Whether or not a legal obligation is created, will depend on whether the document that was signed and/or issued and/or delivered would be considered to fulfill the legal requirements imposed by applicable law, for example on the creation of a contract. Other documents that create legal obligations are a bill of exchange or a promissory note. In this Article we will analyze the effectiveness of a document in case of a contract.

Pursuant to the Contract law, Cap. 149 (the "Law"), in order for the parties of the Agreement to be bound by a document (i.e. contract) and create a legal obligation against each other, there should be a lawful consideration and lawful object and are not expressly declared to be void.

Pursuant to the Law every person is competent to contract who is of sound of mind, and is not disqualified form contracting by any law.

The free consent of all the parties to the terms and conditions of an agreement is essential in order for the parties to be bound by the contract. Two or more persons are said to consent when they agree upon the same thing in the same sense.

The consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation and/or mistake.The "Coercion" is the committing or threatening to commit, any act forbidden by the Criminal Code, or any amendment thereof, or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.Moreover, a contract is said to be induced by "undue influence" where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.

The "fraud" includes any of the following acts committed by a party to a contract, or with his involvement, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract-

  1. the suggestion, as to a fact, of that which is not true by one who does not believe it to be true;
  2. the active concealment of a fact by one having knowledge or belief of the fact;
  3. a promise made without any intention of performing it;
  4. any other act fitted to deceive;
  5. any such act or omission as the law specially declares to be fraudulent.

Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech.

The mistake is the most difficult and controversial branch of the law of contract. Where an operative (i.e. legally effective) mistake is established, it results to serious consequences since, amongst other things, third party rights may be threatened. On the one hand if a party makes a mistake as to some minor matter the law will not heed his complaint. On the other hand, people who allege that they have contracted under the influence of a mistake must necessarily be judged by their actions rather than by reference to their innermost thoughts.

A contract creates a kind of special regime for the parties who enter upon it. It follows logically from this that only such people as are "privy" (parties) to a contract can normally be affected by it. This aspect of the law of contract is often epitomized in the Latin maxim "res inter alios acta". "An agreement can only bind the parties; it can neither impose obligations upon other people, nor confer rights upon them."

When a contract has been breached, the party who suffers by such breach is entitled to receive from the party who has broken the contract, compensation for any loss or damage cause to him thereby which naturally arose in the usual course of things from such breach or which the parties knew, when they made the contract, to be likely to result from the benefit of it.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.