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LAW OF CONTRACT

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Chapter 1

Introduction

Only the simple term of law does not cover the whole area of society. As a result law hasverification in their respective areas. Such as: Civil Law, Criminal Law etc. Such like that in

business sectors there are laws passed by the legislature which is named as Business Law orCommercial Law. This is also known as Mercantile Law. The parliament of Bangladesh has

passed some laws regarding business in Bangladesh. One of the Commercial Laws which areavailable in Bangladesh is The Contract Act, 1872 .

1.1 Law of contract in Bangladesh

Contract act 1872 governs the law of contract in Bangladesh. The Act came into force in the thenBengal on 1 September of 1872, and was adopted in Bangladesh without change. It contains the

common rules relating to contracts and differentiates them. It begins with the preliminaryaspects, including a short preamble and title, extent and date of commencement andinterpretation of words and expressions used in the act. All contracts in Bangladesh are governed

basically by the contract act.

1.2 Contract

An agreement enforceable at law, made between two or more persons, by which rights areacquired by one or more to acts or forbearances on the part of the other or others, is a contract.Section 2(h) of the Contract Act, 1872, provides the authoritative definition of a contract, an

agreement enforceable by law is a contract . It is a simple definition of the term contract given by the Act. From the definition, it is found that, to be a lawful contract, an agreement isnecessary and that agreement must be lawful that is enforceable by law. A contract is thus acombination of two ideas agreement and obligation.

Obviously, every agreement does not create obligation. When A offers to sell his horse to B forTk. 5000.00, there is an obligation on A to sell and on B to buy the horse at the stipulated price.Such an agreement is therefore, enforceable by law. But an agreement between A and B to gotogether to a picnic does not create any obligation on either side and is not, therefore, enforceablein law. The former agreement is, therefore, a contract, while the latter is not.

1.3 A Valid Contract

To understand what these factors are we have to turn to judicial exposition of the definition ofcontract as given in the Contract Act, 1872. "The definition of contract appears to be built upon asuccession of definition of the elements which go to make a contract, such as proposal,acceptance, promise, consideration, agreement. The requirements for formation of contract aremainly agreement and consideration . Analyzing the statutory definition of contract in the light

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of the above judicial decisions, we find that in order to be treated as a contract, an agreementmust satisfy certain conditions.

From the definition of the Contract of section 2(h), it is expedient that a lawful agreement is a prerequisite of the formation of the contract. To form a contract the following steps are the basic

steps those should be followed-

Firstly a proposal has to be accepted to be a promise; Secondly then the promise is to be considered to form an agreement; Finally the agreement should have the enforceability of law to form a lawful contract

To understand the term contract more evidently, the following diagram can be drawn,

Figure 1: Diagram shows the creation of a contract

1.4 Scope of a contract

The Contract Act covers a wide range of contractual rules which cover the law of variety ofcontracts. From this point of view the Act describes two types of law of contracts; general lawsand special laws.

1. General laws relating to contract (i) Laws relating to formation of contract;(ii) Laws relating to performance;(iii)Laws of remedy for a breach of contract.

Contract [Section

Agreement [Section 2(e)] Enforceability [Section 10]

Promise[Section2(b)] Consideration[Section 2(d)]

a) Competency of parties

b) Free consent

c) Lawful ob ject

d) Lawful consideration

e) Not unlawful

Proposal

[Section 2(a)]

Acceptance

[Section 29b0]

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2. Laws relating to some particular types of contract (i) Contract of agency;(ii) Contract of indemnity and guarantee;(iii)Contract of bailment and pledge.

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Chapter 2

Types of contract

Contracts so far brought into practice have been classified into different groups on the basis ofdifferent tests. The classification of contract is made depending on certain modes. Theclassification made under certain modes, is not expressly said in the Contract Act, 1872. In thelaw of contract those certain terms of classification are used indicating their lawful meaning. Sohere is a classification of contract depending on certain moods.

In English Law contracts are broadly classified into formal and informal. The primary distinction between the two is that the formal contract depends for its validity on the observance of theforms prescribed by law for the execution of a contract while the informal contract derives itsvalidity from the presence of consideration. But formal contract is not recognized by theContract Act, 1872.

Contracts depending on the mode of Creation

i. Express contract

The offer and acceptance of a contract if made in words, either expressed orally or inwritten words, the contract will be considered to be an expressed one.

For instance Mr. A proposes Mr.B, I would like to sell my house for Tk. 3lack andMr.B replies I agree - this deemed to be an express contract. There are two types ofexpressed contract -

Written contract Oral contract

ii. Implied contract

An implied contract is formed when the offer and acceptance of a contract ismade without the use of any words, rather by some other means.

For example, if a repairer starts to repair the watch of one person and the later permits it remaining silent knowingly that the first person is doing so to get a payment in exchange of this service, it will be treated as a implied by law.

Contracts as regards the mood of ti me of perf ormance

i. Executed contract

If the conditions of a contract are performed as soon as possible, the contract issaid to be a executed contract. On other words, the contract the obligations of

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which, is already performed, or to be performed in a very short time is theexecuted contract.

ii. Executory contract

In this contract the obligations of the contract is supposed to be performed at thelater period of the formation of the contract. There is no limitation of time for the

performance of the contract in this regard. The contract itself suggests suchlimitation, unless it is prescribed by law.

Contracts as regards the number of part i es

i. Bilateral contract

It is the apparent rule of a contract that at least two parties are necessary to form acontract. Therefore all contracts are bilateral or multilateral. Where there are two

or more parties of a contract and both of the parties have their obligations on eachother, the contract is said to be a bilateral contract.

ii. Unilateral contract

In a contract, where one party has to fulfill his obligations whereas the other partyhas already performed his obligations, it is called unilateral contract. Here it issimply to be noted that in both the above cases, two or more parties are necessary.But in case of the first one, all parties of a contract have something to be

performed on the other hand, in the second case; only one party of the contract possesses the obligation to perform its duty.

Contracts as regards the mood of enforceability and validity

a) Valid contract b) Voidable contractc) Void contract

In addition to the classification of contracts deals with in an earlier chapter, there may be afurther division of contracts on the basis of their validity and enforceability. Under this criterion

Jaw recognizes four classes of them, viz, (i) Valid, (ii) Void, (in) Voidable, and (iv)Unenforceable.

1. Vali d Contract

A contract is in law. Such a contract creates an outstanding obligation or legal liability which lawsteps in to enforce whenever a party to the agreement breaks it.

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2. Voi d Contr act

Literally the word void means not binding in law. Accordingly the term void contract impliesa useless contract which has no legal effect at all.

A contract which ceases to be enforcea ble by law becomes void when it ceases tobe enforceable [Secti on 2(j)]

It is clear from the definition that a void contract is not void from its inception and that it is validand binding on the parties when originally entered but subsequent to its formation it becomesinvalid and destitute of legal effect because of certain reasons. According to the Contract Act, thefollowing contracts are void abilities:

(i) If any part of a single consideration for one or more objects or any one or any part of anyone of several considerations for a single object is unlawful, the agreement is void. [Section 24]

For instance, a promise to supervise, on behalf of B, a legal manufacture of indigo, and an illegaltraffic in opium. B promises to remunerate A by a salary of Tk. 10,000.00 a year. The agreementis void, the object of A's promise and the consideration for B's promise being in part unlawfuland inseparable from the lawful part.

(ii) An agreement made without consideration is void except in the case of those covered byexceptions 1, 2 and 3.

(iii)Every agreement in restrain of the marriage of any person, other than a minor, is void. [Section 24]. In English law, partial restraint as to time, place or person, is allowed,

provided the restraint is reasonable.

(iv) Every agreement in restraint of "a lawful profession, trade or business of any kind isvoid to the extent of the restraint" except that "one who sells the goodwill of a businessmay agree with the buyer to refrain from carrying on a similar business, within specifiedlocal limits, so long its the buyer or any person deriving title to the goodwill from him,carries On a like business therein provided that such limits appear to the court to bereasonable, regard being had to the nature of the business"

In Mahboob vs. Rajcoomar case it was ruled that whether the restraint was general or partial,unqualified or qualified, if it was in the nature of a restraint of trade, it was void. Thisinterpretation is plainly 'justified by the language used in the section.

Under this section, agreements of restraint of service have been field to be void. Thus, anagreement restraining an employee from faking service in any similar business for a period

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of five years from the date of the termination of his agreement, although the restriction onlyextended to a distance of 40 miles from the city, the place of his work, has been held to bevoid, as such a contract is not covered by the exception (Br ahmaputra Tea Co. vs Scarth)

But an agreement to exercise a trade or business for a given period in the exclusive serviceof one person is not an agreement in restraint of trade ( Pragji vs Pranji wan)

Section 27 has also been interpreted to disfavor agreements in restraint of trade competition."Liberty of trade is not an asset which the law will permit a person to barter away except inspecial circumstances'( Vancouver B. Co vs Breweries) whether a combination between tradersor businessmen is or is not in reality "in restraint of trade", the answer must depend upon thefacts of each particular case. Such combinations have in some instances been upheld ( Collius vsLocke) and in some other ruled void, ( Hitlon vs Eckersley) according as the restraints in suchagreements were or were not deemed to be only sufficient to protect the rightful interests of the

parties entering into them.

(v) Agreements in restraint of judicial proceedings are void except, those that provide forreference of disputes to arbitration. [Section 28] Parties are not at liberty to contractthemselves out of the jurisdiction of courts. There is, however, "a clear distinction

between two classes of cases i.e.

(a) where, in spite of the fact that under the ordinary provisions of law a particularcourt would have jurisdiction, the parties provide that another court, to the exclusionof the former court, shall have jurisdiction to adjudicate upon the dispute arisingunder the agreement and

(b) Cases in which the agreement specifies the place where the terms of the contracthave to be carried out, in other words where according to the fact stated in theagreement, the cause of action is to be deemed to have arisen.

The first kind of agreement has been held illegal but the second description of agreement cannot be held to be illegal (Abinash vs Auto supply Co.) Thus, an agreement that a suit arising out ofa contract shall be brought in the High Court or Small Causes Court only of Calcutta, ( Miltonand Co. vs O.A. Engineerings Co.) or of Bombay is not illegal. (Tilakramn vs Kadumal.) Inother words, an agreement between parties to select one of two competent tribunals for the

disposal of their disputes does not infringe the provisions of this Selection. But where partiesagreed between themselves that for the purpose of litigation the contract should be deemed tohave been entered into Bombay, the agreement having been actually made elsewhere, thecontract was void and the Bombay Court had no jurisdiction, (Dreyfus Co. vs Mirav) for the

parties by mutual consent can no more take away on it when it is not so vested by law.

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In Osaka Shosen Kaisha O. S. K. Line vs. Province of East Bangladesh, a Division Bench of theHigh Court of Dacca (Dhaka) ruled that agreement under which the place of suing is restricted toI foreign Court is not hit by the Section". The essence of this decision is that unless the parties byagreement imposes any "absolute prohibition" on the right of any party thereto to have his claimdecided In a Court of law, the agreement is not in conflict with the provision of 28 of theContract Act. The law on this point so far as Bangladesh is concerned is, therefore, that parties

by agreement can those any of two or more "competent" Courts to adjudicate on their dispute.But if the Court so chosen is not by itself "competent" to adjudicate upon the matter in dispute,the agreement is void.

(vi) Agreements which are uncertain, i.e., "the meaning of which is not certain or capable of being made certain, are void". [Section 29]

2.2 Illustration

For instance, A agrees to sell to B "a hundred tons of oil". There is nothing whatsoever to showwhat kind of oil was intended. The agreement is void for uncertainty. But A, who is a dealer incoconut oil only, agrees to sell to B "one hundred" The nature of A's trade affords an indicationof the meaning of the words. The contract is, therefore, capable of being made certain so us tomean that A has entered into a contract for the sale of one hundred tons of coconut oil.

(vi) Agreements by way of wager are void. [Section 30] Similarly, a contract for permanent lease is not void for uncertainty even though it depends upon thedetermination of a reasonable amount of Salami in future in as much as the "reasonableamount of Salami" can be determined by the Court.

(vii) Every agreement of which the object or consideration is unlawful is void. [Section 23]

(vii) Where both the parties to an agreement are under a mistake K to a matter of factessential to the agreement, the agreement is void. [Section 20]

(viii) Contract entered into by minors, lunatics and insolvents are void owing to theincapacity of such persons to contract. [Section 11]

(ix) An agreement to do an act impossible (Supervening impossibility) in itself is void. Acontract to do an act which,, after the contract is made, becomes impossible, or byreason of some event which the promissory could not prevent, becomes void when the

act becomes impossible or, unlawful (Section 56). (i) A agrees with B to discover treasure by magic. The agreement is void,(ii) A and B contract to marry each other. Before the time fixed for the marriage,

A goes mad. The contract becomes void,(iii) A contracts to take in cargo for B at a foreign port. A's Government

afterwards declares war against the country in which the port is situated. The contract becomes void when the war is declared.

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Di sti ncti on between void and il l egal cont ract

An illegal contract is one whose object is declared illegal by law. The distinction, however, liesnot in the comparative validity of the two or, both are void, but in the fact that an illegal contractis prohibited by law on pain of penalty whereas a void contract does not get the assistance oflaw.

A further point of distinction is that an illegal contract affects the collateral transaction but a voidcontract does not.

3. Voidabl e cont ract

An agreement which is enforced by law at the opinion of one or more of the parties thereto, butnot at the opinion of the others, is a voidable contract [Section 2(i)]

Thus avoidable contract is one which is enforced by the law at the opinion of one of the party.Until it is avoided or rescinded by the party entitled to do so by exercising his opinion in that

behalf, it is a valid contract.

Usually a contract becomes voidable when the consent of one of the parties to the contract isobtained by coercion, undue influence, misrepresentation or fraud. Such contract is voidable atthe opinion of the aggrieved party i.e. the party whose consent was so caused (Section 19, 19A).But the aggrieved party must exercise his option of rejecting the contract (a) Within thereasonable time (b) before the rights of third parties intervene, otherwise the contract cannot berepudiated

A voidable contract is one which can be avoided or set aside at the option of one of the parties tothe contract. The following contracts are voidable under the law of Bangladesh

(i) When consent to an agreement is caused by coercion fraud or misrepresentation, theagreement is a contract voidable at the option of the party whose consent was socaused. [Section- 19]

Illustration:

A threaten to shoot B if he does not sells his new Toyota Car to A for tk. 5 lac. B agrees. The

contract has been brought about by coercion and is voidable at the opinion of B

(ii) When consent to an agreement is caused by undue influence or misrepresentation, theagreement is a contract voidable at the option of the party whose consent was thuscaused. [Section- 16]

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(i) a contract made on account of natural love and affection between the parties standingin a near relation to each other, unless it is written and registered;

(ii) a contract made between persons whereby one agrees to repay a time-barred debtwhich was originally due to the other, unless it is in writing and signed by the party

(iii) making the promise or by his duly authorized agent;

(iv) a contract between parties to refer their present or future disputes to arbitration,unless it is made in writing;

(v) a contract made by a company, unless it is in writing;

(vi) 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.

2.2 Special Types of contract

1. Quasi contract2. Contingent contract

Constru ctive or Quasi -Contract

Contractual obligations are generally created voluntarily. But there are obligations, whichlack 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. Suchcontracts, existing in Jaw but not in fact, are called quasi-contracts.The Contract Act furnishessome examples of quasi-contract:

(i) If a person, incapable of entering into a contract, or any one whom he is legally boundto support, is supplied by another person with necessaries suited to his condition inlife, the person who has furnished such supplies is entitled to be reimbursed from the

property of such incapable person. [Section 68]

(ii) A person who is interested in the payment of money which another is bound by law to pay, and who, therefore, pays it, is entitled to be reimbursed by the other.

(iii)A person, to whom money has been paid or anything delivered by mistake or undercoercion, must repay or return it [Section 72]

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A Quasi contract is based upon the equitable principle that a person shall not be allowed to retainunjustified benefit at the expense of another

Conti ngent cont ract

A contingent contract is one to do or not to do something if some contingency happens ordoes not happen. "A contingent or as it is called in English law, a conditional promise", says like,"is distinguished from an absolute promise by the fact that the performance of the contract

becomes due on the happening of a condition or contingency; so, it is not due immediately on themaking of the contract". Thus A contracts to pay B 100 if B marries C. This is a contingentcontract.

A contingent agreement is not enforceable till the event on which it was to depend hasarisen; but when that event has occurred, the contract, for all purpose, rests on the same footingas if it had been made positively and without reference to any contingency. The uncertain eventon the happening of which the contract is conditional must be collateral to the contract. Thismeans that it must not form part of the consideration of the contract but must be independent ofor ancillary to it. The event or condition, again, must not be a certainty.

The distinction between a contingent contract and a wagering contract lies in that there isno chance of mutual gain or loss in the former, while such chance forms the very basis of thelatter.

Bangl adeshi l aw on conti ngent contr act

A contract to do or not to do something, if some event collateral to such contract, does or doesnot happen. [Section 31]

As to the enforceability of a contingent contract the law in Bangladesh is as follows:

(i) Contingent contracts to do or not to do of anything if an uncertain future eventhappens cannot be enforced by law unless and until that event have happened. If theevent becomes impossible such contract becomes void. [Section 71] Thus, A makes acontract to pay B a sum of money when B marries C. This contract is enforceableonly when C has been married to B. But if C dies without being married to B, the

contract becomes void.

(ii) Contingent contracts to do or not to do anything if an uncertain future event does nothappen can be enforced when the happening of that event becomes impossible, andnot before. [Section 72] Thus, A agrees to pay B a sum of money if a certain shipdoes not return. The ship sinks. The contract can be enforced when the ship has sunk.

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(iii)If the future event on which a contract is contingent is related to the way in which a person will act at an unspecified time, the event shall be considered to have becomeimpossible when such person does anything which renders it impossible that heshould so act within any definite time or otherwise than under further contingencies. [Section 71] Thus, A agrees to pay B a sum of money if B marries C. C marries D.The marriage of B to C must now be considered impossible, although it is possiblethat D may die and C may afterwards marry B.

(iv) Contingent contracts to do or not to do anything if a very specified uncertain eventhappens within a fixed time become void, if at the expiration of the time fixed, thestipulated event has not happened, or if, before the time fixed, such event becomesimpossible.

Contingent contract to do or not to do anything if a specified uncertain event does not

happen within a fixed time may be enforced by law when the time fixed has expiredand such event has not happened, or, pifure the time fixed has expired, if it becomescertain that such event will hut happen.[section 35] Thus, (a) A promises to pay B asum of money if a certain ship returns within a year. The contract may be enforced ifthe ship returns within the year and becomes void if the ship is burnt within the year,(b) a promises to pay B a sum of money if a certain ship does not return within a year.The Contract may be enforced if the ship does not return within the year or is burntwithin the year.

(v) Contingent agreements to do or not to do anything if an Impossible event happens,are void, whether impossibility of the event is known or not to the parties to theagreement at the time when it is made (Section 36). Thus, (a) A agrees to pay B Tk.1000.00 if two straight lines should enclose a space. The agreement is void, (b) Aagrees to pay B Tk. 1000.00 if B will marry A's daughter C. C was dead at the time ofthe agreement. The agreement is void.

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from doing something. The last important element of an offer is relating to the intention of the person who is making the proposal i.e. proposer, that is one must make it with the intention ofgetting the consent from the other person to whom it is made. According to that definition given

by the Contract Act, 1872, the centre point of an offe r is willingness, and the sum total of theanswers to certain questions around the term willingness constitutes an offer.

3.2 Rules of a Proposal:

1. The proposer must intent to create legal relations: The proposal must be one which iscapable of creating a legal relation. If there is no intention to create legal relation rather the offer

prevail merely an intention to create social relation, that very offer will not be considered aslawful offer.

For example: A businessman residing in Ceylon, promised B, his wife who was living inEngland for reasons of health, to pay he, monthly allowance. It was promised also that the

allowance will be continued till her comeback to Ceylon. The dispute arose when A deniedsubsequently giving her the promised allowance. It was held that B could not enforce theobligation as from the nature of the agreement it appeared that no intention existed to give rise tolegal obligation and as such even there was no offer at all to be accepted and consequently therewas no contract between A and B in respect of paying the said allowance.

2. Mere expression of Intention is not sufficient: Mere intentions are not sufficient toconstitute an offer. Advertisements, price quotations of prices, catalogue, time-table of bus ortrain are not proposals, if someone makes any statement regarding his any intention during aconversation of course that will not suffice to constitute an offer, even though the person to

whom such intention is expressed acts accordingly, there will be no offer, so no question ofacceptance and as such of any contract.

For example: A told B, while taking tea, I will be happy if I can sell my house situated atRajshahi for Tk, 1 crore to a university teacher, B being a university teacher comes forward withthe said m oney and claims the house. Bs such performance will not amount to acceptance,

because as statement did not constitute any offer, since it was a mere statement of intentionexpressed to B, out of a conversation.

3. Offer may be made to definite Person or some definite class of person or to the world atlarge generally: An offer made to a definite person or a definite class of person is called aspecific offer. And an offer dent to all persons or to the world at large is called a general offer.

4. The proposal must be a definite one: Any statement which is ambiguous, vague or notdefinite about the offeree or the subject matter, is incapable to constitute a proposal.

For example: There was a contract between A and B where, inter alia, promised that if he wassatisfied with him as a customer would favorably consider an application for renewal of the

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contract. It was held that there was nothing in these words which would create a legal obligation,as the promise was a vague one since there is no criterion to determine the satisfaction ascustomer.

5. Proposal may be expressed or implied: A proposal or an offer may be expressed or implied.

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

6. The offer must be definite, certain and unambiguous: There must be a certainty, distinctand unambiguous to form a lawful offer.

For example: A says to B, I will give you some money if you pass the exam. This is not a

valid proposal because the amount of money to be paid is not certain.7. Offer must be communicated to the offeree: A person cannot accept an offer until he knowsthe subject of the offer. To complete an offer lawfully the proposal or offer must becommunicated. Section 4 of the Contract Act says that, the communication of a proposal iscomplete when it comes to the knowledge of the person to whom it is made.

For example: A proposes, by letter, to sell a house to B at a certain price. The communication ofthe proposal is complete when B receives the letter.

8. An offer may be conditional: An offer may be made with some conditions. In such cases, the

conditions must be communicated to the offeree. Without knowledge of the condition of an offerif a person accepts an offer, the offeror cannot claim the fulfillment of the condition. But if theconditions are clearly written or expressed and should have been known to the offeree he cannot

pled the ignorance of the conditions.

3.3 Communication of offer:

Communication of the offer, as also of the acceptance, is an essential element in a contract. Two persons may have a common intention but without communication there is no agreement. Anoffer is not; therefore, open to a person who is ignorant of it; nor an ignorant compliance with the

terms of an offer means an acceptance of it. Thus where a reward is offered for an act, the doingof the act in ignorance of the proposal does not entitle a party to the reward.

In our country it is now a settled law that if a man performs the conditions of a proposal made byanother in ignorance of the proposal itself, the person who thus performs the conditions of theoffer cannot be deemed to have accepted the proposal and thus to be entitled to any benefit out ofthe offer.

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The principle evolved by the above cases is that an offer cannot be accepted so as to create a binding contract, unless and until it has been communicated and brought to the knowledge-of the person to whom it is made. This principle as to communication is also laid down in Section 4 ofthe Contract Act, which runs thus: The communication of a proposal is complete when it comesto the knowledge of the person to whom it is made".

3.4 Revocation of offer:

Revocation means cancellation. Revocation of an offer means its withdrawal by the offeror. Anoffer may be revoked at any time before the offeree accepts it. Revocation of an offer meansafter acceptance it will be ineffective. If it to be effective, it must be communicated before thedispatch of the letter of acceptance.

Section 5 lays down A proposal may be revoked at any time before the communication of itsacceptance is complete as against the proposer, but not afterwards. An offer is made irrevocable

by acceptance. Revocation may be expressed or implied. Here a precedent is expedient showing;to what extent the revocation may be implied. In Dickinson v. Dodds case, it is said that once a

person is informed that the thing that was offered to him was sold to another person, there is animplied communication of the revocation of the offer and it is too late for acceptance.

In the illustration of the section 5 of the Contract Act, it is said, A proposes, by a letter sent by post, to sell his house to B. B may accept the proposal by a letter sent by post. A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but notafterwards. Where the party making the offer has contracted under seal or for a consideration tohold it open for a certain time, he may not revoke it within such time. Notice of revocation must

be communicated, to prevent an acceptance from being effective.

Where an offer is made to several persons, it must be accepted by all before it becomes bindingon the proposer, for an acceptance by less than all is not a compliance with the terms of the offer;and it follows that such an offer may be revoked at any time before it is accepted by all. Thecourt said that an offer can be withdrawn before it is accepted and it is i mmaterial whether theoffer is expressed to be open for acceptance for a given time or not.

3.4.1 Modes of Revocation:

Section 6 describes various modes of revocation of offer. An offer may be revoked in any of the

following ways:

1. By communication of notice: An offer may be revoked by the offeror by giving a notice ofrevocation to the other party before it is accepted. Notice of revocation will take effect onlywhen it comes to the knowledge of the offeree.

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For example: A offers his house to B for Tk. 1 crore. Before B accepted the offer, A withdrewhis offer by informing B. there will be no contract as the offer has been revoked before itsacceptance.

2. By lapse of time: If time is prescribed for acceptance, the offer gets revoked by non-

acceptance with that time.

3. After expiry of a reasonable time: If no time is fixed, the offer lapses by the expiry of areasonable time. In a celebrated case, M applied for shares on 28 th June. But shares were allottedon 23 rd November. M, therefore, refused to take the shares. The court held that M was entitled torefuse as the offer had lapsed by delay in acceptance.

4. By non-fulfillment of conditions: An offer is revoked when the acceptor fails to fulfill acondition precedent to the acceptance of the offer. For example, A offers to sell certain goods toB on a condition that B pays a certain amount before a certain date. If B fails to pay the required

amount within the given time, the offer stands revoked.5. By death or insanity o f the offeror: An offer is revoked by the death or insanity of theofferor, if the fact of his death or insanity of the offeror, if the fact of his death or insanity comesto the knowledge of the acceptor before acceptance. Under English Law, death of the offerorrevokes an offer even if acceptance is made in ignorance of the death.

6. By counter-offer: An offer is revoked if a counter-offer is made to it. For example, A offershis watch to B for Tk. 500. B Instead of saying yes offers Tk. 350. As offer is revoked and thereis no contract.

7. By refusal: A proposal once refused is dead and cannot be revived by its subsequentacceptance.

8. By failure to accept in the mode prescribed: An offer must be accepted according to themode prescribed. If no mode is prescribed, the acceptance must be according to some usual orreasonable mode. If the offer is not accepted according to the prescribed or usual mode, the offerlapses provided the offeror gives notice to the offeree within a reasonable time that theacceptance is not according to the mode prescribed. If the offeror fails to do so, he is deemed tohave accepted the acceptance.

3.5 AcceptanceAcceptance 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 bydoing something, such as delivering goods in response to an offer to buy. It is said that, anacceptance by silence could be sufficient it was the offeree who suggested that their silencewould be sufficient.

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Sect ion 2(b) of the Contract Act, 1872, states that, when the person to whom the proposal ismade signifies his assent thereto, the proposal is said to be accepted. We can divide thedefinition 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.

Acceptance typically can come in one of three types:

1. Express: A direct an d absolute outward manifestation of the agreement, such as I acceptyour 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 acceptyour offer so long as you trim my tree in the next two days. By its terms, a conditionalacceptance is a counter-offer.

3.5.1 Rul es of a val id acceptance:

1. Acceptance must be absolute and unqualified: The basic rules regarding an acceptance isdescribed in section 7 of the Contract Act, 1872. It says, In order to convert a proposal into a

promise the acceptance must be absolute and unqualified. Accordingly about the nature of a

valid acceptance the law imposes two requirements to be fulfilled i.e. the acceptance must bei. Absolute; andii. Unqualified

If there is any variation with the terms, it is no acceptance at all. Actually the indication to these basic points is foun d in the definition of acceptance stated in the Act where the term thereto isused to mean, the consent must be given to the offer exactly as it is made by the offeror. And justto make the fact more clear and to give emphasis in section 7 of the act it has been mentionedthat in order to convert a proposal into a promise. It means the acceptance to be a valid one itshould be absolute and unqualified. The two terms together make one thing definitely clear that

acceptance must be made to the offer as it is. In other words, there will not be any change to the proposal made. Change of the proposal or any part o fit will not constitute a valid acceptance.

2. The acceptance must be unconditional: All of the terms of the offers must be accepted. Onthe other hand words an acceptance must be unconditional. An acceptance with a variation is noacceptance. Any attempts to vary the terms of a proposal will result in a counter offer (Hyde vWrench).

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3. Acceptance might be conditional: Acceptance may be conditional on the happening ofsomething, such as I accept your offer so long as you trim my tree in the next two days. By itsterms, a conditional acceptance is a counter-offer.

4. Mere enquiries do not count as rejection: In some situations what may seem to be a

counter-offer may not actually deemed as such, it all depends upon how they are worded. Mereenquiry cannot be counted a rejection. (Stevenson v McLean).

5. The acceptance must be expressed in some usual and reasonable manner: Section 7 (2) ofthe Act says, in order to convert a proposal into a promise, the acceptance must be expressed insome usual and reasonable manner, unless the proposal prescribes the manner in which it is to beaccepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance isnot made in such manner, the proposer may, within a reasonable time after the acceptance iscommunicated to him, insist that his proposal shall be accepted in the prescribed manner, and nototherwise; but if he fails to do so, he accepts the acceptance. An offer may also be accepted by

conduct. If the offeree does what the offeror wants he to do there is acceptance of the offer byconduct.

6. A counter-offer may become a terms of the agreement if it is accepted: When a proposal isnot accepted without any condition or is accepted with some conditions, then the party to whomthe proposal is made is said to make a new proposal that is in its legal term is called counter-offer. And if the proposer accepts the terms those can be the terms of an agreement. Technicalcounter-offers do not necessarily count as a rejection of the original offer it they are not ofimportance to the parties.

7. The acceptance must be communicated to the offeror: The acceptance must becommunicated. Depending on the construction of the conduct, the acceptance may not have tocome until the notification of the performance of the conditions. Prior to acceptance, an offermay be withdrawn. And before the communication of the acceptance to the offeror, it might bewithdrawn.

8. Silence can never amount to an acceptance: No contract is formed if the offeree remainssilent and does nothing to show that he has accepted the offer. The acceptance is complete onlywhen it is communicated to the offeror. Silence or receipt and retention of premium cannot beconstructed as acceptance.

9. The postal rule: This is an acceptance to the basic rule of communication of an acceptance, basically when an acceptance is posted this is when the contract is formed and not when theacceptance is received by the offeror. Section 4 of the Act says, the communication of anacceptance is complete, as against the proposer, when it is put in a course of transmission to him,so as to be out of the power of the acceptor. For example, A proposes, by letter, to sell a house toB at a certain price. B accepts As proposal by a letter sent by post. The communication of the

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acceptance is complete, as against A, when the letter is posted; as against B, when the letter isreceived by A.

10. Modern methods of communication: These provide a number of further problems. It has been decided that for example telephones are to be treated under the normal rules of

communication, but answer machine methods would be down to interpretation by the court.

11. The mode of acceptance: When the promisor prescribes a particular mood of acceptance theofferee must follow the particular mood of acceptance. For example if the offeror says,acceptance to be send by telegram the acceptance must be sent by telegram. Section 7 (2) says,If the proposal prescribes a manner in which it is said to be accepted, and the acceptance is notmade in such manner, the proposer may, within a reasonable time after the acceptance iscommunicated to him, insist that his proposal shall be accepted in the prescribed manner, and nototherwise; but if he fails to do so, he accepts the acceptance.

12. Time of acceptance: if the time of accepting the proposal is prescribed by the offeror, itmust be done within the time. If no time is prescribed the acceptance must be done withinreasonable time. And what is reasonable depends on the fact of the case.

13. Before offer: There cannot be acceptance before the offer is given by any person. This isnatural consequence. In Lalman vs. Gouri Dutt case, G sent his servant of his missing nephew.Subsequently G announced reward for information concerning the boy. L brought back themissing boy, without having known of the reward. It was held that there was no contract.

14. The Acceptance must be made when the offer in force: The acceptance must be made before the offer has been revoked or the offer has lapsed, if one passes time and before acceptingthe offer the offeror revokes the proposal, the late acceptance will not be guaranteed.

3.5.2 Communi cati on of acceptance

The communication of acceptance is an essential ingredient in the formation of a bindingcontract. Mere mental assent is no acceptance. The acceptor must do or say something to indicatehis readiness to accept. It has been observed in Brogden vs. Metropolitan Rly. Co. that when theacceptor makes up his mind he should signify it to the plaintiff his having it in his own mind isnothing, "for, it is trite law that the thought of man is not triable, for, even the devil does notknow what the thought of man is".

Communication of acceptance need not be necessarily by words but "may be expressedsymbolically as by the fall of the hammer upon a sale by auction or by a nod". There are certainoffers such as are illustrated in the cases of advertisements offering rewards on condition ofdoing a particular act, which are desired to be accepted by performance. Such acceptance isknown as acceptance conduct. "The person who makes the offer shows by his language and from

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the nature of the transaction that he does not expect and that he does not require notice of theacceptance apart from notice of performance".

There is a distinction between the- communication of offer and the communication ofacceptance. While an offer is not communicated unless it is brought to the notice of the offeree,

an acceptance is sufficiently communicated even though the offeror may be ignorant of theacceptance. This happens when "contract by post" is made. A makes an offer to B by a letter.The offer is deemed as communicated to B only when he gets the letter. If B wants to accept theoffer, he must do something to inform A of his acceptance of the offer. Thus, if B posts the letterof acceptance, it will be deemed sufficient. In Other words, every offer must be accepted in theusual way provided it has a tendency to inform the offeror of the acceptance. It is not necessarythat the offeror must actually know the acceptance of the offer. Thus in the above case, if B canshow proof of having posted the letter of acceptance, the acceptance is sufficientlycommunicated to A though the letter may not reach A at all.

But communication of acceptance will not be considered complete only by showing proof of posting it unless the offeror expressly or impliedly prescribes the post office as his agent.

Under Bangladeshi Law, "the communication of acceptance is (Complete as against the offerorwhen it is put in a course of transmission to him so as to be put out of the power of the acceptor;as against the acceptor, when it comes to the knowledge of the proposer".

3.6 Counter offer

Counter offer is an offer made in response to a previous offer by the other party duringnegotiations for a final contract. Making a counter offer automatically rejects the prior offer andrequires an acceptance under the terms of the counter offer or there is no contract. This happenswhen, for example, A sends B an offer and B amends it slightly and then send it back signed butamended. This action destroys the original offer and is not acceptance. It is a new offer entirely,called a counter-offer.

In Livingstone v. Evans case, two persons were haggling over the price of property. Theoffer was for $ 1800. The buyer counter- offered, Will give $ 1600 cash. Vendor repliedCannot reduce price after which the buyer acce pted. The court stated that a counter-offer normally terminates the original offer, which is no longer subject to acceptance. Butin this case, the judge thought that the cannot reduce price message was a renewal ofthe original offerthat (the vendor) was standing by it and therefore, still open toacceptance.

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3.7 Revocation of Acceptance

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. Thecommunication of the acceptance is complete as against A when the letter is posted, and as

against B when the letter is received by A. B, therefore, is at liberty to revoke his acceptance before the communication of acceptance is complete against him, i. e., before his letter isreceived by A. If he were, therefore, to send a telegram revoking the acceptance, and if thetelegram reaches before the letter, the acceptance will be revoked. But in English law acceptancecannot be revoked at all. English courts are bound to hold that an unqualified acceptance once

posted cannot be revoked even by a telegram or a special English law, on revocation messengeroutstripping the arrival of the acceptance, for, the contract is concluded when the letter ofacceptance is posted; the acceptor, therefore, is no longer at liberty to recede from it.Accordingly, it may be concluded that a contract is made at the time and at the place when andwhere the letter of acceptance is posted; but under our Contract Act, the contract is voidable atthe instance of the acceptor by the communication of his revocation reaching before theacceptance has come to the knowledge of the offeror.

3.8 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 asagreement enforceable by law is a contract. So the term agreement is very important in thediscussion of contract law. From the definition of the agreement, it is found that to be anagreement three elements are necessary-

it will be promise it will form a consideration the consideration will be formed for the parties each other

3.8.1 Types of agreement

Agreement can be void, voidable and unenforceable. But there is no valid agreement; rather it iscalled a valid contract.

Void Agreement: A Void agreement is one that is entirely destitute of legal effect. It confers noright on any person and creates no obligations. According to Sect ion 2 (g) of the Act says, Anagreement not enforceable by law is said to be void.

For example, an agreement made by a minor, agreement without consideration (with theexception of section 25 of the Act) or the agreements against the public policy can be stated.

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So from the definition it is found out that a void agreement possess two important properties;firstly it is an agreement and secondly it is not enforceable by law. The contract Act gives theexplanation of non-enforceability under section 10 of the Act. Section 10 suggests that anagreement is to be considered as a void one, unless,

1. the parties of the agreement are competent,2. the consent is given freely,3. there is a lawful consideration,4. the object of the consideration is lawful,5. not expressly declared void by law.

Voidable Agreement: A voidable agreement is one that is capable of being affirmed or rejectedat the option of one of the parties, but which is binding on the other. A voidable agreement is notdestitute of legal effect, but may be valid and binding. It is a contract that is capable of being

affirmed or rejected at the option of one of the parties. It is binding if he chooses to affirm it andis 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 offraud. The latter may repudiate the contract, or if he sees fit, he may waive the fraud, and holdthe 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 ofone of the parties to it. The obstacles to its enforcement do not touch the existence of thecontract, but only set difficulties in the way of action being brought or proof given. The contract

is valid, but because of these obstacles it cannot be enforced. Such is a contract, as we shall seewhich fails to comply with some of the provisions of the statute of frauds, requiring writing andso cannot be proved; or a contract which has become barred by the statute of limitations. Thedefect in these contracts is not irremediable. In the first it may be remedied by supplying thewriting and in the second by procuring a proper acknowledgment of barred debt; but it will benoticed that the defect can be remedied only with the concurrence of the party to be made liable.

Illegal agreement: An illegal agreement, under the common law of contract, is one that thecourt will not enforce because the purpose of the agreement is to achieve an illegal end. Theillegal 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 gamblingis illegal, will nonetheless be enforceable.

Contracts in restraint of trade are a variety of illegal contracts and generally will not be enforcedunless they are reasonable in the interests of the contracting parties and the public. Contracts inrestraint of trade if proved to be reasonable can be enforced. When restraint is placed on an ex-employee, the court will consider the geographical limits, what the employee knows and the

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extent of the duration. Restraint imposed on a vendor of business must be reasonable and is binding if there is a genuine seal of goodwill. Under common law, contracts to fix prices arelegal.

3.9 Free consent

Section 10 of the Contract Act outlines the elements of a valid contract thus: "All agreements arecontracts if they are made by the free consent of parties competent to contract, for a lawfulconsideration and with a lawful object, and are not hereby expressly declared to be Void". Apartfrom other ingredients, this section emphasizes the element of free consent of the parties. Inorder that a valid contract may be made, an agreement should reflect the real intention of the

parties. But in many cases the apparent agreement may not, in fact, be the real agreement between the parties. Thus, if A accepts the offer of B to sell a horse which he warrants as sound,when as a matter of fact it is not, A can repudiate the contract on the ground that he would nothave agreed to purchase the horse at all if he knew that it was not sound. There was, therefore, no

real agreement between A and B. Hence it is essential that every agreement must be a trueexpression of the intention of the parties.

Section 13 of the Contract Act defines consent thus: "Two or more persons are said to consentwhen they agree upon the same thing in the same sense". Section 14 of the Act says that consentis free when it is not caused by mistake, misrepresentation, fraud, coercion and undue influence.

3.9.1 Mistake

Section 20 of the Contract Act lays down thus: "When both the parties to an agreement are undera mistake as to a matter of fact essential to the agreement, the agreement is void". A agrees to

buy from B a certain horse. It turns out that the horse was dead at the time of the bargain, thoughneither party was aware of the fact. The agreement is void.

The mistake which is necessary to make a contract void must be mutual and not of one of the parties. There may be some defects which are unknown to both the parties whereby the contractis so fundamentally affected that there is a good ground for holding the contract void because ofa mutual mistake of fact.21 It has been held in Ramanuj vs. Gaja-raja2" that in order to bring acase within Section 20, it is necessary to prove inter alia that the mistake was "fundamental or

basic, i.e., in respect of the underlying assumption of the contract".

From the above discussion it is clear that every mistake does not vitiate a contract. The followingamong others may be picked up:

(a) Mistake as to the nature of transaction. When a man, guilty of no negligence, is induced tosign a bill of exchange by a third party who represented it to be a deed of guarantee, he willnot be liable on the bill. But if the alleged mistake arises from his want of due care, he cannotset up the plea of mistake to avoid liability.

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(b) Mistake as to the identity of the party to a contract. When a person forges the signature ofanother and induces a seller to supply him with a quantity of goods, no contract is formed. InCundy vs. Lindsay, C forged the signature of B and induced A to supply him with a quantityof goods. These goods were subsequently sold by C to X who was bona fide purchaser forvalue without notice. When A came to know of this fraud he brought a suit against X torecover the articles. It was held that he was entitled to do so. It is to be noted that in this casethere was no contract between A and C; for, A accepted the offer believing that it came fromB, but B made no offer. In the absence of a contract C could Ipt claim any right and title overA's goods and X who purchased the articles from C, got no right and title over the things forthe simple reason that the seller himself had none. The goods, therefore, remained all alongthe property of A which he could recover at any time.

But in Philips vs. Brooks, C appeared before A and said that he was B and induced A to partwith certain articles. In this case it was held that there was a contract between A and Cthough the contract was vitiated by fraudulent misrepresentation which has the effect ofmaking a contract voidable, not void. Now, a voidable contract is presumed to remain validunless and until it is avoided. It follows, therefore, that before the avoidance of the contract,if C sells those articles to X, the latter acquires a good title over them and A will not beentitled to recover them from X. The soundness of this decision has, however, beenquestioned by Salmond. He observes :

"If identification by sight and hearing is enough, what shall be said of identification byhearing alone? Why was not the purchaser in Cundy vs. Lindsay identified as the person whoactually wrote the letter and who actually received the goods delivered at his address? Wouldit not be simpler and more satisfactory to adopt the general rule that wherever the identity ofthe purchaser is known by him to be material and he knows that he is not the person whomthe seller believes him to be, the contract is void because of error"?

(c) Mistake as to the subject-matter of the contract. This kind of mistake happens when the sellerintends to sell one thing and the purchaser intends to purchase a different thing. Thus, if Ahas two horses, one black and the other white, and offers to sell his horse to B intending tosell the white horse and B accepts the offer intending to purchase the black one but nobodymakes any mention of the particular horse to be sold or purchased, there is no real contract

between the parties.

Similarly, if A offers to sell his black horse to B and B accepts the offer but, after theagreement is made, neither of them would know that the horse was dead at the time of the

bargain, the agreement is void.

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(d) Mistake by one party as to the intention of the other does not render a contract void. Themere knowledge of the seller as to any mistake made by the buyer regarding to the quality ofthe goods would not vitiate the sale, for, the seller is under no obligation to disabuse the

purchaser of any such mistake. If, however, the seller knows that the purchaser is believingthat the seller is selling the goods as what he takes them to be, then and then only the contractcan be avoided. It follows, therefore, that a mistake by one party as to the intention of theother vitiates the contract when the circumstances are such that the silence on the part of theseller may be construed as an implied misrepresentation by him.

The above point came up for consideration in the leading case Smith vs. Hughes, in which it washeld that "the mere knowledge of the seller as to any mistake made by the buyer regarding thequality of the goods would not vitiate the sale". From this case, the following conclusion has

been drawn:

"A mistake regarding the quality of the goods to be sold does not vitiate the contractunless the seller has, by act or omission, done something to cause the mistake on the partof the buyer. In other cases of mistake regarding the quality of goods, the Maxim ofCaveat Emptor (purchasers beware) applies. Thus, if A purchases a chain believing it tobe made of gold when, as a matter of fact, it is not, he cannot afterwards avoid the saleon the ground that he made a mistake regarding the quality of the chain. But he can makethe quality of the goods a condition of the contract" .

To the above rule, there are two exceptions:

(i)

When things are sold by description it is necessary that they should be of themercantile quality or reasonably fit for the purpose for which they are required.(ii) When goods are sold by samples, the bulk of the goods supplied must agree with the

samples.The effect of mistake on contract: English law

(i) Mistake renders the contract absolutely void because it prevents the formation of areal agreement which is the basis of the contract.

(ii) When a contract is vitiated by mistake its specific performance may be successfullyresisted,

(iii) In the case of mutual mistake the court allows the parties to rectify the writtencontract so as to make it expressive of their real intention.

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Bangladeshi Law

The Contract Act provides that, "where both the parties to an agreement are under amistake as to a matter of fact essential to the agreement, the agreement is void".24 But themistake must be mutual. A contract is not voidable merely because it was caused by one of the

parties to it being under a mistake as to a matter of fact. The explanation to Section 20 also provides that "an erroneous opinion as to the value of the thing which forms the subject-matter ofthe agreement is not to be deemed a mistake as to a matter of fact".

Though a mistake of fact vitiates a contract, a mistake of law does not. It is based on themaxim: Ignoratia Juris hand excusat (ignorance of law is no excuse). Section 21 of the ContractAct lays down, "A contract is not voidable because it was caused by a-mistake as to any law inforce in British India. Bangladeshi Relief may, however, be available in the following cases ofmistake 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.

Thus, a man's promise to buy a thing belonging to himself cannot be enforced on theground that it is a mistake of law.

(iii)If a contract is brought about by deliberate misrepresentation of law, it can be setaside.

(iv) Mistake as to any foreign law is a mistake of fact. Hence such a mistake vitiates acontract

3.9.2 Misrepresentation

Misrepresentation is the positive assertion of something, which is not true though the personmaking it believes it to be true. Thus defined, misrepresentation means innocentmisrepresentation as distinguished from fraudulent misrepresentation where there is a wrongfulintention to deceive.

Condition and warranty

In English law a distinction is drawn between a representation which induces a party to enter intoa contract but which is not intended to form a part of it and a representation which forms a partof the contract. When a representation is made before a contract and afterwards incorporated intoit, a question often arises whether the representation should be regarded as a condition or awarranty.

Now, the representation is regarded as a condition when it forms a part of the contract and for the breach of which the party, who is affected by the breach, is entitled to avoid the contract. If,however, the representation is not essential to the contract but is more or less of the nature of a

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subsidiary promise, it is called a warranty. For the breach of the warranty, the party concerned isnot entitled to avoid the contract, but he can sue for damage and compensation. Thus in acontract of charter-party a statement contained therein as to the port at which the ship is lyingusually regarded as a condition, whereas statements regarding seaworthiness of the ship, etc. arewarranties. (A charter-party means an agreement by which a ship-owner agrees to place an entireship, or part of it, at the disposal of a merchant for the carriage of goods binding the ship-ownerto transport them to a particular place, for a sum of money which the merchant undertakes to payas freight for their carriage.)

In Bangladeshi Law, as laid down by Section 18 of the Contract Act, misrepresentation meansand includes:

(i) "The positive assertion, in a manner not warranted by the information of the personmaking it, of that which is not true, though he believes it to be true". A represents toB that 500 mds. of indigo are made annually at A's factory and thereby induces B to

buy the factory while it turns out that the factory produces only 400 mds, of indigo. Now, if A can show that he had good reason to believe his statement on theinformation that he had, it would be a case not of misrepresentation but of mutualmistake. But if it appears that A had no reason to believe so on the information that hehad, B can treat the contract as void for misrepresentation.

(ii) Any breach of duty which, without intent to deceive, gains an advantage to the personcommitting it, or any one claiming under him by misleading another to his prejudiceor to the prejudice of any one claiming under him". Now, in a contract of insurance,the person assured has a duty to disclose correctly his age and other relevant facts. Ifthe assured state even on an honest belief, that his age is 22 whereas he is really 25and thereby obtains a lower premium, it will be a case of misrepresentation in breachof duty without intent to deceive.

(iii) "Causing, however innocently, a party to an agreement to make a mistake as to thesubstance of the thing which is the subject of the agreement". X says to Y: "My car isfree from any defect". Y buys the car. X did not know that there was a rupture in theengine of the car which has made it unfit for use. If and when Y finds out the defect,he can treat the contract as void for misrepresentation as the defect relates to the very

substance of the contract. If, however, only one tyre was damaged, Y could not havetreated the contract as void, for; the damaged tyre does not vitally affect the subject-matter of the contract.

Before the Sale of Goods Act, 1930, the Contract Act made no distinction between acondition and a warranty. Section 12 of the Sale of Goods Act, however, distinguishes acondition from a warranty.

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A condition has been defined as a population essential to the main purposes of the contract,the breach of which gives rise to a right to treat the contract as repudiated. A warranty, on theother hand, is a stipulation collateral to the main purpose of the contract, the breach of whichgives rise to a claim for damages, but not to a right to reject the goods and treat the contractas repudiated. Whether a stipulation in a contract of sale is a condition or a warranty dependsin each case on the construction of the contract A stipulation may be a condition thoughcalled a warranty in the contract.

3.9.3 Fraud

Fraud has been defined by Anson as "a false representation of fact made with the knowledge ofits falsehood or recklessly without belief in its truth, with the intention that it should be actedupon by the complaining party and actually inducing him to act upon it". So,

(i) Fraud is a representation of fact which is false. A representation of fact is different

from a statement of opinion; for, in the latter case, the person making the statementdoes not invite the other party to accept the opinion as true.(ii) The false statement must be made with the knowledge of Vs falsehood or recklessly.

Fraud is thus distinguished from innocent misrepresentation.(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; or,

in other words, a false statement is not actionable unless it causes injury to the personto whom it has been made.

In Bangladeshi law, as laid down by Section 17 of the Contract Act, fraud means and includesany of the following acts:

(i) "The suggestion as a fact of that which is not true by one who does not believe it to betrue." A tells B knowing it to be false that his factory produces 500 pounds of butter aday. On this suggestion B agrees to buy the factory for Tk. 50,000.00. The contract isvoidable at the option of B on account of fraud.

(ii) "The active concealment of a fact by one having knowledge or belief of the fact". It isa fraud for one to conceal material facts which he is under an obligation to disclose

when he is entering into a contract with another. This duty to disclose is notenforceable in all cases of contract. It arises only in the following cases:

(a) Statutory obligation to disclose: Section 55 of the Transfer of Property Act, 1882requires a seller of immovable property to disclose to the buyer all defects as to his titleto or value or character of the property. Any failure in this respect on the part of the seller

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will vitiate the contract and the buyer may treat the contract as void even after thetransaction has been complete.

(b) Contracts uberrimae fidei: A contract requiring utmost good faith on the part of both the parties to a contract or of that party who being in advantage position has the

monopoly of material facts, is called contracts uberrimae fidei. In the case of such acontract, it is the duty of both the parties or of the party-at-advantage to disclose allmaterial facts. Family settlements, compromise of disputes, contracts between solicitorsand clients, between doctors and patients or father and son, are illustrations of contractsof this type wherein the parties must disclose all meterial facts. Some other contractsuberrimae fidei, though apparently not so, are;

(i) Contracts of insurance . Here the insured knows more about the subject-matter of thecontract than the insurer. So a duty is cast upon the former to disclose all materialfacts which might influence the insurer's decision in entering into the contract or in

fixing the amount of premium,(ii) Contracts for the purchase of shares in companies . When a prospectus is issued by a

company inviting the people to take shares it must disclose everything which mayinfluence an intending investor regarding the nature and advantage of suchinvestments. Omission of any material fact would vitiate the contract.

(iii) Contract of suretyship : Since there is no universal obligation to disclose in a contractof suretyship as we find in the case of contract of Marine insurance, some areinclined4 to think that a contract of suretyship is not a contract uberrimae fidei. But acontract of suretyship is nevertheless classed as a contract uberrimae fidei because asurety is entitled to know the real nature of the transaction he guarantees and of theliability he is undertaking and he generally and naturally depends on the creditor forinformation on this point, although he is acting usually at the debtor's request.It has also been provided in the Contract Act that any guarantee which the creditorhas obtained from the surety by means of keeping silence as to materialcircumstances is invalid.

(iv) Contract of partnership : Like the contract of suretyship, the contract of partnershipcannot properly be regarded as a contract uberrimae fidei because as between the

partners there is no general duty to disclose the facts at the time of entering into thecontract. But once the partnership is formed, a partner is bound to render true

accounts and full information of all things affecting the firm to other partners.

In all other cases of contracts, that is, contracts other than those uberrimie fidei, where no duty todisclose is cast on the parties, the parties must take care of themselves. Thus, in ordinarycontracts of sale the buyer must take care of himself. The seller is under no obligation to disclosematerial facts. A sells his horse to B for Tk. 500.00. A knew that the horse was ill. But he nevermade any representation to B to the effect that his horse was not ill. His concealment of the

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horse's illness will give B no ground to treat the contract as void, for, A had no duty to disclosematerial facts. B ought to have verified facts for himself. This is what is known as caveat emptor,i.e. "Purchaser beware".

A promise made without any intention of performing it, A gives B Tk. 250.00 on the latter's

promise to appear for him in a suit. If it can be shown by evidence that B had no intention to doso, he is guilty of fraud.

Any other act fitted to deceive. Where a person assigned the whole of his properly to trustees forthe benefit of his creditors, the act amounted to an act of insolvency and the property vested inthe official assignee.

Any act or omission which the law specially declares to be fraudulent. Thus, any transfer ofimmovable property made with intent to defraud creditors is fraudulent because it is declared so

by the Transfer of Property Act.

Explanation (Silence as fraud): 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 silent to speak, unless his silence is,in itself, equivalent to speech.

(i) A sells by auction to B a horse which A knows to be unsound. A says nothing to Babout the horse's unsoundness. This is not fraud in A. But if B is A's daughter and has

just come of age, the relation between the parties would make it A's duty to tell B thatthe horse is unsound.

(ii) B says to A: "If you do not deny it I shall assume that the horse is sound". A saysnothing. Here A's silence is equivalent to speech. If in this case B buys horse andfinds that the horse is unsound, he can impeach the contract for fraud.

Distinction between fraud and misrepresentation

(i) The distinction between the two turns mainly on the intention of the parties. If thedefendant has made the false statement with an intent to deceive another, the action isfraudulent. If no such deceitful intention is present, the action constitutesmisrepresentation.

(ii) Misrepresentation entitles the effected party to avoid the contract if he does not desireto have it fulfilled. But in a case of fraud, not only is the contract voidable but also the

party on whom fraud has been practiced can sustain an independent action in tort fordamages.

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3.9.4 Coercion

Coercion or duress consists in actual or threatened violence or imprisonment. Where theconsent of a party to a contract can be shown to have been obtained by coercion, it is voidable atthe option of the party whose consent was so obtained.

The violence or the threat of violence must be to the person and not to his goods. It is not,however, necessary that the violence or threat of violence should be held out to the contracting

party himself. The contract is no less voidable if the violence or threat of violence was held outto the near relative of the contracting party, e.g., wife, children, brother etc.

Bangladeshi Law

Section 15 of the Contract Act defines coercion as "the committing or threatening tocommit, any act forbidden by the Penal Code or the unlawful detaining or threatening to detainany property to the prejudice of any person whatever with the intention of causing any person toenter into an agreement. The explanation to the Section says: ''It is immaterial whether the PenalCode is or is not in force in the place where the coercion is employed". Thus, A, on board anEnglish ship on the high seas, causes B to enter into an agreement by an act amounting toCriminal intimidation under the Penal Code. A afterwards sues B for breach of contract atChittagong. A has employed coercion though his act is not an offence by the law of England andalthough Section 506 of the Penal Code was not in force at the time when or the place where theact was done.

Effect of coercion on contract

An agreement vitiated by coercion is voidable at the option of the party coerced. But if hefinds it profitable to uphold the contract, he can enforce specific performance of it. The partyemploying coercion has, however, no right under the contract.

3.9.5 Undue influence

Undue influence is a subtle and improper pressure brought to bear upon a person to induce himto enter into a contract which, in the absence of the said pressure, he would not do.

Result of compensation between undue influence and coercion that in coercion the method ofobtaining the consent of a party to a contract is rather palpable; but in undue influence the

method employed for the same purpose is not so evident. There is no threat or violence; yet the party with whom a contract is made is not a free agent. He is under some improper influencewhich makes it difficult, if not impossible, for not him to negotiate on equal terms. "To be undueinfluence in the eye of the law there must be to sum it up in a word coercion. It is only when thewill of the person is coerced into doing that which he or she does not desire to do, that it is undueinfluence".

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Bangladeshi law:

Section 16(1) of the Contract Act lays down thus: "A contract is said to be induced by 'undueinfluence' 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 todominate the will of another":

(i) Where he holds real or apparent authority over the other, or where he stands in a fiduciaryrelation 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

In some cases, undue influence is presumed, such as, in .contracts between a preceptor and hisdisciple, between father and his son. In such cases, the person who is in a position to dominatethe will of the other is to prove that there was no undue influence, if such influence is alleged. Inother cases, undue influence must be proved by the party alleging the same. If, however, it isonce shown in any such case that the defendant was in a position to dominate the will of the

plaintiff, and that position was used to obtain an unfair advantage over the plaintiff, the onus of proving that the contract was not induced by undue influence shifts over to the defendant27

Transaction in the ordinary course of business . No allegation of undue influence is sustainablewhen the transaction relates to one in the ordinary course of business. A applies to a banker orloan at time when there is stringency in the money market. The banker declines to make the loanexcept at an unusually high rate of interest. A accepts the loan on these terms. This is atransaction in the ordinary course of business and the Contract cannot be challenged on theground of undue influence.

Effect. All contracts caused by undue influence are voidable at the option of the party over whomsuch influence is exercised.

Contract with a Pardanashin lady

The question of contract with a pardanashin lady becomes relevant in connexion with the issueof undue influence, for, such a lady having little chance of commerce with the outside world, islikely to be unduly influenced more easily than others. Hence law allows her some protection.

The person who enters into a legal contract with a pardanashin lady takes upon himself the dutyto prove feat that lady understood fully well the nature of the transaction and she entered into itout of her free will. The fact that the lady had independent and disinterested advice would go agreat way to prove the fairness of the transaction. But even in the absence of such advice the

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court may uphold the transaction if it otherwise appears to have been freely consented to by the pardanashin lady.

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Chapter 4

Consideration

In the leading case of Curre vs, Misa (1875) the described consideration thus: "A valuableconsideration in the sense of the law may benefit interest, profit or accruing party for someforbearance, detriment, loss or responsibility given suffered or undertaken by the other. As

pointed out by Sir Frederick Pollock, the second branch of this judicial description is moreimportant, for consideration means not so much that one party is profited as that the otherabandons some legal right in the present or limits his legal freedom of action in the future as aninducement for the promise of the first is immaterial whether the party accepting the conditionhas thereby any apparent benefit or not. It should be enough if he accepts if and the party givingit does thereby undertakes some burden or loses something which law treats as being of value.

Examples

(i) Parag agrees to sell a house to Qulsum for Tk. 800,000 For Porags promise , thesonsideration is tk. 800,000. For qulsums promise the consideration is the house.

(ii) A promises to pay B Tk. 500.00 if B promises to canvass votes for him. B promises to do so.B's promise of the act is the consideration for A's promise.

(iii) A promises to pay B Tk. 1000.00 if B promises not to support C in an election. B promisesaccordingly. B's promise of the forbearance is the consideration for A's promise.

4.1 Rules for consideration in English Law

(a) Real and not sham.Unreality of consideration arises from a number of causes, such as, legal impossibility,

physical absurdity, uncertainty, and also when it involves doing of what one is bound todo. Thus:

(i) A, a servant of B, in return for a promise of Tk. 100 promises to give C a dischargefor a debt which C owes to B. A's promise is unreal because it is legally impossiblefor him to give a discharge for a debt owed to his master.

(ii) A promises to pay B Tk. 500 in consideration of B's promise to restore a dead man tolife. Here the consideration (the promise of B) is unreal as being physically absurd onthe very face of it.

(iii)A promises to pay B a reasonable sum of money in return for the latter's services.Here the consideration (promise to pay a reasonable sum of money) is unreal becauseof uncertainty.

(iv) A promise to pay a certain sum of money to a policeman for chasing a thief. Theconsideration is unreal and enforceable, for, the policeman, in doing so, has only done

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what he was legally bound to do. But where a police constable who sued for a reward,offered for the supply of information leading to a conviction, had rendered servicesoutside the scope of his ordinary duties, it has been held that his suit is sustainable.28

(b) Not be illegal. A consideration is said to be illegal when it is intended to defeat the provisions of anylaw, or is against public policy. Thus, a promise by A to pay B Tk. 100,000 inconsideration of B's promise to drop a prosecution for robbery instituted by himagainst A, is illegal as being aimed at defeating the provisions of Law. Similarly, A

pays B Tk. 100,000 in consideration of B's promise to obtain for A an employment in public service. The consideration is illegal as being against public policy.

(c) Must not be past.A past consideration is that which is executed before the promise for which it is paid.

Thus, if A promises B Tk. 5,000 for his having accompanied A to a shooting lastweek, the consideration is past. It is something done before the offer and cannot,therefore, sustain a binding contract in English law, for, the rule is that "a pastconsideration is no "consideration". To this rule, however, there are the followingexceptions:

Exceptions(i) If the past consideration was given at the desire of the promissor, it will sustain a

subsequent promise. Thus, in Lamp-Leigh vs. Braiihwait,29 the appellant who killeda man requested the respondent to exert his influence to obtain A's pardon from the

king. The respondent did so. Afterwards the appellant promised to pay the respondent 100 for his service. It was held that the consideration though past was valid and the

promise, enforceable.(ii) When, without being asked, one person performs the legal duty of another, and the

later promises to pay subsequently, the promise is binding. In Wing vs. Nill, a pauperwas residing out of his parish of settlement He fell ill and was attended by a doctor.The overseer of the parish to which the pauper belonged was legally bound tomaintain him and pay for his medical attendance. After the pauper died, the overseer

promised to pay the doctor's bill. It was held that the overseer was bound by his promise.

(iii)When a person revives a time-barred debt by a subsequent promise, the promise is binding.

(d) Move from the promise. This means that consideration ought to proceed from the party who is entitled to sueon the contract, for the rule is: "No stranger to the consideration can sue on the

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contract". Thus, if A promises to pay B Tk. 10 if C works for him in an election, the promise is not enforceable and B cannot sue on it, for, he has neither done norforborne nor suffered anything nor made any promise in return for A's promise.

(e) Need not be adequate. This means that it is fiat the business of the court to enquire whether the considerationin a particular case is substantial, that is, whether the act or forbearance or promise ofthe promise is proportionate in value to the promise of the promissor. It is enough ifthere is a consideration, however minute, which is otherwise valid. Thus, if A

promises to pay B Tk. 50 for an autograph of Words, worth, it would be a poordefence for A to say that tn actual the autograph was of a much smaller value.

Bangladeshi law

Section 2 of the Contract Act defines consideration thus: