ESSENTIAL CONTENTS OF A
CONTRACT & PAYMENT
MECHANISMS
(GEC 517 – ENGINEERING LAW)
Dr. John Oluwafemi
Department of Civil Engineering
CONTENTS
TABLE OF
DEFINITION OF CONTRACT
CLASSIFICATION OF CONTRACTS
FORMATION OF CONTRACTS
PAYMENT MECHANISMS
LATE PAYMENT AND REMEDIES DISCLAIMER: This material is compiled only for
class illustration purposes. No part of this
presentation should be published, uploaded to
websites, reproduced or presented without the
consent of the compiler.
WHAT IS A
CONTRACT?
A contract is a
legally
enforceable
agreement.
WHAT IS A
CONTRACT?
“A contract is an
agreement between
two or more parties
creating obligations
that are enforceable
or otherwise
recognizable at
law.”
Formal & Simple
CONTRACTS
CLASSIFICATION OF
Contracts
Express & Implied
Contracts
Bilateral and Unilateral
Contracts
1. FORMAL AND SIMPLE CONTRACT
A formal contract is a contract under seal, also
known as a deed.
A simple contract in legal terminology is an
oral or written agreement made by two
parties.
This is never a legally recorded or officially
sealed contract, but breeches are still often
ruled on by a judge in court.
A breech of contract means that one of the
parties ignored one or more terms in the
agreement — at least in the opinion of the
other party.
A judge rules whether the contract was indeed
breeched and may award damages.
FORMAL AND SIMPLE CONTRACT cont’d.
Oral contracts are difficult to prove.
It's advisable for everyone to always have
a contract in writing for any type of
agreement or promise.
Otherwise, the other party may
unintentionally or intentionally deny
the specifics of the agreement in order
not to have to adhere to the contract
for whatever reason.
Having the terms of the agreement
written out clearly, with the date and
the signatures of the two parties,
makes up an effective simplecontract.
2. EXPRESS AND IMPLIED CONTRACT
Express contracts connote the type of
contract whose terms are expressly
declared.
Express Contract, as the name suggests
is the contract, wherein the parties to
the agreement, either orally or in
written form, states the terms and
conditions of the contract.
For example: suppose you place an ad
looking for a dog walker and state the
amount you're willing to pay. Someone calls
you to offer their services, you arrange to
see them, and they start walking your dog
twice weekly for the stated amount.
IMPLIED CONTRACT
Implied Contract means a contract
which is inferred by the activities
and conduct of the parties
concerned.
In other words, a contract in which
the elements, i.e. offer and
acceptance is made, without the
use of words, then this type of
contract is known as implied
contract.
EXAMPLE OF IMPLIED AND EXPRESS
CONTRACT
• A real estate contract is
an express contract that
must be formed in writing
to be executable.
• Ordering a pizza is an
implied contract as the
pizza restaurant is
obligated to provide pizza
to the customer once the
purchase is complete.
KEY DIFFERENCES BETWEEN EXPRESS
AND IMPLIED CONTRACT
The points given below are substantial so far as the difference between express and implied
contract is concerned:
1. An express contract is a contract, in which the terms of the contract are verbally communicated
between the partied involved. On the contrary, an implied contract can be understood as a
contract, which is presumed or believed to be existed between the parties or which is expressed
by implication.
2. In express contract, words are used to manifest contract, which can be oral or written.
Conversely, in an implied contract, it is formed out of the deeds or conduct of the parties
concerned.
3. Trust agreement between the author and trustee is an example of an express contract. As
against, receiving cash from automated teller machine is a great example of implied contract.
3. BILATERAL AND UNILATERAL
CONTRACTS
A bilateral contract is a contract
formed by an exchange of promises
regarding an obligation to be
performed in the future.
A unilateral contract involves the
making of a promise by one party
and the actual performance by
another party based on that
promise.
It is unilateral because only one party
makes the promise and the other
party enters into the contract by
acting, as he is otherwise not
obligated to act.
B – FORMATION OF A CONTRACT
FORMATION OF
CONTRACT
A contract is formed if the following
elements or ingredients co-exist:
1. Offer
2. Acceptance
3. Consideration
4. Intention to enter into legal
relation
5. Capacity to contract
1. OFFER
For there to be a contract, there mustfirst
be an offer by one party and an
acceptance by the other.
An offer is a key element because without
it, there can be no contract.
The offeror can make the offer to the
offeree directly or indirectly.
For there to be a binding contract, the
offeree must accept the offer.
An invitation to treat, on the other
hand, is not an offer. It is simply
an invitation to negotiate and is
not legally binding.
TERMINATION OF OFFER
An offer may be terminated by:
➢ Revocation: Revocation means
termination or withdrawal of an offer by
the offeror.
➢ Lapse of time: Where an offer is said
to be open for a specific period, it will
lapse (expire) at the end/expiration of
the stated period.
➢ Death: Death of offeror or offeree can
terminate an offer.
➢ Rejection: The offeree has the option of
acceptance or outright rejection of the
offer.
2. ACCEPTANCE
Acceptance is the agreement to
the specific conditions of an
offer.
It must be unequivocal and must
correspond with the contract
terms of the offer, denoting
that the offeree cannot
change the terms of the offer.
The offeree can either accept
the offer explicitly or
implicitly.
3. CONSIDERATION
Consideration simply means
something of value in the eyes
of the law exchanged by parties
to a contract.
the legal definition of
consideration is based on the
concept of a "bargained-for
exchange." This means that
both parties are getting
something that they've agreed
to, usually something of value
for something of value.
CONSIDERATION
Consideration simply means
something of value in the eyes
of the law exchanged by parties
to a contract.
he legal definition of
consideration is based on the
concept of a "bargained-for
exchange." This means that
both parties are getting
something that they've agreed
to, usually something of value
for something of value.
TYPES OF CONSIDERATION
1. Executory consideration –exchange of promises to
perform an act in the future such as in bilateral
contracts.
2. Executed consideration – where an act is exchanged for
a promise such as in unilateral contracts.
1. INTENTION TO CREATE LEGAL
RELATIONS
To be legally binding, a contract must show
an intention to create legal relations.
This can be shown by the use of formal
language, such as “I agree to…” or “This
contract is binding on the parties”.
If one side does not agree to every condition,
there is no binding agreement, which is to say
that an agreement should be acceptedas a
whole, considering every specific term. To
give an example, if you sign a contract to buy
a house and the seller does not agree to one
of the terms, there is no contract.
2. CAPACITY
Each party to the contract must have the legal
capacity to enter into the mutualassent.
This indicates that they must be of legal age
and have the mental capacity to
understand the terms of the contract.
If one party does not have the capacity to
enter into the contract, the legal
document may be void.
A contract is only valid if all of these elements
of a valid contract are present. If one
element is missing, the contract may be
void or unenforceable.
C – PAYMENT MECHANISMS
(CONSTRUCTION INDUSTRY)
FIDIC
The International Federation of
Consulting Engineers (FIDIC) has
introduced a clause in 99 suite of
contracts obligating the Employer
to provide reasonable evidence of
a financial arrangement.
The Employer shall submit, within 28
days after having received any
request from the contractor,
reasonable evidence that financial
arrangements have been put in
place and are being maintained
which will enable the Employer to
pay the Contract price. (Sub-Clause
2.4)
DUTY TO PAY
According to clause 14 the Employer shall pay the Contract
Price to the Contractor.
The Employer shall not withhold any payment or set off against
an amount certified in a Payment Certificate (Sub-Clause 2.5)
PAYMENT MECHANISMS IN FIDIC
CONTRACT
➢ Advance Payment
➢ Interim Payment
including material
on site
➢ Final Payment
PAYMENT PROCEDURE UNDER FIDIC
99
➢ The Employer shall make an advance
payment as an interest-free loan for
mobilization.
➢ The Engineer shall issue an Interim
Payment Certificate for the first
instalment after receiving a Statement
and after the Employer receives
a) The performance security in accordance
with Sub-Clause 4.2 and
b) A guarantee in amounts and currencies
equal to the advance payment.
➢ The Contractor shall ensure that the
guarantee is valid and enforceable until
the advance payment has been repaid.
PAYMENT PROCEDURE UNDER FIDIC
99
➢ No Payment will be made if no
certificate has been issued.
➢ Conversely, no payment shall be
withheld which have been
certified.
➢ However, Sub-Clause 14.6 allows
the Engineer to withhold an
Interim payment Certificate if the
Contractor fails to perform an
obligation.
LATE PAYMENT & REMEDIES
A Contractor in these circumstances is
allowed to suspend the works. (Sub-
Clause 16.1).
A further remedy is ruled by Sub-Clause
16.2 according to which the Contractor
is entitled to terminate the contract in
the event of sustainable non-payment.
LATE PAYMENT & REMEDIES
Additionally, the Contractor may claim
financial charges (Sub-Clause 14.8) and
Time extension (Sub-Clause 16.1).
The Contractor shall be entitled to this
payment without formal notice or
certification, and without prejudice to
any other right or remedy.
THANK
YOU
FOR LISTENING
