Contract Law (CA 1872) PDF

CONTRACT LAW (CA 1872) TIBA NAZIFA (TBN) LECTURER NORTH SOUTH UNIVERSITY THE CONTRACT ACT, 1872 CA 1872 governs the law of contract in Bangladesh. Definition of a contract: Section 2(h) of the Contract Act 1872, “An agreement enforceable by law is a contract.” For a contract to be lawful,...

CONTRACT LAW (CA 1872) TIBA NAZIFA (TBN) LECTURER NORTH SOUTH UNIVERSITY THE CONTRACT ACT, 1872 CA 1872 governs the law of contract in Bangladesh. Definition of a contract: Section 2(h) of the Contract Act 1872, “An agreement enforceable by law is a contract.” For a contract to be lawful, an agreement is necessary and that agreement must be lawful so that it can be enforceable by law. A contract is a combination of agreements and enforceability. THE CONTRACT ACT, 1872 Formation of a contract To form a contract the following steps needs to be present Firstly a proposal [s 2(b) of CA 1872] has to be accepted [s2(b) of CA 1872] for it be a promise [section 2(b) of CA 1872]; Secondly the promise is to be considered [s 2(d) of CA 1872] to form an agreement [s 2(e) of CA 1872]; Finally the agreement should have the enforceability of law to form a lawful contract. THE CONTRACT ACT, 1872 Definitions Proposal: Section 2(a) of CA 1872, When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal Acceptance: Section 2(b) of CA 1872, When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted becomes a promise Promise: Section 2(b) of CA 1872, When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted becomes a promise THE CONTRACT ACT, 1872 Definitions Consideration: Section 2(d) of CA 1872, When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise Agreement: Section 2(e) of CA 1872, Every promise and every set of promises, forming the consideration for each other, is an agreement Enforceability: Section 10 of CA 1872, 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.  THE CONTRACT ACT, 1872 CONTRACT [S 2(h)] AGREEMENT [S ENFORCEABILITY [S 2(e)] 10] PROMISE [S CONSIDERATION [S LEGAL (b)] 2(d)] OBLIGATION ARISING OUT OF AN AGREEMENT PROPOSAL [S ACCEPTANCE [S 2(a)] 2(b)] THE CONTRACT ACT, 1872 Essential elements of a contract Offer and Acceptance: A lawful offer by one party and a lawful acceptance by the other party or parties Intention to create Legal Relationship: Not every agreement leads to a binding contract which can be enforced through courts. Lawful consideration: an agreement is legally enforceable only when each of the parties gives something and gets something in return. Consideration may also be an act to do or not to do. Consideration may be past, present or future. But only valid considerations are ‘lawful consideration.’ Consideration must not be unlawful, immoral or opposed to any public policy. It must be real and not illusory. THE CONTRACT ACT, 1872 Essential elements of a contract Capacity of the parties: Legally capable of entering into an agreement otherwise not enforceable by a court of law. The agreement is not enforceable by law is any of the parties is minor, or suffers from lunacy, idiocy, drunkenness and similar other factors. Free Consent: An agreement must be based on free consent of the parties. Absence of genuine consent of the agreement in induced by coercion, undue influence, mistake, misrepresentation and fraud. Legality of the object: Object not to be illegal, immoral or opposed to public THE CONTRACT ACT, 1872 Essential elements of a contract Certainty: The terms must not e vague. Possibility of performance: The agreement must be capable of being performed. A promise to do an impossible thing cannot be enforced. Writing, registration and legal Formalities: An oral contract is valid except in those cases where writing and or registration is required by some statute. The terms of an oral contract are sometimes difficult to prove. Writing is required in cases of lease, gift, sale and mortgage of immovable property, sale of land, forming a company. THE CONTRACT ACT, 1872 Types of Contract Bilateral Contracts: in a bilateral (two-sided) contract both sides exchange promises. Unilateral contracts: in a unilateral contract the offeree does not accept the offer by making a promise, but accepts by performing the act which the offer requested. Method of Formation Express contract: Express contract is one which expressed in words spoken or written. When such a contract is formal, there is no difficulty in understanding the rights and obligations of the parties. Implied Contract: The condition of an implied contract is to be understood form the acts, the contract of the parties or the course of dealing between them. Quasi Contract: There are certain dealings which are not contracts strictly, though the parties act as if there is a contract. It does not arise from an agreement. These are based on principles of equity, justice and good conscience. THE CONTRACT ACT, 1872 Enforceability of a Contract Valid contract: An agreement which satisfied all the essential elements of a contract and which is enforceable through the court us called a calid contract. Void agreement: An agreement which has failed to satisfied all or any of the essential element of a contract and which is not enforceable by the court is called void agreement. An agreement not enforceable by law is said to be void. A void agreement has no legal fact. It confers no right on any person and created no obligation. Example: An agreement made by a minor. Voidable contracts: Section 2(i) of the CA 1872, defines that "an agreement which is enforceable by law at the option of one or more parties thereto, but not at the option of the other or others is a voidable contract. This in fact means where one of the parties to the agreement is in a position or is legally entitled or authorized to avoid performing his part, then the agreement is treated and becomes voidable. Example: contracts brought about by coercion or undue influence or misrepresentation or fraud. THE CONTRACT ACT, 1872 Enforceability of a Contract Unenforceable Agreement: An Unenforceable Agreement is one which cannot be enforcing in a court for its technical and formal defect. Example: (1) An agreement required by law to register but not resisted. (2) An agreement with not satisfied stamped. Illegal agreements: An illegal agreement is one where the object of it is unlawful. Such an agreement cannot be enforced by law. Thus, illegal agreements are always void ab-initio (i.e. void from the very beginning). OFFER AND ACCEPTANCE THE CONTRACT ACT, 1872 Offer Rules Regarding Offer (case laws) An offer may be made to a definite person or to some definite class of people; or to the world at large. (Carlill v Carbolic Smoke Ball Co ; offer made to the world at large. ) Legal relationship is required. (Edwards v Skyways ; Courts held that there was a presumption of legal intent.) The terms of the offer must be certain, definite, unambiguous and not vague. (Gunthing v Lynn 1831: The offeror offered to pay a further sum for a horse if it was 'lucky’. Held: the offer was too vague.) THE CONTRACT ACT, 1872 Offer and Acceptance Rules Regarding Offer (cont.) Offer must be communicated to the offeree: To be effective an offer must be communicated: there can be no acceptance of the offer without knowledge of the offer. (R v Clarke As Clarke did not act 'on the faith of', or 'in reliance upon' the offer (or proclamation), he cannot be seen to have been accepting the offer. There cannot be an assent to an offer if there is no knowledge of that offer. Counter offer: (Hyde v wrench ) : Facts: Mr. Wrench offered to sell his farm to Mr. Hyde for £1,200, but after declining, Mr. Wrench made a final offer of £1,000, which Mr. Hyde countered with £950, leading Mr. Wrench to refuse the sale; later, Mr. Hyde agreed to buy the farm for £1,000, but Mr. Wrench refused to sell. Held: The court ruled there was no binding contract as Mr. Hyde's counter offer of £950 terminated Mr. Wrench's £1,000 offer, rendering it unavailable for acceptance, thus Mr. Wrench was not obligated to sell the farm to Mr. Hyde. THE CONTRACT ACT, 1872 Offer and Acceptance Rules Regarding Offer (cont.) Invitation to treat is not an offer (Fisher v Bell 1961) An invitation to treat is an indication of a willingness to do business. treating the display as an invitation to treat rather than as an offer. A mere supply of information is not an offer: Harvey v Facey 1893. The claimant’s first telegram was not an offer, it was a request for information. The defendant’s response was not an offer, it was merely providing information. The claimant’s final telegram was an offer. However, the defendant did not accept this offer, so there was no contract. THE CONTRACT ACT, 1872 Revocation of Offer: After expiry of reasonable time/ expired by lapse of time: Ramsgate Victoria Hotel v Montefoire (1866) The defendant offered to purchase shares in the claimant company at a certain price. Six months later the claimant accepted this offer by which time the value of the shares had fallen. The defendant had not withdrawn the offer but refused to go through with the sale. The claimant brought an action for specific performance of the contract. Held: The offer was no longer open as due to the nature of the subject matter of the contract the offer lapsed after a reasonable period of time. Therefore there was no contract and the claimant's action for specific performance was unsuccessful. Death of the offeror or offeree: Bradbury v Morgan – 1862 held: The court held that if the situation was dealing with an implied contract which had arisen out of a request, then it would be stopped by the death of a party. However, in this circumstance, there was no notice provided of the death of Leigh, and therefore there was no attempt to end the contract. THE CONTRACT ACT, 1872 Revocation of Offer: Counter offer: A counter offer is where an offeree responds to an offer by making an offer on different terms. This has the affect of destroying the original offer so that it is no longer open for the offeree to accept. Hyde v Wrench (1840) Revocation by the offeror: The offeror may revoke an offer at any time before acceptance takes place. Dickinson v Dodds (1876). The court held that the statement made by Mr Dodds was nothing more than a promise; there was no binding contract formed. He had communicated an offer for buying his house to the complainant and this offer can be revoked any time before there is acceptance. THE CONTRACT ACT, 1872 Acceptance Who can Accept an Offer? An individual Any member of the Class Any person of the World THE CONTRACT ACT, 1872 Acceptance Rules regarding Acceptance Must be an absolute and unqualified acceptance of all the terms of the offer: If the terms differ this will amount to a counter offer and no contract will exist: Acceptance must be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted: Neale v Merrett: A offered to sell land for £280 to B. B replied accepting the offer, enclosing £80 and undertaking to pay the balance of £200 by monthly instalments of £50. Held: there had been no acceptance. The normal terms are that the entire price is payable as a single sum at completion. Acceptance may be by express words or by action or implied by conduct: Brogden v Metropolitan Railway (1877) The written contract was valid despite no communication of the acceptance. The acceptance took place by performing the contract without any objection as to the terms. THE CONTRACT ACT, 1872 Acceptance Rules regarding Acceptance Acceptance must be communicated: mental acceptance or silence does not result in acceptance: Felthouse v Bindley Held: There was no contract. You cannot have silence as acceptance. Acceptance must be given within a reasonable time and before the offer lapses and/or is revoked: Ramsgate Victoria Hotel v Montefoire (1866) Rejected offers can only be accepted if renewed: offer once rejected cannot be accepted again, unless a fresh offer is made (Hyde v Wrench) THE CONTRACT ACT, 1872 Acceptance Communication of acceptance The general rule is communication of an acceptance is complete when it comes to the knowledge of the offeror. The general rule is that acceptance must be communicated to the offeror and is not effective until this has been done. Entores v Miles Far Eastern Corporation: The offeror sent off an offer by telex to the offeree's agent in Amsterdam and the latter sent an acceptance by telex. 'Held: the acceptance took effect when the telex message was printed out on the offeror's terminal in London. But the offeror may by his offer dispense with communication of acceptance. But the offeror may by his offer dispense with communication of acceptance. Yates Building Co v R J Pulleyn & Sons (York): The offer called for acceptance by registered or recorded delivery letter. The offeree sent an ordinary letter which arrived without delay. Held: the offeror had suffered no disadvantage and had not stipulated that acceptance must be made in this way only. The acceptance was valid. THE CONTRACT ACT, 1872 Acceptance Communication of acceptance The offeror may expressly or impliedly indicate that he expects acceptance through post. Adams v Lindsell: L made an offer by letter to A requiring an answer 'in course of post’. Held: the acceptance was made 'in course of post' and effective when posted. THE CONTRACT ACT, 1872 Acceptance Revocation of acceptance According to section 5 of the Contract Act 1872, acceptance can be revoked any time before the acceptance comes to the knowledge of the offeror, but not afterwards.