The Contract Act, 1872-Bangladesh

History: Contract Act 1872 (Act No. IX of 1872) governs the law of
contracts in Bangladesh. The Act came into force in Bengal on 1 September
of 1872, and was adopted in Bangladesh without change.

It contains the common rules relating to contracts and differentiates them.

The Act has 238 sections under its 11 chapters.

Definition of Contract

A contract has been defined in Section 2(h) as “an agreement enforceable by

law.”

Enforceable is an action which can be made effective.

If we analyze the definition of the contract mentioned above, we get two

fundamental characteristics or features, viz.-
(i) Agreement between the parties and
(ii) This agreement must be enforced by law.

So agreement is the first step of contract. But after making agreement:

 It may be enforceable by law or may not be enforceable at law.
 If that agreement is enforced by law then it will be treated or turned
into contract
 But if the agreement is not enforced by law that will not be treated as
a contract but merely an agreement.
For example: - A minor “X” has agreed to sell an apartment that he has
inherited to his father, to another person named “Y”. Here, this will be called
agreement but not a contract. Because according to the law of contract, a
minor is not capable of entering into a contract. So this agreement is not
enforced by law.

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The essential elements of a (legally enforceable)valid contract may
be summed up as follows

1. Offer and acceptance:

There must be a ‘lawful offer’ and a ‘lawful acceptance’ of the offer, thus
resulting in an agreement.

 The adjective ‘lawful’ implies that the offer and acceptance must
satisfy the requirements of the Contract Act in relation thereto.

2. Intention to create legal relations:

There must be an intention among the parties that the agreement should be
attached by legal consequences and create legal obligations.

Intention to create legal relations mean that if one party breaks the contract
then the aggrieved party can take lawful action against the other party.

3. Lawful consideration:

The third essential element of a valid contract is the presence of

‘consideration’. Consideration has been defined as the price paid by one
party for the promise of the other. Section 25.

 An agreement is legally enforceable only when each of the parties to it

gives something and gets something.

 The ‘consideration’ may be an act (doing something) or forbearance

(not doing something) or a promise to do or not to do something.

 It may be past, present or future. But only those considerations are

valid which are ‘lawful’.

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4. Capacity of parties:

The parties to an agreement must be competent to contract; otherwise it

cannot be enforced by a court of law.

 In order to be competent to contract the parties must be of the age of

majority and of sound mind and must not be disqualified from
contracting by any law to which they are subject (Sec. 11).

 If any of the parties to the agreement suffers from minority, lunacy,

idiocy, drunkenness, etc., the agreement is not enforceable at law.

5. Free consent:
Free consent (approval) of all the parties to an agreement is another
essential element of a valid contract.

 ‘Consent’ means that the parties must have agreed upon the same
thing in the same sense (Sec. 13).

 There is absence of free consent’ if the agreement is induced by (i)

coercion, (ii) undue influence, (iii) fraud, (iv) misrepresentation, or (v)
mistake (Sec. 14).

 If the agreement is vitiated (influenced) by any of the first four

factors, the contract would be voidable and cannot be enforced by the
party guilty of coercion, undue influence etc.

 The other party (i. e., the aggrieved party) can either reject the
contract or accept it, subject to the rules laid down in the Act.

 If the agreement is conducted by mutual mistake which is material to

the agreement, it would be void (Sec. 20).

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6. Lawful object:

For the formation of a valid contract it is also necessary that the parties to
an agreement must agree for a lawful object.

 The object for which the agreement has been entered into must not be
fraudulent or illegal or immoral or opposed to public policy or must not
imply injury to the person or property of another (Sec. 23).

 If the object is unlawful for one or the other of the reasons mentioned
above the agreement is void.

7. Writing and registration:

According to the Contract Act, a contract may be oral or in writing. But in

certain special cases it lays down that the agreement, to be valid, must be in
writing or/and registered. (Sec. 25).

Similarly, certain other Acts also require writing or and registration to make
the agreement enforceable by law which must be observed.

 Thus, (i) an arbitration (negotiation) agreement must be in writing as

per the Arbitration and Conciliation Act, 1996;

 (ii) an agreement for a sale of immovable property must be in writing

and registered under the Transfer of Property Act, 1882 before they
can be legally enforced.

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8. Certainty:
Section 29 of the Contract Act provides that “Agreements, the meaning of
which is not certain or capable of being made certain, are void.”

 In order to give rise to a valid contract the terms of the agreement

must not be vague or uncertain.

 It must be possible to ascertain the meaning of the agreement, for

otherwise, it cannot be enforced.

Example:
A agrees to sell B “a hundred tons of oil.” There is nothing whatever to show
what kind of oil was intended. The agreement is void for uncertainty.

9. Possibility of performance:
Yet another essential feature of a valid contract is that it must be capable of
performance. Section 56 lays down that

 “An agreement to do an act impossible in itself is void”. If the act is

impossible in itself, physically or legally, the agreement cannot be
enforced at law.

Example:

A, agrees with B to discover treasure by magic. The agreement is not

enforceable.

10. Agreement not declared void or illegal Agreements which have been
expressly (specifically) declared void or illegal by law are not enforceable at
law; hence they do not constitute a valid contract.
 Sections 24-30 specify certain types of agreements which have been
expressly declared to be void.

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 For example,

1. Restraint of trade: Legal contract between a buyer and a seller of

a business, or between an employer and employee, that prevents the seller
or employee from engaging in a similar business within a specified
geographical area and within a specified period

Types of Contracts

1. Valid contract: An agreement which has all the essential elements of a

contract is called a valid contract. A valid contract can be enforced by law.
2. Void contract[Section 2(g)]: A void contract is a contract which ceases
to be enforceable by law.
3. Voidable contract[Section 2(i)]: In contracts, voidable is a term
typically used with respect to a contract that is valid unless avoided or
declared void by a party to the contract who is legitimately exercising a
power to avoid the contractual obligations.
For example, a person who was induced by fraud to enter into a contract
may disclaim the contract by taking some positive action to disaffirm the
contract.

4. Illegal contract: A contract is illegal if it is forbidden by law; or A

contract is considered illegal if either the consideration given for the contract
is illegal or the object of the contract is illegal. For example:

For Example: Tom promises to give Jerry Tk5,000 if Jerry robs a bank on
Saturday. This is an illegal contract because the object of the contract is
illegal.

5. Unenforceable contract: unenforceable contract is a valid contract that

cannot be fully enforced due to some technical defect.
Example: Mary bought a house from Pete using a written purchase and sale
agreement. After taking possession, Mary discovers a small leak in a pipe in
the crawl space of the house, but does not take any action against Pete for
four years.

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The court decided that the contract was unenforceable because of Mary’s
delay, even though the Statute of Limitations had not expired.
6. Express contract: Where the terms of the contract are expressly agreed
upon in words (written or spoken) at the time of formation, the contract is
said to be express contract.

7. Implied contract: Contract agreed by non-verbal conduct, rather than

by explicit words.
An example of an implied contract is when ordering fries at a hotel- there
is an implied contract that the hotel will fill your order and its implied that
you pay for that.

8.Quasi contract: An obligationthatthelawcreates in theabsence of an

agreementbetweentheparties. It is invoked by
thecourtswhereUnjustEnrichment,whichoccurswhen a personretainsmoney
or benefitsthat in allfairnessbelong to another,wouldexistwithoutjudicialrelief.

For example school district and a roofing company enter into a contract in
which the roofing company agrees to install a roof on a school pursuant to
an architect's instructions. The roofing company installs the roof and
allegedly performs additional work (of which the architect is aware) outside
the scope of the contract. The roofing company is allegedly paid for the
roof's installation, but not for the additional work. If the additional work is,
indeed, outside the scope of the contract, the roofing company has a quasi-
contract cause of action and may recover under a theory of Quantum
Meruit., A claim in quantum meruit is usually an action to recover the
reasonable value of services rendered by one party to another.

9. Executed contract: An executed contract is one in which both the

parties have performed their respective obligation.
10. 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, executory contract is a one where the terms, obligations
and promises have not yet been performed.

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Example:An owner (lessor) and a tenant (lessee) enter into a lease
agreement. The agreement states that after three days of signing the
contract, lessee will submit a Tk500 deposit and the lessor will surrender the
keys to the property.
The contract has just been signed. The lease contract is executory since it
has not been fully performed.
11. Unilateral contract: In contract law, unilateral contracts allow only one
person to make a promise or agreement.
Example: You place an advertisement in the newspaper or online offering a
Tk100 reward to the person who returns your missing pooch. By offering the
reward, you're offering a unilateral contract
12. Bilateral contract: An agreement in which the parties exchange
promises for each to do something in the future.
Example :Seller promises to sell the house to Buyer and Buyer promises
to pay Seller Tk100,000 for it

What is offer/proposal?

When one person signifies to another his willingness to do or to obtain from

doing anything with a view to obtaining the asset of that other to such act or
abstinence he is said to make a proposal Section 2a

Rules regarding offer

The contract Act contains various rules regarding offer or proposal. They can
summed up as follows:

1. An offer may be express or may be implied (indirect) from the

circumstances.

2. An offer may be made to a definite person; class or people at large.

3. Legal relationship is required. Like an agreement an offer must also be

enforceable by law”

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4. The terms of the offer must be certain, definite, unambiguous and not
vague.

5. A mere statement of intention is not an offer.

6. An offer must be communicated to the offeree.

7. An offer may be conditional.

8. Offer Can be revoked before acceptance: According to the contract act

1872 section 5 , it is mentioned that Offer Can be revoked before acceptance
but not later.

9. Any offer is not stand for ever : Time period must be mentioned with an
offer. If time is not mentioned then after elapsing a reasonable time the
offer becomes void. What is a reasonable time that will be decided by the
court by judging the entire circumstances.

What is Acceptance?

When the person to whom the proposal is made signifies his assent thereto,
the proposal is said to be accepted. Section 2b

How an offer is accepted?

An offer can be made by an act in the following ways:

By words: (whether written or oral). The written offer can be made by

letters, telegrams, telex messages, advertisements, etc. The oral offer can
be made either in person or over telephone.

Examples

(1) A proposes, by letter, to sell a house to B at a certain price. This is an

offer by an act by written words (i.e., letter). This is also an express offer.

(2) A proposes, over telephone, to sell a house to B at a certain price. This is

an offer by act (by oral words). This is an express offer.

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(b) By conduct: The offer may be made by positive acts or signs so that the
person acting or making signs means to say or convey. However silence of a
party can in no case amount to offer by conduct.

(c) Written: By a letter or by telegram, fax, email, etc.

(d) Postal acceptance rule

The postal acceptance rule states that a contract is made when a person
mails a letter from the person's mailbox or a general mailing center.

The rule states that when the letter is mailed, the person assumes that
acceptance is deemed to occur, meaning the letter will reach its destination.

How is an Offer Termination Accomplished?

There are many different ways that an offer for a contract can be
terminated. These can involve either actions by the offeror, offeree, or other
intervening circumstances. According to contract act 1872 section 6
Termination of offer may occur by:

How is an Offer Termination Accomplished?

There are many different ways that an offer for a contract can be
terminated. These can involve either actions by the offeror, offeree, or other
intervening circumstances. Termination of offer may occur by:

 Rejection: the offeror usually needs to clearly communicate their

intention to reject the offer to the Offeree:. Rejection or revocation of
an offer generally becomes effective when the offeree learns of it

 Lapse of Time: the offeree generally has a “reasonable amount of
time” in which to respond to the offer after they learn of it. This
amount of time may vary depending on the subject matter of the
contract, as well as the prior dealings between the parties.

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  Death/Incapacity/Disability of the other Party: If the offeror
becomes deceased, incapacitated, or disabled before the contract offer
is accepted, it will usually terminate the offer.
 Conditional Acceptance: If the offeree makes an acceptance that is
conditional (i.e., “I’ll only accept this offer if I can also have a free
product”), this is not viewed as an acceptance of the offer, but rather a
counter-offer.
 Illegality: If performance of contract has become illegal after the
offer has been made, the offer will terminate, and the offeree can no
longer legally accept the offer

What is a promise?

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.

Promisor and promise 2(c) :- When the proposal is accepted, the person
making the proposal is called as promisor and the person accepting the
proposal is called as promisee.

How tom make a Contract-Part 01

Ensure there is an offer. Before a contract can be legally formed, there must
be an offer.

An offer can be one of employment, to purchase or sell an item, or to perform a

service.

For example, if a friend says he would like to purchase your stereo for Tk100,
that is an offer, however, if your friend says he would like to have your stereo
that may not be an offer to purchase it, but simply him wishing aloud that he
had one like it.

Confirm the offer has been accepted. Once an offer has been made, it must
be accepted by the person to whom it was made, the offeree, to satisfy one of
the basic elements of a binding contract.

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Acceptance may be oral, in writing, or by performance.

For example, if a neighbor offers you Tk35 to mow his lawn, you may accept
the offer by telling him you will do it, writing him a note saying you accept his
offer, or by mowing his lawn.

Acceptance of a contract by performance may not always be a good idea, and

you should ensure the offer has not been revoked and that you understand it
completely before performing.

Put it in writing. Not all contracts have to be in writing to be legally binding;

however, it is much easier to prove a breach of contract, should the other party
fail to perform his or her obligations, if you have the contract in writing. It may
also be easier for both parties to remember the specific obligations they have
undertaken when the contract is written down. To draft a simple contract,
follow these steps:

 Name the contract. Give the contract a short name, such as “Loan
Agreement” or “Service Contract” which you can use to refer to it throughout
the rest of the document.
 Be sure that whatever name you give the contract is descriptive of the
contract, for example, if you are making a contract to have your living room
painted, you may want to name it “Service Contract”, but “Loan Agreement”
would not be appropriate.
 Name the parties. State the names of the parties to the contract and
designate each party as either “Buyer” or “Seller”, or some other term that
goes with the purpose of the contact.
 For example, “Rahim (“Buyer”) and Karim (“Seller”) hereby agree as
follows.” Once you have designated the parties as Buyer and Seller in this
manner, you should refer to them throughout the remainder of the contract.
 Describe the consideration. Consideration is what each party agrees to
do, or refrain from doing.
 For example, in a sales contract, the Buyer’s consideration is paying money
for an item and the Seller’s consideration is giving up the item. For a
contract to be legally binding, both parties must generally provide
consideration.

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 State all the terms and conditions. You may wish to include additional
terms or conditions in your contract, besides the consideration each party
will be giving up.

 For example, in a rental agreement, you may want to describe who is

responsible for the maintenance and care of the property and who will pay
the property taxes or in an employment contract, you may want to describe
who will own any work product created.
 Include the date. This should be the date the parties will sign the contract.
If you are unsure of the exact date the contract will be signed, you can leave
a blank line where the day, month, or year can be hand written in when the
contract is executed. For example, “Agreed to this ___ day of March, 2006”
or “dated this ____ day of _______, 20____”.
 Create a signature and notary block. Your signature and notary block
should include a line for each party to sign, plenty of room for signatures,
the parties’ printed names, and a place for a notary to notarize the
signatures, and place his or her stamp or seal.
 (This form of notary block to be attached wherever notarization is
needed:)

 State of OREGON ) On this ____day of __________,
20__, personally
 )ss. appeared before me
_______________ who

 County of _______________ ) stated that (s)he is the

_______________ of _______________, a corporation, and that the
instrument was signed in behalf of the said corporation by authority of
its board of directors and acknowledged said instrument to be its
voluntary act and deed. Before me:

 _________________________________________
 Notary Public for Oregon
 My Commission Expires: ____________________.


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Print and sign the contract. A contract does not become legally binding
until it has been signed. It is always a good idea to sign in front of a notary
and have him or her notarize the signatures, just to ensure that neither
party can later claim the signature is not theirs.

A notary can be found at most any bank or law office, and usually charges
Tk2 for notarizing a signature.

How A Contract Can Be Enforceable Part-02

 A contract can be oral, but an oral contract (sometimes referred to as

a verbal contract) may be difficult to enforce unless its terms can be
proved or are admitted by the parties.

 A signed, written contract that contains the essential provisions

reduces this risk.

A law called the statute of frauds refers to the requirement that certain
kinds of contracts be memorialized( to do or create something that causes
people to remember) in a writing, signed by the party to be charged, with
sufficient content to evidence the contract.

Traditionally, the statute of frauds requires a signed writing in the following

circumstances:

 Contracts in consideration of marriage.

 Contracts that cannot be performed within one year. However,
contracts of indefinite duration do not fall under the statute of
frauds regardless of how long the performance actually takes.
 Contracts for the transfer of an interest in land.
 Contracts for the sale of goods totaling ----- or more.
 Contracts in which one party becomes a surety (acts as
guarantor) for another party's debt or other obligation

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What Types of Damages are Available in a Breach of Contract?

According to Contract Act 1872 depending on the nature of the breach, you
may have several different remedies available to you. Damages are
monetary awards, and they include:

Compensatory Damages: Money awarded to a plaintiff (applicant) to

compensate for damages, injury, or another incurred loss.

Compensatory damages are awarded in civil court cases where loss has
occurred as a result of the negligence or unlawful conduct of another party.

For example, if a person, while driving negligently, totally destroys your

1992 Toyota, the compensatory damages would normally equal the market
value of your 1992 Toyota at the time of its destruction, less any scrap or
salvage value

There are two types of compensatory damages:

(A)Expectation Damages:

Expectation damages are damages recoverable from a breach of contract

by the non-breaching party .

For Example: Neal signs a contract agreeing to buy 10 hours of landscaping

services from John's Landscaping for $50 an hour.

If Neal breaks the contract and doesn't use any of John's Landscaping
services, expectation damages paid to John's Landscaping would be $500,
which is the economic loss they suffered.

If John's Landscaping breaks the contract, and Neal is forced to hire another
service for $60 an hour, expectation (direct) damages paid to Neal would
equal $100 ($10 an hour, the difference in price between the original
contract and the new contract)

(B)Consequential Damages: These are intended to repay the aggrieved

party for indirect damages besides the contractual loss;

For example, , a retail store buys customized software to run its cash
registers and inventory system. One day the system breaks down
completely. As a result, the store must close for the day to repair the
system. The store's loss of business for that day is a consequential damage
of the broken contract.
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Liquidation Damages: Liquidated damages are damages that the parties to
a contract specify will have to be paid in the event of a breach.

For example, if Ann and John make a contract to do business, one

provision of that contract may stipulate that if either of the two breaches the
contract and doesn't fulfill the promise, that person will have to pay the
other $1,000.

Punitive Damages:

Punitive damages are awarded in addition to actual damages in certain

circumstances.

For example, in a personal injury suit, compensatory damages would cover

items such as the victim’s medical bills and hospital expenses, as well as any
damage to property. The court would then determine whether it would be
appropriate to award the victim with punitive damages in addition to or “on
top of” the compensatory damages.

Nominal Damages:Nominal damages are a small amount of money

awarded to a plaintiff in a lawsuit to show he/she was right but has suffered
no significant losses.

Re-stitution-ary Damages: Restitution basically requires a defendant to

forfeit (pay) gains that they have unlawfully obtained to the plaintiff.

Example of Restitution?

Suppose defendant has stolen property belonging to the plaintiff. However,

suppose that the defendant has already sold the stolen property, and it can
no longer be located. In this case, the court cannot order the defendant to
return the property, since it has already been sold.

Thus, the court may order the defendant to pay restitution in order to “make
the plaintiff whole”, or to restore them to their economic position before the
theft occurred.

Again, the restitutionary amount will be calculated based on the gains of the
defendant (i.e., how much they made from the sale of the property).

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What other Breach of Contract Remedies are Available?

Relief for contract breaches can come in two forms:

Legal damages, which are the monetary awards discussed above, and

Equitable Remedy

Court-ordered action that directs parties to do or not to do something; such

remedies include injunctive relief and Specific Performance.

Injunctive reliefInjunctive relief consists of a court order called an

injunction, requiring an individual to do or not do a specific action.

It is an extraordinary remedy that courts utilize in special cases where

taking some specific action is required in order to prevent possible injustice.

For example, in a custody case, an injunction may be used to prevent a

party from removing a child from the country.

Injunctive relief is an reasonable remedy granted when money damages are

not able to compensate the plaintiff's violation of rights if an injunction is not
granted. Failure to comply with a notice of an injunction is punishable by
being held in contempt of court.

Specific Performance: Basically a judgment requiring the breaching party

to perform their part of the bargain in the contract.

For example, if one party has paid for delivery of goods, but the other
party did not ship them, a specific performance decree might require the
goods to be properly delivered.

Contract rescission: Contract rescission refers to the termination or

cancellation of a contract. It is sometimes called “cancellation” or
“overturning”

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Contract rescission is available under the following circumstances:

Consent: Both parties must manifest their intent to have the contract
cancel.

Issues with contract formation: The contract must be made under legal
conditions, and consent cannot be acquired by force or fraud. If the contract
was formed under illegal conditions, it may be rescinded.

Common formation defects include:

Fraud: The false representation may related either to the contract’s subject
matter or to matters related to the contract

Lack of capacity: one of the parties lacks to the capacity to negotiate an

agreement due to illness, mental incompetence, intoxication, or being
underage (under 18 years old)

Coercion/Duress/Undue Influence: A party cannot be forced to sign a

contract under threats of harm or under hostile conditions

Mistake: Both parties must clearly understand all the terms in the contract.

Against public interest: A contract may be rescinded if performing it

would be against the general consent of the public (for example, a contract
requiring one of the parties to be subjected to indentured servitude)

Contract reformation: Contract reformation is a type of equitable remedy

wherein the contract is rewritten in a way that better expresses the
intentions of the parties.

For example, sometimes a breach of contract may occur because the

parties were mistaken as to one of the contract terms, such as the delivery
date or the definition of a word in the contract. In such cases, the contract
may then be rewritten or “reformed” in order to remedy the breach.

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