Law of contract

The law of contract as practice in Bangladesh can be divided into two

broad categories:
1. General laws relating to contract: (SS: 1-75)
a) Formation of a contract;
b) Performance of contract;
c) Breach of contract & its remedies.

2. Laws relating to some particular types of contracts:

a) Contract of indemnity and guarantee; (124-147)
b) Contract of bailment & pledge; (148-181)
c) Contract of agency, (182-238)

1.General laws relating to contract:

A question may arise about how a contract is to be made? A contract
may be made expressly or impliedly. An express contract may be
written or oral. However, how does made an implied contract? Example:
shoe shiner/chana chor ----------------------------------

Contract: Section 2 (h) of the Contract Act, 1872

An agreement enforceable by law is a contract.

*** Enforceable by law means-

i. competency of parties;
ii. free consent of the parties;
iii. objective must be lawful; (the object for which the agreement
has been entered into, must not be fraudulent or illegal or
immoral or opposed to public policy or must not imply injury to
the person or property of another, S: 23)
iv. consideration must be lawful;
v. not declared by law as void.

Agreement: Section 2 (e) of the Contract Act, 1872 ( Consensus-ad-idem

means both the parties to an agreement in the same sense and at the
same time.)
Two types of agreement –
1. Agreement enforceable by law; and ( agreement for purchase a
laptop is---)
2. Agreement not enforceable by law. (agreement for purchase
heroine is---)
Page | 1
So, “all contracts are agreement, but all agreements are not
contracts” it was also held in Abdul Gani Sheikh Vs Jagadish Chandra
Mridha and others.1
Every promise and every set of promises forming the consideration for
each other is an agreement.

Consideration: Section 2 (d) of the Contract Act, 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. 2

Promise: Section 2 (b) of the Contract Act, 1872

A proposal when accepted becomes a promise.

Proposal: Section 2 (a) of the Contract Act, 1872

When one person signifies to another his willingness to do or to abstain
from doing anything, with a view to obtaining the assent of that other to
such act or abstinence, he is said to make a proposal.

Acceptance: Section 2 (b) of the Contract Act, 1872

When the person to whom the proposal is made, signifies his assent
thereto the proposal is said to have acceptance.

Voidable contract: voidable contract has been defined in section 2 (i) of

the Contract Act, 1872 as-
An agreement which is enforceable by law at the option of one or more of
the parties thereto, but not at the option of the other or others is called
voidable contract.

Void contract: section 2 (j) of the Contract Act, 1872

A contract which ceases to be enforceable by law becomes void when it
ceases to be enforceable.

****Rules regarding proposal/how can make a proposal?

Suppose someone expresses his willingness that “I would like to sell my
car for Tk. 5 lacs”- it will not be an offer.
A conversation between Tom & Bob,

1
BLC 121
2
English law has different opinion on it, later we will discuss with research article.

Page | 2
Tom: Have you bought another car? I just heard it from Kuddus that you
purchased a Lexus car yesterday.
Bob: O, Yeah, it's true.
Tom: But I think the second car will be really useless for you, one is
sufficient.
Bob: I am thinking to sell my old one.
Tom: For how much?
Bob: 5 lacs.
Tom: that’s nice.
Now state any legal binding between Tom & Bob for sale of such car.

Due to make a valid proposal:

1. The proposal must intent to create legal relations--- Case:
(Balfour Vs. Balfour)
Fact: Plaintiff is a businessman, living Ceylon, promised to his wife,
who was living in England due to health reason, paying her monthly
allowance.
Dispute: the dispute is raised when the Plaintiff fails to pay the
allowance to his wife.
Held: Competent court held that there was no intention to create legal
relation between them.
Similarities: suppose someone invites to dine, it is not an offer. (Social
relation does not mean a legal relationship)

2. Mere expression of intention is not sufficient to constitute an

offer. Example: “Adi’ says to ‘Honey’ “I may sell one of my cars if get
Tk. 10 lacs- this is not an offer; but if ‘Adi’ says to ‘Honey’ that “I will
sell you my latest car for Tk. 30 lacs is an offer.
Once again: A told B, while taking tea, I will be happy if I can sell my
house situated at Uttara for Tk. 1 core to a businessman, B being a
businessman comes forward with the said money and claim the house.
Held: It was not an offer but a mere expression.
3. An offer (term & condition as well) must be definite or certain,
i.e., any vague or ambiguous statement is incapable of giving birth to a
proposal. (S: 29)
Suppose: a person indicating two cars of the same model kept in front
of him and tells that “I will sell one car for Tk. 5 lacs and another for
Tk. 3 lacs”, is not an offer.
Again: A new model BMW car and another scooter are kept in one
place and indicating that “I will sell these two, one for Tk. 1 lac and
another for Tk. 95 lacs” it may constitute an offer.

Page | 3
Case: Montreal Gas Co. Vs. Vasey
Fact: Contract between A & B, where A promised that he will be
renewed the contract if he is satisfied as B’s customer.
Held: Not create any legal obligation between A & B.

4. An offer may be made to specific person or class of person or

even to the world at large generally in the following way-
a) A says B to sell his computer to him for a certain price --
b) A makes an offer to sell some computer to the student of BBA----
c) A promise to give a reward of Tk. 1000 through an advertisement
published in his website to anyone who can be found his lost pet
tushi---

5. Offer may be expressed or implied---- written is must when an

agreement to pay a time-barred debt,
Agreement to make a gift for natural love and affection S: 25
Arbitration agreement as per Arbitration Conciliation Act, 1996
Sale of immovable property as per TP Act, 1882
a) A tells B ‘I will sell my car to you for Tk. 1000—is an express but
oral offer---
b) A sends an e-mail to B offering to sell his particular land for a
certain price—is an express but writing offer---
c) Example for shoe shiner-----is an Implied offer---

6. Offer may be positive or negative. Example—

a) A says “I will sell my car for Tk. 3lacs” ---is a positive offer
b) A tells B “ If u do not go Cox’s bazaar tomorrow, I will not give C
Tk. 3 lacs—is a negative offer.

7. Offer may be conditional or unconditional. Ex. If A tells B that “I

will sell my car to u if u recruit my nephew in ur company as a manager
—is a conditional offer.

8. An offer should be with a clear intention -----(will u sell us Bumper

Hall Pen? Telegraph lowest cash price. There was no clear intention.

9. Communication is essential in order to constitute an offer. See

section 3 of the Contract Act, 1872.

Page | 4
 10. A contract for necessaries: in the case a necessary supplied to a
minor or lunatic, the supplier of goods is entitled to be reimbursed
from their estate S: 68 of the Contract Act, 1872.

11. Possibility of performance: an agreement to do an act impossible

(physically or legally) in itself is void S: 56.

**** Offer & invitation to treat:

In fact, the Contract Act, 1872 does not define the term of invitation to
treat. However, a proposal must be distinguished from an invitation to
treat. However, in Carlill vs. Carbolic Smoke Ball Company—here D was
the owner of Carbolic Smoke Ball, issued an advertisement in which they
offered to pay 100 dollars to any person who succumbed to influenza
after having used one if their smoke balls. They also added that they had
deposited a sum of 1000 dollar with their bankers to show their sincerity.
The Plaintiff, on the faith of the add., bought and used the ball as
prescribed, but succeeded in catching influenza. She sued for the 100 D.
Held: the nature of add was not an invitation to treat but an offer.
An offer and an invitation to treat may be distinguished based on two
factors:
1. Nature of the statement; and
2. The intention of the party who is making the statement.

Display of goods in a shop window is an invitation to treat. Goods or

services advertised in a newspaper or magazine is an invitation to treat.
Mare statement of the price is an invitation to treat. Invitation to
council tenants to by their property is an invitation to treat. (Standard
form fill up/complete – does not mean offer – acceptance. However,
another case has given a different view. Offeror, open an offer, will
remain open for a reasonable time. Where offeror and offeree, cross
their letter for the same purpose/ same subject matter, in that case,
there is no legal relationship between them.
Someone request for bid is an invitation to treat- Payne v Cave.
Advertisement for an auction is an invitation to treat—Harris vs.
Nickerson.

Time tables and boarding on a bus or train:

It has four probable exceptions:

Page | 5
1. In Wilkie vs. LondonTransport Board, Lord Greene Expressed that
offer was made by the bus company and it was accepted when a passenger
“puts himself either on the platform or inside the bus.
2. Alternatively, acceptance takes place when the passenger asks for a
ticket and pays the fare.
3. The bus time table is an invitation to treat, the offer is made by the
passenger on boarding the bus and acceptance take place when the bus
conductor accepts the money and issue the ticket.
4. The bus contractor makes the offer when he issues the ticket, and this
offer is accepted by paying the fare and retaining the ticket.

* Offer and acceptance:

* Offer must be communicated – Taylor v Laird

* Offer can be withdrawn any time before acceptance – Routledge v

Grant

* But withdrawn of an offer have to communicate to offeree – Byrne v

Van Tienhoven

* Unilateral offer is accepted by performing and offer cannot be

withdrawn while the offeree is still performing – Carlill v Carbolic Smoke
Ball Com. (offer may be made to the whole world)

* Unilateral offer does not require acceptance, only performance is

essential – Errington v Errington & Woods.

** Competitive tendering is to be an offer – Royal Trust Com of Canada v

Harvela Investment

* Highest bidder & owner of goods may be an offer and acceptance -

Royal Trust Com of Canada v Harvela Investment
Or lowest bidder & owner of goods may be an offer and acceptance -
Royal Trust Com of Canada v Harvela Investment (if it is mentioned in an
auction)

* Offeree must be aware of the existence of the offer – Inland Revenue

Commission (IRC) v Fry (2001).
* An offer ends –
on acceptance;
on proper withdrawal ;

Page | 6
on a lapse of time;
on the death of either party.

* Counter offer breach the original offer and no longer open to

acceptance – Hyde v Wrench (acceptance will be unconditional).

* Counter offers will be a term if offeror accepts it – Davies & Com v

William Old.

* Acceptance must be communicated, silence is not acceptance –

Felthouse v Bindley, however, it has exception, i.e., unilateral offer –
Carlill v Carbolic.

* Acceptance must be communicated to offeror – Powell v Lee. (Claimant

applied for the post of a headmaster, the board decided to appoint him,
however, not apprised him officially).

* where the post is the usual anticipated method of accepting that the
contract is formed when the letter is posted, not when it is received –
Adams v Lind Sell.

* When a letter of acceptance is sent by post, would be made acceptance

even if it is not received by the offeror (sending by wrong address will
not be applicable) – Household Fire & Carriage Accident Insurance v
Grant

* Mere enquiry has no any effect of an offer, i.e., mere enquiry does not
reject an offer – Stevenson v McLean.

* Note:
Modern methods of communication, i.e., fax, e-mail & internet causes
problems in determining when a contract is formed – generally it depends
on how instant the communication is – Brinkibon v Stahag Stahl
Some of these problems have now been resolved by
= The Electronic Commerce Director &
= The Consumer Protection (Distance Selling) Regulations, 2000
* Technical counter offers will not always count as a rejection of the
offer if they are of no importance of the parties – Brogden v
Metropolitan Railway Com. (both the contracting parties have long-
standing arrangement, however, for a formal shape RC has sent a draft
where Brogden mentioned in the last side ‘arbitration’ then sign and

Page | 7
returned to RC. The flip side, RC have not seen but kept it with its sign.
When a dispute is raised Brogden argued there was no contract due
counter offer. House of Lord has rejected this argument).

* Laps of time:
* When offeror does not give any time limitation in that case, the offer
remains open for a reasonable time. – Ramsgate Victoria Hotel Com Ltd v
Montefiore.

* What is the basis on which the court assesses a reasonable time? –

Manchester Diocesan Council for Education v Commercial and General
Investment Ltd.
* A letter crosses between offeror and offeree for the same purpose –
No legal relation between them. – Tinn v Hoffman & Com.

* 5 pounds will be extra paid if the horse is lucky. However, what is mean
by lucky was not defined. So due to vague or uncertainty, there was no
contract has been made between the party. - Guthing v Lynn.

* Letter post for an offer of acceptance both has to be reasonable

(Henthorn v Fraser) and convenient (Cole v Carwardine).

* Offer & Invitation to treat:

* Offer must be distinguished from ITT – Pharmaceutical Society of GB v

Boots Cash Chemists Ltd.
* Goods display in a shop window is ITT – Fisher v Bell

* Goods or services advertised in a newspaper or magazine ITT –

Partridge v Crittenden

* Mere statement of a price is ITT – Harvey v Facey (will u sell me

Bumper Hall Pen? What is the lowest price?)

* Invitation to council tenants to buy their property is ITT (standard

form fills up does not mean that offer & acceptance is made) – Gibson v
Manchester City Council 1979 however, Storer v Manchester City Council
has given a different opinion.

Page | 8
Free Consent:
According to S: 13 of Contract Act, 1872, two or more persons are said
to consent when they agree upon the same thing in the same sense.
S: 14 of the Contract Act, 1872, define free consent. It reads out-
Consent is said to be free when it is not caused by
1. coercion, as defined in section 15, or
2. Undue influence, as defined in section 16, or
3. Fraud, as defined in section 17, or
4. Misrepresentation, as defined in section 18, or
5. Mistake, subject to the provisions 20, 21 and 22
Coercion:
To be coercion any of the following four acts must take place—
i) Committing any act forbidden by the Penal Code, 1860
ii) Threatening to commit any act forbidden by the Penal Code, 1860
iii) Unlawful detaining any property, to the prejudice of any person
whatever
iv) Threatening to detain, any property, to the prejudice of any person
whatever.
Undue Influence:
According to section 16 of the Contract Act, 1882
1) A contract is said to be induced by ‘ undue influence’ where the
relations 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.
2) In particular and without prejudice to the generality of the foregoing
principle, a person is deemed to be in a position to dominate the will of
other:
(a) where he holds a real or apparent authority over the other or where
he stands in a fiduciary relation to the other; or
(b) 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.

3) Where a person who is in a position to dominate the will of another,

enters into a contract with him, and the transaction appears, on the face
of it or on the evidence adduced, to be unconscionable, the burden of
proving that such contract was not induced by undue influence shall lie
upon the person who is a position to dominate the will of the other.
Component of undue influence:

Page | 9
Two ingredients must be present to prove that a contract is induced by
undue influence:
1. Nature of relationship:
One of the parties is in a position to dominate the will of other / one is
the superior position and such superior position control of the other’s
power of will. It is a psychological control over the other.
2. Use of relation:
The mere existence of the above relationship is not sufficient to
constitute ‘undue influence.’ However, it has to be gain an unfair
advantage from the other party.

What is meant by the dominant position?

i) A real authority over the other, e.g., the relationship between a police
officer and accused.
ii) Apparent authority over the other, e.g., the relationship between
master and servant.
iii) A fiduciary relation or utmost good faith with other, e.g., the
relationship between parents and child, doctor and patient, lawyer and
client, teacher and student, etc. and lastly
iv) A person whose mental capacity is temporarily or permanently
affected by reason of age, illness, or mental or bodily distress.
The burden of proof:
The consequence of undue influence:
An agreement which is induced by undue influence becomes a voidable
contract at the option of the party whose consent was so caused. As per
section 19A of the Contract Act, 1872
When consent to an agreement is caused by undue influence, the
agreement is a contract voidable at the option of the party whose
consent was so caused.
Any such contract may be set aside either absolutely or, if the party who
was entitled to avoid it has received any benefit thereunder, upon such
terms and conditions as to the court may seem just.

Fraud:
It means and includes any of the following acts committed by a party to a
contract, or by his agent with intent to deceive another party thereto or
his agent or induces him to enter into the contract:
1) The suggestion, as to a fact, of that which is not true by one who
does not believe it to be true;

Page | 10
2) The active concealment of a fact by one having knowledge or belief
of the fact;
3) A promise made without any intention of performing it;
4) Any other act fitted to deceive;
5) Any such act or omission as the law specially declares to be
fraudulent.

Explanation: (does mere silence amount to be a fraud?)

Mere silence does not affect the willingness of a person to enter into a
contract, unless the circumstances of the case are such that, it is a duty
of a person keeping silence to speak, or unless his silence is, in itself
equivalent to speech.

Example:
‘A’ sells, by auction; to B, a horse which A knows to be unsound, A says
nothing to B about the horse’s unsoundness. This is not fraud in A.
On the other hand,
B says to A “if you do not deny it, I shall assume that the horse is sound.”
A says nothing. Here A’s silence is equivalent to speech.
Notwithstanding the fact, however,
A and B, being traders, enter upon a contract. A has private information
about a change in prices which would affect B’s willingness to proceed
with the contract. A is not bound to inform B.

Features of fraud:
There are two components of fraud,
One: psychological element:
An act must be done with the intention to deceive another party thereto
or his agent. In order to constitute fraud there must be a fraudulent
intention and as such to cause any person to enter into an agreement. This
deceptive intention is the distinguishing factor between fraud and
misrepresentation.
Two: substantial element:

Misrepresentation
There are following four possible ingredients for define
misrepresentation according to English existing law.
• An unambiguous, false statement of fact or law;
• Must address to the party misled and
• Inducement to entry into the contract and possibly it must also be
material.

Page | 11
The only misrepresentation of law is to be an actionable claim (Pankhania
vs. London). However, it is not allowed in all cases (Kleinwort Benson Ltd).

A statement must be an existing fact. However, the following three

categories do not mean an existing fact.

* Mere puff:
Statement regarding land fertile and improbable is not meant
misrepresentation (Dimmock vs. Hallett)

* Opinion / belief:
Sheep farming – New Zealand- carry 2000 sheep is not misrepresentation
(Bisset vs. Wilkinson).
Exception: Esso Petroleum case. A separate sheet will be provided.
However, Lord Justice stated that where both to a contracting party
know equally a fact does not mean existing fact but mere opinion (Smith
vs. Land and House Property Corp).
* Statement of intention / promise:
Someone failed to carry out his stated intention does not make
misrepresentation (Wales vs. Wadham).

# Misled:
a) Misleading by representor to representee by direct communication is
a best and obvious method.
b) Representor made a statement to a third party intention to
communicate such a statement to representee is called indirect or oblique
misled (Commercial Banking Co. of Sydney 1972).

# Inducement:
The misrepresentation must be material (Mathias vs. Yetts).
Nevertheless, modern court does not distinguish between materiality and
inducement.
The orthodox interpretation of material misrepresentation is satisfying
the objective test (Muse Prime Properties Ltd. Vs. Adhill Properties Ltd
1991). It’s mean whether a reasonable person induced by the said
statement or not. The onus of proof placed on the representor that
represented does not rely on the said statement.
On the other hand, whereby the said statement a reasonable person has
no reason to enter into a contract (but representee entered into the
contract) in that case burden has to sift to the representee.

Page | 12
# following three cases/situations, a claimant/representee could not
claim that he was induced by another:
1st: where claimant unaware of existing representation (Horsfall vs.
Thomas);
2nd: where claimant know that the representation was untrue;
3rd: where claimant did not allow the representation to affect the
judgment {where he relies on his own judgment (Smith vs. Chadwich)}

# Types of Misrepresentation:
1) Fraudulent misrepresentation- a statement would be fraudulent where
a statement made (i) knowingly;
(ii) without a belief that it is truth;
(iii) recklessly, carelessly whether it be true or false.
In a nutshell, for fraudulent misrepresentation the following types of
action and remedies are available-

The type of action taken The available remedies

The action is brought in the tort of ▪ Sue for damages, under tort
deceit. measure. This includes all
consequential loss.
The obvious defense is ‘an honest ▪ Aims to protect reliance interest
belief’ in the statement.
Can affirm the contract; or
▪ Can disaffirm and sue the
misrepresentation as to a defense
to a claim of breach of contract.

▪ Can seek rescission of the

contract in equity.
▪ Aggravated damages may be
awarded to compensate the claimant
for the injury to his feelings.

2) Negligence Misrepresentation at common law:

A statement made without reasonable grounds for believing it to be true
(Howard Marine & Dredging Co. Ltd. Vs. A. Ogden & Sons Ltd- 1978).
Due to negligence misrepresentation, there is no tortuous action (Derry
vs. Peek) as because tortuous remedy only arose for fraudulent
misrepresentation. However, in Nocton case, House of Lord said that
tortuous remedies may be available for negligence misrepresentation

Page | 13
where the contracting parties have/exist pre-existing contractual
relation or fiduciary relation.
In a nutshell, for negligent misrepresentation at common law, the
following types of action and remedies are available-

The type of action taken The available remedies

Action in tort under Hedley Byrne
principles
The possible defense is an absence
of any of the essential elements,
e.g., no special relationship.
▪ Sue for damages under the tort
measure for foreseeable damage or
▪ Could traditionally seek rescission
in equity.

1) Negligent Misrepresentation U/S: 2(1) of Misrepresentation Act,

1967:
Where claimant entered into a contract (misrep by other) and suffered
loss, misrepresentor liable for damage- notwithstanding
misrepresentation was not made fraudulent and can showing reasonable
grounds that the statement was true.

In a nutshell, for negligent misrepresentation at statutes, the following

types of action and remedies are available-

The type of action taken The available remedies

Action under section 2(1) of the
Misrepresentation Act 1967
The usual defense is an honest
belief in the statement.
▪ Sue for damage under the tort
measure
▪ Traditionally, rescission in equity
was available
▪ Recover damage is the reliance
measure

4) Innocent misrepresentation:
Neither fraudulent nor negligence.

Damage:
Fraudulent Misrepresentation: damage may potentially recoverable for
fraudulent misrepresentation – Case: Kuddus vs Chief Constable.
Damage recoverable in Tort + Direct or indirect foreseeable {actual +
consequential (foreseeable + unforeseeable)}.

Page | 14
Negligence Misrepresentation at Common Law: damage recoverable in
tort. A court would reduce an award for misrepresentee’s contributory
negligence. Damage award = (actual loss + consequential loss + foreseeable
loss).

Negligence Misrepresentation at statutes: some argue for reliance

interest Case: Royscot Trust Ltd vs. Rogerson, other for expectation
interest.
Innocent Misrepresentation: the only remedy was recession and
indemnity. Damage for innocent misrepresentation is the discretion of a
court u/s: 2(2) of Misrepresentation Act, 1967. Damage award by the
court for innocent misrepresentation is equitable.

Note:
** Statement made an intention that –representee rely upon = Liability
likely be imposed. Cace: Smith vs. Eric S Bush

** Statement is put into general public circulation, social occasion –in that
case, if representee relies upon = Liability imposed on representor in
tough. Case: Chaudhry vs. Prabhakar.

** Statement is put into general public circulation, ‘commercial context’

and representee rely on such statement is reasonable. Case: Smith vs.
Eric S Bush.
** Statement is put into general public circulation with no particular
person in mind to a recipient- liability many not imposed. Case: Caparo vs.
Dickman.

Mistake:
Please notice SS: 20, 21 & 22 of Contract Act, 1872.
From the dimension of the nature of the mistake it may be of two types:
i) Mistake of fact; and
ii) Mistake of law.

Again from the dimension of the person who is committing it, a mistake
may be of three types:

i) Common mistake: Both of the contracting parties have been mistaken,

and the nature of the mistake is the same nature.

Page | 15
ii) Mutual mistake (which is material to the agreement, it would be void
S: 20): both of the contracting parties have been mistaken. However, the
nature of the mistake was different.
iii) Unilateral mistake: the nature of the mistake is one-sided; another
party has knowledge of such mistake.

Agreement in restrain of trade: u/s: 27

One agrees to restrict his freedom of trade
Freedom to conduct his profession or business
– is called restrained.
Prima facie, any restriction on employee relation to employment is void.

Exceptions:
Reasonableness

Both parties interest public

interest

employer has legitimate reasonable in terms of

interest to protect subject matter, time &
locality (Manson v Provident

an employer has legitimate interest Clothing & Supply Com)

when its employee has an influential
relation to the customer (Fitch v Dewes)
Petrol
when employee is apprised by secrete
& confidential of trade then employer
to
has legitimate interest (Forster & Sons v
years.
Suggett)
two contract has been made with Esso
leum Ltd, 1. Contract to be purchased oil
only from Esso up to 5 years; 2. Contract
be purchased oil only from Esso up to 21
Held: Only first contract is reasonable
( Esso Petroleum Ltd. v Harper’s Garage Ltd

# Reasonable depend on all facts of each &

it
may extend upto world wide (Nordenfelt v
Nordenfelt)

# Some business restricted within 25

miles of London is not reasonable (Case)

Page | 16
Two elements have to proof
1. Buyer must establish a proprietary interest;
2. Reasonable in the light of all the circumstances.

The consequence of an illegal contract:

The court will not permit recovery of benefit, transfer under an illegal
contract (Holman v Johnson – 1775).

However, it has three exceptions:

1. where both parties are not ‘Pari delicto’ (not equally guilty);

due to mistake
inducement

induce by fraudulent, misrep compulsion (pressure)

2. Where the plaintiff repudiates the illegal purpose in time

(encourage people to restrain from an illegal contract);

3. If the plaintiff has a right to established on the property other

then the illegal contract.
Example: suppose, a car was bought by a bank loan, so the bank has
some interest in such car legitimately. However, if the car is sold to an
innocent third person without appraising of bank loan, here innocent
buyer as per Tort/equity can enjoy conversion right but not as per
contract.

Case: Tinsley vs. Milligan, 1993 two ladies, were bought a house,
registered by one lady due to avoid tax to govt. Held: other parties
will not get a benefit based on contracting right, however, would be
benefited by resulting trust. Lord Justice has given benefit from
restitution.

Page | 17
Discharge of a Contract

Discharge of contract is indicating to the ending of the obligations under

the contract. Discharge is also referred to as the end or completion of
the contract. It points out that contracting parties are no longer liable
for the said contract.

Basically, it will be point either of the following ways:

i) all sorts of primary obligations created by the contract have been
met in a satisfactory manner (fulfill all obligation). It denotes that
contracting parties are free from all obligations or
ii) either one to the contracting party has failed to complete a few or
all of their primary obligation (not fulfill all or part of obligation). In this
case, the remaining obligation of that party, to pay damages or
compensation to the other party as it is required.
It is a complicated area where one of the contracting party completing
some but not all of the obligations. Nonetheless, there are four possible
ways in which a contract can be discharged:
1) Discharge by performance;
2) Discharge by agreement;
3) Discharge by frustration;
4) Discharge by breach of contract.

1) Discharged by performed
In this case, the terms of the contract have been met all obligations
under the contract have been performed, and the contract is completed.
However, a strict rule3 or “perfect tender” rule has also been established
due to completely performance of all the obligations under the contract.
* The strict rule can even be applied in the case of descriptions applied
rather than the goods or services themselves. 4

3
Cutter vs. Powell (1795) 6 Term Rep 320 . Fact: Cutter was the 2nd mate on a ship,
sailing from Jamaica to Liverpool. The boat set sail on 2 nd August and reached Liverpool
on 9th October. Cutter died during the voyage, on 20 th September. Cutter’s widow sued
for wages for her husband work on the basis of quantum meruit (amount for her husband
appropriate works). Strict rule: applying the strict rule she was failing as her husband
failed (died) to completely perform according to contract. As because the strict rule on
performance is that in an ‘entire contract’ all obligations must be performed
Held: Court held that there was no obligation on the ship-owners to pay. So there can be
no payment for part payment.

Page | 18
 The exceptions to the strict rule
Mainly, after the judgment as given in Cutter vs. Pawell in 1795 led to
judges identifying and accepting the exceptions when the rule does not
operate.

** Exceptions largely a number of following cases:

a) For divisible contract: (where a contract made up of various parts or as
serious of quite a separate obligation rather than a single obligation. If
each part can be discharged separately)
Example: where there is a sale of goods by delivery in separate
installments...
Case: Taylor vs Webb5
Fact: Premises were leased to a tenant for rent. A term in the lease
required the landlord to keep the premises in good repair. However, the
landlord, in fact, failed to maintain the premises and the tenant then
refused to pay the rent.
Landlord sued against the tenant for rent.
Held: Court held that the nature of the contract was divisible. So the
contract was thus not entire, and the tenant could not legitimately refuse
payment.

b) For part-performance of contract:

if one of the parties has performed the contract partly but not
completely then, if the other party has shown willingness to accept the
part performed, in that case, the strict rule will, usually not apply and can
claim money for that part performance of a contract.

* In case of substantial performance: where the substantial part has

been done what was recurred under the contract then the doctrine of
substantial performance can apply. In Hoenig vs Isaacs6
4
Arcos Ltd vs. E A Ronaasen & Son (1933) AC 470 . Fact: one of the contracting parties
has given order for wooden staves which were described in the contract as half an inch
thick. However, delivered were a sixteenth of an inch narrower and so did not
correspond exactly to the contract description. Happened: the buyer than rejected the
goods and the seller sued for the loss of profit. Court held: in law the buyer was
entitled to reject the consignment to him, applying the strict rule. Observation: the
absolute strictness of the rule is shown in the case because the precise width of the
staves did not matter to the purchaser, who could still have used them for the purpose
for which he had wanted them.
5
(1937) 2 QB 283
6
(1952) 2 AII ER 176

Page | 19
Held: a decorator was hired to decorate and furnish a flat for pound 750.
Decorator completed the work. Owner paid pound 400 by 3 installments
while the work was underway. However, defect to put bookcase and
wardrobe that would cast about pound 55 to put right.
Consequence: owner refused to pay the remaining payment.
Court of Appeal Held: substantial part of the contract has been
performed. So the balance of the price should be paid to the decorator,
less the amount representing the defects in the work.

* However, it will not be classed as substantial performance if too much

remains to be done under the contract. Case: Bolton vs Mahadeva7
Fact: an electrical contractor was hired to install a central heating
system. When it was installed, the system gave off fumes and did not
work properly.
Consequence: payment was refused; as a result, the contractor sued for
the price.
CA held: rejected his claim on the ground that there was not substantial
performance.
Reasoning: total cost for central heating system 560 pounds,
Reinstall cast for defectiveness 174 pound, too high in
eye of the Court of Appeal.

* A party can sue for damages where his performance has been
prevented by the other party. Case: Planche vs Colburn8
Fact: A publisher was planning to produce a series of books on a
particular theme. The publisher then hired an author, claimant to write
one of the books in the series. When the publisher decided to abandon
the whole series the author was prevented from completing the work
through no fault of his own and despite the fact that he had already done
a lot of work for the book.
Court held: the author was entitled to recover half his fee for his wasted
work, on the quantum meruit.

* Where one has offered to perform, but this has been refused, in this
case, a court can compel others for accepting as per the contract. Case:
Startup vs Macdonald.9
7
(1972) 1 WLR 1009
8
(1831) 8 Bing 14
9
(1843) 6 Man & G 593 (However, the result might of the case might be different now under the Sale
of Goods Act, 1979 since delivery should be at a ‘reasonable hour’ and this would be a question for the

Page | 20
Fact: The contract was for 10 tons of linseed oil to be delivered by the
end of March. The seller in fact delivered at 8:30pm on 31 March, which
was a Saturday and the buyer refused to accept delivery.
Court held: the seller was able to claim that he had tendered
performance and to recover damages as a result.

Contract perform in due time stipulated in the contract

Prima facie, where the contract is not performed on time the only action
for damage is possible. Repudiation of the contract may be possible if
time is of the essence.
The time of performance is ‘of the essence’ when:
i) it says so in the contract;
ii) the circumstances make it so;
iii) one party has already failed to perform.
10
2) Discharge by agreement
A contract can also be ended by agreement without it necessarily having
been performed.
There are in fact two ways in which the contract could be discharged by
agreement:
i) bilateral discharge:
In this case, contracting parties completely make a new agreement and
replacement of the original agreement. Here, in fact, both are gain a new
but different benefit from the new agreement.
ii) unilateral discharge:
Here, one party releasing to the other party from his obligations under
the original agreement.

3) Discharge of contract by Frustration

Frustration takes place, where after the contract is concluded/formed,
an intervening event occurs which makes the performance of the contract
either impossible or illegal or radically different from what was
contemplated by the parties (none of the party will be liable).

* Where the performance of the contract becomes impossible because

of the destruction of the subject matter of the contract then the
contract is frustrated.
Case: Taylor vs Caldwell11

court to decide in the individual case)

10
For more details see pp: 413-418 unlocking contract law by Chris Turner.
11
(1863) 32 LJ QB 164

Page | 21
Fact: D hired out the Surry Gardens and Music Hall to P for a series of
concerts. Six days before the first concert the Hall was destroyed by an
accidental fire.
Held: D was not liable to P for wasted advertising and other expenses.
(Contract is frustrated)

* Where a change in circumstances radically affects the purpose of the

contract will be frustrated.
Case: Krell vs Henry12
Fact: D hired rooms in Pall Mall for two days in order to see Edward
VII’s coronation procession as it passed along Pall Mall. No reference to
the procession was made in the written agreement. The coronation was
postponed because of the king’s illness.
CA held: the contract was frustrated. As the purpose was not served and
there was no alternative way to use of the Pall Mall.

Limitation of frustration
Notwithstanding the fact, however, the following cases are the
limitations of frustrations.
* Frustration took place where external circumstances have caused the
performance to be radically different from that agreed.
Case: Davis Contractors Ltd vs Fareham Urban District Council 13
Fact: P contractors agreed to build 78 houses for D for 92,425 pounds
within the eight months.
Due to a shortage of skilled labor and building materials, the work took
22 months and cost 111,076.
P claimed that the contract was frustrated by the long delay and claimed
the additional costs on a quantum meruit basis.
HL Held: the contract was not frustrated because the cause of the delay
was not unforeseeable.
* Where substitute performance is possible under the contract, then the
contract is not frustrated.
Case: Tsakiroglou & Co. Ltd vs Noblee Thorl14
Fact: D supposed to send the groundnuts to P, and it was contemplated by
both parties that the ship would use the Suez Canal (Hamburg to Port
Sudan).
The Canal was then closed to shipping, and the sellers did not deliver the
goods claiming that the contract was frustrated.
12
(1903) 2 K. B.740, CA
13
(1956) A.C. 696;
14
(1962) A.C. 93;

Page | 22
HL Held: the contract was not frustrated. Since there was an alternative
way to send the goods.

* Similarly, a change in circumstances which only incidentally affects the

purpose of the contract will not frustrate the contract.
Case: British Movietonews Ltd vs London & District Cinema Ltd 15
Fact: During the 2nd world war, P and D entered into an agreement for the
supply of newsreels.
D argued that the contract was frustrated because the war was over and
there was no longer any need to show these particular newsreels.
HL Held: the contract was not frustrated just because it was no longer
commercially viable for one party.
It is also noted that self-induced frustration will not discharge the
contract.
Effect of the frustration of contract
In Bangladesh, there is no liability from the frustrated contract. Both of
the contracting parties are free from the contract. However, in English
law, there are two types of law that govern the effect of frustration.
i) i) based on statutes;
ii) ii) based on common law (case law), Case: Chandler vs Webster16
Fact: D hired a room for one day in order to see Edward VII’s coronation
procession. The hire charge of 141.75 pounds way payable immediately. P
paid 100 pounds. The coronation was postponed because of the King’s
illness.
CA Held: the contract was frustrated. P was unable to recover the 100
pounds and was liable to pay the remaining 41.75 pound to D.

On the other hand, based on statutes, it is governed by the Law Reform

(Frustrated Contract) Act, 1943
Under the section: 1(2) all sum paid or payable, due to frustration cease
to be payable;
Under the section: 1(3) money paid will be recoverable
- subject to some exception, a payee can set off an amount (which he
has already spent or to that extent he has already performed)
- money payable ceases to be payable.

Note: for more detail, see pages 438-439 of unlocking contract law by
Chris Turner

15
(1952) A.C. 166
16
(1904) 1 K. B. 493, CA

Page | 23
 Discharge of contract by breach
Whenever a party fails to perform an obligation arising under a contract
then the party can be said to be in breach of contract.
A breach of contract can actually occur in one of two ways:
* By failing to perform obligations- this situation itself can occur in one
of two ways:
- either the contract is not performed at all or
- the contract is not performed to the standard required under the
contract, e.g. by providing goods that are not of satisfactory quality.

* By repudiating the contract- obligation under it, without any lawful

justification.

Lord Diplock explained this position17 that the

Terms of a contract, whether express or implied, are primary
obligations. If a party fails to perform what he has promised to do then
this is a breach of a primary obligation.
Consequence of the breach of this primary obligation is that it is then
replaced by a secondary obligation which the requirement to pay damages.
So in this way, a breach is not so much a discharge of the contract but a
replacing of one set of obligations with a different set.

Lord Diplock also saw there were two basic exceptions to his proposition:
- fundamental breach: breach of a term deprives the other party of
substantial benefit under the contract then the whole contract is said to
be breached.
- breach of condition: where the term is so central to the contract that
its breach renders the contract meaningless and thus entitles the other
party to repudiate their obligations under the contract or can claim
damage as well.
Various types of breach
Based on the above, it is possible to identify three particular forms of a
breach. The consequences of the breach depend on the nature of the
breach. They are:

17
Photo Productions Ltd vs Securicor Transport Ltd (1980) AC 827

Page | 24
* Breach of any term- where the term is not anything important,
regardless of whether it is a condition or a warranty if a term is
breached there will always be available action for damage.
* Breach of a condition- a condition is a term going to the root of the
contract. It means that if it is breached it would render the contract
meaningless. A condition can either be expressed by the parties
themselves or it can be implied by law. The consequence of breach of
condition, damages may be available as a remedy, but the victim of the
breach will not be able lawfully to repudiate the obligations under the
contract.

* Anticipatory breach- breach occurs before the date for

performance of the contract. Here, one party to the contract either
- expressly gives notice to the other party that he will not complete the
obligation; or
- it can be implied from that conducts, that he will not complete his
obligations under the contract.
So there will, therefore, be a breach of contract.

The various consequence of breach of contract

Remedies are available will vary according to the categories of breach of
the contract.
Breach of an ordinary term - an action for damages is always available,
regardless of how the term is classified. If the term is only a warranty
or, where a court determines that the terms in question are innominate,
but the breach is not a serious one and therefore does not justify
repudiation of the contract by that party, then the only action for
damages is available.
Breach of a condition - where a condition is breached, or the court has
declared that the term is innominate and the breach is sufficiently
serious to justify repudiation of obligations, the party who is the victim
of the breach has more choice.
- he may continue with the contract and sue for damages; or
- repudiate his own obligations under the contract; or
- indeed both repudiate his own obligations and sue for damages as well.
Anticipatory breach – the party who is a victim of the breach has choices
available once having discovered that the contract will be breached. And
the course of action open to the victim of the breach is immediately to
consider the contract at an end and sue for damages.

Page | 25
 Remedies in Contract Law
All actions in contract law, as in tort, are subject to limitation periods
outside of which an action cannot be brought. Even in equity, we can see
the maxim “delay defeats equity” operating so that a claimant who delays
too long in bringing a claim will be prevented from succeeding.
Firstly, if there is a valid cause to be fought, then the claimant is to be
encouraged to bring the action as soon as possible.
Secondly, it may raise the difficulty of preserving evidence intact if a
claim is delayed for too long.
Finally, it is only fair on a defendant to bring the claim as early as
possible if it is indeed actionable.

Limitation for action:

One year from the date on which the action accrues according to
Limitation Act, 1908.
Remedies available:
A number of possible remedies are available for breach of contract. The
most available remedy to be awarded, of course, will be a sum of
monetary compensation in the form of unliquidated damage. However, the
other damage may be awarded according to the appropriate
circumstances of the particular case.

Broadly, a remedy may be awarded either under

- The Common Law; or
- Equitable in character.
Common law remedies are of four main types:
* unliquidated damage – these are assessed by the court according to the
breach itself and the losses arising from it.

Two tests are to be satisfied in order to unliquidated damage:

i) the loss in respect of which the claimant can recover (for what can the
claimant recover?)
ii) the number of damages available (how much can the claimant recover?)
However, the two questions (what and how) actually concerns causation.

Causation of loss18
Fact: A decorator was entrusted with keys to the premises in which he
was contracted to work. When he left the premises unlocked, a thief
entered and stole property.
18
Stansbie vs Troman (1948) 2 KB 48

Page | 26
Held: The decorator was liable for the loss that was the result of his
failures to comply with his contractual duty to secure the premises
properly on leaving.
Causation: The thief was the direct cause of the loss, but the theft could
not have occurred but for the breach of duty by the decorator.

Remoteness of damage:
The general principle is that damages will never be awarded for a loss
that is too remote a consequence of the breach. There are two tests still
remain in order to sort out the remoteness of damage.
i) measured objective (what loss is a natural consequence of the
breach);
ii) measured subjectively and based on the specific knowledge of
potential losses that are in the minds of both parties at the time the
contract is formed.

Case: Victoria Laundry (Windsor) Ltd. Vs Newman Industries Ltd 19

Fact: D sold a large boiler to the laundry company and failed to deliver in
due time, deliver five months later from the date of the contract. D knew
that P wanted the boiler for immediate use in their business. Laundry
Company sues for the usual profits of 16 pounds per week from the date
of the breach.
Held: Laundry Company recovers for loss of profits on the ordinary
business but not damages for the loss of profits because D did not know
of these contracts at the time they entered into the contract with
Laundry Company.

Base of assessment:
There are three bases of assessment
i) loss of a bargain (to place the claimant in the same financial position as
if the contract had been properly performed)
ii) reliance loss (a claimant is also entitled to recover for expenses he has
been required to spend in advance of a contract that has been breached.
iii) restitution (recovery of payments made).

* liquidated damage – these are set sums identified by the parties prior
to the formation of the contract.

19
(1949) 2 KB 528

Page | 27
* Restitution of payments made in advance of a contract – recovery is
possible where there is a complete failure of consideration or where
there is a mistake of law.
* Quantum meruit – recovery for an amount of work already done.

Equitable remedies are usually of four main kinds in contract law: (this
branch of remedies is based on the Specific Relief Act, 1877)
* Specific performance – where in certain circumstances the terms of
the contract are enforced.
* Injunctions – where in certain circumstances parties are prevented
from enforcing the contract.
* Rescission – where parties are allowed, if it is possible in the
circumstances, to return to their pre-contractual position.
* Rectification – where a written contract is altered in order to the
court in order to reflect the actual agreement accurately.

Law of agency SS: 182-238) of the Contract Act, 1872

S: 182 – Agent and principal defined

S: 183 – Who may employ agent

S: 184 – Who may be an agent (qualification of principal and agent)

S: 185–Consideration is not necessary (its nature is independent of

contract)

S: 186 – Agent’s authority may be expressed or implied

S: 187 – Definition of expressed and implied authority

Exp: X living Dhaka, has shop Chittagong, visit there occasionally, shop
managed by Y and is in the habit of ordering goods from Z in the name of
A for the purpose of the shop, and of paying for them out of A’s funds
with A’s knowledge. Y has implied authority.

Page | 28
Authority not implied: A power of attorney authorizing the holder “to
dispose of “certain property in any way he thinks fit does not imply an
authority to mortgage the property.20

Husband & wife: the liability of a husband for a wife’s debt depends on
the principles of agency, and the husband can only be liable when it is
shown that he has expressly or impliedly sanctioned what the wife has
done.21

S: 188 – Extent agent’s authority (cannot but lawfully can extent)

Exp: incidental authority may extent, but authority is:
i) to do every lawful thing and
ii) such lawful thing must be necessary or usually done in the course of
such act or business.
Exp: due to recovering debt -----

S: 189 – Agent’s authority in an emergency (agent can sell goods if it

perishable and if it is necessary)

S: 190 – When an agent cannot delegate (Sub-agent/ delegates non

protest delegare)

S: 191 – Sub-agent defined

S: 192 – Representation of principal by sub-agent properly appointed

(agent’s responsibility for sub-agent and sub-agents responsibility to
principal except in case of fraud or willful wrong.
S: 193 – Agent responsibility for sub-agent appointed without authority –
the principal is not liable to the third party. (Agent responsible to
principal and third party but when principal ratify see u/s: 196-200)

S: 194 – Relation between principal and person duly appointed by an agent

to act in the business of agency (person who is not a sub-agent)
Exp: A directs B, his solicitor, to sell his estate by auction and to employ
an auctioneer for the purpose. B names C, auctioneer, to conduct the sale.
C is not a sub-agent but is A’s agent for the conduct of the sale.

S: 195 – Agent’s duty in naming such person (and has discretion as a man
of ordinary prudence would exercise in his own business)

20
Malukchand vs Sham Mohan (1890), 14 Bom. 590.
21
Girdhari Lal vs Crawford (1885) 9 All. 147, 155.

Page | 29
Exp: A instructs B, a merchant, to buy a ship for him. B employs as ship
surveyor of good reputation to choose a ship for A. The surveyor makes a
choice negligently, and the ship turns out to be unseaworthy and is lost. B
is not, but the surveyor is liable to A.

Ratification SS: 196-200

S: 196 – an act done without the authority of principal – later may ratify
it or disown such act.
Condition of Ratification:
i) The act must have been done on behalf of another;
ii) The act must have been done without knowledge or authority of the
person on whose behalf the act is done;
Legal effect of ratification:
What act cannot be ratified? An act which is void ab initio----

S: 197 – Ratification may be expressed and implied (A, without B’

authority, lends B’s money to C. Afterwards B accepts interest on the
money from C. B’s conduct implies a ratification of the loan.
S: 198 – Knowledge requisite for valid ratification

S: 199 – Effect of ratifying unauthorized act forming part of a

transaction (only a part can not ratify)
S: 200 – Ratification of an unauthorized act cannot injure the third
person
Exp: A holds a lease from B, terminable on three months’ notice. C an
unauthorized person gives notice of termination to A. the notice cannot
be ratified by B, so as to be binding on A.

Revocation of and renunciation Authority SS: 201-210

S: 201 – Termination of agency
Various modes of termination of agency-
i) by the principal revoking the authority (See SS: 202-204) ( by notice
of revocation);
ii) by the agent renunciation the business of agency (See SS: 206-207)
( by notice of renunciation);
iii) by the completion of the business of agency-
a) completion of the transaction;
b) expiration of the period for which agency may have been given
iv) by death, insolvency or insanity of either the principal or agent;
dissolution of an incorporated company;
Besides the above modes, it may be terminated in the following cases:-

Page | 30
a) By the destruction of the subject matter of agency See section: 56
of Contract Act, 1872.
b) By the happening of an event which renders agency or its objects
unlawful See section 56 of the Contract Act, 1872 and
By frustration of the agency or its objects such as disability,
misadventure, literal impossibility.

Page | 31