Understanding the Terms of a Contract in Nigerian Business Law

In our previous post, we explained the meaning and elements of a contract in Nigerian business law, looking at what makes a contract valid and enforceable. Today, we’re discussing another topic: the terms of a contract in Nigerian business law

But once a contract is formed, the next important step is understanding the terms, that is, the specific obligations each party must fulfil to have a smooth contract experience.

These terms define what you must do, what you can expect from the other party, and under what conditions the agreement can end.

This guide explains the terms of a contract in Nigerian business law in the simplest way. We’ll also discuss the main ways parties can legally terminate a contract so business owners and entrepreneurs can protect their interests.

Terms of a Contract

By definition, contract terms refer to the specific obligations that parties to a contract are required to fulfill. They define whether such a term could be either expressed (written explicitly) or implied (assumed, even if not written).

Moreover, a contract term may be a condition, an innominate term, or a warranty term. Either way, these terms bind the parties legally, and a breach can lead to legal consequences, such as the termination of the contract.

Types of Contract Terms

It is important to know that not all terms carry the same weight. In Nigerian business law, contract terms generally fall into three categories:

1. Conditions

These are core terms that go to the heart of the contract. If a condition is broken, the affected party can terminate the agreement and seek damages. For example, if a contractor is hired to build a warehouse by a set deadline but completely fails to deliver, the client can cancel the contract and sue for damages.

2. Warranties

Warranties are less critical terms. An injured party can claim damages if a warranty is breached, but usually cannot terminate the whole contract. For example, when a supplier delivers goods a day late but still meets the agreed quantity and quality, the buyer can demand compensation for the delay but cannot cancel the contract outright.

3. Innominate Terms

These are terms that cannot be easily classified as either conditions or warranties. Whether a breach allows termination depends on the seriousness of the impact.

If the breach causes significant harm, the affected party can terminate the contract; otherwise, they can only claim damages.

How Contracts Are Terminated

A contract can be terminated in a number of ways. Understanding these helps you know your rights and what actions to take if you want to exit an agreement or if the other party defaults.

1. By Performance

This is the most straightforward way to end a contract. A contract can be terminated naturally when it has run its full course, and all contractual obligations have been performed.

2. By Agreement

A contract can be terminated based on a mutual agreement between the parties involved before the completion of such a contract. This could be because the contract no longer serves each party’s purpose.

3. By Breach of Contract

The innocent party has the right to terminate the contract when the other party does not deliver on his/her promise. This applies to major breaches, known s repudiatory breaches (this is where one party outright refuses to perform) or anticipatory breaches (where one party signals in advance that they will not perform).

4. By Frustration

It is possible to terminate a contract if the underlying circumstances of a contract have changed, materially altering the performance requirements of the contract. In other words, unforeseen events make it impossible to carry out the performance of the contract.

5. By Lapse of Time

A contract can be terminated if the work or service is not performed within a stipulated time, and no action is taken for nonperformance.

6. By Operation of Law

Certain events can automatically bring a contract to an end, such as the death or incapacitation of one party, especially when the contract involves personal skills or bankruptcy in some cases.

Conclusion

Understanding the terms of a contract in Nigerian business law is just as important as knowing what makes a contract valid in the first place. These terms outline the duties and protections for each party and determine what happens if the agreement needs to end.

By knowing how contracts can be terminated, you can make informed decisions, avoid costly mistakes, and protect your business interests.