Lecture 9 ( contract act 1872)

The Contract Act, 1872
J Q M Habibullah, FCS
Lecture 09

The Contract Act, 1872
The Act: Contract act 1872 governs the law of
contract in Bangladesh. The Act came into
force in the then Bengal on 1 September of
1872, and was adopted in Bangladesh without
change. It contains the common rules relating
to contracts and differentiates them.
Contract: An agreement enforceable by law is a
contract. [Section 2 (h).]
to be a lawful contract, an agreement is
necessary and that agreement must be lawful
that is enforceable by law. A contract is thus a
combination of two ideas— agreement and
obligation.

The Contract (cont.)
Formation of Contracts: To form a contract
the following steps are the basic steps those
should be followed
 Firstly a proposal has to be accepted to be a
promise;
 Secondly then the promise is to be
considered to form an agreement;
 Finally the agreement should have the
enforceability of law to form a lawful
contract

Scope of a contract: the Act describes two types of
law of contracts; general laws and special laws.
1. General laws relating to contract
(i) Laws relating to formation of contract;
(ii) Laws relating to performance;
(iii)Laws of remedy for a breach of contract.
2. Laws relating to some particular types of contract
(i) Contract of agency;
(ii) Contract of indemnity and guarantee;
(iii)Contract of bailment and pledge.

Types of Contract:
 Contracts so far brought into practice have
been classified into different groups on the
basis of different tests. The classification of
contract is made depending on certain
modes. The classification made under
certain modes, is not expressly said in the
Contract Act, 18 So here is a classification of
contract depending on certain moods. 72.

Types of Contract:
a. Contracts depending on the mode of
Creation
i. Express contract :The offer and acceptance
of a contract if made in words, either expressed
orally or in written words, the contract will be
considered to be an expressed one. There are
two types of expressed contract -Written
contract& Oral contract
ii. Implied contract: An implied contract is
formed when the offer and acceptance of a
contract is made without the use of any words,
rather by some other means.

Types of Contract:
b. Contracts as regards the mood of time of
performance
i. Executed contract: If the conditions of a contract are
performed as soon as possible, the contract is said to
be a executed contract. On other words, the contract
the obligations of which, is already performed, or to be
performed in a very short time is the executed
contract.
ii. Executory contract: In this contract the obligations
of the contract is supposed to be performed at the later
period of the formation of the contract. There is no
limitation of time for the performance of the contract
in this regard. The contract itself suggests such
limitation, unless it is prescribed by law.

Types of Contract (cont.)
c. Contracts as regards the number of parties
i. Bilateral contract: It is the apparent rule of a contract
that at least two parties are necessary to form a contract.
Therefore all contracts are bilateral or multilateral. Where
there are two or more parties of a contract and both of the
parties have their obligations on each other, the contract is
said to be a bilateral contract.
ii. Unilateral contract: In a contract, where one party has
to fulfill his obligations whereas the other party has already
performed his obligations, it is called unilateral contract.
Here it is simply to be noted that in both the above cases,
two or more parties are necessary.

d. Contracts as regards the mood of
enforceability and validity
i) Valid contract, ii) Voidable contract& iii) Void
contract. There may be a further division of
contracts on the basis of their validity and
enforceability. Under this criterion Jaw recognizes
four classes of them, viz, (i) Valid, (ii) Void, (in)
Voidable, and (iv)Unenforceable.
i. Valid Contract: A 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.

ii. Void Contract: Literally the word void means not
binding in law‘. Accordingly the term void
contract‘ impliesa useless contract which has no
legal effect at all.
“A contract which ceases to be enforceable by law
becomes void when it ceases to be enforceable”
[Section 2(j)]
It is clear from the definition that a void contract is
not void from its inception and that it is valid and
binding on the parties when originally entered but
subsequent to its formation it becomes invalid and
destitute of legal effect because of certain reasons.

According to the Contract Act, the following
contracts are void abilities:
(i) If any part of a single consideration for one or
more objects or any one or any part of anyone of
several considerations for a single object is
unlawful, the agreement is void.[Section 24]
(ii) An agreement made without consideration is
void except in the case of those covered by
exceptions.
(iii)Every agreement in restrain of the marriage of
any person, other than a minor, is void.[Section
24].

(iv) Every agreement in restraint of “’a lawful
profession, trade or business of any kind is void to
the extent of the restraint" except that "one who
sells the goodwill of a business may agree with the
buyer to refrain from carrying on a similar
business, within specified local limits, so long it‘s
the buyer or any person deriving title to the
goodwill from him, carries On a like business
therein provided that such limits appear to the
court to be reasonable, regard being had to the
nature of the business"

(v) Agreements in restraint of judicial
proceedings are void except, those that provide
forreference of disputes to arbitration.
[Section 28]
(vi) Agreements which are uncertain, i.e., "the
meaning of which is not certain or capable
ofbeing made certain, are void".[Section 29]
(vii)Agreements by way of wager are void.
[Section 30]
(viii) Every agreement of which the object or
consideration is unlawful is void. [Section 23]

(ix) Where both the parties to an agreement
are under a mistake to a matter of fact
essential to the agreement, the agreement is
void. [Section 20]
(x) Contract entered into by minors, lunatics
and insolvents are void owing to the
incapacity of such persons to contract.
[Section 11]
(xi) An agreement to do an act impossible
(Supervening impossibility) in itself is
void.

Distinction between void and illegal contract:
An illegal contract is one whose object is
declared illegal by law. The distinction,
however, lies not in the comparative validity of
the two or, both are void, but in the fact that an
illegal contract is prohibited by law on pain of
penalty whereas a void contract does not get
the assistance of law.
A further point of distinction is that an illegal
contract affects the collateral transaction but a
void contract does not.

iii. Voidable contract: An 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 [Section 2(i)]
Thus a voidable contract is one which is
enforced by the law at the opinion of one of the
parties. Usually a contract becomes voidable
when the consent of one of the parties to the
contract is obtained by coercion, undue
influence, is representation or fraud.

iv. Unenforceable Contract: An 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, requisite stamps
etc. or time barred by the law of limitations.
Under Sec. 10 of the Contract Act, "all
agreements are contracts if they are made by
the free consent of parties competent to
contract, for a lawful consideration and with a
lawful object, and are not hereby expressly-
declared to be void".

e. Special Types of contract
i. Quasi contract&ii. Contingent contract
i. Constructive or Quasi-Contract
Contractual obligations are generally created
voluntarily. But there are obligations, which
lack voluntariness such as the obligation to
repay a sum of money paid under a mistake of
fact. In such cases, therefore, there is no
contract but, nevertheless, the law treats them
as such. Such contracts, existing in Jaw but not
in fact, are called quasi-contracts.

The Contract Act furnishes some examples
of quasi-contract:
(i) If a person, incapable of entering into a
contract or anyone to whom he is legally
bound to support, is supplied by another
person with necessaries suited to his
condition in life, the person who has
furnished such supplies is entitled to be
reimbursed from the property of such
incapable person. [Section 68]

ii. Contingent contract: A contingent contract
is one to do or not to do something if some
contingency happens or does not happen. "A
contingent or as it is called in English law, a
conditional promise", says like, "is
distinguished from an absolute promise by the
fact that the performance of the contract
becomes due on the happening of a condition
or contingency; so, it is not due immediately on
the making of the contract". Thus A contracts
to pay B £100 if B marries C. This is a
contingent contract

Offer and acceptance:
Offer and acceptance: When one person
signifies to another his willingness to do or
to abstain from doing anything, with a view
to obtaining the assent of that other to such
act or abstinence, he is said to make a
proposal or offer. (Section 2 a).When the
person to whom the proposal is made
signifies his assent thereto, the proposal is
said to be accepted. A proposal, when
accepted becomes a promise (section 2b)

Consideration:
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 2d).

Certainty of agreement:
While agreement is the basis for all
contracts, not all agreements are
enforceable. A preliminary question is
whether the contract is reasonably certain in
its essential terms, such as price, subject
matter and the identity of the parties.
Generally the courts endeavour to "make the
agreement work", however the courts do not
wish to "make contracts for people",

Certainty of agreement (cont.):
While many agreements can be certain, it is by
no means certain that in the case of social and
domestic affairs people want their agreements
to be legally binding. Express words, such as
"This arrangement. shall not be subject to legal
jurisdiction in the law courts" will be respected.
In one situation, statute presumes that
collective agreement between a trade union
and an employer are not intended to create
legal relations, ostensibly to keep excessive
litigation away from labour law.

The Contract Act,1872
Elements of contract:
Each contract requires an offer and
acceptance of that offer. Proposal or offer is
the starting point to start to form an
agreement. And this agreement may get the
shape of a legally binding contract, if it
acquires its enforceability in law. If it is said
simply, when a person asks someone to do
something, or offer to see someone for a
price, the person is aid to make an offer.

Elements of contract (offer)
The authoritative definition of an offer or
proposal is given in the Contract Act1872,
while defining proposal it says that-
“ where one person signifies to another his
willingness to do or abstain from doing
something with a view of obtaining the
assent of that other to such act or abstinence
he is said to said a proposal.”

Elements of contract (offer)
Elements of offer: If the above mentioned
definition is analyzed, the following
elements of a proposal are found:
(i) Signification of one‘s willingness;
(ii) Willingness is expressed to another
person;
(iii)The willingness may be affirmative or
negative;
(iv) It has a definite object with the intention
to create a legal relation.

Rules of a Proposal/offer:
1. The proposer must intent to create legal relations: The
proposal must be one which is capable of creating a legal
relation. If there is no intention to create legal relation rather
the offer prevail merely an intention to create social relation,
that very offer will not be considered as lawful offer.
For example: A businessman residing in Ceylon, promised B,
his wife who was living in England for reasons of health, to
pay he, monthly allowance. It was promised also that the
allowance will be continued till her comeback to Ceylon. The
dispute arose when A denied subsequently giving her the
promised allowance. It was held that B could not enforce the
obligation as from the nature of the agreement it appeared
that no intention existed to give rise to legal obligation and as
such even there was no offer at all to be accepted and
consequently there was no contract between A and B in
respect of paying the said allowance.

Rules of a Proposal (cont.):
2. Mere expression of Intention is not
sufficient: Mere intentions are not sufficient
to constitute an offer. Advertisements, price
quotations of prices, catalogue, time-table of
bus or train are not proposals, if someone
makes any statement regarding his any
intention during aconversation of course that
will not suffice to constitute an offer, even
though the person to whom such intention is
expressed acts accordingly, there will be no
offer, so no question of acceptance and as such
of any contract.

3. Offer may be made to definite Person
or some definite class of person or to the
world at large generally: An offer made to
a definite person or a definite class of person
is called a specific offer. And an offer dent to
all persons or to the world at large is called a
general offer.
4. The proposal must be a definite one:
Any statement which is ambiguous, vague or
not definite about the offeree or the subject
matter, is incapable to constitute a proposal.

For example: There was a contract between
A and B where, inter alia, promised that if
he was satisfied with him as a customer
would favorably consider an application for
renewal of the17contract. It was held that
there was nothing in these words which
would create a legal obligation as the
promise was a vague one since there is no
criterion to determine the satisfaction as
customer.

5. Proposal may be expressed or implied: A
proposal or an offer may be expressed or
implied. When an offer is made stating in
words or in writing, it is called an express offer.
On the other hand, when an offer is implied
from the conduct of a person, it is called an
implied offer. Section9 of the Contract Act,
1872 says, in so far as the proposal or
acceptance of any promise is madein words, the
promise is said to be express. In so far as such
proposal or acceptance is madeotherwise than
in words, the promise is said to be implied.

6. The offer must be definite, certain and
unambiguous: There must be a certainty,
distinct and unambiguous to form a lawful
offer.
For example: A says to B, ―I will give you
some money if you pass the exam‖. This is
not a valid proposal because the amount of
money to be paid is not certain.

7. Offer must be communicated to the
offeree: A person cannot accept an offer until
he knows the subject of the offer. To complete
an offer lawfully the proposal or offer must be
communicated. Section 4 of the Contract Act
says that, the communication of a proposal is
complete when it comes to the knowledge of
the person to whom it is made.
For example: A proposes, by letter, to sell a
house to B at a certain price. The
communication of the proposal is complete
when B receives the letter.

8. An offer may be conditional: An offer may
be made with some conditions. In such cases,
the conditions must be communicated to the
offeree. Without knowledge of the condition of
an offer if a person accepts an offer, the offeror
cannot claim the fulfillment of the condition.
But if the conditions are clearly written or
expressed and should have been known to the
offeree he cannot pled the ignorance of the
conditions.

Invitations to treat:
Invitations to treat: An invitation to treat is
not an offer, but an indication of a person's
willingness to negotiate a contract. It's a pre-
offer communication. In Harvey v. Facey, an
indication by the owner of property that he or
she might be interested in selling at a certain
price, for example, has been regarded as an
invitation to treat. Similarly in Gibson v
Manchester City Council the words "may be
prepared to sell" were held to be a notification
of price and therefore not a distinct offer,

Invitations to treat:
The courts have tended to take a consistent
approach to the identification of invitations to
treat, as compared with offer and acceptance,
in common transactions. The display of goods
for sale, whether in a shop window or on the
shelves of a self-service store, is ordinarily
treated as an invitation to treat and not an
offer.
The holding of a public auction will also
usually be regarded as an invitation to treat.
Auctions are, however, a special case generally.

Communication of offer:
Communication of the offer, as also of the
acceptance, is an essential element in a
contract. Two persons may have a common
intention but without communication there
is no agreement. An offer is not; therefore,
open to a person who is ignorant of it; nor
an ignorant compliance with the terms of an
offer means an acceptance of it.
‘’The communication of a proposal is
the person to whom it is made".

Acceptance:
When the person to whom the proposal is made
signifies his assent thereto, the proposal is said
to be accepted. A proposal, when accepted
becomes a promise.
Communication of acceptance: There are
several rules dealing with the communication
of acceptance:
i. The acceptance must be communicated
ii. An offer can only be accepted by the offeree,
that is, the person to whom the offer is made.

Communication of acceptance (cont.):
iii. It may be implied from the construction of
the contract that the offeror has dispensed with
the requirement of communication of
acceptance (called waiver of communication -
which is generally implied in unilateral
contracts).
iv. If the offer specifies a method of acceptance
(such as by post or fax), acceptance must be by a
method that is no less effective from the offeror's
point of view than the method specified.
v. However, acceptance may be inferred from
conduct,

Communication when complete
As per Section 4 of the act:
The communication of a proposal is
the person to whom it is made.
The communication of an acceptance is
complete, as against the proposer, when it is
put in a course of transmission to him, so as
to be out of the power of the acceptor; as
against the acceptor, when it comes to the
knowledge of the proposer.

Communication when complete(cont.):
The communication of a revocation is
complete,-as against the person who makes
it, when it is put into a course of
transmission to the person to whom it is
made, so as to be out of the power of the
person who makes it; as against the person
to whom it is made, when it comes to his
knowledge.

Consideration
Section 2 of the Contract Act defines
consideration thus: When at the desire of
the promisor, 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"

Rules for consideration
(a) Real and not sham: Unreality of
consideration arises from a number of
causes, such as, legal impossibility, physical
absurdity, uncertainty, and also when it
involves doing of what one is bound to do.
Thus:(i) A, a servant of B, in return for a
promise of Tk. 100 promises to give C a
discharge for a debt which C owes to B. A's
promise is unreal because it is legally
impossible for him to give a discharge for a
debt owed to his master.

Rules for consideration (cont.)
(b) Not be illegal: A consideration is said to be
illegal when it is intended to defeat the provisions
of any law, or is against public policy. Thus, a
promise by A to pay B Tk. 100,000 inconsideration
of B's promise to drop a prosecution for robbery
instituted by him against A, is illegal as being
aimed at defeating the provisions of Law.
(c) Must not be past: A past consideration is that
which is executed before the promise for which it
is paid. Thus, if A promises B Tk. 5,000 for his
having accompanied A to a shooting last week, the
consideration is past.

Rules for consideration (cont.)
(d) Move from the promise: This means that
consideration ought to proceed from the party who
is entitled to sueon the contract, for the rule is:
"No stranger to the consideration can sue on the
contract". Thus, if A promises to pay B Tk. 10 if C
works for him in an election, the promise is not
enforceable and B cannot sue on it, for, he has
neither done nor forborne nor suffered anything
nor made any promise in return for A's promise.
(e) Need not be adequate: This means that it is fiat
the business of the court to enquire whether the
considerationin a particular case is substantial,

Lecture 9 ( contract act 1872)

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