotiations. An offer can be terminated by rejection, counter-offer, lapse of time, revocation, or other circumstances, after which it cannot be accepted.

Acceptance is the final, unconditional expression of assent to the offer’s terms. It must generally be communicated to the offeror, though the postal rule creates an important exception for acceptances sent by post. The mirror image rule requires that acceptance match the offer exactly; any variation constitutes a counter-offer.

Intention to create legal relations distinguishes legally binding contracts from social and domestic arrangements. Different presumptions apply in different contexts: commercial agreements are presumed to create legal relations, while domestic and social agreements are presumed not to. These presumptions can be rebutted by appropriate evidence.

Capacity to contract protects vulnerable persons – minors, those of unsound mind, drunken persons, and corporations with limited powers – from improvident transactions, while allowing them to enter necessary contracts.

Together, these elements provide the analytical framework for determining whether a binding contract has been formed. Mastery of these principles is essential for legal reasoning in contractual disputes and for providing sound advice to clients contemplating or negotiating commercial transactions.

Having established when and how contracts are formed, the next stage of study examines the rights and obligations that arise from contracts, including the doctrine of privity, the contents and terms of contracts, and the special rules regarding capacity – topics that build upon the foundational principles examined in this guide.

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Key Takeaways

• Contract formation requires five elements: offer, acceptance, consideration, intention to create legal relations, and capacity
• An offer is a definite proposal that must be distinguished from invitations to treat
• Acceptance must be unconditional, matching the offer exactly (mirror image rule)
• The postal rule makes acceptance by post effective when posted, not when received
• Offers terminate through rejection, counter-offer, revocation, lapse of time, or other circumstances
• Commercial agreements are presumed to create legal relations; domestic agreements are presumed not to
• These presumptions can be rebutted by evidence such as honour clauses, separation agreements, or conduct
• Minors, persons of unsound mind, drunken persons, and corporations have limited capacity to contract
• Understanding when a contract is formed is crucial for determining rights, obligations, and remedies

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Further Reading

For students wishing to explore contract formation in greater depth:

• Sources of Law in Nigeria
• Legal Reasoning in Judicial Process
• Legal Research and Use of Source Materials

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Footnotes

1. BPS Construction & Engineering Co Ltd v FCDA [2017] 10 NWLR (Pt 1572) 1, 25-26 (SC). ↩

2. Orient Bank (Nig) Plc v Bilante International Ltd [1997] 8 NWLR (Pt 515) 37. ↩

3. ibid. ↩

4. G Scammell and Nephew Ltd v Ouston [1941] AC 251 (HL). ↩

5. Smith v Hughes (1871) LR 6 QB 597. ↩

6. R v Clarke (1927) 40 CLR 227 (HCA). ↩

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

8. Learn Nigerian Law, ‘Formation of a Contract: Offer, Acceptance’ (Learn Nigerian Law) https://www.learnnigerianlaw.com/learn/contract-law/formation accessed 26 October 2025. ↩

9. 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, 124. ↩

10. Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401 (CA). ↩

11. Partridge v Crittenden [1968] 1 WLR 1204. ↩

12. Payne v Cave (1789) 3 Term Rep 148, 100 ER 502. ↩

13. Harris v Nickerson (1873) LR 8 QB 286. ↩

14. Great Northern Railway Co v Witham (1873) LR 9 CP 16. ↩

15. Agbonika (n 9) 124. ↩

16. Hyde v Wrench (1840) 3 Beav 334, 49 ER 132. ↩

17. Learn Nigerian Law (n 8). ↩

18. Stevenson, Jacques & Co v McLean (1880) 5 QBD 346. ↩

19. Routledge v Grant (1828) 4 Bing 653, 130 ER 920. ↩

20. Byrne v Van Tienhoven (1880) 5 CPD 344. ↩

21. Dickinson v Dodds (1876) 2 Ch D 463 (CA). ↩

22. Errington v Errington [1952] 1 KB 290 (CA). ↩

23. Bradbury v Morgan (1862) 1 H & C 249, 158 ER 877. ↩

24. Orient Bank (Nig) Ltd v Bilante International Ltd [1997] 8 NWLR (Pt 515) 37 (CA). ↩

25. UBN v Tejumola & Sons Ltd (1983) 2 NWLR (Pt 179) (SC). ↩

26. Felthouse v Bindley (1862) 11 CB (NS) 869, 142 ER 1037. ↩

27. Tinn v Hoffmann & Co (1873) 29 LT 271. ↩

28. Afolabi v Polymere Industries Ltd (1967) All NLR. ↩

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

30. Adams v Lindsell (1818) 1 B & Ald 681, 106 ER 250. ↩

31. ibid. ↩

32. Household Fire and Carriage Accident Insurance Co v Grant (1879) 4 Ex D 216 (CA). ↩

33. ibid 223 (Bramwell LJ). ↩

34. Henthorn v Fraser [1892] 2 Ch 27 (CA). ↩

35. Entores Ltd v Miles Far East Corp [1955] 2 QB 327 (CA). ↩

36. Henthorn v Fraser [1892] 2 Ch 27, 33 (CA). ↩

37. Quenerduaine v Cole (1883) 32 WR 185. ↩

38. Holwell Securities Ltd v Hughes [1974] 1 WLR 155 (CA). ↩

39. Re London & Northern Bank, Ex parte Jones [1900] 1 Ch 220. ↩

40. 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. ↩

41. See generally Uniform Electronic Transactions Act (UETA) in various US states. ↩

42. Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd [1979] 1 WLR 401 (CA). ↩

43. LawGlobal Hub, ‘Contract: Intention to Create Legal Relations (NG)’ (LawGlobal Hub, 21 May 2024) https://www.lawglobalhub.com/contract-intention-to-create-legal-relations/ accessed 26 October 2025. ↩

44. Akin Akingun & Associates v Odu’A Investment Co cited in LawGlobal Hub (n 43). ↩

45. Esso Petroleum Co Ltd v Commissioners of Customs and Excise [1976] 1 WLR 1 (HL). ↩

46. Rose and Frank Co v Crompton Brothers [1925] AC 445 (HL). ↩

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

48. UBN v Tejumola & Sons Ltd (1983) 2 NWLR (Pt 179) (SC). ↩

49. RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG [2010] UKSC 14. ↩

50. Kleinwort Benson Ltd v Malaysia Mining Corporation Bhd [1989] 1 WLR 379 (CA). ↩

51. Weekes v Tybald (1605) Noy 11, 74 ER 982. ↩

52. Learn Nigerian Law, ‘Intention to Enter Legal Relations’ (Learn Nigerian Law) https://www.learnnigerianlaw.com/learn/contract-law/legal-relations accessed 26 October 2025. ↩

53. Balfour v Balfour [1919] 2 KB 571, 579 (CA) (Atkin LJ). ↩

54. ibid. ↩

55. Spellman v Spellman [1961] 1 WLR 921. ↩

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

57. Parker v Clark [1960] 1 WLR 286. ↩

58. Jones v Padavatton [1969] 1 WLR 328 (CA). ↩

59. Simpkins v Pays [1955] 1 WLR 975. ↩

60. Albert v Motor Insurers Bureau [1972] AC 301 (HL). ↩

61. Ford Motor Co Ltd v Amalgamated Union of Engineering and Foundry Workers [1969] 2 QB 303. ↩

62. Marley v Forward Trust Group Ltd [1986] ICR 891 (CA). ↩

63. Nash v Inman [1908] 2 KB 1 (CA). ↩

64. Doyle v White City Stadium Ltd [1935] 1 KB 110 (CA). ↩

65. See Sale of Goods Act (various states); Imperial Loan Co v Stone [1892] 1 QB 599 (CA). ↩

66. Companies and Allied Matters Act 2020, ss 42-45. ↩