What Governs Contract in Nigeria? A Comprehensive Guide

Introduction

A contract is a legally binding agreement between two or more parties that creates mutual obligations enforceable by law. Contracts govern transactions, business relationships, and commercial dealings, ensuring that all parties fulfill their respective duties. In Nigeria, contract law is a fundamental part of the legal system, regulating agreements between individuals, businesses, and organizations.

Understanding what governs contracts in Nigeria is essential for individuals and businesses to ensure compliance with the law and to avoid disputes. This article provides a comprehensive guide on contract law in Nigeria, including the key legal frameworks, essential elements of a valid contract, types of contracts, contractual obligations, enforcement, and remedies available for breaches.

Legal Framework Governing Contracts in Nigeria

Several legal instruments govern contracts in Nigeria, including statutes, case law (judicial precedents), and principles of common law. The key legal frameworks include:

1. The Nigerian Constitution (1999, as amended)

The Constitution of the Federal Republic of Nigeria provides the foundation for all laws in the country, including contract law. Although it does not directly regulate contracts, it sets out fundamental rights and legal principles that impact contractual relationships, such as:

The right to freedom of contract.
The enforceability of contracts under a legal and justiciable system.

2. The Contract Act

Nigeria does not have a singular, codified Contract Act applicable nationwide. Instead, contract law is based on:

English Common Law principles, as received into Nigerian law through colonial legal history.
The Sale of Goods Act 1893, which governs commercial transactions involving the sale of goods.
The Hire Purchase Act, which regulates contracts involving installment payments.

3. Common Law and Equity Principles

As a former British colony, Nigeria inherited English common law principles, which form the foundation of contract law in the country. Equity principles also play a significant role in resolving contractual disputes, ensuring fairness and justice.

4. The Sale of Goods Act 1893

This Act governs contracts related to the sale of goods, outlining:

The duties of buyers and sellers.
The transfer of ownership.
Conditions and warranties in sales transactions.

5. The Law of Evidence Act (2011)

The Law of Evidence Act determines how contractual agreements are proven in court, regulating:

The admissibility of contract documents.
Rules for oral and written evidence.
The burden of proof in contractual disputes.

6. The Companies and Allied Matters Act (CAMA) 2020

For business-related contracts, CAMA 2020 provides legal guidelines for:

Corporate contracts.
Agreements between companies and third parties.
Enforceability of contracts signed by company representatives.

7. The Nigerian Consumer Protection Act

This law ensures that contracts between businesses and consumers are fair, transparent, and protect consumer rights. It regulates issues such as:

Unfair contract terms.
Fraudulent misrepresentation.
Consumer compensation for defective products and services.

Essential Elements of a Valid Contract in Nigeria

For a contract to be legally binding and enforceable in Nigeria, it must meet the following essential elements:

1. Offer and Acceptance

A valid contract must begin with an offer from one party and acceptance by another.

The offer must be clear, definite, and communicated to the offeree.
The acceptance must be unconditional and must correspond exactly with the terms of the offer.
Any counteroffer modifies the initial offer and requires new acceptance.

2. Intention to Create Legal Relations

Parties entering into a contract must intend to be legally bound. Contracts involving social or domestic agreements may lack this element and may not be enforceable unless there is clear evidence of intention.

3. Consideration

Consideration refers to the benefit or value exchanged between parties in a contract. This may be:

Money.
Goods.
Services.
A promise to do or refrain from doing something.

Without consideration, a contract is not enforceable, except in cases involving deeds (formal contracts under seal).

4. Capacity to Contract

The law requires all contracting parties to have legal capacity, meaning they must be:

Of legal age (18 years and above).
Of sound mind and not mentally incapacitated.
Free from coercion or undue influence.
Legally permitted to enter into the contract.

5. Legality of Object

A contract must be for a legal purpose. Any agreement that involves illegal activities, such as fraud, drug trafficking, or money laundering, is void and unenforceable.

6. Certainty and Possibility of Performance

A valid contract must have clear terms and must be capable of being performed. Contracts that are vague, ambiguous, or impossible to fulfill will not be enforced by the courts.

Types of Contracts in Nigeria

Contracts in Nigeria are classified into various categories based on their nature, form, and mode of creation.

1. Express and Implied Contracts

Express contracts are explicitly agreed upon by parties, either orally or in writing.
Implied contracts are formed based on the conduct of parties rather than explicit statements.

2. Unilateral and Bilateral Contracts

Unilateral contracts involve one party making a promise, which is fulfilled only when the other party performs an act (e.g., a reward contract).
Bilateral contracts involve mutual promises, where both parties undertake obligations.

3. Formal and Informal Contracts

Formal contracts (e.g., contracts under seal, deeds) must meet specific legal formalities.
Informal contracts do not require formalities but must meet the essential elements of a contract.

4. Void, Voidable, and Unenforceable Contracts

Void contracts are illegal or lack essential elements, making them unenforceable.
Voidable contracts are valid but can be annulled due to defects such as misrepresentation, duress, or undue influence.
Unenforceable contracts may be valid but lack legal standing (e.g., contracts without required documentation).

Enforcement of Contracts in Nigeria

When a contract is breached, the injured party can seek legal remedies through:

1. Specific Performance

A court may compel the defaulting party to fulfill their contractual obligations, especially when monetary damages are insufficient.

2. Damages (Monetary Compensation)

General damages compensate for losses suffered.
Special damages cover specific, quantifiable losses.
Punitive damages may be awarded in cases of fraud or gross negligence.

3. Injunctions

A court order preventing a party from acting against the contract’s terms.

4. Rescission

A contract may be canceled or annulled if it was formed based on fraud, misrepresentation, or undue influence.

5. Alternative Dispute Resolution (ADR)

Many contractual disputes in Nigeria are resolved through:

Mediation
Arbitration
Conciliation

ADR provides a faster, cost-effective alternative to litigation.

Common Issues and Challenges in Nigerian Contract Law

Despite clear legal principles, contract enforcement in Nigeria faces challenges such as:

Breach of Contract – Many parties fail to honor agreements due to financial difficulties or negligence.
Fraud and Misrepresentation – Some contracts are based on deceitful practices.
Poor Contract Drafting – Many agreements lack clear, precise terms.
Slow Judicial Process – Litigation is often time-consuming and costly.

Conclusion

Contracts are the foundation of commercial transactions and private agreements in Nigeria. Understanding the legal principles governing contracts ensures that parties engage in legally sound agreements, avoid disputes, and seek remedies in case of breach.

At Chaman Law Firm, we specialize in contract drafting, review, enforcement, and dispute resolution. If you need legal guidance on contracts, contact us today.