By Stephen Okangla

Introduction

On daily basis we enter into contract either by making promise or by drafting an agreement. It is true that contract is key to human survival. The exchange of goods and services between persons, communities, states and countries which is a form of contract in a broad sense must continue to ensure existence of man. No one owns the monopoly of commodity, for this, contract is a sure thing.

What then is a Contract? A contract is defined as an agreement which the law will enforce or recognize as affecting the legal rights and duties of the parties. It is also seen as a promise or a set of promises the law will enforce. Per NIKI TOBI J.C.A (as he then was) defined a contract as an agreement between two or more parties which create a reciprocal legal obligations to do or not to do particular things. It was held in the case of ORIENT BANK (NIG.) PLC V BILANTE INTERNATIONAL LTD [1997] 8 NWLR (PT.515F) 37 AT 76. That for a contract to be valid, “there must be mutuality of purpose and intention”. It should be pointed out, however that strictly speaking, there can be no contract between more than two parties at a time. Where it appears that there are more than two parties involved, what it means is that either groups of parties belong to one side, or there is more than one contract involved. This article is aimed at appraising the importance of capacity and its indispensability in the formation of a valid contract.

CONTRACTUAL CAPACITY

Ordinarily, capacity is the ability and the do ability of something. Capacity to contract means the legal competence of a person to enter into a valid contract. Usually the capacity to contract refers to the capacity to enter into a legal agreement and the competence to perform some act. In law of contract, capacity to contract cannot be thrown away. It is compulsory and a requisite criteria to the formation of a valid contract. It is wise and needful for anyone who intends entering into a contract to carefully embark on research to ascertain the capacity, mental stability and otherwise of the party he intends entering into a contract with. This is needful because the law classified some categories of persons as unfit to enter into a valid contract base on their capacity and state of mind. For the purpose of brevity, I shall not dig deep into capacity to contract, hence only basic information will be provided.

Who Then Are The Set Of Persons Declared Unfit, For Lacking Capacity To Enter Into A Valid Contract?

There are set of people the law recognizes and bar from making and entering into a contract. The following persons are incapacitated in making and entering into a contract.

  1. Illiterate Persons: at this point, it is vital to know what illiteracy is in law of contract. In the case of P.Z & CO. LTD V GUSUA & KANTOMA the High court took the view that “illiterate” meant illiterate in the language used in the document under consideration. It is irrelevant that the defendant might be literate in some other language. Contract made by or entered into with a person who do not understand the language and terms of the contract is void ab initio (from the beginning). However, when the terms of the contract are orally made, the contract is valid.
  2. Infants: it is important to note that the age of twenty-one has been fixed at common as that at which absolute and unlimited legal capacity to contract shall commence. The above provision is what is obtainable in Nigeria. Persons below the age of twenty-one are therefore, infants for the purpose of contractual transactions. Contracts by an infants are either void, voidable or valid in the case of contract for necessaries.
  3. Lunatics (insane person): contracts concluded by a lunatic or mentally disordered person can be classified into two categories, contracts for necessaries and contracts for other things. In the case of contracts for necessaries, the mentally disordered person would be bound like everybody else. Section 2 of the Sales of Goods Act 1983 provides that where necessaries are sold and delivered to a person “who by reason of mental incapacity or drunkenness is incompetent to contract, he must pay a reasonable price thereof”. However, where the contracts is not of necessaries and the other party is aware of his state of mental disorderliness, such contract is voidable at the insane person’s option.
  4. Drunken person: a person in a state of drunkenness or intoxication is in similar position to a mentally disordered person. If he enters into a contract with another person in such a state of intoxication that he did not know what he was doing, and the other party was aware of this fact, then the contract is voidable at his option.

THE IMPORTANCE OF FINDING OUT THE CONTRACTUAL CAPACITY OF PARTIES BEFORE ENTERING INTO A CONTRACT.

The following are the importance of finding out the contractual capacities of parties before entering into a contract.

  1. Avoiding litigation and its attendance cost
  2. Prevent wastage of resources
  3. Prevents loss of prestige and dignity
  4. It prevents one from loss in the course of finding solution either through court settlement or out of court settlement
  5. It prevents destruction of established cordial relationship
  6. It prevents waste of time which could be expended in developing profitable business ideas and plans.

CONCLUSION

Capacity to enter into a valid contract is of great importance to the formation of a valid contract as emphasized above. For a contract to stand, parties must possess the capacity to enter into such contract. Without contractual capacity, the formation of the contract will be rendered defective and to some point unenforceable. Considering the capacities of parties before entering into a contract is very important as it is the foundation to establishing a valid and enforceable contract at law.

Dr. Ayodele Oni has released new books – “Understanding Petroleum (Oil & Gas) Transactions and the Nigerian Market” and “the Nigerian Electricity Market: Understanding the Transactional Legal and Policy Issues”. It is available in case (hard) cover and limp (soft) cover. For more information, or to book your copies, contact: +2348052362430 ( WhatsApp only); ayodele.oni@bloomfield-law.com