Law Of Contract

Definition and Nature A Contract is an agreement between two parties that creates an obligation to perform (or not perform) a particular duty. According to Section 2(h) of the Indian Contact Act of 1872, A Contract is An Agreement enforceable by law In other words, A contract is a binding legal agreement. Thus we can say: Agreement + Enforceability by law = Contract Formation of Contract PROPOSAL/OFFER [SECTION 2(a)]: A person is said to make a proposal when he signifies to another his willingness to do or to abstain from doing anything with a view to obtaining assent (Agree) of that other to such act or abstinence Example: 1. Rima offers to sell her Law books to Rony . Here, Rima is offering or giving a proposal to Rony. If Rony accepts a Contact is formed. Proposal & Promise Section 2(b) of the Contract Act 1872 states that, A proposal (Offer) when accepted becomes a promise The person making the proposal is called the promisor (Offeror), and the person accepting the proposal is called the promisee (Offeree). [section 2(c)]. When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing something, such act or abstinence or promise is called a consideration for the promise. [section 2(d)]. Consideration is an important element of a Contact Agreement Thus an agreement can be defined as Every promise and every set of promises forming the consideration for each other. [Section 2(e)] In an agreement there is a promise from both the sides.

Example: Mr. A, promises to deliver his radio to Mr. B & in return Mr. B promises to pay a sum of Tk. 3500 to Mr. A, thus we see that there is an agreement between Mr. A & Mr. B. Proposal + Promisor Acceptance = Promise Promisee

Promise + Consideration = Agreement Agreement + Enforceability = CONTRACT

Legal Contract To form a legally enforceable contract three elements is definitely required. They are: An Offer (Ill clean your garden this weekend, if you pay me Tk.100) An Acceptance (Ok. I accept. Youve got a deal) Consideration (The value received and given the money and the garden cleaned)

Offer Section 2(a) of the Indian contract Act of 1872 defines an Offer as: An expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed, is an offer/ Proposal Thus, for a valid offer, the party making it must express his willingness to do or not to do something. Acceptance Acceptance is the agreement, either by express act or by implication from conduct, to the terms of an offer so that a binding contract is formed. In short, Acceptance is an Agreement to all terms of an offer by words or conduct. Consideration The elements of exchange is known as Consideration. Consideration can be anything that someone might want to bargain for. It is the inducement to make the deal, or the thing that is bargained-for. In other words, Bargaining that leads to an exchange of value between the parties is Consideration. Consideration has two forms: 1. Executed Consideration: One party promises to do something in return for the act of another. Ex: Cash on Order of Goods. 2. Executory Consideration: Is the promise between parties to perform acts in the future. Ex: Cash on Delivery of Goods. Essential Elements of a Contract Agreement Lawful Consideration Intention to Create Legal Relations Competence or Capacity of Parties Free consent Legality of the Object Certainty Possibility of Performance Void Agreements

Agreement To constitute a contract there must be an agreement. There must be two parties to an agreement, i.e. one party making an offer (offeror) and the other party accepting the offer (offeree). The terms of the offer must be definite and the acceptance must be absolute and unconditional. The acceptance must be according to the mode prescribed and must be communicated to the offeror. Lawful Consideration An agreement to form a valid contract should be supported by consideration. Consideration means something in return (quid pro quo). It can be cash, kind, an act or abstinence. It can be past, present or future. However, consideration should be real and lawful. Intention to create legal relationship When the two parties enter into an agreement, there must be an intention by both parties to legally bind the other as a result of such agreement. Thus, agreements of social or household nature are not contracts. Capacity of Parties (competence) The parties to the agreement must be capable of entering into a valid contract. According to Section 11, every person is competent to contract if he or she, 1. Is of the age of majority; 2. Is of sound mind; and 3. Is not disqualified from contracting by any law to which he is subject. Free consent To constitute a valid contract there must be free and genuine consent of the parties to the contract. It should not be obtained by 1. Misrepresentation, 2. Fraud, 3. Coercion, 4. Undue influence 5. Mistake. Misrepresentation "Misrepresentation" means and includes 1. The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true. 2. Any breach, of duty which, without an intent to deceive, gains an advantage to the person committing it, or any one claiming under him, by misleading another to his prejudice or to the prejudice of any one claiming under him.

3. Causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement. Fraud "Fraud" means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto of his agent, or to induce him to enter into the contract 1. The suggestion, as a fact, of that which is not true, by one who does not believe it to be true 2. The concealment of a fact by one having knowledge or belief of the fact. 3. A promise made without any intention of performing. 4. Any other act fitted to deceive 5. Any such act or omission as the law specially declares to be fraudulent. Coercion Coercion is the committing, or threatening to commit, any act forbidden by the Indian Penal Code, 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. Ex - A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Code. Undue influence A contract is said to be induced by "undue influence where the a 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. Ex - A had given advance money to his son B during his minority, upon B's coming of age obtains, by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the advance. Here A employs undue influence. Mistake Mistake is erroneous belief about something. 1. Mistake of law, or 2.Mistake of fact. (1) Mistake of law may be: Mistake of law of the country Mistake of law of foreign country (2) Mistake of fact may be: Bilateral Mistake, or Unilateral Mistake.

Lawful object The object of the agreement must not be illegal or unlawful. According to Section 23, the consideration or object of an agreement is lawful, unless It is forbidden by law; or Is of such nature that, if permitted it would defeat the provisions of any law or is fraudulent; or Involves or implies, injury to the person or property of another; or The court regards it as immoral, or opposed to public policy. Certainty The terms of agreement must be certain and not vague. If it is not possible to ascertain the meaning of the agreement, it is not enforceable at law. Possibility of Performance Agreements to do impossible acts cannot be enforced. Agreement not declared void or illegal Agreements which have been expressly declared void or illegal by law are not enforceable at law; hence does not constitute a valid contract. Types of Contract Contracts are formed in different terms. On the basis of Validity there are 5 types of contract : 1. Valid Contracts 2. Void Contracts 3. Voidable Contract 4. Illegal Contract 5. Un-enforceable Contract Valid Contracts Section 2 (h) of the Indian Contract Act 1872 states that: An agreement which has all the essential elements of a contract is called a valid contract. A valid contract can be enforced by law. A valid contract must fulfil some very essential elements. Offer + Acceptance = Agreement Consideration Intention to Create Legal Relations Competence or Capacity of Parties

Free consent Legality of the Object Certainty Possibility of Performance Void Agreements Void Contract According to sec 2(g) of the Indian Contract Act 1872, An agreement not enforceable by law is said to be void. Thus, A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. [section 2(j)] Example: Contracts made by minors Contracts without consideration Certain contacts under the Public policy Voidable Contract An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of other or others, is a voidable contract. [Sec. 2(i)] In simpler term: An agreement which is enforceable by law at the option of one party but not at the option of the other or others is a voidable contract. A voidable contract continues to be valid till it is voided by the party entitled to do so. Example: A contract entered into by a minor (under the age of 18) for non essentials. A contract signed by a person under the influence of substances such as illegal drugs, alcohol or medicines. A contract involving fraud in the inducement or material misrepresentation. A contract entered into by a person with limited mental capacity. Illegal Contract A contract is illegal if it is forbidden by law or is of such nature that, if permitted would defeat the provisions of any law or is fraudulent or involves or implies injury to a person or property of another, or court regards it as immoral or opposed to public policy. These agreements are punishable by law. These are void-ab-initio. Example: A contract to kill someone. A contract to commit a Robbery.

Un-enforceable Contract Where a contract is good in substance but because of some technical defect cannot be enforced by law is called unenforceable contract. These contracts are neither void nor voidable. Example: A contract made 10 years ago in which performance of one party was completed 9 years ago but the other party did not pay and no action was taken in the next 9 years. The party that was not paid cannot get paid now because of the Statute of Limitations so the courts can do nothing for the party to whom the money was owed. Types of Contract Some contracts are made based on the basis of formation. There are 4 types of such Contracts: 1. Express Contract 2. Implied Contract 3. Tacit Contract 4. Quasi Contract Express Contract In contracts where the terms of the contract are expressly agreed upon in words (written or spoken) at the time of formation, it is said to be an Express contract. The landlord presents Joe with a pre-printed lease on the apartment Joe wants and Joe agrees to the terms and signs it. This is an express, written contract. I offer to sell you my 1967 Mustang and after some negotiations, you agree to purchase it on the terms we have worked out, a bargain for less than $500! This is an express oral contract. Implied Contract An implied contract is one which is inferred from the acts or conduct of the parties or from the circumstances of the cases. Where a proposal or acceptance is made otherwise than in words, promise is said to be implied. Example: A supervisor's promise, A statement in an employee handbook, An employer's historical action

Tacit Contract A tacit contract may be communicated indirectly in the form of gestures or signs. In such contract information need not be expressed with speech or words; it is inferred or understood (taken for granted) instinctively. Example: 1. Her knowing smile gave me a tacit consent to make the next move.

2. Both parties are bound by a tacit contract, because they trust each other blindly. Quasi Contract A quasi contract is an obligation that is imposed by the courts to avoid injustice or unjust enrichment. Example: Mr. A, a painter, mistakenly paints Ms. B's house, with her knowledge and Ms. B refuses to pay since she had never made a contract with A. The court will create a contract between them in this circumstance and Ms. B will have to pay. A quasi contract is not really a contract at all in the normal meaning of a contract. It is really an obligation imposed on a party to make things fair. Types of Contract Contracts are also made on the basis of performance. There are 4 types of such Contracts: 1. Executed Contract 2. Executory Contract 3. Unilateral Contract 4. Bilateral Contract Executed Contract An executed contract is one in which both the parties have performed their respective obligation and thus the parties are discharged. Example: 1. Jamal has mowed Kamals furniture and Kamal has paid him in full. 2. The 12th month's magazine of a year's subscription has arrived. A contract was made and was fully performed by both parties. Executory Contract An executory contract is one where one or both the parties to the contract have still to perform their obligations in future. Thus, a contract which is partially performed or wholly unperformed is termed as executory contract. Example: 1. Kamal has had some of his furniture moved by Jamal, but some are still left. 2. Kamal's furniture has all been moved but he still have to make payments to Jamal. 3. Kamal has not yet paid anything and Jamal has not yet began to move the furniture's. Unilateral Contract A unilateral contract is where only one party has to perform his obligation at the time of the formation of the contract, the other party having fulfilled his obligation at the time of the contract or before the contract comes into existence. Example:

1. After you move my furniture, I promise to pay you Tk. 200. (This is a promise for performance.) 2. I pay you Tk. 200 & you promise to move my furniture. (This is what is called a reverse unilateral contract, a performance for a promise). This is a contract in which one party performs and the other makes a promise Bilateral Contract A bilateral contract is one in which the obligation on both the parties to the contract is outstanding at the time of the formation of the contract. Example: 1. Kamal promises to pay Jamal Tk. 200 and Jamal promises to move Kamal's furniture next weekend. 2. Mary agrees to help Stephen with homework on Tuesday in return Stephen will help Mary with her science project next weekend. This is a contract in which there is a promise for a promise but no performance. Performance of Contracts According to Sec.37, of the Indian Contract Act 1872, Parties to a contract must either perform or offer to perform, their respective promises, unless such performance is dispensed with or excused. Thus, performance of contact is fulfilled as soon as the parties to the contract execute their obligations arising under the contract within the time and in the manner prescribed. Offer To Perform (Sec. 38) Sometimes promisor offers to perform his obligation under the contract at the proper time and place but the promisee does not accept the performance. This is known as Attempted Performance or Tender. Where a promisor has made an offer of performance to the promisee, and the offer has not been accepted, the promisor is not responsible for non-performance, nor does he thereby lose his rights under the contract. Thus, the tender of performance is equivalent to actual performance. It excuses the promisor from further performance and entitles him to sue the promisee for the breach of contract. Requisites Of a Valid Tender 1. It must be unconditional. It becomes conditional when it is not in accordance with the terms of the contract. Ex: Runa, a debtor offer to pay to Bina, her creditor, the amount due to her on the condition that Bina sells her certain shares at cost. This is not a valid tender. 2. It must be of the whole quantity contracted for or of the whole obligation. Ex: A tender of an installment when the contract stipulates payment in full is not a valid tender. 3. It must be by a person who is in a position, and is willing, to perform the promise.

4. It must be made at the proper time and place. A tender of goods after the business hours or of goods or money before the due date is not a valid tender. Ex: Mintu owes Ripon Tk.100 payable on the 1st of August with interest. He offers to pay on the 1st of July the amount with interest up to the 1st of July. It is not a valid tender as it is not made at the appointed time. 5. It must be made to the proper person, i.e., the promisee or his duly authorized agent. It must also be in proper form. 6. It must be made to one of the several joint promisees. In such a case it has the same effect as a tender to all of them. 7. In case of tender of goods, it must give a reasonable opportunity to the promisee for inspection of goods. A tender of goods at such time when the other party cannot inspect the goods is not a valid tender. 8. In case of tender of money, the debtor must make a valid tender in the legal tender money. If the creditor refuses to accept it, the debtor is not discharged from making the payment. Tender, in this case, does not discharge the debt. Effect Of Refusal Of a Party To Perform Promise Completely (Sec.39) When a party to a contract refuses to perform, or disables himself from performing, his promise in its entirety, the promisee may put an end to the contract. But if the promisee has signified, by words or conduct, his acquiescence in the continuance of the contract, he cannot repudiate it. Ex: Runa, a singer enters into a contract with Habib, the manager of a theatre, to sing at his theatre two nights in every week during the next two months and Habib agrees to pay her Tk.1000 for each nights performance. On the sixth night Runa willfully absents herself from the theatre. Habib is at liberty to put an end to the contract. Contracts Which Need Not Be Performed When performance becomes impossible (sec.56) When the parties to it agree to substitute a new contract for it or to rescind or alter it (sec.62) When the promisee dispenses with or remits. Wholly or in part, the performance of the promise made to him or extends the time for such performance or accepts any satisfaction for it (sec.63) When the person at whose option it is voidable, rescinds it (Sec.64) When the promisee neglects or refuses to afford the promisor reasonable facilities for the performance of his promise(sec.67) Ex: A contracts with B to repair Bs house. B neglects or refuses to point out to A the places in which his house requires repairs. A is excused for the non-performance of the contract, if it is caused such neglect or refusal. When it is illegal By Whom Contracts Can Be Performed?

1. Promisor: If there is something in the contract to show that it was the intention of the parties that the promise should be performed by the promisor himself, such promise must be performed by the promisor. Ex: Contracts which involve the exercise of personal skill, volition or diligence of the promisor or which are founded on personal confidence between the parties must be performed by the promisor himself. 2. Agent: Where personal consideration is not the foundation of a contract, the promisor or his representative may employ a competent person to perform it. 3. Legal representatives. A contract which involves the use of personal skill or is founded on personal considerations comes to an end on the death of the promisor. 4. Third persons: when a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor. 5. Joint Promisors: Where the promise is done by more than one promisee. Rules Regarding Time And Place Of Performance 1. Where no application is to be made and no time is specified: It has to be performed within a reasonable time. A reasonable time would depend on the special circumstances or the case, the usage of trade, or the intention of the parties at the time of entering into the contract. 2. Where time is specified and no application is to be made: When a promise is to be performed on a certain day, the promisor may undertake to perform it without application by the promisee. In such a case, the promisor may perform the promise at any time during the casual hours of business on such day and at the place at which the promise ought to be performed. Ex: A promises to deliver goods at Bs warehouse on the 1st January. On that day A brings the goods to Bs warehouse, but after usual hour for closing it and they are not received. A has not performed his promise 3. Application for performance on a certain day and place. 4. Application by the promisor to the promisee to appoint place. E.g.: A undertakes to deliver 1,000 quintals of jute to B on a fixed day. A must apply to B to appoint a reasonable place for the purpose of receiving it and must deliver it to him at such place. 5. Performance in manner or at time prescribed or sanctioned by the promisee: Ex: A owes B Rs.2000. B accepts some of As goods in reduction of the debt. The delivery of the goods operates as a part payment. Discharge of Contracts A contract creates an obligation between two parties to perform. When such obligations no longer exists it is referred to as Discharge or Termination of a Contract. The contract may be discharged in any of following ways 1. By performance. 2. By death.

3. By refusing tender of performance. 4. Discharge by lapse of time. 5. By impossibility of performance. 6. By agreement or by consent. 7. By promisee failing to offer facilities for performance 8. By Operation of law. 9. By unauthorized material alteration of a contract. 10. By breach of Contract. Breach of Contract Breach of contract is failure of a party to perform his obligations under a contract. When one party commits a breach the aggrieved other party becomes entitled to overturn the contract and to claim damages, if any. Breach of Contract arises in 2 ways: 1. Actual Breach or Present Breach 2. Anticipatory Breach Actual Breach or Present Breach Where one party fails to perform his contractual obligations on due date of performance, or during the performance, he is said to have committed a breach of contract. If the performance is not strictly according to the terms of the contract, then also it is treated as breach of contract. Actual breach of contract may be 1. Expressed - ( By word or writing) 2. Implied ( Conduct or Non-action) Anticipatory Breach According to Sec.39,when a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his consent in its continuance. Consequences of Anticipatory Breach 1. The aggrieved party may treat anticipatory breach as actual breach. 2. The aggrieved party may decide to ignore the anticipatory breach, and wait for the due date of performance. 3. Doctrine of anticipatory breach does not apply to promises to pay debts under promissory notes and bonds. Remedies for Breach of Contracts 1. Cancel the contract which will relieve him from all contractual obligations. (Rescission)

2. Cover and receive Damages. 3. Demand Specific Performance 4. Demand Injunction. 5. Recover any consideration given to the breaching party (Restitution) 6. Recover proportionate payment for the work done. (Quantum Meruit) Rescission (Cancellation of Contract) Both the parties are absolved from their contractual obligations, without any prejudice to the injured partys right to claim damages. The party rescinding a voidable contract must restore the benefits received from the other party. Damages Damages are monitory compensation for the losses suffered or gains prevented due to the breach of Contract. In such cases following kind of damages are given: 1. Compensatory Damages- general damages and special damages. 2. Vindictive or Exemplary Damages- punitive damages. Ex. for dishonour of cheque. 3. Nominal Damages. 4. Liquidated Damages and Penalty. Suit for Specific Performance The Specific Relief Act, 1877 gives the court discretionary powers to order specific performance instead of or in addition to damages. The powers are subject to Sec.14 of the Specific Relief Act, 1877. Suit for Injunction Injunction is an order of the court restraining a person from doing something which he promised not to do. This remedy is available where the contract contains a negative stipulation. Restitution Restitution is an act of restoring back to the rightful owner which has been taken away or lost. Quantum Meruit This is a remedy supplementary to the damages and the legal meaning of the term is payment in proportion of the work done.

See Contract Act 1872 for Reference