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THE LAW OF CONTRACTS
CHAPTER FIVE
Introduction
Dear Students, in this chapter we are going to discuss the
major principles of contract law which are enumerated from
articles 88 to 158 of the Somali civil code.
As students of FMS it is mandatory to possess preliminary
knowledge of entering into contractual transactions.
Business cannot be realized without the conclusion of a
contract and there are formal requirements, set by law that has
to be strictly followed in due course of making a contract.
Cont..
Business persons may engage in ordinary agreements to
exchange commodities or lend money and that will not be a
problem by itself. Moreover, as a business professional you
should pay attention to this law, because it will have robust
application in your future professional career.
However, the importance of contract law comes into being
when the promises made by the parties are not observed by
the parties. In this regard, the law of contract is indispensable
in that it guarantees security of transaction by protecting such
agreements and ascertaining that they are properly performed.
Sources of Obligations
An obligation can be defined as certain duty that has to be
discharged, otherwise constitutes a fault and entails legal
liability. Obligation lays in the fact that it is obligatory to be
performed and if one of the parties failed to discharge his/her
obligation there is an obvious legal consequence- Liability.
Obligations are enforceable as actions in civil cases. You must
note that these are not criminal cases where the state is a party
to the action. In cases where obligations are involved, private
parties sue one another in civil actions to seek damages.
Cont..
In modern time, the laws of different countries clearly express
the sources of obligation. For instance, Somali civil code
classifies the source of obligation as;
1. Contract ( Read Arts. 88 – 158 of Somali Civil Code);
2. Unilateral undertakings (Read Art. 159 of Somali Civil Code);
3. Unlawful acts (Read Arts. 160 – 175 of Somali Civil Code);
4. Unjust enrichment (Read Arts. 176 – 194 of Somali Civil Code);
5. The Law (Read Art. 195 of Somali Civil Code).
Definition of Contract
Contract is a legally binding agreement between two or
more people that is enforceable by law.
Contract is an agreement enforceable by law.
Literally defined a contract is an agreement between two or
more parties creating obligations that are enforceable or
otherwise recognizable at law- Binding Contracts.
Not all agreements are enforceable at law. Hence, only
agreements that are enforceable at law result a contract.
Formation of Contracts
Formation of a valid (legally acceptable) contract requires
the fulfillment of seven essential elements. To be legally
complete, a contract must include all of these 7 elements:
1. Agreement (offer + acceptance);
2. Intention to create legal relation;
3. Consideration (What you get in return);
4. Capacity;
5. Consent;
6. Legality of form;
7. Legality of object (purpose or motive).
Now let us stipulate the definition of each of them:
Cont..
i. A) Offer: is a proposal by one party to another intended
to create a legally binding agreement. An offer may be
declared orally, in writing, by gesture or by conduct.
Termination of an Offer
An offer can be terminated by one of the following means:
1) Acceptance;
2) Rejection;
3) Withdrawal;
4) Lapse of time.
Note: An invitation to treat is merely an action by one party, the
purpose of which is to invite others to make an offer of their own.
Cont..
B) Acceptance: is the second party’s unqualified willingness
to go along with the first party’s proposal.
The acceptance must not change the terms of the original offer
in any way. This principle is called the Mirror Image Rule.
Any change in the terms of the offer means the offeree has not
really accepted the offer but has made a Counteroffer.
An acceptance always implies an agreement and an intention
to be bound by the terms of the offer.
Cont..
ii. Intention to create legal relations: This is very important
point which a contract requires. If this essential element is
absent we will never have a contract. Agreement will never
reach stage of becoming a contract. It will only remain as an
agreement only.
No intention to create legal relations - Social and Family Agreements.
 Inviting friends for social function.
 Asking sister to clean bedroom.
 calling your friend to chill with you.
Cont..
Intention to create legal relations – Business
 Taking house on rent.
 Selling goods.
 Buying jewellery.
If any part don’t honour the promise, the other party will try
him to the court. This is the kind of intention both parts should
have. But, do you think, we have such an intention in all the contracts.
Law presumes the presence of intention to create legal
relations in all Business transactions.
Cont..
If you go to buy something, let us say a car, you do not need to
tell the seller “if you don’t honour your promise I will go to
court”. If you communicate this, it is really good.
But, if you do not communicate, the law will still presume that
there was an intention to create legal relations.
So, if the other party does not deliver you the car, you can take
him/her to the court and get your right enforced.
Cont..
iii. Consent (meeting of the minds): Consent is the willingness
of a person to enter into a contract freely, voluntarily and
genuinely. Two or more persons are said to have consented
whey they agree the same thing and same sense.
 Consent should not result from the abnormal
circumstances, such as Fraud (deceit), Duress (coercion),
Mistake (error), False Information, Threat to exercise a
right, Reverential fear (undue influence) and lesion.
 There can be no contract if there is no consent.
Cont..
iv. Capacity: is the legal ability to enter a contract. The law
generally assumes that anyone entering a contract has the
capacity, but this assumption can be disputed.
This, however, by no means implies that s/he begins to
exercise their capacity from the moment of birth onwards.
There is a big difference between the mere possession of rights
and duties and the ability to exercise them.
Cont..
Who is competent to enter into a contract?
According to Art. 44 of Somali Civil Code, every person who;
1) Has attained majority;
2) Is of sound mind;
3) Is not disqualified person.
Who is not competent to enter into a contract?
1) Minor
0-7 years- infant: void-ab-initio. (Read Art.109 of SCC).
8-18 years: 3 situation. (Read Art.110 of SCC).
2) a person of unsound mind. (Read Art. 45 of SCC).
3) a person disqualified by law
Cont..
Who are the persons disqualified by law to enter a contract?
a) Convicts/Criminals - Legal status.
b) Insolvent person - Legal status.
c) Alien enemy - Political status.
d) Foreign sovereigns or ambassador – Political status.
e) Company going ultra vires its memorandum – Cor.. status.
One more point, i would like to bring out in this. Many people
think that married woman is also disqualified person, but that
is not true. She is actually capable of entering into a legally
binding contract like a single woman or a man.
Cont..
v. Consideration: is the exchange of things of value. The
parties to the contract should exchange things of value to one
another. If not, there is no consideration in that agreement.
Profit, benefit, salary or what you get in return as
consideration must not be unlawful. E.g. you kept a maid and
asked to help you in household, as consideration for her, you
gave her 3 grenades. Please bear in mind that the object of the
contract is legal, because you can employ a maid to do your
house work. However, what you are giving her is not
something which is lawful or legally acceptable.
Cont..
vi. Legality of form: With regard to formation contracts may
be divided into formal contracts and consensual contracts.
However, once the parties have agreed to follow a particular
form, the contract shall not be deemed to be completed until it
is made in the agreed form. If a particular type of contract is
required by law to be in writing that shall be observed.
Contracts relating to immovable; contracts made with a public
administration and contracts made for a longer period of time
such as contracts of guarantee, insurance and so on.
Cont..
Note that contracts required to be in writing shall be supported
by a special document signed by all the parties bound by the
contract; attested by two witnesses and duly signed or thumb-
marked and finally registered in the appropriate office of the Government.
vii. Legality of Object: People cannot enter into contracts to
commit illegal acts. Legality is the final element of a contract.
Such contracts will never supported by law. Law does support
unlawful contracts, where the object is illegal.
Types of a Contract
Contract can be created by any of the following:
1) Valid, void, voidable or Unenforceable.
2) Express or implied.
3) Bilateral or unilateral.
4) Oral or written.
Any contract can have characteristics from one or more of
these four groups. That is, a contract can be valid, express,
bilateral, and written.
 Let us take a closer look at what these types indicate about a contract.
Cont..
i. Valid, Void, Voidable, or Unenforceable
The word valid means legally good, meaning that a valid
contract is one that is legally binding. On the other hand, a
contract that is Void has no legal effect. An agreement that is
missing one of the previously discussed elements would be
void, such as any agreement to do something illegal.
When a party to a contract is able to cancel a contract for some
legal reason, it is a Voidable contract. It is not void in itself but
may be voided by one or more of the parties.
Cont..
An unenforceable contract is one the court will not uphold,
generally because of some rule of law, such as the statute of
limitations. If you wait too long to bring a lawsuit for breach
of contract, the statute of limitations may have run its course,
making the contract unenforceable.
ii. Express or Implied
An express contract is stated in words and may be either oral
or written. An implied contract comes about from the actions
of the parties. People often enter into implied contracts
without exchanging a single word.
Cont..
iii. Bilateral or Unilateral
The word bilateral means two sided. Thus, a bilateral contract
contains two promises. One party promises to do something in
exchange for the other’s promise to do something else. If a
friend says, “I will sell you my DVD player for 150 Shilling
Somali,” and you say, “I will buy it,” a bilateral contract
comes into existence. Each of you has made a promise- you
have promised to buy, and your friend has agreed to sell.
In contrast, the word unilateral means one-sided. It contains a
promise by only one person to do something, if and when the
other party performs some act.
Cont..
iv. Oral or Written
An oral contract is created by word of mouth and comes into
existence when two or more people form a contract by
speaking to each other. One person usually offers to do
something, and the other party agrees to do something else in
return. Most contracts are oral contracts of this nature.
Sometimes, it is desirable to put contracts in writing. A written
contract assures that both parties know the exact terms of the
contract and also provides proof that the agreement was made.
THANK YOU YOU
Any question?

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CHAPTER FIVE .pptx

  • 1. THE LAW OF CONTRACTS CHAPTER FIVE
  • 2. Introduction Dear Students, in this chapter we are going to discuss the major principles of contract law which are enumerated from articles 88 to 158 of the Somali civil code. As students of FMS it is mandatory to possess preliminary knowledge of entering into contractual transactions. Business cannot be realized without the conclusion of a contract and there are formal requirements, set by law that has to be strictly followed in due course of making a contract.
  • 3. Cont.. Business persons may engage in ordinary agreements to exchange commodities or lend money and that will not be a problem by itself. Moreover, as a business professional you should pay attention to this law, because it will have robust application in your future professional career. However, the importance of contract law comes into being when the promises made by the parties are not observed by the parties. In this regard, the law of contract is indispensable in that it guarantees security of transaction by protecting such agreements and ascertaining that they are properly performed.
  • 4. Sources of Obligations An obligation can be defined as certain duty that has to be discharged, otherwise constitutes a fault and entails legal liability. Obligation lays in the fact that it is obligatory to be performed and if one of the parties failed to discharge his/her obligation there is an obvious legal consequence- Liability. Obligations are enforceable as actions in civil cases. You must note that these are not criminal cases where the state is a party to the action. In cases where obligations are involved, private parties sue one another in civil actions to seek damages.
  • 5. Cont.. In modern time, the laws of different countries clearly express the sources of obligation. For instance, Somali civil code classifies the source of obligation as; 1. Contract ( Read Arts. 88 – 158 of Somali Civil Code); 2. Unilateral undertakings (Read Art. 159 of Somali Civil Code); 3. Unlawful acts (Read Arts. 160 – 175 of Somali Civil Code); 4. Unjust enrichment (Read Arts. 176 – 194 of Somali Civil Code); 5. The Law (Read Art. 195 of Somali Civil Code).
  • 6. Definition of Contract Contract is a legally binding agreement between two or more people that is enforceable by law. Contract is an agreement enforceable by law. Literally defined a contract is an agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law- Binding Contracts. Not all agreements are enforceable at law. Hence, only agreements that are enforceable at law result a contract.
  • 7. Formation of Contracts Formation of a valid (legally acceptable) contract requires the fulfillment of seven essential elements. To be legally complete, a contract must include all of these 7 elements: 1. Agreement (offer + acceptance); 2. Intention to create legal relation; 3. Consideration (What you get in return); 4. Capacity; 5. Consent; 6. Legality of form; 7. Legality of object (purpose or motive). Now let us stipulate the definition of each of them:
  • 8. Cont.. i. A) Offer: is a proposal by one party to another intended to create a legally binding agreement. An offer may be declared orally, in writing, by gesture or by conduct. Termination of an Offer An offer can be terminated by one of the following means: 1) Acceptance; 2) Rejection; 3) Withdrawal; 4) Lapse of time. Note: An invitation to treat is merely an action by one party, the purpose of which is to invite others to make an offer of their own.
  • 9. Cont.. B) Acceptance: is the second party’s unqualified willingness to go along with the first party’s proposal. The acceptance must not change the terms of the original offer in any way. This principle is called the Mirror Image Rule. Any change in the terms of the offer means the offeree has not really accepted the offer but has made a Counteroffer. An acceptance always implies an agreement and an intention to be bound by the terms of the offer.
  • 10. Cont.. ii. Intention to create legal relations: This is very important point which a contract requires. If this essential element is absent we will never have a contract. Agreement will never reach stage of becoming a contract. It will only remain as an agreement only. No intention to create legal relations - Social and Family Agreements.  Inviting friends for social function.  Asking sister to clean bedroom.  calling your friend to chill with you.
  • 11. Cont.. Intention to create legal relations – Business  Taking house on rent.  Selling goods.  Buying jewellery. If any part don’t honour the promise, the other party will try him to the court. This is the kind of intention both parts should have. But, do you think, we have such an intention in all the contracts. Law presumes the presence of intention to create legal relations in all Business transactions.
  • 12. Cont.. If you go to buy something, let us say a car, you do not need to tell the seller “if you don’t honour your promise I will go to court”. If you communicate this, it is really good. But, if you do not communicate, the law will still presume that there was an intention to create legal relations. So, if the other party does not deliver you the car, you can take him/her to the court and get your right enforced.
  • 13. Cont.. iii. Consent (meeting of the minds): Consent is the willingness of a person to enter into a contract freely, voluntarily and genuinely. Two or more persons are said to have consented whey they agree the same thing and same sense.  Consent should not result from the abnormal circumstances, such as Fraud (deceit), Duress (coercion), Mistake (error), False Information, Threat to exercise a right, Reverential fear (undue influence) and lesion.  There can be no contract if there is no consent.
  • 14. Cont.. iv. Capacity: is the legal ability to enter a contract. The law generally assumes that anyone entering a contract has the capacity, but this assumption can be disputed. This, however, by no means implies that s/he begins to exercise their capacity from the moment of birth onwards. There is a big difference between the mere possession of rights and duties and the ability to exercise them.
  • 15. Cont.. Who is competent to enter into a contract? According to Art. 44 of Somali Civil Code, every person who; 1) Has attained majority; 2) Is of sound mind; 3) Is not disqualified person. Who is not competent to enter into a contract? 1) Minor 0-7 years- infant: void-ab-initio. (Read Art.109 of SCC). 8-18 years: 3 situation. (Read Art.110 of SCC). 2) a person of unsound mind. (Read Art. 45 of SCC). 3) a person disqualified by law
  • 16. Cont.. Who are the persons disqualified by law to enter a contract? a) Convicts/Criminals - Legal status. b) Insolvent person - Legal status. c) Alien enemy - Political status. d) Foreign sovereigns or ambassador – Political status. e) Company going ultra vires its memorandum – Cor.. status. One more point, i would like to bring out in this. Many people think that married woman is also disqualified person, but that is not true. She is actually capable of entering into a legally binding contract like a single woman or a man.
  • 17. Cont.. v. Consideration: is the exchange of things of value. The parties to the contract should exchange things of value to one another. If not, there is no consideration in that agreement. Profit, benefit, salary or what you get in return as consideration must not be unlawful. E.g. you kept a maid and asked to help you in household, as consideration for her, you gave her 3 grenades. Please bear in mind that the object of the contract is legal, because you can employ a maid to do your house work. However, what you are giving her is not something which is lawful or legally acceptable.
  • 18. Cont.. vi. Legality of form: With regard to formation contracts may be divided into formal contracts and consensual contracts. However, once the parties have agreed to follow a particular form, the contract shall not be deemed to be completed until it is made in the agreed form. If a particular type of contract is required by law to be in writing that shall be observed. Contracts relating to immovable; contracts made with a public administration and contracts made for a longer period of time such as contracts of guarantee, insurance and so on.
  • 19. Cont.. Note that contracts required to be in writing shall be supported by a special document signed by all the parties bound by the contract; attested by two witnesses and duly signed or thumb- marked and finally registered in the appropriate office of the Government. vii. Legality of Object: People cannot enter into contracts to commit illegal acts. Legality is the final element of a contract. Such contracts will never supported by law. Law does support unlawful contracts, where the object is illegal.
  • 20. Types of a Contract Contract can be created by any of the following: 1) Valid, void, voidable or Unenforceable. 2) Express or implied. 3) Bilateral or unilateral. 4) Oral or written. Any contract can have characteristics from one or more of these four groups. That is, a contract can be valid, express, bilateral, and written.  Let us take a closer look at what these types indicate about a contract.
  • 21. Cont.. i. Valid, Void, Voidable, or Unenforceable The word valid means legally good, meaning that a valid contract is one that is legally binding. On the other hand, a contract that is Void has no legal effect. An agreement that is missing one of the previously discussed elements would be void, such as any agreement to do something illegal. When a party to a contract is able to cancel a contract for some legal reason, it is a Voidable contract. It is not void in itself but may be voided by one or more of the parties.
  • 22. Cont.. An unenforceable contract is one the court will not uphold, generally because of some rule of law, such as the statute of limitations. If you wait too long to bring a lawsuit for breach of contract, the statute of limitations may have run its course, making the contract unenforceable. ii. Express or Implied An express contract is stated in words and may be either oral or written. An implied contract comes about from the actions of the parties. People often enter into implied contracts without exchanging a single word.
  • 23. Cont.. iii. Bilateral or Unilateral The word bilateral means two sided. Thus, a bilateral contract contains two promises. One party promises to do something in exchange for the other’s promise to do something else. If a friend says, “I will sell you my DVD player for 150 Shilling Somali,” and you say, “I will buy it,” a bilateral contract comes into existence. Each of you has made a promise- you have promised to buy, and your friend has agreed to sell. In contrast, the word unilateral means one-sided. It contains a promise by only one person to do something, if and when the other party performs some act.
  • 24. Cont.. iv. Oral or Written An oral contract is created by word of mouth and comes into existence when two or more people form a contract by speaking to each other. One person usually offers to do something, and the other party agrees to do something else in return. Most contracts are oral contracts of this nature. Sometimes, it is desirable to put contracts in writing. A written contract assures that both parties know the exact terms of the contract and also provides proof that the agreement was made.
  • 25. THANK YOU YOU Any question?

Editor's Notes

  1. Most contracts are created in the first way.