report on law of contract -1

8/13/2019 Report on Law of Contract -1

http://slidepdf.com/reader/full/report-on-law-of-contract-1 1/20

DEPARTMENT OF MANAGEMENT STUDIES

UNIVERSITY OF DHAKA

COURSE TITLE: LEGAL ENVIRONMENT OF BUSINESS

Report on Low of Contr!t

Submitted to

N"#$% Kr&# C'ow('$r)

Professor, Department of Management Studies

University of Dhaka



Content*

Lw of Contr!t

B!+,ro$n( of Lw of !ontr!t &n Bn,%(e*'

T)pe* of !ontr!t

E**ent&% E%e#ent* of -%&( !ontr!t

Con*&(ert&on A,ree#ent*

Free !on*ent

Prt&e* !o#petent to !ontr!t

D&**o%$t&on.Ter#&nt&on of !ontr!t

Re#e(&e* for /re!' of !ontr!t



Lw of Contr!t

0't &* Lw of !ontr!t1

Contract law is based on the principle expressed in the atin phrase pacta sunt servanda,

which is usually translated !agreements must be kept!

"s a means of economic ordering, contract reliensual exchange and has been extensively

discussed in broader economic, sociological, and anthropological terms#

$owever, contract is a form of economic ordering common throughout the world, and

different rules apply in %urisdictions applying civil law &derived from 'oman law

principles(, )slamic law, socialist legal systems, and customary or local law#

Contr!t means an agreement enforceable by law

" contract must include the following*

parties capable of contracting

consent of the parties

a lawful ob%ect and

consideration

"n agreement comes into existence whenever one or more persons promise to one or

others, to do or not to do something, +very promise and every set of promises, forming

the consideration for each other, is an agreement# Some agreements cannot be enforced

thought he courts of law, e#g#, an agreement to play cards or go to a cinema# "n

agreement, which can be enforced through the courts of law, is called contract

O/2e!t n( S!ope

-he aw of Contract deals with agreements which can be enforced through courts of law#

-he aw of Contract is the most important part of commercial law because every

commercial transaction starts from an agreement between two or more persons#

http://en.wikipedia.org/wiki/Latin

http://en.wikipedia.org/wiki/Pacta_sunt_servanda

http://en.wikipedia.org/wiki/Roman_law

http://en.wikipedia.org/wiki/Latin

http://en.wikipedia.org/wiki/Pacta_sunt_servanda

http://en.wikipedia.org/wiki/Roman_law



"ccording to Salmond a contract is an +agreement creating and defining obligations

between the parties#.

"ccording to Sir /illiam "nson, +" contract is an agreement enforceable at law made

between two or more persons, by which rights are ac0uired by one or more to acts or

forbearances on the part of the other or others#

-he ob%ect of the aw of Contract is to introduce definiteness in commercial and other

transactions# $ow this is done can be illustrated by an example# 1 enters into a contract

to deliver 23 tons of coal of 4 on a certain date# Since such a contract is enforceable by

the courts, 4 can plan his activities on the basis of getting the coal on the fixed date# )f

the contract is broken, 4 will get damages from the court and will not suffer any loss#

Sir /illiam "nson observes as follows* +"s the law relating to property had its origin in

the attempt to ensure that what a man has lawfully ac0uired he shall retain, so the law of

contract is intended to ensure that what a man has been led to expect shall come to pass5

and that what has been promised to him shall be performed#.

Lw of !ontr!t &n Bn,%(e*'

"ll contracts in 6angladesh are governed basically by the Contract "ct

Contract act 2789 governs the law of contract in 6angladesh

)t contains the common rules relating to contracts and differentiates them

T)pe* of !ontr!t

Contracts as regards the number of parties

i# 6ilateral contract

ii# Unilateral contract

Contracts as regards the mood of enforceability and validity

i# :alid contract

ii# :oidable contract

iii# :oid contract



V%&( Contr!t

" contract is in law# Such a contract creates an outstanding obligation or legal liability

which law steps in to enforce whenever a party to the agreement breaks it#

Vo&( Contr!titerally, the word void means ;not binding in law<# "ccordingly, the term ;void contract<

implies a useless contract which has no legal effect at all#

+" contract which ceases to be enforceable by law becomes void when it ceases to be

enforceable.

3Se!t&on 45267

Vo&(/%e !ontr!t "n agreement which is enforced by law at the opinion of one or more of the

parties thereto, but not at the opinion of the others, is a voidable contract 3Se!t&on

45&67

Usually a contract becomes voidable when the consent of one of the parties to the

contract is obtained by coercion, undue influence, misrepresentation or fraud#

Contr!t* w'&!' re -o&(/%e

/hen consent to an agreement is caused by coercion fraud or misrepresentation

/hen consent to an agreement is caused by undue influence or misrepresentation#

"n agreement by a parson of unsound mind due to drunkenness is voidable

Certain contracts by minors are voidable either during minority or within areasonable time after the attainment of ma%ority#

/hen a contract contains reciprocal promises and one party of the contract

prevent the other from performing his promise, then the contract becomes

voidable



/hen a party of the contract promise to perform certain thing within a specified

time, but fails to do it then the contract becomes voidable

Unenfor!e/%e Contr!t

"n unenforceable contract is one which is valid in itself but is not capable of being

enforced in a court of law because of some technical defects such as absent of writing,

registration, re0uisite stamps etc# or time barred by the law of limitations

"n unenforceable contract is one which is valid in itself but is not capable of being

enforced in a court of law because of some technical defects such as absent of writing,

registration, re0uisite stamps etc# or time barred by the law of limitations

Unenfor!e/%e !ontr!t*

" contract made on account of natural love and affection between the parties

,unless it is written and registered5

a contract made between persons whereby one agrees to repay a time=barred debt

which was originally due to the other,

a contract between parties to refer their present or future disputes to arbitration,

unless it is made in writing5

a contract made by a company, unless it is in writing5

Under the -ransfer of Property "ct, all mortgages, other than e0uitable

mortgages, where the principal money secured is -k# 233#33 or upwards and gifts=

of immovable property, unless they are in writing and registered#

Spe!&% T)pe* of !ontr!t

8$*& !ontr!t

Cont&n,ent !ontr!t

Con*tr$!t&-e or 8$*&9Contr!t

Contractual obligations are generally created voluntarily# 6ut there are obligations, which

lack voluntariness such as the obligation to repay a sum of money paid under a mistake of



fact# )n such cases, therefore, there is no contract but, nevertheless, the law treats them as

such# Such contracts, existing in >aw but not in fact, are called 0uasi=contract

Cont&n,ent !ontr!t

" contingent contract is one to do or not to do something if some contingency

happens or does not happen# !" contingent or as it is called in nglish law, a

conditional promise!

" contingent agreement is not enforceable till the event on which it was to depend

has arisen5 but when that event has occurred, the contract, for all purpose, rests on

the same footing as if it had been made in case of a valid contract#

E**ent&% E%e#ent* of -%&( !ontr!t

" contract is an agreement between two parties imposing rights and obligations which

may be enforced by law# -he courts need some kind of evidence of this agreement, so

they look, through the eyes of a reasonable person, for external evidence of it# -o help

identify evidence of agreement, it is conventionally analysed into two aspects* offer and

acceptance

"n agreement becomes enforceable by law when it fulfils certain conditions#

-hese conditions, which may be called the ssential lements of a Contract, are

explained below#

Offer Acceptance Agreement+

Contract

Enforced by law



Offer and Acceptance: -here must be a lawful offer by one part and a lawful

acceptance of the offer by the other and acceptance must conform to the rules laid

down in the )ndian Contract "ct regarding offer and acceptance#

Intentions to create Legal Relationship: -here must be an intention &among

parties( that the agreement shall result in or create legal relations# "n agreement

to dine at a friend<s house is not an agreement intended to create legal relations

and is not a contract# 6ut an agreement to buy and sell goods or an agreement to

marry, are agreements intended to create some legal relationship and are therefore

contracts, provided the other essential elements are present#

Lawful Consideration: Sub%ect to certain exceptions, an agreement is legally

enforceable only when each of the parties to it gives something and gets

something# "n agreement to do something for nothing is usually not enforceable

by law# -he something given or obtained is called consideration# -he

consideration may be an act &doing something( or forbearance &not doing

something( or a promise to do or not to do something# Consideration may be past

&something already done or not done(# )t may also be present or future# 6ut only

those considerations are valid which are +lawful.#

Capacity of Parties: -he parties to an agreement must be legally capable of

entering into an agreement5 otherwise it cannot be enforced by a court of law#/ant of capacity arises from minority, lunacy, idiocy, drunkenness, and similar

other factors# )f any of the parties to the agreement suffers from any such

disability, the agreement is not enforceable by law, except in some special cases#

Free Consent: )n order to be enforceable, an agreement must be based on the free

consent of all the parties# -here is absence of genuine consent if the agreement is

induced by coercion, undue influence, mistake, misrepresentation, and fraud# "

person guilty of coercion, undue influence etc# cannot enforce the agreement# -he

other party &the aggrieved party( can enforce it, sub%ect to rules laid down in the

"ct#

egality of the ?b%ect: -he ob%ect for which the agreement has been entered into

must not be illegal or immortal or opposed to public policy#



Free !on*ent

Section 23 of the Contract "ct outlines the elements of a valid contract thus* !"ll

agreements are contracts if they are made by the free consent of parties competent to

contract, for a lawful consideration and with a lawful ob%ect, and are not hereby expressly

declared to be :oid#!

Section 2@ of the Contract "ct defines consent thus* !-wo or more persons are said to

consent when they agree upon the same thing in the same sense#!

Section 2A of the "ct says that consent is free when it is not caused by*

Mistake

Misrepresentation

Braud

Coercion and

Undue influence

6 M&*t+e

Section 93 of the Contract "ct lays down thus* !/hen both the parties to an

agreement are under a mistake as to a matter of fact essential to the agreement, theagreement is void!#

-he mistake which is necessary to make a contract void must be mutual and not

of one of the parties#

very mistake does not vitiate a contract# -he following among others may be

picked up*

a( Mistake as to the nature of transaction#

b( Mistake as to the identity of the party to a contract#

c( Mistake as to the sub%ect=matter of the contract#

d( Mistake by one party as to the intention of the other does not render a contract

void#



Bn,%(e*'& Lw

-he Contract "ct provides that, !where both the parties to an agreement are under a

mistake as to a matter of fact essential to the agreement, the agreement is void !#

-hough a mistake of fact vitiates a contract, a mistake of law does not#

6angladeshi 'elief may, however, be available in the following cases of mistake

of law*

)# /here a mistake is so fundamental that it prevents the formation of a real

agreement between the parties, it will vitiate the contract though, after all, it is a

mistake of law#

))# " mistake as to the existence of a private right has to be treated as a mistake of

fact#

)))# )f a contract is brought about by deliberate misrepresentation of law, it can be set

aside#

):# Mistake as to any foreign law is a mistake of fact#

546 M&*repre*entt&on

Misrepresentation is the positive assertion of something, which is not true though the person making it believes it to be true#

Con(&t&on n( 0rrnt)

Bn,%(e*'& Lw:

)n 6angladeshi aw, as laid down by Section 27 of the Contract "ct, misrepresentation

means and includes*

)# !-he 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!#



))# !"ny 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 pre%udice or to the pre%udice of any one claiming under him!#

)))# !Causing, however innocently, a party to an agreement to make a mistake as to

the substance of the thing which is the sub%ect of the agreement!#

5;6 Fr$(

Braud has been defined by "nson as !a false representation of fact made with the

knowledge of its falsehood or recklessly without belief in its truth, with the intention that

it should be acted upon by the complaining party and actually inducing him to act upon

it!# So,

)# Braud is a representation of fact which is false#

))# -he false statement must be made with the knowledge of :s falsehood or

recklessly#

)))# -he false statement must be made with an intention to deceive#

):# -he person to whom the false statement has been made must be actually deceived#

Bn,%(e*'& Lw:

)n 6angladeshi law, as laid down by Section 28 of the Contract "ct, fraud means andincludes any of the following acts*

!-he suggestion as a fact of that which is not true by one who does not believe it

to be true !#

!-he active concealment of a fact by one having knowledge or belief of the fact!#

-his duty to disclose is not enforceable in all cases of contract# )t arises only in

the following cases*

a( Statutory obligation to disclose#

b( Contracts uberrimae fidei#

5<6 Coer!&on



Coercion or duress consists in actual or threatened violence or imprisonment# /here the

consent of a party to a contract can be shown to have been obtained by coercion, it is

voidable at the option of the party whose consent was so obtained#

Bn,%(e*'& Lw

Section 2 of the Contract "ct defines coercion as !the committing or threatening to

commit, any act forbidden by the Penal Code or the unlawful detaining or threatening to

detain any property to the pre%udice of any person whatever with the intention of causing

any person to enter into an agreement#

Effe!t of !oer!&on on !ontr!t

"n agreement vitiated by coercion is voidable at the option of the party coerced# 6ut

if he finds it profitable to uphold the contract, he can enforce specific performance of it#

-he party employing coercion has, however, no right under the contract#

5=6 Un($e &nf%$en!eUndue influence is a subtle and improper pressure brought to bear upon a person to

induce him to enter into a contract which, in the absence of the said pressure, he would

not do#

Bn,%(e*'& %w:

Section 2E&2( of the Contract "ct lays down thus* !" contract is said to be induced by

undue influence where the relation 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!#

"ccording to Section 2E&9( of the Contract "ct, !a person is deemed to be in a

position to dominate the will of another!*



)# /here he holds real or apparent authority over the other, or where he stands in a

fiduciary relation to the other5 or

))# /here he makes a contract with a person, whose mental capacity is temporarily or

permanently affected by reason of age, illness or mental or bodily distress#

B$r(en of proof

Contr!t w&t' Pr(n*'&n %()

Con*&(ert&on A,ree#ent* Lw of Contr!t:

Consideration is something of value given by a promisor to a promise in exchange

for something of value given by a promise to a promisor# -ypically, the thing of

value is a payment, although it may be an act, or forbearance to act, when one is

privileged to do so, such as an adult refraining from smoking#

Consideration consists of a legal detriment and a bargain# " legal detriment is a

promise to do something or refrain from doing something that you have the legal

right to do, or voluntarily doing or refraining from doing something, in the

context of an agreement# " bargain is something the promisor &the party making

promise or offer( wants, usually being one of the legal detriments# -he legal

detriment and bargain principles come together in consideration and create an

exchange relationship, where both parties agree to exchange something that the

other wishes to have

Con*&(ert&on 5Bn,%(e*'& Lw6 Se!t&on 4 of t'e Contr!t A!t :

/hen at the desire of the promissor, the promise or any other person, has done or

abstained from doing, does or abstains from doing, promises to do or to abstain from

doing something, such act, abstinence or promise is called a consideration for the

promise!

Ter#&nt&on:

http://en.wikipedia.org/wiki/Consideration

http://en.wikipedia.org/wiki/Consideration



Dissolution or discharge of contract means termination of the contractual relationship

between the parties#

" contract may be dissolved or discharged in any of the following ways*

6y Performance#

6y "greement or Consent

6y Brustration or )mpossibility of Performance

6y 6reach of Contract#

6y ?peration of aw

D&*!'r,e /) Perfor#n!e

Performance is the most natural and common mode of discharging a contractual

liability#

"s soon as the parties to a contract have performed their shares of the promises,

the contract is dissolved

Must distinguish between

Performance which discharges one of the two parties from his liabilities under a

contract and

Performance which dissolves the contract as a whole#

Fo matter what the reason for wanting to terminate a contract, there is a process

to follow in order to ensure that termination will result in the least amount of

damages being charged to you# -his process is described below in easy=to=follow

steps#

>Deter#&ne &f t'e !ontr!t '* /een f$%%) e?e!$te(# )f all parties have fully

performed their obligations under the contract, the contract is executed, and

termination is not necessary5 it is a completed contract and the parties have no

further obligation to one another#



4>Deter#&ne &f )o$ !n re*!&n( t'e !ontr!t# 'escission, or cancellation, of a

contract returns the parties to the state they were in before entering into the

contract# )t is a complete cancellation of a contract and may be allowed in certain

circumstances# -o determine if you can rescind the contract*

'eview the contract for a rescission, or cancellation, clause# -he clause

will contain instructions for rescinding the contract and state the time in

which you have to do so# )f still within the time specified by the clause,

follow the instructions provided in it to rescind the contract# -his will

involve providing some form of written notice of your rescission to the

other party, such as a signed rescission form, previously provided to you,

or a simple letter stating that you are rescinding the contract#

)f your contract does not contain a rescission clause, check your state<s

statutes, with an attorney or with your state<s "ttorney General, to see if a

rescission period may apply# Some state and federal laws re0uire that

certain contracts allow for rescission within a specific period, usually @ to

23 days after entering into the contract# Bor example, 'egulation H of the

Bederal -ruth in ending "ct gives you the right to cancel certain

transactions, in which your home is used for collateral, before midnight of

the third business day after signing the contract# Bederal law also allowsyou @ days to cancel a contract for the purchase of I9 or more in goods or

services from a door=to=door salesperson#

)f your contract does not contain a rescission clause and cannot be

rescinded pursuant to any state or federal law, negotiate rescission with the

other party# -he parties to a contract may agree at any time to rescind the

contract, even if the contract itself says otherwise#

;>Deter#&ne &f )o$ '-e n) %e,% r&,'t to ter#&nte t'e !ontr!t # -here are

limited circumstances, which afford a party a right to terminate a contract# Such

circumstances may include*

)mpossibility# )f one party to a contract is unable to perform his or her

obligations due to the impossibility of such performance, he or she may



have a legal right to terminate the contract# -he reason for the

impossibility of performance must not be the fault of the party who finds it

impossible to perform# )t must be either the fault of the other party or the

result of an +act of God. or act of nature, such as a hurricane or tornado#

Bor example, if you agree to sell your boat tomorrow and tonight a

hurricane comes and damages it beyond repair5 you may legally cancel the

contract#

" common circumstance is that parties to a contract agree to perform

certain things which are not impossible at the time when the contract is made but

which become impossible to be performed subse0uently due to causes beyond

their control#

)n such case, the contract is discharged as having become void#

Braud# Braud occurs when one party intentionally makes a false

representation regarding a material matter of fact, upon which the ot)t may

arise in the following ways*

)mpossibility arising due to change of law#

)mpossibility due to the destruction of a specific thing essential for the

performance of a contract#

)mpossibility arising out of the death or incapacitating illness of one of the

parties to the contract#

)mpossibility due to the absence of a fundamental condition# " condition

is said to be fundamental to a contract when the whole contract rests on it#

party relies, and as a result is in%ured# -he representation must be falseand made intentionally# )t must also be in regard to a material matter# Bor

example, if a painter represents that he will paint your living room brown,

using a specific brand of paint, knowing he will use a different brand, the

misrepresentation is not material, because you contracted for a brown

living room and you got one# )f the paint works, and is brown, the fact that



the painter used the wrong brand is immaterial# )f the painter had said, he

would paint your living brown and instead painted it red that would be a

misrepresentation of a material fact#

6reach of contract by the other party# )f one party knowingly fails to

comply with the terms of the contract, the other may terminate the

contract# " breaching party has no right to complain that the other has

ended the contract, which he or she breached#

ack of capacity# " contract entered into by a party who lacks capacity, or

ability, to contract, such as a minor, or a person with a mental illness, is

voidable by the party who lacks capacity# -his means that he or she may

terminate the contract at any time#

)llegality# " contract entered into for an illegal purpose is void# -his

means that either party may terminate the contract at any time, because

legally, there is no contract# Bor example, if a party agrees to lease

property for a commercial purpose, and then the city reJones the property

for residential use only, both parties then have a legal right to terminate

the contract, because the purpose of the contract, using the property of a

commercial purpose, has been made illegal#

Mutual mistake# )f both of the parties make a mistake concerning a

material fact, the party affected by the mistake may terminate the contract,

so long as the other party has not yet performed

<>Ne,ot&te ter#&nt&on w&t' t'e ot'er prt)# Contact the other party

and attempt to negotiate a termination of the contract# Parties to a contract

are free to terminate the contract by mutual agreement at any time#

?ffering to pay some type of cancellation fee, return any funds you have

received, or continue the contract for a few more months, may do the trick#

=>U*e t'e ter#&nt&on !%$*e# Many types of long=term and automatically

renewing contracts contain a termination clause, which sets forth the

procedure to use should you wish to terminate the contract# " common

termination clause will provide that the party who wishes to terminate the



contract must notify the other party of his or her intent to do so in writing

and within a certain number of days from the intended date of termination,

or the date of automatic renewal, usually between @3 and E3 days#

-ermination clauses may include penalties for early termination, so be

sure you are willing to pay the penalty before using the clause and

terminating the contract#

@>Ref$*e to perfor## )f all else fails, a party is always free to refuse to

perform his or her obligations under a contract# 6efore choosing this

option, you should consult with an attorney to ensure that you completely

understand all conse0uences of terminating a contract in this manner#

Bn,%(e*'& %w

Se!t&on =@: a contract to do an act which, after the contract is made, becomes

void when the act becomes impossible or unlawful#

supervening impediments must not have arisen by reason of some event which the

promissor could prevent#

)n such case, compensation may be obtained against the person who is unable to

perform it#

Se!t&on @=: when a contract becomes void, any person who has received any

advantage under such agreement or contract is bound to restore it or to make

compensation for it to the person from whom he received it#

D&*!'r,e /) Opert&on of Lw " valid contract may be discharged by the operation of law#

" contract can be discharged by the operation of law in the following ways*

Mer,er: )t means the assimilation of a smaller contract by a larger one by reason

of the fact that they meet and coincide in one and the same person#

In*o%-en!): /hen an insolvent is discharged by the )nsolvency Court, he is

released from all his debts provable under the 6ankruptcy#



A%tert&on: /hen a written contract is altered by way of addition or erasure in a

material part, it is dissolved# Such alteration must be affected without the consent

Bre!' of Contr!t

)f a contracting party fails to perform an ssigned duty owed under a contract ,it iscalled a 6reach of contract#

0't Fo%%ow* t'e Bre!'1

Prt&e* &n-o%-e( &n /re!' of !ontr!t

Re#e(&e* for /re!' of !ontr!t

Action forDamages

Action forRecession

Action for SpecificPerformance

Action forInjunction

Contractual Limitationsof

Remedy or Provision forLiquidated Damages

Remedy Specified inContract

Waiver ofBreac

Contract Continuesas !oug !ere Were "o

BreacContract Continues as

#odifiedDefective Performance

Accepted $itReservation

of Rigt to Damages

Contract Performed %ut at

ReducedPrice or& in Suit for 'ull Price&

Counterclaim for Damages

Breach of

Contract

report on law of contract -1

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