Every Contract is an Agreement, But it is Not Every Agreement That Qualifies to Be Called A Contract

Every Contract is an Agreement, But it is Not Every Agreement That Qualifies to Be Called A Contract

Introduction

During my first day in the Law of Contract Class, the caption of this article was given to us as our first assignment. As a beginner in Law, this topic gave me a serious headache which I visualized about it for long until the Salvation Golden Book (READING THE LAW) written by Benjamin T. Antiedu rescued me from such solemn ache. “Contracts are made by people every day, whether the parties recognize it or not. Each time one spends money on anything a newspaper, a bus ticket, an airline ticket, a pair of shoes, a meal in a restaurant, laundry services, books, or signs a lease, one concludes a valid and legally binding contract.” Most of these events take place quite smoothly without any awareness of a contract having been made. We keep making a promise which is subject to agreement every day, young men keep proposing to ladies to espouse before and after breaking their virginity, promising of buying them cars, pizza, building mansions etc. and to profoundly convince ladies, men sometimes buy them “promise” rings to keep their heart stable on them. It is usually not until disputes occur that the question of a possible contract arises.

Discussion of the Rule

A contract is an agreement giving rise to obligations which are enforceable or recognized by law. The factor that distinguishes contractual from other legal obligations is that they are based on the agreement of the contracting parties as defined by Trietel. Abiola (2005) defined Contract as an agreement made between two or more competent parties which the law will enforce. Pollock also defines a contract as a promise or set of promise which the law will enforce. America Restatement (second) of the law of contract defined Contract as “a promise or set of promise for the breach of which the law gives a remedy or the performance of which the law in some way recognizes as a duty.” 

An agreement is a form of cross-reference between different parties, which may be written, oral and lies upon the honour of the parties for its fulfilment rather than being in any way enforceable.

What makes contract agreement?

All contracts are agreement because there must be a mutual understanding between two parties for a contract to be formed. All parties should agree and adhere to the terms and conditions of an offer.

The following cases illustrate ways in which all contracts are agreements; In the case of an invitation to treat, where an invitation to treat is merely an invitation to make an offer. An invitation to treat is an indicator of a party’s willingness to negotiate entry into a contract. It is a technique used by a party who desires another party to make an offer and cannot be construed or the terms are accepted as if it were a valid legal offer in itself. (Carlill v Carbolic Smoke Ball Company) .The display of goods in a store is an invitation to treat. (Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd). An advertisement that gives information about goods for sale and their price will generally be an invitation to treat rather than an offer. (Partridge v Crittenden).

When a firm’s offer is accepted it results in a contract provided other elements of contracts are accepted. Considering Benard buying a Toyota Corolla (car) on hire purchase from Quaye who deals with cars. Both parties must come to a consensus (an agreement) on payment of monthly instalment within a specified period. Such an agreement result to speciality contract which a contract under seal.  

According to Best Law Dictionary, an Agreement is defined as “The consent of two or more persons concurring, respecting the transmission of some property, right or benefit, with a view of contracting an obligation. “Every promise and every set of promises, forming the consideration for each other, is an agreement.” Thus it is clear from this definition that a ‘promise’ is an agreement. Then, what at all is a ‘promise’? The answer to this question is which defines the term. “When the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepted. A proposal, when accepted, becomes a promise.” For example, Goodnuff proposes to Fafali to marry her and Fafali accepted, now the proposal has become a promise. An agreement, therefore, comes into existence only when one party proposes or offer to the other party and that other party signifies his assent (that is, gives his acceptance) thereto. In short, an agreement is the sum total of ‘offer’ and ‘acceptance’.

On analyzing the above definition the following characteristics of an agreement become evident: 

  • At least two persons. There must be two or more persons to agree because one person cannot agree with himself.
  • Consensus-ad-idem (an agreement on the same thing). Both the parties to an agreement must agree about the subject matter of the agreement in the same sense and at the same time. 

What agreement negate contract?

Agreement that doesn’t give room for legal obligation will make contract void. As stated above, an agreement to become a contract must give rise to a legal obligation that is a duty enforceable by law. If an agreement is incapable of creating a duty enforceable by law. It is not a contract. 

Agreements of moral, religious or social nature, for example, Goodnuff promise Fafali to party together at Abigail’s house or to buy Fafali a Mercedes Benz after breaking her virginity are not contracts because they are not likely to create a duty enforceable by law for the simple reason that the parties never intended that they should be attended by legal consequences.

For an agreement to qualify as a contract, the law requires that, certain ingredients must be present. These requirements or criteria are commonly called elements of a valid contract.  For a contract to be formed an offer made must back the acceptance of which there must be a consideration. Both parties involved must intend to create legal relation on a lawful matter which must be entered into freely and should be possible to perform. The five main elements of a valid contract and they are offer, acceptance, intention to create legal relations, the capacity of parties and lawful consideration.

Offer

Before a contract exist, there must be a ‘lawful offer’. The adjective ‘lawful’ implies that the offer must satisfy the requirements of the contract act in relation thereto. “A statement or conduct indicating a willingness to contract on terms stated or on terms which can reasonably be inferred from conduct and made with the intention that it will become binding as soon as it is accepted”. (Treitel- Page 8)

An offer has also been succinctly defined by Dr Date-Bah JSC as he was then called in the case of Nthc Ltd v Antwi [2009] SCGLR 117 at 125 “Basically, an offer is an indication in words or by conduct by an offeror that he or she is prepared to be bound by a contract in terms expressed in the offer, if the offeree communicated to the offeror his or her acceptance of those terms. Accordingly, the offer has to be definite and final and must not leave significant terms that are essential to the bargain contemplated. It is important to emphasize the proposition that the mere acceptance of an offer is sufficient to turn the offer into a contract, if there is a consideration for it, together to create legal relations”. 

From the above definitions, two elements must be present in every definition of an offer. The first is that, the offeror must make an indication either orally, by writing or by conduct that he is willing to bargain with the offeree. The second ingredient is the intention of the offeror when expressing his willingness to bargain, the intention being that he will be bound by his own terms as soon as it is accepted. (Reading the law page 47).

Acceptance

In contract, there should be a ‘lawful acceptance’ of the lawful offer, thus resulting in an agreement a valid contract cannot come into existence before an offer is accepted. In summary, an acceptance is an unqualified and a definitive expression of assents to an offer. The issue of whether or not there has been an offer in a particular case is a question of facts to be determined on a case by case basis. Acceptance can be in the form by words orally or in writing, or it could be implied from conduct (HBF Dalgety v Morton)Antiedu (Reading the Law) on page 51 defined Acceptance as manifestation by the offeree either in words or by conduct, indicating his consent to all the terms of the offeror’s offer. He explained further that, a valid acceptance is said to signify consensus ad idem, meaning that, the parties have agreed on the same thing.

Intention to create legal relations

There must be an intention among the parties that the agreement should be attached by legal consequences and create legal obligations. Agreements of a social or domestic nature do not contemplate legal relations, and as such, they do not give rise to a contract. An agreement to dine at a friend’s house is not an agreement intended to create legal relations and therefore is not a contract. Agreements between husband and wife also lack the intention to create a legal relationship and thus do not result in contracts as stated in Balfour v. Balfour [1919] 2 KB 571– an action to enforce the promise of maintenance of E30 per month by the wife failed on grounds that it was a domestic arrangement with no intention to create legal relations.

Where the parties have the memorandum of understanding that the agreement is not intended to have any legal consequences, the court will uphold that intention by refusing to enforce it as indicated in Rose & Frank Co. v. Crompton Bros [1923] 2 KB 261. See Scrutton L.J.

Lawful consideration. 

The third essential element of a valid contract is the presence of ‘consideration’. Consideration has been defined as the price paid by one party for the promise of the other. An agreement is legally enforceable only when each of the parties to it gives something and gets something which is known as quid pro quo. The something given or obtained is the price for the promise and is called ‘consideration’ subject to certain exceptions; gratuitous promises are not enforceable at law. 

The ‘consideration’ may be an act (doing something) or forbearance (not doing something) or a promise to do or not to do something as defined in the case of Curie v. Misa (1875) LR 10 Exch 153that consideration “may consist of some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility which is given, suffered, or undertaken by the others”. It may be passed, present or future. But only those considerations are valid which are ‘lawful’. Lord Dunedin in the case of Dunlop Pneumatic Tyre Co. Ltd v. Selfridge & Co. Ltd (1915) AC 847 gave a comprehensive definition of consideration as “an act or forbearance of one party, a promise thereof, is the price for which the promise of the other is bought … “.

The consideration is ‘lawful’ unless it is forbidden by law; or is of such a nature that, if permitted it would defeat the provisions of any law; or is fraudulent, or involves or implies injury to the person or property of another, or is immoral, or is opposed to public policy.

The capacity of parties.

The parties to an agreement must be competent to contract. But the question that arises now is that what parties are competent and what is not. The contracting parties must be of the age of majority (which is twenty-one (21) years under the common law or eighteen (18) years under Ghanaian law) and of sound mind and must not be disqualified by any law to which they are subject.  A company incorporated under the Companies Act, 2019, Act 992 automatically attains a contractual capacity.  If any of the parties to the agreement suffers from minority, lunacy, idiocy, drunkenness, persons who are non-compos mentis, intoxicated etc. The agreement is not enforceable at law, except in some special cases e.g., in the case of necessaries supplied to a minor or lunatic, the supplier of goods is entitled to be reimbursed from their estate. 

Thus in Chapel v. Cooper (1844) a minor’s contract to purchase a coffin to bury her husband was held as a contract for necessaries and she was liable. Under Ghanaian law ‘necessaries’ has been defined under section 2(3) of the Sale of Goods Act, 1962 (Act 137) it states “necessaries are goods suitable to the condition in life of the person to whom they are delivered and to his actual requirements at the time of delivery”.

Free consent:  Free consent of all the parties to an agreement is another essential element. This concept has two aspects.

 (1) Consent should be made and 

 (2) It should be free of any pressure or misunderstanding. ‘Consent’ means that the parties must have agreed upon the same thing in the same sense. 

Conclusion

Before an agreement can be qualified as a valid contract, it should contain all the essential elements describe supra. What distinguishes a contract from a mere agreement is the fact that if one of the parties fails to honour or discharge his promises the other party may take legal action. Based on the principle of law condensed in the maxim ex turpi causa non-oritur action, that is, an action does not arise from a base cause; a court does not generally enforce a contract or transaction stained with illegality or antagonistic to public policy. Thus an agreement is a wider term than a contract. In the mathematical expression, I can unequivocally say Contract is a subset of Agreement. “All contracts are agreements but all agreements are not contracts”.

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  • comment-avatar
    Abena Adansi 5 months

    How a win I saw this earlier, too good! Thank you so much. I want to be your mentee, my name is Abena Adansi.

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    Abena Adansi 5 months

    How I wish I saw this earlier, too good! Thank you so much. I want to be your mentee, my name is Abena Adansi.

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    Yakubu Mahmud 5 months

    This is a great piece that every law student must read. Well articulated and well structured.

    Thank you

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