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The contents of the Act can be divided into two broad categories:
1. General laws relating to contract
2. Laws relating to some particular types of contracts
Each categories can be divided into three broad parts:
1. General laws relating to contract:
a. Formation of contract
b. Performance of contract
c. Breach of Contract and remedies
2. Laws relating to some particular types of contracts:
a. Contracts of indemnity and guarantee
b. Contracts of Bailment and Pledge
c. Contract of Agency
The Contract Act 1872 is not exhaustive and where the Act does not cover the case the court is
bound to follow the principles of the English Common Law
Conflict of Laws/Jurisdiction
Conflict of laws may arise:
-Where the Contract is made in one jurisdiction and is to be performed in another jurisdiction or other
countries
-is sued upon in a jurisdiction where it was not made or to be performed,
It becomes necessary to determine the law of which legal system will govern the contract, or
any particular aspect of it.
Our act is silent on this issue!
FORMATION OF CONTRACT
• Definition of Contract:
According to section 2(h) of Contract Act,1872 –“An agreement enforceable by law is a
contract.”
Alternatively, it may be defined as a promise or set of promises which the law will enforce.
Abul Gani Sheikh V. Jagadish Chandra Mridha and others.
Agreement: According to section 2(e) of Contract Act, 1872- “Every promise or set of promises
forming the consideration for each other.”
Promise: According to Section 2(b) of Contract Act,1872 – “A proposal, when accepted
becomes a promise”
Proposal: According to section 2(a) of Contract Act,1872- “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”
Promisor and Promisee : According to Section 2(c) of Contract Act,1872 – “The person making
the proposal is called the "promisor" and the person accepting the proposal is called the
"promisee"
Consideration: According to section 2(d) of Contract Act,1872- “ 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..”
Agreement not Contract: According to Section 2(g) of Contract Act, 1872 –“An agreement not
enforceable by law is said to be void”
An agreement becomes enforceable by law when it satisfies the essentials laid under SECTION
10 of Contract Act. 1. Competency of parties, 2. Free consent, 3. Lawful object, 4. Lawful
Consideration, 5. Not declared by law as void.
Classification of Contract: The classification made under certain modes, is not expressly said in the
Contract Act, 1872
1. Valid Contact: Valid contract is that contract which satisfies all the essentials of section 10 of
Contact Act 1872 like: - lawful offer & acceptance, free consent, etc.
For example: - A ask B if he wants to buy his bike for Rs.10, 000. B agrees to buy bike. It is agreement
which is enforceable by law. Hence, it is contract.
2. Void Contract: “A contract which ceases to be enforceable by law becomes void when it ceases
to be enforceable” [Section 2(j)]
For example: - X agrees to sell his horse to Y for Rs. 5,000. But the horse died in an accident. It
become impossible to perform the contract due to destruction of the subject. Thus, a valid
contract changes into void contract because of impossibility of performance.
3. Void Agreement: - An agreement not enforceable by law is said to be void.
For example: - X supplies luxury goods to Y a minor for a consideration of Rs. 10,000. Y refused to
make payment. X cannot enforce the agreement in the court of law since the agreement is void
because Y is minor.
4. Voidable Contract Sec.2 (i):- 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, is voidable contract. Such a contract
come into existence where of consent of one or more parties is not free.
For example: - X promise to sell his scooter to Y for Rs. 500000. However, the consent X has been
procured by Y at a gun point. X is an aggrieved party & the contract is voidable at his option.
5. Illegal Agreement:- an agreement which is prohibited by law or against the policy of law is known as
illegal agreement.
For example:- X agrees to kill Y if Z pays him Rs.10,000. it is an unlawful as well as void agreement
6. Agreement discovered to be void:- an agreement whose void nature becomes known to parties only
subsequent to its formation
For example:- X agrees to sell his car to Y, both not knowing that the car has been badly damaged
in accident the previous night.
7. Unenforceable Contract:- A contract which is valid in all respects but because of non – fulfillment of
some technical formality, it cannot be treated as enforceable.
(CAPACITY OF PARTIES)
Sec: 11. Every person is competent to contract who is of the age of majority according to the law to
which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to
which he is subject.
So, we get three conditions to be fulfilled by a person to be competent to enter into a contract, that the
person is- 1. Of the age of majority, 2. Of sound mind, 3. Not disqualified from……..
So, the following persons cannot enter into a contract- 1. Minors, 2. Persons of unsound mind, 3.
Persons disqualified by any law.
The person must be of the age of majority: In Bangladesh, according to section 3 of the Majority Act,
1875, the age of majority is 18 years unless the superintendence of his property has been assumed by
the Court of wards in which case it is 21 years.
The person must be of sound mind:
Sec-12. A person is said to be of sound mind for the purpose of making a contract if, at the time when he
makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his
interests.
A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when
he is of sound mind.
A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract
when he is of unsound mind.
So, if one has the following two capabilities, he will be deemed to be of sound mind- 1. To understand
the contract, 2. To form a rational judgment considering its effect upon his own interests.
A person may lose these capabilities due to idiocy, lunacy, drunkenness etc.
The principle of the case Inder singh Vs. Parmeshwardhari Singh, {AIR 1957 Pat 491}, The person
entering into the contract must be a person who understands what he is doing and is able to form a
rational judgement as to whether what he is about to do is to his interest or not.
Contract in Lucid Interval: 2nd paragraph of sec 12.
Effect of agreement entered into by a person of unsound mind: In Bangladesh, thus agreement is void.
But in English law, the contract of this person is voidable.
The person must not be declared disqualified by the law: Insolvent Person etc.
Nature of Minor’s agreement: This issue was finally settled in 1903 in the famous case of Muhuri Bibi
Vs. Dharmadas Ghose, where it was held that a minor’s agreement is void ab initio, that means without
of any legal effect at all- it is born as a void one.
Application of doctrine of estoppel against minor: Estoppel may be described as a rule by which, in
some cases, one will not be allowed to plead the contrary of a fact or state of things which he has
formerly asserted by words or conduct.
This is a principle of law of evidence which has been embodied in section 115 of the Evidence Act, 1872,
as applicable in Bangladesh. In fact, sec-115 is founded on the rule laid down in the famous case of
Pickard Vs. Sears. 1831.
The doctrine of ‘estoppel’ cannot be applied against the minor, because, there is no estoppel against the
statute.
Doctrine of restitution: This means if a minor takes any property or goods by misrepresentation of his
age, then he will be compelled to restore things so obtained so long as the goods will be found in his
possession and if the goods are already sold or converted by the minor, he cannot be compelled to
repay the value of goods, because that would amount to enforce a void agreement.
Doctrine of ‘Ratification’: There is no scope of ratification for minor’s agreement. It was held in Julhash
Mollah (Md) and another Vs. Ramani Kanta Malo [1914] and another that an agreement which is void
ab initio cannot be validated by ratification.
Beneficial Contract: It was observed in Ashraf Ali Vs. Etim Ali [1959, 11 DLR 185], that- in an executed
contract where the minor’s part has been performed and nothing is left to be executed by the minor,
i.e., obligation, such a contract is enforceable by the minor as it is a contract for the benefit of the
minor.
Though according to English Law the minor would be liable in this case, it is clear under section 11, the
minor’s contract (it should be agreement) being void, the minor would not be held liable.
Liability for Necessaries: Section 68 of the Contract Act, 1872, says- “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.”
In Chappel Vs. Copper [1844], it was observed that- Things necessary are those without which an
individual cannot reasonably exist. In the first place, food, raiment, lodging and the like.
The minor will also be liable for the reimbursement for necessaries supplied to a person whom he is
legally bound to support. However, the liability of the minor has the following two characteristics-
The nature of such liability is quasi contractual, and no case it is contractual.
Minor is not personally liable, rather his liability is limited against his property.
FREE CONSENT
Sec-13. “Two or more persons are said to consent when they agree upon the same thing in the same
sense.”
Thus, there are two statutory requirements to be a consent that the consent must be given-
To the same thing and in the same sense. So, if the parties agree upon different things or in
different senses then this will not be treated as ‘consent’. Of course, the term ‘thing’ used in the
first requirement means ‘the consents of agreement’.
Presumption of Undue Influence and The burden of Proof: The general principle is that he who claims
anything must prove it. So, if someone claims that his consent is caused by undue influence then he
must prove the fact. But there is an exception when the burden of proof will shifted according sub
section-3 of section 16.
The court in Bindu Mukhi Vs. Sm. Sarda Sundari [1954, 6 DLR 97] observed that- ‘The burden of proof
lies in the first instance on the party who raises the plea of undue influence. If that party proves that the
other party was not only in a position to dominate his will, but that the transaction entered into was
unconscionable, then the burden of proof will be on dominated party.”
Effect of Undue Influence: The effect of Undue Influence is that the agreement which is induced by
undue influence becomes a voidable contract at the option of the party whose consent was so caused.
Section- 19A. When consent to an agreement is caused by Undue influence, the agreement is a contract
voidable at the option of the party whose consent was so caused.
Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has
received any benefit thereunder, upon such terms and conditions as to the court may seem just.
DEFINITION OF FRAUD
According to section 17 of the Contract Act 1872-
Fraud means and includes any of the following acts:
Committed by a party to a contract or by any one with his connivance or by his agent with intent to
deceive another party thereto or his agent or to induce him to enter into contract:
(a) A suggestion as to fact of that which is not true by one who does not believe it to be true
(b) An active concealment of a fact by one having knowledge or belief of the fact.
(c) A promise made without any intention of performing it.
(d) Any other act fitted to deceive
(e) Any such act or omission as the law specially declares to be fraudulent.
EXPLANATION:
• Mere Silence as to facts likely to affect the willingness of a person to enter into a contract is not
fraud,
• Unless the circumstances of the case are such that, regard being had to them, it is the duty of
the person keeping silence to speak, or unless his silence is, in itself equivalent to speech.
ESSENTIALS OF FRAUD
There must be a representation and it must be false. [Peek vs Gurney(1873) L.R 6 H .L 377]
The representation must relate to material fact [Bisset vs Wilkinson (1972) A.C 177]
The representation must have been made before the conclusion of the contract with the
intention of inducing the other party to act upon it.
The other party must have been induced to act upon the representation.
The other party must have relied upon the representation and must have been deceived.
[Horsefull vs Thomas, (1862) 1 H & C 90]
EXAMPLES OF FRAUD
Hasib was induced to buy shares in a company on account of a false statement made by a
stranger. It was held that he could not get out of the bargains because false statement was not
made by the company or its agent.
Tarek says to Depak his coat is made of pure wool, though he knows that it is untrue. Depak
purchases the coat believing Tarek’s statement to be true, it is a fraud by Tarek and therefore
contract is voidable at Depak’s option.
DOES MERE SILENCE AMOUNT TO FRAUD?
The general principle is that mere silence does not amount to fraud. According to the ‘explanation’ to
section 17 it appears that silence amounts to fraud only in the following two circumstances-
i. If the silence is in breach of duty. That means considering the nature and circumstances of the
transaction if it appears that it was the duty of that person to speak but the remains silent then
such silence shall amount to fraud.
ii. If the silence is equal to speak fraudulent statement.
(Concealment by mere silence is not fraud)
DECIDED CASE ON SILENCE IS NOT A FRAUD
HANDS VS SIMPSON, FAWCETT & CO LTD (1928) 44T LR 295
H a commercial traveler, obtained an employment with S. S regarded driving as an essential part of H’s
duties but he did not specifically ask H if he is qualified to drive a car. H kept quiet about his
disqualification to drive a car.
S contended that H’s silence is misrepresentation. But it was held that H was under no duty to volunteer
the information and there was no misrepresentation.
EFFECT OF FRAUD
• Section 19 of the Contract Act 1872:
• The party whose consent to the contract is obtained by fraud can exercised any of the following
rights:
• He may avoid the contract and may (i) ask for the damages suffered because of the non-
fulfillment of the contract
• He may insist for the performance of the contract.
EXAMPLES OF FRAUD
a) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the
horse's unsoundness. This is not fraud in A.
b) B is A's daughter and has just come of age. Here, the relation between the parties would make
it A's duty to tell B if the horse, is unsound.
C) A and B, being traders, enter upon a contract. A has private information of a change in prices
which would affect B's willingness to proceed with the contract. A is not bound to inform B.
NOTE:
• Misrepresentation of facts may be intentional or innocent.
• Intentional misrepresentation has been termed as Fraud and innocent misrepresentation has
been termed simply as ‘misrepresentation’ in the contract act.
There is no intention to deceive or to gain In fraud the false statement is made deliberately
any undue advantage with a clear intention of deceiving the other party
It makes the other contract only voidable In fraud the injured party besides avoiding
at the option of the party whose consent the contract may also claim the damages.
has been so caused
Effect of Misrepresentation:
Like fraud.
Sec-19. When consent to an agreement is caused by coercion, fraud or misrepresentation, the
agreement is a contract voidable at the option of the party whose consent was so caused.
MISTAKE
• Mistake are of two type:
(a) Mistake of law: Sec-21. A contract is not voidable because it was caused by a mistake as to any
law in force in Bangladesh, but a mistake as to a law not in force in Bangladesh has the same
effect as a mistake of fact.
(b) Mistake of fact: Sec-20. 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.
Mistake of Law
Mistake of law is further divided into two categories
(a) Mistake of Bangladeshi law: Like original mistake of law.
(b) Mistake of Foreign law: Like mistake of fact.
Here, the agreement will be void in case of bilateral mistake only.
Mistake of fact
• Bilateral mistake: If both parties to an agreement are under a common mistake, which is
termed bilateral mistake.
• Unilateral mistake: If only one party to an agreement is under a mistake, but not the other or
others, it is called unilateral mistake. [Sec-22. A contract is not voidable merely because it was
caused by one of the parties to it being under a mistake as to matter of fact.]
•
Nature of the mistake -----------------------------------------------------------------legal consequence
Bilateral mistake of fact --------------------------------------------------------------- Agreement becomes void
Bilateral mistake of law----------------------------------------Contract does not become voidable
Unilateral mistake of law ------------------------------------- Contract does not become voidable
Unilateral mistake of fact------------------------------------- Contract does not become voidable
Bilateral mistake of fact—
Becomes void on fulfillment of the following three conditions as mentioned in section 20 –
The mistake must be bilateral.
The mistake must be of fact.
The mistaken fact must be essential to the subject matter of the agreement. So, if any tiny bilateral
mistake of fact occurs the agreement will not be void.
Consideration