Law of Contract

The Contract Act 1872

Deals with relationship
between persons

Contract
An Agreement enforceable by law is
a contract.
Elements of a valid contract
- Agreement, and
- Enforceability

Agreement
Every promise and set of promises
forming the consideration for each other
is called an agreement
promise: When a proposal made by one
person is accepted by the other person it
becomes a promise.
Therefore, in an agreement there must
be
- An offer;
- Acceptance of that offer; and
- consideration

Offer/ proposal
Person making the statement intends
- to comply with the statement
- that some one will agree with his
proposal and accept it; and
- when accepted he /she will be bound by
that acceptance
( Clear intention to comply with the terms
and conditions of the proposal upon
acceptance)

A conversation between two

persons
A: Have you bought another car? I heard it
from C that you purchased a lexus car
yesterday.
B: Yes. Its true.
A: But I think the second car will be really
useless for you, one is sufficient.
B: I am thinking to sell my old one.
A: For how much?
B: 9 lacs
A: Thats nice.

Carlill v Carbolic Smoke Ball

Company (1892)
The Carbolic Smoke Ball Company issued
an advertisement in which they offered to
pay $100 to any person who succumbed to
influenza after having used one of their
smoke balls in a specified manner and for
a specified time. They added that they had
deposited a sum of $1000 with their
bankers to show their sincerity. Carlill on
the faith of the advertisement bought and
used the ball as prescribed, but succeeded
in catching influenza. She sued for $100.

Offer and Invitation to

Offer/Treat
Issue:
- Whether the statement is the final
expression of ones willingness and
sufficiently definite to be capable of
acceptance
- If the statement or conduct becomes so
satisfactory then it is an offer
- If it is in short of it at any degree then it
will be an invitation to offer or treat

Example:
Auction sale (the offer is made by the
bidder, i.e, the bid itself is an offer
which is accepted by the fall of the
hammer of the auctioneer on his table)
Display of goods in self service system
Advertisement
(however
if
the
advertisement
contain
definite
intention then it becomes offer)
Tender

Acceptance
The person to whom the offer has
been made agrees to that offer
Signifies his assent
The acceptance is absolute and
unconditional
(Conditional acceptance becomes
counter offer and does not create
any binding acceptance.)

Counter offer
A: I will sell my car to you for taka 3 lacs.
B: I agree. But you must paint the car
before giving it to me.
(It is not acceptance but counter offer
due to the added condition)
Legal Consequences:
- It rejects the original offer (the original
offer becomes dead)
- It becomes a new offer

Sample cases
A telegraphed to B, Will you sell us the
property X? Telegraph lowest cash
price. B telegraphed in reply, Lowest
price for X, taka 20 lacs. A then
telegraphed, We agree to buy X for
taka 20 lacs asked by you. Please send
us your title-deeds. The rest were silence
Is there any offer and acceptance of any
offer?

Communication
Communication of proposal : complete
when it comes to the knowledge of the
person to whom it is made
Communication of acceptance as against
the proposer: complete when it is put in
the course of the transmission to him;
As against the acceptor: when it comes
to the knowledge of the proposer.

Illustration
A proposes, by letter, to sell a house to B at a
certain price.
- The communication of the proposal is complete
when B receive the letter.
B accepts As proposal by a letter sent through
post.
The communication of the acceptance is complete
- as against A, when the letter is posted; (A can
revoke the proposal before B posts the letter)
- as against B when A receives the letter (B can
revoke the acceptance before A receives the
letter)

Communication of offer and

acceptance
Knowledge of offer: Prior condition of
acceptance.
Acceptance in ignorance of offer is no
acceptance to give rise to a legally
binding contract
Mere knowledge is not enough but the
fact of offer must be in the mind of
the acceptor at the moment of
acceptance, otherwise no acceptance.

Illustration
A by a letter posted to B
communicates one proposal;
B receives the letter on 1 January
which he opens and read out on 3
January. The communication of
proposal is completed on 3 January as
he comes to know of the proposal on
3 January only. So B could accept the
offer then only.

English law on communication

of acceptance
Once a letter of acceptance is posted
the acceptance becomes complete at
once forever which cannot be
revoked. The acceptance through the
poster letter cannot be revoked by
any subsequent speedier way of
communication.
In Bangladesh such revocation is
possible

Accidental formation of
contract
A makes a proposal to B. B accepts the proposal
and post a letter to that effect on 26 th January. On
the same day B sends a telegram revoking the
acceptance. The letter and the telegram reach A
at the same time when he was out for a walk.
The servant receives both an keeps then on As
room. On return A reads the telegram first, hence
no binding contract. But if A reads the letter first
and then the telegram, then a binding contract.
- These are called accidental form of contract
because they depend merely on a matter of
chance.

Modes of revocation
By notice
By lapse of time
By non-fulfillment of conditional
precedent
By death or insanity of the proposer,
if the fact of his death or insanity
comes to the knowledge of the
acceptor before acceptance.

Death and Ethical issue

Acceptance without knowledge of
death or insanity of the proposer
creates a contractual relation.
Ques : How the contract will be
performed if the performance depend
on the personal skill of the proposer.
[Section 56 which renders a valid
contract void due to subsequent
impossibility can be invoked]

Enforceability of the
Agreement

Consideration
Capacity of the parties
Contract must be for legal object
Free consent of the parties
(absence of fraud, misrepresentation,
mistake, undue influence, coercion in
getting or giving the consent of the
parties are essential)

Consideration
Offer and acceptance of the offer
must be for some consideration
A promises to maintain Bs child and
B promises to pay A taka 3000 per
month for the purpose. Here the
promise of each party is the
consideration for the promise of the
other party

Consideration General
principles
No consideration no contract
Any
person
can
furnish
the
consideration, but that must be at
the desire of the promisor
Past
consideration
is
good
consideration
Consideration need not be adequate.

Competency of the parties

Parties must be capable of entering
into contract. Means
- she/he understands the nature and
consequences of his/her acts
- Must not be a person of unsound mind
- Must be a major (attained the age of
majority 18 years)
- She/he must not be disqualified by law

Minors Agreement
Void ab initio
If a minor takes any property or goods
by misrepresenting his age, then he will
- be compelled to restore the things so
obtained so long as the goods will be
found in his possession, and if the
goods are already sold or converted he
cannot be compelled to repay the value
of the goods

Minors contract
No scope for ratification of minors contract
when the minor attains the age of majority
Minors liability for necessaries supplied to
him
- If a person, incapable of entering into a
contract, or any one 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.

Minors liability
The nature of such liability is quasi
contractual, and in no case it is contractual;
Minor is not personally liable rather his
liability is limited against his property
Liability is limited for necessaries only
(Necessaries is not confined to articles
necessary to the support of life, but includes
articles and services fit to maintain the
particular person in the station of life in
which he moves.

Consent of the parties

Parties agree upon the same thing in
the same sense.
Consent free when not caused by
- coercion;
- Undue Influence
- Fraud
- Misrepresentation
- Mistake

Coercion
Substantial element- committing any
act or threatening to commit any act
forbidden by the Penal Code
- Unlawful detaining any property
- Threatening to detain any property
Psychological element- above acts are
done with the intention of causing any
person to enter into an agreement

Undue influence
Nature of relationship- the
relationship subsists between the
parties is of such that one of the
parties is in a position to dominate
the will of the other.
Use of relation- the above relation is
used to obtain an unfair advantage

Persons in a position to
dominate other
Where he holds real (relation between
police officer and the accused) or apparent
authority ( master-servant relation) over
the other;
Where he stands in a fiduciary relation to
the other (means the relationship of
utmost good faith- parents-child, teacherstudent, lawyer-client)
Where he makes a contract with a person
of weak mind, that is, whose mental
capacity is affected by reason of age,
illness, or mental or bodily distress.

Fraud
Psychological element- acts must be done
with an intention to deceive the other
(fraudulent intention);
Substantial element- suggestion as to a
fact, which is not true, by a person who
does not believe it to be true;
- Active concealment of a fact who has
the knowledge or belief of the fact;
- A promise made without an intention to
perform it

Fraud
- Any act fitted to deceive
- Any act or omission declared by law as fraud
Ques- Does mere silence amount to fraud?
- General rule mere silence does not amount
to fraud
- But becomes fraud (1) where the silence
amounts to a breach of duty; (2) where the
silence is equal to speak fraudulent
statement.

Misrepresentation
Unwarranted false statement
Breach of duty
Causing mistake as to the subject
matter
[coercion, undue influence, fraud,
misrepresentation makes a contract
voidable at the option of the party
whose consent was so caused]

Mistake
Both parties are under a mistake as
to the matter of fact essential to the
agreement.
Mistake of foreign law is considered
as mistake of fact
Mistake of law is no ground to set
aside a contract

Void agreement

An agreement but not enforceable by law

Agreements without consideration
Agreement in restraint of marriage
Agreement in restraint of trade
Agreement in restraint of legal proceedings
Agreements the meaning of which is
uncertain
Agreements by way of wager
Agreements contingent on impossible
events
Agreements to do impossible acts

Discharge/performance of
contract
Obligation:
The parties to a contract must either
perform or
Offer to perform their respective
promises
Unless such performance in excused under
- This Act (law of contract) or
- Any other law.

Offer of performance
When an offer of performance is made but
no acceptance by the other, the offeror is
not responsible but entitled to his rights
under the contract.
However the offer of performance must be
- Unconditional
- Made at a proper time and place
- The promisee must have a reasonable
opportunity to see the thing to be delivered.

Performance of reciprocal
promises
Promisor not bound to perform
unless reciprocal promisee ready and
willing to perform
Reciprocal promises to do things
legal, and also other things illegal
the legal part of the agreement is
valid contract, and the illegal part is
void agreement

Principles of substantial
performance
General rule: party cannot recover
payment for the partial performance
of an entire obligation.
No pay until the performance was
complete: an entire contract requires
entire performance to entitle the
performer to payment.

Payment for partial

performance
1. court may interpret the contract not as
being an entire contract, but as a contract
which is made up of a series of entire
obligations;
2. courts will allow recovery where a party
in breach has substantially performed his
obligations
Where partial performance has been
accepted then compensation may be made
for that performance.

Standard of performance
Strict performance: when the terms
of the agreement is the essence of
contact the party in breach is liable.
The reasons for breach is irrelevant.
Standard of reasonable care: imposes
a duty on the party to use reasonable
care and skill in the performance of
his/her contractual obligation.