American International

University
– Bangladesh (AIUB)
 Assignment 1

Application of
Contract Act 1872
In
Bangladesh
Submitted To: Zakir Abu Mohd. Syed
Faculty of Business Administration
American International University
Bangladesh (AIUB)

Course: Business Law and Business Ethics

Submitted by: Mostafa Aminul Hassan Dinar

ID: 20-91676-1
Program: EMBA [A] – Summer (2019-2020) Second Semester
Contents
 Background of Law of contract in Bangladesh
 Types of contract
 Elements of a valid contract
 Consideration
 Legality of object
 Parties competent to contract
 Dissolution of contract
 Remedies for breach of contract
Contents
 Background of Law of contract in Bangladesh
 Types of contract
 Elements of a valid contract
 Consideration
 Legality of object
 Parties competent to contract
 Dissolution of contract
 Remedies for breach of contract
 Law of contract in Bangladesh
 Contract act 1872 governs the law of contract in Bangladesh.
 It contains the common rules relating to contracts and differentiates
them.
 All contracts in Bangladesh are governed basically by the contract act.
 Contract means an agreement enforceable by law.
A Valid Contract
 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
1. General laws relating to contract
a) Laws relating to formation of contract;
b) Laws relating to performance;
c) Laws of remedy for a breach of contract.
2. Laws relating to some particular types of contract
a) Contract of agency;
b) Contract of indemnity and guarantee;
c) Contract of bailment and pledge.
Contents
 Back ground of Law of contract in Bangladesh
 Types of contract
 Elements of a valid contract
 Consideration
 Legality of object
 Parties competent to contract
 Dissolution of contract
 Remedies for breach of contract
Types of contract
 Contracts depending on the mood of Creation
i. Express contract
a) Written contract
b) Oral coantract
ii. Implied contract
 Contracts as regards the mood of time of performance
i. Executed contract
ii. Executory contract
Types of contract
 Contracts as regards the number of parties
i. Bilateral contract
ii. Unilateral contract
 Contracts as regards the mood of enforceability and validity
i. Valid contract
ii. Voidable contract
iii. Void contract
Types of contract
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.

Void Contract
Literally the word void means ‘not binding in law’. Accordingly the term
‘void contract’ implies a 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)]
Distinction between void and
illegal contract

• An illegal contract is one whose object is declared illegal by

law
• whereas a void contract does not get the assistance of law.
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)]

• 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.
 Contracts which are voidable
• When consent to an agreement is caused by coercion fraud or
misrepresentation
• When consent to an agreement is caused by undue influence or
misrepresentation.
• An agreement by a parson of unsound mind due to drun­kenness is voidable
• Certain contracts by minors are voidable either during minority or within a
reasonable time after the attainment of majority.
• When a contract contains reciprocal promises and one party of the contract
prevent the other from performing his promise, then the contract becomes
voidable
• When a party of the contract promise to perform certain thing within a
specified time, but fails to do it then the contract becomes voidable
Unenforceable Contract

• Anunenforceable 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.
 Unenforceable contracts
 a contract made on account of natural love and affection between the
parties ,unless it is written and registered;

 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 writing;

 a contract made by a company, unless it is in writing;

 Under the Transfer of Property Act, all mortgages, other than equitable
mortgages, where the principal money secured is Tk. 100.00 or upwards and
gifts-of immovable property, unless they are in writing and registered.
 Special Types of contract

 Quasi contract
 Contingent contract
 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-contract.
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"

• A contingent agreement is not enforceable till the event on which it

was to depend has arisen; 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.
Contents
 Back ground of Law of contract in Bangladesh
 Types of contract
 Elements of a valid contract
 Consideration
 Legality of object
 Parties competent to contract
 Dissolution of contract
 Remedies for breach of contract
 Elements of a valid contract
A contract is an agreement between two parties imposing rights and
obligations which may be enforced by law. The courts need some kind of
evidence of this agreement, so they look, through the eyes of a
reasonable person, for external evidence of it. To help identify evidence of
agreement, it is conventionally analysed into two aspects: offer and
acceptance.

Offer
+ Acceptance Agreement

Enforced by law

Contract
Proposal or Offer
 Proposal or offer is the starting point to form an agreement.
 An expression of willingness to contract on certain terms, made with
the intention that it shall become binding as soon as it is accepted by
the person to whom it is addressed.
 According to Contract Act 1872, proposal or offer is-
“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.” If the above
mentioned definition is analyzed, the following elements of a proposal
or off 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.
Proposal or Offer…contd
Offers can be of two types:
 Specific – When a offer is made to one person or group of people.
Then only that particular person or group of people can accept.

 General – When a offer is made to ‘the whole world’ (or people

generally), particularly seen in the cases of rewards and other public
advertisements.
Rules of a Proposal:
1. The proposer must intent to create legal relations
2. Mere expression of Intention is not sufficient
3. Offer may be made to definite person or some definite
class of person or to the world at large generally
4. The proposal must be a definite one
5. Proposal may be expressed or implied
6. The offer must be definite, certain and unambiguous
7. Offer must be communicated to the offeree
8. An offer may be conditional
Communication of offer:

Communication of the offer is an essential element in a contract.

To complete an offer lawfully the proposal or offer must be communicated.

A person or entity who makes a specific proposal to another (the offeree) to

enter into a contract is called an offeror.

A person or entity to whom an offer to enter into a contract is made by

another (the offeror) contract is called an offeree.

Offer may take different forms, such as a letter, fax, email etc
Modes of Revocation:
1. By communication of notice
2. By lapse of time
3. After expiry of a reasonable time
4. By non-fulfillment of conditions
5. By death or insanity o f the offeror
6. By counter-offer
7. By refusal
8. By failure to accept in the mode prescribed
 Acceptance
 Acceptance of a proposal means unconditional agreement to all the terms
of that proposal.
 Acceptance may often be oral or in writing, but in some cases an offeree
may accept an offer by doing something, such as delivering goods in
response to an offer to buy.
 According to Contract Act, 1872, “when the person to whom the proposal
is made signifies his assent thereto, the proposal is said to be accepted.”

We can divide the definition at least into three constituent parts:

1. Signification of the assent;
2. Assent is signified by the person to whom the proposal was made;
3. The term ‘thereto’ used in this section implies that the assent must be
given to the offer as it is.
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)]

• 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.
 Types of Acceptance
Acceptance typically can come in one of three types:

1. Express: A direct and absolute outward manifestation of the

agreement, such as’ “I accept your offer”.

2. Implied: The acts of the parties show that the offer has been
accepted, such as when both parties to a contract begin to
perform the terms of the contract.

3. Conditional: Acceptance is conditional on the happening of

something, such as, “I accept your offer so long as you trim my
tree in the next two days.” By its terms, a conditional
acceptance is a counter-offer.
 Rules of a valid acceptance:
1. Acceptance must be absolute and unqualified
2. The acceptance must be unconditional
3. Acceptance might be conditional
4. Mere enquiries do not count as rejection
5. The acceptance must be expressed in some usual and reasonable manner
6. A counter-offer may become a terms of the agreement if it is accepted:
7. The acceptance must be communicated to the offeror
8. Silence can never amount to an acceptance
9. The postal rule
10. Modern methods of communication
11. The mode of acceptance
12. Time of acceptance
13. Before offer
14. The Acceptance must be made when the offer in force
Counter offer
 Counter offer is an offer made in response to a previous offer by the other party
during negotiations for a final contract.
 Making a counter offer automatically rejects the prior offer and requires an
acceptance under the terms of the counter offer or there is no contract.
 This happens when, for example, A sends B an offer and B amends it slightly
and then send it back signed but amended. This action destroys the original
offer and is not acceptance. It is a new offer entirely, called a counter-offer.
 Revocation of Acceptance
 Revocation or cancellation may happen before the acceptance reaches
the offeror, the acceptor can revoke the acceptance and thus prevent the
contract.
 Thus A makes a proposal to B. B sends his acceptance by post. The
communication of the acceptance is complete as against A when the
letter is posted, and as against B when the letter is received by A.
 Agreement

According to Section 2 (e) of the Contract Act, 1872, “Every

promise and every set of promises, forming the consideration for
each other, is an agreement”.

It is also said that in the act that as agreement enforceable by law

is a contract. So the term ‘agreement’ is very important in the
discussion of contract law.

From the definition of the agreement, it is found that to be an

agreement three elements are necessary-

a. it will be promise
b. it will form a consideration
c. the consideration will be formed for each other of the parties
Classification of Agreement

Agreement

Void Voidable Unenforceable Illegal

Void Agreement
A Void agreement is one that is entirely destitute of legal effect. It confers no
right on any person and creates no obligations. According to Section 2 (g) of
the Act says, ‘An agreement not enforceable by law is said to be void’.

For example, an agreement made by a minor, agreement without consideration

(with the exception of section 25 of the Act) or the agreements against the
public policy can be stated.

Voidable Agreement
A voidable agreement is one that is capable of being affirmed or rejected at the
option of one of the parties, but which is binding on the other. It is binding if he
chooses to affirm it and is of no effect if he chooses to reject it. The other party
has no say in the manner.

For example, there may be a contract into which one of the parties has induced
the other to enter by means of fraud. The latter may repudiate the contract, or
if he sees fit, he may waive the fraud, and hold the former to his bargain.
Unenforceable Agreement
• An unenforceable contract is one that is valid, but incapable of being sued
upon or proved. A contract which is unenforceable cannot be set aside at
the option of one of the parties to it. The obstacles to its enforcement do
not touch the existence of the contract, but only set difficulties in the way
of action being brought or proof given.
Illegal Agreement
• An illegal agreement, under the common law of contract, is one
that the court will not enforce because the purpose of the
agreement is to achieve an illegal end. The illegal end must result
from performance of the contract itself, however. A contract that
requires only legal performance, such as the sale of packs of cards
to a known gambler, where gambling is illegal, will nonetheless be
enforceable.
 Free consent
Section 10 of the Contract Act outlines the elements of a valid contract thus: "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."

Section 13 of the Contract Act defines consent thus: "Two or more persons are said to
consent when they agree upon the same thing in the same sense."

Section 14 of the Act says that consent is free when it is not caused by:

• Mistake
• Misrepresentation
• Fraud
• Coercion and
• Undue influence
(1) Mistake

 Section 20 of the Contract Act lays down thus: "When both the parties to an
agreement are under a mistake as to a matter of fact essential to the agreement, the
agreement is void".
 The mistake which is necessary to make a contract void must be mutual and not of
one of the parties.
 Every mistake does not vitiate a contract. The 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 subject-matter of the contract.
d) Mistake by one party as to the intention of the other does not render a contract
void.
 (1) Mistake (Contd.)
 Bangladeshi Law

The Contract Act 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 ".

 Though a mistake of fact vitiates a contract, a mistake of law does not.

 Bangladeshi Relief may, however, be available in the following cases of mistake of law:

I. Where 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.
II. A mistake as to the existence of a private right has to be treated as a mistake of fact.
III. If a contract is brought about by deliberate misrepresen­tation of law, it can be set aside.
IV. Mistake as to any foreign law is a mistake of fact.
(2) Misrepresentation

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

 Condition and Warranty

 Bangladeshi Law:

In Bangladeshi Law, as laid down by Section 18 of the Contract Act, misrepresentation means and
includes:
I. "The 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".
II. "Any 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 prejudice or to the
prejudice of any one claiming under him".
III. "Causing, however innocently, a party to an agreement to make a mistake as to the substance
of the thing which is the subject of the agreement".
 (3) Fraud

Fraud has been defined by Anson 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,

I. Fraud is a representation of fact which is false.

II. The false statement must be made with the knowledge of Vs falsehood or recklessly.
III. The false statement must be made with an intention to deceive.
IV. The person to whom the false statement has been made must be actually deceived.

 Bangladeshi Law:

In Bangladeshi law, as laid down by Section 17 of the Contract Act, fraud means and includes any of the following acts:
 "The suggestion as a fact of that which is not true by one who does not believe it to be true ".
 "The active concealment of a fact by one having knowledge or belief of the fact". This duty to disclose is not enforceable in all cases of
contract. It arises only in the following cases:
a) Statutory obligation to disclose.
b) Contracts uberrimae fidei.

• Explanation: silence as fraud

• Distinction between Fraud and Misrepresentation

 (4) Coercion

Coercion or duress consists in actual or threatened violence or imprisonment.

Where 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.

• Bangladeshi Law
Section 15 of the Contract Act 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 prejudice of any person whatever with the
intention of causing any person to enter into an agreement''.

• Effect of coercion on contract

An agreement vitiated by coercion is voidable at the option of the party coerced.
But if he finds it profitable to uphold the contract, he can enforce specific
performance of it. The party employing coercion has, however, no right under the
contract.
 (5) Undue influence

Undue 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.

 Bangladeshi law:
Section 16(1) of the Contract Act lays down thus: "A 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".
According to Section 16(2) of the Contract Act, "a person is deemed to be in a position to
dominate the will of another":
I. Where he holds real or apparent authority over the other, or where he stands in a fiduciary
relation to the other; or
II. Where 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.

 Burden of proof
 Contract with a Pardanashin lady
Consideration (Bangladeshi Law)
• Section 2 of the Contract Act :
When 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"
Consideration Rules in English Law
• Real and not sham.
• Must not be illegal.
• Must not be past.
• Move from the promise
• Need not be adequate
Legality of Object
 It is essential to the validity of a contract that its object is lawful, a
contract, otherwise is void if the object of the agreement is
unlawful. It can happen that the object of a contract is illegal
though its consideration is perfectly lawful.
 Example:
A takes the lease of a house belonging to B for monthly rent of Tk.
15,000. There is nothing unlawful in this. But if A intends to set up
an illicit distillery in the house, the contract is void as its object is
unlawful.
Unlawful objects (Bangladeshi law)
• When the object of an agreement contravenes provisions of any Act, the
object becomes illegal.
• A contract the object of which is to be defraud others, becomes illegal.
• An object that contravenes public policy.

Unlawful objects (English law)

• Contracts forbidden by law
• Contract defeating the provisions of any law
• Fraudulent
• Injury to property or person of another
• Immoral
• Against Public policy
Parties competent to contract
 Contracts by Minors
According to the English law, a minor (called an infant) is a
Hen who is below the age of 21 years.

But after the passing of the Infants Relief Act, 1874, a

minor's wafts net have come to be divided into three
classes:

a) Valid
b) Voidable
c) Void
Parties competent to contract

 How far a minor be held liable for contract by suing

him in an action of tort?
 Minors and Estoppels

Contract by lunatics and drunken persons

 Married Women
 Corporation
Parties competent to contract
Legal Practitioners
 Doctors
 Independent Sovereign
 Alien
 Convicts
Dissolution of Contract
Dissolution or discharge of contract means termination of the contractual
relationship between the parties.

A contract may be dissolved or discharged in any of the following ways:


By Performance.

By Agreement or Consent

By Frustration or Impossibility of Performance

By Breach of Contract.

By Operation of Law
Discharge by Performance
 Performance is the most natural and common mode of discharging a
contractual liability.

 As 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.
Tender of Performance
 Tender means an offer of performance.
 Contract may also be discharged by a valid tender.

 Bangladeshi Law on Tender: (Section 38 of the Contract Act)

“Where a promissor has made an offer of performance to the promisee,

and the offer has not been accepted, the promissor is not responsible for
non-performance, nor does he thereby lose his rights under the contract”
Essentials of a Valid Tender
It must be unconditional
It must be made at proper time and place
It must be for the entire obligation as contained in the contract
The tenderer must be able and willing to perform it then and
there only
The tender must be made to proper person
Tender of goods must be made in such a manner that a
reasonable opportunity is available to the buyer to inspect the
goods
If there is more than one promisee, then tender may be made
to any one of them
Time and Place of Performance
 Section 46: When, the promissor is to perform his promise without
application by the promisee, and if no time for performance is specified,
the engagement must be performed within a reasonable time.
 Section 47: When a promise is to be performed on a certain day, and the
promissor has undertaken to perform it without application by the
promisee, the promissor may perform it at any time during the usual
hours of business on such day and at the place at which the promise ought
to be performed.

Illustration: A promises to deliver goods at B's warehouse on the

1st January. On that day A brings the goods after the usual hour for closing
it, A has not performed his promise.
Time and Place of Performance
 Section 48: If a promise need to perform on a certain day, and the
promissor has not undertaken to perform it without application by
the promisee it is the duty of the promisee to apply for performance
at a proper place and on certain time within the usual hours of
business.
"proper time and place", to be determined by reference to the facts
and circumstances of the case.
 Section 49: When a promise is to be performed without application
by the promisee, and no place is fixed for the performance of it, it is
the duty of the promissor to apply to the promisee, to appoint a
reasonable place for the performance of the promise, and to
perform it at such place.
 Section50: The performance of any promise may be made in any
manner or at any time which the promisee prescribes.
Performance of Reciprocal Promise
• Section 51: When a contract consists of reciprocal promises to be
simultaneously performed, no promissor need to perform his promise
unless the promisee is ready and willing to perform his promise.

• Section52: The order in which reciprocal promises are to be performed is

expressly fixed by the contract, they shall be performed in that order; and,
where the order is not expressly fixed by the contract, they shall be
performed in that order which the nature of the transaction requires.
Performance of Reciprocal Promise
Section 53: In case of reciprocal promises when one party
prevents the other from performing his promise, the contract
becomes voidable at the option of the party so prevented; and
he is entitled to compensation from the other party for any
loss.
Section 54: When a contract consists of reciprocal promises,
such that one of them cannot be performed or that its
performance cannot be claimed till the other has been
performed and the promissor of the promise last mentioned
fails to perform it, such a promissor cannot claim the
performance of the reciprocal promise, and must make
compensation to the other party for any loss.
Discharge by Breach
• Breach
of contract means a breaking of the obligation which a contract
imposes.
• Itoccurs when a party to the contract, without lawful excuse does not
fulfill his contractual obligation
• Everybreach of contract by one party does not entitle the other party to
rescind the contract
• If
a contract is to be avoided on the ground of breach, the breach must
relate to the essential terms of the contract.

• A breach of contract may be of two kinds:

Discharge by Breach
1. An actual or present breach
• Thishappens when a party does not perform his promise in the manner
and at the time stipulated by the contract.
Illustration: A covenants to deliver a horse to B on or before the 3rd
March, 1963, in consideration of B's promise to pay him Tk. 1,000.00. A
fails to fulfill the contract. A has committed actual or present breach of
the contract. This breach entitles B to rescind the contract, and also of
suing him for damages.
Discharge by Breach
2. Constructive or anticipatory breach

• This happens when before the time for performance a party

shows by his conduct or words his unwillingness to perform his
part of the contract.
• It is called anticipatory breach because the contract is not yet
broken but circumstances suggest beyond doubt that it is unlikely
of being performed.
• Illustration: A contracts to deliver to B his black horse within three
months from date. One month after the contract, A sells his black
horse to C. There has been anticipatory or constructive breach of
the contract. This is an example of anticipatory breach by
impossibility of performance.
Discharge by Agreement
•A contract can also be dissolved by a fresh agreement
between the parties.
• Such an agreement may take one of the following forms:
a) Release
b) Accord and Satisfaction
c) Rescission
d) Alteration
e) Novation
Release or waiver
• Means the surrender of a contractual right.
• Thus, A who has advanced a loan of money to B gives up, by an
agreement, the right to recover the debt from B. This surrender of a right
is called release or waiver.
• An agreement of release must be made under seal. One exception to this
rule: The holder of a promissory note may waive his rights without
consideration, either by writing or surrender of the note.
Accord and satisfaction
 Accord : the agreement of discharge

 Satisfaction: the consideration moving from the discharged party to the

other.

 A owes to B Tk. 5,000.00. A pays B, and B accepts Tk. 2,000.00 in

satisfaction of the whole debt at the time and place at which the sum of
Tk. 5,000.00 was payable. The whole debt is discharged.
Rescission
Rescission: cancelling the original contract by mutual agreement
 And the old contract ceases to be binding on any of the parties.
 The contract must, be executory on both sides.
 Illustration: A promises to paint for B a picture in consideration of B's
promise to pay Tk. 100.00. This contract can be rescinded by an
agreement in which A surrenders his right to Tk. 100.00 and B to the
picture promised to be painted by A.
Alteration
Alteration: substituting a fresh contract with altered or different
terms from the original one.

 Illustration: A agrees to supply B 1,000 Kgs of salt at Tk. 23.00 a Kg

within 3 months from date. Later on, A and B alter the agreement in the
following way: A agrees to supply 800 Kgs of salt at the same rate within
2 months instead of three. The latter agreement puts an end to the
former.
Novation
 Novation takes place when-
o A new contract is substituted for an existing one between the same
parties, or
o A contract between two parties is rescinded in consideration of a
new contract being entered into on the same terms between one of
the parties and a third party.
 In the second type of novation a creditor at the request of the debtor
agrees to take another person as his debtor in place of the original
debtor.
 There must be the mutual consent of all the parties concerned.
Discharge by Frustration
• By frustration is meant impossibility of performance.
• A contract to do an impossible thing, such as to bring a dead man back to
life, is void as the object of the contract is impossible to be performed.
• The rule is based on the following maxims:
o the law does not recognize what is impossible, and
o what is impossible does not create an obligation.
Supervening Impossibility
•A 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 subsequently due
to causes beyond their control.

• In such case, the contract is discharged as having become void.

Supervening Impossibility [cont.]
• It may arise in the following ways:
o Impossibility arising due to change of law.
o Impossibility due to the destruction of a specific thing essential for the
performance of a contract.
o Impossibility arising out of the death or incapacitating illness of one of
the parties to the contract.
o Impossibility due to the absence of a fundamental condition. A
condition is said to be fundamental to a contract when the whole
contract rests on it.
Bangladeshi law
• Section 56: 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.
• In such case, compensation may be obtained against the
person who is unable to perform it.
• Section 65: 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.
Discharge by Operation of Law
 A valid contract may be discharged by the operation of law.
A contract can be discharged by the operation of law in the
following ways:

 Merger: It 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.
 Insolvency: When an insolvent is discharged by the Insolvency
Court, he is released from all his debts provable under the
Bankruptcy.
 Alteration: When 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 of the other party.
Breach of Contract

If a contracting party fails to perform an absolute

duty owed under a contract, it is called a breach of
contract.
What Follows the Breach?

Contract Continues
Waiver of Breach as Though There Were No Breach

Contract Continues as Modified

Defective Performance
Accepted with Reservation
Contract Performed but at Reduced
of Right to Damages Price or, in Suit for Full Price,
Counterclaim for Damages
Contractual Limitations of
Remedy or Provision for
Remedy Specified in Contract
Breach of Liquidated Damages
Contract Action for Damages

Action for Recession

Action for Specific Performance

Action for Injunction

Parties involved in breach of
contract
Committing breach
Guilty party
Parties
involved in
breach of
contract

Suffered for breach

Aggrieved party
 Remedies for breach of contract

Suit for Suit for

Suit for damages quantum
injunction meruit

Aggrieved party
would have one Suit for
Rescission of or more, but not specific
contract all, of these performance
remedies against
the guilty party
Suit for damages

A breach of contract may put the

aggrieved party to some
disadvantage or inconvenience or
may cause a loss to him.

The court would desire the

guilty party to accept
responsibility for any such loss
of the aggrieved party and
compensate him adequately.
Types of damages (entitled to plaintiff)
Keeping the view of the provision of Sec 73 off the act and the court
judgments

Nominal Damages

Liquidated Damages & Punitive

Penalty Damages

General Special
Penalty
Damages Damages
General Damages

Which can be seen as arising naturally and directly out

of the breach in the usual course of the things..

They would be unavoidable and logical consequences

of the breach.

An aggrieved party’s right to damages applies most

naturally for the direct or general losses. There can be
no damages for indirect or remote losses.
General Damage- Example
 Company A delivered the wrong kind of furniture to Company B. After
discovering the mistake later in the day, Company B insisted that
Company A pick up the wrong furniture and deliver the right furniture.
Company A refused to pick up the furniture and said that it could not
supply the right furniture because it was not in stock. Company B
successfully sued for breach of contract through general damages.

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Special Damages
Special damages (also called “consequential damages”)
cover any loss incurred by the breach of contract
because of special circumstances or conditions that are
not ordinarily predictable.

At the time of making contract, a part may place

before the other party some information about
some special circumstances affecting him and also
communicate the consequences for not meeting it.

To obtain damages for this type of loss, the non-

breaching party must prove that the breaching
party knew of the special circumstances or
requirements at the time the contract was made
Punitive Damages
 Generally, punitive damages, which are also termed exemplary
damages in the United Kingdom, are not awarded in order to
compensate the plaintiff, but in order to reform or deter the
defendant and similar persons from pursuing a course of action
such as that which damaged the plaintiff.

Unjustified dishonor of cheque

Breach of promise of marriage

Failure of vendor of real estate to make title
 CASE: Jackson v Horizon Holidays [1975]
Nominal Damages
 If the breach of contract causes no loss to the aggrieved
party, no damages need to be awarded to him. However,
in order to record the fact of breach of contract by guilty
party, the courts may award nominal or token of
damages, i,.e. compensation of Tk.50. they would be
called nominal damages

 In Charter v Sullivan case (1957) 2 QB 117, the buyer repudiated a

contract to buy a Hillman Minx, which was then sold by the
dealers to another customer. The dealers’ manager admitted
that could sell all of the Hillman Minx cars they could get, and
the court of the Appeal held that they were entitled to nominal
damages only since they could not show any profit or loss
account.
Liquidated damages and penalty
(sec 74)
Liquidated damages, i.e. a sum payable as
damages the amount of which determined by the
parties beforehand, instead of being left to the
court by a fair and honest estimate of probable
losses likely to be caused by the breach

A penalty, i.e. a sum which has no relation to

probable loss which may arise and which has
been stipulated by the parties ad in terrorem i.e.
for the purpose of penalizing a party for not
performing the contract.
 Illustration
 Dunlop sued its tyre retailer, New Garage, for breaching an agreement to
not resell Dunlop tyres at a price lower than that listed in the contract. The
agreement then said if that did happen, New Garage would pay £5 per
tyre ‘by way of liquidated damages and not as a penalty’.
 The judge held the £5 sum was liquidated damages and enforceable. The
Court of Appeal held the clause was a penalty and Dunlop could only get
nominal damages. Dunlop appealed.
Rescission of contract
Strictly speaking the equitable right to rescind an agreement
is not a remedy for breach of contract, it is a right which
exists in certain circumstances, such as where a contract is
voidable due to misrepresentation, duress and undue
influence

When one party to the contract breaches the contract, the

other party need not perform his part of the obligations. The
aggrieved party may rescind the contract.

In such cases, the injured / aggrieved party can either cancel

the contract of file a suit for damages. It is possible if the
parties can restore their original contract.
Suit for Quantum Meruit
• “as much as earned” . In implies “a payment deserved by a person for the reason of
actual work done’
• When a party has done some work under a contract, and the other party rejected
the contract or somehow the full performance of the contract becomes impossible,
then the party who has done the work can claim remuneration for the work under a
suit for quantum meruit

• In order to successfully recover under a quantum meruit theory, the plaintiff

generally must demonstrate to the court
• the performance of the services in good faith,
• the acceptance of the services by the person to whom they are rendered,
• an expectation of compensation for those services, and
• the reasonable value of the services.
Suit for specific performance
• In certain cases of breach of contract, damages
may not an adequate remedy. Then the Court
may direct the party in breach of carry out his
promise according to the terms of contract. But
in general, Courts do not wish to compel a party
to do that which he has already refused to do.
• CASE: Ryan v Mutual Tontine Westminster
Chambers Assoc [1893]
Cases where specific
performance may be ordered:
Where there exist no standard for ascertaining the actual damage
caused to the aggrieved party by the non-performance

Where monetary compensation will not be adequate relief.

Where plaintiff’s property is held by the defendant in the capacity of

his agent or trustee

Where the act to be done is in performance of trust

Cases where specific performance
may NOT be ordered:
Where monetary compensation is adequate relief

Where contract in made by the agent or trustee in violation of his powers

Where the contract is of personal nature

Where cannot supervise the performance of promise as it involves performance of

a continuous duty

Where the contract is in nature revocable

Where the contract is made by a company in excess of its powers as laid down in
its Memo of Association
Suit for injunction
 An aggrieved party can sue for an injunction i.e., an order of the court restraining
the wrong doer from doing or continuing the wrongful act complained of.
 Injunctions are usually granted to enforce negative stipulations in cases where
damages are not adequate relief.
 Injunction is a preventive relief.
 It is particularly appropriate in cases of anticipatory breach of contract.
 Example: N, a film actress agreed to act exclusively for Warner Bros for one year.
During the year she contracted to act for X. It was held that she could be restrained
by an injunction from acting for X. [Warner Bros. v. Nelson. (1937) I.K.B. 209J.
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